We have recently been called upon to assist clients who overlooked, with potentially dire consequences, important documents. While a demand from a creditor is always serious, there are two key documents which, if you receive, you should never ignore. They are:
- a statutory demand; and
- a director penalty notice (DPN).
We explain below what these documents are, why it is important you act quickly in response and what you can do if you receive one of these documents.
A statutory demand is a creditor’s formal, written request requiring a company to pay, or otherwise deal with, a debt within 21 days of service (being the time the document is delivered, not necessarily when it is read). The document is usually accompanied by an affidavit to explain the debt claimed.
A company served with a statutory demand has three options to deal with it – strictly within 21 days:
- pay the debt in full, in which case the statutory demand will be at an end;
- apply to the Court for the statutory demand to be set aside, eg. because there is a genuine dispute about the existence or amount demanded, because the company itself has an off-setting claim or because the demand is otherwise defective; or
- convince the creditor who has served the demand to withdraw it for no payment, or for an agreed lesser sum.
In our experience, statutory demands often contain technical defects in their drafting and/or there is some genuine dispute between the parties which makes them capable of being set aside. However, if nothing is done within the 21-day period, the opportunity to raise those arguments is usually lost.
If your company fails to complete any of the above three options within the 21 days, it will be presumed to be insolvent. This presumption will entitle the creditor who served the statutory demand to apply to Court for orders that your company be wound up. It is then difficult, and expensive, to successfully oppose a winding up application, which also forms part of the public record.
If you receive a statutory demand (which will be clearly marked on the document) you should therefore take immediate action and obtain legal advice.
Director Penalty Notices
A DPN is a notice which can be issued to a director of a company that has failed to meet certain obligations enforced by the ATO (PAYG, GST, superannuation guarantee contribution and others). The purpose of a DPN is to make a director personally liable for a company’s debts in certain circumstances.
Once again, the timeframes for responding to a DPN are tight and the consequences of failing to act are drastic.
- Always take demands by creditors seriously.
- DPNs and statutory demands do not need to be served upon you personally. They can be served at the addresses you register with ASIC for your company. Make sure these addresses are up to date and that post is regularly monitored. Courts are not sympathetic to these documents being “overlooked”.
- If you receive any document which requires formal action within a tight timeframe, like a statutory demand or a DPN, you should get legal advice as soon as possible.