The fastest way to collect a debt from a company
When a debtor refuses to pay, you may have to sue them, which takes time and money. However, if the debtor is a company, there is a way to fast track the process cheaply and easily.
Statutory demands
Under the Corporations Act, a creditor can serve a demand for payment on a company, known as a “statutory demand” for any debt over $4,000. The company then has 21 days either to pay, or to go to court to dispute the debt. If they do nothing in that period, it is then too late for the company to dispute the debt, and the company is deemed to be insolvent. The company then faces being wound up, which is obviously a serious threat for any company wanting to stay in business.
If the debtor decides to go to court to delay payment of the debt, it will cost them at least $5,000 in legal fees and court filing fees, so paying the debt is usually their best alternative.
How do you issue a statutory demand?
Somerville Legal has an online debt collecting system you can use to issue a statutory demand. To launch the process, click on this link, fill out the form, and pay $196 online. We then prepare the demand and sent it to you within 24-hours. You need to sign the demand in the presence of a solicitor or a justice of the peace. You can do so at our office at no extra expense, or we can witness your signature by video conference.
What happens next?
After you sign the statutory demand, we serve it on the debtor company. In most cases, the debtor will pay the debt or negotiate a payment plan within the 21 day period.
If the debtor company ignores the demand for 21 days, we prepare the court papers to wind up the company, and send a copy to the company, before filing them in court. This almost always gets a reaction, and usually leads to fast payment of the debt.
Of course, no one really wants to wind up the company. However, the threat of being wound up usually causes the company to pay.
What if the debt is disputed?
You must be careful. Statutory demands should only be used for an undisputed debt. If the company goes to court within the 21-day period, and genuinely disputes the debt, the statutory demand may be set aside, and you will be ordered to pay the company’s costs.
The safest rule is that you should issue a statutory demand only when you have an email or other written evidence from the company acknowledging the debt.
For more information, please email us on enquiries@somervillelegal.com.au or contact our managing director, Ben Hemsworth, who heads up our litigation team bhemsworth@somervillelegal.com.au or telephone 9923 2321.