- Statutory Demand – this is a procedure which is used against debtors that are companies. There is no issuing fee on a Statutory Demand, this is simply a document which is drafted by your lawyer and is served by post on the debtor company. In order to serve a Statutory Demand on a company, the debt must be at least $2,000.00. The debtor has 21 days after the Statutory Demand is served in which to either pay you or come to an arrangement to your satisfaction in relation to the debt. If they do not do so within that time, the company is presumed to be insolvent. You are then able to issue a proceeding in either the Supreme Court or the Federal Court to wind up the company. Once again, the costs of such a proceeding could be substantial and would depend on whether the proceeding is defended, the number of Court appearances required etc.
It should also be noted that there is of course no assurance that you will ultimately receive payment in full (or at all) if these processes are followed through to completion – it may be that the debtor simply has no assets or that secured creditors receive payment in priority to you leaving insufficient assets to satisfy your judgement.
Avoiding the problem
Obviously, it is better to avoid these problems altogether by effective credit management. This may involve:
- Conducting proper credit checks when taking on a new customer (including contacting trade references, or purchasing a credit report from an organisation like Dun & Bradstreet if appropriate)
- Enquiring as to the customer’s asset position
- Considering whether directors’ guarantees should be obtained
- Considering whether security over the debtor’s property (such as a charge) should be obtained
- Considering whether a security deposit or bond should be obtained
- Where you are selling goods on credit terms, entering into an agreement with the customer which allows you to register your interest in the goods on the Personal Property Securities Register.