Our Disputes & Litigation team outlines recent changes to the law surrounding Statutory Demands resulting from the COVID-19 pandemic.

Introduction

For anyone who operates a company or does business with companies - so essentially everybody in business – having to deal with a creditor's statutory demand at some point is almost inevitable. And we probably think we know what they are and how they work. They can be a powerful tool for recovering a debt as the consequences of not complying with a creditor’s statutory demand can be very serious for the debtor company. But there have been changes in this area of law as a result of the COVID-19 pandemic, so it is worthwhile to have another look at what creditor's statutory demands are and why they matter.

Creditor's Statutory Demand

In Australia, creditor’s statutory demands cannot be made against individuals (“natural persons” in legal jargon). They can only be made against companies registered under the Corporations Act 2001 (and some analogous bodies under Part 5.7 of the Corporations Act 2001 that are not companies, for example trade unions and associations).

A company has its own separate legal personality, which is distinct from its directors or shareholders, even if that company only has one director and one shareholder. So, for example, if James Greentree owns all the 100 shares in James Greentree Pty Ltd, and is the sole director of that company, as a legal matter they are two different people: James Greentree the natural person, and James Greentree Pty Ltd the company.

Although of course there are exceptions that allow creditors to go behind the “corporate veil” (for example in relation to deliberately trying to defeat creditors), and the people you are doing business with might seek to make the natural persons behind a company beliable (by requiring guarantees from the directors as a condition of giving credit to the company), the basic principle is that a company is its own person with its own limited liability. This has been the case at least since the classic English case of Salomon v A Salomon & Co Ltd [1897] AC 22.

So, given that the company is its own distinct person, there are responsibilities that go with that privilege. One is that creditors can assert their claims against a company differently than they would against a natural person. Under section 459E of the Corporations Act 2001, a creditor can make a demand – in accordance with the prescribed form – for a debt that the company owes the creditor, provided it is equal to or more than the statutory minimum. There are some points to note about this:

If the debt is not a judgment debt, (i.e. a court judgment for payment), then you need to make an affidavit in support ofthe debt which verifies that the debt is due and payable, including that there is no genuine dispute about the debt. A creditor’s statutory demand is not available in a case which is not about a debt, e.g. a claim for compensation (i.e.without a judgment for that compensation).
The statutory minimum was $2,000 before the COVID-19 pandemic, but increased to $20,000 during the pandemic to provide greater protection for distressed companies. The minimum has now been reduced, but is double what it was before the pandemic: $4,000 (Corporations Regulations 2001 sub-regulation 5.4.01AAA(1)). If your debt is under $4,000 you can still sue for it in court, or if you have already received a court order you can enforce the judgment debt by seeking orders to have assets possessed and sold, or an order to have a payment that would bemade to the company be made to you instead (“garnishing”).

What should I do if I receive a Statutory Demand?

The important thing to note about the creditor’s statutory demand if you receive one is you must act on it within the statutory time period – this cannot be extended – by either paying the debt to the creditor, reaching an agreement with the creditor, or applying to court (either the Supreme Court or the Federal Court) to have the statutory demand set aside. This statutory time period is now again what it was before the COVID-19 pandemic: 21 days (Corporations Regulations 2001 sub-regulation 5.4.01AAA(2)). It had been extended to six months during the pandemic.

If the creditor’s statutory demand is not addressed within 21 days, then the company is presumed to be insolvent (Corporations Act 2001sub-section 459C(2)) and the creditor can apply to have the company “wound up”, which involves appointing an external controller over the company (a Liquidator).

Please note as we come up to Christmas that the 21 day period is not extended over Christmas (unlike deadlines in the court system). Also a creditor’s statutory demand will be validly served if it is sent to the company’s registered address. So, it is advisable to keep your company details up-to-date in order to reduce the risk of a demand being sent to a previous registered address without you being aware.

How can Sharrock Pitman Legal assist?

If you would like to know more, or this refresher raises any questions, please feel free to contact us at Sharrock Pitman on 1300 205 506 or email litigation@sharrockpitman.com.au. Additionally, if you have received a Statutory Demand and would like advice, please do not hesitate to contact our Litigation team.

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Disclaimer

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.‍

Written by a member of our Legal Team

For further information contact

Caroline Callegari

Caroline Callegari is an Associate Principal and leads our Disputes & Litigation team. She has an advisory and advocacy practice in the following areas: Commercial Litigation, corporate and personal disputes, debt recovery and, insolvency and bankruptcy matters. Caroline can be contacted on (03) 8561 3324.

Repudiation and Termination of a Contract

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Our Disputes & Litigation team outlines recent changes to the law surrounding Statutory Demands resulting from the COVID-19 pandemic.

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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Statutory Demands: What they are and why they matter

Our Disputes & Litigation team outlines recent changes to the law surrounding Statutory Demands resulting from the COVID-19 pandemic.

Introduction

Creditor's Statutory Demand

What should I do if I receive a Statutory Demand?