Key takeaways
- •A statutory demand gives your company 21 days from service to pay the debt, or to give the creditor security for it or agree a compromise amount to the creditor's reasonable satisfaction.
- •Any creditor owed a debt of at least $4,000 that is due and payable can serve a statutory demand on your company, including a supplier, a landlord or a former lender, not only the Australian Taxation Office.
- •If your company does not comply with a statutory demand within the 21 days, for the next 3 months a court must presume your company is insolvent if any creditor applies to wind it up, unless solvency is proved.
- •The 21 days to comply with a statutory demand are also the only time your company has to apply to the court to have the demand set aside, so start your lawyer's review on the day it arrives.
- •Paying a statutory demand in full within the 21 days means that demand never starts the 3-month period in which a court must presume your company is insolvent.
- •A private loan from Secured Lending, from $250,000 and backed by property, gives your business the funds to pay the statutory demand in full, and we can settle within 24 hours.
A statutory demand gives your company 21 days from service to pay the debt, or to secure or compound it to the creditor's reasonable satisfaction. If your company does neither, it is taken to have failed to comply, and for the next 3 months a court must presume your company is insolvent if any creditor applies to wind it up.
We would be glad to help you meet that deadline. If the debt is owed and your business or a director owns property, a short-term private loan from $250,000, backed by that property, is a good fit for this problem, because it gives your business the funds to pay the demand in full inside those 21 days. We lend our own funds, in most cases we decide in hours, and we can settle within 24 hours. We lend against the property, and we can still lend after a statutory demand has arrived. The loan funds are paid to your business, which pays the creditor, and your business then repays us through a defined exit, such as a bank refinance or the sale of a property. Start the loan on the day the demand arrives, and your lawyer still has the time they need to review it.
What a statutory demand requires
A statutory demand is served under section 459E of the Corporations Act 2001. A creditor can serve one for a debt, or several debts, that is due and payable and totals at least $4,000, which is the minimum set by regulation 5.4.01AAA of the Corporations Regulations 2001. No court case is needed first. Unless the debt is a court judgment, the demand must come with an affidavit that verifies the debt is due and payable by the company.
The creditor does not have to be the ATO. A supplier, a subcontractor, a landlord, a former lender or an equipment financier owed a debt that is due can serve one.
The Act sets out what the demand must ask of the company. It must require the company "to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within the statutory period after the demand is served on the company". The statutory period is 21 days.
That gives three ways to comply: pay the full amount, give the creditor security for it, or agree a compromise amount with the creditor, which is what compounding the debt means. The last two depend on the creditor being reasonably satisfied, so a part payment the creditor has not accepted does not comply.
If the ATO served the demand, its page on legal action explains that the company must pay the entire debt or enter into a payment plan with the ATO within 21 days. Our tax debt loans cover a demand from the ATO.
What missing the 21 days does to your next finance
When the 21 days end without the company complying, section 459F treats the company as having failed to comply with the demand. Under section 459C, a court hearing a winding-up application made within the following 3 months must presume the company is insolvent, unless it is proved that the company is solvent.
Section 459P lets any creditor apply, not only the one that served the demand. A supplier's unpaid demand can therefore support a winding-up application by the landlord, a lender or the ATO.
A creditor that applies must have a notice of the application published, under section 465A(1)(c). CreditorWatch lists the application for a winding-up order under that section among the Australian Securities and Investments Commission published notices that may appear in its business credit reports.
The bank refinance or property sale you plan to use over the next few months would run during those same 3 months. Ask your lawyer to check whether your business loan agreement treats a statutory demand as a default. Paying the demand inside the 21 days means this demand never starts that 3-month presumption.
How a private loan pays the demand in full
The business is always the borrower, including when the property belongs to a director. At settlement the loan funds are paid to the business, which then pays the creditor the full amount of the demand, or a compromise amount your lawyer has agreed with the creditor in writing. The company has complied with the demand once that payment is made, inside the 21 days.
| Loan feature | Detail |
|---|---|
| Borrower | The business |
| Loan size | From $250,000, with larger loans assessed case by case |
| Interest rate | From 9.7% p.a., and from 11.95% p.a. for a second mortgage |
| Term | 1 to 24 months, typically 3 to 6 months |
| Security | A first or second mortgage over residential, commercial or industrial property: property the business owns, property held by an existing company or trust, or a director's home or investment property |
| Maximum loan-to-value ratio | 70%. On a second mortgage, 70% is the combined loan-to-value ratio of the existing loan and ours. A second property can be added within the same 70% |
| Repayment | The business repays the loan to us through a defined exit strategy, such as a bank refinance once the demand is paid or the sale of a property |
If other suppliers are overdue as well, one loan can give the business the funds to pay the demand and those debts together, sized to the property within the 70% maximum loan-to-value ratio. Paying them at the same time means another overdue supplier is not left to serve the next statutory demand. Our debt restructuring loans are built for paying several creditors from one loan.
Case study: $250,000 to stop an ATO winding-up application
An accountant contacted us on behalf of a client who had just been served with a winding up notice from the ATO and had two days to pay $250,000 or face the immediate liquidation of the company. The accountant had approached multiple lenders, and long valuation delays, excessive conditions precedent and high upfront costs made those options unworkable in the time available.
We arranged a $250,000 tax debt loan secured by a second mortgage over the director's residential property, and approved and funded it within 24 hours. As a result, the winding up application was dismissed and the business survived.
The client is now working with their broker to refinance our short-term facility with a longer-term solution.
Your lawyer and our loan in the same 21 days
The 21 days are also the deadline for disputing the demand. Under section 459G, an application to set the demand aside "may only be made within the statutory period after the demand is so served", and within that period the supporting affidavit must be filed with the court and copies served on the creditor. Under section 459S, grounds the company could have raised in a set-aside application cannot later be used to oppose a winding-up application without the court's leave.
Your lawyer needs part of the 21 days to check the demand, the affidavit and the amount. The loan application should not wait for that review. Start both on the day the demand arrives, so the funds can be ready whichever way your lawyer advises. If your lawyer files a set-aside application in time, the period to comply runs until 7 days after the court finally decides it, unless the court makes an order extending it.
We are a lender, not a lawyer, so whether to pay, settle or apply to set aside is your lawyer's decision. Whether the company can pay its other debts as they fall due, and which creditors to pay, is a question for your accountant or an insolvency practitioner.
Frequently asked questions
Do we have to pay the whole amount, or will instalments do?
The Act requires the company to pay the amount, or to secure or compound it to the creditor's reasonable satisfaction, within the 21 days. Instalments or a part payment comply only if the creditor accepts them on those terms, so ask your lawyer to document any agreement. A loan lets the business pay the full amount, or an agreed compromise amount, in one payment.
The debt is the company's. Can my home or investment property back the loan?
Yes. The business is the borrower, and a director's home or investment property can secure the loan, on the terms in the table above.
What happens to our bank and our suppliers if we miss the 21 days?
The company is taken to have failed to comply with the demand. For the next 3 months, a court must presume the company is insolvent on a winding-up application by any creditor, unless solvency is proved, and a notice of any application is published and can appear on a CreditorWatch business credit report. Ask your lawyer whether your business loan agreement treats the demand as a default.
Other creditors are overdue too. Can one loan pay them all?
Yes, where the property can support the total within the 70% maximum loan-to-value ratio. Which creditors to pay is a question for your accountant. The loan funds are paid to the business, which then pays the demand and the other debts.
How Secured Lending Can Help
We would be glad to help your business pay the demand inside the 21 days. Our loan gives your business the funds to pay the demand in full, and to pay other overdue creditors at the same time where the property supports it. Your business then repays us through a defined exit, such as a bank refinance or the sale of a property.
A private loan suits this problem because the 21 days are short and a private loan can be in place quickly. We can still lend after a statutory demand has arrived. Our in-house valuers assess the property and we lend our own funds, so settlement can take place within 24 hours. In most cases we decide in hours, and once terms are agreed we issue a letter of offer immediately.
We provide short-term loans backed by real property. If you would like us to look at your situation, it helps to have these to hand on the first day:
- •The statutory demand and the date it was served.
- •The affidavit that came with it, or the judgment if the debt is a judgment debt.
- •Your lawyer's view on whether the debt is owed in full.
- •The property address, its estimated value and its current loan balance.
- •The other overdue creditors and amounts, if the loan is to pay them too.
- •How your business plans to repay the loan, for example a bank refinance or a property sale.
You are welcome to call us on 1300 795 175 with the amount, the date the demand was served and the property, and we can tell you on that call what we need to decide. You can also send the details through our statutory demand loan page and we will come back to you.
