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Statutory demands and temporary COVID-19 measures

Ordinarily, service of a statutory demand on a debtor company is a remedy under the Corporations Act 2001 (Cth) available to a frustrated creditor when they are owed a debt that is $2,000 or more. A debtor company would normally have 21 days in which to comply with the statutory demand, enter into a payment arrangement with the creditor or apply to the Court to have the statutory demand set aside.

As part of the government’s economic response package to coronavirus, the debt “minimum amount” (the subject of a statutory demand) was increased from $2,000 to $20,000. Furthermore, the period within which the debtor company must comply with a statutory demand (or apply to the Court for an order setting aside the statutory demand) was increased from 21 days to 6 months.

The temporary economic response measures are intended to operate for six (6) months commencing 26 March 2020. While it is certainly possible that the temporary measures may be extended beyond 25 September 2020, currently the amendments will expire on 25 September 2020.

In practice, this means that if a creditor serves a statutory demand on a debtor company on 20 September 2020, it must wait until 20 March 2021 before the debtor company is deemed insolvent (assuming the debtor company does nothing in response to the demand) and the creditor can take steps to wind up the debtor company. However, if a creditor waits just 10 days later to serve the statutory demand, that is, 30 September 2020, then it only needs to wait until 21 October 2020 in which to take steps to wind up the company on grounds of insolvency.

Considering these temporary measures in response to coronavirus, creditors must carefully assess the best time to serve the debtor company. Timing is critical.

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