Statutory demands are serious documents and should never be ignored.
What if I ignore a statutory demand?
If the statutory demand is ignored, the company is deemed to have committed an act of insolvency and may be wound up. This is unless one of the following occurs within 21 days of service of the statutory demand:
- The full amount demanded is paid;
- The company brings Court proceedings to set aside the statutory demand; or
- The statutory demand is withdrawn in writing.
How do I prove that the company is solvent?
The test for solvency is whether a company can pay its debts as and when they become due and payable. In a recent case[1] the Courts have provided some guidance as to what they will consider in determining whether a company is solvent:
- If the company has not complied with a statutory demand, the company is presumed to be insolvent and has to prove to the Court that it is not.
- The Court must be provided with the fullest and best evidence of the financial position of the company. Rarely are the following accepted:
-
- unaudited accounts;
- unverified accounts of ownership;
- unverified accounts of value (without independent expert evidence); and
- bald assertions of solvency arising from a general review of accounts even if provided by the company’s accountant or someone with a detailed knowledge of how the accounts were prepared.
- There is a difference between solvency and being asset rich – ie the ability to convert the assets into cash in a relatively short timeframe is must be considered.
- The ability to obtain credit is relevant.
- The question of solvency is at the date of the hearing, but future events are not to be ignored.
Lessons
Proving to the Court that a company is solvent requires proper and detailed documents, a lawyer who knows this area well and more often than not an independent expert.
If you would like to know more about statutory demands, please refer to my previous article which outlines five things you need to know about statutory demands.
Do not hesitate to contact Partner Catherine Ballantyne if you would like to discuss your own situation in relation to issuing or responding to statutory demands.
[1] Re Slodyczka & Farren Pty Ltd [2022] VSC 19
