The first thing a company can do is to pay the amount demanded or give security for the debt “to the reasonable satisfaction of the creditor”.
The second is to reach a compromise with the person making the demand.
The third is to apply to have the demand set aside.
There are four grounds for the courts to set aside a statutory demand:
- if there is a genuine dispute between the company and the person serving the demand about the existence or amount of the debt involved,
- if the company has an offsetting claim,
- if, because of a defect in the demand, substantial injustice would be caused, or
- for “some other reason”.
By far the most common ground for seeking to have a demand set aside is a genuine dispute about the debt. The genuine dispute must relate to the existence or amount of debt and must arise between the identified parties.
The court’s task is simply to determine the genuine level of a claim, not its likely result. Where the claim contains misleading or ambiguous descriptions of the debt claimed, the court will intervene to set it aside. Whether a company is solvent or not is irrelevant.
Some “other reasons” the courts have set aside a statutory demand include failure to accompany a statutory demand with an affidavit as required by law, and failure by the creditor to provide proper evidence of such basic matters as, for example, that a debt is due and payable. Where the accompanying affidavit is not sworn at the same time as the statutory demand, even if it is sworn just a few days before, the statutory demand will be liable to be set aside for “some other reason”.
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Reproduced with the permission of the Law Society of New South Wales.