What Demand Notices can a Director Receive?
There is a range of legal Notices a creditor may send to your company when it is seeking to recover a debt. If the creditor follows the chain of notices then it may result in your company being placed into liquidation by the Court.
- What is a Letter of Demand (also known as a Final Notice)?
- What is a Notice of Legal Action or Judgment Debt?
- What is a Creditors Statutory Demand? Also called a Wind-Up Notice – Section 459 Notice on Form 509H
- What is a Notice of Winding-Up Application?
- What is a Notice of Liquidation?
- What can you do if you receive a Demand Notice?
- What about ATO Notices?
- Where can I get advice?
What is a Letter of Demand (also known as a Final Notice)?
If a creditor has decided to commence a legal action to recover a debt from your company, then the first step will usually, but not always, be to send a Letter of Demand, also known as a Final Notice. They will do this before actually commencing a court action. The Demand may come from the creditor, the creditor’s solicitor or a debt collection agency. It asks your company to pay the debt and tells you that the creditor will sue if not paid.
What is a Notice of Legal Action or Judgment Debt?
If your company doesn’t pay the debt, or if other arrangements are not made, the creditor may choose to start Court proceedings. This is done usually by issuing a Statement of Claim. The creditor’s lawyer will send the Statement of Claim to you requiring you to make payment or to file a defence.
If you don’t file a defence, the creditor can apply to the Court for an order that judgment be entered against the company. That application can be made in your absence and could result in a monetary judgment.
If a defence is filed then you will be engaged in the Court process which will ultimately require you to attend a hearing.. At that hearing, the Court can make an order that your company owes a debt of a specific amount.
Defended or not, if an order is made it turns the debt into a Judgment Debt. In most circumstances, the Judgment Debt will be higher than the original debt because you will now have to pay the original debt plus the creditor’s legal costs plus interest.
What is a Creditors Statutory Demand? Also called a Wind-Up Notice – Section 459 Notice on Form 509H
If you haven’t paid the Judgment Debt, under the Corporations Act 2001, a creditor has the power to issue a Creditors Statutory Demand. It is issued using form 509H. A company who is served with a Creditors Statutory Demand has a period of 21 days to either pay the amount owed, reach an agreement with the Creditor for payment of the debt or approach the Supreme Court to have the Statutory Demand set aside. If the company does not comply with the Statutory Demand, then under section 459C(2)(a) of the Corporations Act 2001 the company is deemed to be insolvent and the company is then at risk of the court appointing a liquidator to commence winding up procedures.
It is worthwhile noting that it is not a pre-requisite to issue a Statutory Demand to have a Judgment Debt. So if the debt is high enough and the creditor wishes to a Statutory Demand may be issued without obtaining Judgment first.
What is a Notice of Winding-Up Application?
When a creditor has decided to pursue the liquidation of the company, they will almost always have instructed a solicitor who will be running the process. If the debt owed is over $2000, the solicitor will serve a Notice of Winding-Up on the Registered Office of the Company (this is usually a Court form called an Originating Process) and advertise the Winding Up Application in a newspaper that is circulated in the area of which your company trades. The Originating Process will have a return date for the company to appear in Court. If you, or a lawyer on your behalf, fails to appear, then the creditor may proceed with the application and the Court may order that your company be placed into Liquidation. If you appear, then directions will be made by the Court as to how the matter is to proceed and even on a final hearing it is possible for your company to be placed into Liquidation.
What is a Notice of Liquidation?
If the Court has appointed a liquidator, then shortly thereafter, you will be contacted. The liquidator will send a number of Notices to the company’s registered office and to you as the Director. The Liquidator will then take complete control of the company and set about winding up its affairs. Your powers as a director cease. It is now too late for you to pay or deal with the creditor.
What can you do if you receive a Demand Notice?
What you will realise from the above list is that the company is given a number of Notices, Demands and/or Court Documents throughout the process leading up to the winding up of a company and each provides timeframes and specific instructions on what a director should do. A directors options are to:
- Dispute the debt – you should only do this if you have a genuine dispute;
- Pay the debt;
- Come to an arrangement with the creditor;
- If the company can’t pay the debt then consider Voluntary Administration or appointing a Liquidator.
What about ATO Notices?
Aside from general creditor notices (all of the above), the ATO can also send, among other things, a garnishee order and a director penalty notice (follow those links for more information).
Where can I get advice?
You should feel free to call Dissolve and obtain advice on your options. You may also consider seeking advice from your Lawyer.