Under the Corporations Act a creditor of a company whose debt exceeds $2,000 may serve upon the company a notice under Section 459E requiring the company to pay, or make satisfactory arrangements for payment, of the debt within 21 days of service of the notice. The notice is a “test of solvency”. The company passes the test by paying the amount due for payment or making a reasonable repayment offer.
It is not necessary for a creditor to have a judgement before it issues a Section 459E notice, but it is considered prudent to do so. Without a judgement the creditor always runs the risk that the debtor will dispute the creditor’s right to bring the application on the basis that the creditor’s debt is disputed. As long as the debtor can make out a prima facie case that the dispute is a bona fide one and based upon substantial grounds, then the application will be dismissed, with costs possibly awarded against the creditor. If the debtor does not attempt to set aside the 459E notice within the 21 day compliance period, the debtor is excluded from raising any dispute regarding the debt on a later hearing of a winding up application.
Warning! This action means the creditor is serious about getting the debt paid. If your company doesn’t pay the debt in the 21 days the creditor can go to the final step of issuing a winding-up petition against the company.
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