Options with a creditor's statutory demand notice
Parties to a Creditor’s Statutory Demand Notice (CSDN) have options they should consider carefully.
A CSDN is also known as a Section 459E Notice or a Form 509H.
The options arise 21 days after the CSDN has been issued, and if the demand has not been met during that period, then the Notice is said to have expired.
This article explains options available to you either as the issuer of a CSDN or as a recipient.
Here are your options as a creditor.
On expiration of the CSDN it’s time to consider your options.
Because a CSDN is legally recognised evidence of insolvency, you can, for three months after its expiration, rely upon it in filing a winding up application.
However, your decision on whether or not to make the application would depend on answers to the following questions.
- Is the debtor ignoring you?
- Is there evidence, as distinct from rumor, that your debtor is about to be forced into total financial collapse by say another major trade creditor or, for example a financier or the ATO?
- Are you prepared to spend between about $5,500 and $8,800 to bring your issue with the debtor to finality?
Be aware of the path to finality
There’s a period of about four to six weeks between the filing of an application for a winding up and an order for the procedure.
Be aware it’s a public process. Because none of it can happen behind closed doors, this means other people, also owed money by your debtor can become involved.
Nonetheless, suppose you decide to apply for the winding up of your debtor’s company, and an order is made authorising this. Suppose in the course of the procedure it is apparent money owed to you by the debtor in liquidation can be paid, that’s not necessarily the end of the matter.
One or more creditors to whom that company is also indebted, could opt to be involved in the winding up process.
As the creditor who successfully launched the winding up and appointed the liquidator, you can receive preferential priority payment only for the cost of filing the application for the procedure. The liquidator is otherwise obliged to treat all the liquidated company’s non-secured creditors equally in distributing funds derived from the liquidation.
Thus questions you should consider as a creditor are these. Is there a risk in successfully applying for a winding up, that the debtor’s company wouldn’t even have enough money for its liquidator to make a priority reimbursement of my costs in making the appointment, let alone pay a commercially worthwhile percentage of the money owed me?”
And here would be your options as a debtor
As a debtor, on expiration of a CSDN, your options are strictly limited.
Your best option could be to find a way to pay the debt in full.
Remember: this is a situation where your company’s financial future is largely in the hands of the creditor. So try to negotiate a settlement, but ensure you’re able to fulfil any promises you make.
To have any chance of making headway in negotiations you must be able to produce evidence that your company is solvent.
Get professional advice on what legal options may be available to you at this time.
Essentially once a Section 459E Notice has expired your company is disallowed from attempting to argue the claimed debt is non-existent.
If you know there’s no chance of your company discharging its debt in the foreseeable future, then employ a voluntary administrator in whose experience and integrity you have faith and whom you believe can, in the circumstances, maneuver your company into the best possible financial position.
Note: you can skip voluntary administration and put your company into liquidation with a liquidator of your choosing at any time before anyone files a winding up application.
Whatever else you do, never treat a Section 459E Notice lightly. Treat it as a time bomb for which some blast protection may be possible even if it can’t actually be defused.
Mack Advisory offers advice to company directors needing to deal with a CSDN, and makes no charge for an initial consultation.
