Debt recovery and statutory demands

Points worth knowing

• Time limit. In NSW a claim for a debt under a contract must be started within 6 years. A signed written acknowledgment or a part payment within that period starts time again.
• Which court. In NSW the Local Court hears money claims up to $20,000 in its Small Claims Division and up to $100,000 in its General Division. The District Court's limit is $1,250,000. Larger claims go to the Supreme Court.
• Defence and default judgment. A defendant has 28 days after being served with a statement of claim to file a defence, unless the court directs another time. If no defence is filed, the plaintiff can apply for default judgment.
• Enforcement. A judgment debt can be enforced by a garnishee order, a writ for the levy of property or, for District and Supreme Court judgments, a charging order. The court can also order the debtor to be examined about their finances.
• Company debtors. A creditor can serve a statutory demand for a debt of at least $4,000 that is due and payable. The company then has 21 days after service to pay, to secure or settle the debt to the creditor's reasonable satisfaction, or to apply to the court to set the demand aside. The application and its supporting affidavit must be both filed and served within the 21 days, and the High Court has held that the court cannot extend that period. If the company does none of these things, it is presumed to be insolvent, unless it proves otherwise, in a winding up application made within the following 3 months.
• Setting a demand aside. The court sets a statutory demand aside if a genuine dispute about the debt, or an offsetting claim by the company, brings the undisputed amount below $4,000. It may also set a demand aside where a defect in it would cause substantial injustice, or for some other reason. A statutory demand is therefore not the right tool for a debt that is genuinely disputed.
• Individual debtors. A creditor who holds a final judgment or order for at least $10,000, made within the last 6 years and not stayed, can apply for a bankruptcy notice. A debtor served in Australia has 21 days to comply. Failing to comply is an act of bankruptcy, on which the creditor can present a creditor's petition within 6 months.
• Registered office. A statutory demand can be served by leaving it at, or posting it to, the company's registered office. Keep that address up to date.

Common questions