On 27 May, the Corporations Amendment (Statutory Minimum) Regulations 2021 passed Parliament. This permanently increases the statutory demand threshold from $2,000 to $4,000.
A statutory demand is issued under section 459E of the Corporations Act. Most commonly it is used by a creditor to force a company to pay their debts within 21 days. If a company is unable to comply with the demand, they are presumed to be insolvent.
Throughout most of 2020, as part of the Federal Government’s Coronavirus Economic Response package, the threshold was increased to $20,000 and debtors were given six months to pay back debts. This package was subject of a prior post here. However, these measures ended on 31 December 2020.
Now the new changes are part of the government’s longer term insolvency reform plans to better address the needs of smaller businesses and create a more resilient economy post-pandemic.
Proponents of the increase say that a $4,000 threshold better adjusts to inflation and also acknowledges the typical legal fees associated with issuing a statutory demand. On the flip side, some say that a lower debtor company will now be able to slip under the threshold more easily.
Note: These changes will come into effect on 1 July 2021. If you issue a statutory demand prior to this, the $2,000 threshold will still apply.
