Posted on September 13, 2019 by Ashley Dawson
Cash is king in any type of business, but what happens when debtors don’t pay? We often get asked what avenues for collection a client can pursue, and a Statutory Demand can be an effective tool to recover debts from companies.
What is a Statutory Demand?
It is a demand issued by a creditor, pursuant to the Corporations Act 2001 (“the Act”), to a debtor company requiring payment of a debt which is more than $2,000 within 21 days (“the Demand”). It is in writing, in the form prescribed by the regulations (Form 509H) signed by the creditor and accompanied by an affidavit of the creditor supporting the Demand.
It is important to note that a Statutory Demand can only be issued to a company, or if the entity is a trust with a corporate trustee. If the debtor is a partner in a partnership, a trust with individual trustees or a sole trader, a Demand under the Corporations Act cannot be issued, and we advise you contact our office to discuss further avenues for seeking payments from individual debtors.
What happens after the Demand is Served?
The debtor company will have 21 days to either comply with the Demand or make an application to the relevant court to have the Demand set aside. If the debtor company fails to do either there is an assumption under Section 459G(2) of the Act that the company is insolvent and provides that basis for a creditor to make an application to the court to have the debtor company wound up.
Setting Aside a Demand
A Demand will only be set aside if:
- The debt is subject to a genuine dispute;
- The amount in fact owed is less than the statutory minimum;
- There is a defect in the Demand (such as an incorrect address) that would cause substantial injustice to a party;
- There is some other reason why the court should set it aside (such as a Demand containing grossly inflated amounts, or the debtor has an offsetting claim for example).
It is important to note that the threshold for demonstrating whether a genuine dispute exists is a low threshold. A company that can provide even a potential weak defence before a court might successfully have the Demand set aside. If that happens, you, the creditor, will be faced with the likelihood of being ordered to pay the company’s legal costs of the court proceedings.
For this reason proper consideration must be given to the question of whether a genuine dispute might exist before a Demand is issued.
Having said that, Statutory Demands can be very effective to secure payment of a debt.
Legal Advice
The Statutory Demand procedure is a very technical area of law and care must be taken in every step of the process. Legal advice should always be obtained before making any decisions.
Please contact our office should you wish to discuss the possibility of issuing a Statutory Demand or if you are a Director of a company that has been served with a Demand, and one of our staff can advise you on the next step in the process and put you in touch with a contact in our legal network.
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Posted on October 24, 2016 by GSCPA Admin
A Self Managed Superannuation Fund (SMSF) can hold both commercial and residential property, whether via direct ownership or through a limited recourse borrowing arrangement. A SMSF can also acquire Business Real Property from a related party when acquired at market value. Nominal Stamp Duty can apply to the transfer.
In addition, if the property satisfies the definition of Business Real Property, the tenant can be a related party of the SMSF. For example, a small business owner may purchase a commercial property through their SMSF and then have the superfund lease the property back to the business which is run by the members of the SMSF.
This article focuses on related party commercial lease arrangements and satisfying the Superannuation Industry (Supervision) Act 1993 (SISA) regulations to maintain a complying SMSF.
Business Real Property
If the members / trustees of a SMSF want to own commercial property within their SMSF and lease it back to a business that is a related party of the superfund, the property must comply with the definition of “Business Real Property” (BRP) under the SIS Act.
To comply with the definition of a BRP under the SIS Act, the SMSF must hold an eligible interest in the property and the property must comply with the business use test, which requires the property to be used wholly and exclusively in the running of a business.
Should the property not fall within the definition of BRP under the SIS Act, then it will be considered to be an in house asset and will be subject to the 5% cap rule relating to in house assets.
Commercial Lease
For compliance purposes it is essential that when BRP is leased by a SMSF to a related party, the Trustee of the superfund treats the lease transaction as if it was dealing with a third party tenant i.e. commercial arm’s length terms. This includes enforcing all lease obligations such as rent amounts, outgoings payable, rent reviews etc.
In order to demonstrate the lease is on a commercial and arm’s length basis, the SMSF should hold a formal lease between it and the tenant. The terms of the lease should also be independently verified. The trustees can source this information through a real estate agent working in the property area, property valuer or obtain supporting benchmarking evidence themselves.
A lease is a legally binding agreement between a landlord and a tenant that creates an interest in the property that is subject to the lease. In order for the interest in the property to be binding the agreement needs to be documented in writing. This means that a “hand shake” deal or verbal agreement to lease a property will not be binding – it must be in writing.
In summary, when an SMSF holds commercial property and leases it to a related party, it should:
1. have the investment contained in its investment strategy;
2. make sure that the property falls within the definition of a BRP under the SIS Act;
3. have a written commercial lease agreement in place – on commercial terms; and
4. ensure that the terms of the lease are complied with at all times.
Disclaimer: The content of this Article is general information only. GeersSullivan recommends you seek professional advice before taking any action based on the content of this Article. Please contact our Superannuation Manager Helen Cooper on (08) 9316 7000 should you wish to discuss your specific circumstances in more detail.
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