What to Do if You Receive a Letter of Demand From a Trustee or Liquidator
Receiving a letter of demand from a trustee or liquidator can be confronting. For directors, business owners, and even third parties, it often arrives without warning and raises immediate concerns about personal liability, legal exposure, and next steps.
These letters are not something to ignore. They are typically sent as part of a formal recovery process following insolvency and may signal that legal action is being actively considered.
In this article, we explain what a letter of demand from a trustee or liquidator means, why you may have received one, and what steps you should take to protect yourself.
What Is a Letter of Demand From a Trustee or Liquidator?
A letter of demand is a formal written request seeking payment of money or the return of assets. When issued by a trustee in bankruptcy or a company liquidator, it usually relates to an alleged claim arising from insolvency.
Commonly, these letters assert that the recipient:
Owes money to an insolvent company or bankrupt estate
Received payments that may be recoverable under insolvency law
Benefited from transactions that are alleged to be unfair or voidable
While a letter of demand is not a court order, it is often the first step before legal proceedings are commenced.
Why Have You Received a Letter of Demand?
Trustees and liquidators are legally required to investigate the financial affairs of the bankrupt individual or insolvent company. Their role includes identifying and recovering assets for the benefit of creditors.
In Queensland, trustees and liquidators commonly issue letters of demand as part of recovery action following corporate insolvency or bankruptcy.
You may receive a letter of demand if you are alleged to have:
Received an unfair preference payment before liquidation or bankruptcy
Been involved in an uncommercial or unreasonable transaction
Benefited from an insolvent trading claim (for directors)
Received company funds, loans, or assets that were not properly repaid
Given or received a related party transaction that is now under scrutiny
Importantly, if you receive a letter of demand, it does not automatically mean that the claim is valid, but it does mean the matter is being actively pursued.
You can read more about some of these in our articles on how to defend an unfair preference claim and insolvent trading FAQs.
Should You Ignore a Letter of Demand?
No, you should never ignore a letter of demand from a trustee or liquidator. Doing so could significantly worsen your position.
If no response is received, the trustee or liquidator may choose to:
Commence court proceedings without further notice
Seek costs orders against you
Apply additional pressure through statutory demands or examinations
Early engagement allows you to assess the claim, preserve your rights, and potentially resolve the matter without litigation.
What Steps Should You Take Immediately?
If you receive a letter of demand from a trustee or liquidator, you should:
Seek legal advice promptly An insolvency lawyer can assess whether the claim is legally enforceable and whether defences are available under the Corporations Act 2001 or Bankruptcy Act 1966.
Do not admit liability Avoid making written or verbal admissions before receiving advice, even if the amount claimed appears modest.
Review the details carefullyCheck dates, transaction descriptions, amounts claimed, and the legal basis relied upon. Errors are not uncommon.
Preserve records and evidence Emails, bank statements, loan agreements, board minutes, and payment records may all be critical in responding to the claim.
Respond within the timeframe Most letters of demand specify a deadline. Even if you dispute the claim, a timely response is essential.
Can a Letter of Demand Be Challenged?
Yes. Many letters of demand are successfully negotiated, reduced, or defended.
Depending on the circumstances, there may be a number of possible responses available to you.
These include:
Disputing that the transaction meets the legal definition of a recoverable claim
Relying on statutory defences, including good faith or ordinary course of business defences
Negotiating a commercial settlement to avoid litigation
Requesting further information or proof before responding substantively
Each case turns on its facts, which is why early, tailored legal advice is critical.
Is a Letter of Demand From a Liquidator Legally Enforceable?
A letter of demand is not legally enforceable on its own and does not compel payment. However, it is a formal legal step that often precedes court action.
What Happens If the Matter Proceeds to Court?
If a dispute cannot be resolved, the trustee or liquidator may commence proceedings in the Federal Court, Federal Circuit and Family Court, or any of the State Courts. .
Court action can involve:
Recovery proceedings
Public examinations
Claims for interest and legal costs
Defending a claim early will typically place you in a stronger position than reacting once proceedings are already underway.
Letter of Demand From a Trustee or Liquidator: Key Takeaways
A letter of demand is a serious legal document, but it is not the end of the road. Many claims are negotiable, defensible, or capable of being resolved without court involvement. But, what matters most is how quickly and carefully you respond, which is why we always recommend seeking expert legal advice as soon as possible.
At Gear & Co Lawyers, we regularly advise directors, business owners, and individuals across Queensland who have received letters of demand from trustees or liquidators. We can assess your exposure, advise on your options, and manage negotiations or disputes with clarity and confidence.
For related information, you may wish to read our articles on Director’s Duties When Facing Insolvency, Survival through Small Business Restructuring, or What is Liquidation in Australia?
If you’ve received a letter of demand and are unsure how to respond, contact our commercial and insolvency team on (07) 3709 2547 or via our contact page.
While attempts have been made to ensure the currency of information contained in this publication, it is not guaranteed. This publication is intended to provide only general information on matters of interest. It is not intended to be comprehensive and does not constitute and must not be relied upon as legal advice. You should seek legal or other professional advice that is specific to your circumstances.
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