Devil's in the Detail - Case Law Update on Creditor’s Statutory Demands
As the age-old adage says, ‘the devil is in the detail.’ Such position has never rung truer then when preparing a Creditor’s Statutory Demand for Payment of Debt (Statutory Demand). There are generally three bases to set aside a Statutory Demand being:
· a genuine dispute as to the existence of the debt
· an offsetting claim against the party issuing the Statutory Demand
· for some other reason.
This article will consider recent cases regarding application to set aside statutory demands under the third limb above, the application’s made by the parties in those cases and the Court’s ultimate ruling. These cases should serve as a timely reminder to anyone issuing a Creditor’s Statutory Demand just how important the finer details of a Creditor’s Statutory Demand for Payment of Debt are.
Incorrect address for service
In VO Group Australia Pty Ltd v Watpac Construction Pty Ltd  NSWSC 852, VO Group sought to set aside a statutory demand issued by Watpac. In those proceedings, Watpac contended that the application to set aside the demand was filed out of time and therefore the statutory presumption of insolvency was enlivened leaving it able to seek orders for the winding up of VO Group.
Watpac provided affidavit evidence that the statutory demand had been served by express post addressed to the VO Group’s registered office in North Sydney. Unfortunately, for Watpac, at the time of preparing the express post envelope, an incorrect postcode was inserted. Rather than the express post envelope being marked with a postcode of ‘2060’ it contained the postcode ‘2000’ being Sydney CBD.
In opposition to that argument, Watpac sought to rely upon the fact that the statutory demand was also sent by email. The email address used was the same email address that Watpac had used in their construction contract dealings with VO Group.
The Court in this matter ultimately found that Watpac could not prove the statutory demand came to the attention of VO Group’s director and made orders setting aside the statutory demand and ordering Watpac to pay VO Group’s costs on the basis that:
· the express post envelope contained the incorrect postcode
· the employee with access to the email address for construction contracts was not a director (authorised officer or shareholder) of VO Group.
Requirements for affidavit in support of application
In PHPR Convenience Pty Ltd v Deputy Commissioner of Taxation  VSC 417, PHPR filed an application to set aside a statutory demand issued by the Deputy Commissioner of Taxation.
The Deputy Commissioner was claiming amounts owed by PHPR in respect of notices of assessment for a running balance account, fringe benefits tax and associated administrative penalties under Taxation Administration Act 1953 (Cth). The Deputy Commissioner sought to serve that statutory demand by delivering a copy to PHPR’s registered office care of its accountant.
Prior to service of the statutory demand, PHPR had ceased all engagements and communication with its accountant, whose offices remained the registered office of the company. The accountant received a statutory demand for another entity, Cocoa Bean Enterprises Pty Ltd, with whom PHPR was in partnership, which led PHPR to assume that a demand had also been served on PHPR, but they did not have a copy.
In light of the above, PHPR challenged service of the statutory demand and filed an application with the Supreme Court of Victoria to set the demand aside. A copy of the statutory demand was later sent by the ATO to PHPR’s solicitors.
The Court at the outset was required to consider whether PHPR’s application was competent (in accordance with section 459G of the Corporations Act 2001 (Cth)) in circumstances where the affidavit in support of the application:
· failed to annex the statutory demand (given it did not have it at the time of filing the application) and contained no evidence, beyond a mere assumption, of the existence or content of the demand
· was filed in relation to statutory demand which ‘might have been served.’
The Court ultimately found that the application was competent as the legislation does not prescribe that an affidavit in support of an application to set aside a statutory demand must include a copy of the statutory demand.
The Court then went on to consider whether the affidavit in support filed by PHPR contained sufficient evidence to support the contention that it should be set aside for ‘some other reason.’ Unfortunately for PHPR, the affidavits did not raise any allegations of unconscionability or an abuse of process by the Deputy Commissioner and the application was ultimately dismissed by the Court.
Costs Orders when amounts claimed are resolved
In Jade 85 Pty Ltd v Urban Community Group Pty Ltd  QSC 234, Jade 85 filed an application to set aside a statutory demand issued by Urban Community Group.
The facts in this matter were that:
· the companies were related entities
· they had the same registered office and principal place of business
· the sole director of Jade 85 was also a director of Urban Community Group
· the shareholders ultimately passed a resolution removing the sole director of Jade 85 and replacing him with three independent directors
· once the sole director of Jade 85 was removed, Urban Community Group served a statutory demand on Jade 85 in relation to outstanding management fees in the sum of $84,000
· the statutory demand was not brought to Jade 85’s attention until it was mentioned in correspondence by Urban Community Group's solicitor.
Upon becoming aware of the statutory demand, Jade 85 filed an application to set aside the statutory demand on the basis that it had an off-setting claim in excess of the demanded amount.
Prior to the hearing of the application to set aside, Urban Community Group voluntarily withdrew the statutory demand. As a result, the Court was left to consider the remaining issue, being the costs of the proceedings.
Ryan J of the Supreme Court of Queensland considered the position and ultimately ordered that United Community Group pay Jade 85’s costs of the application on an indemnity basis. The basis for doing so was that it had found that it had acted unreasonably in issuing the statutory demand and rejecting Jade 85’s offer to settle costs.
As you can see from the above cases, care and attention must be taken when both issuing statutory demands and making applications to set them aside. If you get either wrong, the implications can be immeasurable. The key takeaways from these cases are that:
· a statutory demand must be served on a director or shareholder of the debtor company, service on generic mailboxes and systems will likely not be enough to demonstrate that the demand has come to the attention of the debtor company
· section 459G does not require a copy of the statutory demand and supporting affidavit to be annexed to the application seeking to set it aside, although best practice would be to continue to do so
· if you are seeking to set aside a statutory demand for ‘some other reason’ pursuant to the legislation, you must provide the Court with what those other reasons are in the affidavit in support as opposed to merely making submissions on those issues
· care must be taken when settling disputes which are the subject of applications to set aside statutory demands as failure to do so, could lead to adverse costs orders being made in the proceedings, despite the fact that there has been no determination on the merits of the matter.