If you have received a statutory demand, it is important that you receive legal advice as soon as possible. The individual circumstances of your case are relevant to how you should proceed and if it is not handled promptly and appropriately, the consequences can be expensive. Argon Law's Litigation and Dispute Resolution Lawyer Natashia Blank takes you through the next steps in this article.
If a creditor issues a debtor company with a statutory demand in accordance with the Corporations Act 2001 (“the Act”), the pressure is on to take action before the 21-day timeframe to avoid being presumed insolvent and risk winding up proceedings being commenced.
In most cases, next steps will involve the debtor company either: -
- paying the debt being demanded; or
- bringing an application to have it set aside.
Application to Set Aside
There are 3 common grounds, they are:
- that 'genuine dispute' exists in relation to the debt.
- that there is an ‘offsetting claim’; or
- the demand is defective.
Genuine Dispute
Section 459G of the Act provides the court with the power to set aside a statutory demand if it is satisfied that a genuine dispute exists about the debt to which the demand relates.
What constitutes a ‘genuine dispute’ in this part of the Act is not legislatively defined, so consideration needs to be given to the court’s attitude in previous applications of this kind.
The court in Eyota Pty Ltd v Hanave Pty Ltd (1994) ACSR 785 explained that the test is whether or not the debtor company can establish that a "plausible contention requiring investigation" exists.
In the matter of John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, Justice Young held that such a dispute would need to amount to more than a ‘mere assertion’. In other words, the threshold is not particularly high however there should be evidence to support there is a question, of law or fact, to be tried.
Examples of what this may look like in practice include circumstances where: -
1. the alleged contract given rise to the debt is incomplete or uncertain.
2. the construction of the terms of an agreement are ambiguous.
3. there has been a complete lack of performance or where performance is alleged to have been carried out without due care and skill.
Therefore, a ‘genuine dispute’ IS NOT established if it is: -
1. vague, hypothetical or presented in a way that is lacking a sufficient degree of cogency.
2. fanciful, unsubstantiated or unsupported by evidence.
3. plainly vexatious or haphazardly constructed in response to the pressure that comes with being served with a statutory demand.
Offsetting Claim
A debtor company may also raise an ‘offsetting claim’ in an application to set aside pursuant to section 459H(1)(b) of the Act. An offsetting claim is exactly what is sounds like, a claim that a debtor company has against the creditor that served the statutory demand which, in effect, offsets the alleged debt in the statutory demand.
The same principles of ‘genuine’ discussed above are applicable when alleging an offsetting claim exists. A liquidated sum is obviously a lot more straight forward to demonstrate; however, an unliquidated offsetting claim is not out of the question.
Defective
Finally, if you have been served with a statutory demand, there is a possibility that there is a defect of some kind in the way the demand has been drafted. Statutory demands are fickle things and if there is a defect which would cause you a ‘substantial injustice’ if it were allowed to stand, then the court may set it aside on your application.
What amounts to a substantial injustice will depend on the facts of each matter, however previous examples include: -
1. Omission of the required notes which appear on the precedent Form 509H.
2. Failure to prepare and serve the supporting affidavit or a substantive deficiency of some kind within the affidavit.
3. Failing to identify the correct address for service for the set-aside application.
4. Any misstatement or omission relating to the source of the deponent’s knowledge about the debt.
That said, there have been cases where one defect (in the statutory demand) met with another (in a set aside application) has caused a whole lot of problems. See In the matter of Black Tie Holdings Pty Ltd [2022] NSWSC 781.
Further Information
If you need assistance with receiving or issuing a statutory demand, contact Natashia Blank and the team at Argon Law at (07) 5443 9988 to make an appointment today.
