Australia: Statutory Demand Debtor Gets Off On A ´Technicality´

A recent decision of the Chief Justice of Queensland illustrates how statutory demands can be set aside for what might seem to be relatively minor errors.

In Rapcivic Contractors Pty Ltd v Mapol Industries Pty Ltd [2008] QSC 310, Mapol allegedly provided painting services to Rapcivic valued at over $1.8 million. Mapol served a statutory demand under the Corporations Act 2001 (Cth) demanding payment of this money.

Rapcivic asked the Court to set aside the demand because it did not comply with the requirements of the Corporations Act 2001 (Cth).

As there was no judgment, the statutory demand needed to be accompanied by an affidavit stating that the amount claimed in the demand was due and payable by the debtor company. Rule 5.2 of the Corporations Proceedings Rules requires the accompanying affidavit to be in accordance with the prescribed form 7 and state the matters mentioned in the form.

One requirement is that the person swearing the affidavit (known as the "deponent") must state the facts which entitle them to make the affidavit on behalf of the creditor. If the creditor is a company, the statutory form suggests that the deponent state that he or she is authorised to make the affidavit on the company's behalf.

The affidavit also needs to set out the source of the deponent's knowledge about the debt. The form suggests that the deponent say that they were the person who had the dealings which gave rise to the debt or that they have inspected the records of the company in relation to the debtor's company's account with the creditor.

In the Rapcivic case, a director of Mapol swore an affidavit which basically stated that:

• she was a director of the company making the demand,

• painting services had been provided to the debtor company,

• invoices had been delivered, and

• these invoices were not paid.

Rapcivic argued that the accompanying affidavit should have spelt out all of the details required by the approved form. Mapol argued that the details required by the form were implicit from the matters that had been stated in its director's affidavit.

The Chief Justice held that the affidavit was defective and therefore the demand should be set aside under section 459J(1)(b) of the Corporations Act 2001 (Cth). In the course of his judgment, his Honour said:

His Honour's reference to "substantial compliance" brings up two provisions which can assist creditors seeking to rely on a technically deficient demand.

The first is section 25C of the Acts Interpretation Act 1901 (Cth), which provides that "substantial compliance" with a prescribed form is sufficient.

The second is section 459J(1)(a) of the Corporations Act 2001 (Cth) which says that a defect will only invalidate a statutory demand if "substantial injustice will be caused unless the demand is set aside".

In relation to section 25C, his Honour found that the defects were substantial because the form 7 required identification of the source of the deponent's knowledge, and because merely saying that a person is a director of a company does not necessarily mean that the person is authorized to swear an affidavit on behalf of the company.

The Chief Justice appeared to take the view that section 459J(1)(a) was not relevant in this particular case, presumably because the defects were in the affidavit rather than the statutory demand itself. However, his Honour seems to have dealt with the possibility that section 459J(a) might have applied by stating:

The message for creditors is simple: be careful when issuing a statutory demand. The accompanying affidavit is not an inconsequential document. Defects which might seem to be minor can lead to the demand being set aside.

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