Australia: Small slips sink statutory demands

If a company owes you money and claims that it can't pay, a creditor's statutory demand (CSD) is a very handy device. If a creditor claims a debt using a CSD, the debtor company has 21 days within which to either pay the amount demanded, or to apply to a Court to set the CSD aside. If it fails to do either of these things, the debtor company is deemed to be insolvent and can be wound up.

When the alternative is to spend months or years proving a claim in court, the attractions of using a CSD are obvious.

But a CSD can only be used in certain circumstances, and even when it can be used, you have to get the relevant forms and processes exactly right. If you don't, a court may grant the debtor company's application to set aside the CSD and order you to pay the debtor company's costs.

A couple of recent cases illustrate how little it takes to set aside a CSD.

Minor defects create major problems

In a decision last week in the Western Australian Supreme Court1, Master Sanderson considered a CSD which in some respects went above and beyond the requirements of the prescribed forms.

Acurix Networks Pty Ltd used a CSD to claim $336,468 from Buzd Pty Ltd for unpaid invoices for "cloud based managed analytical services". The CSD incorporated a detailed list of invoices issued and payments received, and demanded the difference. The detailed list wasn't strictly necessary, but it is important that a CSD leaves no room for confusion or misunderstanding about the amount being claimed.

Acurix also had to provide an affidavit with the CSD, verifying various matters about the debt. Acurix's director swore an affidavit that addressed most of these things, but which didn't state the source of his knowledge, ie, how it was that he knew this information. This doesn't take much – Master Sanderson found that it would have been sufficient for him to say that he had checked the invoices and payments and reconciled the difference.

But the absence of any indication of how the director knew what was owed was enough to have the CSD set aside, notwithstanding that there was no doubt or confusion about the amount of the debt, or the fact that it was due and owing. Buzd did not even have to show that there was any dispute about the debt.

So the CSD was set aside, and Acurix ended up back where it started, minus the legal costs it probably had to pay to Buzd.

In making this decision Master Sanderson relied on an earlier decision of the Full Court of the Supreme Court of Western Australia, Wildtown Holdings Pty Ltd v Rural Traders Company Ltd2, which listed other deficiencies in the supporting affidavit which would lead to a CSD being set aside. These include failing to state that the debt is due and owing; failing to say that there is no genuine dispute about the debt; and having different dates on the supporting affidavit and the CSD.

In February, the Victorian Supreme Court set aside a CSD issued by a law firm which was sent to an address described as being on "Pacific Way" when in fact the correct address was "Pacific Highway3. This minor error was enough to stop the creditor from being able to show that the CSD had been properly served.

Conclusion

A CSD can save you an enormous amount of time and money in the right circumstances, but there are many ways they can backfire. If you instruct your lawyer to issue a CSD, make sure you give them enough time and information to do the job properly. Assume the CSD will be carefully scrutinised for technical errors. Otherwise the only person getting paid will be your opponent's lawyers, when a court sets your CSD aside.

Footnotes

1 Buzd Pty Ltd v Acurix Networks Pty Ltd [2019] WASC 152

2 [2002] WASCA 196

3 Mills Oakley v Asset HQ Australia Pty Ltd [2019] VSC 98

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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