The Facts

Creditor serves statutory demand on company owing substantial sum

In late June 2017, a government department (the 'creditor') instructed a process server to serve a statutory demand on a company (the 'debtor company'). The creditor alleged that the debtor company owed it nearly half a million dollars.

A statutory demand is a formal demand for payment of outstanding debts of $2000 or more made under Section 459G of the Corporations Act 2001 (Cth). The Act prescribes that a debtor company has 21 days to comply with the demand or apply to the court for an order that the demand be set aside. Failure to do either of those things creates a legal presumption that the company is insolvent and means that the creditor can apply to wind the debtor company up in insolvency.

Statutory demand served, followed by application to set aside

According to the documentation provided by the process server, the statutory demand was personally served on the debtor company on 27 June 2017 by delivering it to the company's registered offices. The demand was left with an employee of the company, who informed the process server that he was authorised to accept legal documents.

The debtor company filed and served an application to set aside the statutory demand on 20 July 2017.

Dispute over the date on which statutory demand was served

Notwithstanding the evidence of the process server that the statutory demand was served on 27 June 2017, the debtor company claimed that it was not served until 29 June 2017, two days later.

The date of service of the statutory demand was important. If the debtor company was correct, then its application to set aside would have been made within the 21-day time period and was valid. If the creditor was correct, then the application would have been made outside the time allowed and was potentially invalid, leaving the debtor company exposed to being wound up.

It was up to the court to determine whether the debtor company's application to set aside the statutory demand was valid.

case a - The case for the debtor company

case b - The case for the creditor

  • We always believed that we had been served with the statutory demand on 29 June and we maintain that belief.
  • We had various communications with the creditor after receiving the demand in which we referred to this 29 June date. That date was never disputed or corrected by the creditor, so we were justified in proceeding on that basis.
  • It would be unconscionable for the creditor to now depart from that basis.
  • That is, even if we are mistaken and the date of service was in fact 27 June, the creditor did nothing to dispel our mistaken belief and should be estopped (that is, prohibited) from now claiming the earlier date for service.
  • Otherwise, we will have lost the opportunity to file our application on time as a result of the conduct of the creditor, which would not be fair.
  • There is no injustice or prejudice suffered by the creditor if it is estopped from claiming the earlier service date.
  • The court should find that our application to set aside the statutory demand is valid.
  • The process server's affidavit of service was provided to the debtor company. That affidavit clearly states that the demand was served on 27 June 2017.
  • We never referred to the date of service being anything other than 27 June 2017 in our communications with the debtor company and we had no duty to correct any error that it made.
  • The legislation is clear; an application to set aside a statutory demand "may only be made within 21 days".
  • This is a statutory time limit that cannot be altered by agreement or estoppel, irrespective of any unconscionable conduct on our part (which we deny).
  • The debtor company's application was filed outside of the 21-day period and so it must be invalid, and the court has no jurisdiction to now consider it.

So, which case won?

Cast your judgment below to find out

Jatinder Singh
Corporate and commercial
Stacks Champion

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