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The statutory demand minefield: lessons from recent set aside applications
by Svetlana Zarucki
These three cases illustrate that strict compliance with legislative requirements continues to be imperative when serving statutory demands.
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Despite what appears to be a fairly straightforward legislative regime, creditors' statutory demands appear to generate an entirely disproportionate volume of litigation in the courts. The drastic consequences of failing to comply with a creditor's statutory demand warrant very strict compliance by creditors with the technical requirements of the regime.
Nonetheless, the regular feed of reported decisions on applications to have creditors' statutory demands set aside gives rise to a seemingly unrelenting tide of novel issues and often conflicting outcomes on known issues. Recent questions canvassed by the courts include:
Is an affidavit verifying a statutory demand sworn 13 hours before the statutory demand is signed valid?
Can a single set aside application be used to defeat three different statutory demands?
When will a court award a debtor costs on withdrawal by a creditor of its statutory demand?
In Wollongong Coal Ltd v Gujarat Nre India Pty Ltd [2015] FCA 221, Gujarat Nre India Pty Ltd served a statutory demand on Wollongong Coal Ltd, along with a verifying affidavit which had been sworn on the day before the statutory demand was signed.
Wollongong Coal filed an application setting aside the statutory demand pursuant to section 459G of the Corporations Act 2001 (Cth) on a number of grounds, including that the verifying affidavit pre-dated the statutory demand. Gujarat submitted that:
the verifying affidavit was sworn only 13 hours (rather than one or more days) before the statutory demand was signed; and
to cure a defect in the verifying affidavit, an updating affidavit could be filed and which did not have to be served within the 21 day time period available to a debtor to apply to set aside the statutory demand.
Justice Wigney dismissed both arguments noting that an affidavit sworn on the same day as the statutory demand could verify the debt but not one which was sworn on the preceding day. Further, while an updating affidavit may cure a verifying affidavit, it could only do so if served within the 21 day time period available to the debtor to set aside the demand. Gujarat's statutory demand was set aside.
In Greenhills Securities Pty Ltd v Loire Consultants Pty Ltd [2015] NSWSC 13, the first defendant, Loire Consultants Pty Ltd served two statutory demands on Greenhills Securities Pty Ltd. A third statutory demand was served on Greehills by the second defendant.
Greenhills filed one application pursuant to section 459G of the Act seeking to set aside the three statutory demands. In that application, it sought separate orders in respect of each demand.
Justice Ball noted that different judges have different approaches to the need for a debtor to file separate applications in respect of multiple statutory demands, issued by separate creditors in respect of separate debts. For example, in Help Desk Institute Pty Ltd v Adams [1998] NSWSC 586 the Court held that if the legislature intended that there could be one application in respect of more than one demand, then section 459G(2) of the Act would have expressly dealt with that situation.
However, in this case, there was no difficulty applying the provisions of section 459G of the Act to the separate orders sought in the single application. The statutory demands had a
"common underlying factual basis" making it convenient for the demands to be dealt with together.
When will a court award a debtor costs on withdrawal of a statutory demand?
In Polytrade Pty Ltd v Glass Recovery Services Pty Ltd [2015] VSC 164, Glass Recovery Services Pty Ltd served a statutory demand on Polytrade Pty Ltd which it subsequently withdrew. The following day, Polytrade filed an application seeking to have the statutory demand set aside pursuant to section 459G of the Act, despite the statutory demand having been withdrawn. During the proceedings, Polytrade conceded that it filed the application to obtain an order for indemnity costs in its favour.
Associate Justice Randall dismissed Polytrade's application because "there [was] no reason to depart from the usual rule that costs follow the event". His Honour noted that in all cases where costs had been awarded in favour of a debtor, the withdrawal of the statutory demand had occurred after the debtor had commenced proceedings.
While costs may be awarded in favour of a debtor if a creditor engages in conduct (such as, delay in withdrawing a statutory demand) which induces a debtor to file an application setting aside the statutory demand, in this case, Glass promptly withdrew the statutory demand on becoming aware of a dispute in relation to costs alleged by Polytrade.
Strict compliance the key to statutory demands
Further, where multiple statutory demands are served on a debtor a single set aside application seeking separate orders in relation to those demands can be made if the demands share a common underlying factual basis.
Finally, in the context of a set aside application where the statutory demand has already been withdrawn, the court will not exercise its discretion to award costs in favour of a debtor in the absence of delay by a creditor in withdrawing or failing to withdraw a demand such as to induce the debtor to file the set aside application.
Considered separately, each of the cases deals with a discrete and unique issue. Taken together, they augment the existing and constantly evolving body of law on creditors' statutory demands. The challenge for practitioners, creditors and debtors alike is to stay abreast of these developments so as to avoid pitfalls in preparing and serving demands and to identify bases on which to challenge those demands which are defective.
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