August 19, 2024
Last week in Part 2 to this series, we touched upon some relevant grounds that may be available to a company served with a creditor’s statutory demand against which an application to the court may be made to set aside such demand.
Grounds to Apply
Generally, the grounds to apply to set aside a demand under the Corporations Act (The Act) can be summarised as follows:
- there is a genuine dispute as to the existence of the asserted debt (section 459H of the Act); and/or
- there is an offsetting claim such that (section 459H of the Act); or
- there is a defect in the statutory demand and/ or the associated statutory demand affidavit resulting in a substantial injustice (section 459J (1) (a) of the Act); or
- some other reason (section 459J (1) (b) of the Act)
“Genuine Dispute”
Sounds simple but what really is a genuine dispute in the eyes of the courts?
If there exists a genuine dispute as to an amount owed, then it should really be a question for a court on a full hearing as to the merits of a claim or a serious question to be tried.
The courts have determined that that a genuine dispute requires that the dispute be bona fide and truly exist in fact and the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.
It has to be something more than a mere assertion of a dispute, but it must have substance and be provable and asserted in good faith.
“An Offsetting Claim”
An offsetting claim can overlap with the ground of a genuine dispute.
Section 459H (5) of the Act defines “offsetting claim” means a genuine claim that the company has against the respondent (creditor) by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
The offsetting claim must be one that is capable of being quantifiable in money and the offsetting claim must be against the creditor who issues the demand.
An offsetting claim does not need to exist at the time of the alleged debt, or at the time of service of the statutory demand, or at the time of the making of the application to set the demand aside. The offsetting claim must exist at the time of the hearing of the application to set aside the demand.
If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
“Defect” in the Demand and/or Supporting Affidavit
Section 9 of the Act defines a “defect” in the statutory demand.
Some examples of defects have been where the notes and warning as contained in the demand have been deleted; the signature on the statutory demand is missing; and omission of a statement that the debt is “due and payable”; an incorrect address for interstate service of document.
Not every error will attract invalidity, and, for example, the court will look to see whether, on a fair construction of the notice, the creditor company is or is not named. If the error is slight and does not in any substantial way frustrate the statutory provisions relating to this procedure or deprive the company of a right, the notice will not be held to be invalid.
A very careful review of the statutory demand document is required, as defects are more common than one imagines and need to be identified early.
“Some Other Reason”
Defects in the affidavit in support of the statutory demand have been grounds for the setting aside of the demand for some other reason pursuant to section 459J (1)(b) of the Act.
The cases have identified instances where the affidavit was not signed correctly nor properly witnessed. Further where the affidavit is not executed by someone with knowledge of the relevant facts relating to the demand or is executed on a date that pre-dates that statutory demand, then the demand is liable to set aside.
Other instances have involved affidavits that have not sworn to the fact that the debt is “due and payable” or that that there is no “genuine dispute” in relation to the debt. If matters of this kind are omitted from the affidavit it leaves the creditor’s statutory demand vulnerable to attack and liable to set aside with an order as to costs if it went before a judge.
There may be other “reasons” that a demand be set aside. One of those reasons may be the existence of an arbitration clause where if a dispute arose then it must go to arbitration before any litigation is commenced. The mere existence of an arbitration clause however does not of itself deprive the creditor of issuing a demand if the debt is due and payable and where there is no genuine dispute or an offsetting claim.
In Summary
Creditor’s statutory demands for payments may not be the quick-fix answer to the recovery of funds owed by a debtor.
The demand process under the Act can be a minefield in some instances and with the smallest of issues resulting in the demand being set aside; rendered a nullity and with consequential costs orders of the court against the issuing party.
Careful consideration at all times must be applied in the field of creditor’s statutory demands when making them and being in receipt of them.
You should act promptly as the strict 21-day time limits apply and failure to do so could result in severe consequences for your company.
Lamont Project & Construction Lawyers
The Lamont Project & Construction Lawyers team has extensive knowledge in the area of creditors statutory demands in the building, projects and construction space.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article are for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Greg Robson
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
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Postal Address: PO Box 1133, Milton Qld 4064