Debt Recovery, Bankruptcy & Insolvency

Recovering part of a debt owed by a company


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Recovering part of a debt owed by a company

Summary

In circumstances where only part of a debt is in dispute (and therefore a creditor is unable to swear in a supporting affidavit that the whole debt is due and payable), two recent cases have ruled that a statutory demand made for the payment of part of a debt does not comply with s 459E of the Corporations Act 2001 and is liable to be set aside.  This means that even where only a small part of an amount owing that is not disputed, a statutory demand can’t be used. It may have the unfortunate consequences for creditors to have to commence proceedings for the whole amount of debts in proceedings and then take enforcement proceedings, although, summary judgment may be obtained early in relation to undisputed components of debts. It does mean more cost though for creditors and time. Hopefully a higher court will overturn these decisions.

Section 459E Corporations Act 2001

This section outlines the requirements for a statutory demand to a company. In particular it states that the demand must relate to a single debt or two or more debts that are due and payable by a company and must specify the total amounts of the debts. It further states that the demand is to be accompanied by an affidavit that verifies the existence of the debt that is due and payable.

Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd 

In this case, a creditor was owed $1,457,935 for crane services nett of amounts already paid. The debtor disputed liability for the nett amount but admitted that $308,151 was payable. Justice Blue of the Supreme Court of South Australia ruled that as s459E of the Corporations Act does not ‘explicitly contemplate a demand for an undissected portion of a debt as opposed to the debt itself’. The basis for this decision was that if s459E was interpreted as to allow demand for part of a debt, the debtor seeking to have the demand set aside would have to establish a genuine dispute about the existence of the entire debt, even though only part of it was in contention. Therefore meaning they would not know which part of the debt to dispute.

Garuda Aviation Pty Ltd v Commonwealth Bank Of Australia

In this case the Commonwealth Bank of Australia had entered into a written agreement to provide a loan facility to the limit of USD $27,000,000 to Garuda which was secured by a written chattel mortgage over a Gulfstream Aircraft. This facility went into default and at the time this occurred, CBA believed they had a debt claim against Garuda for USD $6,896,535.05.

In related proceedings between the parties where judgment was pending , a genuine dispute had been raised in regards to all but USD $2,099,047.13. Accordingly CBA served a demand for only that amount of the debt as it was expected that a genuine dispute would be raised regarding the balance.

Master Sanderson of the Supreme Court of Western Australia took the view that a demand for part of a debt is valid as a company who cannot pay part of a debt is presumed to be insolvent so long as the demand is more than the statutory minimum required ($2000). However ,when ruling on this, he acknowledged that given the national scheme of the Corporations Act, he ought to follow the ruling of Justice Blue in Candetti until it is overruled by a higher court.

In effect, these decisions result in the apparent inability for a creditor to issue any form of demand for payment of a debt if only part of that debt is undisputed.

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