Applying to Set Aside A Statutory Demand

Applying to Set Aside A Statutory Demand, By Simon Trewavas, Barrister-At-Law


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Be Wary Then; Fools Rush in Where Angels Fear to Tread

Statutory demands are a first step in the process by which insolvent companies (i.e., companies that are unable to pay their debts as and when they become due and payable (see s95A Corporations Act 2001 (Cth))) are wound up. The High Court has explained the statutory demand process as:

“[the statutory demand process]…constitute[s] a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.”

See David Grant & Co Pty Ltd v Westpac (1995) 184 CLR 265

“No doubt, in some circumstances, the new Pt 5.4 [of the Corporations Act 2001] may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand.”

See David Grant & Co Pty Ltd v Westpac (1995) 184 CLR 265 at [40]

Therefore, there is very little margin of error when responding to a statutory demand. Any application and affidavit in support must be filed and served within the 21-day period allowed by the Corporations Act. (see s459F Corporations Act 2001 (Cth)) Failure to do so will be fatal to any application to set aside the statutory demand.

One key matter that is often overlooked is the affidavit in support of any application to set aside a statutory demand. The affidavit material is critical to any application and requires further consideration.

The Affidavit in Support of An Application to Set Aside A Demand

It is well established that an application is not validly made for the purposes of s459G(3) unless there is a sufficient supporting affidavit. (see Graywinter Properties Pty Ltd v Gas & Fuel Corporations Superannuation Fund; Pacific Islands Express Pty Ltd v Empire Building Development Pty Ltd [2008] NSWSC 576 at [7] (Austin J); Modena Imports Pty Ltd v Leveraged Capital Pty Ltd (in liq) [2009] NSWSC 20 at [13] (Barrett J); Leveraged Capital Pty Ltd v Modena Imports Pty Ltd at [8] (Brereton J), upheld on appeal in TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd & Golden Plantation Pty Ltd [2011] NSWCA 7 at [20]-[21] (Spigelman CJ, Macfarlan))

An affidavit supporting the application for the purposes of an application to set aside a statutory demand has been subject to considerable judicial consideration. This consideration commenced with Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 concerning the minimum requirements for an affidavit to qualify as a supporting affidavit. In Graywinter, Sundberg J relevantly held:

  1. The filing and service of a claim for relief and an affidavit which does not support the claim will not result in the making of an application under s459G of the Corporations Act.
  2. The failure of an affidavit to satisfy the minimum requirements for an affidavit to be a “supporting affidavit” is a jurisdictional impediment to the application.
  3. The affidavit must disclose facts showing that there is a genuine dispute between the parties. Neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed will be sufficient.
  4. The Court cannot entertain an application under s459G of the Corporations Act in a case which an affidavit containing the minimum requirements has not been served in time (within the 21-day period for responding to a statutory demand).

These four statements are often collectively described as the ‘Greywinter principle‘. Whilst the Graywinter principle has been widely accepted as generally an accurate statement of the law, it has not been without criticism. The Western Australian Court of Appeal (seePravenkav Group Pty Ltd -v- Diploma Construction (WA) Pty Ltd [No 3] [2014] WASCA 132) said:

“[I]t can be a mark that a principle is opaque when the principle is named after a case”

See Pravenkav Group Pty Ltd -v- Diploma Construction (WA) Pty Ltd [No 3] [2014] WASCA 132 at [63]

Later authorities appear to have tempered the Graywinter principle. (see Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51; Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393; and Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60) The position now is that while the initial affidavit must ‘support’ the application, the application is not limited to the initial supporting affidavit. Hence, a Court can consider additional affidavit evidence filed outside the 21-day period in order to supplement the initial supporting affidavit, which can include affidavit evidence which provides evidence of quantum of any genuine dispute or offsetting claim under s459H.

Conclusion

Statutory demands are not supposed to be used as a debt collection tool, (see Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497: “[t]he Statutory Demand process is not to be used for the coercive collecting of disputed debts from solvent companies … [t]he creditor should save its time and money by eschewing statutory demand litigation and commencing debt recovery proceedings immediately”.) but the unfortunate reality is that they often are. It is common to receive instructions at the 11th hour, with limited time to properly make considered inquiries. It is imperative to keep in mind the relevant legal test to properly enliven the jurisdiction of the Court to set aside a statutory demand. While the Graywinter principle has been slowly watered down to ensure that practical justice can be achieved, the Graywinter principle still remains a relevant consideration whenever seeking to set aside, or opposing an application to set aside a statutory demand.

Whenever any material is being prepared in relation to a statutory demand, remember, be wary, fools rush in where angels fear to tread. (see Alexander Pope “An Essay on Criticism”, 1711)

S W Trewavas

Barrister

Afterword

Simon Trewavas is a barrister practicing in commercial litigation.

Simon has written the above article for our website. We thank him for his informative contribution. Simon has also written further about the practical application of the Graywinter principle.

Aitken Whyte Lawyers have worked with Simon on many litigation and dispute matters. We have successful experience instructing Simon on Applications, trials and appeals before the Courts.

Most recently, we have worked together to successful:

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