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.
Expert commentary on the court's decision
Supreme Court decision appealed
The matter first came before the Supreme Court of NSW in the case Boss Engineering (NSW) Pty Limited [2017] NSWSC 1334. The court found as a matter of fact that the statutory demand had been served on 27 June 2019 and therefore that the application to set aside had not been made on time. However, the court found that due to its conduct the creditor was estopped from relying on this in seeking to dispute the validity of the application. The creditor appealed this decision.
Court of Appeal finds in favour of the creditor
In the case Chief Commissioner of State Revenue v Boss Constructions (NSW) Pty Ltd [2018] NSWCA 270, the NSW Court of Appeal overturned the Supreme Court’s earlier decision.
The Court of Appeal held that the creditor, the Chief Commissioner of State Revenue, could not be estopped from relying on the time limits stipulated by the Corporations Act in challenging the validity of the application made by the debtor, Boss Constructions (NSW) Pty Ltd.
Boss Constructions out of time to apply to set aside statutory demand
In both cases, the court focused on the application of section 459G(2) of the Corporations Act. Section 459G(2) stipulates that an application to set aside a statutory demand may only be made “within 21 days after the demand is so served”.
The primary judge determined that the date of service of the statutory demand was 27 June 2017. However, the creditor was estopped from asserting that the debtor’s application was made out of time. Accordingly, the judge upheld the debtor’s application to set aside the statutory demand.
However, the Court of Appeal found that the Corporations Act does not intend for estoppel to apply to vary time limits. The strict time periods stipulated in section 459G(2) cannot be varied as a result of agreement between the parties or estoppel.
Court has no jurisdiction to hear application to set aside statutory demand
The primary judge in his reasoning indicated that the debtor company had faced a loss of opportunity to set aside the demand. Therefore, the doctrine of estoppel was applied to prevent the Chief Commissioner of State Revenue from asserting that the application filed on 20 July 2017 was out of time.
The primary judge stated that should the creditor be estopped, it would not be burdensome or significantly unjust on the creditor.
However, the Court of Appeal stated that the time limits set out in section 459G(2) of the Corporations Act define the jurisdiction of the court to hear an application made under that section.
The effect of estoppel would be to prevent the creditor from relying on the time limits in section 459G(2) and to apply jurisdiction on a court to hear an application, which the court would have never heard ordinarily.
Consequently, the Boss Constructions’ application to set aside State Revenue’s statutory demand was dismissed.
Debtor companies must keep accurate records and act promptly
There is a great deal of importance in companies ensuring they keep accurate records of when documents have been received. It is also important to act promptly upon being served with a statutory demand.
As held by the Court of Appeal, the 21-day period is a strict time period within which a debtor company wishing to set aside a statutory demand must file and serve a copy of the application made under section 459G of the Corporations Act. That time period cannot be varied.