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When chasing a debt from a company, be mindful of the pitfalls of statutory demands

Insolvency Law News | April 2013

The recent case of Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365 illustrates a number of pitfalls that may be encountered by companies preparing and serving Applications in the Supreme Court for the setting aside of a Statutory Demand for payment.

Infratel contracted with a range of telcos to construct communications towers. Construction of the towers involved specialised rigging work, and Infratel subcontracted with the respondent rigging company, Gundry’s, to carry out this work. Certain telcos ultimately refused to pay Infratel for the erection of towers, claiming that Infratel’s works in this regard were defective. Infratel, in turn, blamed Gundry’s for the telcos’ non-payment, claiming that any defective works at the various tower sites had been caused by Gundry’s directly. Infratel refused to pay Gundry’s under the subcontract. Gundry’s served a Statutory Demand on Infratel, which Infratel then sought to have set aside in the Supreme Court under s459G of the Corporations Act 2001 (Cth). Infratel’s argument was that the Statutory Demand ought to be set aside as:

  • The debt alleged by Gundry’s to be owed by Infratel was genuinely in dispute;
  • Infratel had itself a large claim against Gundry’s, which it argued was to be offset against any monies payable by Infratel to Gundry’s, on account of the cost of rectification works performed by Infratel; and
  • The Demand served by Gundry’s was “unconscionable”.

Infratel’s application for the setting aside of the Demand failed at first instance, and Infratel appealed.

At first instance, the trial judge had found that the Affidavit filed by Infratel in support of its application to set aside the Statutory Demand was defective. Section 459G(3) of the Corporations Act requires that an Application to set aside a Statutory Demand must be filed within 21 days of the date of service of the Demand, and will only be a valid application if an Affidavit in support of the application is also filed with the Court within those 21 days and both the application and the Affidavit are served on the other party (the claimant).

The trial judge found that the Affidavit filed by Infratel in support of its application failed to meet the requirements of the so-called Graywinter principle, which requires that an Affidavit filed under s459G(3) must sufficiently identify the grounds on which the applicant’s challenge to the Statutory Demand are based. The trial judge found that, while Infratel’s Affidavit did properly ground Infratel’s claim that there was a “genuine dispute” as to the existence or quantum of the debt in question, it did not adequately support Infratel’s counter-claim for an offset – it was too vague in this regard. The Court of Appeal agreed with the trial judge on this point.

The trial judge had also found against Infratel at first instance in holding that Infratel had not established that there was a “genuine dispute” as to the existence or quantum of the debt in question. The Court of Appeal noted that in order to establish a “genuine dispute”, the party seeking to set aside the Statutory Demand must establish a “plausible contention” in respect of the alleged debt. Ultimately, the Court of Appeal agreed with the trial judge and also found against Infratel on this score, despite finding that the trial judge had gone further than merely questioning whether or not a “plausible contention” had been established by Infratel.

Finally, the Court of Appeal upheld the trial judge’s finding that the Statutory Demand served by Gundry’s was not unconscionable as Infratel urged. Infratel argued that Gundry’s Demand was unconscionable in that Gundry’s had served the Demand notwithstanding they knew that Infratel had not been paid for the towers by the telcos and that the reason for this non-payment was the defective work undertaken by Gundry’s themselves. Essentially, Infratel argued that Gundry’s were trying to profit from their own wrongdoing. Infratel also noted in this regard that the contract between the parties itself provided for a quick, cheap and efficient dispute resolution mechanism.

The Court of Appeal also found against Infratel on this point, finding that the facts did not give rise to a situation in which unconscionability in the traditional sense could be said to exist. Infratel had also failed, the Court found, to provide the Court with any facts or evidence that proved defective workmanship on Gundry’s part.

Companies seeking to set aside a Statutory Demand are well-advised to give due attention and regard to the framing of their applications. The objections of an Applicant to the Statutory Demand in question should be very clearly and concisely stated and all available facts and evidence provided to the Court in support of the Application.

If you would like any advice or assistance with debt recovery, or with seeking to set aside a Statutory Demand served on your company, please contact Forum Law today to discuss your needs.

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