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A strict timeframe applies to dealing with statutory demands

Insolvency Law News | November 2016

Forum Law is currently involved in a dispute over the service of a statutory demand on our client where our client has a set-off and cross claim which is being litigated in another court, against the creditor who served the statutory demand.

A statutory demand is a non-court (but prescribed) document that a creditor may serve on a company debtor for non-payment of a debt over $2,000. If the debtor does not pay the debt OR apply to a court to have the demand set aside with a strict timeframe of 21 days of having been served with the demand, then the debtor is deemed to be insolvent and the creditor can apply to wind up the debtor.

The recent decision by the NSW Court of Appeal in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 considered the other grounds for a court to set aside a statutory demand being evidence of a “genuine dispute” regarding the debt claimed by the creditor against the debtor. In this case the Court examined the threshold needed to establish a ‘genuine dispute’ which would allow the court to set aside the relevant statutory demand.

The principal point of appeal heard by the Court was that the primary judge erred in applying the relevant test as per Re Wollongong Coal Ltd [2015] NSWSC 1680 in not finding a ‘genuine dispute’. In considering this point the judge assessed a multitude of evidence which included several text message exchanges that discussed the relevant loans and debts.

The Court of Appeal found that the evidence within these exchanges was inconsistent with the findings by primary judge that there was no possibility of a dispute in regards to amount owing. The Court of Appeal found that the evidence before the primary judge did show there was a genuine dispute regarding the debt the subject of the statutory demand. The evidence indicated that it was plausible that the respondent made a ‘non-refundable contribution as distinct from a loan’ and therefore further investigation was needed of the question of whether there was a genuine dispute about the debt. This finding resulted in the appeal being allowed and the statutory demand being set aside.

A statutory demand must be dealt with within the absolutely strict timeframe of 21 days after having been served on a company. This service may be by post, so it is critical that all companies ensure they have someone receiving mail over the holiday period and that any statutory demands are dealt with expediently to avoid the deemed insolvency of a company.

The solicitors at Forum Law in Sydney’s inner west have extensive knowledge and experience in the area of bankruptcy and insolvency law. If you are owed money as a creditor or you are defending debt proceedings feel free to contact us to discuss your concerns on (02) 9560 3388 or in our friendly and professional office in Leichhardt where parking for clients is free.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.