A Statutory Demand is one of the most powerful business debt collection tools available to a creditor.
A Statutory Demand may be issued immediately after a debt of more than $2000.00 becomes due but can only be issued by a creditor if the debt is not disputed. In fact, a certificate must be signed saying no genuine dispute exists in relation to the debt.
The Statutory Demand allows the recipient or debtor company 21 days from the date of the demand to;
• Pay the debt in full; or
• File an application in court to have the demand set aside on the basis of a genuine dispute.
• If within the 21 days an appropriate defence is not filed in court — the company is deemed to be insolvent!
This may mean that in as little as 8 weeks of the demand being served, the court could appoint liquidators to the debtor company.
If a debtor company considers that there is a genuine dispute as to the debt due, then a Court must note s 459H(1) of the Corporations Act, which requires the Court to be satisfied that there is a genuine dispute as to the existence or amount of a debt to which the demand relates, and to establish if the “genuine dispute is a “plausible contention requiring investigation”.
But when did a ‘genuine dispute’ also include a typographical error in a document? In a recent decision of the Supreme Court, Box Seat Company Pty Ltd (BSC) served a Statutory Demand on The Product People (International) Pty Ltd (TPPI) for a debt which was due to BSC. Unfortunately for BCS, the debt owed by TPPI was reliant on a Balance Sheet provided by its respective liquidators. TPPI argued that there was a typographical error on the Balance Sheet provided which meant that the correct debtor company should have been The Product People Pty Ltd (TPP) not TPPI.
Generally, if a company is served with a Statutory Demand and they are the ‘wrong’ company the creditor would normally withdraw its Statutory Demand however, in these circumstances a Balance Sheet was the determining factor for pressing the debt with TPPI.
At the hearing of the application to set aside the Statutory Demand, questions arose with respect to the presumption in s 1305 of the Corporations Act in that company books where they are admitted as evidence in proceedings (ie the Balance Sheet) are to be taken as prima facie evidence of any matter recorded in the book. Generally when books are admitted as evidence, the presumption dispenses with the need to call witnesses to give evidence as to the facts and circumstances however, in this case the presumption was rebutted and the Company Secretary for BCS was called to give evidence. She admitted in evidence that the typographical error that formed the basis of TPPI’s argument to set aside the statutory demand had occurred and thus, the court concluded that there was a genuine dispute as to the existence of the debt and ordered that the Statutory Demand issued by BCS be set aside.
The lesson to learn from this:-
1. Maintain company records as accurately as possible;
2. Ensure that there are no typographical errors which may give rise to a dispute about the actual existence of a debt.
If you would like more information or want to obtain the best possible chance of a successful outcome in your dispute, please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email email@example.com or free call 1800 621 071.
We have an experienced dedicated Commercial Litigation team that practices exclusively in these areas.