Being aware of the factors and available options in order to deal a Statutory Demand within the 21 day timeframe is critical – if there are grounds to make an application to Court to set aside the Statutory Demand under section 459G of the Corporations Act 2001 (Cth) (the Act), this must be done before the 21 day time limit expires with a supporting Affidavit setting out all of the relevant facts. Once the Statutory Demand expires, there is no ability to have the Statutory Demand set aside.
A Statutory Demand can be set aside if a debtor maintains that there is a genuine dispute about the existence or the amount of the debt or that it has an offsetting claim against the creditor (section 459H of the Act) or if there is a defect in the Statutory Demand or for some other reason (section 459J of the Act). There are numerous cases in respect of applications to set aside a Statutory Demand and the relevant criteria that must be satisfied.
In the recent case of Byproxy v Ghisoni [2023], Associate Justice Gardiner heard an application in which it was asserted that a loan agreement arose by a sham transaction concerning a self-managed super fund and the argument that a third party was supposed to repay the loan under the loan agreement. A key document, which was relied upon, but not put into evidence by the party alleging that the loan agreement was a sham, was a letter of demand in relation to the loan agreement – contrary to the arguments which it sought to put before the Court in the application to set aside the Statutory Demand. Reference was made to the comment by Robson J in Rhagodia Pty Ltd v National Australia Bank Ltd [2008] VSC 295 at [131] where he observed that ‘the establishment of a genuine defence requires an explanation of the contemporaneous and undisputed documents that is consistent with the defence. Despite Associate Justice Gardiner indicating that there was certain evidence which may go against the plaintiff in the ultimate trial in proceedings concerning recovery of the debt, the Court was satisfied that the features of a genuine dispute existed and the Statutory Demand was set aside.
Another recent case helpfully sets out the principles for determining the existence of a genuine dispute. In McDonald Earthmoving Equipment Pty Ltd v HM Hire Pty Ltd [2023] QSC 148, Justice Freeburn considered an application where the evidence supporting a genuine dispute was not strong and the evidence was inconsistent. In this case, there had been promises to pay the debt and which acknowledgment is contrary to the existence of a genuine dispute.
The onus is on the applicant to establish that the dispute is bona fide and truly exists in fact and that the grounds alleging the existence of the dispute are real and not “spurious, hypothetical, illusory or misconceived”: see Spencer Construction Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464. Furthermore, once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow: see Barrett J in Solarite Air Conditioning Pty Ltd v York International Australia Ltd [2002] NSWSC 411 at [23]. Upon the consideration of the evidence, notwithstanding that it was inconsistent and not entirely strong, the Court was satisfied that there was an arguable case as to the existence of a genuine dispute and the Statutory Demand was set aside.
Having acted for debtors who are served with Statutory Demands including issuing applications to set aside a Statutory Demand (as well as considerable expertise acting for creditors who serve Statutory Demands), it is a complex area of law and steps must be taken promptly if an application is required to be made to Court within the 21-day timeframe. If a client fails to deal with the Statutory Demand within the appropriate timeframe and winding up proceedings are issued, there may still be the option of seeking leave to oppose the winding up application under section 459S of the Corporations Act 2001 (being a ground which could have been relied upon in an application to set aside the Statutory Demand).
Catherine Pulverman of FCW Lawyers has considerable experience in this area, including obtaining significant costs orders for clients who have successfully applied to set aside Statutory Demands or who have failed to apply to set aside the Statutory Demand and successfully opposed winding up proceedings (one costs order arose as a result of a creditor issuing a Statutory Demand before it had sold a vehicle – the balance of the debt was below the statutory minimum which meant that the Statutory Demand should never have been issued). She would be happy to provide any necessary advice or act in relation to service of a Statutory Demand to ensure that the most cost-effective outcome is achieved.
