Creditor’s statutory demands; grounds to set aside

In “Creditor’s statutory demands; debt collection tool?”, I explored the circumstances in which a Statutory Demand can be issued to recover a debt.  In this article, I set out the circumstances in which a Statutory Demand can be set aside.

If you have received a Statutory Demand, we recommend that you seek legal advice immediately. 

Setting aside a statutory demand

An application to have a Statutory Demand set aside must, within 21 days after the date on which the demand is served on the company, be:

  1. filed with the Court.[1]  This timeframe cannot be extended;[2] 
  2. served (along with a supporting affidavit[3]) on the company or individual/s who issued the Statutory Demand.[4] 

It is not sufficient to simply file the application and supporting affidavit with the Court within the 21 day period; the application and supporting affidavit must also be validly served on the person who issued the Statutory Demand.  Although this can be done by serving the application and supporting affidavit at the address contained in the Statutory Demand (as long as the address for service is in the state in which the demand was served),[5] in circumstances where the issuing party is a company, the better course is to serve the documents at the registered office.[6]  In circumstances where the issuing party is an individual, service can be effected at the address for service contained within the Statutory Demand, or in accordance with section 28A of the Acts Interpretation Act 1901 (Cth).

The application[7] should be made pursuant to section 459G of the Corporations Act 2001 (the Act), in reliance upon sections 459H, or 459J of the Act.

The affidavit filed/served in support of the application:

  1. should annex a copy of the Statutory Demand[8];
  2. must annex a search of the records maintained by ASIC in relation to the applicant (carried out no earlier than 7 days before the application is filed);[9] and
  3. must state the grounds for setting aside Statutory Demand.[10] 

Importantly, the “Graywinter principle”[11] requires, in short, that all of the grounds of dispute which are intended to be relied upon at the hearing must be raised in the supporting affidavit filed with the application.  In this regard, although Justice Sundberg made a number of observations in the Graywinter case regarding the minimum requirements of the contents of a supporting affidavit, the primary principles to be derived from the case were as follows:

  1. the affidavit must say something that “promotes” the company’s case, ie. it must in some way advance, further or assist the company’s cause (setting aside the Statutory Demand); and
  2. a bare claim or mere assertion that the debt is disputed is not sufficient.

21 days is not a long a long time to prepare an application and supporting affidavit, especially if a client is late in retaining solicitors (as is often the case).  Accordingly, the Courts recognise that “ideal standards are not always achieved or achievable.”[12]  As such, the Courts apply a “benevolent construction” to the contents of the affidavit.[13]  Importantly, the affidavit material can be supplemented.[14]  However, the weight of the authorities suggests that new grounds cannot be raised in an affidavit filed outside the 21 day time limit.[15]  In this regard, the High Court’s refusal to grant special leave to appeal in Energy Equity Corp Ltd affirmed that no new grounds  can be relied upon which are not contained in the material filed within the 21 day time limit.[16]  Accordingly, the affidavit served within the 21 day time limit must contain all of the grounds which the applicant seeks to rely upon at the hearing of the application.

Grounds to have a statutory demand set aside

A Court may grant an order to set aside a Statutory Demand where it is satisfied that one or more of the follow four categories applies:

  1. there is a “genuine dispute” about the existence of a debt to which the Statutory Demand relates;[17]
  2. the company who received the Statutory Demand has an “offsetting claim”;[18]
  3. because of a defect in the Statutory Demand, substantial injustice will be caused unless it is set aside;[19]
  4. there is some “other reason” why the Statutory Demand should be set aside.[20]

Genuine dispute

A company may have a Statutory Demand set aside on the basis that there is a “genuine dispute” about the existence or the amount of the debt the subject of the Statutory Demand.[21]  There are a number of different judicial tests for determining the existence of a genuine dispute.  The two main tests are as follows:

The test in Eyota[22]

In Eyota, McLelland CJ held that a genuine dispute “connotes a plausible contention requiring further investigation” and likened the test to a “serious question to be tried” in an application for an injunction.

The test in Spencer Constructions[23]

In Spencer Constructions, the Court held that:

  1. the dispute must be bona fide and truly exist in fact;
  2. the grounds for alleging the existence of a dispute must be real and not spurious, hypothetical, illusory or misconceived.

The test in Eyota is the most frequently used test[24] and is the test preferred in New South Wales, Western Australia, and South Australia.[25]  The test in Spencer Constructions is the test preferred in the Federal Courts.  The Courts in Queensland, Tasmania, Victoria, the ACT and the NT have applied the tests in Eyota and Spencer Constructions equally.[26]

Notwithstanding the different formulations, the following limbs are common to both tests:

  1. a bona fide dispute that truly exists in fact; and
  2. the dispute must have an objective existence, the genuineness of which must be capable of being assessed.[27]

The onus and the evidence

​While the onus to set aside a Statutory Demand is borne by the applicant, it is not a heavy one,[28] and while “considerable latitude” is afforded to a party asserting the existence of a genuine dispute which would justify the setting aside of a Statutory Demand,[29] an applicant will fail in discharging the onus if the contentions on which it seeks to rely are “so devoid of substance that no further investigation is warranted”.[30]  In saying this, Courts will not embark upon an “extended inquiry” and will not attempt to weigh or assess the merits of the dispute.[31]    The burden has been likened to an application for summary judgment,[32] an injunction[33] or an application to extend or remove a caveat.[34]

Offsetting claim

A company may have a Statutory Demand set aside on the basis that it has an “offsetting claim”.[35]
Section 459H defines an “offsetting claim” as “a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).”

Although the offsetting claim must be “due and payable”[36], it can be liquidated or unliquidated[37].

Defect

A company may have a Statutory Demand set aside on the basis that, because of a defect in the demand, substantial injustice will be caused if it is not set aside.[38]

Section 9 of the Act defines a “defect” as including:

  1. an irregularity; and
  2. a misstatement of an amount or total; and
  3. a misdescription of a debt or other matter; and
  4. a misdescription of a person or entity.

The circumstances which can give rise to defects are varied.  In order to set aside a Statutory Demand on this basis, the defect must also cause “substantial injustice”.  As Justices French, Kiefel and Sundberg held in Equuscorp,[39] there must be “substantial injustice to ground the exercise of the discretion under subs 459J(1)(a)”.
In Spencer Constructions[40], the court held that a defect in the demand is only to be set aside if substantial injustice would otherwise be caused.  However, if there is any other defect, including a defect “in relation to the demand” rather than in the demand itself, the demand may be set aside only if the court is satisfied that there is some reason for doing so which goes beyond the mere defect itself, and as such may be set aside under section 459J(1)(b). 

Some other reason

Finally, a Court may set aside a Statutory Demand for “some other reason”.[41]

The category of cases which fall within section 459(J)(1)(b) are not comprehensively defined.[42]  However, matters which may constitute “some other reason” include:

  1. the absence of a supporting affidavit,[43] or the lapse of an unduly long time (ie. as little as two days) time between the swearing of an affidavit in support, and the signing of the Statutory Demand;[44]
  2. deficiencies in the verifying affidavit (such as a failure to depose there is no genuine dispute about the existence or amount of the debt);[45]
  3. a pending appeal against the rejection of an offsetting claim;[46]
  4. when the issuing of the Statutory Demand is unconscionable;[47]
  5. when the issuing of the Statutory Demand is an abuse of process.  This may include:
  1. where the Statutory Demand is a means to a collateral and illegitimate end, and not as a bona fide means of obtaining payment of a debt;[48]
  2. if the threat of proceedings is used as a means of extortion.[49]

What happens if the deadline is missed

If after 21 days of being served with a Statutory Demand, the demand is still in effect (ie. it has not been complied with, unequivocally withdrawn or no valid application to set it aside has been filed), the company is presumed to be insolvent,[50]  and the creditor can rely upon the presumption in an application to have the company wound up.  The presumption is effective for a period of three months,[51] and is rebuttable.[52]

Further action
Given the seriousness of the consequences which flow from non-compliance with a Statutory Demand, we recommend that legal advice be sought as soon as possible after receipt.

If you wish to explore issuing a Statutory Demand, or have been served with a Statutory Demand, contact Chad Gear on (07) 3227 1616, or by email at [email protected]

While attempts have been made to ensure the currency of information contained in this publication, we do not guarantee its currency.  This publication is intended to provide only general information on matters of interest.  As such, this publication is not intended to be comprehensive and does not constitute and must not be relied upon as legal advice.You should seek legal or other professional advice which is specific to your circumstances.

© Taylor David Lawyers

Chad Gear – Partner

+61 7 322 71 616

[email protected]

[1]Corporations Act 2001, s. 459G(3). 

[2]David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265; 18 131 ALR 353; 69 ALJR 778; 18 ACSR 225; 13 ACL 1572; Healthy Industries Pty Ltd, Re [2018] NSWSC 1172.

[3]David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265; 18 131 ALR 353; 69 ALJR 778; 18 ACSR 225; 13 ACL 1572; Complete Windscreen Service Nominees Pty Ltd v Nielsen & Moller Windscreens Pty Ltd (1995) 121 FLR 178; 18 ACSR 320; 13 ACLC 1766.  Although the affidavit must be served, it need not be filed: Austar Finance v Campbell (2007) 215 FLR 464; 25 ACLC 1834; NSWSC 1493.  Rule 2.4A of Schedule 1A of the Uniform Civil Procedure Rules 1999.

[4]Corporations Act 2001, s. 459G(3).  Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581.  The failure to file and serve an affidavit which complies with section 459G(3) of the Act means that there is no “application” before the Court, and accordingly, the Court has no jurisdiction to set aside the Statutory Demand; Verte Pty Ltd v Grisbrook (1997) 15 ACLC 1036; Kabra Plant Hire Pty Ltd v Total Earth Works (Qld) Pty Ltd [2005] QSC 254.

[5]Howship Holdings Pty Ltd v Leslie (Nos 1 & 2)(1996) 41 NSWLR 542.

[6]Zipvac Australia Pty Ltd v Ivan James[2011] NSWSC 392Newsnet Pty Ltd v Patching[2011] NSWSC 690Vicbar Pty Limited v Development Constructions (Newcastle) Pty Limited [1995] 13 ACLC 1220.

[7] Form 2, pursuant to rule 2.2(3) of Schedule 1A of the Uniform Civil Procedure Rules 1999.

[8] The Act and the Corporations Rules in the UCPR do not require the affidavit in support to annex a copy of the Statutory Demand.  However, a Court cannot set aside a Statutory Demand which has not been put into evidence, or at the least referred: Denet Pty Ltd v Global Marketing Group International Pty Ltd (2002) 20 ACLC 301.

[9] Rule 2.4A of Schedule 1A of the Uniform Civil Procedure Rules 1999.

[10] It is important to also be aware that a hearing to set aside a Statutory Demand is a final hearing, and hearsay evidence is not ordinarily admissible; Westpoint Management v Goakes [2002] WASCA 317 at 7.

[11] Derived from the decision of Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581.

[12]Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 9 ACSR 114.

[13]Z-Tec Computers Pty Ltd v Auslinx International Pty Ltd [1997] VSC 36, adopting the proposition found in a bankruptcy case: Re Brink; ex parte Commercial Banking Co of Sydney Ltd [1980] 44 FLR 135, 30 ALR 433.

[14]Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; 58 ATR 456; [2005] ACTCA 3; Jian Xing Knitting Factory v SCASA Pty Ltd [2004] SASC 152 at 18.

[15]Energy Equity Corp Ltd v Sinedie (2001) 166 FLR 179; [2001] WASCA 419; Infact Consulting Pty Ltd v Kyle House Pty Ltd [2007] NSWSC 56.

[16] P7/2002 (9 May 2003); Reale Bros Pty Ltd v Reale (2003) 179 FLR 427; [2003] NSWSC 666.

[17]Corporations Act 2001, s. 459H(1)(a).

[18]Corporations Act 2001, s. 459H(1)(b).

[19]Corporations Act 2001, s. 459J(1)(a).

[20]Corporations Act 2001, s. 459J(1)(b).

[21]Corporations Act 2001, s. 459H(1)(a).

[22]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785.

[23]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452.

[24]Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602; [2009] WASCA 85 per Martin CJ; Auzcorp Pty Ltd v Alpha 1 Contracting Pty Ltd [2017] WASC 34.

[25] Statutory Demands and Winding Up in Insolvency, Farid Assaf, p. 233.

[26] Statutory Demands and Winding Up in Insolvency, Farid Assaf, p. 233.

[27] Statutory Demands and Winding Up in Insolvency, Farid Assaf, p. 233.

[28]Mega Engineering Pty Ltd, In the Matter of (1997) 24 ACSR 683; Solarite v York [2002] NSWSC 411; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37.

[29]Viktorija Pty Limited v Kevin Gerard Lindsay and Anor [2005] NSWSC 1274 t [9].

[30]Kirrak Pty Ltd v Compass Scaffolding and Plant Hire Pty Ltd [2007] NSWSC 1002 at [3].

[31]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 per Hayne J at 295.

[32]Montage Group Pty Ltd v Wong (No 2) [2011] NSWSC 774 per Black J at [6]; Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 per Kindgren J at 353 and 354.

[33]Montage Group Pty Ltd v Wong (No 2) [2011] NSWSC 774 per Black J at [6]; Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 per Kindgren J at 353 and 354.

[34]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 per McLelland J at 787; Mayfair Realty Pty Ltd v Glen and Ors [2011] QSC 77 per Dalton J at [6].

[35]Corporations Act 2001, s. 459H(1)(b).

[36]Fleur de Lys Pty Ltd v Jarrett(2004) 51 ACSR 238[2004] FCA 1357 at 30.

[37]Macleay Nominees Pty Ltd v Belle Property East Pty Ltd[2001] NSWSC 743.

[38]Corporations Act 2001, s. 459H(1)(a).

[39]Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296; 25 ACSR 675 at 694.

[40]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; 24 ACSR 353; 15 ACLC 1001; [1997] FCA 681

[41]Corporations Act 2001, s. 459J(1)(b).

[42]Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 [2005] NSWCA 24 Per Young J, otherwise agreeing with Santow J.

[43] Fitness First Australia Pty Ltd v Dubow (2011) 251 FLR 241; (2011) 84 ACSR 296[2011] NSWSC 531BC201103791, leave to appeal refused in Dubow v Fitness First Australia Pty Ltd [2012] NSWCA 323.

[44]Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35; [2002] WASCA 196.

[45]IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Co Ltd[2003] FCA 533.  Kisimul Holdings Pty Ltd v Clear Position Pty Ltd[2014] NSWCA 262.

[46]Eumina Investments Pty Ltd v Westpac Banking Corp (1998) 84 FCR 454; 16 ACLC 1440; [1998] FCA 824.

[47]Willaire Pty Ltd v Equititrust Ltd (2010) 81 ACSR 200; [2010] QCA 350.

[48]Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 516; 21 ALR 425 at 427.

[49]Rozenbes v Kronhill (1956) 95 CLR 407 at 417.

[50]Corporations Act 2001, s. 459F, s.459C.

[51]Corporations Act 2001, s.459C(2).

[52]Corporations Act 2001, s.459C(2)(a).