2020 was an extraordinary year, and the regime of statutory demands was subject to significant legislative intervention by a Federal Government desperate to support small businesses. We’ve identified three examples that will help outline where and how the statutory demand regime works in 2021.

Not sure what a Statutory Demand is? Check the footnote for the quick definition and keep your eyes peeled as we delve deeper in coming weeks.

The Service of Statutory Demands

Serving statutory demands has always been fraught with nuance; whether it be a creditor looking for certainty that the timeframe to comply with the demand has commenced, or a company seeking to challenge the statutory demand on the basis that the demand was not served properly.

In Intelogent Pty Ltd v Onthego Group Pty Ltd [2021] FCA 257 the Federal Court considered the multiple legislative provisions allowing service of a statutory demand, and in the case of Onthego Group Pty Ltd, how to serve Onthego where the company had previously vacated the registered office (but had not notified ASIC of the change).

The Federal Court reaffirmed that:

  • Section 109X of the Corporations Act was a “permissive and facultative” provision and was not the only way that documents could be served on a company; and 
  • In light of section 5C of the Corporations Act, a creditor may also serve a company with a statutory demand in accordance with section 28A of the Acts Interpretation Act 1901 – which permits service by posting documents to “the head office, a registered office or a principal office of the body corporate.”

The Federal Court also, helpfully, reaffirmed that service under section 109X of the Corporations Act may be effective on a registered office that the sender knows the company no longer occupies, subject to an abundance of judicial caution. The court noted that “while it may be an abuse of process for a creditor to serve a statutory demand at a registered office at a time the creditor knows it is unoccupied, any potential abuse may be cured by separate email notification.”

Ultimately, Intelogent Pty Ltd was not successful in establishing service under section 28A of the Acts Interpretation Act 1901 to Onthego Group’s principal office. Critically, Onthego did not occupy the whole of the premises that was purported to be their principal office. The letter needed to have been addressed with more care and detail for the creditor to be able to rely on section 28A.

The Misstated Statutory Demand

One of the significant legislative changes in 2020 was the introduction of the Coronavirus Economic Response Package Omnibus Act 2020. This omnibus act varied substantial parts of the Corporations Act 2001. It also significantly changed the statutory demand regime in regard to timing and quantum of debts.

For example – GT’s Cooking Oils Pty Ltd trading as Filtafry Newcastle [2021] NSWSC 93. The New South Wales Supreme Court considered an application by a creditor to wind up a debtor company who, allegedly, did not comply with a statutory demand. In dismissing an undefended application, the decision of the Supreme Court serves as a warning to creditors to be across recent (or not so recent) legislative changes before expending costs on enforcing a statutory demand.

The critical evidence in this case was as follows:

  • The statutory demand was served on the company on 18 May 2020 in relation to a debt of $41,471.99 which arose in relation to a default judgment in a lower court;
  • The demand required compliance within 21 days of service;
  • At the time the statutory demand was served, the Omnibus Act was in effect and the statutory period for compliance with a statutory demand was extended from 21 days to six months.

The Supreme Court, proceeding on the basis that strict compliance with the form of a statutory demand was not required, held that compliance with the Omnibus Act was an essential element of the statutory demand regime. Furthermore, that a misstatement that a debt was payable within 21 days rather than six months “would often cause substantial injustice to a debtor company”.  The Court also noted that separate to the six-month period available to a debtor company to apply to set aside a statutory demand, the presumption of insolvency being relied on by the creditor in this application was now stale under section 459C(2) of the Corporations Act 2001. This was on the basis that more than three months had elapsed after the 21-day time for compliance stated in the statutory demand (as distinct from the actual six month statutory period for compliance).

While the provisions of the Omnibus Act no longer apply from 1 January 20201, this decision serves as a timely reminder to creditors to ensure that any statutory demands comply with the law in force at the time the demand is served.

Corporate Insolvency Reforms and the Temporary Statutory Demand Regime

The end of the Coronavirus Economic Response Package Omnibus Act 2020 on 31 December 2020 saw the introduction of the Federal Government’s longer-term insolvency reform package, the equally as lengthy Corporations Amendment (Corporate Insolvency Reforms) Act 2020.

The provisions of the Omnibus Act expiring and the statutory demand regime have seemingly returned to the pre-COVID status quo. However, before issuing a statutory demand in 2021, creditors should now conduct a preliminary investigation into whether the company has accessed temporary restructuring relief.

At the time of writing this insight, companies may no longer apply for temporary restructuring relief. It remains uncertain, however, whether such a similar scheme will be reintroduced.

If you’re in need of legal counsel in regards to statutory demand, the Standard Law Co. team may be able to help. Reach out to us via our contact page.

FOOTNOTE

Statutory Demand Overview: Statutory demands are, on their face, a simple demand for repayment of debt, these demands are not intended to be used as first-instance debt collection tool, but as a means to prevent insolvent companies from continuing to trade.