How to set aside a statutory demand – written by Wayne Davis, Lawyer.
A creditor’s statutory demand in a demand for payment made under section 459E of the Corporations Act 2001 (CTH) (“the Corporations Act”).
If your company has been served with a creditor’s statutory demand for payment, then you must do one of four (4) things:
- Pay the amount of the demand;
- Ask the issuing party to withdraw the demand;
- Secure or compound for the debt; or
- Apply to set the demand aside.
This article will explain how a statutory demand can be set aside.
Setting Aside a Statutory Demand
There are four (4) ways in which a statutory demand can be set aside. They are:
- If there is a genuine dispute;
- If there is an offsetting claim;
- If there is a defect in the demand causing substantial injustice; or
- Some other reason.
We will explain each of these in turn below.
If there is a genuine dispute
Section 459H(1)(a) of the Corporations Act says that a statutory demand may be set aside if the applicant can show that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates.
Firstly, the dispute must be genuine. This means that an applicant cannot simply make up a dispute which is not found in fact. The dispute must be genuine, bona fide, real and not misconceived, spurious, illusory or hypothetical. It must be more than bluster or mere assertion and must have a prima facie plausibility.
Typical examples are things like incomplete or defective works under a building contract, or unpaid invoices where the company disputes the amount of the invoice for a genuine reason.
If there is an offsetting claim
Section 459H(5) of the Corporations Act defines offsetting claim to mean:
“offsetting claim” means 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).
So essentially any genuine claim that the company can have against the issuer of the statutory demand. The test for this is the same as for genuine dispute.
An offsetting claim can any claim for damages that is for an amount of money capable ofbeing quantified, can be an offsetting claim.
The offsetting claim does not need to arise out of the same transaction or circumstances as the debt to which the statutory demand relates, but can be for something different.
If there is a defect in the demand causing substantial injustice
Section 459J(1)(a) of the Corporations Act says that a demand can be set aside because of a defect in the demand, substantial injustice will be caused.
It is not enough that there is a defect in the demand. But the defect must cause substantial injustice.
Some examples of defects causing substantial injustice include the incorrect naming of the debtor company, and the incorrect amount of the debt or interest calculation.
Some examples of defects which have been found not to cause substantial injustice include the omission of the notes, the removal of the warning box, or omission of an address for service in the same state of the registered office of the company.
Some other reason
It is possible to set aside a statutory demand for “some other reason” being a reason not outlined above. Section 459J(1)(a) of the Corporations Act says that a demand can be set aside if there is some other reason.
Other reasons have been found to include defects in the affidavit in support of the demand, or an abuse of process – for example trying to coerce a clearly solvent company to pay a disputed debt.
How to Set Aside a Statutory Demand
The proceeding to set aside a statutory demand is made by application to the Federal Court or Supreme Court in your state.
There are very strict time limits, so it is vital that you get legal advice as soon as possible.
For further information, please contact Wayne Davis, Lawyer on 07 5444 4750 or [email protected]