Attention to Detail: The Importance of Compliance when Issuing Creditor’s Statutory Demands

The recent cases of Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 (Kisimul) and In the Matter of EGE Foods Australia Pty Ltd [2014] NSWSC 983 (EGE Foods) serve to emphasise the importance of compliance with legislative requirements when issuing and seeking to rely upon creditor’s statutory demands to wind up a company.

The Cases

In Kisimul, the petitioning creditor had failed to comply with s459E(3) of the Corporations Act 2001 (the Act) by failing to include a statement in the affidavits verifying two statutory demands that there was no genuine dispute about the debts owed by the debtor.

The creditor in EGE Foods had both failed to annex supporting documents to the statutory demand and to the affidavit verifying the statutory demand (though ultimately this was not found to be fatal to the creditor’s case) and had failed to comply with the requirements of the form prescribed by the Supreme Court (Corporations) Rules 1999 (NSW) by stating, in the affidavit verifying the statutory demand, that the debt was due and payable and that there was no genuine dispute as to the debt. The Court also discussed the issue of service, finding that ordinary pre-paid post encompassed registered post, and confirming the well-established precedent that the onus is on the debtor company to raise a doubt relating to the service of a statutory demand.

In both cases the statutory demands were set aside and the creditors not entitled to proceed with winding up proceedings against the debtor companies.

Reasons to Set Aside Statutory Demands

In Kisimul, the debtor company made an application pursuant to s459G of the Act to set aside the statutory demands on the basis that there was a genuine dispute in relation to the debts, that the debtor company had an offset claim, and for “some other reason” (being the lack of a proper affidavit) in accordance with s459J(1)(b) of the Act. The debtor company in EGE Foods had not made an application to set aside the statutory demand but the Court invoked its discretion under s467A of the Act to dismiss the winding up application that ensued.

In both cases, the Court found that whilst the absence of a properly completed affidavit did not of itself make the statutory demand defective, it prevented the creditor from relying upon the presumption of insolvency that automatically follows from non-compliance with a valid statutory demand. The creditors were thus prevented from winding up the debtor companies on the basis of non-compliance with the statutory demand.

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