Timely reinforcement of the need for companies to act quickly when served with a Statutory Demand
A recent decision handed down by the ACT Supreme Court in Adhesive Pro Pty Ltd v Blackrock Supplies Pty Ltd (2015) ACTSC 288 ('Adhesive Pro') highlights the detrimental consequences of failing to properly respond to a statutory demand within 21 days of service.
Section 459G(3) of the Corporations Act 2001 (Cth) ('the Act') requires that an application to set aside a statutory demand may only be made within 21 days ('the time period') after the demand has been served on the company. An application is only made in accordance with s459G if:
- an affidavit in support of the application is filed with the Court; and
- a copy of the application and affidavit are served on the person who served the demand on the company before the time period.
Adhesive Pro follows the High Court’s decision in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, in which the full bench of the Court stated that a Court does not have power to extend the time in which proceedings may be commenced in order to set aside a statutory demand.
In Adhesive Pro, the plaintiff lodged the application and accompanying affidavit for filing with the Court Registry on the 20th day after it had been served with the statutory demand. However, due to an administrative backlog at the Court, the documents were only sealed by the Registry and provided to the plaintiff on the 24th day after service of the statutory demand. In an attempt to avoid serving the documents outside the required time period, the plaintiff served copies of its application and affidavit that were not stamped, signed or otherwise marked by the Registry to show that the Court had accepted them.
The plaintiff argued it was sufficient that a copy of the originating process identified the return date for the application and that there was no requirement under the Court Rules that the served copy of the application include a proceeding number or a seal of the Court or any other marking that would indicate that the document had been filed with the Court. Mossop AdJ rejected this argument stating that notwithstanding evidence of the defective administrative process adopted in the Registry of the Court, service out of time was not allowed.
Mossop AdJ’s decision may appear unduly harsh however this is consistent with decisions made in other Australian courts which adhere to the strict time lines in relation to the filing of an application to set aside a statutory demand within the time period, despite the delay being attributable to Court processes. In the case of Elite Motor Campers Australia v Leisureport Pty Ltd 9 (1996) 22 ACSR 235, Spender J stated that the delay in Court processing ‘cannot prevail over the absolute nature of the requirements of s459G of the Corporations Law’. Similarly, in Australian Food Company Pty Ltd v O’Donnell (2002) WASC 129, the application to set aside the statutory demand did contain the Court’s stamp but did not have a return date. However, Master Bradmeyer dismissed the application because the applicant failed to serve the application within the time limit.
Adhesive Pro emphasises and highlights the importance of companies acting immediately in responding to a statutory demand when served and the drastic consequences that follow in failing to take action to avoid the presumption of insolvency.
If you require further information or have any queries in relation to the issues raised in this article, please do not hesitate to contact Maria Kerhoulas, Partner or Joni Burns, Solicitor.
Maria Kerhoulas, Partner
Joni Burns, Solicitor