Setting Aside Statutory Demand Part (B) – “Some Other Reason”.

May 20, 2022



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Section 459P of the Corporations Act sets out who has standing for an application to the Court under s 459A for a winding-up order. Section 459P provides:

(1)  Any one or more of the following may apply to the Court for a company to be wound up in insolvency:

(a)  the company;

(b)  a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor);

(c)  a contributory;

(d)  a director;

(e)  a liquidator or provisional liquidator of the company;

(f)  ASIC;

(g)  a prescribed agency.

(2)  An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court:

(a)  a person who is a creditor only because of a contingent or prospective debt;

(b)  a contributory;

(c)  a director;

(d)  ASIC.

(3)  The Court may give leave if satisfied that there is a prima facie case that the company is insolvent, but not otherwise.

(4)  The Court may give leave subject to conditions.

(5)  Except as permitted by this section, a person cannot apply for a company to be wound up in insolvency.

However, s 459J sets out when the Court may set aside the demand. S 459J deals with two broad categories:

(1)  On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)  because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b)  there is some other reason why the demand should be set aside.

(2)  Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

Pitfalls for creditors seeking winding-up orders – “Some other reason”

  1. Failing to establish standing, even if the company is actually insolvent.

  2. Combining actions. Only one creditor should bring the application for winding-up. Any other creditors should simply file a notice of intention to appear and otherwise seek leave to be substituted in appropriate circumstances.

  3. Commencing winding-up proceedings before non-compliance with statutory demand.

  4. Failing to obtain leave of the court before applying a winding up order. However, this irregularity can be cured by granting leave nunc pro tunc.

  5. Serving the statutory demand with a “defect” (as defined in s 9).

  6. Statutory demand being served was served for an improper purpose or was an abuse of process.

  7. The debt not being due and payable.

  8. Serving a demand that comprises significant amounts that are known to be disputed. This can be an abuse of the regime in Pt 5.4.

  9. A creditor serving a demand at the same time as commencing debt recovery proceedings.

  10. Failing to inform the debtor of the time for payment.

  11. Substantial non-compliance with court rules.

  12. Failing to state the source of knowledge in the supporting affidavit.

  13. Failing to state in the supporting affidavit that the deponent is authorised by the creditor to make such affidavit.

  14. Failure to adequately describe multiple debts.

  15. Swearing the supporting affidavit on a date prior to the date of the demand.

  16. Ambiguity and inaccuracy in the supporting affidavit.

  17. Serving two statutory demands in relation to two separate debts arising from the same matter.

  18. Serving and withdrawing a series of demands (signed and unsigned) amounting to reckless, careless and vexatious use of the demand regime.

  19. Substantially overstating the amount of the debt if done wilfully and with the intent to harm the debtor company or where the overstatement was frivolous and vexatious.

  20. Where there was a genuine dispute as to a substantial part of the amount claimed in the demand combined with the Court’s inability to calculate the substantiated amount.

  21. Where an alternative dispute resolution clause has been effectively invoked by the plaintiff. However, a mediation or arbitration clause will not automatically entitle a plaintiff to have a demand set aside.

  22. Where a judgment which is the basis for the demand has been set aside.

  23. Failing to accompany a statutory demand, for a debt that is not a judgment debt, with a supporting affidavit.

  24. Failing to verify in the affidavit that the debt is due and payable.

  25. Failing to depose to the absence of a genuine dispute in the affidavit.

  26. Where a demand has been served in a prescribed mode, but the creditor knows that the demand has not actually come to the attention of the company, knows that the company would dispute the demand if made aware of it, refrains from bringing the demand to the actual notice of a responsible officer of the company within time, and relies on good service and the presumption of insolvency under s 459C(2)(a).

  27. Where the demand was issued by a parent purportedly on behalf of a minor.

  28. Where there is a genuine dispute as to whether the debt claimed in the demand is due and payable.

  29. Where the demand claims post-judgment interest along with a judgment debt but is not verified by affidavit.

  30. Where the debt has been assigned, failing to provide a notice of assignment and a copy of the assignment to the debtor, so as to give sufficient particulars of the debt.

  31. The creditor seeking to rely on a failure of a debtor to comply with a statutory demand where the creditor had reneged on a prior agreement to withdraw the statutory demand.
Arthur Carney, an accredited Specialist with over 40 years’ experience, leads the team at Carneys Legal. He and the team are highly experienced in navigating the Corporations Act.