Have you been served yet? Making an application to set aside a statutory demand

 

A recent case of the Federal Court of Australia has highlighted the importance of ensuring service of an application to set aside a statutory demand under s 459G(3)(b) of the Corporations Act 2001 (Cth) within the 21 day period provided, in the proper manner. This case also serves as a timely reminder to professional services providers acting as the registered office of a company to act quickly to bring a statutory demand to the attention of that company.

In Sheraz Pty Limited v Rumsley [2019] FCA 493, the plaintiff (Sheraz) filed an application seeking to set aside a statutory demand served on it by the defendant Alan Rumsley (Rumsley), on the basis of an alleged genuine dispute over the debt. Rumsley sought orders that the Court dismiss Sheraz’s application on the basis that it was not served within the 21 day period prescribed by section 459G(3)(b) of the Act.

 

Background

Rumsley issued a statutory demand on Sheraz on 24 January 2019 (Demand), which was served by hand delivery to Sheraz’s registered office on the same date and provided a street address for service of any application under s459G(2). It was common ground that Sheraz had until 14 February 2019 to comply with the Demand or seek to set it aside.

On 7 February 2019, Sheraz filed an application to set aside the Demand (Application).

At 5pm on 14 February 2019, a representative of Sheraz emailed Rumsley the Application and a supporting affidavit (together with a covering letter and outline of submissions).

Rumsley deposed that the Application did not come to his attention until 25 February 2019 – after the expiration of the 21-day period (whether by email or post).

The Court accepted that whilst the Application was filed within the requisite period (and therefore the Court had jurisdiction under s459G(1)), it was not received by Rumsley until 25 February 2019. The question then became whether the Application had been made within the relevant period.

 

Principles

The Court has no power to extend the period within which an application may be “made”. The Court will not act to subsequently cure the failure to make an application within 21 days with a retrospective substituted service order.

It goes almost without saying that service of an application and supporting affidavit is a requisite element of “making” an application under s549G(3).

The Court has found that a document needs to come to the actual attention of the recipient and that email transmission cannot constitute service for the purposes of s459G(3) unless there was evidence before the Court that the documents transmitted electronically were either, first, actually received in a reasonably form or, secondly, the case fell within a special exception permitted by the applicable Court rules (in this instance, that service by email was permissible where an email address had been given as the address for service).

 

Decision

The Court found that in the present case, the address given for service was a physical address and no email address was provided. In any event, the evidence did not support a finding that the Application came to Rumsley’s attention within the 21 day period required by the Act. Furthermore, the Court observed that there was no evidence of any agreement to the effect that Rumsley would accept service by email.

The Court acknowledged the significant risk on the part of Sheraz in purporting to serve the Application late on the final day for service provided by the Act, by a method of service not provided for in the Demand, and where the “movements of the email recipient, and so the prospects that the recipient will check emails, are unknown”.

In recognising the rigid and inflexible time frames provided by s459G, the Court found that Sheraz had failed to meet the onus required to establish service of the Application within that period (notably, because of the evidence that Rumsley had not received the Application within the period prescribed), and the Application was dismissed.

For that reason, the Court was not required to determine the substantive question of whether there was a genuine dispute in respect of the underlying debt identified in the Demand.

Interestingly, Counsel for Sheraz foreshadowed that, in the event of the dismissal of the Application, it intended to seek declaratory relief based upon the asserted non-compliance with the Demand including, if necessary, injunctive relief to prevent Rumsley from relying upon that non-compliance for the purpose of a winding-up application. It is well-established that the threshold for such relief is high, and it is only in exceptional circumstances that a Court will entertain actions of such nature. The matter is yet to return to the Court on this question.

 

Key takeaways

A party which serves a statutory demand should be cautious to ensure that it has good and proper evidence of the service of the demand, to ensure that they can rely upon it (including in defending any application to set aside by a debtor, which may otherwise be proven to be made out of time).

From the opposing perspective, this case serves as a timely reminder to a party which receives a statutory demand (whether addressed to them personally, or served at their office as a registered office) to:

  1. act swiftly after service of the demand, so that a demand recipient is not prejudiced from taking action if they believe there is a genuine dispute or other basis upon which to set it aside;
  2. ensure that any application to set aside a statutory demand is filed (in the proper form) and served within the relevant period, at the address for service provided in the demand – whether physical or electronic; and
  3. have sufficient evidence to substantiate any claims it has as to service of an application to set aside a demand.

 

A firm which takes receipt of a statutory demand as the registered office of a company should alert the company without delay of the receipt of the statutory demand, to ensure that the company is not prejudiced in any action it may wish to take to seek to set aside the demand. Public holidays and weekends are included within the 21 day period. Failure to comply within this period is highly likely to preclude a party from challenging the demand. As a practical tip, the company office would be well-advised to put in place a procedure for identifying the date and time at which any demand is received – this may become useful if the time in which any application is made to set aside a statutory demand is challenged by the creditor.

If the issuer of a statutory demand agrees to accept by email service of an application to set aside the demand (despite having provided a physical address for service in the demand), it is advisable that this arrangement is documented in writing to which the Court can refer should the question of service be called into question.   

Further, where effecting service by email, notwithstanding the applicable provisions relating to timing of receipt of documents sent by electronic communications, a prudent applicant may wish to apply a “read receipt” to any email effecting service, and exhibit the notification received to any affidavit of service.

If you have any questions about the process for serving a statutory demand, or are served with a statutory demand, we suggest that you seek advice at the earliest opportunity and inform your lawyer of the date on which you served (or were served with) the demand.

 

 

 

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