Statutory demands and defects in affidavits

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9 September 2011

In the recent decision of CCH Workflow Solutions Pty Ltd v E Discovery Australia Pty Ltd [2011] FCA 994 the Federal Court considered whether the presumption of insolvency due to non-compliance with a statutory demand arose where the affidavit accompanying the statutory demand in question was witnessed by a person who was not a registered Justice of the Peace.

Facts

CCH applied to wind up E Discovery on the grounds of insolvency under section 459P Corporations Act 2001 (Cth).  CCH relied on the presumption of insolvency created by E Discovery’s failure to comply with a statutory demand. E Discovery had not satisfied the statutory demand or applied to set it aside. 

The only issue that might impact on the presumed insolvency of the Defendant was the fact that there might be a technical defect in the affidavit in support of the initial statutory demand.

Defect in the affidavit

The affidavit in support of the statutory demand was witnessed by Mr Felipe, who first became registered as a Justice of the Peace in New South Whales on 24 April 2001.

In or about 2003, legislative amendments resulted in a requirement for Justices of the Peace to renew their appointment, instead of being appointed for life.  Mr Felipe had not renewed his appointment and claimed he was not aware of the legislative requirement to do so before witnessing the affidavit.  Technically, Mr Felipe was not a registered Justice of the Peace at the time of witnessing the affidavit. This was the only defect in the statutory demand and supporting affidavit.

Decision

Justice Jagot held that this defect was not sufficient to prevent the presumption of insolvency arising.

Her Honour considered various authorities discussing section 459S of the Corporations Act, which provides that a company can oppose a winding up application on certain grounds, so long as the ground in question is material to the company’s solvency.

In particular, Her Honour considered Radiancy (Sales) Pty Ltd v Bimat Pty Ltd [2007] NSWSC 962, in which Justice White stated that a fraudulent attestation was “a serious omission which would have resulted in the demand being set aside had an application been made”. However, Justice White clarified that leave to oppose the winding up application would only be granted if the ground were material to prove solvency.

In CCH’s case, the failure to properly verify the affidavit due to the lapse in Mr Filippe’s registration was nothing more than inadvertence. Despite this defect, the statutory demand properly came into existence, was properly served, was not the subject of any application to be set aside and was not complied with under the Corporations Act within the requisite time.

In addition, E Discovery did not attempt to challenge the winding up application on any other ground, and had not even filed an appearance or appeared at the hearing. The defect in the affidavit was not material to proof of E Discovery’s solvency.

Comment

This case is a reminder of the serious consequences of not complying with a statutory demand. It can be the basis of a winding up application and a presumption of insolvency. The onus is then on the debtor company to rebut that presumption. 

It is now clear that any grounds for opposing such an application must be “material to proof of the relevant company’s solvency”. Arguments based on technicalities are unlikely to meet this threshold. 

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