The ramifications of a defect in a statutory demand

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8 April 2011

In the recent case of Sustainable Organics (Wooshaway) Pty Ltd v Ranger Loaders Pty Ltd [2011] QSC 45, the Supreme Court of Queensland confirmed that a defect in a statutory demand does not necessarily prevent the a creditor from relying on the demand to issue a winding up application. Rather the defect must have caused substantial injustice, or an abuse of process, in order for the demand to be ineffective.

Facts

A statutory demand served on a debtor in Queensland stated an address for service for the creditor in Western Australia. The debtor applied to set aside the statutory demand but failed to serve the application on time. In those circumstances, the debtor abandoned that application.

The debtor then applied to court for the following orders:

  • orders declaring that the demand failed to comply with the requirements of the Corporations Act 2001 (Cth) (Act) and was not a statutory demand for the purposes of the Act; and
  • in the alternative, orders restraining the creditor from relying upon, or assisting any other person in relying upon, the demand.

Issues

The debtor argued that the failure to specify an address for service within the jurisdiction in which the demand was served rendered the demand invalid.

While acknowledging that the failure to specify an address for service within the jurisdiction for service was a defect, the creditor submitted that this did not of itself justify either a declaration that the demand was not a statutory demand for the purposes of the Act, nor an injunction to restrain reliance upon the demand in a winding up application.

Decision

The court found that it is possible that a defect in a statutory demand can lead to the demand being ineffective, even where the debtor has failed to apply to set aside the demand in time. This might occur where the defective statutory demand has misled a debtor as to the time limits or as to the need to make an application to set aside, or where the defect is so significant so as to invalidate the demand.

In respect of this particular demand, the court concluded that the defect did not have the result of rendering the demand invalid for the purposes of the Act. The debtor had not shown that there had been an abuse of process, a collateral or ulterior purpose or some substantial injustice.

In addition, the court held that the debtor had failed to establish the grounds set out under section 1324 of the Act under which a statutory injunction may be granted.

The court dismissed the debtor’s application, refusing to make orders declaring the demand to be ineffective or preventing the creditor from relying on the demand for the purposes of issuing a winding up application.

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