Statutory Demands

Statutory Demand

A Statutory Demand is a tool under the Corporations Act 2001 (Cth) (the “Corporations Act“) that requires a debtor company to pay a debt within 21 days.

If the debtor company fails to comply with the Statutory Demand within 21 days, the debtor company is presumed insolvent which will allow the party issuing the Statutory Demand to make an application to wind up the debtor company.

A Statutory Demand needs to comply with the requirements set out in s 459E of the Corporations Act and there must not be a genuine dispute in relation to the debt (i.e. it must not be a debt that is contentious).  A debtor company can apply to the Court to have the Statutory Demand set aside under s 459G(1) of the Corporations Act if there is a genuine dispute and/or offsetting claim against the creditor.

Recent decision

The recent decision of In the matter of Linmas Holdings Pty Ltd [2023] NSWSC 791 considered whether a Statutory Demand arising from an adjudicated amount under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) was liable to be set aside on the basis of an offsetting claim.

The decision is a reminder to take urgent action on receipt of a Statutory Demand and to ensure any application to set aside the Statutory Demand is prepared without delay and with evidence that supports the basis of the application.

This is because, under section 459G(3) of the Corporations Act, an application to set aside a Statutory Demand is made in accordance with section 459G of the Corporations Act “only if”, within the 21 days period provided, an “affidavit supporting the application is filed with the Court“.

Factual background

On 4 July 2022, Linmas Holdings Pty Ltd (“Linmas“), as owner, entered into a contract with Infigo II Pty Ltd (“Infigo“) for renovation work to a building in Balmain.

On 20 February 2023, an adjudicator determined that Infigo was entitled under the SOP Act to payment of $406,990 (the “Adjudicated Amount“).

On 3 March 2023, judgment was entered in the District Court in favour of Infigo in the sum of $453,934 pursuant to s 25(1) of the SOP Act. Linmas did not dispute that the judgment amount reflected the adjudicator’s determination.

On 13 March 2023, Infigo served on Linmas a statutory demand for $453,605, being the judgment amount less an immaterial amount paid to Infigo.

On 3 April 2023, Linmas filed an application to set aside the statutory demand on the basis of an offsetting claim which was alleged to be greater than the judgment debt. The application was accompanied by an affidavit.

The decision

The Court dismissed Linmas’ application to set aside the statutory demand for payment of the adjudicated amount.

This Court found that the affidavit evidence filed at the time of filing the application to set aside the statutory demand within the prescribed 21 days did not raise the foundations of the offsetting claim relied on.   Subsequent affidavit evidence did not assist.  An application under section 459G of the Corporations Act is validly made out only if it is filed together with an affidavit supporting the application within the 21-day period provided for under the Corporations Act.

The key takeaway

The decision is a reminder that parties seeking to set aside a Statutory Demand must be careful to comply with all the formalities of such applications, including to comply with the 21-day period following service, and ensure the evidence in support of the application to set aside properly evidences the grounds for the application in accordance with the Corporations Act.