Practical Considerations: Challenging a creditors statutory demand

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On 21 March 2019, Justice Black considered an application to set aside a statutory demand: In the matter of Skylane Worldwide Enterprises Pty Ltd [2019] NSWSC 707.

The Court has power to set aside a creditor’s statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between a company receiving a demand and the issuer of the demand, about the existence or amount of the debt to which the demand relates.

That threshold has been held to be rather low. It is nonetheless real.

The facts in the matter before Justice Black were of no interest to anyone other than the parties, and will not be rehashed, but Justice Black considered the standard authorities on the low threshold which are worth reviewing:

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Justice Black also referred to two of his own decisions: Re Wollongong Coal Pty Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and Re Erma Properties Pty Ltd [2017] NSWSC 1748. 

In then setting aside the demand in question, Justice Black concluded that the plaintiff (recipient of the demand) had:

“not established a genuine dispute, involving more than mere bluster or assertion, being a dispute that has sufficient objective existence or prima facie plausibility to warrant further investigation and to require [the defendant] to proceed by way of contested proceedings, rather than by the issue of a creditor’s statutory demand which, if not complied with, will give rise to a presumption of insolvency.”

The case was dismissed with costs.

Lessons from the Case

The case highlights the need for:

  • A creditor, before issuing a demand, to make an objective assessment of whether there are grounds upon which the debtor may rely to assert a dispute or off-setting claim – if so, then suing for the debt may be the preferred option.

  • A debtor, upon receiving a demand, to make a proper assessment as to whether there are plausible grounds on which to seek to set it aside.

Whilst the threshold for raising a dispute is rather low, it is nonetheless real, and it will not be reached where the plaintiff does not rise above mere bluster or assertion.

Coutts can assist clients with advising clients as to both of the above steps, and represent clients in hearings on these matters, without needing to brief counsel to argue such cases.

For further information please don’t hesitate to contact:

Justin Conomy
Special Counsel
justin@couttslegal.com.au
1300 268 887

This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.