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Specificity in Statutory Demands - Australia

For many creditors, issuing a creditor’s statutory demand pursuant to section 459E of the Corporations Act 2001 (Cth) (the Act) against a debtor company is now commonplace. 

However, creditors cannot afford to be nonchalant about their use and preparation of statutory demands, as a failure to prepare properly may result in the demand being set aside. In particular, creditors must ensure that the debt, the subject of the demand, is articulated clearly. 

In many instances, the nature of the debt may be simple, and creditors will easily fulfil their obligations of clarity. However, creditors with more complex factual scenarios may not enjoy the same effortless approach. 

The Principles 

The threshold for sufficiency of description is expressed well in LSI Australia v LSI Holdings; LSI Australia v LSI Consulting [2007] NSWSC 1406, where Austin J held that the description of the debt: (a) must allow a reasonable person, in the shoes of a director of the debtor company, 

(b) to identify the general nature of the debt to a sufficient degree; such that 

(c) the director can assess whether there is a genuine dispute as to the debt (including an offsetting claim) or a defect in the demand. 

The Court’s Approach 

Robb J in the Supreme Court of NSW case In the matter of Oakdale Queensland Pty Limited; In the matter of HLHG Pty Limited; In the matter of ABN 163 546 852 Pty Ltd; In the matter of ABN 163 772 601 Pty Ltd [2014] NSWSC 1958 (Oakdale) considered the Deputy Commissioner of Taxation’s description of a debt, articulated essentially as an RBA deficit and being, in substance, a compilation of various debts, incurred for various reasons, statutorily bundled together and described as a single debt. 

Whilst in Oakdale his Honour ultimately found that the description of debt was sufficient in the circumstances, a word of warning was issued to those, including the Deputy Commissioner, who might fail to specify debts adequately in statutory demands. 

Of more recent history are the scathing comments of Wigney J, who described a demand with a ‘fairly generic description’ as being ‘vague and ambiguous and therefore defective…deficient…and potentially misleading’ (Wollongong Coal Limited v Gujarat NRE India Pty Ltd [2015] FCA 221). In that case, the demand was set aside with the petitioning creditor (defendant) ordered to pay the costs of the demand recipient (plaintiff), His Honour opining that the recipient had been placed in a position of unfairness. 

Outcome & Next Steps 

Aside from the additional time and costs inherent in responding to an application to set aside a statutory demand, creditors who are ultimately unsuccessful in defending such proceedings may find themselves, ironically, faced with a costs order in favour of the very company from which they are seeking payment.

Polczynski Lawyers in Sydney, Australia can assist creditors by issuing statutory demands and commencing proceedings to recover debts owed. For companies that have received a statutory demand, about which there is a genuine dispute, offsetting claim, defect or some other reason to set the demand aside, Polczynski Lawyers can advise and, if appropriate, make an application pursuant to section 459G of the Act to set aside the demand.

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