Corporations - Winding up - Statutory demand - Whether omission to accompany with affidavit verifying debt a defect in the demand - Whether proper reason to set aside. Corporations Law ss459E, 459G, 459J. Topfelt Pty Ltd v State Bank of New South Wales Ltd [1993] FCA 589; (1994) 120 ALR 155, referred to.

Solicitors for respondent: G Barnett and Associates

COX J This is an application under the Corporations Law, s459G for an order setting aside a statutory demand served upon it by or on behalf of the respondent. The Corporations Law, s459J provides:

"On an application under s459G, the Court may by order set

aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice

will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set

aside."

2. On 12 August 1994 the applicant was served at its registered office at 15A Brisbane Street, Launceston with a document purporting to be a creditor's statutory demand for payment of debt as authorised by the Corporations Law, s459E(1). Section 459E(2) prescribes the contents of the demand and further requires that it be in the prescribed form. Section 459E(3) provides:

"Unless the debt, or each of the debts, is a judgment debt,

the demand must be accompanied by an affidavit that:

(a) verifies the debt, or the total of the amounts of the

debts, is due and payable by the company; and

(b) complies with the rules."

3. The prescribed form, (Form 509H) contains a schedule in this form:

"SCHEDULE

Description of the debt Amount of the debt

(indicate if it is a judgment debt,

giving the name of the court

and the date of the order)

...........................................................

...........................................................

...........................................................

*Total Amount"

4. The schedule to the demand served on the applicant was in this form:

"SCHEDULE

The amount of $121,195.14 being the total amount of debts as

at 1 August 1994 and shown in the loan statement attached

hereto and marked with the letter 'A'".

5. There followed three pages of a loan statement showing an increase in the opening balance by sundry debits and credits to the amount claimed. The prescribed form contains four notes dealing with:

(1) Who may sign.

(2) The statutory minimum for the amount of the debt.

(3) The requirements of an accompanying affidavit if the

debt is not a judgment debt.

(4) The rights of an assignee to make demand.

6. None of these notes was included in the form served but as no prejudice is claimed by the applicant to have resulted from their omission, it could not be said that such a defect could cause substantial injustice and that the demand should be set aside by reason of that fact. The applicant did not rely on the omission and that is clearly right in the light of the decision of Hill J in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell and Sons Pty Ltd [1994] FCA 1059; (1994) 13 ACSR 525.

7. What the applicant relies upon is the failure of the respondent to accompany the demand with an affidavit as required by s459E(3), for it is common ground that the alleged debt is not a judgment debt. Such an affidavit was served on 24 August 1994 upon the applicant's solicitors who had issued this application out of the court on 15 August 1994 and endorsed it with the statement "the applicant's address for service of documents is c/- Zeeman Kable and Page, 68 Paterson Street, Launceston in Tasmania." I would not regard that endorsement as an acknowledgment of their authority to accept service on behalf of their client of any document service of which was essential to the validity of the demand in respect of which the application was made. For present purposes I think it can properly be said that the applicant has still not been served with the affidavit as required by s459E(3) but in any event this finding is not essential to the decision I have reached.

8. I respectfully agree with Hill J in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell and Sons Pty Ltd (supra at 259) that in s459J, pars(a) and (b) should be read so as to be mutually exclusive. Thus, if the omission to accompany the demand with the required affidavit could be regarded as "a defect in the demand" it could only justify the court setting it aside if it led to substantial injustice. The applicant has placed nothing before the court which could satisfy it that substantial injustice would be caused to the applicant because of such defect unless the demand is set aside. I entertain some doubt that such an omission could be said to be a defect in the demand but it is unnecessary to express a final view on that point. The omission is capable however of constituting "some other reason why the demand should be set aside" within the meaning of par(b).

9. In Topfelt Pty Ltd v State Bank of New South Wales Ltd [1993] FCA 589; (1994) 120 ALR 155, Lockhart J adverted to the explanatory memorandum and second reading speech of the then Attorney-General when the legislation bringing into existence the amended provisions of Pt 5.4 which deal with statutory demands came before the Parliament (Act No 10/1992). He cited (at 160-161) the following passages from the explanatory memorandum which made reference to the Harmer Report (Australian Law Reform Commission on its General Insolvency Inquiry) (Report No 45))

"686 The Harmer Report proposed that a demand may be set

aside if the court is satisfied that:

- there is a substantial dispute as to whether the debt is

owing;

- the company appears to have a counter claim which may

exceed the amount of the debt; or

- the demand ought to be set aside on other grounds.

687 This last general power would enable the court to take

account of matters such as improper or invalid service and

mistakes or misstatements in the notice of demand, in

circumstances where this would severely prejudice any party.

688 The provisions in relation to the setting aside of a

statutory demand are intended to be a complete code for the

resolution of disputes involving statutory demands, and to

do so on the basis of the commercial justice of the matter,

rather than on the basis of technical deficiencies. In

particular it is intended to remove the present difficulties

which are experienced where difficulties in estimating the

extent of the debt may lead to an invalidating of the

statutory demand on the basis of a minor overstatement of

the amount due."

"Companies will no longer be able to resist statutory

demands on purely technical grounds such as a minor

misstatement of the quantity of a debt. Demands will be

able to be set aside only where injustice would otherwise be

caused."

11. In that case Lockhart J was concerned with a demand which claimed interest on a balance but which did not condescend to any particularity as to how the final amount due could be calculated. At 171 he said:

"There is no evidence before the court from the applicant of

any specific injustice that it has suffered or may suffer

because of the defects in the statutory demand. Indeed, it

vigorously contested the proceedings in the Supreme Court

relating to the exercise by the respondent of its power of

sale, both at the trial and appellate level.

Nevertheless, it is not the obligation of a debtor company

to calculate the interest which the creditor calls upon him

to pay; to make certain and specific something which the

creditor has left uncertain and unspecified. Also, in

winding up proceedings the court acts not merely inter

partes, but in the public interest. An order for winding up

operates in rem. It is in the public interest that

provisions of the Corporations Law which require a statutory

demand to state the amount of a debt that is due and

payable, should be observed."

12. In the present case although no specific injustice (or substantial injustice) has been shown to have been suffered by the applicant, it has clearly not had served upon it when the Corporations Law required it to be served an affidavit in accordance with s359E(3). It has still not received such an affidavit although its solicitors received a copy of one some 12 days after service of the demand. In Topfelt Pty Ltd v State Bank of New South Wales Ltd (supra), Lockhart J, after referring to the benefit of the presumption of insolvency gained by a creditor who issues a statutory demand if the notice is not complied with, observed (at 170):

"It is not asking too much that creditors who issue

statutory demands under the Corporations Law should ensure

that the demands are expressed in clear, correct and

unambiguous terms. If the creditors wish to have the

benefit of the presumption of insolvency, the least they can

do is to tell the debtor companies in clear terms what

amounts are due, whether they include interest or not, and,

if so, the amount."

13. Equally valid in my view is the contention that it is not asking too much of a creditor whose debt is not the subject of a judgment to verify on oath that the debt is due and payable as specifically required by the Act. This was no mere oversight by the process server to leave a relevant document at the same time as service of the demand was effected. The affidavit was not sworn until 23 August, 11 days after the service of the demand and 8 days after this application was taken out. I have no evidence as to when the application was served.

14. In my view the omission to accompany the demand with the requisite affidavit constitutes a sound reason why the demand of 10 August 1994 should be set aside. I so order.