More Careful Consideration Required by Creditors in Serving Statutory Demands Lisa Dorman | January 2006
A decision of the Federal Court of Australia sitting in Western Australia has confirmed that where a statutory demand requires payment of an amount less than the judgment debt, it must be accompanied by an affidavit under section 459E(3) of the Corporations Act 2001 (the “Act”). The decision of Justice Siopis in Anderson Formrite Pty Limited v CASC Hire Pty Limited [2005] FCA 1424, disposed of an application by the debtor to set aside a statutory demand under section 459G of the Act. The creditor had obtained default judgment against the debtor in the District Court of Western Australia for monies due under hire purchase contracts. A series of agreements were made for payment of the debt by instalments. In addition, the parties had settled an earlier statutory demand by agreement that the debt be paid in instalments. There were even earlier winding up proceedings. A second statutory demand was served following a default of terms entered into by way of a deed of settlement. The statutory demand described the debt as being “the balance of the judgment of the District Court of Western Australia held at Perth…” and listed the part payments made and the balance outstanding. The demand was not accompanied by an affidavit.
The Law Section 459E(3) provides that: “Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a)
verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b)
complies with the rules.”
Section 9 of the Act provides that “the rules” are the Rules of the Federal or Supreme Courts. In this instance, the relevant Rule was r5.2 of the Federal Court (Corporations) Rules 2000 which provide: “The affidavit accompanying the demand must be in accordance with Form 7; be made by the creditor of a person with the authority of the creditor; and, must not state a proceeding number or refer to a Court proceeding in any heading or title to the affidavit.” Form 7 requires that the deponent depose that the debt (or total amount of the debts) is due and payable by the debtor company and that he or she believes there is no genuine dispute about the existence or amount of the debts.
1
TURKSLEGAL
The Parties’ Submissions The debtor argued that the only exception to compliance with s459E(3) was where the demand was for the “very amount of the judgment debt and not for any other amount” (at paragraph 43). The case of MEC Import Sales Pty Limited v Iozzelli SRL [1998] 29 ACSR 229 was relied upon in support of this argument. There was a further, secondary, argument that a genuine dispute existed between the parties as to the terms of a previous agreement to settle the dispute. The creditor accepted that it had not accompanied the demand with an affidavit but submitted that it was not necessary to do so as the debt was a judgment debt within the meaning of s459E(3) of the Act.
The Decision Justice Siopis determined that where a statutory demand is for a sum different from the judgment, the reason for exemption of the verification by way of affidavit, no longer applies. Having regard to the legislative intent of the requirement, his Honour concluded that “there is a need to identify the amount claimed by reference to the extraneous and intervening circumstances” (at paragraph 63). The rationale for exempting a statutory demand for the sum of a judgment from the need for verification by an accompanying affidavit was clear as the judgment “speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute” (at paragraph 62). It was possible, for example, that a genuine dispute could exist over the balance, and terms of any agreement to pay it, where the judgment debt had been reduced. This decision dispels the common view that once a judgment debt has been obtained, no affidavit is required. Practitioners and creditors must ensure that an affidavit accompanies any demands that are different to that which the judgment debt obtains.
For More Information Please Contact: Lisa Dorman Senior Associate T: 02 8257 5734 lisa.dorman@turkslegal.com.au
Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 11 | 350 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099
Business & Property | Commercial Disputes & Insolvency | Insurance & Financial Services Workers Compensation | Workplace Relations www.turkslegal.com.au