Hedging your bets. How to ensure your statutory demand has been properly served

Hedging your bets

How to ensure your statutory demand has been properly served

By Phoebe Pitt MICM and Mark Wenn MICM*

Phoebe Pitt MICM

Properly used, a creditors statutory demand pursuant to s459E of the

Corporations Act 2001 (Cth) (CA)

can result in orders for the winding up of a debtor company, and an order that the creditor’s costs of the winding up be paid out of the debtor company in liquidation with priority ahead of other creditors. A recent Federal Court case again highlights the complexity for creditors in the proper use of statutory demands, particularly as regards service. In the age of “working from home” and virtual offices, where administration protocols for mail dispatch may be less sophisticated, this case is a further timely reminder of the need for rigor around the effective use of statutory demands.

Facts

In Intelogent Pty Limited v Onthego Group Pty Limited [2021] FCA 257, a creditor’s application to wind up the respondent (Onthego) under s459P CA was dismissed on the basis that –due to irregularities in service and the invocation of the effective informal service rule – the statutory demand and its supporting affidavit had been served in time.

Onthego is a purely online sporting apparel company, to which the creditor (Intelogent) provided IT services.

Intelogent issued the demand in respect of two invoices totalling approximately $25,000. Shortly before the demand was prepared, Onthego had vacated its registered office (a fact known to Intelogent) and was working from the mezzanine floor (Mezzanine) at its operations factory (Factory), a fact also known to Intelogent. Onthego gave evidence, which the Court accepted, that its office did not comprise the entirety of the Factory, but solely the Mezzanine. The relevant director, Mr Spencer, sometimes worked from his office on the Mezzanine but also often worked from his home office in Canberra.

Intelogent sent the demand by prepaid express post on 3 February 2021, not to the address at which it was then registered with ASIC, but to the Factory (importantly, though, not to the Mezzanine). Onthego claimed that the affidavit did not come to Mr

“In the age of “working from home” and virtual offices ... this case is a further timely reminder of the need for rigor around the effective use of statutory demands.”

Spencer’s attention until 10 February 2021, when he opened the envelope which had been left on his desk in his office on the Mezzanine.

It was not in contention as between the parties that Onthego paid the demanded amount in full on 1 March 2021. The crucial issue was whether the statutory demand was served on or before 8 February 2021, the latest date allowable for the 21 day compliance period for the demand to have expired, and thereby giving rise to an act of insolvency that is the typical foundation for a subsequent winding up application. Intelogent submitted that the demanded amount was paid out of time and the winding up application ought to proceed, a matter resisted by Onthego.

Interplay between legislative requirements

S109X CA provides that a document may be served on a company by leaving it at, or posting it to, the company’s registered office (s109X(1) (a)), being the address registered with ASIC. Subsection 1(b) provides for personal service on a director.

S28A of the Acts Interpretation Act 1901 (Cth) (AIA) provides that –unless a contrary intention appears –a document may be served by leaving it at, or sending it by pre-paid post to, the head office, a registered office or a principal office of the company. In turn, s29 AIA provides that unless a contrary intention is proven, service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter (and unless provided otherwise, effected at the time the letter would ordinarily be delivered; according to section 160 of the Evidence Act 1995 (Cth) (EA), the seventh working day after having being posted).

The Federal Court has consistently held since 2001 that s109X CA is intended to be “facultative and permissive only”, and that service in accordance with s28A AIA may be valid.

Absent compliance with those provisions, a document may be informally served; such service being effected as at the time that the particular mode of service brought the document to the actual attention of a responsible officer (the onus of proof being borne by the party seeking to invoke the rule).

“S28A of the Acts Interpretation Act 1901 (Cth) (AIA) provides that – unless a contrary intention appears – a document may be served by leaving it at, or sending it by pre-paid post to, the head office, a registered office or a principal office of the company.”

Court’s consideration

Intelogent submitted that, as it was aware that Onthego had moved its physical office to the Factory, it ➤

addressed the demand to the Factory as Onthego’s head office in effecting service under s28A AIA.

Her Honour Justice Farrell noted: 1. “[S]trict proof of service and the timing of service is required.

The Court will not lightly draw inferences or make assumptions as to the timing of service”; 2. It may be an abuse of process for a creditor to serve a statutory demand at a registered office at a time the creditor knows it is unoccupied, although any potential abuse may be cured by a separate email notification; 3. The express post envelope was not addressed to Onthego’s recorded registered office (Onthego having vacated that address) or otherwise personally served on Mr Spencer or the other director, and so s109X

CA was not enlivened; 4. The express post envelope was not addressed to Onthego specifically at the office on the

Mezzanine (being the relevant office). Accordingly, the AIA was not engaged and s160 EA had no operation; 5. Inexplicably and extraordinarily – given both Onthego and

Intelogent were internet-based companies, Intelogent itself being an IT service provider – Intelogent did not email the demand to

Mr Spencer; The express post envelope and its contents actually came to the attention of Mr

Spencer on 10 February 2021, and were informally served when he found it on his desk in an office on the Mezzanine level. The 21 day period (for the purpose of s459F and in turn s459Q CA) started to run from that date.

The demand having been found to have come to the attention of the debtor on 10 February 2021 meant that Onthego properly satisfied the requirements of the statutory demand by making payment of the full amount within the 21 day period of compliance, on 1 March 2021. The winding up application was accordingly dismissed with costs.

Key takeaways

1. Service is the most critical determinant to the question of not only whether a debtor company has complied with a statutory demand, but whether a creditor has standing (by reason of the existence of an act of insolvency) to issue a winding up application against a debtor company. A party should not rely upon the ASIC records as to the registered address if it is known to the creditor that the company has vacated that address, should undertake proper preliminary investigations, and always consider whether it would be prudent to personally serve a director with the demand; 2. Increased prevalence of work from home arrangements without the systems and procedures for effective mail management and dispatch, make it even more important to consider using informal service of demands in tandem with ordinary post, by emailing the demand to the director, and using ‘read receipts’ to assist in proving that the demand came to the director’s attention. As is clear from the judgment of Sifris J in In the

Matter of Kornucopia Pty Ltd (No 1) [2019] VSC 756, it is incumbent upon the debtor company to adduce proof of non-delivery; with non-receipt being distinct and separate from non-delivery, and generally insufficient to displace the relevant presumption; 3. In commencing a winding up application in the event of noncompliance with a statutory demand which has been served using multiple methods, a creditor should be cautious to wait until the 21-day period of each separate method has expired (noting the relevant EA requirements) where questions exist in relation to effective service using ordinary post thereby minimising the scope for a dismissal on the basis of an irregularity in calculating the time under s459F(2)(b) CA; and 4. Finally, only consider taking advice from solicitors who practise this area as technicalities around the formal requirements of the demand, and its service, can easily trip up inexperienced practitioners.

*Phoebe Pitt MICM Special Counsel Mills Oakley T: (03) 9605 0931 E: ppitt@millsoakley.com.au

*Mark Wenn MICM Partner Mills Oakley T: (03) 9605 0913 E: mwenn@millsoakley.com.au

“Service is the most critical determinant to the question of not only whether a debtor company has complied with a statutory demand, but whether a creditor has standing (by reason of the existence of an act of insolvency) to issue a winding up application against a debtor company.”