A Legal Lifeline: Navigate Statutory Demands with Confidence and Precision
Accountants and Lawyers: A Collaborative Relationship
Accountants and Lawyers have long collaborated due to their complementary skills. The growth of corporations brings with it more opportunities to work together in safeguarding the legal and financial interests of clients. The insolvency regime is one such common ground and a Creditor’s Statutory Demand (“Statutory Demand”) is a key area of collaboration.
Understanding a Statutory Demand
A Statutory Demand is usually the first step in a winding up/liquidation application. Accounting firms are often listed as registered offices in the ASIC register, which means they are often the first to receive a Statutory Demand for their clients.
A Statutory Demand is a formal notice issued under section 459E of the Corporations Act 2001 (“the Act”) by a creditor to a company demanding payment of a due debt. Once served, a company has 21 days to respond - either by making a payment in full, reaching an agreement or filing an application to set aside the Statutory Demand. It is possible for a Statutory Demand to be served before a Court judgment for a debt has been obtained. In that case a simple supporting affidavit is required. The document itself appears as a simple and innocuous document, but a failure to respond within the strict 21-day period will result in the presumption of insolvency, paving the way for winding up proceedings. It is not possible for the Court to extend the 21-day period.
The recent Federal Court decision in Dyirranga Ltd v Deputy Commissioner of Taxation [2024] FCA 411 (“The Dyirranga case”) underscores the importance of timely and appropriate handling of these documents.
The Dyirranga Case
In this case, the Deputy Commissioner of Taxation served a Statutory Demand on Dyirranga Ltd’s (“Dyirranga”) on 18 January 2024 making 8 February 2024 the date upon which the 21-day period expired for the purposes of section 459G of the Act. Dyrirranga instructed its solicitors on 7 February 2024 to file an application to set aside the Statutory Demand. The application was eventually filed via the Federal Court online portal on 8 February 2024, however the Court registry did not on that day seal the documents or advise of a hearing date for the application (those things did not occur for another two business days). Dyirranga’s lawyers served the filed documents on the Creditor without a Court seal, return date or proceeding number.
The Court considered numerous authorities concerning applications to set aside a Statutory Demand. The fact that the documents served on the 21st day did not include a Court seal, a proceeding number or a return date had the effect that Dyirranga had not complied with the requirements of the Act.
The proceeding was dismissed.
Lessons from the decision
The Court’s decision in the Dyirranga case and earlier authorities highlights the unforgiving nature of the legislative provisions of the Corporations Act and the grave consequences of non-compliance. There is no room for communication lapses, delays and administrative oversights. To avoid non-compliance, accounting firms must:
- Implement Procedures and Protocols
Time is of the essence. As accounting firms are often where a Statutory Demand is served, it is critical that they have appropriate protocols in place to avoid any kind of delay in notifying their clients of a Statutory Demand. They must have watertight internal processes in place that deal specifically with Statutory Demands (there is no suggestion of any delays or lapses by the accountants in Dyirranga)
- Ensure Robust Communication
Robust internal processes are strengthened via clear and transparent communication. Once a Statutory Demand is received, the accountant must take all necessary measures to alert their client via letter, email and if possible, by telephone. Good recordkeeping of all important dates from the date a Statutory Demand was received up until the 21st day will ensure accurate administrative and legal compliance.
- Educate Company directors and secretaries
Company officers must be cognizant of the need to deal with Statutory Demands immediately. If there is a genuine dispute as to the debt or some other good reason to apply to set aside the demand, the application should be finalised, filed and served well before the expiry of the 21-day period.
- Lawyers handing Statutory Demands
Naturally lawyers instructed to deal with a Statutory Demand will need to ensure that all appropriate steps are taken within the 21-day period. Knowing that the Court may not immediately provide sealed documents or a hearing date upon filing, means that it is very risky to file an application in the last couple of days of the 21-day period (we do not know full details of the communications that took place between Dyirranga and its lawyers, so we cannot comment on what happened in this case).
Conclusion
The significant upsurge of winding up activity in Australia is bringing to light some of the heavily scrutinised aspects of the insolvency regime. It calls for an effective and collaborative working relationship between accountants and lawyers, especially within the insolvency space. The Dyirranga is a stark reminder of the rigid timelines associated with Statutory Demands, and the consequences that can flow from a failure to respond within time.
At Hicks Oakley Chessell Williams, our Debt Recovery and Insolvency lawyers can provide specialised advice on issuing and responding to a Statutory Demand.
Contacts:
Authors: Matthew Hicks and Tanya Menon
Disclaimer: The content provided in this publication is intended for general informational purposes only and should not be construed as tailored advice to address specific individual or organisational circumstances. While we strive to offer accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or its continued accuracy in the future. Readers are encouraged to seek professional advice or consult relevant authorities regarding their unique situations.
