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Statutory Demands Overview and some common pitfalls. Wade Roper. Law Society of the Northern Territory. (1) A person may serve on a company a demand relating to:

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statutory demands overview and some common pitfalls

Statutory DemandsOverview and some common pitfalls

Wade Roper

Law Society of the Northern Territory

corporations act s459e
(1) A person may serve on a company a demand relating to:

(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least that statutory minimum; or

(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

(2) The demand:

(a) if it relates to a single debt – must specify the debt and its amount; and

(b) if it relates to 2 or more debts – must specify the total of the amounts of the debts;

(c) must require the company to pay the amount of the debt, or the total amounts of the debts, or to secure or compound for that amount or total to the creditor’s reasonable satisfaction, within 21 days after the demand is serve on the company;

Corporations Acts459E
corporations act s459e cont
Corporations Acts459E (Cont)

(d) must be in writing; and

(e) must be in the proscribed form (if any);

(f) must be signed by or on behalf of the creditor.

(3) Unless the debt, or each of the debts, is a judgement 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.

(4) [Assignee may make demand]…

(5) [Tax Liability demand]…

(6) …


1. Do we have a debt that is due and payable?

(Bonnyview Pty Ltd v David Deane & Associates P/L [2007] QSC 223, as to interest see Topfelt v State Bank of New South Wales Ltd (1993) 120 ALR 155).

2. Is the demand in the Appropriate Form?

The appropriate form is currently 509H to the Regulations. The notes in that Form constitute part of the same and must appear in the Statutory Demand. Always check for the latest version of the form before issuing any Statutory Demand – do not rely on precedents.

3. Signed by the Creditor?

Make sure the person who executes the Demand is authorised to do so – i.e. a proper officer of the Company or legal representative.

checklist cont
Checklist (Cont.)

4. The Affidavit – The Achilles Heel.

It is imperative that the Affidavit is sworn on the same day as the Demand is issued. Section 459E(3) requires that the affidavit verify the debt is due and owing as claimed in the demand. While there is some contention, a number of Courts have held that an affidavit sworn before the date of the Demand itself cannot possibly satisfy this requisite criteria (see Chadmar Enterprises P/L v IGA Distribution P/L 92005) 190 FLR 466, particularly the judgement of Templeman J and his discussion of the relevant authorities).

Although the Act specifically provides an exemption from this requirement in the case of judgment debts, that is only where the exact amount of the judgement debt is claimed. (see Anderson Formrite P/L v CASC Hire P/L (2005) 147 FCR 379).

In the Anderson decision, the Court held that a Statutory Demand which claimed less than a judgment debt required an affidavit under 459E(3). The same rationale would apply to any Demand for an amount in excess of a judgment debt – i.e. a Demand which purports to claim the judgement debt and interest thereon.

Again, check your forms for the requisite form of the Affidavit. Do not simply assume precedents are up to date.

checklist cont6
Checklist (Cont.)

5. Form 509H relevantly states in paragraph 6:

“(insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors)”

While a failure to comply may not vitiate the Demand per se, it can result in a foundation for leave to dispute the debt as owing under s459S and/or the dismissal of any winding up application under s467A- Highfield Woods P/L v Bayview Crane Hire P/L (1996) 19 ACSR

6. The Statutory Demand must be served in accordance with the Corporations Act (s109x).

To avoid any argument as to the date and time of service, the documents should be hand delivered to the Registered Office of the debtor and an affidavit of service prepared immediately thereafter.

** Recommendation: If the registered office is in another State use a firm of solicitors as agents and provide their address for service and have them effect service of the Demand.

the 21 days
The 21 Days

The time for compliance with a Demand is:

1. 21 days (s459F(b)); or

2. If an application to set aside is made, 7 days after the determination of the same if the Demand remains on foot or such other time as the Court might allow (s459F(a)).

Where the last day for compliance falls on a Saturday, Sunday or Public Holiday the effect of section 36 of the Acts Interpretation Act (Cth) and s28 of the Interpretation Act (NT) is that the application to set aside can be made on the next business day.

why issue a statutory demand
Why Issue a Statutory Demand?

Section 459C provides for a presumption of insolvency in the event a party fails to:

(a) comply with a validly issued Statutory Demand; or

(b) make application to set aside the same within the requisite timeframe (21 days).

This is a powerful presumption which can be used to found winding up proceedings.

important note

The Presumption is only good for 3 months from the effluxion of the 21 day period.

In other words, you need to finalise any winding up proceedings within that three month period or you will lose the benefit of the presumption.


A failure to comply with or make application to set aside a Statutory Demand may constitute an act of insolvency for the purposes of any funding/general agreements your client has in place.

Make sure the terms of your retainer are clear and if you are not instructed to give advice on these sort of issues, confirm that in writing.

Important Note
what to do when faced with a statutory demand
What to do when faced with a Statutory Demand

First and foremost, there is absolutely no power or discretion given to the Court to extend the 21 days under 459F other than where an application to set aside is already on foot.

If an application to set aside is not made AND served within the 21 days, the presumption arises under s 459C. Moreover, the client cannot, without leave, raise any argument to the effect that the debt claimed is not owing in any subsequent winding up proceedings which rely on the demand (s459S).

setting aside a statutory demand
Setting Aside a Statutory Demand

S459G sets out the requirements for an application to set aside.

As intimated above, the application must be made and served within the requisite 21 days.

An affidavit accompanying the application must also be filed and served (s459G(3)).

Do not forget SEPA. If you serve interstate without a SEPA notice then notwithstanding whether the application comes to the attention of the other party there will be no effective service for the purposes of s459G and the Demand will not be set aside – Elan Copra Trading P/L v JK International P/L (2005) 226 ALR 349; Marlan Financial Services P/L v New England Agricultural Traders P/L [1999] 158 FLR 256; Highfield & Woods (supra).

Serve the Application at the Address provided in the Statutory Demand – Jin Xin Investments & Trade Australia P/L v ISC Property P/L (2006) 196 FLR 350.

setting aside a statutory demand cont
Setting Aside a Statutory Demand (cont.)

A Statutory Demand may be set aside where:

1. there is a genuine dispute as to the existence or amount of the debt - s459H(a);

2. there is an offsetting claim for part or all of the debt (if for part only the balance will need to be paid in such further time as the Court allows under 459F(2)(a));

3. there is a defect in the demand which the Court is satisfied will cause substantial injustice – 459J; or

4. there is some other reason the Demand should be set aside.

genuine dispute 459h
Genuine Dispute – 459H

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785: per McLelland CJ at 787:

“It is however necessary to consider the meaning of expression “a genuine dispute” where it occurs in section of 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with the undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to (it’s) truth” (cf Eng Mee Young v Letchumanan (1980) AC 331 at 341) or “a patently feeble legal argument or an assertion of facts unsupported by evidence”.

genuine dispute 459h cont
Genuine Dispute – 459H (cont.)

Solarite Air Conditioning P/L v York International Australia P/L [2002] NSWSC 411 per Barrett J at [23]:

“…the task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon hearing of its 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has asufficent degree of cogency to be arguable, a finding of genuine dispute must follow”

offsetting claim
Offsetting Claim

Per Southwood J in Boutique Venues P/L v JACG P/L [2007] NTSC 5

1. The offsetting claim must be “arguable on the basis of facts asserted with sufficient particularity to enable the court to determine that the claim is not fanciful”: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743; Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12

2. “Anyone can make a claim to a right of set off against a creditor. What the definition in s 459H (5) requires, however, is that it be ‘genuine’. The same word in s 459H (5) has already elicited so many synonyms and shades of meaning that it will not help to add more. Its antithesis is to be seen in the word ‘artificial’. The claim for set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand which evoked it.”: JJMMR Pty Ltd v LG International Corp [2003] QCA 519 at par [18]; Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12

defect causing substantial injustice 459j 1 a
Defect Causing Substantial Injustice – 459J(1)(a)

Section 9 of the Corporations Act defines “defect” for this purpose to include:

a. an irregularity;

b. a misstatement of an amount or total;

c. a misdescription of a debt or other matter;

d. a misdescription of a person or entity.

While it was once the case that minor defects would serve, the Act now defines a Statutory Demand as including a document which “purports to be a statutory demand.”

For a consideration of when defects will rise sufficiently high enough to justify a set aside, see his Honour justice Lockhart’s decision in Topfelt as cited above.

some other reason 459j 1 b
Some other Reason – 459J(1)(b)

Some Examples:

1. Issuing a demand for an ulterior purpose;

2. Failing to state source of knowledge in affidavit verifying the same;

3. Serving 2 statutory demands in relation to debts arising from the same matter.

winding up
Winding up

The presumption under 459C does not mean a winding up order automatically follows.

It is a presumption only and is rebuttable.

It is always open to the debtor to resist the winding up by proving solvency – Ace Contractors & Staff P/L v Westgarth Development P/L [1999] FCA 728; Aussie Vic Plant Hire P/L v Esanda Finance Corp Ltd (2008)232 CLR 314.