Byronvale Advisors assisted a client recently that got caught out by not keeping its company details up-to-date. So here’s their story.
The client is an Association and outsourced their operations to a third party. The third party placed themselves into voluntary administration and this caused a major problem for our client. They found themselves with no staff, no records and information, no office, and a range of events and professional development services that needed to be provided to its members. This story is not about how they continued to operate, but about a dispute they subsequently had with the Administrator.
The Administrator believed our client owed them some monies. Our client both disputed this and had a counter claim for monies the third party owed them. There was an impasse. The third party had also been the holder of the post office box key.
The impasse carried on for a while and then our client found out through a connection that they had been issued with a statutory demand. Our client had never actually received the statutory demand as it had been sent to their registered address – the post office box that the administrator who sent the statutory demand had the key for.
So why is this a problem – well the Corporations Act is pretty clear. A company is deemed to be insolvent if, after receiving a statutory demand, it fails to pay the creditor or have the demand set aside by the Court. So our client having not paid or applied to have the demand set aside was now going to be deemed insolvent and could be wound up.
So the statutory demand is a useful way to pressure a company to pay its debts. There is however a clear set of steps that must be followed.
- The debt must be for more than $2,000
- The statutory demand must be on the prescribed form and accompanied by an affidavit verifying that the debt is due and payable.
- The court can set aside a demand if there is a genuine dispute or offsetting claim (and this is a low threshold). A caveat – only use the statutory demand if there is a genuine dispute else you may face indemnity costs.
- The service place for the demand is the registered office of the company being served. They have 21 days to apply for the demand to be set aside.
So once your company receives a statutory demand several things may happen
- The company pays the demand in full;
- The company contacts the creditor and they negotiate a settlement;
- The company applied to the court to have the demand set aside;
- The company does not respond and the creditor applies to have the company would up.
As the statutory demand had been sent to the registered office of our client, our client had 21 days to apply for the demand to be set aside, pay the debt, negotiate a settlement or face being wound up. This is despite them not actually physically receiving the demand.
Luckily our client discovered they had been issued a statutory demand and negotiated a settlement but they came out of the situation whereby they ended up paying monies to the Administrator rather than receiving monies from the administrator. It also cost them some legal costs, and time.
This could all have been avoided if one simple administrative item had not been overlooked – they should have changed the registered address as soon as the third party went into administration. They would have then received the statutory demand if they had changed the registered address and then would have applied to the court to have the demand set aside as there was a genuine dispute.
The information given above is not to be considered as advice, is general in nature. No information should be accepted as authoritative advice and any reader wishing to act upon the material contained in this blog should first seek properly considered professional legal advice, which takes into account specific situations.