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When Will a Statutory Demand be Set Aside?

The Supreme Court of New South Wales recently considered a case where the plaintiff, TZI Australia Pty Limited, applied to set aside a Statutory Demand served by the defendant, Black Ink Networks Pty Ltd, for unpaid invoices under a contract for services.

What is a Statutory Demand? A Statutory Demand is a formal notice to a debtor company to pay a debt within 21-days or face a presumption of insolvency and a winding up application. A Statutory Demand must comply with the requirements of the Corporations Act 2001 (Cth), including the prescribed form and the description of the debt.

Can the Court set aside a Statutory Demand? The Court may set aside a Statutory Demand if there is a defect in the demand that causes substantial injustice, or if there is a genuine dispute about the existence or amount of the debt, or if the debtor company has an offsetting claim against the creditor. A defect includes an irregularity, a misstatement or a misdescription of the debt or the creditor. A genuine dispute or an offsetting claim must be bona fide, truly exist in fact and have sufficient prima facie plausibility.

What did the plaintiff say? The plaintiff argued that the Statutory Demand was defective because it misstated the date of one of the invoices that constituted the debt. The plaintiff also argued that there was a genuine dispute about the debt because (a) the defendant failed to provide monthly reports and a minimum of 112 hours of services per month as required by the contract, and (b) because the defendant agreed to reduce the hours and fees in December 2022 and January 2023. The plaintiff further argued that it had offsetting claims against the defendant for breach of contract and negligence in relation to various issues involving Ricoh, Scape, Mr Jose and ELC components.

The Court’s decision: The Court rejected the plaintiff’s arguments and dismissed the application to set aside the Statutory Demand. The Court found that the misstatement of the date was not a defect that caused substantial injustice, as the invoice was clearly identifiable, and the plaintiff was not misled by the error. The Court also found that the plaintiff failed to establish a genuine dispute or offsetting claims, as the evidence did not support the plaintiff’s allegations of non-compliance, variation, breach, or negligence by the defendant. The Court ordered the plaintiff to pay the costs of the defendant.

Key takeaways: Statutory Demands can be a highly effective means of being paid money by a reluctant debtor. Their effectiveness goes together with the potential for substantial injustice to the alleged debtor. The process for drafting and serving a Statutory Demand is, for that reason, highly technical and easy to get wrong. Similarly, the process to set aside a Statutory Demand is equally technical. In both scenarios, professional advice and assistance from a solicitor is essential to avoid technical deficiencies in the Demand or to determine whether an application to set aside a Statutory Demand has merit.

For more information about commercial litigation disputes, contact David Collins in the Mullane & Lindsay litigation team.

Supreme Court Judgment – TZI Australia Pty Limited

Liability limited by a scheme approved under Professional Standards Legislation

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