Not A Guessing Game - Requirements For Statutory Demands And Supporting Affidavits

In the recent decision of Re Simmoll Pty Ltd¹ the Victorian Supreme Court considered the meaning of the term ‘debt’ for the purposes of statutory demands and provided some useful commentary as to how claims are to be articulated in statutory demands and accompanying supporting affidavits.

Background

This case concerned an application by Simmoll Pty Ltd, a registered builder in the business of constructing, maintaining and renovating homes (the Plaintiff), to set aside a statutory demand issued by Mr Marcus Brookes, the owner of a property in Sandringham, Victoria (the Defendant), who had engaged the Plaintiff to carry out over $700,000 worth of renovations to his property.

It appears that the Defendant’s claim was that he was entitled to be repaid $33,952.05 for works that he had been invoiced for and paid in full, but which had only been part performed or had not been performed at all by the Plaintiff.

However, the statutory demand for $33,952.05 issued by the Defendant and dated 21 January 2021 (the Statutory Demand) simply claimed “a debt in the sum of $33,952.05” said to be owing by the Plaintiff to the Defendant “in respect of monies paid under certain invoices”, and then attached a schedule which:

• listed 4 invoices and 5 work items relating to “joinery” which were said not to have been performed, stated and added up amounts said to be attributable to each of the “joinery” work items, and then subtracted an amount said to have been paid by the Plaintiff to a subcontractor (presumably in respect of the joinery works);
• listed the same 4 invoices and a work item relating to tiling which was said to have only been part performed, stated an amount said to be attributable to the value of the unperformed works, and then subtracted an amount said to have been paid by the Plaintiff to another subcontractor (presumably in respect of the tiling works); and
• added the subtotals for the two items above together, and then subtracted further amounts repaid by the Plaintiff to the Defendant.

Further, the affidavit in support of the Statutory Demand (the Supporting Affidavit) described the debt as “relating to payments invoiced pursuant to the building contract for works which were not performed”, attached a number of documents including the 4 invoices referred to in the Statutory Demand, and contained evidence to the effect that certain joinery and tiling work had not been performed by the Plaintiff, that the claimed amount was due and payable and had been demanded from but not paid by the Plaintiff, and that there was no genuine dispute about the existence or amount of the debt.

The Plaintiff subsequently applied to have the Statutory Demand set aside pursuant to sections 459G, 459H and 459J of the Corporations Act 2001 (Cth) (the Act).

Decision

In order to decide whether to set aside the Statutory Demand, Associate Justice Hetyey considered the following relevant questions:

• Was the Statutory Demand defective for failing to property particularise or explain the debt claimed?  If so did this give rise to a substantial injustice for the purposes of section 459J(1)(a)?
• Did the Supporting Affidavit property verify the debt for the purposes of section 459E(3)?  If not, was that ‘some other reason’ to set aside the Statutory Demand under section 459(1)(b)?
• Did the Statutory Demand claim a debt that is due and payable for the purposes of section 459E(1)(a)?  If not, was that ‘some other reason’ to set aside the Statutory Demand under section 459J(1)(b)?

Was the debt properly particularised and explained?

The Court confirmed that a statutory demand must put the debtor company on notice in an unambiguous way of (amongst other things) the nature of the debtand how the amount claimed has been composed or calculated. 

In this instance, the Court found that the Statutory Demand was vague and ambiguous because it failed to adequately explain the nature of the alleged debt.  For example, the Court noted that the legal basis of the debt was unclear as there was no reference to any alleged agreement by which the Plaintiff was to refund the Defendant for any overpayment for works or to any alleged mechanism by which such a refund was to be calculated.  The Court also noted that it was unclear which of the invoices referred to in the Statutory Demand were relevant to understanding the debt in question or how the debt had in fact been calculated. 

The Court held that Statutory Demand was defective as it had failed to properly particularise and explain the debt, and was therefore liable to be set aside under section 459J(1)(a) of the Act.

Did the Supporting Affidavit properly verify the debt?

In considering this issue, Hetyey AJ noted that if an affidavit in support of a statutory demand fails to verify the matters required by the Act and the rules of the Court, or fails to verify the nature of the debt or is ambiguous, then this may constitute ‘some other reason’ to set aside the statutory demand under section 459J(1)(b).

In this case, the Court found that the Supporting Affidavit did not substantially comply with the required form under the Court rules, did not clearly state the nature of the debt or refer to the source of the obligation on the Plaintiff to make payment, and did not reveal the basis upon which the debt set out in the Statutory Demand was calculated.

In particular, the Court observed that the Defendant’s reference to and inclusion of four invoices (which totalled $172,000 and encompassed approximately 35 items of work) was “confounding” in circumstances where the Statutory Demand did not appear to relate to all of those invoices.  The Court also noted that there were inconsistencies in the description of the debt in the Statutory Demand and in the Supporting Affidavit. 

Overall the Court found that the Supporting Affidavit and its annexures were an amalgam of confusing, inconsistent and unclear information which did not properly verify the debt claimed in the Statutory Demand, and that the substantive deficiencies and ambiguities in the Supporting Affidavit constituted ‘some other reason’ to set the Statutory Demand aside under section 459J(1)(b) of the Act.

Is the amount claimed a debt that is due and payable?

Importantly, when considering this issue Hetyey AJ noted the following:

• For the purposes of section 459E of the Act, a debt is due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action.
• Although the term is not defined in the Act, a debt has been held to mean ‘a liquidated sum in money presently due, owing and payable’ by a debtor to a creditor.
• Liquidated claims can be distinguished from a claim of damages for breach of contract or any other unliquidated claim which are not capable of supporting a statutory demand.
• The statutory presumption of insolvency in section 459C(2)(a) should be available only in clear cases of indebtedness where the reason for non-compliance with a statutory demand is an inability of the debtor company to pay and where no other inference for non-payment can be drawn, such as the debt being presently unrecoverable or unenforceable.

In this case, the Court held that the amount claimed in the Statutory Demand was not a liquidated sum due and payable in accordance with section 459E(1) of the Act, but was instead a claim for unliquidated damages for breach of contract.

As the Statutory Demand did not claim a debt which was due and payable in accordance with section 459E(1), it followed that it should be set aside for ‘some other reason’ under section 459J(1)(b).

Interestingly, Hetyey AJ commented that the position might have been different if the Defendant had framed his claim to recover the overpayment on a restitutionary basis, perhaps expressed as a claim for monies had and received or for failure of consideration. 

Lavan comment

This decision serves as a useful reminder that:

• Statutory demands and their supporting affidavits must put the debtor company on notice in an unambiguous way of the nature and legal basis of the debt, confirm that the debt is due and payable, and include an explanation as to how the amount claimed is composed or calculated.
• For the purposes of section 459E of the Act, a debt is due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action. 
• A ‘debt’ for the purposes of statutory demand has a narrower meaning than ‘debts and claims provable in a winding up’.
• Liquidated claims can be distinguished from a claim of damages for breach of contract or any other unliquidated claim which are not capable of supporting a statutory demand.
• However, some unliquidated claims might be able to be expressed as “debts” for the purposes of statutory demands.

This is in a useful decision for any parties considering whether there are or might be grounds to seek to challenge and set aside a statutory demand.  If you have any questions, the experienced Lavan team is here to help.