Two Wrongs Don’t Make A Right - The Importance Of Getting Dates Right In Statutory Demands And Supporting Affidavits

In the recent case of ACN 114 733 569 Ltd v Income2Wealth Pty Ltd [2023] QSC 73, the Supreme Court of Queensland considered an unusual situation involving an incorrectly dated statutory demand and supporting affidavit, and an application to set that statutory demand aside. 

The case involved a statutory demand issued by Income2Wealth Pty Ltd (the Respondent) to ACN 114 733 569 Ltd (the Applicant).  The statutory demand and affidavit were served under a covering letter dated 20 December 2022.  The statutory demand was dated 21 December 2022, but as it turned out the statutory demand was actually signed on 20 December 2022.  The supporting affidavit was sworn on 20 December 2022.  The Applicant applied to set aside the statutory demand within the 21 day period on the basis that (amongst other things) the supporting affidavit pre-dated the statutory demand.  The Respondent did not put on evidence to confirm that the statutory demand and affidavit were sworn and signed on the same date until after the end of the 21 day period.

Ryan J carefully considered sections 459E, 459G and 459J of the Corporations Act 2001 (Cth) (Act) as well as the previous key authorities regarding defects in statutory demands before finding that the statutory demand should be set aside.

Background¹

The Applicant was the responsible entity of a number of managed investment schemes and the holder of an Australian Financial Services License (AFSL).  Pursuant to a deed between the Applicant and the Respondent (the Authorised Representative Deed), the Respondent was appointed as the authorised representative of the Applicant.

The Applicant’s AFSL was suspended on 23 September 2022.  On 2 November 2022, the Respondent wrote to the Applicant alleging that the suspension of the Applicant’s AFSL meant that the Applicant had breached the Authorised Representative Deed, and that the Applicant owed it more than $1 million in authorised representative fees.  In the ensuing back and forth between the parties, the Respondent threatened the service of a statutory demand.

Then, on 22 December 2022, the Respondent delivered a statutory demand for $1.2 million and a supporting affidavit to the Applicant’s PO Box.  The documents were enclosed with a covering letter dated 20 December 2022.  The statutory demand itself was dated 21 December 2022, and stated that it was supported by an affidavit dated 21 December 2022.  However, the affidavit accompanying the demand was sworn on 20 December 2022, one day before the date on the demand.

As it turned out:

• The solicitor who prepared the documents had understood that the deponent of the affidavit was not going to be able to swear the affidavit until 21 December 2022.  The statutory demand was therefore drafted on the basis that the affidavit would be sworn on 21 December 2022 and the statutory demand would be signed and issued on 21 December 2022.
• However, the deponent in fact managed to swear his affidavit on 20 December 2022 and sent the sworn affidavit to the Respondent’s solicitor on that same day.
• In the rush to finalise and issue the statutory demand and supporting affidavit on 20 December 2022, the dates in the statutory demand were not corrected.
• The Respondent’s solicitors’ mail registered confirmed that the covering letter, statutory demand and supporting affidavit were all posted on 20 December 2022.

As a result, while the statutory demand was signed on the same date that the supporting affidavit was sworn, on the face of the documents the supporting affidavit pre-dated the statutory demand by one day.

The demand and supporting affidavit came to the attention of the Applicant on 9 January 2023, when the mail was collected from the Applicant’s PO Box.

On 10 January 2023, the Applicant’s solicitors wrote to the Respondent’s solicitors, requesting that the Respondent withdraw its demand on various grounds, including that the supporting affidavit was sworn on a date prior to the date of demand.  Later that same day, the Respondent’s solicitors issued an email stating that the statutory demand was not defective.

Then on 12 January 2023, the Applicant filed an application to set aside the statutory demand.  The application and its supporting materials made the point that the affidavit served with the statutory demand pre-dated the demand by one day, and said that the affidavit referred to in the demand (being an affidavit supposedly dated 21 December 2022) had not been served on the Applicant.

It was not until several weeks later, on 6 February 2023, that the Respondent corrected the position it took on 10 January by filing affidavits in opposition to the application to set aside the demand which explained the circumstances in relation to the dates set out in the statutory demand and confirmed that the statutory demand had been signed on the same day that the supporting affidavit was sworn.

It should be noted that this evidence was not filed until after the expiry of the 21 day period for the Applicant to respond to the statutory demand, which occurred on 30 January 2023.

Legislation

Section 459E(3) of the Act provides that a statutory demand must be accompanied by an affidavit that verifies that the debt, or the total amount of the debts, is due and payable by the company.

Section 459G states that a company may apply to the Court for an order setting aside a statutory demand if the application is made within 21 days of service of the demand.

Section 459J provides that:

1. On an application under s 459G, the Court may by order set aside the demand if it is satisfied that:

a) Because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
b) There is some other reason why the demand should be set aside.

2. Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect

The arguments

The Applicant argued that it was not relying upon a defect in the demand under section 459J(1)(a).  Instead, the Applicant argued that there was inadequate verification that the debt was due and owing, which amounted to a defect in relation to the demand.  As a result, the Applicant was not required to prove substantial injustice, only that there was ‘some other reason’ that the demand should be set aside.

As to whether there was ‘some other reason’, the Applicant argued that, in the context of the statutory scheme, the requirement that the demand be accompanied by an affidavit which verifies that the debt is due and payable is mandatory because:

1. the consequence of an unanswered statutory demand was ‘radical’, namely it gave rise to the presumption of insolvency; and
2. the requirement to file an application to set aside a statutory demand within the 21-day statutory period was strict and could not be extended by the court

As for the Respondent’s claim that the supporting affidavit was in fact sworn on the same day the demand was made, the Applicant argued that:

An affidavit sworn on a date earlier than the dated stated on the statutory demand (whether or not that date is the date that the demand was in fact sent) subverts the intended operation of the statute so as to give rise to “some other reason” [under s 459J(1)(b)] to set aside the demand.

For its part, the Respondent stressed the statement in section 459J(2) that the Court must not set aside a statutory demand merely because of a defect.  It argued that the date on the statutory demand was incorrect when it was typed, amounting to a mere defect in the demand.  This engaged section 459J(1)(a) and the requirement for the Applicant to prove substantial injustice.

According to the Respondent, the history between the parties showed that there could not be any substantial injustice arising from the defect in this case.
Specifically, there had been a year of non-payments by the Applicant, clear correspondence from the Responent foreshadowing the making of a statutory demand, and then the issuing of the demand (albeit with wrongly stated dates).

The Respondent concluded:

the affidavit on its face obviously pre-dates the demand.  But when the true facts are known, that is not what happened.  There was an error – nothing more.

The decision

After extensive consideration of relevant authorities and the parties’ arguments, Ryan J ultimately granted the application to set aside the statutory demand.

His Honour held that the authorities established the following principles:

• An affidavit which is incorrect has a higher order of importance to a demand which is incorrect.
• The dominant consideration is the need to ensure the purity of the manner in which creditors follow statutory procedures for which verification is required by law.
• The legislative intention behind section 459E(3) is that the accompanying affidavit communicates a clear and unmistakeable assertion that there is a present and unconditional obligation to pay the debt demanded.
• To verify that a debt is due and payable by the debtor company, it is implicit in section 459E(3) that the accompanying affidavit must speak as to the date of the demand.  It makes no difference whether the affidavit was sworn a month or one day beforehand – it is preferable to have a clear line of delineation rather than a rule which allows some element of discretion.
• In the case of an affidavit sworn before the date of the demand, there is ‘abundant authority’ that the demand will be set aside for some reason, even absent proof of substantial injustice.

Ryan J further stated:

• The statutory demand is not just another form.  The verifying affidavit serves the public interest.
• It is not too much to ask a creditor, who stands to benefit from the statutory demand regime by a presumption of insolvency, to take care in completing the necessary documents.
• If the Respondent had produced evidence of the mistake within the 21-day period the demand might have been ‘saved’.  
• However, in circumstances where:
  1. the authorities are clear that a statutory demand is liable to be set aside if the verifying affidavit pre-dates the demand;
  2. within a day of the Applicant receiving the demand, the Applicant’s lawyer told the Respondent’s lawyer that non-concurrent dates were an issue rendering the statutory demand liable to be set aside;
  3. the Respondent and/or its lawyers apparently did not check the documents for inaccuracies and instead asserted that there was no defect in the demand; and
  4. the Respondent did not provide evidence that the affidavit and demand were sworn and signed on the same date until after the 21-day period had elapsed,

then the Applicant is entitled to take the documents at face value and the Respondent is to bear the consequences.

Lavan comment

This is a useful decision which confirms the strict requirement that a statutory demand must be verified by a supporting affidavit that is sworn on the same date as the demand and that does not pre-date the demand.

It is interesting to note that even though this was in fact done in this matter, it was the failure of the Respondent to address the error in the dates in the documents within the 21 day period for the Applicant to respond to the statutory demand that was ultimately the Respondent’s undoing.

If you have any questions regarding any of the matters arising from this case or in relation to statutory demands and supporting affidavits in general, the experienced Lavan team is here to help.