Setting Aside Statutory Demands - In the matter of Nanevski Developments Pty Limited (No 2) [2019] NSWSC 1217

By Matthew Mulcahy

09-2019

In our previous article Dealing with Statutory Demands on statutory demands, we noted that a Court will set aside a statutory demand on any one of the four grounds set out in sections 459H and 459J of the Corporations Act 2001 ("Act"). Subsection 459J(1) sets out two of those grounds. This subsection provides that the Court may, upon an application to set aside a statutory demand, set aside the demand if it is satisfied that:

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

Most of the cases where a statutory demand has been set aside for "some other reason" involve problems relating to the accompanying affidavit.[i] The requirement for an accompanying affidavit is set out in subsection 459E(3) of the Act. This subsection provides that the demand must be accompanied by an affidavit that verifies that the debt is due and payable by the recipient company, and complies with the rules.

Courts have set aside demands for "some other reason" where an accompanying affidavit was not served with the demand[ii] or did not deal with each of the five substantive matters set out in Form 7.[iii] What is the position where an accompanying affidavit is sworn before the date of a statutory demand? Will this constitute "some other reason" why the demand should be set aside?

Justice Rees of the Supreme Court of New South Wales considered this issue in the recent decision of In the matter of Nanevski Developments Pty Limited (No 2).[iv] The statutory demand in question was dated 29 March 2019 but the accompanying affidavit was sworn two days earlier, on 27 March 2019.  The recipient of the demand applied to the court to set aside the demand, at first relying on other grounds, but later amending its application to rely on the fact that the accompanying affidavit was sworn before the date of a statutory demand as some other reason to set aside the demand.

His Honour was satisfied that the fact that the accompanying affidavit was sworn before the date of the statutory demand constituted some other reason to set aside the demand, and ordered that it be set aside. His Honour noted that there is abundant authority that an affidavit sworn before the date of a statutory demand constituted some other reason to set aside the demand. This proposition seems harsh, but its rationale is apparent from an examination of the content and purpose of subsection 459E(3) of the Act. In this regard, his Honour referred to the following well-established principles recently summarised in the decision of Wigney J in Wollongong Coal Limited v Gujarat NRE India Pty Limited[v]:

  1. An accompanying affidavit that predates a demand, even by a few days, does not or cannot verify the demand; 
  2. Such an affidavit therefore does not satisfy the requirement in subsection 459E(3) (being the requirement that the affidavit verifies that the debt is due and payable by the recipient company); 
  3. The requirement in subsection 459E(3) is an important safeguard in the statutory scheme and is therefore mandatory; and 
  4. Non-compliance with  subsection 459E(3) will justify, if not compel, the setting aside of the demand.

His Honour noted that such non-compliance with subsection 459E(3) can be cured if the creditor serves an updating affidavit. This is a further affidavit which verifies that the debt remains due and payable on the date the demand was made, and which is served either with the demand or within a reasonable time before the expiration of the 21 days available to the recipient company to apply to set aside the demand. In the present case, a director of the creditor swore a further affidavit deposing that the debt in the demand remained outstanding, but it was sworn a month after proceedings to set aside the statutory demand had been commenced and therefore could not cure the creditor's non-compliance with subsection 459E(3).

The decision removes any doubt that may have existed as to whether an accompanying affidavit was sworn before the date of the statutory demand constitutes some other reason to set aside the demand. An accompanying affidavit must be sworn on the same day as the statutory demand, otherwise it will not comply with subsection 459E(3) of the Act.


 

[i] Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed., LexisNexis Butterworths, 2012) at [7.47].

[ii] Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) (1994) 3 Tas R (NC) N20; 14 ACSR 565.

[iii] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; 20 ACSR 746.

[iv] [2019] NSWSC 1217.

[v] (2015) 104 ACSR 425; [2015] FCA 221.