Summary

Among many technical requirements, statutory demands issued for a non-judgment debt must be accompanied by an affidavit which states, inter alia, the deponent’s belief that that there is no genuine dispute about the debt.

The formulation of words necessary to satisfy the requirement is “I believe that there is no genuine dispute about the existence or amount of the debt / any of the debts.”

A failure to comply with the requirement is fatal for the demand. It is liable to be set aside for ‘some other reason’ pursuant to s 459J(1)(b) of the Corporations Act.

Advice for creditors issuing a statutory demand

When issuing a statutory demand, compliance with s 459E(3) of the Corporations Act is compulsory if the debt is not a judgment debt.

A full copy of the required formulation of words for the affidavit accompanying a statutory demand is at Form 7 of the Supreme Court (Corporations) Rules 2013, presently accessible from the Supreme Court's 'Acts, Rules and Regulations' page on its website.

Failure to comply with Form 7 will constitute a ‘significant defect’ or ‘crucial and substantive omission’ or ‘major defect’.

If the defective demand is challenged by the debtor, the Court must set it aside for non-compliance with s 459E(3) and the regulations. The creditor runs the risk of being liable for the debtor’s costs of and associated with the defective demand.

Advice for debtors resisting a statutory demand

Check whether the affidavit accompanying a statutory demand complies with the requirements of Form 7 of the Supreme Court (Corporations) Rules 2013 (Note - the content of Form 7 is the same in NSW and Vic).

In the event of any defect, put the creditor on written notice of Kisimul and the statutory requirements decided therein. Invite them to sign orders by consent that the creditor withdraws the demand and agrees to pay the creditor’s costs of and associated with the demand.

Discussion

In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 26, the NSW Court of Appeal considered how the plaintiff debtor had applied to set aside two statutory demands on the basis of a genuine dispute, an ‘offsetting claim’, and /or ‘some other reason why the demand should be set aside.

The first instance judge held that the deficiency in the affidavits accompanying the statutory demands “…has not caused any confusion, let alone injustice to Kisimul.” The demand was not set aside.

On appeal, the full court of the NSW Court of Appeal overturned the first instance finding, on the basis that the trial judge erred in his conclusion as to the absence of ‘some other reason’ why the demand should be set aside.

The point is a highly technical one, perhaps pedantic. But the policy objectives of the statutory demand regime are intended to weed out debts where a debt is in dispute.

Thus, the Courts supposedly only deal with debts where there is no ‘genuine dispute’. Whether a subjective statement of belief in an affidavit is the correct or appropriate filter for that requirement is another matter, it is what the rules require.

In Victoria, the NSWCA decision in Kisimul is highly persuasive and very likely to be followed.

Costs

On appeal the defendant (creditor) was ordered to pay the plaintiff (debtor’s) costs of the first instance hearing. Essentially this was because the creditor had issued defective affidavits.

The parties returned to Court to argue the costs of the appeal: Kisimul Holdings Pty Ltd v Clear Position Pty Ltd (No 2) [2014] NSWCA 317. The respondent (creditor) was ordered to pay the appellant (debtor’s) costs of the appeal.

Essentially, the creditor had met with success on appeal and was awarded the costs of and associated with that appeal. Even though the appellant had filed a ‘submitting appearance save as to costs’, it was still liable to a costs order.