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Debt Collection: COVID’s Impact on Creditor’s Statutory Demand

In the Queensland Supreme Court, the recent decision in Sunstate Land Pty Ltd v Highview Design & Constructions Pty Ltd (QSC 2020) has enforced the temporary extension to the compliance period of Creditor’s Statutory Demands.

Key Facts

On the 20th of March 2020, pursuant to section 459E of the Corporations Act 2001 (Cth), a Creditor’s Statutory Demand was issued on Sunstate Land Pty Ltd. The demand required that Sunstate pay the debt within 21 days following the date of service, being the statutory prescribed period at the time the Creditor’s Statutory Demand was issued.

On the 25th of March 2020, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (“The Act”) took effect. The Act provided for a temporary increase of the statutory compliance period to 6 months.

On the 21st of April 2020, Sunstate Land Pty Ltd filed an application to set aside the Creditor’s Statutory Demand pursuant to section 459G of the Corporations Act 2001 (Cth) on the basis that the demand was defective.

After analysing the relevant provisions of the Corporations Act 2001 (Cth) and the Coronavirus Economic Response Package Omnibus Act 2020, the Court held that the legislative response to COVID overwhelmingly influenced the circumstances and ordered to have the demand set aside.

Presumed Time of Service

One of the issues considered was whether the Creditor’s Statutory Demand was served before or after the Act took effect on the 25th of March 2020. The significance of this is that whether or not the Act applies to a Creditor’s Statutory Demand depends on the date of service of the demand as opposed to the date of issue. Whilst the Creditor’s Statutory Demand was posted on the 20th of March 2020 there was evidence that the demand was not already served until the 1st of April 2020 when the Act took effect.

Further the Court also considered the application of section 29(1) of the Acts Interpretation Act 1901 (Cth) which provides that the presumed time of service is “the ordinary course of post”[1]. As the phrase “ordinary course of post” is concerned with the delivery performance of the postal service[2]At a time when COVID was believed to be unprecedentedly impacting the natural course of business, postal services were not able to function in the same capacity as they would prior to the pandemic. It is for this reason that it would be difficult to predict an actual date of service and assure that a demand will reach the respondent within 7 days.

Setting Aside a Demand

Section 459J(1)(a) of the Corporations Act 2001 (Cth) provides that a demand can be set aside if it is defective and such defects raised cause substantial injustice. When considering the provisional COVID amendments, all demands that do not provide a compliance period of 6 months may be considered defective. However it is important to consider that the Court cannot set aside a demand merely for being defective.[3] Sunstate Land showed that the notice was fundamentally incorrect as the relevant obligations stipulated in the demand were tentatively reformed and the demand failed to consider this.[4]

However, where section 459J(1)(a) cannot be relied on, section 459J(1)(b) may provide some statutory relief. Proposing a demand be set aside on the grounds that there “is some other reason why the demand should be set aside“.[5] For the purposes of Sunstate Land, “some other reason” was said to be the magnitude of the legislative response to COVID. The enforcement of 459J(1)(b) may be encouraged where relevant circumstances can show that failing to set aside a demand would result in injustice.

Key Takeaways

  • Taking into consideration the presumed time of service, demands issued on or after the 15th of March 2020 that comply with the traditional 21 day compliance period, may be rendered defective and set aside.
  • Creditor’s Statutory Demands served on or after the commencement date of the Coronavirus Economic Response Package Omnibus Bill 2020, that do not take into consideration the provisional changes to the temporary compliance period of 6 months, will be deemed invalid and set aside.

 

[1] Acts Interpretation Act 1901 (Cth) s 29(1)

[2] Bowman & IH Bowman Pty Ltd v Durham Holdings Pty Ltd (1973) 131 CLR 8

[3] Corporations Act 2001 (Cth) s 459J(2)

[4] Sunstate Land Pty Ltd v Highview Design & Constructions Pty Ltd (QSC 2020)

[5] Corporations Act 2001 (Cth) s 459J(1)(b)

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