KXBbwAs is well known, the consequences of allowing a statutory demand served on a company to expire can be severe.  First of all, under the Corporations Act, a presumption of insolvency arises against that company.  Secondly, an application brought by the company after expiry to set aside the statutory demand on the grounds of a genuine dispute as to the relevant debt will be incompetent and is liable to be dismissed.  Thirdly, the creditor is then able to proceed with an application to wind up the company.

Problems relating to the expiry of statutory demands or other important notices, such as Director Penalty Notices issued by the Australian Taxation Office, arise frequently when a company’s external registered office (often its accountant’s office) has inadequate procedures in place to: collect mail received at the address it nominates for its clients’ registered offices; record the date that correspondence and notices are received; and then pass the correspondence and notices to clients in a prompt fashion.

A problem of that kind arose In the Matter of Futre Developments Pty Limited [2014] NSWSC 1712.  In order to be able to proceed with its application to set aside a statutory demand, Futre Developments had to satisfy the Supreme Court that its registered office had been served with the statutory demand on or after 18 September 2014.  In that way, its application filed on 9 October 2014 to set aside the statutory demand would not have expired (being within 21 days after service of the statutory demand).  The creditor asserted that service of the statutory demand occurred on 17 September 2014, which was supported by Australia Post’s records.

If the creditor was correct, the application to set aside would have been out of time.  Futre Development’s accountant, who maintained the registered office for that company, gave evidence of his usual mail delivery, collection and opening processes.  His evidence was that he had opened the envelope containing the statutory demand on 19 September 2014 and that he stamped it as received that day.  His evidence was that the earliest it could have been received at his office’s  letterbox was 18 September 2014.

Under scrutiny during cross examination, however, the accountant’s system for delivering proper registered office services did not hold up.  Some mail came to be delivered to his letterbox and some to his PO Box but it was not clear which occurred in this instance.  The accountant could not be sure that he attended the office on 18 September 2014 at all and his calendar did not clear matters up.  Thus, the mail collected by him on 19 September 2014 could have been there on 17 September 2014, as asserted by the creditor.

The best evidence available to the Court, therefore, was that the statutory demand had been served on Futre Developments’ registered office maintained by its accountant on 17 September 2014.  Futre Developments’ application to set aside the statutory demand was therefore out of time.  Its application was dismissed and it had to pay the creditor’s costs.   To avoid being wound up by the creditor, it would then have had to pay the amount demanded.

The case is a lesson for companies that maintain an external registered office with their accountant, solicitor or some other person.  The procedures in place at the registered office to collect and receipt important correspondence and notices on a daily basis, and then promptly bring those to the attention of clients, must be of the highest order.  Companies should enquire about the procedures in place at their registered offices and be satisfied that correspondence and notices sent there are dealt with appropriately.  For the accountants, solicitors and others whose premises are nominated as their clients’ registered offices, there is a degree of risk involved in that role but also the opportunity to provide an additional quality service to clients, and to be the first informed when issues arise for clients that require additional advice and assistance.

At Everingham Solomons, our Commercial and Dispute Resolution teams are well equipped to advise you on corporate governance issues and to promptly address problems such as that experienced by Futre Developments when they arise because Helping You is Our Business.

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