The Supreme Court of WA has recently handed down judgment in KEP Management Services Pty Ltd v Goldwest Enterprises Pty Ltd [2015] WASC 132. In the judgment, the court attempted to balance debtors' and creditors' rights whilst setting aside a statutory demand on the basis of an offsetting claim.

Goldwest had provided KEP with workers under agreements entered in March 2014 and July 2014. Concerned that some workers were not entitled to work in Australia, KEP suspended Goldwest's services in November 2014 and declined to pay Goldwest's outstanding invoices. Goldwest issued a statutory demand on 9 December 2014 for approximately $500,000 worth of outstanding fees.

Of that amount, KEP successfully established that there was a dispute as to all but $190,000 of those fees on the basis of the workers' entitlement to work in Australia. KEP also argued that, as a result of Goldwest's actions, its customers had lost confidence in KEP's ability to provide legal workers and therefore took their business elsewhere. KEP alleged lost profits of roughly $3 million, which it claimed constituted an offsetting claim against the $190,000 balance of the statutory demand.

Acting Master Gething held that he was only satisfied 'by a thin margin' that an offsetting claim existed; therefore, the statutory demand would be set aside on the condition that KEP:

  1. commenced proceedings against Goldwest in respect of its offsetting claim within 28 days; and
  2. paid the sum of $190,000 into court as security within 28 days.

This decision not only reminds creditors of the low threshold for having statutory demands set aside, but also reminds debtors of the potential consequences to them of only just passing that threshold.