In the recent decision of Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASCA 61, the Court of Appeal in Western Australia confirmed that a statutory demand issued under section 459E(1) of the Corporations Act 2001 (Cth) (Corporations Act) can be made for a portion of a debt.

BACKGROUND

The Commonwealth Bank of Australia (CBA) issued a statutory demand to Garuda Aviation Pty Ltd (Garuda) for the payment of $2 million, which was the undisputed portion of a total debt of around $6.9 million.

Garuda sought to set aside the statutory demand on the basis of a decision of Justice Blue of the South Australian Supreme Court Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd [2011] SASC 165. In Candetti, Blue J held that a statutory demand could not be issued for a portion of a debt

Following Candetti, Master Sanderson set aside the statutory demand.

CBA appealed Master Sanderson’s decision.

THE LEGISLATION

Section 459E of the Corporations Act allows a party to issue a statutory demand for a debt which is due and payable, provided that debt is greater than the statutory minimum.

If the company receiving the demand then fails to comply, a rebuttable presumption of insolvency arises (section 459C(2)(a)).

THE PRINCIPLES

The Court considered both the text and purpose of these sections of the Corporations Act and held:

  • the Corporations Act recognises that non-payment of an undisputed portion of a larger debt may be a sufficient basis for a presumption of insolvency under section 459C (section 459H);
  • nothing in section 459E precludes a statutory demand being issued for a portion of a debt;
  • the term ‘debt’ is not inflexible and generally refers to ‘a liability or obligation to pay or render something’;
  • section 459 intends to provide a quick method of resolving the issue of a company’s insolvency;
  • if creditors were unable to claim for a portion of a debt, a known dispute in relation to any portion of the debt would prevent a presumption of insolvency under section 459C(2)(a) by virtue of an inability to swear the required affidavit that there is no genuine dispute (regardless of whether the undisputed amount exceeded the statutory minimum); and
  • the portion of the debt described in the demand must be defined in clear and unambiguous terms, so that the company served with the demand can properly assess if there is a genuine dispute as to the amount demanded or any off-setting claim.

In applying these principles, the Court found in favour of CBA and, allowed the appeal.

COMMENT

This case confirms that, despite the confusion created by the case of Candetti, a statutory demand can be issued for a portion of a debt, provided that the undisputed portion exceeds the statutory minimum and the debt demanded is described in a clear and unambiguous manner.