Statutory demands are a quick and convenient way to prove a debtor company’s insolvency. But they’re sensitive creatures. There seems to be an endless list of potential defects to make the demand challenge-worthy.
Luckily for creditors, a recent decision of the WA Court of Appeal means there is one less way for a demand to fail.
The loan and the demand
Garuda Aviation is a small WA operator that borrowed $27 million from CBA to buy a plane. The loan was secured by a mortgage over the plane.
Garuda defaulted on the loan in late 2010 and went into receivership. Garuda had paid off a chunk of the loan, and the receiver sold the plane, but there was still a decent amount owing. A portion of the overall outstanding debt was in dispute. The bank served a statutory demand for the undisputed portion, which was around $2 million.
The demand survives
Garuda applied to set aside the statutory demand on the basis that it was for only part of the total debt. It said a demand under the Corporations Act could only be made if it was for the whole debt.
The Court disagreed. There’s nothing wrong with a statutory demand for part of a debt. Where a portion of the debt is undisputed there is no reason why a creditor should not be able to serve a statutory demand for that portion, so long as it is described clearly.
Here, there was no uncertainty as to the amount demanded, so the demand survived.