The insolvency moratorium the government put in place in 2020 kept insolvency numbers low. Once this was lifted on 1 January 2021, we all expected a wave of insolvencies, however, the various business support packages and lack of pressure from banks and the Australian Tax Office (ATO) gave businesses breathing room.
Businesses are now carrying significant accrued debt which will need to be dealt with now the banks and ATO have indicated they will start enforcing debts in 2022. This will add an extra layer of pressure on businesses that will need to be avoided to ensure sufficient cash flow.
recovering debt via a statutory demand
A helpful way to tidy up mounting debtor ledgers is to serve a Creditors Statutory Demand (“Statutory Demand”) which puts the debtor company on notice that if they do not pay the debt within 21 days, the debtor company will be deemed insolvent and an application can be made for its winding up. This is a powerful tool when used in the right circumstances. The Statutory Demand can be served without a judgment when accompanied by an affidavit that confirms there is no dispute as to the existence of the debt.
The recent decision of Kookaburra Educational Resources Pty Limited v MacGear Limited Partnership, in the matter of Kookaburra Educational Resources Pty Limited  FCA 797, provides important commentary on the procedure for the service of Statutory Demands and applications to set aside Statutory Demands.
The issues for determination were whether the application to set aside the demand was filed and served within the 21-day period required by statute and whether the demand itself was valid.
MacGear argued that the demand could not be set aside as Kookaburra failed to file and serve the application to set aside the demand within 21 days of service. In response, Kookaburra contended that the Demand was served incorrectly on them in the first place. Kookaburras’ arguments included that there was no service of the Demand under the Service and Execution of Process Act 1992 (Cth) (SEPA) and that there was no service of the demand at their registered office.
The court ultimately determined that the demand was brought to the attention of Kookaburra and this constituted effective informal service. Therefore, the application to set aside the demand was found not to be made within the required 21-day statutory period and was dismissed in favour of MacGear.
There were four important comments made in the judgment
SEPA has no application to the service of statutory demands. A SEPA notice is only required to be included with court documents served outside of the state of the court proceeding.
formal vs informal service
Valid service of documents rests upon whether the serving party can provide that the document came to the attention of the officer of the other company who is authorised to deal with the document. This is the only threshold test for service and therefore informal service by way of email or facsimile can be an effective service.
timing of demands
Service of a duplicate statutory demand which operates to restart the statutory period in which an application to set aside a statutory demand must be served is null and void.
Statutory demands that specify an address for service for any possible application to set aside the demand, where the address is interstate are invalid. Where this is the case, even where an application for the setting aside of a demand is made outside the statutory period, arguing the point that the return address for service is interstate, may not be a strong enough argument to set aside the demand.
Serving statutory demands for unpaid debts of $4,000 or more and where there is no genuine dispute as to the existence of the debt, continue to be a highly effective way of recovering unpaid debts. The insolvency moratorium that was in place in 2020 affected the cash flow of many businesses. With Australia coming out of lockdown, now is a good time to take action and tidy up your debtor ledgers.