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Most creditors will be aware that the threshold to successfully set aside a statutory demand on a genuine dispute basis, is a low one. Some creditors, however, will not be aware of the importance of having your ‘ducks in a row’ long before you intend on taking this step
The recent decision in JJ Armstrong Pty Ltd v Hamptee Pty Ltd is a classic example of this.
Facts
JJ Armstrong Pty Ltd conducted a construction and building business and engaged Hi 5 Painting ABN 29 766 835 591 to conduct various painting works at two building sites in Altona and Heatherton, Victoria.
In September 2016, Hi 5 issued 6 invoices to JJ Armstrong for those works. The invoices were on Hi 5’s letterhead and made numerous references to Hi 5’s business name.
JJ Armstrong made part payments towards the outstanding invoices leaving approximately $90,000 outstanding to Hi 5. On 3 January 2017, a company by the name of Hamptee Pty Ltd issued a statutory demand to JJ Armstrong, demanding payment in the sum of $76,000.00 for invoices that were allegedly owing to Hamptee.
On 17 January 2017, JJ Armstrong applied to the Court to set aside the statutory demand.
Whilst JJ Armstrong resisted the statutory demand on the genuine dispute basis alleging that the quality of the works conducted by Hi 5 gave rise to a set off, the fundamental issue to JJ Armstrong’s application was whether or not it was indebted to Hamptee.
The Court has addressed similar situations in circumstances where a debt owing by Party A to Party B is assigned to Party C. The Court will allow enforcement of an assigned debt in circumstance where that debt is legally (or equitably) assigned to the assignee.
In fact, in Bennell v Netlink Australia Pty Ltd, the Court allowed an assignment of debt to occur within the statutory demand itself where it was clear from the wording of the demand that the debt had been assigned and that the statutory demand itself could be considered notice in writing.
In Armstong there was no legal or equitable assignment and it was unreasonable for JJ Armstrong to assume that Hamptee and Hi 5 were in any way related. To remedy this aspect of the statutory demand, Hi 5/Hamptee should have notified JJ Armstrong of the assignment and made it clear to JJ Armstrong that invoices were to be paid to Hamptee despite Hi 5 completing the works.
Summary
To most businesses, issuing a creditor’s statutory demand can be a a powerful tool when attempting to recover an unpaid invoice. The decision in Armstrong is not surprising, but serves as a reminder to all businesses and companies to ensure that the name in which you are issuing your demand are correct, and not misleading in any way. Issuing a demand, whilst at first blush appears a straight forward step, is littered with potential pitfalls. Legal advice is always recommended when determining if a statutory demand is the appropriate step to take in an attempt to recover debts, and in the drafting and service of the document. Please contact Anders Mahoney of SLF Lawyers at amahoney@slflawyers.com.au, should you require legal advice regarding statutory demands.
[1] [2017] VSC 427 [2] In addition to the allowance prescribed under section 459E of the Corporations Act 2001 [3] (2002) 42 ACSR 680