The Supreme Court of New South Wales has recently set aside a creditor’s statutory demand against Yuanda Australia Pty Ltd, highlighting the importance of ensuring that a statutory demand accurately reflects an undisputed debt before relying on the statutory demand procedure.
The proceeding arose from a statutory demand issued by Fusion Legal Pty Ltd seeking approximately $588,000 in unpaid legal fees. Yuanda applied to set aside the demand, arguing, among other things, that there were genuine disputes concerning the amounts claimed and payments said to have already been made or applied towards the invoices.
Genuine Disputes Over the Amount Claimed
The Court reiterated that the threshold for establishing a genuine dispute in a statutory demand proceeding is relatively low. A company does not need to establish its defence conclusively; rather, it must demonstrate a serious question to be tried or a dispute requiring further investigation.
In this case, the Court identified several matters giving rise to genuine disputes, including whether some legal services had been provided to another Yuanda entity rather than Yuanda Australia, whether approximately $600,000 held in trust had been or should have been applied towards outstanding invoices, and whether amounts included in the statutory demand overlapped with amounts being pursued in other proceedings.
Material Overstatement Can Also Justify Setting Aside a Demand
The Court also considered s 459J(1)(b) of the Corporations Act 2001 (Cth), which permits a statutory demand to be set aside where there is “some other reason” to do so.
The Court observed that the statutory demand procedure is not intended to be used where a creditor claims a substantially overstated amount. Such a demand can place significant pressure on the recipient company, which must either respond to the demand or urgently commence proceedings to have it set aside.
Here, the Court considered the inconsistencies concerning amounts held in trust and the overlap with other claims sufficiently significant to make continued reliance on the demand inappropriate.
The statutory demand was therefore set aside, with Fusion Legal ordered to pay Yuanda’s costs.
Practical Implications
For creditors, the decision reinforces the need to confirm that the debt relied upon is properly calculated, presently due and not affected by genuine disputes, credits or competing claims before issuing a statutory demand.
For companies receiving a statutory demand, the decision is a reminder to seek advice promptly and assess whether there is a genuine dispute, offsetting claim or other basis on which the demand may be challenged.