You’ve been served! Or have you? – Service of statutory demands and applications to set aside

In Kookaburra Education Resources Pty Limited v MacGear Limited Partnership,¹ the Federal Court considered an application by the recipient of a statutory demand (Kookaburra) to set the demand aside on the basis that service of the demand was ineffective.

Kookaburra argued that service of the demand had been ineffective due to technical non-compliance with the service provisions in the Corporations Act 2001 (Cth) (Act) and the Service and Execution of Process Act 1992 (Cth) (SEPA).

The issuer (MacGear) argued that service had been effective, and that Kookaburra’s application to set aside the statutory demand had not been made within the required 21 day period.

Background

Both Kookaburra and MacGear operate wholesale businesses in Australia.  

Between June and October 2020, MacGear provided various goods to Kookaburra, namely hand sanitising gel, disposable face masks and disposable gloves.  

Kookaburra failed to pay MacGear, and MacGear issued a statutory demand dated 19 February 2021 to Kookaburra demanding payment of $1,040,895.95 (Demand).

The Demand specified MacGear’s address for service of any application to set aside the Demand as being care of MacGear’s solicitors, McInnes Wilson Lawyers (MCW), in Brisbane, QLD.

The Demand was served as follows:

• On Friday 19 February 2021, MCW sent the Demand by express post and by registered post to Kookaburra’s registered office at 226A Harbour Drive, Coffs Harbour, NSW.
• On Monday 22 February 2021, MCW sent an email to Kookaburra’s lawyers, DWF Australia (DWF), advising that the Demand had been sent by express and registered post on 19 February 2021 and attaching a courtesy electronic copy of the Demand.

However, all did not go as planned.  As it turned out:

Kookaburra had an automatic diversion for post addressed to its registered office to a post office box which appears to have been held by Kookaburra’s accountants.

The express post version of the Demand was delivered to the post office box on Tuesday 23 February 2021, and the registered post version was delivered to the post office box on Friday 26 February 2021.

There was evidence that Kookaburra’s accountants did receive the Demand on 23 February 2021, and that they called one of the directors of Kookaburra to advise them of the Demand and emailed a copy of the Demand to Kookaburra on that same day.  There was also evidence that Kookaburra had sent the Demand on to its lawyers, DWF, on 23 February 2021.

Kookaburra subsequently filed an application to set aside the Demand (Application).  Service of the Application occurred as follows:

• On Tuesday 16 March 2021, DWF emailed unfiled copies of the originating process and supporting affidavits (Application Documents) to MCW.
• On Wednesday 17 March 2021, DWF filed the Application Documents.
• On Thursday 18 March 2021, DWF emailed filed and sealed copies of the Application Documents to MCW.

The Application and issues

Kookaburra raised a number of arguments in its Application, including that:

• as the Demand involved interstate service between NSW and QLD, the Demand had to be served in accordance with SEPA, including the use of the formal Form 1 under SEPA.  As this had not been done, service was ineffective (SEPA Argument);
• alternatively, the Demand had never been served at Kookaburra’s registered office and so had never been properly served (Ineffective Service Argument); and
• alternatively, the Demand was defective as it specified an interstate address for the service of any application to set it aside which is non-compliant with the prescribed form for a statutory demand (Interstate Address Argument).

MacGear on the other hand argued that:

• the Demand was served on 23 February 2021 given the evidence that Kookaburra received the Demand on that date; and
• the Application had to be served within 21 days of service of the Demand, which in this case meant that it should have been served on or before 16 March 2021.  As the Application was not served until 18 March 2021, the Court’s jurisdiction to hear the Application was not enlivened,

(Application Out of Time Argument).

The Decision

Justice Halley resolved the various arguments as follows.

As to the SEPA Argument, Halley J held that:

• it is clear that SEPA does not apply to service of statutory demands;
• SEPA applies only to documents by which proceedings are commenced or witnesses are brought before the courts;² and
• this is consistent with the limited authority that has previously considered this issue.

As to the Ineffective Service Argument, Halley J held that:

• section 109X of the Act regulates service of documents on companies.  However, this section is facultative not proscriptive³;
• whether or not there has been good service of a document depends on whether the serving party can prove to the Court’s satisfaction that the document in fact came to the attention of an officer of the company⁴  and
• in this case, there was clear evidence that the Demand in fact came to the attention of an officer of Kookaburra on 23 February 2021, and that there was effective service on that date.

As to the Interstate Address Argument, Halley J held that:

• it is true that the Act and the Corporations Regulations 2001 (Cth) (specifically regulation 1.0.03 and Schedule 1) provide that a statutory demand must be in the form of Form 509H, and that Form 509H must specify the address for service of the creditor, and that address must be in the State or Territory in which the demand is served on the debtor company;⁵
• in this case, the Demand did not specify an address for service for MacGear in NSW; and
• this may well have constituted a defect in the Demand that could have justified the Demand being set aside, save for the Application Out of Time Argument.

Finally, as to the Application Out of Time Argument, Halley J held that:

• it is clear from section 459G of the Act that an application to set aside a statutory demand must not only be filed within 21 days after service of the demand, but it must also be served on the issuer within 21 days after service of the demand;
• the documents that must be served are the court application and supporting affidavit(s) as filed; and
• in this case, as Kookaburra did not file and serve the Application within 21 days of the Demand being served, the Court’s jurisdiction under section 459G was not enlivened, and the Application was dismissed.

Lavan comment

This decision is an important reminder of the need for creditors and debtors alike to understand the technical requirements for the timing of service of statutory demands and applications to set aside statutory demands.

As illustrated by this case, a failure to comply with these requirements may mean that a party may lose its rights to enforce or to challenge a statutory demand.

The experienced Lavan team would be happy to help with any queries you may have about these types of matters.