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Small Business Debt Collection – 27 Tips and FAQ

28/10/2018 By Debt Recovery Qld

Small Business Debt Collection in QueenslandSmall business debt collection is an unfortunate but vital part of running any small business in Queensland.

If you offer goods and/or services on credit, then you will have experienced the stress and time constraints with attempting to recover these bad debts yourself.

A small business debt collection lawyer can give you advice and assistance you need to reduce the stress of having to recover bad debts from your customers/clients, and also free-up your valuable time to actually get your work done!

Our debt recovery lawyers have written this article to give you industry tips for your small business debt collection, and also answer the most common questions.

FIXED FEES – FAST RECOVERY – PROVEN RESULTS

CONTACT OUR LAWYERS – RECOVER YOUR DEBTS

OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION

Small Business Debt Collection

There are a number of things that you can do before you even enter into an agreement with a bad paying client/customer in relation to small business debt collection.

Terms and Conditions

Ensure that you have air-tight terms and conditions.  Correctly drafted terms and conditions will not help much if a debtor decided not to pay the invoice, however a good credit application or contract will maximise your chances of recovering the debt.

Good terms and conditions in a credit contract will correctly identify the parties, correctly identify a breach, and then correctly identify the remedies available to you as a result of the breach.

With good terms and conditions in a credit contract, you will be able to recover your debt collection and legal fees, prescribe a default interest rate, and take security for the debt.

Always ensure that you have a fully executed credit contract with enforceable terms of trade before you offer any goods and/or services on credit.

Conduct Credit Report Checks

Before you agree to provide your goods and/or services on credit you should do your due diligence.  Part of the due diligence procedure is to conduct credit report checks on the customer.

A credit check can be provided by a number of different credit reporting companies.

However, you can also get a credit report on a company by getting a current extract from ASIC.  The ASIC current extract has a credit score but will also show any litigation commenced against the company, any defaults or judgments lodged against the company.

In relation to small business debt collection, a current extract will also ensure that you have correctly identified the customer / client in your credit contract, which is very important if they default.

Always Check Trade References

Part of the application process should include a number of trade references.

A trade reference is a company / business that your potential credit applicant has already conducted business with on credit.

We always recommend getting at least two (2) trade references and contacting those references to ensure that your customer / client pays their debts.

Always check trade references – they might say “they are sometimes a bit late, but they always let us know and make the payment when they can”.

This might be good enough for you to engage with them, but at least you know that before entering into the agreement.

Ensure Proper Record Keeping

You should ensure that you keep proper records of all of the above.  There is no point going through the small business debt collection process above, only to not have a copy of the contract when it comes time to sue.

Keep the original credit agreement, the ASIC search and/or credit report, the trade references, and any other information safe.

We would also recommend keeping digital copies of the above also.  You would be surprised how many people come to us alleging breach of contract, but do not have a copy of the contract.

FIXED FEES – FAST RECOVERY – PROVEN RESULTS

CONTACT OUR LAWYERS – RECOVER YOUR DEBTS

OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION

Small Business Debt Collection Process

If you do the above, then it will likely make the small business debt collection process less expensive, and less time consuming.  However, inevitably as a small business offering goods and/or services on credit, you will have to recover debts from clients who have not paid their bills.

This section outlines the small business debt collection process.

Call Your Customers Who Owe the Debt

Initially, upon default – for example seven (7) days after issuing the invoice as per your terms and conditions – give the debtor a call to see why they haven’t paid.

It might be that they have genuinely forgotten, or did not receive the invoice, or another genuine reason why it has slipped through the net.

If they agree to pay, then always give the debtor a time and date on which the debt must be paid by.  Diarise that date, and then follow up on that date if the debt has not been paid.

TIP – Never leave the payment terms open-ended. Always give a time and date on which a payment needs to be made.

Whether you make one or more telephone calls to a debtor, you should always remember to do the following:

Document Everything

Have a notepad and paper and write everything down.  If they say anything, write it down.  If you make any agreements, write it down.  If they make further promises to pay, write it down.

This is important because you might need to rely of any representations made at a future date, and if you have documented it sufficiently, then this makes it a lot easier.

Going one step further, once the conversation has ended, send the debtor an email confirming what you spoke about, and any agreements made.  This email will include the exact time and date and will be good evidence if you need to rely on it in the future.

Stay Cool, Calm and Collected

There is a great old saying:

“You catch more flies with honey than you do with vinegar”

Yes, it feels personal when a debtor does not pay their invoice, but it is not personal, it is just a commercial problem.

If you get upset or personal on the telephone, or raise your voice, or react to something that the debtor says, then it may only hinder the process rather than helping.

Avoid Harassing the Debtor

There are a number of small business debt collection guidelines which say that you are not allowed to harass or hassle a debtor in relation to collecting your small business debt.  You must not:

  1. Unreasonably harass or hassle the debtor;
  2. Mislead or deceive or attempt to mislead or deceive the debtor;
  3. Act unconscionably toward the debtor – take unfair advantage of any vulnerability or disability; or
  4. Use any physical force or coercion against the debtor.

Stay Polite & Professional

Remember that this is a purely commercial matter and you should conduct yourself in a professional and commercial manner.

Find Out the Reason for Non-Payment

You should attempt to gauge the reason for the default.  The business might be having some short-term cash-flow problems, or someone could have been sick, or any number of other reasons.

There is a difference between a debtor who can’t pay and a debtor who won’t pay.

If you can gauge the reason for the breach, then it might help you to decide how to progress the matter forward.  However, debtors do not tell the truth so you should be prepared for all kinds of excuses.

Be Prepared for Excuses

We hear all kinds of excuses!  I didn’t get the invoice, we put in the wrong account number, they are waiting for a payment to come in, etc.

Be prepared for the debtor to make an excuse and prepare an answer.  Instead of treating these as excuses, treat them as problems that you can provide a solution to.

For example, if they say that they did not receive the invoice, send it to them by email while they are on the phone – then ask them if they received it.

Ask for a Good Faith Gesture

At the end of the call you should ask for a good faith gesture.

A payment toward the debt is a good thing to request because it shows that the debtor acknowledges the debt and indicates that the debt is not disputed.

If you do not get any luck from your phone calls, then you should start sending reminder letters.

Reminder Letters of Emails

Sending reminder letters or reminder emails is the next step in the small business debt collection process.

The general rule-of-thumb is that you give a debtor three (3) reminders that the debt is overdue.

You should resent the invoice with the reminder letters so that the debtor cannot say that they did not know what to pay, or how to pay, etc.

Save copies of the letters or emails in case you need to rely on them in the future, and also save any replies that you get after sending them.

Use Multiple Methods

It might be possible that a debtor company do not check their post office box for example, and so you should use a few different methods to try to get these letters in front of the debtor.

Send by mail using express post to prove delivery.  Send by email and request a delivery and read receipt.  If reasonable, you can send a text message – for example if you have communicated with the debtor by text prior to default.

Another avenue would be to send the unpaid invoices and the reminder letters to the accounts department of the debtor company, then follow up with a telephone call.

Diarise all attempts to deliver the reminder letters.

Gradually Increase Directness

If you send three (3) reminder letters, then you should increase the directness with each letter.  The first should be a friendly reminder, the second less friendly and more formal, and finally the last reminder letter should be the most formal letter before the formal letter of demand.

If you still get no response from your reminders, then you may have to get serious and send the debtor a letter of demand.

FIXED FEES – FAST RECOVERY – PROVEN RESULTS

CONTACT OUR LAWYERS – RECOVER YOUR DEBTS

OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION

Letter of Demand

A letter of demand is the first step in the debt recovery process.

The final letter of demand demands payment and foreshadows the action that you intend to take if the debtor does not pay or attempt to make repayments.

There are a number of things that you should include in your letter of demand.

Write Clearly and Professionally

You should spell out the particulars of the small business debt collection matter in the letter of demand, including all the attempts that you have made to recover the debt.

Clear, professional, and succinct communication is one of the keys to successful debt collection.

You can use bullet-points to date the list of chronological events, for example.

Know Your Rights

A letter of demand should spell out your legal rights and their legal obligations.

It is very important that you do not include a remedy available to you in law, that you are not entitled to.  It is unethical to foreshadow an action that you are not able to bring.

For example, you cannot foreshadow winding-up or bankruptcy if the debts fall below the statutory minimums.

You should always seek legal advice before threatening legal action.

Clearly Explain the Ramifications

You should clearly explain the ramifications of the action that you intend to bring if they do not comply with the letter of demand.

Bankruptcy and winding up have serious consequences for people in the building and construction industries, or real estate industry for example.

Also, explain the consequences of having a default registered against them.

Again, it is important not to foreshadow a consequence if it is not an available remedy.

Give Time for Compliance

A letter of demand must have a definite time for compliance.  You should say that payment must be made “on or before 5pm on XX November 20XX”.

If they do nothing, then you will likely have to commence legal action to recover this debt.

We have comprehensive information on letters of demand here

Attempt to Compromise and Settle

If you do not want to incur the costs of debt recovery then you should consider making an offer to settle the matter early, put it behind you, and getting on with your life.

If you are forced to go to Court to recover the debt, or write it off altogether, then you will not recover all of the costs of doing so.  So, you should consider compromising and accepting a lesser amount on a without prejudice basis.

For example, if your debt is $10,000.00 and you will be $3,000.00 out-of-pocket, then it is worth making an offer for around $7,000.00 now.  Although it may not seem like it, it is actually a great result.

We have information about settling matters early here.

Ask for a Counter-Offer

If you make a without prejudice offer to settle, then you should also ask for a counteroffer. 

This is essentially a negotiation, so the usual negotiation procedure should apply.  If you are prepared to compromise by $3,000.00 then you should come in by dropping $1,000.00 and asking that the debtor make a counteroffer.  They might offer a $2,000.00 reduction for example and you can accept that offer.

We advise using a lawyer to negotiate on your behalf on a without prejudice basis.  Read our extensive article here about Settling Litigation Early.

FIXED FEES – FAST RECOVERY – PROVEN RESULTS

CONTACT OUR LAWYERS – RECOVER YOUR DEBTS

OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION

What else can a Small Business do?

There are a number of other things that you can do.  These include alternative dispute resolution, filing a default on the debtors’ credit file, and commence legal action.

Alternative Dispute Resolution

There are a number of alternative dispute resolution methods that you can use to attempt to resolve your dispute.

You can attempt to mediate the debt dispute. This involves meeting with the debtor and a mediator and attempting to reach an agreement.

You can attempt to conciliate the agreement or engage an arbitrator to decide the debt dispute.

Read more about alternative dispute resolution on the Queensland Law Society website.

Lodge a Default on the Credit File

If you meet the criteria, then you might be able to lodge a default on the debtors’ credit file.

This means that anyone who does a credit check will be notified that they defaulted on your debt.  This will stop this debtor from doing this again to someone else and may also encourage the debtor to pay your debt, rather than having this on their credit file.

Seek Legal Advice

If all else fails, you should consider getting legal advice from a dedicated debt recovery and insolvency lawyer.  We specialise in debt recovery for small businesses, SME and corporate debts in Queensland.

A debt recovery lawyer will be able to advise you on the commercial realities of your debt recovery matter, and give you advice and assistance with your debt recovery matter and the enforcement of money orders.

FAQ Small Business Debt Collection

See below for the most asked questions in relation to small business debt recovery.

Are all debt collection services in Australia the same?

No!  There are a number of different debt collection services. From no collection no fee single person debt collectors, to debt collection practises in large law firms and everything in between.

We specialise in debt recovery, the enforcement of money orders, and insolvency.

Are Debt Collectors only for Large Companies?

Not at all.  We specialise in small business debt collection and SME debt collection.  However, the commercial realities of debt collection for small businesses may make it too expensive.

Are my Debts Are too Small?

We do not have a minimum requirement for the amount of the debt that we can attempt to collect.  However, the commercial realities of engaging a debt collection lawyer to recover a small debt may not make it a viable option.

It is not commercially sound to spend $5,000.00 to recover a $5,000.00 debt.

Are there any Additional Costs?

It depends what you instruct us to do.  There are a number of third-parties that will require payment on top of our fees.  Process servers, Court bailiffs, filing fees, express post, etc.

Can a debt be too old to recover?

Yes, six (6) years.  The Section 10 of the Limitation of Actions Act 1974 (QLD) states that:

The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action arose … (a) … an action founded on simple contract or quasi-contract

The cause of action arises in contract upon the breach of contract.

However, the six (6) year accrual can start over again.  Section 36 of the Limitation of Actions Act 1974 (QLD) states that:

Where a right of action has accrued to recover a debt or other liquidated pecuniary claim … and the person liable or accountable therefor acknowledges the claim or makes a payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment.

Can I add Collection Costs to my Debtor’s Overdue Invoice?

There is no legal right to recover the debt collection costs unless that right is contained in your credit agreement or contract.

A carefully worded contract can allow you to claim a lot more than you would be ordinarily.  This is why we always recommend getting a credit contract before offering credit to your clients.

Can I Recover Legal Costs if I Sue Someone?

The Court will usually award costs to the party who is successful in the litigation.

However, the costs awarded at a trial will not represent the actual amount of the legal costs actually spent.  You will usually only be able to recover between about 30% to 80% of the actual money spent.

Can I Refer my Debt if I don’t have any Details?

Yes, you can.  This happens quite a lot.  In debt recovery matters involving unpaid rent, it is quite common for the debtor/tenant to be evicted and not provide a forwarding address.

We can conduct a number of searches including vehicle registration searches, and other online databases to attempt to find the debtor.

We can also refer the matter to a private investigator who can perform a skip trace.

Do Debt Collectors Harass People?

I don’t know!  All I can say is that we absolutely do not.

We reasonably, and professionally recover the debt without ever harassing people.  We are lawyers, and as such we have an ethical obligation to our clients, but also self-represented people such as debtors.

How do I Submit a Debt for Collection?

We have an online debt collection portal where you can provide us with all of the information that we need, and also upload all of the documents that we require.  Upload your debt here.

How much does it Cost?

It really depends on the conduct of the debtor.

If the debtor is reasonable and agrees to pay, then just the cost of the initial consultation and letter of demand.  However, if the debtor does everything in their power to make things difficult, then the costs may escalate.

However, at every stage in the proceeding we give you advice, present to with legal options, outline how much each choice will cost, and let you make that decision.

How Overdue Should my Debt be?

It doesn’t really matter, as long as it is overdue.

However, thought should be given to attempting some small business debt collection yourself before instructing small business debt collection lawyers.

Are Lawyers Better at Recovering Debts?

Yes.  Debt collectors are good, but they can only get to a certain point before they are unable to collect.  Debt recovery lawyers can assist right from the start, through the negotiation process, through the Court or QCAT process, through to the enforcement and insolvency process.

Should I Accept a Payment Plan?

Although this might sound counter-intuitive, as a litigation lawyer we always encourage people NOT to litigate.  Litigation is stressful, expensive, and time consuming.  If you can settle on an amount that you are comfortable with, then we would mostly encourage that.

It depends on the strength of your case, the default clauses in your contract, the debtor’s financial position, and a number of other factors.

However, on the most part, we recommend attempting to resolve your debt recover matters by instructing a debt recover lawyer to negotiate on your behalf.

Do I go to QCAT or the Magistrates / District / Supreme Courts?

It is up to you.  If you have a debt less than $25,000.00 then you can commence proceedings in QCAT or the Magistrates Court.  There are advantages and disadvantages to both.

If you have a debt between $150,000.00 and $750,000.00 then you must commence proceedings in the District Court.

If you have a debt over $750,000.00 then you must commence proceedings in the Supreme Court.

What Information do I need to Provide to you to Collect a Debt?

We need proper instructions to act for a client in a debt recovery matter.  At a minimum we will need proper particulars on the creditor, the debtor, the contract or credit agreement, and particulars of the debt and the breach of the contract.

The more information you can give us, the better.

What types of Businesses use Debt Recovery Lawyers?

Any and all businesses will at some time need to recover debts.  Especially businesses that offer goods and/or services on credit to a customer / client.  Small business debt collection is just part of doing business.

We also have a lot of clients in the building and construction industries, or parallel businesses to the building and constructions industry.

Where do you Provide Debt Collection Services?

We operate our small business debt collection services in Queensland.  However, we can serve debtors in all States and Territories in Australia.

We also practise in the Federal jurisdiction, bankruptcy and liquidation for example, and so we are able to practise Australia-wide.

Will I lose my Client if I Engage a Debt Collector?

Maybe!  But do you want a customer who doesn’t pay their bills?

We are professional, ethical, and commercial in all of our dealings with a debtor or a debtor’s solicitor.

Free Fee Estimate

Add your details – select a service – and one of our team will send you a free estimate of costs

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Filed Under: Contract Litigation, Debt Recovery Qld

How to Draft a Statutory Demand – Form 509H

16/09/2018 By Debt Recovery Qld

Draft a Statutory Demand - Form 509HDo you need to know how to draft a statutory demand – Form 509H?

A statutory demand is a demand for payment pursuant to section 459E of the Corporations Act 2001 (Cth) (“the Corporations Act”).

If you are a creditor of a debtor company, and the company is unable to pay its debts when they become due and payable, then you can serve the company with a creditor’s statutory demand for payment, provided that the debt (or debts) are equal to or more than the statutory minimum of $2,000.00.

If the debtor company does not do one or more of the following, then they are presumed to be insolvent, and a creditor can take steps to wind in up in insolvency:

  1. Pay the amount of the debt; or
  2. Secure or compound for the debt; or
  3. Request that the issuer withdraw the demand; or
  4. Apply to the Federal Court to set the demand aside.

This article will explain how to draft a statutory demand – Form 509H.

If a debtor company applies to set the demand aside, and is successful because of a defect in the demand which is likely to cause substantial injustice, then you may be ordered to pay the debtor company’s legal costs for the application.

FIXED FEES – FAST TURNAROUND – PROVEN RESULTS

CONTACT OUR STATUTORY DEMAND LAWYERS

OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION

Creditor’s Statutory Demand for Payment of Debt

The form of the statutory demand is Form 509H which is found at Schedule 2 of the Corporations Regulations 2001 (Cth).  I have also extracted it and annexed Form 509H to the bottom of this article.  Please scroll to the end.

We will attempt to guide you through the process of drafting the demand and how to draft a statutory demand – Form 509H.

Name, ACN, and Address

Firstly you need to correctly Identify the debtor company.

1 Name, ACN, and Address in the Statutory Demand

When thinking about how to draft a statutory demand – Form 509H, the name and the ACN (Australian Company Number) of the debtor company must be correct, and must be able to correctly identify the debtor company.

The name and the ACN can be found by conducting a search of the database of the Australian Securities and Investments Commission (“ASIC”) website.

The address of the registered office of the company must also be correctly identified.  A company’s registered office may not be its principal place of business.  It may also be an accountant’s office, for example.  There is a section of the current extract which identifies the registered office.

Tip – You are going to have to obtain a current extract for the debtor company from ASIC in order to correctly serve the demand, so we suggest doing this now, and simply the copy (ctrl + c) and paste (ctrl + v) this information directly from the current extract, into the statutory demand.  This eliminates any possibility of user error.

Section 9 of the Corporations Act defines one of the ways a defect in the demand can exist to be a misdescription of a person or entity.  It is vital that you get this part correct, the Courts have said that “it is not asking too much” that a creditor correctly identify the debtor.

Your Name, Address and the Debt

Next, when learning how to draft a statutory demand – Form 509H, you must correctly identify your own name, address, and the amount of the debt.

2 Your Name, Address and the Debt in the stat demand

A creditor in this section must clearly identify the entity to which the debt is owed.

If the debt is owed to a person, then correctly identify the person.  If the debt is owed to a company, then correctly identify the details of the Company.

This may sound like being over-cautious but the demand should clearly identify the correct entity of the creditor.

For example, if the debt relates to an unpaid invoice for “The Company 1 Pty Ltd ACN 123 456 789” then it important that this company is identified as the creditor, not the director personally, or a subsidiary company, or other entity.

The Amount of the Debt

You must then clearly identify the amount of the debt.

3 The Amount of the Debt in the demand

Where you see an asterisk in the Form 509H then you are to keep one and delete the other.  The statutory demand form actually says “* Omit if inapplicable”.

The debt amount can relate to one debt, or a number of debts.

If your demand relates to one debt, keep the first and delete the second.  If your debt relates to a number of debts, then delete the first and keep the second.

The amount that you insert here, bust be identical to the amount that you put into the schedule.

Please refer to the section below regarding the Schedule.

Section 9 of the Corporations Act defines other ways a defect in the demand can exist to be a misstatement of an amount or total; and a misdescription of a debt or other matter.  It is vital that you also get this part correct, failure to correctly identify the creditor or the correct amount of the debt may allow the demand to be set aside, and you may have to pay costs for the application.

We offer professional advice and assistance in all things related to statutory demands

Issuing Statutory DemandsSetting Aside Statutory Demands

Amount is Due and Payable by the Company

Once that you have correctly identified the parties, and the amount of the debt, the demand must clearly state that the debt is due and payable by the debtor company.

3 The Amount of the Debt in the demand

If you are serving the statutory demand with an affidavit in support, then delete the first option and keep the second option.

The deponent is the person who has sworn or affirmed the affidavit.  This is usually the director of the creditor (if the creditor is a company) or the creditor (if a natural person).

The date of the affidavit and the date of the statutory demand must be the same.

You must state that the total amount of the debt or debts is due and payable by the debtor company.

What you Require the Debtor to do

The next section of the statutory demand let’s the debtor company know what they are required to do to comply with the statutory demand.

4 Amount is Due and Payable by the Company in the statutory demand

If you chose one (1) debt in paragraph 1, then choose one (1) debt here.  Is you chose a number of debts in paragraph 1, then choose a number of debts here too.

Then, leave the rest.  The debtor is required to pay the debt, secure or compound for the debt to the creditor’s reasonable satisfaction.  Section 3, 3(a), and 3(b) must be left in the statutory demand.

Paragraphs 4 and 5 of the Demand

Paragraphs 4 and 5 of the statutory demand are to be left exactly as they are.

5 if the debtor does not comply the wind the company up

Paragraph 4 lets the debtor company know that if they do not comply with paragraph 3, then the creditor can apply to wind the company up.

Paragraph 5 lets the debtor company know they can apply to set the demand aside (if they have grounds). It also lets the company know that a sealed copy of the application and affidavit in support must be served on the creditor within 21 days of being served with the statutory demand.

The Warning Box

Next is the warning box, warning the debtor company of the consequences of failing to respond to the statutory demand.

6 the warning box included in a statutory demand

The warning box must be left in.

Although the Courts have ruled that omission of the warning box is a defect which does not cause substantial injustice, it should simply be left in.

Address for Service of Application

Next is the address for service for copies of an application to set aside the demand and the supporting affidavits.

7 Address for Service of Application in the same state as the debtor company

The address for service of the creditor must be in the same State as the registered office of the debtor company.  So, for example if the registered office of the debtor is in VIC from a debt which arose in QLD, the address for service must be in VIC.

Although the Courts have ruled that an address for service in another State is a defect which may not cause substantial injustice, you should attempt to get an address for service in the state where the debtor company has their registered office.

Tip – You can engage a solicitor in that state to act as your “Town Agent” if you do not live in that state.  This law firm will charge a reasonable fee to accept service of the documents and provide them to you.  Google “town agent” and the State you need to have an address for service.

We offer professional advice and assistance in all things related to statutory demands

Issuing Statutory DemandsSetting Aside Statutory Demands

Debt Schedule

This is arguably the most important section of the statutory demand.

8 schedule to the stat demand must describe the debt

This section must clearly and accurately identify the debt, and the amount of the debt.

Judgment Debt

If the debt is a judgment debt, then clearly identify the judgment debt.  Add the name of the Court, the date of the order, the Court proceeding number, and anything else that you need to correctly identify the judgment debt.  Annex a copy of the judgment or money order to the statutory demand.

If the debt is a decision in the Queensland Civil and Administrative Tribunal (“QCAT”) registered in the Magistrates Court, then clearly identify the particulars of the QCAT decision to which the enforceable money order relates, along with the particulars of the registered Form 1.

Non-Judgment Debt

If the debt is not a judgment debt, you must clearly and precisely particularise the debt so that the debtor company can sufficiently identify the debt.

For example, if the debt relates to an unpaid invoice, then clearly and precisely articulate the details of the invoice.  Invoice number, date, amount, and particulars of the goods and/or services to which the invoice relates.  For example, the Description of the debt could be something like:

The non-payment of invoice number WGH664589 dated 21 October 20XX in the amount of $36,406.84 for work conducted between the dates of 27 June 20XX and 4 July 20XX at the property located at 15 Queen Street, Noosa, Qld 4573.

If you have a number of unpaid invoices, then particularise each one as above.

Then add the total amount of the unpaid invoice (or invoices) under the Amount of the debt.

Then add the total amount of the debts under Total Amount.

Annex the invoices to the affidavit in support of the statutory demand.

Tip – Put the debt schedule into a table.  Two columns, one headed Description of the debt and the other headed Amount of the debt.  Add another row for each debt.  Total in the bottom corner.  This makes the demand clear and easy to understand.

Section 9 of the Corporations Act defines other ways a defect in the demand can exist to be a misstatement of an amount or total; and a misdescription of a debt or other matter.  It is vital that you also get this part correct, failure to correctly identify the debt or the amount of the debt may allow the demand to be set aside, and you may have to pay costs for the application.

Date, Signature and Capacity

Finally, you need to date, and sign the statutory demand.

9 Date, Signature and Capacity of the person signing the stat demand

The date of the statutory demand must be the same date as the date of swearing or affirming the affidavit in support.

The statutory demand must be signed on behalf of the creditor.  If the creditor is a natural person, then the person named in the demand.  If the creditor is a company then signed by a person with capacity to sign on behalf of the company (best case – the director of the company, but can be secretary or an executive officer such as a CFO).

The statutory demand can also be signed by the solicitor acting on behalf of the company.

If signed on behalf of a partnership, or on behalf of a corporation, then you must include the name of the partnership or the corporation.

The person signing must also print their name, and put their capacity.

The capacity may be “creditor” or “director of the creditor” or “solicitor for the creditor” for example.

The Notes

Lastly, are the notes included in the statutory demand.

10 the notes must be included in the statutory demand

The notes must be left in.

Although the Courts have ruled that omission of the notes are a defect that does not cause substantial injustice, you should just keep then included in the demand.

How to Draft a Statutory Demand

Hopefully, this article helped to with how to draft a statutory demand.

We strongly recommend getting a statutory demand solicitor to draft the demand for you.

If a debtor company applies to set the demand aside, and is successful because of a defect in the demand which is likely to cause substantial injustice, then you may be ordered to pay the debtor company’s legal costs for the application.

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Please see below for the Form 509H

Form 509H – Statutory Demand

 

Form 509H

(paragraph 459E(2)(e))

Corporations Act 2001

CREDITOR’S STATUTORY DEMAND FOR PAYMENT OF DEBT

 

To (name and A.C.N. or A.R.B.N. of debtor company) of (address of the company’s registered office)

1.   The company owes (name) of (address) ( “the creditor”)

* the amount of $(insert amount), being the amount of the debt described in the Schedule.

* the amount of $(insert total amount), being the total of the amounts of the debts described in the Schedule.

* 2.  The amount is due and payable by the company.

* 2.  Attached is the affidavit of (insert name of deponent of the affidavit), dated (insert date of affidavit), verifying that the amount is due and payable by the company

3.   The creditor requires the company, within 21 days after service on the company of this demand:

(a)  to pay to the creditor the * amount of the debt/ * total of the amounts of the debts; or

(b)  to secure or compound for the * amount of the debt/ * total of the amounts of the debts, to the creditor’s reasonable satisfaction.

4.   The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F(2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company.

5.   Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:

(a)  an affidavit supporting the application must be filed with the court; and

(b)  a copy of the application and a copy of the affidavit must be served on the person who served the demand.

6.   The address of the creditor for service of copies of any application and affidavit is (insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors).

SCHEDULE

 

Description of the debt                                              Amount of the debt

 

(indicate if it is a judgment debt, giving the name of the court and the date of the order)

* Total Amount

 

Dated:

signed:

Print name:                                         capacity:

 

Corporation or partnership name (if applicable):

NOTES:

1.   The form must be signed by the creditor or the creditor’s solicitor. It may be signed on behalf of a partnership by a partner, and on behalf of a corporation by a director or by the secretary or an executive officer of the corporation.

2.   The amount of the debt or, if there is more than one debt, the total of the amounts of the debts, must exceed the statutory minimum of $2,000.

3.   Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a)  verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b)  complies with the rules.

4.   A person may make a demand relating to a debt that is owed to the person as assignee.

5.   This form was amended in 2006 as part of amendments of the Corporations Regulations 2001 . For the period of 12 months after the commencement of those amendments a person may comply with paragraph 459E(2)(e) of the Corporations Act 2001 in relation to a statutory demand for payment of debt by using:

(a)  the version of this form that was in force immediately before the commencement of the amendments; or

(b)  this version of the form.

* Omit if inapplicable

A defect in the demand causing substantial injustice is one of the ways in which a demand can be set aside.  If not drafted correctly, you may be ordered to pay the costs of the application.  We recommend contacting one of our lawyers to draft your statutory demand

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Filed Under: Company Insolvency, Debt Recovery Qld, Statutory Demand Law

How to Improve your Debt Recovery Prospects

09/09/2018 By Debt Recovery Qld

Debt Recovery in Queensland

Debt Recovery can be a time consuming but necessary part of running a business in Queensland.

By failing to prepare, you are preparing to fail – Benjamin Franklin

Debt recovery in Queensland can be made a lot easier with specially drafted contract clauses.

If you run a business that offers trade credit to your customers, then it is vital that you have properly drafted contract clauses in relation to the recovery of debt.

A properly drafted credit contract by a qualified debt recovery lawyer can assist with the debt recovery process and can even elevate you to the status of a secured creditor. This is especially helpful in the event of insolvency.

Some must-have clauses in your credit contract include:

  1. A charging clause;
  2. A director’s or personal guarantee;
  3. PPSA charging clause; and
  4. Default terms.

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Charging Clause

A charging clause requires the debtor to secure the debt with an equitable interest in property (most likely Real Property or Land). This equitable interest is created from the charge and makes the creditor an equitable mortgagee, elevating the creditor to the status of a secured creditor.

This charge is a charge over company property (if any) but can also be a charge over the director’s personal property.

A charge over property is essentially a guarantee that in the event of a default, the creditor’s equitable interest in the debtor’s real property is realised and the debtor can take steps to satisfy the debt as equitable mortgagee.

Charging Clause Example

There is a lot of case law on this subject, and the wording of the charging clause may vary, however a typical charging clause example will read something like:

By entering into this credit agreement, you agree to charge in favour of XXXX, all your estate and interests in any land which you have or may later acquire, with payment of all monies that you owe to XXXX, presently or into the future.

The main advantage in having a charging clause in the credit agreement or contract is that a charge over real property has a higher priority in insolvency than an unsecured director’s guarantee.

Effectively this makes the caveat holder (or equitable mortgagee) a secured creditor.

Lodge a Caveat over the Debtors Property

A properly worded charging clause over the property of the company or the director(s) of the company allows for the creditor to lodge a caveat over the property of the company or the director(s).

Only a person with a caveatable interest can lodge a caveat in Queensland, an equitable mortgage or charge is a caveatable interest.

In Queensland, a caveator has three (3) months or fourteen (14) days after being served with a notice pursuant to section 126 of the Land Title Act 1994 (Qld) to start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat.  Section 126 says:

A caveatee of a caveat to which this section applies may serve on the caveator a notice requiring the caveator to start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat.

This means that the creditor company (caveator) has the legislated timeframe to apply to the Court for an order establishing the caveatable interest.

During this time, the effect of the caveat is such that the debtor cannot sell or transfer their interest in the land until such time as the caveat is removed.

Debt Recovery Enforcement

There are a number of different ways that a creditor can recover their debts from this point in matters of debt recovery in Qld.

The creditor may agree that the debtor may privately sell the real property and have a bank cheque for the outstanding sum at settlement (in exchange for an executed release of caveat).

Alternatively, a creditor with a correctly lodged caveat with an order of the Court is in a fantastic negotiating position, and may wish to enter into some other arrangement secured by the caveat, and the threat of selling their family home.

Another great clause to include in your credit application or contract is a director’s guarantee.

Director’s Guarantees

Essentially, a company (the creditor) enters into a contract with another company (the debtor) and the director(s) of the debtor company personally guarantees the outstanding debts owed by the debtor company (the guarantor), making the debt recovery process easier.

This means that if the company does not meet its obligations, then you are able to recover from the company and the personal guarantors of the company.

In a number of cases, the company that you are trading with may simply be trading as a small business with no real assets.  In this instance it is best to secure the obligation of the company with the personal assets of the director(s).

However, you might also be able to use a Personal Property Securities Act 2009 (Cth) (“PPSA”) to secure your property by lodging a charge on the Personal Property Securities Register (“PPSR”).

PPSA Charging Clause

The PPSA is legislation about security over personal property.  Similar to how a caveat attaches to real property, a security interest, registered on the PPSR, creates a security interest and attaches to personal property (other than real property).

A typical example would be a car finance company lodging a charge on the PPSR over the car to which the finance relates, as security for the loan.

So, if you provide goods on credit, then a PPSR charging clause allows you to charge those goods until payment for those goods has been made.

The PPSA allows a creditor in this situation to seize the goods (Collateral).  Section 123(1) of the Personal Property Securities Act 2009 (Cth) says:

A secured party may seize collateral, by any method permitted by law, if the debtor is in default under the security agreement.

PPSA law is very complicated, and we strongly advise getting legal advice from a suitably qualified legal practitioner before attempting to seize your goods

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Can you Recover your Legal Costs

There is no legal right to recovery of your debt collection and legal costs, unless awarded by the Court or tribunal, prescribed by legislation, or unless allowed for in your credit contract.

Carefully worded default clauses in your credit contract may allow you to recover most of your legal and debt collection costs.

Some examples of some good default clauses would be:

  1. Default Interest – allowing you to claim a higher rate of interest on all outstanding debts;
  2. Legal Costs – allowing you to recover all reasonably incurred legal costs on the indemnity basis;
  3. Debt Collection – allowing you to recover all non-legal costs in relation to debt collection;

Please speak to our lawyers in relation to your debt recovery clauses in your credit contract.

What is a Typical Debt Recovery Scenario?

A typical debt recovery in Queensland scenario might look something like this:

  1. The creditor and debtor companies enter into a contract to provide goods and services on credit, with the directors of the company guaranteeing the debts of the company by signing a charge over their personal real property as a security for the debt;
  2. The debtor company defaults on the debt;
  3. A demand can be made to the debtor company and the director of the debtor company under the director’s guarantee, and a caveat lodged over the director’s real property.

The Effect of Insolvency as an Unsecured Creditor

If the debtor company goes into liquidation, the creditor can usually no longer commence or sustain proceedings against the debtor company for the payment of the unpaid and unsecured debt. This then triggers the director’s guarantee.

If the director of the debtor company has guaranteed the debts of the company, then the action may be brought the director as guarantor. If the director of the debtor becomes bankrupt, the creditor can usually no longer commence or sustain proceedings against the debtor director as guarantor of the unpaid and unsecured debt.

Without charging clauses in the contract, the creditor is effectively an unsecured creditor and will have to get in the queue behind other creditors with priority, and wait for a dividend (if any) from the liquidated estate of the company and/or the bankrupt estate of the director.

An unsecured creditor will not be able to commence or continue with legal action against an insolvent company pursuant to section 471B of the Corporations Act 2001 (CTH) which says:

While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a)  a proceeding in a court against the company or in relation to property of the company; or

(b)  enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

The Effect of Insolvency as a Secured Creditor

With a charging clause and a caveat, the debtor company will be a secured creditor and will usually have priority over unsecured creditors.

Alternatively, if the debtor company goes into liquidation, then a creditor who has an interest secured by a charge at the commencement of the liquidation, and has elevated themselves to the status of a secured creditor, can take advantage of section 471C Corporations Act 2001 (CTH) which says:

Nothing in section 471B affects a secured creditor’s right to realise or otherwise deal with the security interest.

In MSI (Holdings) Pty Ltd v Mainstreet International Group Ltd [2013] QCA 27 Gotterson JA with whom White JA and Applegarth J agreed said:

The expression “security interest” is defined in s51A to have a meaning which includes a charge.

Section 9 of the Corporations Act 2001 (CTH) defines “charge” as:

“charge” means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.

So a charge is a security interest, and as such section 471B does not apply to the security interest, and the secured creditor is allowed to realise that interest, even in the event of insolvency.

Further, if you have carefully drafted contract clauses relating to the default by the debtor, then you may be able to recover most of your debt collection fees, and legal fees.

This area of law is very complex and failure to adhere to strict legal requirements and time-frames may result in serious consequences.  Once again we strongly advise getting legal advice from a suitably qualified legal practitioner

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Filed Under: Contract Litigation, Debt Recovery Qld

Settling Litigation Early – Calderbank Offers

26/08/2018 By Debt Recovery Qld

Calderbank Offers Settling Litigation EarlyCalderbank Offers are genuine offers made by a party in litigation to settle a dispute.

Calderbank offers are so called because of the case which gives them their name Calderbank v Calderbank [1975] 3 All ER 333.

Parties to a dispute (debt dispute for example) are encouraged to compromise and settle their dispute rather than taking up the Courts time with expensive litigation.

There are a number of alternative dispute resolution methods depending on the type of matter you have, they include mediation, conciliation, arbitration, expert determination, and in most cases by negotiation.

The making of offers to settle the matter, either under the Uniform Civil Procedure Rules 1999 (QLD) (“UCPR”) or under the cover of without prejudice negotiations is an essential part of the litigation process.

This article will explain all you need to know about the Calderbank offers to settle, try to explain the Calderbank offer costs consequences, give a Calderbank offer definition, and the wording of Calderbank offers.

If you have a commercial debt dispute and you want to end it early with the least amount of stress and legal costs, you should engage a legal professional to negotiate on a without prejudice basis and draft Calderbank offers

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Without Prejudice Save as to Costs

One of the first requirements of any settlement negotiations is the requirement of the phrase “Without Prejudice Save as to Costs”.

Without prejudice – is a privilege which attaches to settlement negotiations. The primary reason is to encourage parties to settle their dispute without the matters raised in these negotiations being used against them, or to their prejudice in the course of proceedings.

In Cutts v Head [1984] 1 All ER 597 Fox LJ said:

Parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should … be encouraged freely and frankly to put their cards on the table.

Save as to costs – allows the issue of the offer, and subsequent non-acceptance of the offer by the other party, to be raised at the conclusion of the proceedings on the issue of legal costs.

The idea is that if Party A makes an offer, which is not accepted by Party B, and Party A is awarded more than the amount of the offer, Party B would have been in a better position had they taken the offer and so Party A can rely on the offer and the non-acceptance by Party B on the issue of the costs of litigating past that point.

Must Say it is a Calderbank v Calderbank Offer

Another element of a Calderbank offer is that the letter must state that it is a Calderbank offer.

This puts the other party on notice as to exactly what type of offer this is, and that it will likely be relied on in the issue of costs if the offer is rejected.

In the recent case of Gordon & Gordon [2017] FCCA 2899 Judge Wilson said:

Importantly for present purposes, that letter contained a statement indicating that the proposal was put under principles well-known following the decisions in Calderbank and Cutts v Head. By expressing the proposal on the basis that it was underpinned by those cases, from that date the proposal put the husband at risk of an adverse costs order being made against him.

Usually, a Calderbank letter will include a sentence to the effect of:

This offer is made in accordance with the principles expressed in Calderbank v Calderbank [1975] 3 All ER 333

Genuine Offer of Compromise

The offer must be a genuine offer of compromise.  A compromise has been defined as the giving away of something.

In Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd (No 2) [2010] QSC 365 Daubney J said:

It is necessary to look at the substance of what is offered in the circumstances of the case to see whether the offer is in truth a compromise. The decision in this regard is one to be made by reference to all the circumstances of the case, not by applying a fixed mathematical formula.

So, for example a compromise for $50,000.00 in a claim worth over $10 million, may not be seen in the same way as an offer of $50,000.00 in a claim worth several hundred thousand.

The offer must be genuine.  In Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353.  Rogers CJ Comm D said:

Whether in the totality of the circumstances, the offer by the plaintiff represented any element of compromise or whether it was merely, yet another, formally stated demand for payment designed simply to trigger the entitlement to payment of costs on an indemnity basis.

A Statement about Cost Calculation

A Calderbank offer should contain a statement about the offeror’s legal costs.  For example, the letter will contain the $$$ amount of the offer, then a statement about how costs are to be calculated.

This can include:

  1. Plus costs calculated on the standard basis; or
  2. Plus costs to be assessed if not agreed; or
  3. Each party will bear their own costs; and so on.

A Statement about Application for Indemnity Costs

In the Calderbank letter there should also be a statement warning the other party that the offeror intends to apply for indemnity costs if the offer is unreasonably rejected.

This foreshadowing of indemnity costs puts the other party on notice, and when tendered to the Court allows the Court to know that the risk of this order was fully known by the other party.

In Danidale Pty Ltd (t/as Bernie Cornfoot & Sons Earthmoving) v Abigroup Contractors Pty Ltd [2007] VSC 552 Habersberger J said:

Failing to warn the offeree that indemnity costs would be sought if it went ahead and sued and obtained a less favourable result is one matter to take into account in deciding whether the rejection of the offers was unreasonable … In my opinion, the offeree could have reasonably considered, at the date of the offer, that there was some prospect of it being found to be entitled to be paid more … if it sued.

The Application for Indemnity Costs

If a party has served a Calderbank letter, which was unreasonably rejected by the other party, and then they then get an order not less favourable than the offer, then they can rely on the making of the offer, and its subsequent rejection, in an application for indemnity costs.

Unlike rule 360 of the UCPR which puts the onus on the defendant/respondent to show why an order for indemnity costs should not be made, the onus in relation to Calderbank offers is on the applicant to argue why an order for indemnity costs should be made.

Whether the Court awards costs on the indemnity basis is at the discretion of the Court.  The unreasonable rejection of a reasonable Calderbank offer of compromise is just one of the factors that the Court will consider.

In relation to the Calderbank offer (or offers) and the exercise of its discretion, some of the issues that the Court will look at include:

  1. The reasonableness of the offer and the extent of the compromise;
  2. The unreasonableness of the rejection of the offer;
  3. When the offer was made, and the facts known to the offeree at the time;
  4. The reasonableness of the time allowed for acceptance of the offer; and
  5. The certainty of the terms of the offer.

The Public Interest in Settling Matters Early

As previously mentioned, parties should be encouraged to settle their disputes without resort to litigation.

In Transit Australia P/L v Crewford Australia P/L [1997] QSC 141 Thomas J said:

The public policy behind taking account of such offers is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and that it is hard to imagine anything more calculated to encourage obstinacy and unreasonableness than the comfortable knowledge that a litigant can refuse with impunity whatever may be offered to him even if it as much or more than everything to which he is entitled in the action.

Even though it may not seem like a win in some cases, the offer of a lesser amount, or the acceptance of a lesser amount, is in most cases a good result in commercial debt recovery actions, compared with the costs of litigating the matter to conclusion.

Calderbank Offers

Making Calderbank offers is an important step in any litigation proceeding.

Initially, it allows the parties to reach an agreement and settle the matter on just terms.

If the matter does not settle upon giving of a Calderbank offer (or Calderbank offers) then it sets the issuer on a better path to recover their legal fees on the indemnity basis, rather than on the standard basis.

If you have a commercial debt dispute and you want to end it early with the least amount of stress and legal costs, you should engage a legal professional to negotiate on a without prejudice basis and draft Calderbank offers

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Filed Under: ADR, Contract Litigation, Debt Recovery Qld

Abuse of Process – Statutory Demand

05/08/2018 By Debt Recovery Qld

abuse of process set aside a statutory demandWhen is a statutory demand an abuse of process?

The Courts have said that an abuse of process includes:

  1. Conduct that is unconscionable; and/or
  2. Conduct which gives rise to substantial injustice; and/or
  3. When they are used for an improper purpose; and/or
  4. When they are used for the coercive collecting of debt genuinely disputed.

If you have been served with a statutory demand for an improper purpose, or you are clearly solvent, or the issuer has ignored your claims of genuine dispute or offsetting claims, then this could be an abuse of process.

If the issue of a statutory demand is deemed to be for an improper purpose, then the company can apply to set the demand aside for some other reason pursuant to section 459J of the Corporations Act 2001 (CTH).

We offer professional advice and assistance in all things related to statutory demands

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What is a statutory demand?

A statutory demand is a demand for money made to a company under section 459E of the Corporations Act 2001 (CTH).

The debt must be more than $2,000.00 being the statutory minimum, and must be made by a creditor for a debt which is due and payable at the time of issuance.

There must also not be a genuine dispute as the existence or quantum of the debt, or any genuine offsetting claims.

Setting Aside a Statutory Demand

If you have been served with a statutory demand, there are a number of ways in which a demand can be set aside, these include:

  1. You have a genuine dispute; and/or
  2. You have an offsetting claim; and/or
  3. The statutory demand is defective causing substantial injustice; and/or
  4. Some other reason (such as an abuse of process).

This article will detail what the cases have said in relation to an abuse of process, and detail when statutory demands have been successfully set aside pursuant to section 459J of the Corporations Act 2001 (CTH) because of this abuse of process.

Section 459J(1) of the Corporations Act 2001 (CTH)

Section 459J(1) of the Corporations Act 2001 (CTH) says:

(1)  On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)  because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b)  there is some other reason why the demand should be set aside.

Pursuant to 459J(1)(b), the Courts have set aside statutory demands for some other reason, based on the reason being an abuse of process.

What is an Abuse of Process

The Courts have said that an abuse of process includes:

  1. Conduct that is unconscionable; and/or
  2. Conduct which gives rise to substantial injustice; and/or
  3. When they are used for an improper purpose; and/or
  4. When they are used for the coercive collecting of debt genuinely disputed.

The above terms have been given by the Courts in a number of different cases and upheld in subsequent cases.

Conduct that is Unconscionable

In Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 Black CJ, Einfeld and Sackville JJ said:

In the present case, Olney J implied that he would have been prepared to exercise the discretion in the company’s favour, had it been shown that the Commissioner’s conduct was unconscionable, was an abuse of process, or had given rise to substantial injustice.

Unconscionable is defined in the dictionary as:

not guided by conscience; unscrupulous.

not in accordance with what is just or reasonable.

excessive; extortionate.

So, conduct which is unscrupulous, excessive, unjust, unreasonable, or extortionate may be argued in an application setting aside a statutory demand.

We offer professional advice and assistance in all things related to statutory demands

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Conduct which gives rise to Substantial Injustice

In Arcade Badge Embroidery Co Pty Ltd v DCT (2005) 157 ACTR 22 Crispin P, Gray and Marshall JJ said:

Where the respondent has failed to make good its representation that it would withdraw the statutory demand, it is appropriate that we exercise our discretion in favour of the appellant. In so doing, we acknowledge that a substantial injustice would otherwise arise as a result of the respondent being able to renege on its agreement with the appellant to withdraw the statutory demand.

So substantial injustice may be argued to in an application setting aside a statutory demand.  Although not required, unlike section 459J(1)(a) of the Corporations Act 2001 (CTH) it can still be a factor.

Used for the Coercive Collecting of Debt Genuinely Disputed

In Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497 Palmer J said:

[t]he Statutory Demand process is not to be used for the coercive collecting of disputed debts from solvent companies … [t]he creditor should save its time and money by eschewing statutory demand litigation and commencing debt recovery proceedings immediately.

The statutory demand procedure should not be used to pressure or coerce a person into paying a disputed amount.

Examples of Abuse of Process

The below are cases which allowed the setting aside of statutory demands under section 459J(1)(b) of the Corporations Act 2001 (CTH) because of this abuse of process.

Debts Challenged in Other Jurisdictions

In the matters of Neutral Bay Pty Ltd v. Deputy Commissioner of Taxation; MA Howard Racing Pty Ltd v DCT ; Neutral Bay (Sales) Pty Ltd v DCT ; Broadbeach Properties Pty Ltd v DCT [2006] QSC 394 the applications to set aside the demands were successful because each of the debts which are demanded is challenged by the applicants in proceedings in the Administrative Appeals Tribunal under Pt IVC of the Taxation and Administration Act 1953 (Cth) or was subject to an outstanding objection.  Philip McMurdo J said:

The applicants have in each case established that there is good reason for setting aside these demands under s 459J, in so far as they are not already to be varied under s 459H. There is an unfairness in the use of the statutory demand procedure in these cases because of its likely impact upon the taxpayer’s objection or challenge to what the respondent has decided it should pay.

A similar matter was heard in Softex Industries Pty Ltd, Re [2001] QSC 377 where Mullins J said:

In the circumstances of the history of the applicant’s challenge to the inclusion in its income of the sum of $6,791,916 which it received under TAPS and the issue of the statutory demand by the respondent to include the disputed income tax when the AAT decision relating to the same had been reserved since November 2000, it was oppressive for the respondent to serve a statutory demand incorporating that disputed sum. On this basis alone, the statutory demand should be set aside.

In Ralph Lauren 57 Pty Ltd v Conley [2015] QSC 90 the debts related to a Family Court matter and the debts were contested and undecided in that jurisdiction.  The Applicant said that:

(1)                the matter of each statutory demand is the subject of contested litigation in the Family Court proceeding;

(2)                there is no suggestion that the applicant cannot pay its debts and it may therefore be inferred that the statutory demands were not served for the purposes for which Part 5.4 of the Act was intended; and

(3)                in the circumstances, service of the statutory demands was vexatious, oppressive and constituted an abuse of process.

Douglas J said:

The consequence is that the applications to set aside the statutory demands should be granted

Inducement to Enter into an Agreement

In Ri-Co Holdings (Australia) Pty Ltd v. Allied Sandblasters Pty Ltd; Ri-Co Holdings (Australia) Pty Ltd v Beutel [2009] QSC 122 it was decided that the statutory demand was issued to force the company to execute lease documents.  Wilson J said:

The applicant contends that the statutory demands were used to obtain a collateral advantage, namely, to force it to execute the lease document, and that that was an abuse of process … In each application the statutory demand should be set aside.

Incorrect Identification as the Creditor

In Van Motman Pty Ltd v Creative Fitness Marketing Pty Ltd [2010] QSC 105 the respondent served a statutory demand on the applicant in the name of Creative Fitness Marketing Pty Ltd ACN 108 560 292 for a debt that arose pursuant to a contract with Creative Fitness Marketing Ltd ACN 060 723 877 now deregistered.  Atkinson J said:

There is in my opinion an attempted subversion of the statutory scheme if a company which is not a creditor serves a statutory demand upon a company which is not indebted to it as a precursor to using the court process to wind up the company served with the statutory demand in insolvency because of its failure to pay the amount demanded in the statutory demand. The demand should therefore also be set aside pursuant to s 459J(1)(b) of the Act.

Agreement not to Proceed to Enforce the Judgment

In BTBF Plumbing P/L v Workers Compensation Nominal Insurer & Anor [2011] QSC 394 the respondent agreed not to enforce the judgment until the final determination of WorkCover appeal, and then continued to serve a statutory demand.  Douglas J said:

Because of my view that the respondents agreed not to proceed to enforce the judgment obtained by default pending WorkCover’s determination of the appeal to it, I shall order that the statutory demand … be set aside.

This matter is similar to the Arcade Badge Embroidery case above where there was an agreement to withdraw the demand, and then failed to do so.

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Agreement to Withdraw the Statutory Demand

A statutory demand can be withdrawn by the issuer upon written request.  In Arcade Badge Embroidery Co Pty Ltd v DCT (2005) 157 ACTR 22 Crispin P, Gray and Marshall JJ said:

Where the respondent has failed to make good its representation that it would withdraw the statutory demand, it is appropriate that we exercise our discretion in favour of the appellant. In so doing, we acknowledge that a substantial injustice would otherwise arise as a result of the respondent being able to renege on its agreement with the appellant to withdraw the statutory demand.

Pressure to Pay a Disputed Debt

As well as there being a genuine dispute, applying pressure on a company to pay that disputed debt by continuing to issue a statutory demand can be see as an abuse of process.  In Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774 Gleeson J said:

There will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers – such as the application of pressure to compel payment of the disputed debt … In my view, it is reasonable to infer that, when Mr Jenkins issued the statutory demand, he knew that there was a genuine dispute as to the existence of the debt, and he issued the demand in order to apply pressure to the company to compel payment of the disputed debt. That conduct is a further reason to set aside the statutory demand.

Not an Instrument of Debt Collection

In Moutere v Dct [2000] NSWSC 379 Austin J said:

A statutory demand is not an instrument of debt collection … the Commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the Commissioner’s decision.

Unsuccessful Vexatious Litigation

A statutory demand can be set aside for some other reason under section 459J(1)(b) of the Corporations Act 2001 (CTH) because of this abuse of process if the reason for serving the demand was after unsuccessful vexatious litigation.

In Treasury Wine Estates Vintners Ltd v Garrett [2015] FCA 797 the Respondent had a long history of unsuccessful litigation where the Court deemed that the proceeding was vexatious and an abuse of process.  In the Court order, Mr Garrett was prohibited from instituting any further proceedings Treasury Wine Estates Vintners Ltd. He subsequently issued nine statutory demands.  Davies J said:

It is reasonable to infer that Mr Garrett served these statutory demands for an improper purpose. Mr Garrett deposed in relation to each of the statutory demands that no allegation of dispute had been made to him and that he believed there was no genuine dispute about the existence or amount of the debt. That deposition cannot be accepted as correct in light of the history of litigation between the parties over numerous years and most recently in 2014.

Substantial Overstatement of Debt

If the debt is so overstated that the company cannot have any way of knowing what the debt is for, and whether there is a genuine dispute or offsetting claim, then this gross overstatement can be seen as an abuse of process.

In First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939, Santow J said:

A statutory demand could be set aside under s 459J(1)(b) by reason of a substantial overstatement in the amount claimed, and that, where a statutory demand has been so grossly inflated as to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside that statutory demand may well be required to prevent such an abuse of the regime under Pt 5.4 of the Act.

Abuse of Process

One of the ways in which a statutory demand can be set aside is for “some other reason” pursuant to section 459J(1)(b) of the Corporations Act 2001 (CTH).

One of those reasons is that the statutory demand was issued for an improper purpose which constitutes an abuse of process.

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Filed Under: Debt Recovery Qld, Statutory Demand Law

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