Australia: Strike two! Another reason why you shouldn't serve statutory demands by post

Focus: A case highlighting the problems associated with serving Creditors' Statutory Demands by post.
Services: Financial Services, Disputes & Litigation
Industry Focus: Financial Services

In a recent article ¹ I discussed the Federal Court decision of ABW Design and Construction Pty Limited. This was a decision of Justice Logan on 4 April 2012, which addressed the issue of service of a Creditor's Statutory Demand by the Deputy Commissioner of Taxation upon ABW Design by post in circumstances where the postcode of the registered office had been obliterated on the envelope containing the Statutory Demand. The Court there held that such a method of service was invalid, and the Commissioner's reliance upon that attempt at service was insufficient to base an application to wind up the company. In subsequent proceedings only three weeks later, Justice Logan had cause to consider another case involving service of a Statutory Demand upon a company by post: Deputy Commissioner of Taxation, in the matter of Manta's on the Beach Pty Limited v Manta's on the Beach Pty Limited ² (Manta).

Background

In Manta, the Commissioner had served a Statutory Demand upon Manta by post. This time, there was no "administrative oversight" with the method of service, and the Commissioner was able to prove that the Statutory Demand together with its supporting Affidavit was sent by pre-paid post in an envelope which bore the address of Manta's registered office. The Commissioner also proved that, pursuant to records that the Australian Taxation Office kept, the Statutory Demand had not been returned to the Commissioner.

However the sole director of Manta, Mrs Battersby, provided evidence that she had not received the Statutory Demand and supporting Affidavit at or about the time that it was posted in August 2011. She deposed that the first time that she saw the copy of the Statutory Demand was in early March 2012, when it had been emailed to her by the ATO. Her evidence provided the details of the usual collection of mail from the registered office address, and she was certain that she had not received the original Statutory Demand and supporting Affidavit. Neither Mrs Battersby, nor her (now estranged) husband was called for cross-examination.

The law

Where a Statutory Demand is served pursuant to section 109X of the Corporations Act, the creditor relies upon section 160 of the Evidence Act (and in the case of a Commonwealth agency, section 163³). Section 160 states:

The issue in this case was whether the evidence of Mr and Mrs Battersby rebutted the presumption in sections 160 and 163 of the Commonwealth Evidence Act.

The Commissioner led evidence in the form of an extract from Australia Post's website in respect of standard delivery times for postal articles. Justice Logan however found that such evidence was not specific enough in relation to issues, for example, of an absence of any delivery difficulties at the time in respect of mail as between Moonee Ponds (the ATO office that issued the statutory demand) and Yeppoon (the registered office of Manta) and in particular the company's registered office; and evidence as to what constituted the "reasonable expectation" and "experience". It was evident from other authorities that such evidence is available from Australia Post, as it has been led in other cases where there has been a contest in respect of alleged service by post.

The Court was satisfied that the Statutory Demand and supporting affidavits were not received at the registered office at all around about the time that they were posted by the Australian Taxation Office, and that was sufficient for a finding that there could be no non-compliance with the Statutory Demand upon which the Commissioner based the winding up application.

The Commissioner sought, in the alternative, to prove that Manta was insolvent. Mrs Battersby provided some evidence, as did the company's "taxation consultant". That consultant was not cross-examined. The Commissioner did not lead any expert evidence in relation to the financial position of Manta. The Court held that it was for the plaintiff to prove insolvency on the balance of probabilities, and the Commissioner had failed to do so.

Accordingly, the Court dismissed the Commissioner's application to wind up Manta with costs.

Conclusion

Once again, this case highlights the problems associated with serving Creditors' Statutory Demands by post. The Deputy Commissioner of Taxation has now twice, in the space of three weeks, had separate winding up proceedings dismissed by the Federal Court (and the same Judge) in circumstances where it could not prove that it had validly served its Statutory Demand and supporting Affidavit. Those findings were only made at the final winding up hearing. In other words, only after significant time and financial resources had been unnecessarily expended.

The strong lesson from both of these cases must be that, unless it can otherwise be avoided, a Creditor's Statutory Demand should be served by hand at the registered office of the company.

Footnotes

¹ Why Do Creditors Still Bother Serving Statutory Demands By Post? DibbsBarker Insolvency Alert 14 June 2012
² [2012] FCA 417 (24 April 2012).
³ In the case of a Commonwealth agency, a letter is presumed to have been sent by pre-paid post to that address on the fifth business day.

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