Too little, too late – Federal Court dismisses application served by email at the last minute

If a company owes a debt of $2,000 or more, the creditor can send the company a statutory demand requiring the company to pay the debt.  The company then has 21 days from service to either pay the debt or to file and serve an application for a Court order setting aside the demand. 

The 21 day time period is strict.  If the company does not pay or correctly apply to set aside within the 21 days, the company is deemed to be insolvent and the creditor may apply to the Court for the appointment of a liquidator.

The most common grounds for applying to set aside a statutory demand is that there is a genuine dispute concerning the existence of the debt.  The standard of “genuine dispute” is comparatively low and companies often have good grounds to have a demand set aside.  However, regardless of whether or not there is a genuine dispute, a statutory demand will not be set aside if the filing or service of the application is late.

This week, the Federal Court handed down a judgment which serves as a reminder of why the recipient of a wrongfully issued statutory demand should take urgent action and pull out all the stops in responding to a statutory demand.

In Sheraz Pty Ltd v Rumsley [2019] FCA 493, Rumsley served a statutory demand on Sheraz Pty Ltd (Sheraz) on 24 January 2019.  Given the 21 day time limit, Sheraz had until 14 February 2019 to file and serve any application to set aside the demand.

The alleged debt was related to an ongoing dispute between Rumsley and Sheraz.  Sheraz probably had good prospects of having the demand set aside on the basis of a genuine dispute provided they complied with the requirements to apply to set it aside.

Unfortunately, while Sheraz filed its application on 7 February 2019, it did not take immediate action to serve it on Rumsley.  Instead, at around 4:59pm on the last day for service (14 February 2019), Sheraz sent the application to Rumsley by email. 

While Sheraz sent the application to Rumsley before the deadline, Rumsley was busy at the time.  He did not check his email until 25 February 2019 and so did not see the application until after the deadline had passed. 

The Court considered that, in this context, service means personal service which requires that the document had come to notice of the person being served.  As Sheraz did not bring the application to Rumsley’s attention prior to the deadline, Sheraz could not have the statutory demand set aside on the grounds of a genuine dispute.

In addition to the reminder on the need for swift and decisive action, the decision also highlights that care must be taken with service of documents.  Electronic service is becoming more common and more widely accepted, but it will not always be sufficient.

Mark Farquhar and Peter Clay from our litigation team regularly deal with issues associated with statutory demands.  We would be happy to assist you with any issues regarding statutory demands and commercial disputes more generally.