Another Reminder of the Risks of Statutory Demands

A Case Analysis of Doctors of Optimization Pty Ltd v MPA Engineering Pty Ltd (Subsidiary of Aquatec Maxon Group Ltd) [2023] QCA 219

A statutory demand is a legal document which asserts a formal demand for payment of a debt and is the first step that needs to be taken by a creditor who intends to wind up a company due to the non-payment of a debt. A statutory demand is issued under section 459E of the Corporations Act 2001 (Cth) (“Act”) and is then served on the company that owes the debt. Considering the frequent use of these demands, creditors need to be aware of the potential risks. The case of Doctors of Optimization Pty Ltd v MPA Engineering Pty Ltd (Subsidiary of Aquatec Maxon Group Ltd) [2023] QCA 219 explores this issue further.

Facts

On 14 August 2019, both parties entered into an agreement concerning works on a water treatment plant in exchange for payment. On 30 September 2019, Doctors of Optimization Pty Ltd (the Appellant) issued an invoice to MPA Engineering Pty Ltd (the Respondent). However, there were issues with defects and incomplete works and the parties accordingly attempted arbitration after the termination of the contract.

In December 2022, the Appellant served a statutory demand claiming the sum of $21,898.80 from the Respondent. The Appellant claimed to have suffered loss and damages due to the defects and incomplete works.

On 23 December 2022, the Respondent applied to set aside the statutory demand under section 459G of the Act.

Lower Court Decision

Initially, the Court ruled in favour of the Respondent and found that the statutory demand should be set aside on the basis of a genuine dispute and offsetting claim. The Appellant then appealed this decision.

Court of Appeal

The Court of Appeal similarly ruled in favour of the Respondent. The Judges dismissed the appeal on the basis that it invited the Court to embark on an extended inquiry and attempted to weight the merits of the dispute, which is not within the realm of an application to set aside a statutory demand.

At the hearing, the Respondent indicated that it sought indemnity costs in the event of a successful outcome, however, the Court ruled that the question of costs should be heard separately on the basis of written submissions.

Takeaway

The Appellant lost both instances in the lower court and court of appeal, despite awareness that the evidence existed demonstrating that there was a dispute and an offsetting claim.

If you wish to issue a statutory demand or if you are served with one, you should seek legal advice on the prospects and next steps to minimise such risks. Please contact Stipe Vuleta or Sayward McKeown of our office if you wish to obtain such advice.

This article was prepared with the assistance of Annabel Randall