In the recent Queensland Supreme Court decision in MacKay Computer Services Pty Ltd v Wi-Man Pty Ltd QSC 221, a costs order was made against a creditor who issued a statutory demand for a debt in respect of which it knew there was a genuine dispute. The case is a timely reminder that creditors need to be very careful in ensuring that statutory demands are issued only in respect of appropriate debts.
The creditor issued a statutory demand for a debt of $47,014.79 requiring payment within 21 days.
Before the demand expired, the debtor wrote to the creditor setting out the facts outlining the existence of a genuine dispute about the debt. It demanded that the creditor “withdraw” the demand failing which it would apply to have it set aside (the question of whether a statutory demand, once issued, can be withdrawn was not discussed in the case).
As the creditor had not “withdrawn” the demand, the debtor issued and served an application to set it aside within the 21 day compliance period. Later that day the creditor told that debtor that it was “withdrawing” the demand.
Notwithstanding this “withdrawal”, the debtor contended that there was never any proper basis for the debt claimed by the creditor, that the creditor had known this, and that as a result the statutory demand was an abuse of the court’s process. The debtor argued that its costs of the application to set aside the demand, including costs of preparing the application and supporting material, should be paid for by the creditor on an indemnity basis.
McMeekin J found:
that there was a genuine dispute about the existence of the relevant debt;
that the creditor well knew that a genuine dispute existed; and
that the debtor would certainly have succeeded in its application to set aside the demand (if it had not been “withdrawn”).
In the circumstances, his Honour ordered the creditor to pay the debtor’s costs. However, he declined to exercise his discretion to order costs on the higher indemnity basis, as sought by the debtor, because he could not rule out the possibility “that substantial monies are in fact owed by the debtor”.
The statutory demand provisions in the Corporations Act can be a useful mechanism for creditors. However, those provisions are limited such that a statutory demand can properly be issued only in certain circumstances and only in respect of certain debts.
If a demand is issued in the face of a genuine dispute, such as was the case here, the creditor may be liable to pay the debtor’s costs of applying to set aside the demand, even if the creditor purports to “withdraw” the demand.
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