Can a statutory demand served at a company’s ‘virtual office’ be resisted out of time?

In the recent case of Hadley v BetHQ Pty Ltd [2016] FCA 1263, the debtor company, BetHQ, came to grief when a statutory demand was validly served at the company’s registered office in Brisbane as shown in ASIC records. The premises were a serviced office; however BetHQ had ceased operations at the serviced office and had moved its operations to Victoria.

Unfortunately for BetHQ, the statutory demand did not come to its attention until after the expiry of the 21 day time period to comply with the statutory demand. BetHQ made no application to set aside the statutory demand within the 21 day time period and the creditor commenced winding up proceedings.

Section 459S application

On the hearing of the winding up application, BetHQ sought leave to oppose the application on the ground that it disputed the amount claimed in the statutory demand.

Under section 459S of the Corporations Act:

• the debtor company needs leave of the Court to oppose a winding up application where it seeks to rely on a ground that it could have relied upon, but did not rely on, in an application to set aside the statutory demand;
• there must be a serious question to be tried on the ground sought to be raised;
• the debtor company must adequately explain why the ground was not raised in an application to set aside the statutory demand and this will involve an evaluation of the reasonableness of the debtor’s conduct during the 21 day period; and
• the Court cannot grant leave unless it is satisfied that the ground is material to proving that the debtor company is solvent.

The Court’s discretion

Under the statutory demand regime, objections to a statutory demand must be argued when applying to set aside the statutory demand under section 459G and not at the time of the winding up application.

The Court’s discretion under section 459S is exercised cautiously and sparingly.

In considering section 459S, some judges approach the issue of the materiality of the statutory demand as a threshold issue for determination before considering the other factors.

In relation to the solvency issue, the debtor company must show that the debt in the statutory demand is pivotal to the question of the company’s solvency.

The company must demonstrate that, if the statutory demand debt does not exist, then the company will be solvent and, if the debt was actually owing, then the company will be insolvent.

In addition to disputing the other factors sought to be relied upon by the debtor company a creditor will argue that the statutory demand was delivered and that it is the debtor company’s own fault that it did not comply with the demand. The sufficiency of the reason as to why the debtor company failed to comply with the statutory demand will be hotly contested.

The virtual office

BetHQ was unable to satisfy the Court that its conduct was reasonable for a number of reasons including the following:

• Its evidence was vague as to when operations ceased at the registered office in Brisbane (which was also the company’s principal place of business).
• There had been previous ‘situations’ arising from haphazard forwarding or delays in forwarding documents to the director from the serviced office.
• There was inadequate superintendence of the collection of mail from the registered office after it was vacated.
• There was no evidence about whether the Victorian office was attended to collect mail even if it had been forwarded from the registered office in Brisbane.
• It was not clear when the sole director moved from Queensland to Victoria or why, if the Victorian office was the place from which BetHQ conducted its business, ASIC records were not promptly changed.

Endorsement of principles

In BetHQ, the Court endorsed the following principles:

• Leave under section 459S is only granted in very limited circumstances where documents are validly served on the registered office of the company, but do not come to the attention of the directors.
• Failure to act reasonably in respect of the superintendence of the collection of mail from the company’s registered office or failure to take steps to ensure that changes in the registered office are advised to the ASIC will preclude the grant of leave.

A recent decision where the debtor company was successful

On 29 November 2016 in Gillion Pty Limited (Trustee) v Wet Fix Holdings Pty Limited [2016] FCA 1424, the debtor company successfully obtained leave under section 459S to oppose a winding up application on the grounds that it disputed the debt where the statutory demand did not come to the attention of the director until after the expiry of the statutory demand.

In Gillion:

• the statutory demand was received in the mail at the company’s registered office;
• the registered office was the address of the company secretary;
• on the same day he received the statutory demand the secretary sent an email to the director with the subject matter ‘Statutory demand’ and attached a copy of the statutory demand as a pdf document to the email;
• the following day the secretary posted the statutory demand to the debtor company’s factory at the North Sydney post office;
• the director did not receive the email or the letter enclosing the statutory demand;
• there was evidence that the mail directed to the factory was collected and opened by the office manager;
• apart from the non-receipt of the demand, there was no evidence that the system of receiving mail at the factory was inadequate;
• there was evidence regarding the receipt of emails by the director including screen shots, however the Court was not satisfied the screen shot was a complete record of emails received; and
• having regard to the history of emails between the secretary and director, the Judge formed the view that the email was probably received but was deleted, either carelessly or inadvertently, by the director without him becoming conscious of the fact that the email contained the statutory demand.

In Gillion, the Court:

• said the debtor company could have had a more reliable system for ensuring that the director received the statutory demand;
• noted the lack of superintendence of collection of mail in BetHQ; but
• held this was not a case in which the debtor company did not have arrangements in place that would enable a statutory demand to come to the attention of its director.

These cases highlight the importance of the company’s ASIC records being up‑to‑date and correctly recording the company’s registered office.

It is imperative that the company also have a reliable system for receiving mail at the registered office and ensuring the mail is promptly brought to the attention of the officers of the company.

If you would like more information about these issues please contact Graham Roberts on +61 7 3231 2404 or Clare McDonald on +61 7 3231 2475.