Statutory Demands: fortunate reprieve from valid service on vacant registered office

11 March 2010 Topics: Insolvency and restructuring

The New South Wales Supreme Court recently handed down a controversial decision which highlights the importance of keeping registered office details up to date and ensuring legal notices are brought to the attention of recipients.

Case facts

In Mangraviti Pty Ltd, Joe -v- Lumley Finance Limited [2010] NSWSC 61 (5 February 2010) Lumley arranged for a process server to personally serve a statutory demand under the Corporations Act 2001 (Cth) on Mangraviti’s registered office as shown in ASIC records.

The registered office was vacant at the time of service as Mangraviti had moved out some months before service.

Mangraviti had tried to update its registered office details through ASIC but this was unsuccessful due to an administrative mistake by Mangraviti.

The time for compliance with the statutory demand (21 days) expired before Mangraviti became aware of the demand. The statutory demand only came to Mangraviti’s attention sometime later when Lumley’s lawyers threatened to bring winding up proceedings if payment was not made.

The process server who served the documents informed Lumley’s lawyers that the premises were vacant at the time of service but this only took place after the 21 day compliance period had expired.

Under section 459G of the Corporations Act 2001 (Cth) a company who has been served with a statutory demand can make an application to set the demand aside on certain specified grounds. The application must be made within 21 days of service of the statutory demand.

Although out of time, Mangraviti made an application to set aside the statutory demand under section 459G.

Decision

Justice Palmer determined that the statutory demand should be set aside relying on the ground specified in section 459J(1)(b) of the Corporations Act 2001 (Cth) which gives the court a general power to set aside if “there is some other reason why the demand should be set aside” where an application is made under section 459G.

In making his decision Justice Palmer found clear evidence of the following facts:

  • the process server serving the document for Lumley knew that the registered office was vacant at the time of service;
  • Mangraviti’s failure to notify ASIC of its change of registered office was due to an administrative mistake and not prompted by any desire to avoid or defeat creditors; and
  • the statutory demand only came to Mangraviti’s attention after the compliance period had expired.

Justice Palmer referred to a line of cases where the courts have said that service is ineffective where the recipient has not been given what has been described as “fair notice”. Those cases include:

  • FP Leonard Advertising Pty Ltd v. Katie Travel Service Pty Limited (1993) 12OCSR136 where a statutory demand posted to the company’s registered office (which was a firm of accountants) was returned by the accountants who advised that they no longer acted for the company and stated they “do not know the location of the directors”; and
  • CGU Workers’ Compensation (Vic) Limited v. Carousel Bar Pty Ltd [1999] VSC227 where a statutory demand posted to a registered office was returned by Australia Post marked ‘left address’, ‘return to sender’.

In simple terms these “fair notice” cases involve situations where the courts have said that they will decline to recognise service where this would result in abuse of court process.

Curiously, Justice Palmer specifically found that Lumley had affected valid service which is inconsistent with the principle described in the “fair notice” cases. The fair notice cases involved situations where the court has said that service would not be effective which in turn would mean that any applicable compliance period would not start to run.

This creates some doubt over the legal basis of Justice Palmer’s decision which seems to actually have been decided relying on the court’s inherent jurisdiction to find that service had not been validly effected if that would result in an abuse of court process. If service was effective then an application under 459G of the Corporations Act 2001 (Cth) was not available as it was made outside of the 21 day compliance period.

Timely reminder

There is no doubt that Mangraviti secured a fortunate reprieve in this case.

The case serves as a timely reminder to company officers to ensure ASIC records are kept up to date and premises selected for registered offices are regularly attended to ensure immediate notification of the service of legal notices.

For those arranging service of legal notices on registered offices the case suggests that it is prudent to ask service agents to promptly provide comprehensive service details including whether the registered office is unattended or vacant.

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