Skip to content.

Home

Allens Arthur Robinson

Focus: Insolvency – April 2008

High Court limits extensions of time to comply with statutory demands

In brief: The High Court has held that a court cannot extend the time to comply with a statutory demand if the time for compliance has already passed. Partner Malcolm Stephens (view CV), Lawyer Anthony Lepere and Law Graduate Bryn Dodson look at the High Court's decision that provides welcome certainty for creditors.

How does it affect you?

  • The judgment is good news for creditors. By insisting on strict compliance with timeframes specified in the Corporations Act, the High Court has removed one avenue by which debtors can delay winding-up proceedings.
  • If you are the recipient of a statutory demand, you must comply strictly with the specified timeframes for either applying to set aside or complying with the demand.

Background

In Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd,1 a creditor served a statutory demand on a debtor. The creditor alleged that the debtor owed it more than $400,000 under several hiring and chattel mortgage contracts. The debtor applied to the Supreme Court of Victoria for an order setting aside the demand. A master of the Supreme Court dismissed the debtor's application but extended the time for compliance with the demand. The debtor appealed the master's decision.

After the time for compliance had passed, but before the appeal was heard, the debtor applied for an extension of time to comply with the demand. A Supreme Court judge refused to give an extension of time.2 After the Victorian Court of Appeal upheld that decision,3 the debtor appealed to the High Court.

Return to top

The statutory regime

Section 459E of the Corporations Act 2001 (Cth) (the Act) allows a creditor to serve a statutory demand on a company. A failure to comply with a statutory demand may lead to a presumption of insolvency in any subsequent winding-up proceedings (s459C).

Section 459G permits a company to apply to a court to set aside a statutory demand. Section 459F provides that, if that application is unsuccessful, then to avoid the presumption of insolvency, a company must comply with the demand within:

  • seven days; or
  • such further period as the court may order.

Section 70 of the Act gives a court the power to extend time for a party to do something, even if the time allowed in the Act for doing that thing has already expired, unless the contrary intention appears in the Act.

Return to top

The decision

The issue for the High Court was whether s70 of the Act allows a court to extend the period for compliance with a statutory demand after the period for compliance has expired. The resolution of that issue depends on whether s459F contains a 'contrary intention' as that phrase is used in s70.

The majority's reasoning

In a joint judgment, Chief Justice Gleeson and Justices Hayne, Crennan and Kiefel stated that the intention of the Act is to provide for the speedy resolution of applications to have companies wound up. It was said to be 'sharply at odds' with that intention that a company should be able to have an extension of time once it failed to comply with a statutory demand. It followed for the majority of the High Court justices that a debtor cannot rely on s70 to obtain an extension of time in respect of s459F.

The majority also relied on the wording of s459C of the Act, which creates a presumption of insolvency if a company has failed to comply with a statutory demand during the three months preceding the winding-up application. The majority held that, even if the discretion under s70 were exercised to extend the period of compliance with the statutory demand, this could not retrospectively cure any failure of the creditor to have complied with the demand during that three month period.

The majority also emphasised that a company which fails to comply with a statutory demand within three months of a winding-up application is only presumed to be insolvent. That presumption may be rebutted. Accordingly, denying the power of a court to extend time for compliance with a statutory demand neither conclusively determines rights and liabilities nor limits the rights of appeal available.

Justice Kirby's dissent

Justice Kirby dissented. He did not consider that s459F contained a contrary intention for the purposes of s70 of the Act. He contrasted the wording of s459F with s459R(2)(b), which clearly did express a contrary intention, and which appeared to be the means by which Parliament would express a contrary intention for the purposes of s70.

Return to top

Impact of the decision

The High Court's decision reinforces the importance of strict compliance with periods for complying with statutory demands. It therefore provides greater certainty for creditors and removes one avenue by which recalcitrant debtors might delay winding-up proceedings.

Footnotes
  1. Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9.
  2. Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2006] VSC 306.
  3. Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2007) 63 ACSR 300; [2007] VSCA 121.

Return to top

For further information, please contact:

Return to top

Bookmark with

What are these?

Recent Insolvency & Restructuring publications