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Creditors Statutory Demand Valid for a Part Debt

13/06/2013

In Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASCA 61, the Court of Appeal in Western Australia confirmed that a statutory demand  can be made for a portion of a debt.

Section 459E of the Corporations Act allows a party to issue a statutory demand for any debt which is presently due, provided it exceeds the statutory minimum.  If the debtor fails to comply, then a presumption of insolvency arises under section 459C(2)(a)).

The Commonwealth Bank of Australia issued a statutory demand to Garuda Aviation Pty Ltd  for  $2 million, which was the undisputed portion of a claimed debt of around $6.9 million.  Garuda sought to set it aside on the basis of a decision in Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd [2011] SASC 165. where it was held that a statutory demand could not be issued for a portion of a debt.  The statutory demand was set aside at first instance.

The Court of Appeal allowed the appeal and held:

  • the Corporations Act recognises that non-payment of an undisputed portion of a larger debt may be a sufficient basis for presuming insolvency,
  • section 459E does not preclude a statutory demand  for a portion of a debt;
  • the term ‘debt’ is not inflexible and generally refers to ‘a liability or obligation to pay or render something’;
  • section 459 provides a quick method of determining whether a company is insolvent;
  • it would be strange if an inability to swear that there is no genuine dispute about any part of the debt prevented the statutory presumption arising about the undisputed balance,
  • the portion of the debt  must be described clearly and unambiguously, so that the debtor can assess whether it genuinely dispute the amount demanded.
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