Federal Court sets aside inappropriate statutory demand

John Larkings
Senior Associate

The Federal Court of Australia recently delivered judgment in the case of R2M Pty Limited v Gourlay [2011] FCA 168. This case involved a challenge of a creditor’s statutory demand issued against R2M Pty Ltd in circumstances where there was a genuine dispute about the debt.

The purported creditor issued a creditor’s statutory demand for allegedly unpaid licence fees for intellectual property. The company strongly denied the debt on the basis that the intellectual property had never been delivered and there were significant off-setting claims.

Williams Love & Nicol acted for the company and was successful in obtaining orders from the Court to set-aside the statutory demand and obtaining an indemnity costs order against the respondent for the whole of the proceedings. In summary, His Honour Justice Buchannan found that:

“From the time that the statutory demand was served it was clear that there would be vigorous resistance to the suggestion that Mr Gourlay was entitled to a further payment. The nature of that resistance, the stated grounds for it, the contest about whether Mr Gourlay had discharged his own obligations and the earlier exchange between he and Dr Finlayson about that issue should all have made it quite apparent to Mr Gourlay and his advisers that his claim to payment was, and would be, denied. There is no basis to conclude that denial of his claim is fanciful or in any other sense not genuine. The statutory demand process, although efficient in appropriate circumstances, is not intended merely to provide a claimant with a means of imposing a short time for compliance with a disputed claim. It was not an appropriate process to use in the present case.”

The decision highlights the importance of understanding that creditor’s statutory demands are not a debt recovery tool and should only be used and defended in circumstances where the debt is not in dispute. The indemnity costs order against the purported creditor further highlights the considerable commercial risk in continuing to defend a statutory demand where the debtor company has raised numerous factors that cause doubt about the genuineness of the debt.

Williams Love & Nicol Lawyers can provide advice on your rights as a creditor or debtor, the use of the statutory demand process and can represent you in an appropriate application to set aside a statutory demand. Please be aware that strict time limits apply in such matters.