How harsh is harsh? Complying with statutory requirements in a pandemic

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By Ariel Borland, Partner, Alison Malek, Senior Associate and Josua Firmin, Law Graduate

The Supreme Court of Queensland in CPR Solutions Mackay Pty Ltd v Zammit Earthmoving Pty Ltd [2020] QSC 165 (CPR v Zammit) has considered the effect of the COVID-19 pandemic on the requirements of an application to set aside a statutory demand.  The statutory demand was issued prior to the extension of time to respond to statutory demands being introduced by the Federal Government’s Coronavirus Economic Response Package Omnibus Act 2020 (Cth).  

The solicitor for CPR Solutions Mackay Pty Ltd (CPR) was unable to obtain sealed copies of CPR’s application to set aside a statutory demand served on it by Zammit Earthmoving Pty Ltd (Zammit) due to Court staffing issues caused by the COVID-19 pandemic. Although the application was filed and stamped by the Registry, it was not sealed, there was no proceeding number and no return date was set. CPR served the unsealed copy of the application on Zammit. Service was disputed.

The principal question for Crow J was whether valid service of the application to set aside the statutory demand had occurred as required by section 459G of the Corporations Act 2001 (Cth) (Act).

Setting aside a statutory demand

 The grounds for setting aside a statutory demand are set out in sections 459H and 459J of the Act. They include satisfying a Court that there is a genuine dispute about the existence of the debt or that a defect in the statutory demand has caused substantial injustice.

Under section 465G(3) of the Act, a party who makes an application to set aside a statutory demand is, in normal circumstances, required to:

  • File the application within 21 days of being served with the statutory demand; and
  • Serve a copy of the application and supporting affidavit on the party who issued the statutory demand.

These requirements are stringently applied by the Courts. Where delays or failures to serve an application to set aside a statutory demand are caused by circumstances outside of a party’s control, that circumstance, however regrettable, cannot prevail over the absolute nature of the requirements of section 459G.

COVID-19 Emergency Response Act 2020 (Qld): Softening the blow?

Whilst the result of CPR’s failure to serve properly sealed documents would usually result in their failure to comply with section 459G(3) regardless of who was at fault, the COVID-19 pandemic has consistently shown that it has little regard for what is “usual”.

Because of the difficulties caused by COVID-19, the Registrar was relieved of its obligations to act immediately to set a return date for a matter on the receipt of the application.  Furthermore, the COVID-19 Emergency Response Act 2020 (Qld) (Emergency Response Act) gave the Court permission to extend the period of time within which an applicant could file their application.

CPR sought to rely on the Emergency Response Act and argue that it assisted CPR in overcoming the difficulties which beset its compliance with section 459G.

The judgment of Crow J

Following a thorough analysis of the legislative framework, relevant authorities and the procedural rules in Queensland, Crow J held that the document served was not sufficient and that the application to set aside the statutory demand should be dismissed.

In so concluding, His Honour found:

  • At [43]: As the Queensland Emergency Response Act was a state law, although it gave the court permission to extend time, it could not modify or restrict the effect of the strict and “harsh” requirements under section 459G of the Act, ­which is a federal law, for the application to be filed and served within the 21-day time limit.
  • At [64]: As the document did not have a matter number, a court seal, a Registrar’s signature or a return date, the only indication on the document that it had been filed in the Registry was the inclusion of the date and receipt stamps. Absent the date and receipt stamps there was nothing on the document to show that it had been filed and that proceedings had commenced.

CPR was held not to have complied with its obligations under section 459G of the Act and its application was dismissed.

Lessons learned

Not even a pandemic can get in the way of the harsh reality that an application to set aside a statutory demand requires strict compliance with the requirements set out in section 459G of the Act. By comparison, had the notice been issued on or after 25 March 2020, the pandemic-specific measures that have been introduced would have been applicable and given CPR 6 months to make its application. The new measures grant debtors 6 months to comply with and apply to set aside statutory demands and bankruptcy notices issued between 25 March 2020 and 25 September 2020 inclusive instead of the usual 21 days.

There may also be circumstances where the court has to weigh up the “harshness” of the outcome for one party against the other where the requirements relating to a statutory demand are, in fact, complied with. In May 2020, one month before CPR v Zammit was handed down, the same court heard the matter of Sunstate Land Pty Ltd v Hiview Design & Constructions Pty Ltd [2020] QSC 181 in which it had to consider whether a statutory demand which was posted before 25 March 2020 but served after that date had a compliance time of 21 days or 6 months. Further, if the compliance time was 6 months, was the statutory demand defective because it demanded payment in 21 days? The Court’s answer to this question was “yes”. The Court found that it would be substantially unjust to allow the debtor to be presumed insolvent as a result of non-compliance with the statutory demand.

The takeaway from CPR v Zammit is that when served with a statutory demand where there are grounds for applying to have it set aside, you must:

  • File your application and supporting affidavit within 21 days of service of the statutory demand; and
  • Serve an exact copy of the sealed application to set aside the statutory demand, including the Court seal and return date applied by the Registry at the time of filing.

Parties should be aware that although some measures have been implemented which are aimed at minimising unnecessarily harsh outcomes in the current climate, timing is important and the usual statutory requirements will operate strictly outside of the 6 month period being 25 March 2020 to 25 September 2020.

For further information, please do not hesitate to contact us.

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