By Bonnie McMahon a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
Whilst a statutory demand may seem like a good debt recovery strategy, it is important for creditors to remember that there can be harsh consequences if they issue a statutory demand, which is later set aside by a court.
The recent Supreme Court decision of Rees J in In the matter of HWC Contracting Pty Ltd [2021] NSWSC 1684 (“HWC Contracting”), is a important reminder for creditors engaging in debt recovery that if a debtor successfully sets aside a statutory demand, it is likely the creditor will be ordered to pay the debtor’s legal costs. A fast simple debt recovery technique can end up become very expensive, and costs may even outweigh the debt recovery amount.
In HWC Contracting the creditor pursued debt recovery by serving the debtor with a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”) and subsequently obtaining a judgment in the District Court against the debtor.
In order to recover the debt recovery judgment, the creditor then engaged in further debt recovery by issuing a statutory demand. In response to the statutory demand, the debtor filed an application to set aside the statutory demand, on the basis that the debtor had an offsetting claim which exceeded the debt recovery amount in the statutory demand.
Her Honour Justice Rees was satisfied that the debtor’s offsetting claim was genuine and bona fide and on that basis, the statutory demand should be set aside, with an order for costs against the creditor.
If you are a creditor engaging in debt recovery by issuing a statutory demand, it is important to consider the following:
- If you have issued a payment claim under the SOPA and the debtor did not serve a payment response, it is important to consider whether the debtor may have any form of offsetting claim before engaging in further debt recovery, including by issuing a statutory demand.
- In HWC Contracting, whilst the debtor had not filed a payment response, they did file an application to strike out the creditor’s summons for a judgment in the District Court. However, because the debtor did not file a payment response, the creditor was entitled to judgment under the SOPA, notwithstanding the application brought by the debtor.
- Therefore, especially in debt recovery cases where a creditor has obtained some form of default judgment, but is on notice that the debtor might be disputing the debt, it is important for creditors to weigh up the risk of proceeding with debt recovery by issuing a statutory demand.
- In HWC Contracting her Honour Justice Rees held that the threshold to establish an offsetting claim, when seeking to set aside a statutory demand, is a relatively low one. This means that as long as the debtor can show that their offsetting claim is on its face a genuine and bona fide claim, it is likely the Court will set aside the statutory demand.
- If you are engaging in debt recovery and you have any concerns about whether a statutory demand is the best strategy to recover a debt, you may want to consider obtaining legal advice to ensure you are aware of the risks associated with different debt recovery options.
In appropriate cases statutory demands can be a great debt recovery strategy, but it important for creditors to be aware of the risks of issuing a statutory demand, which is a very serious enforcement option and is likely to lead to a contested dispute if there are any issues in relation to the debt.
If you need assistance with understanding the best debt recovery option to recover your debt or whether issuing a statutory demand would be a good debt recovery option for you, Matthews Folbigg Lawyers can provide you with specialist debt recovery advice regarding the best way for recovering the debt owed to you.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Bonnie McMahon at bonniem@matthewsfolbigg.com.au or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
