Australia: It's all or nothing when issuing statutory demandsfor single debts... so far

In Garuda Aviation Pty Ltd v Commonwealth Bank of Australia [2012] WASC 115, Master Sanderson set aside a statutory demand on the basis that it was issued for only part of a debt due and owing to the Commonwealth Bank, even though that portion of the debt was undisputed, and was well above the statutory minimum.

The facts

The Commonwealth Bank claimed to be owed in excess of US$6,896,535.05 under a commercial loan facility, and this amount was claimed in (yet to be determined) summary judgment proceedings. Having regard to the evidence and submissions in those proceedings, the Commonwealth Bank formed the view that a portion of the debt ($2,099,047.13) was undisputed, and issued a statutory demand for that amount.

Garuda argued that it was not permissible to issue a statutory demand for part of a debt. It relied solely on the recent decision of Blue J in the Supreme Court of South Australia in Candetti Constructions Pty Ltd v M&I Samaras (No 1) Pty Ltd [2011] SASC 165.

In Candetti, the creditor issued a statutory demand for an "undissected portion" of a single debt. Justice Blue found that the "text and purpose" of section 459E of the Corporations Act 2001 (Cth) did not permit a demand for an "undissected portion" of a debt. His Honour found that not only did section 459E not refer to, nor explicitly contemplate, a demand for part of a debt, it was preferable to set such a demand aside for reasons of simplicity, expediency and efficiency.

The decision

Master Sanderson noted the conflict in the authorities as to whether a creditor is bound to issue a single demand for multiple debts, but found that those authorities were not directly relevant to the question of whether it was permissible to issue a demand for a portion of a single debt.

Ultimately, Master Sanderson felt bound to follow the decision in Candetti for reasons of consistency, and the Commonwealth Bank's demand was set aside. Master Sanderson did, however, observe that but for the decision in Candetti, the case would have been decided differently. With respect, Master Sanderson's reasoning was compelling: if a company is unable to pay a portion of a debt which is above the statutory minimum, why should the company not be presumed insolvent?

The current state of play

For the time being, the law is that a statutory demand may not be made for part of a single debt, even if that portion is undisputed and above the statutory minimum. This aspect of the law of statutory demands is ripe for consideration at the appellate level. Given the overarching philosophy that corporations that are unable to pay their debts as and when they fall due ought be subject to external administration, one has reason to expect that an appellate court might take a different view to the prevailing one.

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