The Devil is in the detail – Statutory Demands for Payment of Debts

11-Sep-2013

In Product People (International) Pty Ltd v Box Seat Company Pty Ltd (in liquidation) [2013] FCA 277 the Federal Court accepted that an entry of the debt in the Balance Sheet pursuant to section 1305 of the Corporations Act 2001 (Cth) would be prima facie evidence of that debt, however the Court by evidence to the contrary considered the presumption was rebuttable and could be displaced.

The Product People Pty Ltd (TPP) developed various products which were licenced to The Product People (International) Pty Ltd (TPPI) for the purposes of marketing and selling those products to Australia and New Zealand. Box Seat Company Pty Ltd (BSC) was incorporated to generate business and manage clients for those products in those territories.

Subsequent to BSC going into liquidation, the liquidators issued a creditors statutory demand for payment of a debt (Demand) on TPPI pursuant to an entry in the 2010 Balance Sheet (Balance Sheet) supplied by the company secretary (CS). An application was made by TPPI to set aside the Demand.

The Court applied established principles that to set aside a Demand the applicant must demonstrate a genuine dispute in relation to the existence or amount of the debt. CS had stated on affidavit accompanying the Demand that she had incorrectly identified TPPI as the debtor when debtor was TPP.

The Court placed significant weight on the error in the Balance Sheet which the liquidators relied upon in issuing the Demand and concluded that there was a genuine dispute in relation to the Debt and ordered that the Demand be set aside.