Debt Recovery - Take Care With Statutory Demands

Legislation

Corporations Act 2001 Sections 459E, 459F, 459G

Case History

A solicitor attempted to extract an unjustifiable fee from one of his former corporate clients. He served an “ever popular” Creditor’s Statutory Demand on his “client”. The law requires that a corporate debtor must satisfy the demand or lodge an application to the court to set aside the demand within 21 days or the “creditor” may initiate winding up proceedings.

The solicitor had no legitimate claim as there was never a mandatory costs agreement entered into, bills were rendered which did not reflect actual work done and, in fact, the solicitor had been employed by the company under an entirely different reimbursement arrangement. After protracted court proceedings the solicitor realised his case was hopeless and agreed to settle the matter on the basis that the Application of the company be set aside and that a Deed of Settlement be signed which stipulated the solicitor pay the company’s legal costs. The Deed however was signed on behalf of the solicitor by a business name. The solicitor was clearly attempting to avoid payment of legal costs by filing an “unenforceable” Deed.

The effectiveness of the deed

Assuming the signature was of a partner of that firm, or someone who had ostensible authority to bind that firm, the deed would be enforceable against the partnership.  This means that the company could commence proceedings against one or more of the partners (the partners being jointly and severally liable) to enforce the deed.

Required proceedings

The proceedings to recover the costs would be fairly straightforward - they would just be an action to enforce the terms of the deed, namely payment of the costs to the company as a simple liquidated debt claim.  The company could also claim interest under s 100 of the Civil Claims Procedure  (pre-judgment interest) from the date when each payment was due.  Because it is a claim for a liquidated amount, default judgment would be for a definite sum without the need for the company to spend further money on having damages determined.  

As the amount in question was greater than $2,000 the company could serve a bankruptcy notice on each and every one of the partners.

How can we assist you

The area of the Creditor’s Statutory Demand is a “minefield” and anyone whether serving one or served should always obtain proper legal advice before doing so. This is an area pregnant with risk and one in which you should obtain proper professional advice and assistance. In all such cases call LAC Lawyers on (02) 9904 6800 now for an appointment.