Court scrutinises accountant’s administrative procedures

In the recent case of In the matter of Future Developments Pty Ltd [2014] NSWSC 1712, the New South Wales Supreme Court heavily scrutinised an accountant’s administrative procedures before deciding to dismiss an application to set aside a statutory demand.

Case facts

Joseph Hoi and Hoi Constructions Pty Ltd (Hoi) served a statutory demand under the Corporations Act 2001 (Cth) on Future Developments Pty Ltd (Future) by posting it to Future’s accountant’s office, which was specified as the registered office of the company.

Timing is crucial when it comes to statutory demands. There are extremely serious consequences for a company failing to comply with the requirements of a statutory demand strictly within the 21 days, being that:

• a court must presume the company is insolvent;
• on that basis, the company may be wound up; and
• the company cannot rely on the grounds available to set aside the statutory demand to oppose any winding up application.

On 9 October 2014, Future filed a court application to set aside the statutory demand in the NSW Supreme Court arguing that it had a genuine dispute as to the existence of the debt.

As a preliminary matter, the Court had to determine when the statutory demand had been served to ensure that Future’s application had been brought within the required 21 days.

Hoi argued the application was out of time (by one day) because the statutory demand was served on 17 September 2014. In support of its argument, Hoi produced evidence from Australia Post’s records showing that Australia Post delivered the statutory demand to the accountant’s letterbox on 17 September 2014 at 11.22 am.

Future argued that the application was in time because:

• if Australia Post had delivered the statutory demand to the accountant’s letter box at 11.22 am on 17 September 2014 as alleged, based on the accountant’s usual practice of collecting mail at around 8.00 am on most days, it would have been collected by the accountant on 18 September 2014; and
• the statutory demand was not actually received at the accountant’s office until 19 September 2014.

The accountant produced two affidavits to the Court about these matters and was cross-examined at length on his procedures for collecting mail.

Ultimately, through the accountant’s evidence it came out that:

• once or twice per week the accountant did not have an opportunity to collect the mail, instead he would check the letterbox and PO Box the following day;
• the accountant could not recall if he was at his office on 18 September 2014 to collect the mail from 17 September 2014 (and could not recall whether the statutory demand had been delivered as per Australia Post’s records);
• the accountant’s calendar did not make clear whether he was at the office or on site with a client on 18 September 2014;
• the accountant did not pay attention as to whether or not he collected the statutory demand from the letterbox or the PO Box.

Decision

Unfortunately, the Court found that the accountant’s evidence was not sufficiently clear to establish that service was effected as argued by Future. The position may have been different if the accountant could have satisfied the Court that he followed a specific mail collection procedure.

The Court concluded that on the balance of probabilities it should accept that that the statutory demand had been placed in the letterbox as per Australia Post’s records on 17 September 2014.

Future’s application was therefore out of time. The application was dismissed and Future was ordered to pay Hoi’s costs. Future had no choice but to pay the amount claimed in the statutory demand or otherwise face winding up proceedings.

Implications

The Court expressly warned those who receive mail on behalf of clients as their registered office that they must have regimented administrative arrangements in place to ensure that mail is retrieved every single day and that the time, date and method of delivery are accurately recorded.

It is therefore very important to put such processes in place. The uncertainty about processes placed the accountant involved in this case in a very difficult and uncomfortable position with potentially dire consequences at stake.

The case is also a timely reminder of the need to act quickly upon receipt of a statutory demand particularly where a court application to set aside the demand is to be made. Timing of service of the statutory demand is crucial to an application to set aside the demand. It is also important to remember that the date of service of a statutory demand is the date it is delivered – not the date it is received by, or brought to, the accountant or directors’ attention.

For information please contact Emma Allatt or Rocco Russo from our litigation and dispute resolution team on +61 7 3231 2593.