Creditor dinged for failing to correct “false impression”

Income2Wealth Pty Ltd v ACN 114 733 569 Limited [2023] QCA 215
Is a dating error a sufficient basis to set aside a statutory demand?

Overview

The Queensland Court of Appeal has issued a warning to creditors that their conduct - in particular, a failure to correct a debtor’s “false impression” - may result in their statutory demand being set aside. The Court rejected the creditor’s argument that the error was merely a defect and not a sufficient basis to justify setting aside the statutory demand. The Court found that the circumstances - including the creditor’s failure to correct the debtor’s “false impression” as to the date on the statutory demand - justified the judge’s finding that there was “some other reason” to set aside the statutory demand pursuant to s 459J(1)(b) of the Corporations Act.

Background

ACN 114 733 569 Limited (the Company) is the responsible entity of a number of managed investment schemes. Income2Wealth Pty Ltd (Income2Wealth) was the authorised representative of the Company.

On 23 September 2022, the Company’s financial services licence was suspended. On 2 November 2022, Income2Wealth wrote to the Company taking the position that the suspension of the Company’s licence constituted a breach of the authorised representative deed, and that Income2Wealth was owed more than $1 million in authorised representative fees.

Income2Wealth served a statutory demand on the Company. The demand was dated 21 December 2022, but the attached verifying affidavit was dated 20 December 2022 under cover of a letter dated 20 December 2022. On 10 January 2023, the Company requested that Income2Wealth withdraw the statutory demand because of the issues with the dates on the documents and the fact that there was a genuine dispute about the debt owing.

Income2Wealth refused to withdraw the statutory demand, so the Company sought an order from the Court setting it aside. The primary judge granted the application on the basis that that there was “some other reason” to set aside the statutory demand under s 459J(1)(b) of the Corporations Act, in that:

1. the verifying affidavit appeared, on its face, to predate the statutory demand; and

2. Income2Wealth had the opportunity, but failed, to inform the Company of its true position (that the statutory demand itself was signed on and should have been dated 20 December 2022) before the expiry of the 21-day period for the Company to apply to set aside the statutory demand.

Income2Wealth appealed.

The Court’s Decision

The Queensland Court of Appeal dismissed the appeal, finding that the circumstances before the primary judge were a sufficient basis to be satisfied of “some other reason” to set aside the statutory demand pursuant to s 459J(1)(b) of the Corporations Act.

The issue before the Court of Appeal was whether the primary judge was wrong to exercise her discretion to set aside the statutory demand. Income2Wealth had argued that, in light of its “true position” regarding the dates of the documents, the issue before the primary judge was whether the defect in dating justified setting aside the statutory demand pursuant to s 459J(1)(a), or whether it was a “merely” a defect for the purposes of s 459J(2) of the Corporations Act.

The Court of Appeal rejected these arguments, finding that Income2Wealth had not established any error in the primary judge proceeding under s 459J(1)(b) of the Corporations Act or in the exercise of her discretion. Among other things:

1. The primary judge clearly understood the relevant facts and proceeded on the basis of these facts;

2. Her Honour concluded that the failure to correct the “false impression” on the face of the statutory demand and the verifying affidavit was relevant to whether “some other reason” was established for the purposes of s 459J(1)(b) of the Corporations Act;

3. Section 459J(1)(a) of the Corporations Act was not applicable, as the facts did not give rise to a defect “in the demand” and consequently it was not necessary to consider whether there was “substantial injustice”;

4. There was a defect “in relation to” the statutory demand in the sense that the discrepancy between the date of the verifying affidavit and the error in the date in the statutory demand undermined the verifying affidavit, therefore meeting the requirement of s 459E(3) of the Corporations Act; and

5. Consistent with the authorities and in the statutory context, this was “some other reason” within s 459J(1)(b) of the Corporations Act and in the circumstances the statutory demand should be set aside.

Conclusion

Although the Court dismissed this portion of the appeal, it looks like an alternative ground has yet to be argued, so this may not be the last we see of this case. Stay tuned!

Judges: Morrison JA, Applegarth and Williams JJ

Counsel for the Company: M J May and J T Sargent

Solicitors for the Company: Colin Biggers & Paisley

Counsel for Income2Wealth: G J Radcliff

Solicitors for Income2Wealth: Radcliffs