Court decision a warning to accountants on statutory demands
A recent Victorian Supreme Court decision has highlighted the significant consequences that can apply where accountants fail to inform companies about statutory demands, says Cooper Grace Ward Lawyers.
A decision handed down by the Victorian Supreme Court in West Homes Australia [2023] VSC 732 is an important reminder for accountants who act as the registered office for a company, according to Cooper Grace Ward partner Graham Roberts.
The case involved a statutory demand that was delivered by post to the company’s registered office which was the company’s accountant’s office.
“Upon receiving the statutory demand, the accountants posted it to the company. The accountants did not take any other steps to bring the statutory demand to their client’s attention,” said Mr Roberts.
“Unfortunately, the company did not receive the statutory demand that the accountants had posted. The director only became aware of the statutory demand when it was served with the court application for the winding up of the company.”
On the winding up application, the company in West Homes Australia sought to dispute the debt by seeking the exercise of the court’s discretion under section 459S of the Corporations Act 2001 (Cth).
“Under section 459S, where a company has failed to comply with a statutory demand, the company may not, without leave of the court, oppose the winding up application on a ground that could have been relied upon on an application to set aside the statutory demand,” said Mr Roberts.
“The court will examine why the issue of the indebtedness was not raised in an application to set aside the statutory demand and the reasonableness of the company’s conduct at that time. The court is not to grant leave unless it is satisfied the disputed debt is material to the company proving it is solvent.”
The company in West Homes Australia also sought to rely on the Masri principle.
Mr Roberts said the Masri principle is that where the directors of a company do not become aware of the existence of the statutory demand until after the expiry of the 21 days and they have acted reasonably in respect to the superintendence of the collection of mail within the registered office, fairness requires the company be permitted to raise a ground to challenge the statutory demand.
“In West Homes Australia, the Court said that the Masri principle was not good law and said, even if it were, on the facts of this particular case, the mail collection system at the registered office (the accountant’s office) was not reasonable,” he said.
The court found that in deciding to forward the statutory demand to the company by post only, the accountants had not acted reasonably.
The court stated that an accountant would know well that a statutory demand involves strict time frames for response and potentially very significant consequences for a company.
It stated that it was “simply not credible to suggest that an accountant would not have used some other means, perhaps in addition to post, to alert the sole director of a company to the existence of a statutory demand, or having sent it by post, followed up with the sole director to ensure it was received.”
The company was not given leave to contest the debt under section 459S, leaving it with the onus of establishing it was solvent to avoid being wound up.
Mr Roberts said it is clear from this case that if there is any delay in informing a company that a statutory demand has been received, its ability to obtain legal advice and to respond to the statutory demand within 21 days could be severely prejudiced.
“It is recommended that the statutory demand be emailed to the appropriate persons at the company and that they also be telephoned to inform them of the statutory demand,” he said.
“There should also be internal procedures for recording the date, time and method of delivery of the statutory demand at the registered office. It is critical to know the date the statutory demand was delivered because the 21-day time period runs from the date of delivery.”
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