A Queensland Supreme Court decision has introduced uncertainty over whether winding-up proceedings brought against a company on the basis that the company has failed to comply with a statutory demand can only be filed after the expiration of the statutory demand.

A company served with a statutory demand under s.459E of the Corporations Act 2001 (Cth) (“The Act”), must either pay the amount demanded or to apply to have the demand set aside within 21 days of the date of service of the demand.  If the company fails to do either, then a rebuttable presumption of insolvency arises under s.459C of the Act.  That presumption is often relied upon in support of an originating process being filed in the Supreme Court for orders that the company be wound up.

However, in Equititrust Limited v Willaire Pty Ltd [2012] QSC 206 the Plaintiff had served a statutory demand in respect of an unpaid costs order served and expiring after the plaintiff had commenced proceedings which sought orders winding-up the Defendant on other grounds  The defendant applied without success to set aside the statutory demand.

The Court found that there was no requirement for the presumption of insolvency to arise prior to the commencement of the winding-up proceedings by focusing on the words of s.459C(2) which states that:

the Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made…the company failed (as defined by section 459F) to comply with a statutory demand.

McCurdo J went on to say:

The words “or after” would seem to unambiguously permit an applicant to rely upon an event although it occurs after the application is made.

His Honour departed from the decision of Woodgate v Garard Pty Ltd [2010] NSWSC 508, a NSW decision where Palmer J found that a failure to comply with a statutory demand was not relevant once the proceedings had been commenced seeking a winding up order as s.459Q requires that an application relying on a failure to comply with a statutory demand must include a copy of the demand, any order varying the demand and an affidavit of debt.

Woodgate has been followed in Victoria in Surdex Steel Pty Ltd v GB Manufacturing Pty Ltd [2012] VSC 90 but McCurdo J distinguished that case on the facts and found the Defendant’s failure to comply with the statutory demand was within s.459C(2)(a) and therefore  gave rise to a presumption of insolvency, despite the failure to comply occurring after the proceedings had been commenced.  His Honour cited the High Court decision of Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited (2008) 232 CLR 314 in support of his finding and noted that the decision in Woodgate did not consider the relevant passage in Aussie Vic Plant Hire.

The result of this decision is that it can no longer be said that for an expired statutory demand to be relied upon in support of a winding-up application, the demand must have expired before the winding up application was filed.