A company that is served with a statutory demand must either pay the amount referred to in the demand or apply to set aside the demand under s.459G of the Corporations Act 2001 (Cth) (“the Act”) within 21 days of service if it wishes to avoid a presumed insolvency and potentially face winding-up proceedings.

In the Matter of Harbour Radio , in addition to involving a high profile dispute concerning an unpaid radio presenter, the case shows the preference of the Supreme Court to consider “substance” over “form” when it is called on to determine an application to set aside a statutory demand.

The case concerned Mr. Steve Vizard, a well-known Australian radio personality, and his agreement(s) to host a news program on the radio station 2GB.  The parties agreed that a service agreement had been reached and signed by both sides (“Service Agreement”) which had clauses dealing with payment and termination.  That agreement foreshadowed that the parties would enter into a long form agreement to replace the Service Agreement (“Long Form Agreement”).  The parties disagreed as to whether this Long Form Agreement was ever finalised.

After 2GB terminated the Service Agreement, Mr. Vizard issued a statutory demand seeking payment of $247,000. 2GB applied under s.459G of the Act to set aside the statutory demand on the basis that there was a genuine dispute as to the existence or amount of the debt.

2GB raised two main disputes in connection with the debt:

1. 2GB questioned whether it was Mr. Vizard’s contention that the debt arose under the Service Agreement or the Long Form Agreement.  Flowing from this, 2GB’s case was that if there was a dispute as to the source of the debt (whether the source was the Service Agreement or the Long Form Agreement), so it must follow that there was a dispute as to the existence of the debt; and
2. Under a proper construction of the Service Agreement, the debt did not arise.

Mr. Vizard accepted that if the debt arose under the Long Form Agreement only, and since 2GB disputed that the Long Form Agreement had been finalised, a genuine dispute would exist concerning the debt.  However, he submitted that if the debt arose under a proper construction of the Service Agreement, which 2GB claimed was the relevant agreement, there was no genuine dispute as to the existence of the debt.

It appears that 2GB objected to Mr. Vizard raising this ‘fall-back position’ and one can only speculate as to whether there may have been some other reason why Mr. Vizard  did not wish to accept that the Service Agreement was the applicable agreement.   However, the Court found:

 [there is not] any abuse or misuse of the … statutory demand procedure…all Mr Vizard is doing is contending there is an undisputed, or not genuinely disputed, indebtedness to him, which might arise on any number of alternative bases.

In addressing the second ground for dispute the court noted that a simple question of contractual construction may be determined on a s.459G application in order to determine whether the dispute truly exists or if there are reasonable grounds for the dispute.  The Court considered the proper construction of the Service Agreement, finding under the termination clause that the debt did arise and there could be no genuine dispute as to its existence.  2GB’s challenge to the statutory demand was dismissed and they were ordered to pay costs of $10,000 to Mr. Vizard.

A company served with a statutory demand that wishes to apply to set aside the demand should take specialised legal advice quickly in order to meet the 21 day deadline and ensure that a proper basis for any genuine dispute is carefully considered, including alternative ways the debt could be said to have arisen, well before an application is made to set aside the statutory demand.