Case Studies

Statutory Demands: What to do about post-judgment interest

A Creditor’s Statutory Demand (CSD) is a formal document which if in the proper form, and is served correctly, requires the company served to either:

  • pay the amount demanded (which must be over $2,000) within 21 calendar days– otherwise the company will be deemed insolvent and could eventually be wound up and a liquidator appointed; or
  • on or before 21 calendar days of the demand being served, file and serve proceedings at the Supreme Court (or the Federal Court) to apply to have the demand set aside if the CSD has not been withdrawn in writing by the creditor.

A CSD is most often used for the recovery of judgment debts, or for deeds of settlement, or invoices where the amount is admitted as owing and there is no dispute about the existence of the debt and there are no potential off-setting claims. Usually, CSD’s must be accompanied by an affidavit sworn by a representative of the creditor to the effect that, to their knowledge, there is no genuine dispute about the existence of the debt, the exception being if the amount is for a judgment debt.

In a recent decision of the Supreme Court of New South Wales (In the matter of GTH Equipment Pty Ltd [2017] NSWSC 1617), Justice Black held that a claim for post-judgment interest is not a “judgment debt” and accordingly does not fall within the “judgment debt” exemption in section 459E of the Corporations Act 2001 (Cth).  Accordingly, any post-judgment interest sought to be included in a CSD in addition to a judgment debt must be the subject of an affidavit in support from the creditor for the amount of that post-judgment interest.

Justice Black’s reasoning was that:

calculation of post-judgment interest is not necessarily simple or uncontroversial, where it involves the application of interest rates which may or may not be properly applied and also depends upon a factual question that may be disputed (as this case plainly illustrates) as to when the amount of the debt was paid so as to bring the period for which interest can properly be claimed to an end.  Second, I find it difficult to see how an amount that arises after the judgment, and is calculated by reference to the amount of the judgment debt, can itself be part of the judgment debt.

 

Facts

GTH had been the defendant in District Court proceedings commenced by Merlo Group Australia Pty Ltd (MGA).  GTH had suffered a summary judgment “in the sum of $143,000.00 together with interest under the contract from 3 February 2015”.

MGA issued a CSD in respect of the judgment sum plus an amount for post-judgment interest at the contractual rate of 15% per annum until date of demand arguing that the order allowed for this.  No supporting affidavit was filed, MGA having relied upon the “judgment debt” exemption in section 459E of the Corporations Act.

GTH, on the other hand, argued that if the contractual interest rate was payable, that amount merged with the judgment and subsequent claims for interest were in the nature of post-judgment interest pursuant to section 101 of the Civil Procedure Act 2005 (NSW).  It argued that such post-judgment interest was not a “judgment debt” for the purposes of section 459E of the Corporations Act.

Ultimately, Justice Black held that GTH’s position was correct and set aside the statutory demand with costs, noting that section 459(J)(1)(b) “does not contemplate that a demand may be varied rather than set aside.”  Since no affidavit was filed in accordance with the provisions of the Corporations Act, the demand could not be varied and was set aside as being defective.

 

Ramifications

It is prudent to obtain proper advice prior to issuing a CSD.  If the demand is set aside, the demand procedure will have to be repeated, you will have wasted significant costs (including a potential Supreme Court hearing) and be several months behind where you might have been in the recovery process.

If you are seeking to issue a CSD that includes post-judgment interest, it is imperative that an affidavit be filed and served in support outlining the basis for calculation of post-judgment.  Relevant factors such as any partial payment of a judgment sum must be deposed to “to enable the court to be satisfied that there is a solid basis for the claim as to the existence of the debt”: Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531.  Such a calculation must be clear on its face.

The field of statutory demands is technical and a small slip in the process can cause the enforcement mechanism to fail.  Surry Partners Lawyers have acted on both sides of many statutory demand matters and are well equipped to guide you through the process.

 

For assistance, contact:

Clement Lo

Associate

(02) 9318 6420

clement.lo@surrypartners.com.au

 

James Hamilton

Lawyer

(02) 9318 6423

james.hamilton@surrypartners.com.au

 

Peter English

Director

(02) 9318 6411

peter.english@surrypartners.com.au