Exercising caution is important when a creditor considers issuing a creditor’s statutory demand for payment of debt. This is because of the low threshold which must be established by the recipient to have the statutory demand set aside on the basis of the existence of a genuine dispute.

If an application to set aside a statutory demand is brought and there exists an off-setting claim or a genuine dispute as to the amount of the debt, the Court must calculate the undisputed or substantial amount of the demand. The Court can then vary the demand and declare to be effective the undisputed portion of the debt as from the date the statutory demand was served.

As a means to avoiding an application to set aside a demand based on an off-setting claim or dispute about a portion of the amount demanded, a creditor can serve a statutory demand under section 459E of the Corporations Act 2001 (Cth) for the undisputed portion of a larger debt. This was recognised by the Supreme Court of Western Australia Court of Appeal in Commonwealth Bank of Australia v Garuda Aviation Pty Ltd (2013) 93 ACSR 168 (Garuda Aviation).

In Garuda Aviation, CBA issued a statutory demand for the sum of approximately $2 million, representing the undisputed portion of a total debt in excess of $6 million. In calculating the amount to be included in the statutory demand, CBA accepted that there was a genuine dispute as to the correct amount for the value of an aircraft, to be deducted from the total debt. CBA therefore deducted an amount asserted by Garuda to be ‘fair market value’ for the aircraft rather than the CBA’s value for the aircraft, whilst expressly reserving its rights to recover what CBA asserted to be the full amount of the debt.

In order to take advantage of the ability to issue a statutory demand for the undisputed portion of a larger debt, having regard to the decision in Garuda Aviation it is critical that:

•  both the statutory demand and the supporting affidavit describe in clear and unambiguous terms, the undisputed portion of the debt demanded in the statutory demand and how it had been calculated; and
• the undisputed debt must exceed the statutory minimum of $2,000.

Despite acknowledging the ability to issue a statutory demand for the undisputed portion of a larger debt, it was still acknowledged in Garuda Aviation that it may be an abuse of process to serve multiple statutory demands for various parts of a single debt in the absence of good reasons for doing so.

Clearly the advantage to issuing a statutory demand for the undisputed portion of a larger debt is to reduce the risk and cost of having proceedings brought to set aside a statutory demand on the basis of a genuine dispute about a portion of the debt. A creditor does however need to be very careful about how it goes about describing that portion of the debt which is not in dispute, if it is to gain the advantage that is available.