Time limits most commonly missed in relation to statutory demand, a claim example and lessons learned.
ActionSetting aside a statutory demand served on a company
Time limit21 days from the date the demand is served
Legislations.459G Corporations Act 2001(Cwlth)
Extension availabilityIf time limit is missed the company is presumed to be insolvent – s.459C(2) Corporations Act 2001 (Cwlth)
A practitioner acted for a franchisee in a dispute with the franchisor.
Following the franchisee’s failure to pay franchise fees due under the franchise agreement, the franchisor issued a creditor’s statutory demand. Under section 459G(2) of the Corporations Act 2001(Cwlth), the franchisee had 21 days in which to file and serve an application seeking to set aside the demand.
The practitioner wrote to the client advising of the limitation date. The date was in fact wrong as it was one day earlier than the actual limitation date that applied due to operation of the postal rule. The practitioner also advised that while the client could delay service of the application until the last day to allow for negotiations, the client should instruct the practitioner to prepare the documents a few days before the limitation period was to expire. The client was asked to pay the filing fees upfront and an outstanding account.
On the second last day of the limitation period, the outstanding account and the filing fees were unpaid and the practitioner did not hold instructions to issue the application. An employed lawyer emailed the client for instructions and payment of the filing fees and correctly advised the statutory demand expired one day later than first thought.
Shortly after, the practitioner telephoned the client and said the client had another seven days in which to apply to have the demand set aside. The lawyer had become confused after reviewing the rules for service and mistakenly formed the view that the Federal Court (Corporations) Rules 2000 applied to service of statutory demands by post. In fact section 29 of the Acts Interpretation Act 1901 (Cwlth) applied and service was effected at the time the letter would have been delivered in the ordinary course of post.
The practitioner did not realise the error until after the limitation period had expired, when the franchisor applied to wind up the franchisee and succeeded in having provisional liquidators appointed.
- Ensure that limitation dates are accurately identified and diarised at the start of the matter.
- Limitation dates should never be calculated hastily.
- Employed lawyers should be properly trained and supervised when providing advice especially about limitation dates.