Compliance is essential for winding up applications during COVID

Key Points:
  • During 2020 a number of restrictions were placed on issuing Creditor’s Statutory Demands for Payment of Debt
  • ​​Hicksons previously issued a bulletin on the decision of the NSWSC examining how these measures impacted an application by a landlord to wind up an insolvent tenant
  • The NSWSC has handed down a further decision confirming its approach in relation to winding up applications in a COVID environment

Late in 2020, In the matter of Ryals Hotels Pty Ltd [2020] NSWSC 1906, the Supreme Court of New South Wales was required to examine various restrictions brought into support businesses through the COVID period and what impact they had on an application by a landlord to wind up a commercial tenant.

In a further decision, In the matter of GT’s Cooking Oils Pty Ltd trading as Filtafry Newcastle [2021] NSWSC 93, Justice Black again considered the impact of the COVID support measures. This time it was in relation to a defect in a creditor’s statutory demand, but he made reference to his earlier comments in Ryals Hotels and the Court’s discretion to dismiss winding up applications notwithstanding the elements otherwise being proven.

The decision in GT’s Cooking Oils highlights the increased importance of ensuring that forms comply with the statutory requirements at the time they are issued, particularly when those requirements can rapidly change as part of the Government’s response to a pandemic.

As reported in our bulletin on the decision in Ryals Hotels, as part of the National Cabinet’s response to COVID-19, a number of measures were put in place to assist businesses to trade. These measures included temporarily increasing both the threshold for issuing a creditor’s statutory demand for payment of debt against a corporation from $2,000 to $20,000, and the time limit for compliance from 21 days to 6 months (these restrictions have since been lifted).

In this case however, the creditor issued a statutory demand during the restriction period, but the demand mistakenly contained a paragraph which still referred to the 21 day period for compliance, rather than the 6 month period which was in effect at the time.

The debtor did not respond to the demand and did not apply to have it set aside, either within the 21 day or 6 month period. The creditor then applied to wind up the debtor.

The creditor attempted to argue that the defect in the demand did not give rise to a substantial injustice. However, the Court disagreed, and even though the debtor did not appear to contest the winding up application, the application was dismissed. The Court considered that compliance with the COVID relief measures were an essential element of the statutory regime.

Justice Black referred to his previous unreported decision in Re Remolink Pty Ltd (19 October 2020) where he set aside a statutory demand that did not comply with the relief measures, stating in that case:

The legislature has drawn a balance, given the difficulties which companies faced in the period of the pandemic, and that balance may have the consequence a longer period must be allowed for payment of debts which could otherwise properly be the subject of a creditors statutory demand. The Court must give effect to that legislative balance.

In referring to his previous decision of Ryals Hotels, Justice Black repeated the view that the balance favoured the Court exercising its discretion to dismiss the winding up application, leaving the creditor to issue a compliant statutory demand and restart the process.

Lessons

This most recent decision forms part of a series of judgments from the Supreme Court that confirms compliance with the COVID relief measures is essential, and also confirms that the Court may exercise its discretion to dismiss applications to wind up companies (or grant a lengthy adjournment) if it can be shown they are affected by COVID.

Hicksons are experts in commercial disputes and insolvency and can assist with any issues affecting your business.

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