Signed an option to buy a property? Make sure you exercise it on time and in the correct manner or risk losing it!
It is commonplace for a property purchase to be commenced with an option to purchase the land for various reasons, such as to allow time for a due diligence, to secure finance or a joint venture partner.
An option is usually formally exercised in accordance with its terms by the grantee giving a formal notice and the parties executing a formal document and signing a formal contract to purchase. In many instances, the terms of the option permit the assignment or novation of the right to exercise the option to a third party. For such a novation of the option to be valid, the option needs to be properly exercised.
In Kai Ling (Australia) Pty Ltd v Rosengreen  NSWCA 3, the court examined the requirements for effective novation of contract by the substitution of party, and whether on the facts of that matter, an option to purchase land was properly novated in favour of the substituted grantee.
On 30 April 2015, Mr Rosengreen granted to Saadie Group Pty Ltd (“Saadie Group”), by deed, an option to purchase certain land.
On 3 May 2015, Mr Michael Saadie presented to Mr Rosengreen a single sheet of paper in the same form as the execution page of the deed of option, save that the grantee was named as Kai Ling (Australia) Pty Ltd (“Kai Ling”) instead of Saadie Group. The sheet already bore the signatures of two persons on behalf of Kai Ling. Mr Michael Saadie (who was the father of the sole director of Saadie Group and was not an officer of Kai Ling) asked Mr Rosengreen to sign the sheet, saying that “we may need to change the name of the grantee but it does not change anything”. Mr Rosengreen signed as requested and gave the sheet back to Mr Michael Saadie. Kai Ling contended that the events of 3 May 2015 had brought about a novation of the option contract so that Kai Ling was the holder of the option in the place of Saadie Group. The primary judge dismissed the proceedings. Kai Ling appealed.
The Court held, dismissing the appeal with costs that:
(1) The evidence did not establish that Mr Michael Saadie acted with the authority of Kai Ling in dealing with Mr Rosengreen on 3 May 2015.
(2) There was no basis for a finding that there had been created among Mr Rosengreen, Saadie Group and Kai Ling the tripartite agreement necessary to effect novation.
(3) Mr Rosengreen and Saadie Group had, in any event, conducted themselves subsequently on the basis that they remained the parties to the option contract.
The Court approved the description of the nature of novation and of the elements that constitute it as found in ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338;  HCA 6:
“A novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old. It is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract. Under the common law such a description comes closer to the effect of a transfer of rights by way of assignment. Nor is it correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation. The effect of a novation is upon the obligations of both parties to the original, executory, contract. The enquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged.”
Further, the element of intention was important: In Vickery v Woods (1952) 85 CLR 336;  HCA 7, Dixon J said that “the crux of novation is intention” in the form of consent by way of tripartite agreement; and that the intention may be express or, importantly for a case such as the present, may be implied from conduct and circumstances.
Kai Ling’s case was that the events of 3 May 2015 gave rise to a tripartite agreement among Mr Rosengreen, Saadie Group and Kai Ling by which Mr Rosengreen accepted undertakings from Kai Ling in place of those originally given to him by Saadie Group and released Saadie Group; Kai Ling gave those undertakings to Mr Rosengreen who in turn renewed in favour of Kai Ling the undertakings he had originally given to Saadie Group; and Saadie Group consented to its release by Mr Rosengreen and in turn released him from the original contract. Kai Ling maintained that all those elements, in immediately operative contractual form, can and should be found to have resulted from the events of 3 May 2015.
The appeal was dismissed as the Court agreed with the primary judge who held that Kai Ling had not established that, on 3 May 2015, all of Mr Rosengreen, Saadie Group and Kai Ling agreed that a new contract between Mr Rosengreen and Kai Ling was substituted for the old contract between Mr Rosengreen and Saadie Group and that the obligations of Mr Rosengreen and Saadie Group created on 30 April 2015 were discharged. His Honour’s’ conclusion was correct for three basic reasons:
1. In the absence of proof that Mr Michael Saadie had acted on 3 May 2015 with the authority of Kai Ling, it was not shown that Mr Rosengreen and Kai Ling had engaged in any conduct of a contractual kind towards one another on that day.
2. Even if there had been contractual conduct as between Mr Rosengreen and Kai Ling on 3 May 2015, the purpose of the contractual conduct was to deal with an apparently foreseen possible future need to “change the name” of the grantee of the option, as distinct from immediately substituting a new grantee.
3. As at 27 November 2015, two of the three relevant parties (Mr Rosengreen and Saadie Group) acted on a clear footing that they alone remained the parties to the option agreement made between them on 30 April 2015.
The case illustrates that the exercise of options where an interest is to be novated is a technical and a formal process that should be treated with care to ensure it is effective to novate the rights granted.
Getting this process and documentation wrong can be costly.
We are experts in property transactions. If you wish to discuss or seek advice on any aspects of options to buy property, or matters arising from this article, please contact us.
Trade Marking is the process of creating an identifying aspect of a product or service that distinguishes it from other similar products or services within the marketplace. A trade mark may include a word, phrase, letter, sound, number, shape, smell, logo, picture or aspect of packaging or a combination of these.
Upon Registration the trade mark covers all areas of Australia. It gives the registered owner the legal right to use the name, logo and picture, for the goods and services under which it is registered.
While you are not required to register your trade mark, it is prudent to do so as common law action may arise if you use a trade mark that is not registered.
Why would you trade mark?
A trade mark is commercially recognised as being a vital element in developing and maintaining a brand and viability of a business. The development of a recognised trade mark is an integral part of an effective marketing strategy for goods or services and a business in general.
A recognised trade mark quickly becomes an identifying element for a customer base. Trade marking becomes pivotal in building your goodwill and reputation, and will ultimately contribute to the overall success of a business.
Is your mark registrable?
In order to register a trade mark it needs to meet the requirements of the Trade Marks Act 1995 (Cth). The applicant must have legal personality and is to be classified as either:
- an individual;
- Incorporated association; or
- a combination of these.
Trade Mark needs to be distinctive in nature
Your trade mark needs to be distinctive in nature and is not something that is used in the everyday vernacular. The name cannot be descriptive in nature and can not impose any connotations that would be perceived to be unfair or unequitable to others operating within the marketplace.
In terms of registering the name, it is important to ensure that you do not have a combination of commonly used initials or surnames. There is also to be no confusion between other goods or services currently within the marketplace. Provided that you comply with the above requirements, there is a higher chance of successfully achieving registration.
Trade Mark needs to not be used in normal course of trade
The trade mark needs to be a new addition to the market place, in order to avoid confusion. It is crucial to ensure that customers are not confused between trade marks as the repercussions of this could be potential legal action.
It is prudent to conduct a search for any registered or pending trade marks which may already be in existence. It may be possible for similar trade marks to co-exist and be registered provided that the goods and services offered are in different classes or classifications.
Identification of classes
Trade marks are divided into groups of goods or services, these two categories are then divided into a further 45 classes. The classes can be located at the link below:
It is crucial that you clearly outline a clear, concise description of your services which you wish to trade mark.
Does a trade mark expire?
The registration of a trade mark lasts for 10 years. Upon expiry you may renew your registration for an addition 10 years and pay the prescribed fee. There is significant business value that can be placed upon registration and renewal of trade marking and ultimately the decision to obtain a trade mark will need to commercially assessed on an individual basis.
The Application process
Applications for trade marks are to be filed with the Trade Marks Office of Intellectual Property Australia.
Upon submitting your trade mark for application you will be allocated a filing number which enables you to easily track your application. Should your trade mark be accepted for registration, the details pertaining to your application will need to be advertised in the official Journal of Trade Marks.
From this point onwards anyone may lodge an objection to your trade mark application within three months of the advertisement date. If no objection is lodged against your trade mark application, your trade mark becomes registrable upon payment of the registration fee.
You will then be required to pay the registration fee no later than 6 months from the date the acceptance is advertised.
Upon registration IP Australia will issue you with a Certificate of Registration and record the details pertaining to your trade mark in the Register of Trade Marks.
Time frame of the application process
The estimated time frame for a trade mark application is approximately 5 months if no issues arise during the
application. Upon being granted a trade mark your rights will accrue from the date of filing the application rather than the date you are notified of successfully obtaining the trade mark.
Trade marking a Logo (colours)
Trade mark may be registered:
- with limitations as to colour;
- with limitations in respect to whole or part of the trade mark; or
- in the capacity that the trade mark is registered without any limitations as to colour.
However, if your trade mark is registered without colour limitations, your trade mark is taken to be registered to cover all colours.
For more information on trade marking and other areas of intellectual property law, please contact our Intellectual Property experts.
We were recently successful for a client in a fierce contest in the Supreme Court in enforcing a 12 month restraint on a shareholder working for a direct competitor contrary to the provisions in a shareholders agreement (LCR Group v Bell (2016) QSC 130).
It is commonly the case that shareholders in a company enter into written agreements which set out their rights and obligations. Shareholders agreements of this nature are designed to achieve a harmonious and profitable business operational environment with cooperation between the shareholders.
A well drafted shareholders agreement should, particularly where the shareholders are of a management or executive level contain restraints of trade, drafted to strike a balance between achieving a harmonious and profitable business operational environment with cooperation between the shareholders, protection of the company interests, and protection of individual rights.
Recent decisions on the enforcement of restraints of trade in shareholders agreements point to a more commercial and contractual approach rather than the approach generally accepted by the courts when considering restraint of trade in an employment contract.
Restraints of trade in employment contracts are said to be void being contrary to public policy.
A well drafted restraint clause in an employment agreement will typically contain non-competition provisions, geographical and temporal restrictions.
The starting point as observed by McMurdo J in AGA Assistance Australia Pty Ltd v Tokody  QSC 176 at 25 is that:
“A restraint of trade is void as contrary to public policy unless it is reasonable in the interests of the parties and by reference to the interest of the public: see Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd, Amaco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd. As to the interests of the public, the onus is on the party which is subject to the restraint to establish that the restraint is harmful to the public: Herbert Morris Ltd v Saxelby.”
Restraints on post-employment activity contained in shareholders agreements indicate a different approach. Issues such as mutuality of obligations, legitimate business interests of the company, acknowledgements of independent legal and accounting advice, the risk of loss of client and customer connections and relationship, confidential information and reasonableness of the restraints are all relevant considerations.
In BDO Group Holdings (Qld) Limited & Anor v Sully  QSC 166, Flanagan J considered and enforced a restraint imposed upon an accountant who became a party to a shareholders agreement and a party to an employment agreement when he sold his business into the applicants.
The restraint of trade in the shareholders agreement provided a non-competition restraint of trade which purported to restrain the respondent from engaging in any activity during the restraint period and within the restraint area which essentially competed with the business activity of the company, provision of similar services, inducing, soliciting staff or clients.
In dealing with the shareholders agreement, and Flanagan J observed that the respondent agreed to:-
- Diligently and faithfully devote…attention to the business
- To cooperate and use…best endeavours to ensure that the group successfully conducted the business
- To give approval to make decisions that were required of it in good faith and in the best interests of the group and the conduct of the business as a commercial venture
Relevantly, the shareholders agreement contained an acknowledgment that the terms of the restraint were reasonable considering the interests of each party and went no further than was reasonably necessary to protect the interests of the other shareholders, the group and the business.
In the decision of Seven Network (Operations) Limited & Ors v Warburton (No 2)  NSWSC 386, Pembroke J dealt with a restraint of trade involving a senior executive of the Seven Network in the context of restraints imposed under an employment contract and a management equity participation deed.
In a decision notable for its clarity and analysis of both factual and legal issues, Pembroke J found that the restraints imposed in the management equity participation deed should be enforced. In analysing the circumstances relating to entry into the management equity participation deed, the commercial background and experience was detailed exhaustively. In that case Mr Warburton was a person of considerable commercial experience, knowledge and acumen. His Honour also considered that the entry into the management equity participation deed by senior executives such as the respondent was an important factor in the venture capital company’s decision to invest in the company (an investment of approximately $690 million for a 50% economic interest). The transaction involved, through an equity participation plan, senior management being given a financial incentive to strive to maximise the value of the business. By this means, the interest of the investors and senior management were aligned. In an effective practical sense, they became “owners of the enterprise”.
The commercial rationale for the deed was also analysed and His Honour commented:
“It resulted in the participating executives becoming the holders of shares and options in SMG. By this means, they acquired a shared financial interest in the enterprise with KKR and Seven Network Limited. The MEP Deed was designed, amongst other things, to enhance the prospect of senior management staying together as a team. It provided each of them with an opportunity to achieve a generous return on investment that was disproportionate to the risk being undertaken. From the perspective of KKR and Seven Network Limited, the restraints on competition served to protect their investment. But they also served to ensure that the investment of each of the senior management participants was not undermined or devalued. The object of the restraints on competition was to reduce the risk of devaluation of the business by the departure of any executives to work for competitors: to reduce the risk of the misuse of confidential information by its provision to competitors: and to reduce the risk of dissipation or reduction in the customer connection of the business”.
His Honour found that on the facts of the case, there was no logical reason for denying the existence of a legitimate financial interest to support the restraints imposed.
His Honour also dealt with the provisions in the MEP Deed which contained an acknowledgement of reasonableness of the restraints imposed. His Honour said “this is possibly the most important single factor in determining whether the restraint period was reasonable at the time it was entered into. It does not of course absolve the court from reaching its own conclusion, but as Emmett J observed in Synavant Australia Pty Ltd v Harris (2001) FCA 1517 at 85:
“The matter involves the exercise of business judgment. For that reason, considerable weight should be attached to the period the parties themselves have selected.”
His Honour further pointed to the fact that in this case, Mr Warburton had obtained legal and taxation advice at the time of entry into the deed, had been to a presentation at which attention was drawn to it and the commercial rationale and purpose behind the restraint was explained to him and he obtained written legal advice which specifically addressed the clause. Those factors reinforced the appropriateness of placing weight on his agreement as to the reasonableness of the restraint.
In LCR Group v Bell (2016) QSC 130, Byrne J enforced a 12 months restraint on a manager and shareholder, after analysing the scope of duties of the shareholder and the business interests of the company, finding that the restraint was reasonable and valid where the company and the prospective employer were direct competitors, and “there was a significant risk of appreciable detriment to LCR’s commercial interests through misuse of LCR’s confidential information.”
Enforcing restraints of trade, whether in employment contracts, business sale agreements or Shareholders Agreements is never simple and usually involves complex and contested, factual and legal issues. Where there are significant risks of serious loss and damage occurring if the restraints are not enforced ,protective and urgent injunctions are well warranted.
If you have any reason to consider action on a restraint of trade, and require urgent advice, contact us for assistance.
Answer: Not very hard!
A party who is claiming a debt from a company will often want to consider the quickest and most cost-effective way for recovery. A drawn out court case over many months can often lead to a very unsatisfactory result, including lost time and legal fees. For these reasons, many will consider the use of a Statutory Demand under Section 459 of the Corporations Act 2001 which basically entails making a demand in a prescribed form and which allows 21 days to resolve the matter of the debt, or face a winding up on the grounds of insolvency. Properly used, it can be a fast and effective way to recover debts.
However, this process is often misused by parties particularly where the issue is not solvency of the company, but a genuine dispute as to the existence of the debt claimed.
The recent decision of ABC Constructions No 1 Pty Ltd v. Bonelli Constructions Pty Ltd  QSC 35 (4 March 2016) is an illustration of this point.
Bonelli issued a statutory demand against ABC for monies it claimed were due and payable as a consequence of a payment claim made under a building contract. ABC applied to the Court to set the Demand aside. At issue was whether there was a genuine dispute about the existence or amount of the debt that was the subject of the demand, and whether there was a genuine off-setting claim.
ABC claimed that the debt claimed under the statutory demand was genuinely in dispute. Bonelli had failed to submit documentary evidence supporting its progress claim; the debt has been the subject of a Principal’s Notice to Show Cause with a subsequent termination of the building contract by the applicant; and there are differences between separate progress claims issued by the respondent, at a relevant point in time.
ABC also contended that under the building contract it had a right to claim delay costs subject to a specified procedure, which had not been followed by ABC. ABC expressly disputed Bonelli’s right to make any claim for delay costs prior to service of the statutory demand.
Finally, ABC claimed that the statutory demand was issued in circumstances where there was a pre-existing dispute between the parties resulting in a termination of the contract by it.
On all of its arguments, ABC asserted a genuine dispute existed and that the Statutory Demand should be set aside with costs.
The Court agreed and set aside the Statutory Demand and ordered that Bonelli pay the costs of the application.
In reviewing the well-established principles and cases, the Court had no hesitation in finding a genuine dispute existed. Importantly, the court emphasised the relatively low threshold required to show a “genuine dispute”:
“No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.”
The Court quoted with approval the decision of TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd in which Dodds-Stretton J said:
“As the terms of s 459H of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile… it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.”
In other words, a party does not need to actually prove their case to show that a “genuine dispute” exists, but it should show the basis or grounds do actually exist. This usually requires the presentation of an affidavit that exhibits relevant correspondence and documents, and setting out of relevant facts to show a credible basis for a genuine dispute.
This recent decision is another of many examples where a party has been punished with a costs order for issuance of a statutory demand where a clear genuine dispute existed.
It illustrates the need to have good legal advice and to choose an appropriate way to resolve disputes, and particularly those which may involve the Court having to decide questions of fact and the meaning and effect of contracts and credit of witnesses. Such disputes are clearly not able to be decided under a Statutory Demand process.
If you have any reason to consider recovery of a debt or have received a statutory demand, and require urgent advice, contact us for assistance.
If you have been the victim of defective or incomplete domestic building work then you may be eligible to claim from the QBCC insurance scheme to allow rectification of the defects and completion of the works.
Queensland Building and Construction Commission (QBCC) administers a compulsory domestic building insurance scheme (Scheme). When you sign a building contract for the construction or additions to a domestic building, the insurance is paid by the builder.
The Scheme applies where there is defective building work or where the contract with the builder has been lawfully terminated or the building company has become insolvent (liquidated or bankrupt).
Once a claim has been made to the QBCC, an inspector will assess the defective or incomplete work and issue a notice to the builder to rectify or complete the work within (usually) 14 days. If the original builder refuses or is unable to rectify the work, the QBCC will ask you to obtain quotations from other contractors.
Assuming these are in order, the QBCC will approve and insurance payment for the lowest quotation and then you may choose any contractor to rectify the problems.
Insurance is usually available for minor defects up to 6 months from the date of practical completion and for structural or major defects up to 6 years.
The QBCC also offers mediation services and may be able to assist you with general inquiries with respect to builders prior to commencement of building works.
Prior to entering into a contract with a builder, we recommend that you make inquiries of your builder’s qualifications, seek references from past clients and consult with your solicitor.
If you would like any information on the QBCC or your entitlement to claim under the Insurance scheme, contact us today.
For more information on the QBCC visit their website at www.qbcc.qld.gov.au.
In this construction law blog, Paul Rojas discusses a recent case where the validity of a charge issued pursuant to the Subcontractors’ Charges Act 1974 (Qld) (“the SCA”) was considered.
It is not uncommon in closely held private companies for there to be disputes between the shareholders which result in a complete breakdown of relationship. In such cases-what can the shareholders do to resolve the dispute?
In Van Wijk (Trustee) ,in the matter of Power Infrastructure Services Pty Ltd, (214) FCA 1430, (12th December 2014) the shareholders could not resolve their differences and applied to the Court for orders appointing a liquidator and winding up.
The Court granted the orders sought under the “just and equitable” provisions of the Corporations Act:
Under S 461 (1) (k) the Corporations Act 2001, the Court may order a winding up if “the Court is of opinion that it is just and equitable that the company be wound up.”
In this regard, the Applicant relied on s 467(4) of the Act as raising relevant considerations.
That subsection provides where the application is made by members on the ground that it is just and equitable that the company should be wound up, the court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up,
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
In the case, the company was solvent and trading. The dispute was acrimonious and the mutual co operation and trust between the competing shareholders had broken down completely. The Court reviewed the authorities and cited with approval authorities where the disputes led to a frustration of the commercially sensible operations of the company in accordance with the incorporator’s expectations and a loss of confidence was justified.
In the circumstances-while acknowledging the consequences of such a drastic option-the Court appointed a provisional liquidator.
The decision highlights the grounds for winding up under the just and equitable grounds where there is a shareholders dispute which results in a breakdown of mutual trust and confidence such that it will frustrate the commercial operations of the company.
It is important that in establishing companies that in the first instance-there is a proper means of resolving disputes in shareholder agreements and that efforts are made to exhaust alternative dispute resolution.
In the absence of a resolution however-those shareholders affected may rely on the Courts for an ultimate solution.
For assistance and advice on shareholder disputes, contact us.
Obtaining a judgment against your debtor does not mean you get paid immediately. The debtor may be unable or unwilling to satisfy the judgment debt for a variety of reasons. He or she may be having financial difficulties, other debts, or may be ignorant or careless of the circumstances.
One of the options available for enforcing a judgment against a debtor is bankruptcy proceedings.
This process is quicker than other enforcement methods and you will have more control over the process as a creditor.
The disadvantage of this alternative is that there may be other secured creditors, who rank ahead of you, and thus full payment of the debt may not be received.
To initiate the proceedings, a bankruptcy notice needs to be lodged in a proper form with the Insolvency and Trustee Service of Australia (“ITSA”). The current filing fee is $440.00.
Following personal service of the bankruptcy notice on the debtor, he or she will have 21 days, in which to comply with the notice by paying the full amount of the debt or entering into a repayment arrangement, on terms satisfactory to you.
If the debtor fails to comply with the bankruptcy notice, he or she are deemed to have committed an act of bankruptcy. Pursuant to the provisions of the Bankruptcy Act 1966 (Cth) at the time of non-compliance with the bankruptcy notice:
– the debtor must be present in Australia or have sufficient connection with Australia, and
– the debt must be over $5,000 (two or more creditors may combine their aggregate debts).
Provided the above criteria are satisfied you may be able to file for a creditor’s petition for the debtor to be declared bankrupt.
A creditor’s petition must be filed in the Federal Magistrates Court within six months of the act of bankruptcy. A court date will be allocated for hearing of the petition. Once the creditor’s petition is served on the debtor, and provided it is uncontested, a sequestration order may be made against his or her estate, vesting all of the bankrupt’s property in the appointed trustee.
The trustee collects information about the bankrupt’s assets and liabilities. Any creditors who wish to claim in the estate must lodge a proof of debt with the trustee. Any secured creditors will rank above any unsecured creditors, the latter being paid proportionately out of the pool of funds available from the bankrupt’s estate. The petitioning creditor’s costs of obtaining a sequestration order are usually taxed and paid out of the bankrupt’s estate as a priority.
Bankruptcy proceedings can be complex and strict requirements as to form as well as limitation periods apply. We can assist you with legal advice and support with your proceeding whether you are a creditor or a debtor.
Are you considering bankruptcy proceedings against your debtors? Perhaps a prior debt repayment arrangement has been dishonoured? Need to lodge a proof of debt? Confused about your options as a debtor? We can assist you with any of your questions relating to bankruptcy and insolvency. Contact us today.
If your company has been served with a creditors statutory demand for payment you must act with urgency, as allowing it to expire can cause irrevocable harm.
The most simple way that a company can be wound up and liquidators appointed is when an application is brought after the expiry of a statutory demand. The statutory demand allows 21 days from service within which the recipient company must satisfy the creditor of the amount contained therein, or otherwise bring an application before the Court to have the demand set aside on grounds of the demand being defective or that there is a genuine dispute in relation to the debt.
Should the company fail to comply with the demand, by making full payment of the demand within 21 days or by applying to have the demand set aside, a company is deemed to be insolvent and a creditor may make an application to the Court to wind up the company. No further evidence is required to prove insolvency.
For a company that may be asset rich but suffering from a temporary lack of liquidity, 21 days to comply with a statutory demand will often not be enough time in which to realise some of its assets and to make good on the demand.
Companies can attempt to oppose a winding up application on the basis that the company is in fact solvent. This is a complex application to bring before the Court as it involves, amongst other things, overturning the presumption of insolvency. A more effective approach is to deal with creditor who issued the statutory demand within the 21 day period to ensure that the presumption of insolvency does not arise at all.
If a company has been served with a demand and it does not consider that it owes the debt or that there is an irregularity in the document it may apply to the Court have the demand set aside. However, this application must be made within 21 days and there is a large volume of case law that indicates the Court treats the 21 days in the strictest of terms.
Alternatively, if your company does owe the debt raised in the statutory demand, it is often beneficial to seek advice with a view to formally approaching the creditor’s legal representatives on a ‘without prejudice’ basis to attempt to negotiate payment terms, allowing for further time outside of the 21 day limit.
If your company has been served with a statutory demand, contact us for advice in relation to the most appropriate response for your circumstances.