Statutory Demands: When Can the Presumption of Service Be Rebutted?

A statutory demand is an important step in the corporate insolvency process. If a company fails to comply with a statutory demand within the prescribed period, the creditor may seek to rely on that failure in support of a winding-up application.

But before that can happen, the creditor must establish that the statutory demand was properly served.

What happens when a creditor can prove that the demand was posted to the company's registered office, but the company says it never received it?

That issue was considered by the Federal Court in Electrical Data and Fibre Optic Systems Pty Ltd v Utech Pty Ltd, in the matter of Utech Pty Ltd [2024] FCA 874.

The decision demonstrates an important point about service of statutory demands: a statutory presumption that a document has been served can, in an appropriate case, be rebutted by evidence that the document was not delivered.

Service of a statutory demand

The Corporations Act 2001 (Cth) provides specific mechanisms for serving documents on companies.

Section 109X deals with service of documents on companies and includes service by leaving the document at, or posting it to, the company's registered office.

Where a document is sent by post, the operation of the relevant statutory provisions can give rise to a presumption of service.

That presumption is important for creditors because it means that evidence of proper posting can provide a basis for establishing service.

However, the presumption is not necessarily conclusive.

The distinction between non-receipt and non-delivery is particularly important.

A person saying that they did not personally receive a document does not necessarily establish that the document was not delivered. A document may have been delivered to the relevant address without coming to the attention of the particular person who was expected to receive it.

The position can be different where there is evidence establishing that the document was not delivered at all.

The Utech decision

In Electrical Data and Fibre Optic Systems Pty Ltd v Utech Pty Ltd, Electrical Data sought to wind up Utech Pty Ltd.

The proceeding concerned a statutory demand that Electrical Data said had been served on Utech by posting it to Utech's registered office.

Utech disputed service.

The issue was therefore not simply whether Electrical Data had posted the statutory demand. The Court had to consider whether the evidence was sufficient to establish that the statutory demand had in fact been delivered.

Justice Wigney considered the operation of the statutory presumption and the evidence concerning the handling of mail at Utech's registered office.

The registered office was located at premises operated by Mandria Accounting Pty Ltd.

Evidence was given concerning the ordinary procedures for receiving and dealing with incoming mail at those premises. The evidence included the manner in which important correspondence was identified, recorded and communicated to clients.

There was no record of the statutory demand having been received in accordance with those procedures.

The Court accepted the evidence concerning the absence of delivery.

As a result, the statutory presumption of service was rebutted.

Receipt is not the same as delivery

One of the most useful aspects of the decision is the distinction between receipt and delivery.

Suppose a creditor posts a statutory demand to a company's registered office.

The company later says:

"We never saw it."

That statement alone does not necessarily establish that the statutory demand was not served.

There could be a number of reasons why a document delivered to a registered office does not come to the attention of the company's directors or employees.

The evidentiary question is different where the company can establish that the document was not delivered to the registered office in the first place.

That distinction was significant in Utech.

The Court was not simply required to decide whether someone at Utech remembered receiving the statutory demand. It considered the evidence concerning the systems in place for receiving and processing mail at the registered office and whether that evidence was sufficient to establish non-delivery.

Why evidence of mail-handling procedures matters

The decision highlights the importance of contemporaneous evidence.

Where a statutory demand is posted to an address operated by an accountant, corporate service provider or another third party, the creditor may have evidence of posting but little direct evidence of what happened to the document after it entered the postal system.

Conversely, the company may be able to produce evidence about the ordinary operation of the registered office.

For example, evidence may address:

• who ordinarily collects incoming mail;
• how incoming mail is recorded;
• how important or time-sensitive correspondence is identified;
• how correspondence is forwarded to clients;
• whether electronic copies are retained;
• whether there are records of particular documents being received; and
• whether the alleged statutory demand appears in the relevant records.

The more reliable and systematic those procedures are, the more useful the resulting evidence may be if service is later challenged.

What does this mean for creditors?

The practical lesson for creditors is straightforward: do not treat service as a box-ticking exercise.

If a statutory demand may ultimately be relied upon in a winding-up application, the creditor should consider how service will be proved if it is challenged months later.

Evidence worth retaining may include:

• the statutory demand itself;
• evidence confirming the company's registered office at the relevant time;
• a copy of the envelope;
• evidence of postage;
• tracking or delivery information, where available;
• an affidavit or other evidence from the person responsible for service; and
• records of any subsequent communication concerning the demand.

Depending on the circumstances, a creditor may also consider whether an alternative method of service is appropriate.

The objective is not simply to demonstrate that the creditor intended to serve the statutory demand. The objective is to be in a position to establish service with reliable evidence if the issue later becomes contested.

What does this mean for companies?

The decision also demonstrates why companies should take statutory demands seriously, even where there is an issue concerning whether the document was received.

A company that disputes service should consider what evidence is available to support its position.

A bare assertion that the statutory demand was not received may not be enough.

Evidence concerning the operation of the registered office may be much more significant.

For companies using external accountants, registered-office providers or other service providers, it can therefore be important to have clear procedures for dealing with legal and time-sensitive correspondence.

Records made in the ordinary course of business may become important evidence if service is subsequently disputed.

The burden of proving service

Where service is challenged, the Court must consider the applicable statutory provisions and the evidence before it.

The statutory presumption can assist a creditor who establishes the relevant requirements for posting the document.

But the presumption does not prevent a company from producing evidence to the contrary.

The question is ultimately one of evidence.

This means that the outcome of a dispute about service may depend not only on what the parties say happened, but on the quality of the evidence available to establish what actually happened to the document.

Why this matters in winding-up proceedings

Service of a statutory demand can become a critical issue in a winding-up proceeding.

A creditor may seek to rely upon a company's failure to comply with a statutory demand as evidence of insolvency. If the statutory demand was not effectively served, however, the creditor may encounter a fundamental problem with the basis upon which the winding-up application is brought.

The Utech decision illustrates the point.

The creditor had evidence that the statutory demand had been posted to the company's registered office. Nevertheless, the evidence concerning delivery was sufficient to rebut the statutory presumption.

The result was that the creditor could not establish the necessary service of the statutory demand.

Key takeaway

The decision in Electrical Data and Fibre Optic Systems Pty Ltd v Utech Pty Ltd is an important reminder that posting a statutory demand and proving service of a statutory demand are not necessarily the same evidentiary exercise.

For creditors, the safest approach is to ensure that there is a clear evidentiary trail demonstrating how and when the statutory demand was served.

For companies, a challenge to service should ideally be supported by evidence addressing what happened to the document after it was allegedly posted.

Most importantly, the distinction between non-receipt and non-delivery should not be overlooked.

A statutory presumption of service may be powerful, but it is capable of being rebutted where the evidence establishes that the document was not delivered.

If you are a creditor considering issuing a statutory demand, or a company that has received or is disputing a statutory demand, obtaining advice about the validity of service and the applicable time limits can be critical.

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