Debts claimed in statutory demands must be due and payable to the creditor named in the statutory demand.

When disputing statutory demands it is common for debtor companies to argue an offsetting claim, so as to reduce or extinguish the amount claimed in the statutory demand.

For there to be a valid offsetting claim there must be ‘mutuality’, meaning that the legal capacities in which both the offsetting claim and the statutory demand debt are each claimed and owed must align.

Need to know

In a first for the US and Australian markets, the Buccaneer Energy group of companies successfully had bankruptcy plans approved by the US Bankruptcy Court for both US and Australian incorporated debtor companies. 

Cash flow is crucial to the efficient running of a business. Mounting debt can significantly affect the operations of your company, result in increased interest costs and cause you to be unable to meet your own financial liabilities. If not addressed, debts can reach critical levels and will ultimately lead to insolvency.

To survive, strategies to prevent debts getting out of control must be embedded into your company’s DNA.

Introduction

In the decision Young, Jr (on behalf of debtor-in-possession of Buccaneer Energy Ltd) v Buccaneer Energy Ltd [2014] FCA 711, the Federal Court of Australia considered whether Chapter 11 proceedings under the United States Bankruptcy Code should be recognised as a foreign main proceeding under the Cross-Border Insolvency Act 2008 (Cth) (CBIA) and Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law).

The UNCITRAL Model Law on Cross-Border Insolvency is designed to supplement States' insolvency laws with a framework to address cross-border insolvency proceedings.

Defects in statutory demands have regularly prevented creditors from obtaining winding up orders against debtor companies.

The recent decision in Poolrite Australia Pty Ltd (In Liq) v Structural Pools Aust Pty Ltd [2013] FCA 1100 (Poolrite) confirms the Courts’ inclination to facilitate the efficiency of the winding up process by disregarding technical deficiencies in statutory demands where no substantial injustice is caused.

Facts

A Personal Insolvency Agreement, otherwise known as a PIA, is a flexible arrangement between debtors and their creditors. It involves a debtor putting forward a proposal as to how their financial affairs should be administered with a view to ensuring that creditors receive a dividend in respect of their debts.

A PIA will only come into operation if it has been accepted by a special resolution at a meeting of creditors – meaning a majority in numbers and at least 75% in value must vote in favour of the PIA.

In New Age Constructions (NSW) Pty Ltd v Etlis, in the matter of Etlis[2013] FCA 884, an unsecured creditor applied to set aside a Personal Insolvency Agreement (PIA)and also sought a sequestration order against the debtor’s estate.  The Federal Court considered whether the terms of the PIA were unreasonable or not calculated to benefit creditors generally.

On August 27, 2013, in a case of first impression, the Third Circuit rejected an attack on a foreign liquidator’s petition for recognition of an Australian insolvency proceeding under Chapter 15 of the US Bankruptcy Code premised on the argument that the foreign proceeding violated US public policy.