A recent Federal Court decision has highlighted the risks run by a creditor who serves a statutory demand on a company by post – Deputy Commissioner of Taxation v Manta’s on the Beach Pty Ltd [2012] FCA 417 (link). The result was that the winding up application was dismissed.

The Commissioner used the post as the means of serving the statutory demand in this case. I do not propose here to review the various provisions which permit service by post and which provide for presumptions as to by when documents sent by post are taken to have been served, including s 109X of the Corporations Act 2001 (Cth), ss 28A and 29 of the Acts Interpretation Act 1901 (Cth) and ss 160 and 163 of the Evidence Act 1995 (Cth). However see the Court’s detailed discussion of them and key authorities in another recent case of Deputy Commissioner of Taxation, in the matter of ABW Design & Construction Pty Ltd v ABW Design & Construction Pty Ltd [2012] FCA 346 (link).

Here, the Commissioner proved that the statutory demand with its supporting affidavit was sent by prepaid post in an envelope which bore the address of the defendant company’s registered office. The Commissioner also adduced evidence – which was accepted – of a system maintained at the ATO for the recording of any correspondence, including statutory demands sent by post, which end up returned undelivered or otherwise returned to sender. There was no record within that system of this statutory demand and supporting affidavit having been returned to the ATO. The Commissioner also led evidence about Australia Post’s usual delivery times.

However against this, the defendant company’s sole director Mrs Battersby succeeded in proving the documents were not received. She gave evidence that she lived at the same address as the registered address of the company. Mrs Battersby “stated unequivocally” that she did not receive any correspondence by mail from the Commissioner enclosing a statutory demand in August or September 2011. She was confident that she would remember the receipt of such a document. She gave evidence that she rarely collected the mail herself; instead her then husband would collect it from the mail box located at the side of the property, and leave any mail for her or the company on the kitchen bench at the property, or in the dining room, or on her desk; Mrs Battersby’s practice was regularly to open and review any mail including that addressed to the company; her practice was not to dispose of mail without first opening it and checking its contents. Mr Battersby confirmed her evidence as to these mail collection and placement practices. Neither was required for cross-examination.

Logan J acknowledged the element of self-interest which “attends at least Mrs Battersby’s evidence”, though he noted it does not attend Mr Battersby’s, and on balance, accepted her evidence. His Honour made a positive finding that the statutory demand and affidavit was not received at all at the company’s registered office in August or September 2011 and that Mrs Battersby first became aware of it in an email from the ATO in March 2012 (see [9-12]). His Honour noted that this carried with it a finding that the documents were not delivered to the company’s registered office in August or September 2011.

It followed, so his Honour found, that when the application for winding up was filed by the Commissioner there had been no non-compliance by the company with the statutory demand. That document had not been served on it (see [16]). His Honour did remark that perhaps if there had been more specific evidence concerning, for example, an absence of any delivery difficulties at the time in respect of mail as between Moonee Ponds and Yeppoon, as is sometimes lead, there may have been a “greater interrogative note” in respect of Mr and Mrs Battersby’s evidence.

His Honour went on to consider whether, in the absence of the presumption of insolvency afforded by non-compliance with a statutory demand, the Commissioner had satisfied the onus of proving the company was insolvent. Logan J held that the Commissioner had not. The winding up application was dismissed, with costs.

A curious decision perhaps, but it does illustrate that where service of a statutory demand is effected by post, the creditor relies only on statutory presumptions as to receipt, and has no actual proof of it. This may leave a creditor open to proof to the contrary, as occurred here, noting that the standard of proof is of course the civil standard of “balance of probabilities”. While a body serving a high volume of statutory demands like the ATO may be unlikely to alter it’s practices for reasons of cost, individual creditors serving statutory demands might be wise to consider using a well-instructed process server.