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Did you know: Creditors can serve statutory demands by email?

The Corporations Act is slowly catching up to modern technology.

We have recently seen the introduction of measures such as electronic signatures and director identification numbers, the short-lived regulation of proxy advice and ASIC cracking down on AFSL holders with poor cybersecurity.

In December 2020, statutory provisions to facilitate electronic service of some types of documents (including statutory demands and applications to set them aside) were introduced to allow the giving of certain notices under the Act by electronic means. In other words, by email. It might even be possible now to serve documents using document sharing services such as Dropbox, Sharepoint or Mimecast.

Failure to comply with statutory demands or properly make an application to set them aside gives rise to a presumption of insolvency and may be disastrous for the corporation. Disputes as to service are commonplace, so understanding the service provisions is incredibly important. Fortunately, we have some recent guidance from the Federal Court of Australia.

In April, the Federal Court delivered the first published judgment in Australia to examine the operation of the provisions in Bioaction Pty Ltd v Ogborne [2022] FCA 436. In this case, a corporation served with a statutory demand purported to serve an application to set it aside by emailing the application to the creditor’s solicitor on the last day of the 21 day timeframe. However, the statutory demand did not specify an email address for service of the application and the solicitor did not check her emails until the following day, so the creditor disputed that a valid application had been made.

The outcome turned on the electronic service provisions of the Act.

Key lessons to be learned are:

  1. It has never been easier to serve statutory demands and applications to set them aside, which may now be done by email.
  2. Corporations should routinely and regularly check their email accounts for notices such as statutory demands.
  3. Disputes as to service may be costly and are usually avoidable.
  4. The best form of service of an application to set aside is that specified in the statutory demand itself.

Relevant provisions introduced into the Corporations Act

Section 600G allows any document that may be given to another person or signed by a person under Chapter 5 or the Insolvency Practice Schedule, may be given or signed by electronic means. If section 600G applies,

“(2) The document may be given to the recipient by means of an electronic communication.”

and,

“(3) The document may be given by giving the recipient (by means of an electronic communication or otherwise) sufficient information to allow the recipient to access the document electronically.”

It appears sub-section (3) could allow service by giving a recipient details of a website or a link and log-in details for a document sharing service (such as a Dropbox, Sharepoint or Mimecast).

Section 600G(4) introduces two preconditions to giving documents by email or electronic access: first, it must be reasonable to expect that the document would be readily accessible so as to be useable for subsequent reference; and secondly, there must be a ‘nominated electronic address’ in relation to the recipient.

The term, ‘nominated electronic address’ is defined in section 9 of the Act as the email address most recently nominated by the recipient to receive email correspondence. If the sender knows or reasonably believes a nominated email address is not current or if there is no nominated email address, the sender may use an email address they reasonably believe to be current for the recipient.

Sections 105A and 105B were also introduced to provide for when and where electronic communications are sent and received. By section 105A, an email is taken to be sent once it leaves the sender’s servers or otherwise when it is received by the addressee and by section 105B if the addressee is a corporation an email is taken to be received at its registered office.

The Bioaction case

The creditor disputed service of the application to set aside the statutory demand within the required timeframe given the statutory demand did not provide for service by email and the solicitor did not read the email until the following day.

Section 600G applies to applications to set aside statutory demands

The Honourable Justice Cheeseman held that section 600G was engaged as an application to set aside a statutory demand is a document required or permitted to be given to a person under Chapter 5 of the Act. In doing so, Her Honour drew no meaningful distinction between the requirement to ‘serve’ an application and the use of the word ‘give’ used in section 600G. Accordingly, the application could be served by email.

Her Honour proceeded to apply the conclusions of Bowskill J in SGR Pastoral Pty Ltd v Christensen [2019] QSC 229 [37]; 2 QR 334:

In the case of service by email … what must be shown is that the electronic copy of the application and supporting affidavit was received, in a complete and legible form, at the address for service, within the prescribed time. That is, that the email was sent to an email address that belongs to the nominated agent for service …; that the email attaching the documents to be served actually arrived at the email address; and that the email and attached documents were capable of being opened and read (even if they were not opened and read until later).

The pre-conditions to service by email were satisfied

Her Honour considered that sending the application documents by email was apt to render them useable for subsequent reference – the solicitor could check her emails and access and retrieve the documents.

Although the statutory demand did not nominate an email address for service of an application to set it aside, the creditor’s lawyer had used her email address when previously corresponding with the debtor and her firm’s stationery provided an office email address. Cheeseman J determined that this was sufficient to meet the definition of ‘nominated email address’.

The application was received within time

Finally, her Honour had to consider whether the application was served within time. The question was whether the application was taken to be served when it was sent, or when it was received?

Her Honour applied section 105A(4) which provides that an email is received when it ‘becomes capable of being retrieved’ by the recipient, so whether or not the creditor’s solicitor did so was irrelevant.

So … the application could be served by email, was served to an appropriate email address and was taken to have been received by the solicitor within the statutory time period.

The application was taken to have been served at the place stipulated in the statutory demand

The law firm of the creditor’s solicitor was an incorporated legal practice and its registered office was also the address stipulated in the statutory demand for service of any application to set it aside. Accordingly, her Honour was able to find that section 105B was effective to deem the email to have been received at the place specified in the statutory demand.

If the demand had specified the creditor (and not the solicitor), or if the law firm’s place of business was not its registered office, the outcome may well have been different.

Key takeaways

1.The electronic service provisions are useful

The provisions of the Act discussed above are a useful step towards facilitating serving of documents and giving of notices under Chapter 5 of the Act and the Insolvency Practice Schedule. These provisions seek to codify the prevailing (albeit not a unanimous) view as to service by email.

Section 600G aims to provide people and corporations with the ability to serve documents and give notices with the certainty that doing so by email is an acceptable mode of communication regardless of whether the parties have agreed to accept documents by email.

However, there are exceptions. The application of section 600G is limited to documents required or permitted to be given under Chapter 5 of the Act and the Insolvency Practice Schedule, and even then there may be circumstances in which section 600G does not apply (for instance, documents to be given to ASIC: section 600G(7) are excluded). In these cases, corporations and their advisors will need to continue to rely on other provisions such as section 109X of the Act or section 28A of the Acts Interpretation Act 1901 (Cth).

2.Service of statutory demands is now much easier

Perhaps the most significant implication of Bioaction is for service of statutory demands, as opposed to applications to set them aside. Previously, a statutory demand could be served in particular ways, such as delivery to a corporation’s registered office, being left at the corporation’s principal place of business or being given to a director.

By parity of reasoning with Bioaction, however, a statutory demand may now also be served on a debtor by email. This introduces significant risk to corporations given the dire consequences that may follow if they are not complied with or set aside. Corporations should therefore ensure that email addresses and junk folders are appropriately monitored.

3.Disputes are costly and usually avoidable

Many disputes arise, particularly in the context of statutory demands and applications to set them aside, as to service of documents both in hard copy and by electronic means. Disputes often arise as to whether email is a permitted method of service and if so whether an email has been, or is taken to have been, received by a certain time and/or at a certain place. Usually one or other party is attempting to obtain some advantage by disputing or asserting service. This is especially so where failure to apply to set aside a statutory demand and serve it on the creditor will give rise to a presumption of insolvency. Proper service of documents is therefore essential.

Disputes as to service can be costly and are usually avoidable. Such disputes tend to arise from corporations or their solicitors leaving the application to set aside to the last minute and sending by email as a quicker mode of communication than physical delivery. This practice is best avoided.

4.Choosing an appropriate method of service matters

In practice, solicitors should take care to ensure that they use an appropriate method of service. The best way of doing so is by complying with the service requirements stated in the statutory demand. If email is to be used and no email address for service is provided, this is best done either with the consent of the creditor (and seek confirmation of receipt) or in conjunction with another method of service such as delivery of a hard copy of the application to the physical address stated in the statutory demand.

For our related article regarding service of bankruptcy notices – which can no longer be served by email – click here.

If you are considering serving a statutory demand, or if your business has been served with a statutory demand, we may be able to help you.

For more information, please contact the authors:
Alex Tharby | Senior Associate

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.

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