Fundamental legal obligations altered by COVID-19 measures
- Published 06.07.2020
The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (‘the Act’) extended the compliance period of creditor’s statutory demands served on or after 25 March 2020 from 21 days to six months. In Sunstate Land Pty Ltd v Hiview Design & Constructions Pty Ltd (QSC 2020) the Court was asked to determine whether a statutory demand served by post on 20 March 2020 had a compliance period of 21 days or six months. The Court made some helpful observations about the effect of COVID-19 and what the Parliament had intended when it introduced the temporary measures.
On 20 March 2020, Hiview Design & Construction Pty Ltd (‘Hiview’) issued a creditor’s statutory demand for payment of debt to Sunstate Land Pty Ltd (‘Sunstate’) and served the same via ordinary post. The compliance period under the demand was 21 days after service.
On 23 March 2020 the House of Representatives introduced the Coronavirus Economic Response Package Omnibus Bill 2020 and on the same day the Bill was passed by both Houses and the Act commenced on 25 March 2020.
One of the critical questions in the case was when the demand was served.
When was the demand served?
The deemed date of service is three to four business days after postage,1 which would be 25 or 26 March 2020. Hiview argued that the Court should take judicial notice that the ‘point of post’ is located in very close proximity to the registered office of Sunstate and the statutory demand was likely to have been delivered on 23 or 24 March 2020.
The Court noted that if it was to take the said judicial notice, it was also compelled to take judicial notice of the fact that at around 20 March 2020, most organisations were affected by COVID-19 and formerly reasonable assumptions about delivery timeframes could not be made.
The Court found the demand was served on 1 April 2020, after the commencement of the Act.
Which legislative regime applied?
The Court noted that the statutory demand was in compliance with the legislative regime which applied at the time it was issued and posted and that Hiview could not have known the legislation was about to be changed. Nonetheless, the demand warranted a compliance period of six months given that it was not served until after the commencement of the Act.
Why should the demand be set aside?
The defect in Hiview’s demand was the 21 day compliance period. The Court was satisfied that the demand should be set aside under s459(J) of the Corporations Act 2001 (Cth) as:
- Sunstate would be presumed to be insolvent on the face of the defective demand which could be used to wind it up and Sunstate would have been denied the regulatory relief offered by the Act. This would be the substantial injustice under s459J(1)(a) of the Corporations Act.
- The defect in light of COVID-19 and the powerful legislative response to it is of such magnitude that the demand should be set aside under s459J(1)(b) of the Corporations Act.
The Court observed that:
- The purpose of the Act is to provide relief in respect of debts incurred, to allow ‘flexibility to temporarily adjust legal obligations’2 of debtors (regardless of when the debt was incurred) and to assist with the continuation of businesses.
- The Act fundamentally changed the status of the relevant obligations as they were thought to exist when the statutory demand was issued.
- The provisions are to be interpreted in their plain meaning and effect.
- The Court takes into consideration the impact of COVID-19.
- The Act will be interpreted according to its plain meaning and its intention to provide flexibility to facilitate the continuation of businesses.
- If any creditor has served a statutory demand by post which was issued before 25 March 2020 but where service was effected after 25 March 2020, the statutory demand ought to be immediately withdrawn to avoid any adverse costs consequences.
1 Acts Interpretation Act 1901 (Cth) s29(1)
2 Sunstate Land Pty Ltd v Hiview Design & Constructions Pty Ltd  QSC 181, 6,