Many companies nominate their accountant’s address as the registered address for their business. This article highlights the danger to a company of not being able to adequately supervise the registered office and the importance of accountants having a system in place for notifying clients of statutory demands.
In a recent case, West Homes Australia [2023] VSC 732, the Victorian Supreme Court noted the critical importance of timely and effective communication by accountants acting as registered offices when dealing with statutory demands. The case involved an accountant who failed to properly inform a company about a statutory demand, leading to serious consequences.
In that case, a statutory demand received by the accountant on behalf of the business was forwarded by mail to the company. No other action was taken by the accountant to inform the client of the notice. The company did not receive the notice and only became aware of the demand when it was served with the court application for the winding up of the company.
In circumstances where a company has failed to comply with a statutory demand, section 459S of the Corporations Act 2001 (Cth) grants the Court discretion to allow a company to oppose a winding up application. This discretion that has often been sought when a company has failed to respond to a statutory demand within the required timeframe for the reason it was not made aware of the demand.
In considering the company’s application for leave to raise grounds to object to the winding up, the Court found the company’s reliance on the mail collection system at the registered office (the accountant’s office) was not reasonable:
… in deciding to forward the statutory demand to the company by post only, the accountants had not acted reasonably. An accountant would know well that a statutory demand involves strict time frames for response and potentially very significant consequences for a company. It is simply not credible to suggest that an accountant would not have used some other means, perhaps in addition to post, to alert the sole director of a company to the existence of a statutory demand, or having sent it by post, followed up with the sole director to ensure it was received.
Since the company was not given leave to contest the debt under section 459S, it was left with the onus of establishing it was solvent to avoid being wound up.
To prevent such scenarios and safeguard the interests of their clients, accountants acting as registered offices must develop a checklist. We suggest:
Checklist for Accountants Handling Statutory Demands:
Understand the Time Frames:
- Acknowledge the responsibility of the registered office in promptly conveying legal documents to the company.
- Familiarise yourself with the strict time frames associated with statutory demands.
- Recognise the potential significant consequences for a company failing to respond within 21 days.
- Train your staff so understand the timeframes and consequences, and are therefore equipped to deal with statutory demands.
Immediate Notification Protocol:
- Establish clear and efficient protocols for immediate notification of statutory demands.
- Implement internal procedures to ensure swift communication to the company upon receipt.
Email and Telephone Notification:
- Immediately call or email the client, stressing the importance that the statutory demand is dealt with in a timely manner – noting the timeframes.
- Post the notice to the company (use a service that allows tracking) to the appropriate individuals within the company. Obtain instructions to provide a copy by email.
- Make sure to obtain confirmation of receipt and understanding from the client (ideally in writing).
Record Keeping:
- Maintain meticulous records of the date, time, and method of delivery of the statutory demand, as well as all communications with the client.
- This information is crucial, as the 21 day time period for response begins from the date of receipt at your office.
By following this checklist, accountants can enhance their ability to handle statutory demands effectively, safeguarding the interests of the companies they represent. Timely and transparent communication is key to avoiding severe consequences.
How we can help
Timely notification allows a company to seek legal advice and respond to a statutory demand appropriately within the 21 day time frame. We have represented clients in many applications to set aside statutory demands, and always take a pragmatic approach in trying to get to the root of the problem. Receiving a statutory demand is always a stressful time for any company, and it requires a team with specialised knowledge across both insolvency law and accounting. We will work with you to guide them through the challenge.
For more information, contact us on 1300 654 590 or email us.
The information contained in this post is current at the date of editing – 22 January 2024.
