A warning for directors: failing to maintain a registered office with ASIC puts the company’s survival in jeopardy
The recent Victorian Supreme Court case of AXF Entertainment P/L (ACN 161 337 480) (in liquidation) v AXF Group P/L (ACN 116 258 130)  VSC 671 (AXF Group) highlights the potentially fatal consequences to a company of failing to maintain a current registered office with the Australian Securities and Investments Commission (ASIC).
In a judgment delivered on 11 October 2019, the court found that a statutory demand had been validly served on a company in circumstances where the building that housed the company’s registered office had been demolished and a vacant lot left in its place.
A statutory demand is a written demand for payment served by a creditor on a company under section 459E of the Corporations Act 2001 (Cth) (Act), which creates a rebuttable presumption of insolvency on the part of the company.
If, within 21 days of being validly served with a statutory demand, the company fails to pay the amount owing or, alternatively, fails to have the demand set aside by the court, the creditor may apply to have the company wound up. Much, therefore, turns on what is meant by the expression ‘validly served’.
Under the Act, a company is required to maintain a registered office with ASIC, and a creditor may serve the company with a statutory demand by leaving it at, or posting it to, that office (s 142 and s109X).
Where a creditor sends the demand to a company’s registered office via prepaid post, and in a properly addressed envelope, there is a rebuttable presumption that service occurred on the fourth working day after the demand was posted (s29(1) Acts Interpretation Act 1901 (Cth) (AIA Act); and s160(1) Evidence Act 1995 (Vic)).
In order to rebut the presumption of service, the company must adduce sufficient evidence that the demand was either not delivered to its registered office or, alternatively, was delivered on a different date.
The case of AXF Group highlights that, in deciding whether the company has been successful in rebutting the presumption, public policy objectives may result in surprisingly harsh outcomes for companies.
- AXF Group Pty Ltd (Company) owed $1,647,021.79 to AXF Entertainment Pty Ltd (in Liquidation) (Plaintiff).
- On 17 January 2019, the Plaintiff sent a statutory demand (Demand) to the Company’s registered office in circumstances where the building that housed the office had been demolished, leaving a vacant lot, and arrangements had been made by the Company’s solicitor to redirect mail to his residential premises.
- The Company claims not to have received the Demand and, on that basis, neither paid the amount owing nor filed an application with the court to set the demand aside.
- After 21 days, the Plaintiff applied to have the Company wound up.
- At first instance, the Associate Judge held that the presumption of service had not been displaced, and therefore service was effective four working days after the Demand was posted (being 23 January 2019). On that basis, the Company was presumed insolvent under s 459C of the Act, and the Plaintiff was entitled to bring a winding-up application under s 459P of the Act.
- The Company sought leave to appeal the decision.
The Company argued that:
- the Demand could not have been served because the property had been demolished, leaving a vacant site with no workman to receive the document nor letterbox into which mail could be deposited;
- a number of ‘inferential possibilities’ existed as to where the Demand could have been delivered (for example, the Demand may have been delivered to properties adjacent to the registered office);
- the critical question is ‘which possibility is most likely’;
- there are many possibilities that are more likely than the Demand having been delivered to a vacant lot; and
- therefore, there was sufficient evidence on the balance of probabilities that the Demand was not delivered to the Company’s registered office.
Sifris J of the Victorian Supreme Court held that:
- the legislative intent behind the requirement that a company maintain a current registered office with ASIC is that a party wishing to serve a document on a company should be able to rely on the registered details and expect that documents posted to a company’s registered office have been effectively served on the company (para 61 – 62);
- as the Demand had been properly addressed, prepaid and posted to the registered office of the Company, there was a rebuttable presumption that service was effective on the fourth working day after the Demand was posted (para 41);
- in order to rebut the presumption, the Company must prove, on the balance of probabilities, that the Demand was not delivered to the registered office or, alternatively, that it was delivered to the registered office on another date (para 59);
- proof that the Company did not receive the Demand is not sufficient. The relevant question is not whether the Demand was received, but whether it was delivered, and whether it is legitimate to draw an inference of non-delivery from the fact that the registered office was situated on a vacant lot (para 59 and 77);
- the Company is not permitted to rebut the presumption by reference to ‘inferential possibilities’ without providing sufficient evidence in support of those possibilities (para 84);
- an infinite number of possibilities existed as to where the Demand might have gone, and each possible outcome is equally likely (para 81 and 83);
- the Demand may have been delivered to the milk bar neighbouring the registered office, placed in a hole in the temporary fence or thrown in the bin (para 81);
- the Company has failed to articulate why non-delivery is the most likely outcome, or provide evidence as to the apparent impossibility of the Demand being delivered to the registered office (para 82);
- the Company has failed to rebut the presumption of delivery (para 85); and
- therefore, the appeal is dismissed (para 86).
The case of AXF Group highlights the potentially fatal consequences to a company of failing to maintain a current registered office with ASIC.
Where a statutory demand has been posted to the registered office of a company in accordance with the requirements outlined above, the only reliable way to rebut the presumption that service was effected on the fourth working day after the demand was posted is to prove, on the balance of probabilities, that the document was delivered to another address or, alternatively, delivered on a different date. In circumstances where the document is nowhere to be found, this would appear near impossible.
Even in circumstances where delivery to a particular address is practically impossible, the court is still likely to find in favour of the creditor for public policy reasons.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.