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By Georgina King a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

In a recent decision the NSW Supreme Court dismissed an application made to set aside a creditor’s statutory demand on the basis that the creditor had applied funds recovered after issuing the demand towards a different debt and not that referred to in the demand.

In the proceedings Geitonia Pty Ltd (Geitonia) sought to set aside a statutory demand issued to it by Huizhong Investment Group Pty Ltd (Huizhong) in respect of an amount of $2,421,417.43 initially owed by Geitonia to Westpac Banking Corporation (Westpac) for a loan advanced to Geitonia by Westpac. The amount owing to Westpac for the loan was subsequently paid by Huizhong to Westpac in return for transfer to Huizhong of Westpac’s first registered mortgage over a property owned by Geitonia.

In addition to the Westpac loan, Huizhong had also loaned monies to Geitonia. Huizhong held a second registered mortgage over the property owned by Geitonia in respect of which Westpac’s mortgage was registered.

Following transfer to Huizhong of Westpac’s first registered mortgage, Huizhong issued to Geitonia a creditor’s statutory demand for payment of the amount Geitonia had previously owed to Westpac which had since been paid to Westpac by Huizhong.

After issuing the statutory demand Huizhong took possession of and sold the property securing both loans. Huizhong then applied the sale proceeds towards the loan advanced by Huizhong to Geitonia. None of the debt initially owed by Geitonia to Westpac, being the debt referred to in the creditor’s statutory demand, was paid using the proceeds of the sale and accordingly the entire debt referred to in the demand remained owing.

In seeking to set aside the statutory demand Geitonia argued that in the circumstances Huizhong was required to apply the proceeds of sale of the property to discharge of the first mortgage before paying any of the debt secured by the second mortgage. Having considered this argument, Black, J noted that no established equitable principle or case law supporting the argument that Herzhong was required to apply the proceeds in the way contended by Geitonia had been identified. He accordingly held that there was no genuine dispute or offsetting claim regarding the debt and Geitonia’s application to set aside the creditor’s statutory demand was dismissed.

If you have any questions or require assistance with pursuing an insolvent company for a debt please contact us.

Read the judgment here: is external)

If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Georgina King on (02) 9806 7485 or, or a Principal of the Matthews Folbigg Insolvency,  Restructuring & Debt Recovery Group:

Jeffrey Brown on (02) 9806 7446 or

Stephen Mullette on (02) 9806 7459 or