How to Sue a Company in Queensland
Are you looking for information on how to sue a company?
Do you want to know how to sue a company in Court or serve the debtor company with a statutory demand?
One of the most common reasons to sue a company is because the company has not paid its invoices for good and services provided by a creditor.
There are a number of things to consider before you start suing a company.
Our experienced commercial litigation lawyers explain what a creditor should consider and give you the know how to sue a company in Australia and what lawyers that sue companies do.
What is a Company?
A company is a separate legal entity, distinct from its directors, secretary, and shareholders.
A company has the same legal rights as a natural person for business purposes and can be a vehicle for trading, can incur debts, and has the ability to be sued and to sue in its own name.
Most commonly in Australia, a company is a ‘proprietary limited’ company, identified with the use of PTY LTD. A ‘proprietary’ company means that the company is privately owned, and the ‘limited’ means that the liability of the shareholders is limited, meaning that they are not liable for debts incurred by the company (save for any unpaid amounts on shares).
Why do you need to Sue a Company?
When thinking about how to sue a company, the most common reason that a person, or a company, may need to sue a company is because the company owes you money, unpaid invoices for example.
Debt recovery against companies is very common. You or your business provide goods and/or services to a company (Company Pty Ltd – for example). You then raise an invoice for those goods and/or services, and the company does not pay the invoice.
A company can trade, and can incur debts, as mentioned above, and as such can be liable for those debts when they go unpaid.
If you intend to recover those debts, you may need to commence legal action against the company.
How to Sue a Company in Australia
If you need to know how to sue a company, there are two (2) main ways to commence legal action against a company in Australia, they are:
- Commence legal proceedings in a Court with jurisdiction; and
- Issue the company with a creditor’s statutory demand.
There are advantages and disadvantages with each. But, before you commence any legal action, there are a number of things to consider first. These are:
- Is the company still registered with ASIC?
- Does the company have any money or assets?
- Do you have the money to commence legal action?
- Do you have any personal guarantees from directors?
- Do you have security over company or personal assets?
I will discuss these issues further in more detail below.
Is the company still registered with ASIC?
When thinking about how to sue a company, one of the first things to check before knowing how to sue a company, is the free ASIC Connect site, to see if the company is still registered. Sometimes when a debtor company owes a lot of money to a creditor (or creditors) then its directors attempt to simply deregister the company.
The ASIC Connect site is a good first base, however it is worth paying a few dollars and obtaining a current extract from ASIC.
A current extract will provide you with all of the information needed to sue the company, as well as giving you all the up-to-date company information, including:
- The current status of the company;
- The current directors & secretary;
- The current registered office of the company;
- The principal place of business for the company; and
- Whether any defaults or writs / judgments have been registered against it.
A current extract will give you a good idea if you can still sue the company.
Stop Deregistration of a Company
If it is being deregistered, you can contact ASIC and ask them to stop deregistration of the company if you are commencing legal proceedings against a company, or you are intending to commence legal proceedings against the company.
If a company has been deregistered, then you will need a Court Order reinstating the company. Serious consideration should be given to the value of such an order.
Does the company have any money or assets?
When thinking about how to sue a company, you should seriously consider whether the company has any assets or money, or if it is even trading at all.
As previously mentioned, a company is a legal entity apart from its directors, secretary and shareholders. As such, any chance of being successful in legal action to recover debts from a company, will largely depend on whether the company has any means of satisfying the debt.
Some company assets may include, company vehicles, trade tools, real property, and cash.
Note – There are some instances where a director can be personally liable for the debts incurred by the company, there are instances where a liquidator can claw-back or void transactions made out of the company so that those assets can form part of the company asset pool again, which I discuss in more detail below.
Useful Tips for Searches
You can conduct, or pay to have them conducted, a number of searches to see if the debtor company has assets in its name. These searches can include:
- PPSR Search – of the Personal Property Securities Register to see if anyone has a charge over company assets;
- Land Titles Search – to see if the company owns real property;
- Vehicle Registration Search – if you know the registration numbers of the vehicles, to see who the vehicles are registered to; and
- Any number of other searches.
Do you have the money to commence legal action?
When thinking about how to sue a company, whether you commence proceedings in the Court with jurisdiction, or you issue the company with a statutory demand, and proceed with a winding-up application, it is likely to become expensive.
Although if you are successful in litigation, you may be entitled to claim your costs of the litigation, you may still need to pay your solicitor in the first instance.
You should be mindful that you may not get all of your legal fees back even if you win. Costs are calculated in a number of different ways.
You should always remember that you might lose your case, in which case you may be liable for the costs of the company.
Do you have any personal guarantees from directors?
One way to improve your chances of recovery against a company is to have personal guarantees from the directors of the company, guaranteeing the debts incurred by the company.
If you are in business offering credit on a regular basis then we strongly suggest that you get personal directors guarantees. This will ensure that if the company does not hold any assets that you recover your debt against the personal assets of the guarantors.
If your contract or credit application with the debtor company includes a personal guarantee from the director or directors, then you will be in a much better position to commence legal proceedings against the company.
Do you have security over company or personal assets?
When thinking about how to sue a company, another way to improve your chances of recovery against a company is to take some security over personal or company assets. For example, if you are selling plant and equipment to a company on credit terms, register a Personal Property Securities Act 2009 (Cth) charge over that equipment.
Or, if it is reasonable to do so, have a charging clause in your contract charging the director’s real property, allowing you to lodge a caveat on the title.
Moving Forward
So, you have conducted your searches, the company is still registered, it owns vehicles and/or real property, or you have personal guarantees or security, and you have some funds to support legal action – then you are ready to commence legal action.
Issue the Debtor Company a Statutory Demand
A creditor’s statutory demand is a demand for payment of an undisputed debt made under section 459E of the Corporations Act 2001(Cth).
A statutory demand is a demand made on a company only, you cannot issue a statutory demand to a person, the guarantor for example.
Statutory Minimum for a Statutory Demand
The statutory minimum amount of the debt (or debts) is $4,000.00. This means that if the amount (or amounts) owing by the company does not exceed $4,000.00 then you will be unable to issue a statutory demand.
Section 9 of the Corporations Act says:
“statutory minimum ” means:
(a) if an amount greater than $2,000 is prescribed–the prescribed amount; or
(b) otherwise–$2,000.
The prescribed amount is $4,000.00 from 1 July 2021.
This is the first threshold requirement for issuing a stat demand.
Debt must be Due and Payable
The debt must be due and payable at the time of issuing the statutory demand.
Section 459E(1) of the Corporations Act says:
(1) A person may serve on a company a demand relating to:
(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.
Section 95A of the Corporations Act defines “Solvency” and “Insolvency” to mean:
Solvency and insolvency
(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.
So, for a company to be wound up in insolvency, the company must be insolvent. A company is insolvent if it is unable to pay its debts when they become due and payable.
This is the second threshold requirement for issuing a stat demand.
Form of the Statutory Demand
A statutory demand must be in the correct form. The correct form of the demand is Form 509H.
Form 509H is contained in Schedule 2 of the Corporations Regulations 2001 (Cth) and must be copied exactly.
You must ensure that all of the details are completed correctly. If not, then this incorrect form can allow the debtor company to set the demand aside.
Defects in a statutory demand have in some instances caused the demand to be set aside, if the defect in the demand will cause substantial injustice. These include:
- A defect in the name of the debtor company;
- A defect in the amount of the debt; and
- The debt has not been particularised sufficiently.
If the form of the demand is defective, and that defect is likely to cause substantial injustice, then the debtor company may successfully apply to have the demand set aside.
Form of the Affidavit in Support of a Statutory Demand
The form of the affidavit in support of the statutory demand is Form 7.
The Form 7 affidavit in support of a statutory demand can be downloaded from the Federal Court website.
All a deponent has to do is to adapt the pro-forma affidavit to ensure that it deposes to everything that is required.
In Frayson Pty Ltd -v- Stirfry Enterprises Pty Ltd [2008] WASC 301 Master Sanderson said:
It is difficult to imagine that anything could be more straightforward than adapting this pro forma affidavit …
However, people get it wrong all of the time.
The most important things to remember are:
- The witness did not sign the affidavit correctly;
- The deponent did not swear or affirm all of the elements required by section 459E(3) of the Corporations Act, and by the Rules;
- The affidavit was sworn or affirmed by a deponent who did not have knowledge of the relevant facts;
- The affidavit was sworn or affirmed on a date pre-dating the date on the statutory demand;
- Failure of the deponent to depose to the fact that the debt is due and payable; and
- Failure of the deponent to depose to the fact that there is no genuine dispute in relation to the debt.
If the form of the affidavit in support of the demand is defective, and that defect is likely to cause substantial injustice, or some other reason, then the debtor company may successfully apply to have the demand set aside.
Non-Compliance with the Statutory Demand
Once you have correctly drafted the statutory demand, the affidavit in support, and you have correctly served the statutory demand, what happens next?
The debtor company will have twenty-one (21) days to do one of the following:
- Pay the debt; or
- Arrange to compound for the debt; or
- Successfully request that the demand be withdrawn; or
- Successfully apply for the demand to be set-aside.
If it fails to do any of these within the very strict twenty-one (21) day timeframe, then the debtor company is deemed to be insolvent, and you can apply to wind the debtor company up in insolvency.
How to Sue a Company – Winding Up Application
A winding up application is commenced in the Federal Court of Australia or in the Supreme Court in your jurisdiction.
If the company is wound up, and there are enough assets to pay creditors, then you will likely receive a dividend from the liquidator to satisfy the debt owed, plus a scale amount toward the cost of the winding up application.
Read more about winding up here
If the debtor company has expressed some genuine dispute as to the existence or amount of the debt, or it says that there is an offsetting claim, or a statutory demand is not appropriate in your particular circumstances, then you may need to sue the debtor company in the Court with jurisdiction.
How to Sue a Company in Court
This part of the article will tell you briefly how to sue a company in the court with jurisdiction.
The Courts in Queensland have different monetary jurisdictions in relation to an action for debt recovery, they are:
- Magistrates Court – up to $150,000.00; or
- District Court – from $150,000.00 to $750,000.00; or
- Supreme Court – from $750,000.00 and above.
Depending on the amount of the debt, you can commence legal proceedings in any one of these Courts.
Claim and Statement of Claim
Proceedings against a company are commenced by claim and statement of claim, in accordance with the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”).
The Claim form is UCPR Form 2.
The Statement of Claim is UCPR Form 16.
The claim outlines the amount of the claim, and any specific orders that you want, such as interest, costs, or any other order allowable under the UCPR.
The statement of claim is the document which supports the claim and “pleads” the material facts which give rise to the cause of action you are claiming.
How to Sue a Company for Breach of Contract
Most debt recovery action is an action for breach of contract.
In your statement of claim you will need to plead the material facts needed to establish the contract and the breach of the contract.
Firstly you must establish that there is or was a contract. You must plead all of the material facts which gave rise to the contract.
If there is a written contract or credit application, then plead to the document with enough particularity so that the defendant can identify it.
If there is no written contract, then you need to plead the steps on which the contract was formed.
Once you have sufficiently pleaded the contract, you need to sufficiently plead the breach of the contract, namely that the debtor company has not paid for the goods and/or services provided by you.
Finally you will need to plead the losses that you have incurred as a result of the breach of the contract.
Serving the Defendant Company
A claim and statement of claim is an originating process, being that it is an origination document used to commence proceedings.
Service of an originating process on a company is made in accordance with rule 107 of the UCPR which says:
A document required to be served personally on a corporation must be served in the way provided for the service of documents under the Corporations Act or another applicable law.
The applicable section of the Corporations Act is section 109X, which says:
(1) For the purposes of any law, a document may be served on a company by:
(a) leaving it at, or posting it to, the company’s registered office; or
(b) delivering a copy of the document personally to a director of the company who resides in Australia or in an external Territory
Once served, the debtor company will have twenty-eight (28) days to file and serve a defence and a counterclaim (if any).
If the Debtor Company Files a Defence
If the defendant debtor company files and serves you with a defence and a counterclaim, then you will need to file and serve a reply to the defence and an answer to the counterclaim (if any).
You will then need to complete your disclosure obligation. Firstly the parties need to exchange their list of documents, and then disclose the documents. Rule 211 of the UCPR states:
(1) A party to a proceeding has a duty to disclose to each other party each document—
(a) in the possession or under the control of the first party; and
(b) directly relevant to an allegation in issue in the pleadings; and
(c) if there are no pleadings—directly relevant to a matter in issue in the proceeding.
Once disclosure has been made, then the matter will go to a settlement conference, where each party will be encouraged to settle the matter.
If no agreement is reached at the settlement conference, then the matter will usually proceed to a trial, where a judge or magistrates will decide, hopefully in your favour.
If the Debtor Company Does Not File a Defence
If the debtor company does not file a defence, then you will be able to request a judgment in default from the Court.
This means that you will get what you have claimed in your statement of claim, with interest and scale costs.
You will then be able to enforce this judgment on the debtor company.
There is an alternative to suing a company in Court. If you have a debt of less than $25,000.00 then you may be able to sue the debtor company in the Queensland Civil and Administrative Tribunal, more commonly known as QCAT.
How to Sue a Company in QCAT
This part of the article lets you know how to sue a company in QCAT.
The Queensland Civil and Administrative Tribunal (“QCAT”) is the minor civil claims jurisdiction in Queensland. QCAT is what most people mean when they refer to the “small claims court”.
QCAT has jurisdiction to hear minor debt claims up to $25,000.00.
A proceeding in QCAT is commenced in much the same way as the Court. Instead of a claim and statement of claim, you proceed with an application. Instead of a defence the debtor company has to file and serve a response to your application.
If the respondent debtor company files and serves the response, then the matter will be listed for a mediation of a hearing, and will likely be decided by the QCAT Member, hopefully in your favour.
If the debtor company does not file and serve you with a response, then you will be able to request a decision in default from QCAT.
This means that you will get what you have claimed in your application, with interest and scale costs.
Enforcement of a Judgment against a Company
Once you have a judgment from the Court, or a decision in QCAT registered in the Court, and the debtor company still does not pay, then you are able to enforce that money order.
Read here about enforcing a money order.
Suing a Company FAQ
How do I sue a company in Australia?
If you need to know how to sue a company, there are two (2) main ways to commence legal action against a company in Australia, they are: Commence legal proceedings in a Court with jurisdiction; and. Issue the company with a creditor’s statutory demand.
How do I file a lawsuit against a company?
Most lawsuits are commenced by a claim and statement of claim. Alternatively, they are commenced by application and a supporting affidavit. It depends on which jurisdiction you are bringing the claim, and also the type of claim.
What can you sue a company for?
You can sue a company for almost everything that you can sue a person for. Most commonly:
- Breach of contract
- Debt recovery / insolvency
- Employment disputes
- Products liability claims
- Discrimination or harassment
- Defamation
- Breaches of the Australian Consumer Law
Can you sue an individual in a company?
Yes. An individual in a company can be personally liable in a number of ways, such as:
- Signed a personal guarantee
- Breaches of the Australian Consumer Law
- Insolvent trading
- Breaches of director’s duties.
How much money does it cost to sue a company?
It really depends on the type of law firm you use, the type of cause of action you bring, and the conduct of the company defendant or their lawyers. It can be a few thousand dollars to more than a million dollars.
Do you need a lawyer to sue a company?
No. However we strongly advise that you do use a lawyer. The main reason is that in most jurisdictions, the loser in the Court action has to pay the winner’s legal costs. If you do not use a lawyer then you have a far greater risk of an adverse costs order being made against you.
What are good reasons to sue a company?
There are a number of good reasons to sue a company. These include:
- Breach of contract
- Employment disputes
- Defamation
- Debt recovery / insolvency
- Discrimination or harassment
- Products liability claims
- Breaches of the Australian Consumer Law
What happens if you sue a company and it has no money?
If you sue a company that has no money then you will likely get no money. If the director(s) can be made to be personally liable, then this will likely assist in getting money. A good lawyer will assess the risks of litigation against any possible fruits of the litigation.
How long do you have to sue a company in Australia?
The limitation dates will vary depending on the cause of action. For example:
- Breach of contract – 6 years
- Defamation – 1 year
- Debt recovery – 6 years
How to Sue a Company in Queensland
This is a guide on how to sue a company in Queensland.
If you are owed money under a contract, and the company has assets, then you may successfully recover some or all of the debt amount.
This article lets you know how to sue a company. If you are thinking about suing a company, then we strongly recommend engaging a suitably qualified solicitor.
