31 May 2005
Key Points:
Failure to sort out the mailing address and notify the right people can have quite catastrophic effects for a company.
In this era of instantaneous electronic communications, it's surprising to find that document service rules and procedures have barely advanced since the days of the Penny Post.
It's even more of a shock to realise just how many companies leave themselves open to expensive litigation because of inadequate office procedures.
A creditor can serve documents on a company by sending them to its registered office address. That registered office address is the address listed on ASIC's public records. The two most common means of document delivery are by hand (using a professional process server) or through the post.
The areas in which companies repeatedly fall down are:
Just a few stories from the files will illustrate the point.
A process server was told to deliver a statutory notice of demand to Golden Orchid Pty Ltd. ASIC's records showed Golden Orchid's registered office address as 274 Victoria Street, Kings Cross. When the process server turned up at 274 Victoria Street, he found that it was a complex of offices and shops. He went into the first shop and asked if it was the registered office of Golden Orchid. The woman behind the counter replied: ''Yes, this company is at Alexandria, they are all connected." He then handed the statutory demand over.
The shop wasn't the registered office, but the statutory demand eventually reached Golden Orchid - almost two weeks later. This delay was crucial, because a company is deemed to be insolvent if it doesn't apply to set aside a demand within three weeks of service. By the time that Golden Orchid got around to acting on the demand, the three weeks were well and truly past. Golden Orchid unsuccessfully tried to argue that the statutory demand hadn't been served when it was left at the shop in 274 Victoria St.
The Court's attitude was quite simple. Golden Orchid had officially given "274 Victoria Street" as its registered office address, without specifying a floor or room number. The process server's job was not to wander around the complex at 274 Victoria Street, trying to find Golden Orchid (there was no directory in the building to indicate who occupied which rooms).
This failure to be specific is perhaps an extreme example of not maintaining proper details on ASIC's records. Much more common is the failure to keep the records up to date. Companies that change their registered office must make sure that they tell ASIC about their new address. The law reports are full of cases of companies that have faced legal action because they didn't follow that simple rule.
The reason for keeping address details at ASIC up to date is that any correspondence sent to the company at the address on the ASIC records is deemed to have been legally served on the company - even if it's no longer at that address. It's true that a document will sometimes end up being returned to sender, so that the sender has a reasonable idea that the company has moved office. However, the document is just as likely to spend several weeks lying on the floor of the old office or simply being binned by the new tenants - neither of which affects the fact that it has been validly served.
But even if the company hasn't moved office, there are still practical steps that it should take to prevent any nasty legal surprises.
The most basic of these is to have a proper mail processing system. This has a number of elements.
The first is to make sure that documents intended for the company actually make it to the company office. Again, a slightly extreme case from the files illustrates this point.
Chains and Power obviously took no chances with security. Its office was in a compound surrounded by a two metre high fence and gates that were topped with barbed wire. A process-server who arrived around 5 on a Friday afternoon found the gates locked. Undeterred, he drove his car up to the gates. He then climbed on top of his car and threw a sack on top of the barbed wire. He then hauled himself over the gate, protected by the sack lying on the barbed wire. Making his way to the office building, he found it locked, with no opening through which the documents could be put. Undeterred, he pulled out a roll of tape, taped the documents to the door and left the same way he had arrived.
The company director who opened up the compound the following Monday morning swore that there was nothing stuck to the door when he arrived.
Unless someone had emulated the process-server, by climbing over the fence and removing the documents, it looked as though the court was going to have to decide that either the process-server or the director wasn't telling the truth. In fact, the court didn't have to get to that point. It noted that a document can be served on a company by leaving it at the registered office. The court believed the process-server's story, but it didn't have to consider how that fitted in with the director's story. Once the documents had been stuck to the office door, they had been served. It didn't matter what happened after that - they could have been stolen, they could have fallen off, they could have been blown off, they might have been abducted by a UFO, but by the time they became detached from the door, they had been served and were therefore the company's problem.
Although this is another extreme case, it clearly illustrates the fact that a company must have a reliable system for receiving correspondence. In the case of Chains and Power, for example, this could have involved a lockable letter box at the front gate, but a letter box is only half the solution: the other issue is how the company deals with the correspondence it receives.
This is one of the most common issues that comes before a court.
While courts are not naive, they tend to believe a professional process-server who swears that he has delivered a document to a company's registered office. The other favourite method of service - posting the document to the company - is less clear-cut. A typical scenario involves a creditor who claims to have posted a document to a company and a company that claims that the document never arrived. Time and again, this issue is decided in favour of the creditor, for a very simple reason. The court simply asks to look at the mailroom records of both the creditor and the company. The creditor produces records recording that the document was posted (something which is made even easier if registered post is used). The company reveals that it doesn't keep a written log of mail received, but does produce an affidavit from the receptionist or the office junior to the effect that they have no recollection of the document's ever arriving. It's only to be expected that the court finds in favour of the creditor.
Another problem area is the use of third party service providers. It's very common for small companies to use a service bureau or their accountant's office as their registered office address. This can give rise to a number of potential problems:
These look like relatively minor bureaucratic matters, but failure to look after them can have quite catastrophic effects for a company. At the very least, it can result in expensive litigation, as the company tries to unwind court proceedings that have been taken against it without its knowledge. In commercial terms, a company can suffer loss of reputation - or worse - if those proceedings are a winding up application.
For further information, please contact Ron Schaffer.
