Transcom Australasia Pty Ltd v UTI (Aust) Pty Ltd [2007] FCA 563

FEDERAL COURT OF AUSTRALIA

Transcom Australasia Pty Ltd v UTI (Aust) Pty Ltd [2007] FCA 563 TRANSCOM AUSTRALASIA PTY LTD FORMERLY TRANSCOM FRANCHISE PTY LTD (ACN 107 888 586 v UTI (AUST) PTY LTD T/AS UTI (ACN 006 734 747) QUD 11 OF 2007

DOWSETT J

27 FEBRUARY 2007

BRISBANE IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 11 OF 2007

IN THE MATTER OF: TRANSCOM AUSTRALASIA PTY LTD FORMERLY TRANSCOM FRANCHISE PTY LTD (ACN 107 888 586

Plaintiff

AND: UTI (AUST) PTY LTD T/AS UTI (ACN 006 734 747)

Defendant

JUDGE: DOWSETT J DATE OF ORDER: 27 FEBRUARY 2007

WHERE MADE: BRISBANE

THE COURT ORDERS THAT:

1. The application be dismissed. 2. The plaintiff pay the defendant's costs of the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 11 OF 2007

IN THE MATTER OF: TRANSCOM AUSTRALASIA PTY LTD FORMERLY TRANSCOM FRANCHISE PTY LTD (ACN 107 888 586

Plaintiff

AND: UTI (AUST) PTY LTD T/AS UTI (ACN 006 734 747)

Defendant

JUDGE: DOWSETT J

DATE: 27 FEBRUARY 2007

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 On 21 December 2006, UTI (Aust) Pty Ltd, the defendant in the present proceedings, recovered judgment against Transcom Australasia Pty Ltd, the plaintiff in these proceedings, in the amount of $16 603.65, which included interest, and a further amount of $3 032.40 for costs, the total being $16 603.65. On 22 December 2006, the defendant served on the plaintiff a statutory demand pursuant to the Corporations Act 2001 (Cth) (the "Corporations Act"). 2 On 12 January 2007, the plaintiff filed an application in this Court seeking to set aside the statutory demand pursuant to s 459J of the Corporations Act. Numerous grounds were identified. The first is that the plaintiff has, with an associated company, commenced proceedings in the Supreme Court of Queensland against a company called Chariot Ltd and certain natural persons. In those proceedings they assert that Chariot undertook to use its best endeavours to provide finance to them and failed to do so. Alternatively, there is a claim based upon some form of misrepresentation. 3 The proceedings were commenced in mid-2006 and are defended. There is no evidence before me as to the likelihood of success or upon which I could assess such likelihood; there is no evidence as to the timeframe in which the proceedings are likely to be brought to a conclusion; and there is no evidence as to the financial capacity of either the present plaintiff, or of the plaintiffs in the Supreme Court action, to prosecute the proceedings. Indeed, it seems unlikely that they can do so in the absence of external funding assistance. 4 The plaintiff asserts that in those circumstances it is solvent, or at least that the circumstances establish some other reason for setting aside the demand pursuant to s 459J. It is submitted that it is in the interests of the creditors generally and the shareholders of the plaintiff that this occur. It is also said that the defendant unreasonably rejected offers of settlement and was, perhaps, premature in making the statutory demand. 5 There is authority for the proposition that alleged solvency alone is not a basis for setting aside a statutory demand: see the decision of Lindgren J in Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 13 ACLC 229, and that of Lander J in Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025. I find the reasoning in both cases to be highly persuasive, if not compelling. However this is not a case in which the plaintiff seeks to set aside the statutory demand solely on the basis of solvency, although it is very close to that position. 6 The asserted solvency depends very much upon an assessment of the likely prospects of success in the Supreme Court proceedings, and I am by no means persuaded as to that matter. I have had no opportunity to assess the prospects of success, the time-frame in which any such success is likely to be realised, or the plaintiff's capacity to prosecute the action. 7 As to the other ground, I do not accept that it was unreasonable for the defendant to decline to accept the offers that were made. It is not necessary to determine that the conduct was reasonable. I am simply unpersuaded that it was unreasonable. The offers in question appear from two letters which are exhibited to the affidavit of Mr Basi, filed today by leave. One of the offers, which appears to have been made on 21 July 2006, seems to have been to the effect that creditors would be paid from the proceeds of the judgment in the Supreme Court. I have explained why I am unwilling to act upon such a basis. I am unable to conclude that the defendant was unreasonable in not accepting such a proposal. 8 The second offer, made on 26 February 2007, that is yesterday, seems to have contemplated the initial payment of $5 000, followed by monthly payments of $1 000. In other words, a debt of $16 000-odd was to be repaid over a period of about a year. That, by itself, seems to me to be unreasonable, but there was a further requirement that the parties pay their own costs to date. I cannot conclude, in the circumstances of this case, that it was unreasonable for the defendant to reject such an offer. 9 As to the assertion that the statutory demand was served prematurely, it is true that it was served shortly after the recovery of judgment. That is, as I understand it, not uncommon in debt recovery procedures these days. It was suggested that perhaps the defendant ought to have conducted public examinations of company officers and sought other assets. However I suspect that the current practice is based upon experience which suggests that those steps are less effective than a statutory demand. 10 As an alternative, the plaintiff asks that I extend time for compliance with the statutory demand. I cannot see that there is any power to do so. Section 459L contemplates that only an order pursuant to s 459H or s 459J will be made on an application under s 459J. Section 459H applies only where there is a dispute or offsetting claim. That situation does not obtain in the present case. The only order that can be made under s 459J is an order setting aside the statutory demand. In my view, there is no jurisdiction to make an order extending time for compliance with the statutory demand under s 459J. In those circumstances, the application will be dismissed. 11 In para 4 of the plaintiff's outline of argument it was asserted that the company was, in fact, solvent without regard to the prospects of success in the Supreme Court action. However that assertion seems to be inconsistent with the statement in para 2.1 of the outline that the plaintiff has to date been unable to pay its debts, and with para 4 of Mr Cummins' affidavit filed on 12 January 2007. The application must be dismissed. 12 As to the question of costs, I order that the plaintiff pay the defendant's costs of the proceedings. I decline to make an order that the costs be paid on an indemnity basis. There is no evidence before me to suggest that an order based on a party and party taxation would be inadequate. In those circumstances it seems unnecessary to take the matter further. The order will be that the plaintiff pay the defendant's costs of the proceedings. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.