New South Wales Supreme Court CITATION : Wardair v Bush [2003] NSWSC 827 HEARING DATE(S) : 15/08/03 JUDGMENT DATE : 19 August 2003 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : CATCHWORDS : Corporations Law. Application to set aside statutory demand. Application out of time. Application for leave under s459S refused as not material to solvency. Proceedings dismissed. PARTIES : Wardair Pty Limited v Geoffrey Bush FILE NUMBER(S) : SC 3692/03 COUNSEL : C. Hogg for plaintiff R. Parsons for defendant SOLICITORS : Pitcher Walton & Co for plaintiff Deutsch Partners Lawyers Pty Ltd for defendant - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY TUESDAY 19 AUGUST 2003 3692/03 - WARDAIR PTY LIMITED v GEOFFREY BUSH JUDGMENT 1 MASTER: These are proceedings seeking to set aside a statutory demand dated 23 May 2003 claiming $11,000 said to be due by the plaintiff to the defendant. 2 The demand was served on 17 June 2003 and thus any application to set it aside had to be filed and served on or before 8 July 2003. The application was filed and served on 9 July 2003 and is thus out of time. 3 It was sought to argue that the High Court decision in David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 could be distinguished and that thus time could be extended under s 1322 of the Corporations Act. 4 The basis for distinguishing the decision was said to be a change to s 459S which occurred after the Court's decision to restrict even further the ability to agitate a disputed debt at the hearing of the winding-up application. It was submitted that the High Court decision had as its foundation a view expressed by Hayne J in Tenel Pty Limited v Commonwealth Bank of Australia [1994] 2 VR 298 where his Honour referred at p 537 to the safety net provided by s 459S. 5 In fact there was no change to the terms of s 459S after the decision and the safety net referred to by Hayne J was not the foundation of the High Court decision. The reasons founded as on the structure of the Act and its evident purpose is gleaned from the Act and the explanatory memorandum. The Court on the contrary recognised that Part 5.4 could operate quite harshly (see p 279). 6 In my view I am bound by the decision and time for compliance cannot be extended. I refuse order 2 in the amended process filed on 8 August 2003. 7 I turn to consider the remaining claims and note that claim 6 was abandoned in argument. Claim 3 is an application under s 459S. Claims 4 and 8 are claims that can only arguably be made if I give leave, and would be dealt with at the winding-up application. Claims 5, 7 and 9 are claims that the winding-up proceedings number 3693/03, which are based upon the demand in this matter, should be dismissed as an abuse of process. 8 There was also in submissions a reference to what was said to be a defect in the affidavit in support of the demand in respect to compliance with Pt 80A r 15(c) of the Supreme Court Rules and an error in the "important note" at the end of the demand. These matters are now irrelevant as they could in no sense be said to be material to proving that the company was solvent. 9 The only matter which may or may not be material to solvency would be the existence of the debts the subject of the demand, and I turn to the matter of leave under s 459S. 10 The present proceedings before me are not a hearing of the summons to wind up, as that matter will be dealt with at a later hearing. The matter is thus unusual in this respect as commonly applications under s 459S are brought at the same time as the application to wind up. Section 459S of the Corporations Law provides as follows: "Insofar as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without leave of the Court, oppose the application on a ground: (a) that the company relied on for the purpose of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not)." 11 The section contemplates a two-stage process. The first stage is the giving of leave to raise a ground. The second stage is deciding on the hearing of the summons and the effect that has on the solvency of the relevant company. The actual decision on whether the ground is made out appears to occur in the second stage. 12 Notwithstanding this, some consideration of whether the ground will be arguable may intrude into the first step. In Master Paving v Heading Contractors, 15 ACLC 1025 at 1033 Lander J had the following to say about this aspect: "The scheme therefore contemplates that the hearing of the winding-up application will be confined to matters relevant to the solvency of the company. This scheme when understood that way means that it is only when it is a matter that it is important for the resolution of the question of the defendant company's solvency that the court is called upon, on an application for winding up, to determine whether the debt is due to the creditor. There is public interest...that solvent companies do not get wound up so that the company, its contributories and its creditors are not put to the expense of an administration in insolvency...I believe the existence or otherwise of the debt is a ground material to proving the defendant company's solvency. That is so because the amount disputed is greater than the difference between the company's current assets and current liabilities. If this debt was recognised as a liability then that would be a material matter in a consideration of this defendant company's solvency. A further matter which needs to be considered is some assessment of the strength of the ground sought to be put in opposition. I would have thought that the defendant company would need to establish that the ground was arguable before it could benefit by the order. It must be remembered that the company is seeking a statutory indulgence. If it had a good ground to set aside the statutory demand it would have advanced it at the appropriate time and before the creditor was put to the cost of the application for winding-up. I would therefore be entitled to make an order in favour of the defendant company pursuant to s 459S. However, whether or not the order ought to be made must involve some consideration of why the ground or grounds were not advanced in opposition to the statutory demand." 13 He indicates in that quote the two matters which have to be considered: one, that the ground must be arguable and, two, a consideration of why the grounds were not advanced at the appropriate time. To a similar effect is the decision of Chief Commissioner of Stamp Duties v Paliflex [1999] NSWSC 15, 4 February 1999. This is a decision of Austin J, who was involved in a similar matter as the present. At par 49 of his Honour's judgment his Honour concluded his consideration of the cases and decided that the relevant matters involved in the discretion to grant leave were as follows: "In my opinion the exercise of the discretion to grant leave under s 459S(1) involves three considerations, namely: (i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand; (ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party's conduct at that time; and (iii) an investigation of whether the dispute about the debt is material to proving the company is solvent." 14 In dealing with the first question to which his Honour refers, his Honour at par 56 had the following to say: "For the purpose of assessing whether to grant leave under s 459S it is sufficient for me to say that in my opinion, there is a plausible argument to be made for the defendant's contention; to put it another way, the defendant's case is not so hopeless that I should deprive it of the opportunity of developing its case for this reason alone." 15 As far as the second matter is concerned, there is an explanation and that is simply that the solicitor miscalculated the date by which the present application had to be filed and served. It seems to be a genuine mistake and is an adequate explanation as to why the matter was not raised within time. 16 As to the first matter, namely the preliminary consideration of the defendant's basis for disputing the debt, there were three debts claimed in the demand. They were: "Cash advance on 7 September 2001, $6,750. Cash advance on 21 September 2001, $2,250. Cash advance on 14 October 2001, $2,000." 17 There is no doubt that the funds were provided, and there is evidence from the sole director and shareholder of the plaintiff that she and the defendant were in a de facto/personal relationship at the time. She gave evidence of conversations concerning the provision of the $6,750 to the effect that the provision of those funds was a gift to her or her company. 18 In respect of the $2,250, there is evidence that the funds were provided to do some renovations to the company's premises as the defendant would have preferred to have provided the funds rather than help with renovations himself - apparently he preferred golf. 19 There is no evidence of a dispute in respect of the $2,000. 20 The evidence, in my view, notwithstanding the admissions to the contrary in the company's balance sheet, does demonstrate at least what might be described as and is described in the authorities as a plausible argument for the payment of the $9,000. That leaves the question as to whether the $9,000 is material to solvency. 21 The only relevant evidence as to the solvency of the plaintiff is the company's accounts for the year ended 30 June 2001. The company is in the aviation business and in the last year made a net profit before tax of $39,883. It has current assets of $21,581 of which $12,339 were cash. Current liabilities were $1848. Non-current assets were $54,115 and non-current liabilities (including the $9,000) were $41,036. This left a net asset in the sum of $32,813. 22 In Master Paving v Heading Contractors Lander J referred in that case to the fact that the debt or the existence or otherwise of it was material to proving that the company was solvent. He said that was so because the amount disputed was greater than the difference between the company's current assets and the current liabilities. He said if the debt was recognised as a liability, then that would be a material matter in a consideration of the defendant company's solvency. 23 In the present case it is hard to see that the removal of the $9,000 from non-current liabilities will make any material difference to the solvency of the company. Solvency in a balance sheet sense, which I appreciate is not the most relevant test, will more than likely hinge on the value of the asset being a loan to a director of $36,996. 24 Absent any further information I cannot see how the existence of the disputed debt of $9,000 could be material to the solvency of the company. Accordingly, I refuse leave under s 459S. 25 Abuse of process. The foundation for this claim appears to be that there were some other proceedings on foot in which the defendant was seeking to recover moneys claimed in the demand. See Portfolio Projects Pty Limited v Oaks Building Co Pty Limited (1987) 5 ACLC 911. 26 On 22 April 2003 Local Court proceedings number 4101/03 were commenced with the defendant in these proceedings the plaintiff and the plaintiff in these proceedings the defendant. The claim included a claim for the debts in the statutory demand and other debts totalling $28,149.80. The claim was reconstituted on 28 May 2003 by filing an amended statement of claim and this deleted the claim for the debts that are the subject of the statutory demand. Although the statutory demand was executed on 23 May 2003, it was not served until 17 June 2003. In those circumstances I do not see that there was any abuse of process as there were no parallel proceedings. 27 Accordingly, I dismiss the proceedings and order the plaintiff to pay the defendant's costs. I stand proceedings 3693/03 into my list at 10am on 29 August 2003. ********** Last Modified: 09/10/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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