Scottish Pacific Business Finances v Silverton Group IT Supplies [2004] NSWSC 453

New South Wales Supreme Court

CITATION : Scottish Pacific Business Finances v Silverton Group IT Supplies [2004] NSWSC 453 HEARING DATE(S) : 24 May 2004 JUDGMENT DATE : 24 May 2004

JURISDICTION: Equity Corporations List JUDGMENT OF : Campbell J DECISION : Leave refused

CATCHWORDS : CORPORATIONS - winding up - application under section 459S Corporations Act 2001 (Cth) for leave to challenge statutory demand on a ground not relied on within 21 days after service - adequacy of explanation for failure to raise that ground within 21 days LEGISLATION CITED : Corporations Act 2001 (Cth) CASES CITED : Chief Commissioner of Stamp Duties v Palifex Pty Ltd (1999) 149 FLR 179 Switz v Glowbind [1999] NSWSC 1296 PARTIES : Scottish Pacific Business Finance Pty Ltd - Plaintiff Silverton Group I.T. Supplies Pty Ltd - Defendant FILE NUMBER(S) : SC 1836/04 COUNSEL : M Wigney - Plaintiff M Dempsey; J Lazarus - Defendant SOLICITORS : Piper Alderman - Plaintiff Somerville & Co - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

CAMPBELL J

MONDAY 24 MAY 2004

1836/04 SCOTTISH PACIFIC BUSINESS FINANCES PTY LIMITED v SILVERTON GROUP IT SUPPLIES PTY LIMITED JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an interlocutory process brought by a company which had a Statutory Demand served on it dated 6 February 2004. It is the defendant in winding-up proceedings. It seeks leave under section 459S Corporations Act 2001 (Cth) to rely on a ground for contesting the debt claimed by a Statutory Demand, even though that ground was not raised within 21 days after service of the Statutory Demand. The Statutory Demand was served by a company ("Scottish") which is in the business of factoring debts. It is the plaintiff in the winding-up proceedings. The defendant ("Silverton") is in the business of selling consumables, including toner, for computers and other information technology machinery. 2 The debt to which the Statutory Demand related was for a total of a little over $216,000. It arose from the supply of produce by Core Redemption Pty Limited ("Core") to the defendant, and Core's factoring to the plaintiff of invoices for product supplied. There is some evidence that the debt arose from invoices for product, some of which had not been delivered at all, and some of which had been delivered and proved defective. It is that allegation which the defendant wishes to rely upon for the purpose of opposing the winding up order. 3 The Statutory Demand was actually served on 10 February 2004. The originating process is one which was filed on 9 March 2004. The evidence of Mr Marjanovic, who is the General Manager of the defendant, is to the effect that he was personally served with a Statutory Demand, that he did not read the document carefully, that he did not understand what a Creditor's Statutory Demand for Payment of Debt was, and did not understand that he had a limited period of time to make a response to the demand. He says that he did not know that failure to make a response would provide legal grounds for Scottish to make an application to the Court for the winding-up of Silverton. 4 The Statutory Demand in question is one which is in accordance with the prescribed form. It is headed, "Creditor's Statutory Demand for Payment of Debt". It asserts that an amount of $216,000 odd is due and payable by the company. It states that, "Section 459G of the Corporations Act 2001 provides that a company served with a Demand may apply to a Court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. Any application must be made within 21 days after the Demand is served and, within the same period: (a) an affidavit supporting the application must be filed with the Court; and (b) a copy of the application and a copy of the affidavit must be served on the person who served the Demand". 5 There had been some communications between Mr Marjanovic and Mr Belton, of Scottish, in the course of which Mr Marjanovic had informed him that the goods were not up to standard and that they had been sent back. Mr Belton's side of the story, confirmed by his file note, is that he told Mr Marjanovic that Scottish had evidence that Core had paid Silverton sums that had then been paid to Scottish a couple of days later, and that he believed that there was some sort of collusion to defraud. That belief of Mr Belton is not one which was supported by any further evidence in the case before me. I mention it only for the purpose of making clear that it is not as though the plaintiff unquestioningly accepted what the defendant was saying to it about whether the invoices were really owing or not. 6 Mr Marjanovic says that, a couple of days after he received the affidavit which accompanied the Statutory Demand, he talked to Mr Fail, who was the former Managing Director of Core. Core was, by that stage, in administration. Mr Marjanovic asked Mr Fail to talk to the plaintiff and confirm that the defendant was not indebted to Core as alleged. He also says that, a few days after receiving the affidavit, he telephoned a solicitor who he found in the Yellow Pages, said to him that he had received an affidavit regarding a debt, which says that the debt is "true", and that the solicitor replied with words to the following effect, "Wait until you get a notice of demand". 7 There was, apparently, no attempt to supply the solicitor with a copy of the document which had been served, nor was there any questioning, it seems, of the solicitor about just what counted as a "notice of demand", or whether the document headed "Creditor's Statutory Demand for payment of Debt" might perhaps be such a document. 8 In an application under section 459S there are three matters that can assist the Court in reaching a conclusion. First, a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand. Secondly, an examination of the reason why the indebtedness was not raised in an application to set aside the demand and the reasonableness of the defendant's conduct at the time. Thirdly, an investigation of whether the dispute about the debt is material to proving that the defendant is insolvent: Chief Commissioner of Stamp Duties v Palifex Pty Ltd (1999) 149 FLR 179 at [49]; Switz v Glowbind [1999] NSWSC 1296 at [13]. 9 Even though there is some basis for disputing the debt which is the subject of the Demand, it cannot be said that the evidence on that topic is all the one way. 10 The defendant's conduct in the response it made to the Notice of Demand was, in my view, most unreasonable. It simply ignored what the document on its face said, and the clear warning which it gave of the requirement to raise matters disputing the Demand within 21 days. 11 The Statute, in section 459S, confers on the Court the opportunity to give leave to oppose an application on a ground that the company could have relied on to set aside a Statutory Demand. While the statute states no particular test for the granting of that leave, section 459S needs to be read in the context of the portion of the Act in which it occurs. In particular, it needs to be read bearing in mind the policy decision which the legislature has made that, in general, disputes about whether a debt is owing, or there is an offsetting claim, should be raised within 21 days of service. 12 The exception to that policy contained in section 459S cannot be allowed to expand so as to subvert the policy itself. It is for that reason that I agree, with respect, with Austin J's remarks that the discretion should be used cautiously and even sparingly: Chief Commissioner of Stamp Duties v Palifex Pty Ltd (1999) 149 FLR 179 at [4], and that it is a safety net only for special cases: Switz v Glowbind Pty Ltd [1999] NSW SC 1296 at [9]. 13 There was some evidence of solvency of the defendant if the debts the subject of the Statutory Demand are treated as not owing, but it is not particularly satisfactory evidence. The accounts on which that evidence was based are ones which were, it seems, adopted by the directors only after the current proceedings were on foot. The accounts have not been audited. On the basis of the accounts, and with some verification of details - the precise nature of which is not clear - an accountant who is independent of the company has been able to express the view that the company is solvent. However, the basis of that view is revealed only in a fairly sketchy fashion, and it is not something that one could place terribly much weight on. 14 Though I take into account the other matters I have mentioned, the unreasonableness of the defendant's conduct when served with the Statutory Demand leads me to refuse to grant leave under section 459S Corporations Act 2001 (Cth). 15 I order the defendant to pay the plaintiff's costs of the application. 16 The exhibits may be returned. 17 I stand the matter over to Tuesday, 1 June 2004, before the Registrar for further directions. **********