New South Wales Supreme Court CITATION : Windridge Farms (Holdings) Pty Ltd v BMG Environmental Group Pty Ltd [2009] NSWSC 506 HEARING DATE(S) : 6 May 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 7 May 2009 DECISION : Amount specified in statutory demand varied to $4,582. Demand to have effect as so varied as from when demand served on plaintiff. Defendant to pay plaintiff's costs of the proceeding. CATCHWORDS : CORPORATIONS - External administration – winding up – winding up in insolvency - application to set aside a creditor's statutory demand for $55,000 - dispute as to amount of debt owing – offsetting claim - defendant concedes except as to $4,582 from an initial claim of $54,597 - no reasonable dispute as to balance – statutory demand varied to $4,582 LEGISLATION CITED : (CTH) Corporations Act 2001 s 459H(4) CATEGORY : Principal judgment PARTIES : Windridge Farms (Holdings) Pty Ltd (plaintiff) BMG Environmental Group Pty Ltd (defendant) FILE NUMBER(S) : SC 1280/09 COUNSEL : Mr Barrett (plaintiff) Mr Holmes (defendant) SOLICITORS : Gordon Garling Moffitt (plaintiff) Mark Ireland Lawyers (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BRERETON J Thursday 7 May 2009 1280/09 Windridge Farms (Holdings) Pty Ltd v BMG Environmental Group Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: By originating process filed on 29 January 2009, the plaintiff Windridge Farms (Holdings) Pty Ltd claims an order setting aside a creditor's statutory demand served on it by the defendant BMG Environmental Group Pty Limited on 9 January 2009 for an alleged debt of $54,597.54 described as: Running balance account deficit debt as at 23 June 2008 in respect of amount due for invoices issued prior to that date as set out in Annexure A less payments made as set out in Annexure B, being a debt due and payable by the company pursuant to an agreement for supply of product. 2 The supporting affidavit of Sally Walker sworn 27 January 2009 identified as the grounds of the application a dispute as to the amount of the debt claimed in the statutory demand (paragraph 2 (i)), and an offsetting claim for an amount greater than the debt claimed (paragraph 2 (ii)). For the purposes of the present application, the defendant practically concedes that there is a dispute except as to $4,582.31 of the debt claimed. In doing so, and for present purposes only it apparently accepts that goods delivered after 1 November 2007 were at least arguably for the account of a different entity Windridge Farms Pty Limited, which I shall call the "new company" and which apparently took over the business formerly conducted by the plaintiff company on or about that date. 3 In so doing, the defendant has effectively conceded for present purposes that amounts invoiced in respect of the goods delivered after 1 November should be excluded from the admitted amount and regarded as subject to a bona fide dispute. The alleged offsetting claim relates to goods in that category, and is prima facie a claim of the new company. Indeed, it is impossible to see on the plaintiff's case, how it could be anything other than a claim of the new company, and not of the present plaintiff. It therefore could not be an offsetting claim, and it does not need to be considered further. 4 The real issue in the case is whether there is a bona fide dispute that the plaintiff is indebted to the defendant at least to the extent of $4,582.31. 5 The transfer of business from the plaintiff to the new company appears to have gone unnoticed by the defendant. The new company subsequently terminated its trading relationship with the defendant on or about 13 June 2008. On 5 August 2008, the defendant's lawyers wrote, referring to "various tax invoices for products provided by our client to your company from 6 August 2007 to date" to a value of $315,986 less payments of $200,530, and demanded payment of the balance of $115,455 indicating that "if not paid to our client within 7 days we are instructed to commence proceedings to recover the debt without further notice to you. Should proceeding be commenced you will incur interest and legal costs." That could only have been a reference to debt recovery proceedings in the ordinary courts as distinct from winding up proceedings. 6 On 14 August 2008, the plaintiff's lawyers, apparently at that stage claiming to act for the new company, responded they disputed that any such amount was owing and requested copies of invoices for the amounts allegedly not paid. On 2 September, the defendant's lawyers responded that their client had undertaken a review of their accounts, that a payment in the amount of $55,701 had not been credited, and that the amount outstanding was therefore $62,130. On 18 September, the plaintiff's lawyers reiterated their request for copies of invoices for the remaining amounts allegedly unpaid. On 13 October the defendant's lawyers offered inspection at their client's premises of "a box of documents being tax invoices, Windridge dockets, and Masterfood Goods Movement advice for the period from January 2006 to 23 June 2008". They reiterated the demand for payment of $62,130, threatening the institution of proceedings if not paid by the end of the month. On 23 October, the plaintiff's lawyers repeated their request for provision of copies of the unpaid invoices. 7 On 10 November 2008, the defendant's lawyers advised that they had instructions to forward the "box of documents", and enclosed copies of invoices from 6 January 2006 to 23 June 2008 and customer ledgers for the period 1 July 2004 to 23 June 2008, adding that upon review of the figures "an amount of $59,754.43" was payable to their client. The customer ledgers referred to in that letter identified an opening debit balance of $4,411.33, and then listed, with references, each invoice said to have increased that balance and each payment said to have reduced it, so that as a result, there was a closing amount of $115,455.53, from which the further payment of $55,701.10 was deducted to provide the amount of the claim. From that document, it is possible to ascertain each invoice said to be comprised in the claim, and each payment for which credit has been given against it. 8 Ms Walker's supporting affidavit raised a number of disputes. First, there was a dispute as to the initial balance. For present purposes, the defendant concedes that it may be regarded as disputed and excluded from the admitted amount. Secondly, overcharges were alleged in respect of various of the invoices. Again, for present purposes, the defendant accepts that the alleged overcharges can be excluded from the admitted amount. Thirdly, amounts were said to have been wrongly charged to the plaintiff which were truly the responsibility of the new company. For present purposes, the defendant has excluded these amounts also from what it contends may be regarded as the admitted amount. Ms Walker's affidavit did not assert that any additional payments not brought to account in the defendant's ledger had been made. 9 These adjustments reduced the claim according to the defendant to the amount of $27,223. However, in removing the invoices in respect of deliveries made after 1 November 2007, the defendant also removed payments made after that date. The plaintiff asserts that payments made up to 30 December 2007 were referable to invoices for deliveries prior to 1 November 2007. Again, the defendant, for present purposes, concedes that this is at least sufficiently arguable to warrant deduction of all of those payments from the "admitted amount". That reduces what the defendant contends is the undisputed amount to $4,582. In respect of that residual sum, the plaintiff makes a number of submissions. First, it was submitted that that debt would have been eradicated by the next payment made on the "running account", if there was one. But that would be so only if any next payment was made on the account, and the plaintiff's case is that while the payments made up to 31 December were referable to its account, payments after that date were referable to the account of the new company. In those circumstances, I do not see how payments said to have been made referable to deliveries made after 1 November 2007 could discharge or reduce debts of the plaintiff. Secondly, the plaintiff submits that there is no corresponding invoice for the amount that apparently remains undisputed, notwithstanding that the plaintiff's practice was to pay against invoices, rather than to pay against a statement or balance of account. But while on many occasions, the plaintiff did pay against invoices, and many of its payments represent the accumulation of a number of invoices, this was not invariable and the payments do not always correspond with the amounts of any particular invoices. In any event, whether or not the amount in question of $4,582 can be attributed to any particular invoice is beside the point. If one adds all the undisputed invoices and subtracts all the alleged payments, there is still the balance of that amount outstanding. 10 Thirdly, the plaintiff points out that, included in the total amount claimed, are two invoices which it says were not provided to it prior to the balance date, nor indeed, prior to either of the so-called balance dates of 23 June 2008 (as originally mentioned in the creditor's statutory demand) or 1 November 2007 (said to be a notional balance date, if the deliveries after that date are excluded). Although it is true that the creditor's statutory demand refers to a running balance of account at 23 June 2008, that is because that was the date of cessation of trading, as the defendant then perceived it, between the parties. The creditor's statutory demand must be in respect of a debt at the date of the demand, not a debt of some earlier date. All it did by referring to 23 June 2008 was to pick a date which represented the end of the commercial relationship between the parties. I do not think it matters that two of the invoices had not been provided prior to that date. They had been provided prior to service of the creditor's statutory demand. The existence of a debt does not depend upon the provision of an invoice; typically it arises from the delivery of the goods, being a debt for goods sold and delivered, as distinct from a debt from goods invoiced. The fact that the invoices might not have been provided until late 2008, but before the date of the creditor's statutory demand does not mean that the sums referred to in them were not part of the total amount or balance remaining due from the plaintiff to the defendant when their commercial relationship ended, let alone as at the date of the creditor's statutory demand. 11 I bear in mind that the plaintiff needs to show not only that there was a bona fide dispute, but it needs to show that there is a bona fide dispute as to the existence of the debt. As I have pointed out, the supporting affidavit raises a dispute as to the amount, not the existence, of the debt – although an offsetting claim was also propounded. Nor do I overlook that there does not appear to have been any previous running balance account statement provided by the defendant to the plaintiff, nor that the two invoices in question were not previously provided. And it is also of some potential significance that the defendant's position has changed repeatedly, with the claim reducing from an initial $115,000 to a now undisputed amount of only $4,582. 12 But try as I might, I cannot find in the evidence any asserted basis upon which indebtedness for at least $4,582 is reasonably disputed. Essentially, the plaintiff's case in this respect boils down to two propositions. The first is that the plaintiff cannot tell to which invoice that sum relates. That simply does not matter; the plaintiff can tell what invoices make up the total gross amount of the claim, what payments have been allowed against it, and what the difference is, even if the amount in question is not reconcilable to a particular invoice (and it may well be that the explanation lies in the two invoices that were not provided until late 2008. Whatever the explanation, the plaintiff can identify from the material all the invoices which make up the claim, all the payments that are allowed against it and therefore what, if any, amount remains due. 13 The plaintiff's second contention is that, because the debt is described as a running account balance, the dispute necessarily goes to the existence of the debt and not just its amount. However, the words "running account balance" have to be seen in the context of what follows them in the statutory demand, which makes clear that it means no more and no less than the total of invoices rendered minus the total of the payments made. What the plaintiff has done is to dispute that it was liable for some of the invoices rendered. For present purposes, it is accepted that it has a reasonable dispute or a reasonable case in that regard. But it has simply shown no basis for supposing that it is not indebted for at least the sum of $4,582. 14 Pursuant to (CTH) Corporations Act 2001, s 459H(4), I order that the creditor's statutory demand dated 5 January 2009 be varied so as to specify a balance due of $4,582. I declare the demand to have effect as so varied as from when the demand was served on the plaintiff. 15 Where a statutory demand for $55,000 is substantiated to the extent of $4,500 only, it can hardly be said that the defendant has had substantial success in the proceedings; to the contrary, that seems to reflect substantial success for the plaintiff. Even though the statutory demand will remain on foot as amended, it is only for a relatively trifling sum. The defendant is entitled to test the waters by invoking the statutory demand procedure, but it does so at its own risk, and with the benefit of hindsight it can be seen that this is a claim which ought to have been litigated at law, and not prosecuted by a statutory demand. 16 I therefore order that the defendant pay the plaintiff's costs of the proceedings. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.