In the matter of PostNet Australia Pty Ltd [2017] NSWSC 160

Supreme Court New South Wales

Medium Neutral Citation: In the matter of PostNet Australia Pty Ltd [2017] NSWSC 160 Hearing dates: 28 February 2017 Decision date: 28 February 2017 Jurisdiction: Equity - Corporations List Before: Barrett AJA Decision: 1. Order that the statutory demand dated 18 October 2016 served on the plaintiff by the defendant be set aside. 2. Order that the defendant pay the plaintiff's costs of the proceedings. Catchwords: CORPORATIONS – winding up in insolvency – statutory demand – application for order setting aside – company accepts that debt is owing but contends that it is not due and payable – whether grounds for setting demand aside are established. Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 In the matter of Tuffrock Pty Ltd [2015] NSWSC 738 Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075; (2011) 86 ACSR 161 Category: Principal judgment Parties: Plaintiff – PostNet Australia Pty Ltd Defendant – Kum Seng Chow Representation: Counsel: Plaintiff – Mr Harry Woods Defendant – Ms Danielle A Woods

Solicitors: Plaintiff – Jeffrey Choy Legal Defendant – Phang Legal File Number(s): 2016/334782

Judgment 1. BARRETT AJA: The plaintiff (which I shall call "PostNet") applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 18 October 2016 served on it by the defendant, Mr Chow. 2. The indebtedness of PostNet alleged in the statutory demand is in the sum of $442,732.56 and is said to be for principal and interest in respect of two loans made by Mr Chow to PostNet under loan agreements made in 2007, one of which was varied in 2012. 3. The affidavit in support of the s 459G application is that of Mr Lau, the sole director and secretary of PostNet. He accepts that two loans were made by Mr Chow to PostNet as alleged and that the principal of each (less, in one case, repayment of $20,000 for which credit is given in the demand) remains owing. He maintains, however, that events at a meeting on 24 May 2016 had the effect of altering or qualifying PostNet's obligations in respect of the loans. 4. Mr Lau has annexed to his affidavit what are said to be minutes of a general meeting of PostNet held on 24 May 2016 at which certain resolutions were passed unanimously concerning the loans from Mr Chow. The resolutions, as recorded in the minutes, were in the following terms: "RESOLVED: Restructure a New Loan Repayment Arrangement Agreement to replace the existing two Loan's Agreements [a) $200,000 and b) $150,000 + Interest]. The New Loan Repayment Agreement requires PostNet Australia to pay down the total outstanding loan amount, whenever a successful New Franchisee signed up with PostNet and to settle the total outstanding loan amount with $20,000 repayment amount from the Franchise Fee collected, within 17 days from the date of New signed Franchise Agreement. Kum Seng Chow (Lender) will prepare the New Loan Repayment Arrangement Agreement to replace the existing two Loan's Agreements [a) $200,000 and b) $150,000 + Interest] as accordingly to the above agreed resolution. Kum Seng Chow (Lender) requested a confirmed letter of repayment arrangement from PostNet Australia Pty. Ltd. to fulfill the Lender's banker requirement This Special Meeting was called by Kum Seng Chow; the shareholders agreed to the Lender request and accept the New Loan Repayment Arrangement Agreement." 1. The minutes record four persons as having been present at the meeting: Mr Lau, Mr Chow, Dolly Lau and Hoon Moy Cheong , the last being "represented" by Chervin Chow, Mr Chow's son. The four named persons were, at the relevant time, all the members of PostNet. There is an affidavit of Hoon Moy Cheong to the effect that she did not receive notice of the meeting and did not authorise Chervin Chow to represent her. 2. Mr Lau refers in his affidavit to certain aspects of events at the meeting. His account is supported by the evidence of Dolly Lau. Mr Chow's affidavit contains a fuller and somewhat different account of what transpired at the meeting. His version is supported by the evidence of his son, Chervin Chow. 3. One of several points on which the conflicting accounts differ is whether the meeting was in truth a general meeting of PostNet, as distinct from a meeting of a less formal kind among persons with interests in PostNet. Given that it is by no means clear that it lay within the constitutional province of a general meeting to deal in any effective or binding way with the matter of loans to the company, perhaps little turns on this. 4. There is evidence of email correspondence between the parties in the lead up to the meeting. Mr Chow requested a meeting in April 2016. He said that he was hoping for "an amicable settlement of this long drawn out loan issue". In an email of 17 May 2016, Mr Chow said he expected to receive at least $50,000 at the meeting (which by then had been scheduled for 24 May) and that the balance was to be "restructured thereafter". There is thus evidence that the possibility of contractual revision was, as it were, in the air before the meeting took place. 5. There is also evidence of correspondence following the meeting. On 26 May 2016, Mr Lau sent Mr Chow an email in which he purported to summarise the discussions of 24 May. Points 1 to 5 in that email are as follows: "1) You will arrange a New Shareholder's Loan Agreement for the existing two Loan's Agreements [a) $200,000 and b) $150,000 + Interest] together with the Director Resolution for PostNet. 2) PostNet Australia will pay the outstanding loan repayment, whenever a successful New Franchisee signed up with PostNet and PostNet will then pay down the outstanding loan with $20,000 from the Franchise Fee collected within 17 days from the date of New signed Franchise Agreement. 3) PostNet Australia will provide you a copy of every New Signed Franchise Agreement and the Monthly Franchisee's sales report for your record. 4) PostNet Australia will provide you with the New Franchisee's Contact List, when there is a new update of the Franchisee's Contact List. 5) PostNet Australia will try before 31 May 2016 to provide you the Statement from ATO for your record." 1. Mr Lau sent Mr Chow a letter on 27 May 2016 setting out again the content of the email of the previous day. The evidence does not disclose any immediate reply. 2. Reference should also be made to certain other subsequent events. On 23 August 2016, Mr Lau said in an email to Mr Chow that a new franchisee had been signed up and PostNet was about to remit $20,000 "as per our new loan repayment agreement". Mr Chow's response was to deny that there was any agreement for revised loan repayment but that he was happy to accept the $20,000 payment 3. The contention of PostNet is, in substance, that the events of 24 May 2016 were effective to vary its debt obligations to Mr Chow or to affect Mr Chow's freedom to enforce those rights. PostNet says that the effect of the events was that, as a matter of contract, the then existing rights and obligations were replaced by varied rights and obligations such that, at the time the statutory demand was served, there was no debt presently due and payable; or, alternatively, that conduct of Mr Chow caused him to be estopped from relying on his rights as they originally existed. PostNet says that the genuineness of the 24 May 2016 arrangement is shown by the fact that a $20,000 payment of the kind the minutes and the subsequent email and letter envisaged was in fact made when a new franchisee was signed up (this reflects in the $20,000 reduction recognised in the statutory demand). A further allegation advanced by PostNet is that it has the benefit of a limitation defence. On all these bases, PostNet says, it was not not open to Mr Chow when the demand was served (and is not open to him now) to take the position that the indebtedness arising from the 2007 loans is indebtedness that is, as referred to in s 459E(1), "due and payable". 4. Mr Chow maintains that, despite the events of 24 May 2016, the indebtedness remains due and payable. He says there was, at most, some general expression of intention to enter into future contractual commitments, as distinct from any immediately operative contact. He points to the absence of any written variation agreement (as envisaged by variation provisions in the original agreements) and the absence of any contractual consideration for forbearance by him. As to the estoppel possibility, he says that because there was no more than discussion of a possible new agreement in the future and that there could have been no assumption of some presently existing new basis on the faith of which PostNet could have acted, whether in making the payment of $20,000 in August 2016 or otherwise, there was no basis for any estoppel. As to the limitation argument, Mr Chow says that a period of more than three years would be excluded under s 54 of the Limitation Act 1969 (NSW) in computing time and that a new cause of action arose in 2013. 5. As this brief description of the competing contentions shows, there is no dispute that PostNet is indebted to Mr Chow in the amount set out in the statutory demand but the parties are clearly at odds on the question whether the indebtedness was due and payable when the demand was served (and remains of that quality). The answer to that question will depend on full investigation of the events of 24 May 2016. As things now stand, it cannot be said that the contentions of PostNet as to the significance and effect of the 24 May 2016 events are devoid of plausibility. There is, to my mind, an issue to be tried on the matter and therefore on the question whether the indebtedness was, when the statutory demand was served, of such a quality as to be capable of grounding such a demand. Of course, it may be that, in the end, after a debt recovery claim is pleaded in full, grounds of defence are articulated and pleaded and all relevant persons give evidence and are cross-examined, the contentions of Mr Chow will prevail. But that is not the issue in these present proceedings. 6. In the circumstances of the present case, PostNet says that there is, in terms of s 459J(1)(b) "some other reason" why the demand should be set aside. The basis for its contention is that explained by Black J in the following passage at [13] of his judgment in In the matter of Tuffrock Pty Ltd [2015] NSWSC 738: "In NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 16 ACLC 957 Finkelstein J considered that an application to set aside a statutory demand on the ground that a debt was not due and payable was a matter falling within the scope of s 459J(1)(b) of the Corporations Act, and Austin J took the same view in Midland Imports Pty Ltd v Asia Pacific International Pty Ltd above at [27]. In Streetwise v Higgins above at [15]–[19] Master Macready in turn referred to the decision in NT Resorts above and adopted the same approach. I summarised the relevant principles in Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467 at [40] as follows: 'The authorities make clear that a statutory demand that relies on, or includes, a debt that is not yet due for payment may be set aside, although the case law differs as to whether such an order may be made under s 459H or s 459J of the Corporations Act. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1986) 132 FLR 300; 20 ACSR 746, Bryson J held that the inclusion of debts not yet due for payment at the date of the demand was a defect within the demand under s 459J(1)(a) of the Corporations Act, which would authorise the Court to set aside the demand if it was satisfied that subject substantial injustice would be caused unless the demand was set aside. In NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1988) 153 ALR 359 at 366–367, Finkelstein J considered that the Court could set aside the demand if it was satisfied that a genuine dispute existed as to whether the debt to which the demand related was due and payable, under s 459J(1)(b) of the Corporations Act. Statutory demands have also been set aside when issued in respect of debts that were not due or payable, or where there was a genuine dispute as to whether they were due and payable, in Re Carbon Polymers Ltd [2013] NSWSC 376 and Re Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234.'" 1. As indicated by that statement, an alternative but similar contention could be advanced by reference to s 459H(1)(a) – the "genuine dispute" ground. In cases such as AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 and United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075; (2011) 86 ACSR 161, the view was taken that, when s 459H(1)(a) refers to a genuine dispute about "the existence ... of a debt to which the demand relates", it has in contemplation a dispute about the existence of the debt as one "that is due and payable" as referred to in s 459E(1) rather than a debt that is, for the time being, merely owing. 2. On either of both of these bases, Mr Chow's statutory demand cannot stand. There are significant questions in need of investigation and determination as to the legal effect of the events of 24 May 2016. Indeed, there is an anterior question as to precisely what happened on that day. There is an appreciable possibility that the nature and incidents of the parties' relationship were altered. The existence of that possibility means that the indebtedness asserted in the statutory demand may have been deprived of the quality of a debt immediately and unequivocally due and payable. The whole tenor of the statutory demand provisions and the part they play in the regime for winding up in insolvency is such that a demand cannot be allowed to stand unless the indebtedness to which it relates is clearly and indisputably of that quality. 3. I should make one final point. Mr Chow contends that the allegation that the indebtedness is not due and payable is, as referred to in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [13], a defence "merely a constructed response to the claim advanced through the statutory demand". When it is remembered that the defence is based on the events of 24 May 2016 and the demand was not issued until October 2016, I do not think that that is a point of any substance. 4. PostNet succeeds in its challenge to the statutory demand. The orders are: 1. Order that the statutory demand dated 18 October 2016 served on the plaintiff by the defendant be set aside. 2. Order that the defendant pay the plaintiff's costs of the proceedings.