A R Pilot Pty Ltd v Gouriotis

In the matter of JF Essential Power Pty Limited [2018] NSWSC 435 In the matter of Litigation Insurance Pty Limited [2017] NSWSC 334 In the matter of Longjing Pty Ltd (2017) 123 ACSR 456; [2017] NSWSC 1534 In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467 In the matter of PostNet Australia Pty Ltd [2017] NSWSC 160 In the matter of Pulse Interactive Pty Limited (in liquidation) [2019] NSWSC 22; (2019) 134 ACSR 461 In the matter of ReNu Waste Pty Limited [2020] NSWSC 108 In the matter of Shot One Pty Ltd (in liquidation) [2017] VSC 741 In the matter of Tuffrock Pty Ltd [2015] NSWSC 738 In the matter of Unity Resources Group Australia Pty Limited [2015] NSWSC 1174 Jones v Dunkel (1959) 101 CLR 298 Junker v Hepburn [2010] NSWSC 88 Katsilis v Broken Hill Proprietary Co Ltd (1977) 18 ALR 181 Kern Group (Paddington) Pty Limited v Armstrong [2011] QSC 133 Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93 Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 Main Camp Tea Tree Oil Limited v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 McHugh v Eastern Star Gas Ltd [2012] NSWCA 169 MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 250 FCR 381; [2016] FCAFC 154 NA Investment Holdings Pty Limited v Perpetual Nominees Limited (2010) 79 ACSR 544; [2010] NSWCA 2010 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 NT Resorts Pty Limited v Deputy Commissioner of Taxation (1998) 16 ACLC 957; (1998) 153 ALR 359 Ogilvie v Adams [1981] VR 1041 Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221 Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 Papadimitropoulos v R (1957) 98 CLR 249; [1958] ALR 21 Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited [1996] NSWSC 199; (1996) 20 ACSR 746 Range Resources Limited v Lind Asset Management LLC [2015] WASC 238 Re Elgar Heights Pty Ltd (1985) 9 ACLR 846; [1985] VR 657 Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919; (1993) 11 ACSR 601 Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 Rinfort Pty Ltd v Arianna Holdings Pty Ltd [2016] NSWSC 251; (2016) 306 FLR 413 Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; (2007) 25 ACLC 1392; [2007] NSWSC 1143 Scanhill v Century 21 Australasia [Pty Ltd (1993) 47 FCR 451 Smith v Henniken-Major & Co (A Firm) (2002) 3 WLR 1848 Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 Telstra Corporation Limited v Ivory; Telstra Corporation Limited v Solar-Mesh (Australia) [2008] QSC 123 TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70 Whitton v Regis Towers Real Estate Pty Ltd (2007) 161 FCR 20; [2007] FCAFC 125 Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97 Zaccardi v Caunt [2008] NSWCA 202 Texts Cited: Dal Pont, Law of Agency, (2001) 200 Farid Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed, 2012, LexisNexis Butterworths) Professor Ian Ramsay and Dr Robert (Bob) Austin, Ford, Austin and Ramsay's Principles of Corporations Law (15th ed, 2012, LexisNexis Butterworths) Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters) Category: Principal judgment Parties: Plaintiff: Essential Media and Entertainment Pty Ltd Defendant: Hilton Cordell & Associates Pty Limited Representation: Counsel: Mr JP Knackstredt (Plaintiff) Mr EA Walker (Defendant)

Solicitors: Somerville Legal (Plaintiff) K&L Gates (Defendant) File Number(s): 2020/111804

Judgment

1. HER HONOUR: This is an application to set aside a statutory demand issued by Hilton Cordell & Associates Pty Limited to Essential Media and Entertainment Pty Ltd. The demand sought payment of $190,000 said to be owed pursuant to loans advanced in February and March 2019. The perhaps unusual features of this application is that the lender and borrower are television producers; the monies came from a bank account holding royalties which would not ordinarily be used to make loans; whilst the lender and borrower had a common director who appears to have instigated the transfer of funds, his co-directors on either side of the transaction were unaware of it and would not have agreed to it; the statutory demand was issued in the midst of the controversy generated by discovery of the transfers; on the borrower providing documents indicating the common director's knowledge and involvement in the transfer, support for the demand was withdrawn but re-instated on payment of money by the common director.
2. Essential Media seeks to set aside the demand on three bases: 1. the affidavit accompanying the demand did not comply with section 459E(3) of the Corporations Act 2001 (Cth) as it was not sworn by a person with the authority of the creditor company; 2. there is a genuine dispute about the existence of the debt within the meaning of section 459H(1)(a) of the Corporations Act; and 3. if there was a loan, then there is a genuine dispute as to whether the loan is "due and payable" within the meaning of section 459E(1) of the Corporations Act.
3. In support of the application, Essential Media relied on the evidence of Gregory Quail, the sole director and chief executive officer of Essential Media, and Darren Taylor, chief financial officer. Neither was required for cross-examination. Hilton Cordell called no witnesses but tendered documents.

facts

1. Hilton Cordell is a company which operates in the television production sector. Christopher Hilton and Michael Cordell are directors and equal shareholders. Mr Hilton is a television producer. Whilst the company is no longer producing television shows, it continues to collect royalties from past shows.
2. Essential Media also produces television shows including documentaries, television drama, factual series and lifestyle programs. The company was established by Mr Hilton, his wife Sonja Armstrong and their business partner Ian Collie. Essential Media has offices in Sydney, Los Angeles, Dallas, Vancouver and Auckland. Essential Media derives income from network production payments and royalties accruing from television programs which it has produced. Popular shows produced by Essential Media include "Rake", "Doctor Doctor", "Gourmet Farmer" and "Texas Flip N Move". As the shows continue to be broadcast on television channels and streaming networks locally and internationally pursuant to licencing agreements, Essential Media continues to generate income from royalties.
3. Hilton Cordell and Essential Media each have a "collections account" which holds royalties received and, at regular intervals, distributes the royalties to stakeholders involved in the creation and production of television shows including Screen Australia, Screen NSW, the Australian Broadcasting Corporation (ABC) and the Special Broadcasting Service (SBS). Mr Quail explained that the purpose of a collections account is to collect royalties from television shows, hold the monies on trust and disburse the royalties to the stakeholders involved in the production. The funds in the collections account are kept separate from the general operating bank account or, at least, the evidence was that this was how the monies should be held. According to Mr Quail: …In my many years in the television industry I had never seen a collections account used as a loan facility, nor to fund company operating expenses. …Using a collections account as a loan facility … goes against the very purpose of these accounts as it means that funds are not available to be disbursed immediately, if and when our contracts dictate that royalties need to be paid. This understanding was shared, at least, by Mr Cordell. In response to Mr Hilton saying a member of staff frequently used the collections accounts to manage cash flow, Mr Cordell replied, "For the [r]ecord [my company] has never used collections accounts as a de-facto loan [f]acility."

Three transfers

1. On 28 February 2019, according to a Westpac payment summary, Ms Pickering transferred $50,000 from Hilton Cordell's collection account to Essential Media's collections account with the description recorded on the Westpac payment summary of "Loan HCA". The monies were then transferred from Essential Media's collections account to Essential Media's general operations account and expended. According to Essential Media's MYOB accounting records - which were entered by Ms Pickering - the monies were recorded as "Loa[n] HCA Coll". Thus, according to Hilton Cordell's bank statement and the MYOB records of Essential Media at least, the $50,000 was a loan, most likely from Hilton Cordell to Essential Media.
2. On about 4 March 2019 at a weekly cash flow meeting, Ms Pickering told Mr Taylor that she had used some of Hilton Cordell's funds to pay expenses of Essential Media. Mr Taylor asked why she had done this and Ms Pickering said that they did not have enough cash to pay suppliers and payroll. Mr Taylor asked how the transaction had been accounted for and was told by Ms Pickering, "I have entered it into the MYOB as a loan so that we can repay it later". Mr Taylor assumed, based on what Ms Pickering told him, that the funds came from Hilton Cordell. Mr Taylor was aware that Mr Hilton was associated with Hilton Cordell. Mr Taylor was willing to allow the accounting entry to stand as he understood that Ms Pickering had personal knowledge of the transaction. Mr Taylor says that, if Ms Pickering had asked his permission before transferring the funds, he would have asked that she not borrow from another entity but delay payments to suppliers instead.
3. Mr Taylor reviewed the company's accounting records and saw that Ms Pickering had transferred $50,000 into Essential Media's collection account and then transferred the monies to Essential Media's general operating bank account. Mr Taylor sent an email to Mr Hilton as he thought the transfer from Hilton Cordell was strange. In Mr Taylor's experience, it was uncommon to borrow money from another company to pay expenses and he felt the need to report it to Mr Hilton in case he was not already aware of the transaction. Mr Taylor advised in the email, "Lorraine … has dipped into the Hilton Cordell royalty account to cover pay". Mr Taylor did not receive a reply to his email. Mr Taylor also saw Mr Hilton that day and told him that Ms Pickering had borrowed cash from the Hilton Cordell collections account. Mr Hilton simply replied, "Yep OK" and did not appear surprised or unhappy.

Termination of Mr Hilton's employment

1. On 2 April 2019, Mr Hilton was issued with a notice of improper conduct in respect of matters unrelated to these proceedings. On 25 October 2019, at the conclusion of an investigation by the Human Resources Department, Mr Hilton's employment was terminated for cause by reason of alleged serious misconduct. Upon Mr Hilton's termination, Mr Quail became chief executive officer of Essential Medial and took over the financial operations as well as the production side of the business.
2. About two days later, Mr Quail came to learn that over time some $950,000 had been transferred from Essential Media's collections account to its operations account to pay general company debts. Indeed, the collections account had been in debit since at least 2009. The indebtedness of the collections account had worsened by some $400,000 since Mr Quail became a director of Essential Media. Mr Quail said that it appears that Essential Media's collections account was effectively used as an overdraft facility since 2009. Mr Quail was not aware of this until he became chief executive officer in October 2019. Had he been aware, Mr Quail would have immediately stepped in to stop this happening; having a collections account with a negative balance posed a number of risks to the company.
3. Further, Mr Quail came to learn that the company had failed to report collections revenue to stakeholders. Mr Quail contacted representatives of the ABC, Screen Australia and Screen NSW to explain what had happened and to enter into a payment plan to meet Essential Media's obligations to stakeholders. In evidence are several emails and agreements evidencing Mr Quail's efforts to regularise the company's dealings with its stakeholders.

Discovery of transfers

1. In addition, Mr Quail came to learn of the three transfers from Hilton Cordell to Essential Media in February and March 2019. Mr Quail says that the transfers were likely made into Essential Media's operating account to improve the apparent financial position of the company. Essential Media's cash flow report incorporated the opening and closing bank balances for each week and the movement of cash. This report created a detailed forecast on Essential Media's cash balances. When these transfers were made, the cash flow forecast was dire. Mr Hilton was under significant pressure to lower this indebtedness when the transfers were made. Mr Quail said that the transfer of Hilton Cordell's funds "propped up" Essential Media's bank accounts which were used as a guide to the company's overall financial position when considering its assets and liabilities. The accounts were then used by Mr Hilton to suggest to management that Essential Media was performing well.
2. Mr Cordell was also unaware that the transfers had been made. As Mr Cordell later described it, in January 2020 Mr Hilton "casually mentioned $190K had gone missing". In January 2020, Mr Quail spoke to Mr Cordell about the transfers. Mr Cordell told Mr Quail that he did not know anything about the transfers until Mr Hilton had called him that week and, "Chris said he didn't know anything about it either and had only just found out about it himself in January 2020". Mr Quail advised that this was "rubbish" as he had been informed by Mr Taylor that Mr Hilton authorised the transfers.
3. Although Mr Hilton and Mr Cordell did not give evidence, a series of emails and text messages between them were produced on subpoena and tendered by Essential Media. On 14 February 2020, Mr Hilton sent an email to Mr Cordell, Look forward to receiving some emails from Lorraine [Pickering] proving that [E]ssential was holding [Hilton Cordell] money in trust to disburse to [i]nvestors/owners. She and I no longer have access to our Essential [e]mails. … Meanwhile Lorraine told me there's about $31,500 in the 3 [Hilton Cordell] bank accounts. She says no-one from Essential has got the ability [t]o log in to these accounts so the money should be safe. Mr Hilton asked that Ms Pickering send Mr Cordell and himself $15,000 each from Hilton Cordell's remaining funds. The suggestion from Mr Hilton's email appears to have been that Essential Media was holding Hilton Cordell money in its collections account to disburse to stakeholders. There was also a suggestion that Essential Media had been able to access Hilton Cordell's bank accounts in the past.

The demand and withdrawal

1. On 20 March 2020, the statutory demand was issued and Mr Hilton swore the affidavit accompanying the demand, deposing that he was authorised by Hilton Cordell to make the affidavit. Mr Hilton expressed a belief that there was no genuine dispute about the existence or amount of debt, which was said to be due and payable. The belief so expressed was a curious one given that the emails between Mr Cordell and Mr Hilton indicated that there was no ready acceptance by Mr Quail that Essential Media was obliged to repay the monies. In particular, I have in mind Mr Hilton's email of 24 February 2020, when he advised that Essential Media had made amendments to the settlement deed by deleting any reference to a loan from Hilton Cordell.
2. On 24 March 2020, the statutory demand was served. On receipt, Mr Quail called Mr Cordell and asked whether he knew about the statutory demand. Mr Cordell said that Mr Hilton had mentioned that Essential Media owed Hilton Cordell money but did not explain why. "He just said he was going to demand it back". Mr Quail said that he had emails from Mr Taylor indicating that Mr Hilton knew all about the transfers and Mr Cordell requested a copy of the emails "so I have some clear evidence". Further, Mr Cordell said, If I knew Chris had made the transfer himself, I wouldn't have gone along with it and approved the statutory demand. This evidence was admitted as evidence of what Mr Cordell said, not the truth of what he said. Mr Quail asked whether Mr Cordell now agreed with the statutory demand, and Mr Cordell replied "No I don't, Chris has gone behind my back on all of this". Mr Quail forwarded the statutory demand to Mr Cordell who replied, "The sooner we can get evidence from Darren proving Chris's mis deeds the better". Mr Cordell requested a copy of Mr Taylor's emails to Mr Hilton in respect of the transfers and a statutory declaration from Mr Taylor. Mr Cordell enquired as to whether he could use this material, "If/when I advise Chris I am withdrawing from the Statutory Demand he has launched on 'our' behalf?"
3. On 2 April 2020, Essential Media's solicitor asked Mr Cordell whether Mr Hilton was authorised to swear the affidavit in support of the statutory demand. Mr Cordell replied: I was certainly aware that Chris Hilton took that action. However, given that Chris Hilton has breached his director's duties and [disbursed] money from the Hilton Cordell collections account without authorisation I would not have authorised it. I certainly no longer support the statutory demand and I'm willing to do something to assist you.

A deal to support demand

1. On 9 April 2020, Mr Cordell replied: I was [h]appy to support the Statutory Demand when you made repeated assurances [y]ou had no involvement in the transfer of [Hilton Cordell] funds. Upon making my own [e]nquiries with Essential Media about the transfers I discovered you were [b]eing dishonest with me. The emails and the stat dec reveal you had full [k]knowledge of the transfers and approved of them without informing me. [T]his is a black and white breach of your director's [d]uties… It is abundantly clear … that Essential [M]edia, Greg Quail and yourself are in a complex, protracted and deeply [a]crimonious series of legal battles that I don't want to be [d]rawn into. You have a personal obligation as a director of [Hilton Cordell] to make [g]ood on the money that's missing and be left to fight these battles on [y]our own. My [p]osition is that you bear the immediate personal responsibility as a [d]irector who breached his duties, to return the missing [Hilton Cordell] funds. I [w]ill only support the Statutory Demand if you immediately disburse my [s]hare of the $190,000 that has gone missing on the understanding that we [a]gree to disburse funds to creditors in an appropriate manner. I also reserve my right to report this breach to [A]SIC. Thus, Mr Cordell saw the primary responsibility to repay the money as resting on Mr Hilton.
2. Mr Hilton agreed to Mr Cordell's request and requested confirmation that Mr Cordell continued to support the statutory demand as Mr Hilton was concerned that he would be liable for indemnity costs if the statutory demand was set aside on the basis that Mr Cordell did not support it. Mr Cordell advised that he would agree to withdraw his objection to the statutory demand on the receipt of $80,000 as an initial down payment on his share of the funds but, until the entire matter was satisfactorily resolved, reserved his right to refer Mr Hilton's actions to the Australian Securities and Investments Commission (ASIC). Negotiations ensued and ultimately Mr Cordell agreed that, if he received $40,000 that day, he would instruct K&L Gates to proceed with the statutory demand. The money was paid.
3. On 10 April 2020, Mr Cordell called Mr Quail and informed him of the arrangement reached with Mr Hilton. On 14 April 2020, these proceedings were commenced.
4. On 10 April 2020, Mr Cordell sent Mr Hilton a draft agreement regarding the outstanding debt. Recitals to the agreement drafted by Mr Cordell's solicitor provided: … B. In early 2019, Hilton breached his director's duties to [Hilton Cordell] by allowing the transfer of $190,000 held in [Hilton Cordell]'s Collections Account to Essential Media …. C. The transfer was made by Essential [Media] personnel in three tranches without Cordell's knowledge or permission on 28 February 2019 ($50,000), 4 March 2019 ($100,000), and 14 March 2019 ($40,000) (the "Debt"). The Debt was incurred when Hilton was also a director of Essential [Media]. D. In February 2020, Hilton obtained Cordell's support to issue a creditor's statutory demand on behalf of [Hilton Cordell] to recover the Debt from Essential ("Statutory Demand"). Since the Statutory Demand was issued, Cordell has become aware that Hilton knew of the transfers in early 2019 and intentionally elected not to inform Cordell. E. As an interim resolution to the issues between them, Cordell has agreed to accept a partial payment of the Debt from Hilton on the terms and subject to the conditions of this Agreement.

AFFIDAVIT ACCOMPANYING DEMAND

1. Section 459E(1) of the Corporations Act 2001 (Cth) provides that a person may serve a demand on a company relating to a debt or debts that the company owes which are "due and payable". Section 459E(3) provides: 459E Creditor may serve statutory demand on company … (3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (b) complies with the rules.
2. Rule 5.2 of the Supreme Court (Corporations) Rules 1999 provides: 5.2 Affidavit accompanying statutory demand (Corporations Act s 459E (3)) - Form 7 For the purposes of subsection 459E(3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must: (a) be in accordance with Form 7 and state the matters mentioned in that Form, and (b) be made by the creditor or by a person with the authority of the creditor or creditors …
3. Form 7 contains the following paragraph: 3 [State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, eg 'I am the person who, on behalf of the creditor(s), had the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor'].
4. As Barrett J explained in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; (2007) 25 ACLC 1392; [2007] NSWSC 1143 at [35]: It is made clear by rule 5.2(b) that, if the creditor is a corporation and therefore incapable of swearing an oath (Pathe Freres Cinema Ltd v United Electric Theatres Ltd [1914] 3 KB 1253), the affidavit must be sworn by an individual acting with the creditor's authority. Form 7 in Schedule 1 to the Supreme Court (Corporations) Rules requires that the deponent of the affidavit state his or her relationship to the creditor, "eg … 'a director of the creditor' …". The making of the affidavit by a corporate creditor's director is therefore, not surprisingly, a common occurrence expressly contemplated.
5. As his Honour further explained at [39]: … It is thus envisaged by the legislation not only that a company which claims to be a creditor will state in the demand itself that the debt is due and payable but also that some human being acting with the authority of that company and capable of swearing an affidavit (and therefore of being punished for perjury) will independently form and state an opinion that the debt is due and payable…

Authority of deponent

1. The best evidence that a creditor company has conferred its authority on a director to swear an affidavit accompanying a statutory demand is a resolution of the board. As Hammerschlag J explained in Junker v Hepburn [2010] NSWSC 88 at [42]: Ordinarily, where a company has more than one director, a single director does not have authority to bind it. A director's normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 198, 205.
2. But a resolution may not be necessary where the deponent's role and responsibilities encompass such matters. For example, in Telstra Corporation Limited v Ivory; Telstra Corporation Limited v Solar-Mesh (Australia) [2008] QSC 123, the General Counsel in Dispute Resolutions for Telstra was considered to have authority as part of her ordinary duties to instruct solicitors to commence proceedings to set aside a statutory demand; it was not necessary for there to be a resolution of the board of directors of Telstra: per Lyons J at [82]-[83] citing Rodgers CJ in AWA Limited v Daniels trading as Deloitte Haskins & Sells (1992) 7 ACSR 759. Her Honour noted that the scope of authority conferred on an officeholder was an enquiry of fact to be determined having regard to the size of the company, the nature of its commercial undertakings and the role and responsibility of the officeholder: at [87], citing Dal Pont, Law of Agency, (2001) 200.
3. In the context of issuing a statutory demand, McKechnie J, with whom Murray and Wheeler JJ agreed, observed in Horizon Star Pty Limited v Carina Holdings Pty Limited [2003] WASCA 94 that the issue of authority is a question of fact, citing Dennis Hanger Pty Limited v Kanambra Pty Limited (1992) 10 ACLC 284. In Horizon Star, a director of the creditor company signed the demand and the accompanying affidavit but did so in the absence of a meeting of the board of directors authorising her to do so. In fact, there was a disagreement between the directors and it was clear that, if a meeting had taken place, no authority to issue the demand would have been given by the deadlocked board. The Court of Appeal concluded that the notice of demand was a nullity. Whilst the statements of authority of the director who issued the demand were prima facie evidence of the fact, that evidence had been displaced: at [19]. At [20]: Mrs Franke had no ostensible authority to act on behalf of Carina Holdings. Her only function was to participate in proceedings of the Board: Northside Developments Pty Ltd v Registrar General [1990] HCA 32; (1989-90) 170 CLR 146 per Dawson J at 205; Smith v Henniken-Major & Co (A Firm) (2002) 3 WLR 1848. The Master may be right in his surmises as to what might have occurred if a meeting had taken place. However, the fact remains that no meeting was held and in consequence no authority was given to Mrs Franke to issue the notice of statutory demand.

Retrospective authority?

1. There is no doubt as a general proposition that a company can ratify the acts of its directors and retrospectively cure any want of authority. The question is whether the common law principle applies unabated in the statutory context of section 459E. Consistent with the notion of parliamentary sovereignty, legislation can modify the common law and, in the case of inconsistency, legislation prevails over the common law: Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [9.40] and the cases there cited.
2. Section 459E(3) provides in terms that "the demand must be accompanied by an affidavit" that verifies the debt and complies with the rules. The terms of the statute indicate that its requirements in respect of the affidavit be satisfied when the demand is issued or so proximate in time that it may fairly be described as "accompanying" the demand. Such a construction is consistent with the approach taken by Brereton J in In the matter of Unity Resources Resources Group Australia Pty Limited [2015] NSWSC 1174 where the affidavit accompanying the statutory demand was sworn before the date on which the demand was issued. Brereton J held that it was implicit in section 459E(3) that the affidavit must be sworn on the date of the demand and not on an earlier date: at [5]. Nor could a later affidavit sworn months after the demand was served cure the problem. At [12]: … The better view, it seems to me, is that if an updating affidavit is made on or after the date of the demand and served in circumstances that can be regarded as accompanying the demand, that may well cure the problem. But, at the very least, that would require service within the 21 day period for compliance with the demand and it may well require service contemporaneously with the demand. A similar view was taken in Chadmar Enterprises v IGA Distribution.
3. Further, Brereton J held that it was necessary to set aside a statutory demand that was not accompanied by an affidavit complying with section 459E(3) in order to preserve the undistorted operation of Part 5.4 of the Corporations Act and to promote the objects which it was intended to serve, as described in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262: at [14]. Brereton J considered that the absence of a proper and compliant accompanying affidavit would typically, if not invariably, result in the demand being set aside: at [15].

Submissions

1. Essential Media submits that Mr Hilton's affidavit in support of the statutory demand contained a false statement, being "I am authorised by the Creditor to make this affidavit on its behalf." Thus, it is said that the affidavit is defective which is sufficient reason to have the demand set aside pursuant to section 459J(1)(b) of the Corporations Act. Essential Media relied on Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, where the Full Federal Court (Northrop, Merkel and Goldberg JJ, at 458) confirmed that a defect in a document relating to a statutory demand may be sufficient for the grant of relief under section 459J(1)(b). The affidavit was a document that related to the demand and thus a defect in the affidavit was sufficient to have the demand set aside. Lack of approval by the creditor can lead to a statutory demand being set aside: In the matter of Access Elevators Australia Pty Ltd [2016] NSWSC 739.
2. Essential Media submitted that, as Hilton Cordell had two directors at the time, the position was as stated by Hammerschlag J in Junker v Hepburn [2010] NSWSC 88 at [42], being a single director does not have authority without a resolution of the board of directors. As Hilton Cordell had not produced any evidence to show that Mr Hilton was authorised to swear the affidavit at the time it was sworn, an adverse inference should be drawn: Katsilis v Broken Hill Proprietary Co Ltd (1977) 18 ALR 181 at 196-198 (Barwick CJ); Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419 (Handley JA); Evans v Levy [2011] NSWCA 125 at [43] (Campbell and Young JJA and Sackville AJA agreeing); Zaccardi v Caunt [2008] NSWCA 202 at [27] (Campbell JA, Allsop P and Barr J agreeing); generally, Jones v Dunkel (1959) 101 CLR 298. It was submitted that Mr Cordell's position had vacillated from denying awareness of the amounts said to have been lent by Hilton Cordell to Essential Media, admitting awareness of the statutory demand but denying any support for it, to supporting the demand. It was submitted that any support by Mr Cordell for the pursuit of the demand arose after the supporting affidavit was sworn. Alternatively, Essential Media submitted that if Mr Cordell did authorise the issuing of the demand, he did so on the basis of Mr Hilton's deceit and his consent was void: Papadimitropoulos v R (1957) 98 CLR 249; [1958] ALR 21. With respect, this submission was pitched too high.

Conclusion

1. There was no resolution of the directors of Hilton Cordell authorising Mr Hilton to issue the statutory demand or swear the affidavit in support, or at least no resolution on or before the day that the affidavit was sworn. But that is not the end of the matter. It is clear that, once Mr Cordell became aware that $190,000 had been transferred from Hilton Cordell's collections account to Essential Media, he wanted the money back and he wanted Mr Hilton to pursue the retrieval of the funds with expedition and without compromise. On learning that Mr Hilton was in settlement discussions with Essential Media, Mr Cordell stated emphatically that Mr Hilton should not discount the amount of money to be paid to Hilton Cordell but should recover every penny. On 1 March 2020, Mr Hilton assured Mr Cordell that he was taking appropriate steps, which may include issuing a statutory demand: at [33]. On 10 March 2020, Mr Hilton advised that K&L Gates were sending a letter of demand before a statutory demand would be issued and Mr Cordell's assistance may be needed in signing the affidavit for the statutory demand: at [34].
2. Whilst there is a gap in contemporaneous documents from 10 March 2020 until the statutory demand was issued on 20 March 2020, and thus there is no evidence that Mr Cordell either expressly approved or sought to dissuade Mr Hilton from this course of action, the contemporaneous documents indicate that Mr Cordell was aware that a statutory demand may issue and was content for this to be done. Mr Hilton was entitled to infer from his communications with Mr Cordell that he was authorised to take that step. Why Mr Hilton did not get Mr Cordell to swear the affidavit, as he earlier indicated he may need to, is not known but is consistent with an apprehension by Mr Hilton that he had authority to swear the affidavit himself.
3. That Mr Hilton had such authority is consistent with what Mr Cordell represented to Mr Quail on 24 March 2020, being that Mr Cordell had "approved the statutory demand". It is consistent with what Mr Cordell told Essential Media's solicitor on 2 April 2020 when asked whether Mr Hilton was authorised to swear the affidavit being, "I was certainly aware that Chris Hilton took that action". It is consistent with Mr Hilton's email to Mr Cordell of 8 April 2020, at [42], that he thought they had agreed to seek to recover the money by issuing the statutory demand. It is also consistent with Recital D in the draft agreement prepared by Mr Cordell's solicitor on 10 April 2020: at [46]. On the balance of probabilities, I find that Mr Hilton did have the authority of Hilton Cordell to issue the statutory demand and swear the affidavit in support on 20 March 2020. If I am wrong about this, then I consider that Hilton Cordell's circulating resolution of May 2020 did not cure any lack of authority.

"GENUINE DISPUTE"

1. Section 459H of the Corporations Act provides that, on an application under section 459G, the Court may set aside a statutory demand where there is a genuine dispute about the existence or amount of debt or where there is an offsetting claim in an amount greater than the debt. The principles relating to both genuine disputes and offsetting claims are well-settled. The threshold to establish a genuine dispute about the existence of a debt is a relatively low one. Black J conveyed the principles in In the matter of Gorji Property Investment Pty Limited [2018] NSWSC 1671 at [14] to [15]: [14] … In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a "genuine dispute" must be bona fide and truly exist in fact, and the ground for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J (as his Honour then was) formulated that proposition as follows, in a proposition applied in subsequent cases: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
2. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]: It is settled law that s 459H requires the Court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia [Pty Ltd (1993) 47 FCR 451] at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743]. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful". Their Honours make it clear that a similar standard of proof is required whether an offsetting claim or a genuine dispute is alleged.

Submissions

1. Essential Media submitted that there was no evidence of a written or oral loan agreement with Hilton Cordell, and there was evidence to the contrary. Mr Hilton was, at the time of the purported loans, a director of both Essential and Hilton Cordell but did not tell his fellow directors at Essential Media (Mr Quail) or at Hilton Cordell (Mr Cordell) of the fact that they had a liability and an asset respectively. Nor had Mr Hilton recorded anywhere, or informed any of his co-workers (or the Court) of, the terms of these dealings of which he was fully aware. This was said to raise concerns as to whether Mr Hilton had elected to hold back important information which related to the enforceability (or otherwise) of any loan. It was submitted that an adverse inference ought be drawn: Katsilis v Broken Hill; Commercial Union Assurance Co of Australia Ltd v Ferrcom; Evans v Levy; Zaccardi v Caunt; Jones v Dunkel.
2. Essential Media submitted that the absence of loan documents meant that the Court would need to infer the existence of a loan agreement from the conduct of the parties. This required compelling evidence: Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 per Sundberg J at [39]-[40]. There was no such compelling evidence here, and certainly no evidence from Hilton Cordell. As a result, it was submitted that there was a genuine dispute as to whether the transfers from Hilton Cordell to Essential Media were a loan or something else and the demand ought be set aside: In the matter of Tuffrock Pty Ltd [2015] NSWSC 738 at [15] (Black J).
3. Hilton Cordell submitted that the suggested genuine dispute was in truth a dispute with Mr Hilton in his performance as a director of Essential Media rather than a genuine dispute as to the existence of the debt owed to Hilton Cordell. As to the latter, at the time of transfers, Mr Hilton was a director and Chief Executive Officer of Essential Media. Essential Media had cash flow difficulties. There was no doubt that the monies were transferred. The transfers were recorded in Essential Media's MYOB records as a loan. This was admissible evidence of the existence of the loans: sections 286, 1305, and the definition of 'books' in section 9 of the Corporations Act. Mr Taylor's emails to Mr Hilton in March 2019 evidenced an understanding by Mr Taylor that the transfers were to be used to meet the operating expenses of Essential Media, that Ms Pickering had "borrowed $150k from the HCA collections account" and that Hilton Cordell would be repaid.

Conclusion

1. On the evidence before the Court on this application, there is no doubt that $190,000 was transferred from Hilton Cordell's collections account to Essential Media's collections account. Further, Mr Cordell was unaware that the transfers were made at the time and, if he had been asked, would not have agreed to the funds being transferred, including because the collections account held royalties on behalf of stakeholders. Whether Ms Pickering and/or Mr Hilton had authority to advance a loan on behalf of Hilton Cordell in the absence of Mr Cordell's knowledge and approval is unclear.
2. It also appears that - at the receiving end of the transfer - Mr Quail, a director of Essential Media, was unaware of the transfers until seven months later. The fact that Mr Quail was unaware of the transfers at the time may not be surprising given the differing roles which he and Mr Hilton performed at the company. Nor was Mr Taylor aware until after the transfers had been made. Mr Taylor says that, if he had been asked by Ms Pickering whether to make the transfers, he would not have agreed. Whether Ms Pickering and/or Mr Hilton had authority to borrow funds on behalf of Essential Media in the absence of Mr Quail's knowledge and approval is unclear.
3. A loan is just like any other contract: there must be offer and acceptance, consideration and an intention to create legal relations. It is difficult to divine these elements, particularly given the apparent absence of knowledge and agreement by either the lender or borrower, and the lack of consideration received by Hilton Cordell.
4. Hilton Cordell's bank records and Essential Media's MYOB records are evidence that the transfers were loans. The application of section 1305 was, however, elucidated by Austin J in Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1; [2009] NSWSC 1229 at [397]-[398]: [397] Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact (Phipson on Evidence, 16th edn (2005), at [7-17]). [398] In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation. See also Whitton v Regis Towers Real Estate Pty Ltd (2007) 161 FCR 20; [2007] FCAFC 125; Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93; In the matter of Shot One Pty Ltd (in liquidation) [2017] VSC 741 at [243]-[244]; In the matter of Pulse Interactive Pty Limited (in liquidation) [2019] NSWSC 22; (2019) 134 ACSR 461.

"DUE AND PAYABLE"

1. It is thus not necessary for me to consider the third issue but in deference to the parties' detailed submissions, I will briefly do so. Essential Media submitted that if the Court finds there was a loan, then it was not "due and payable" when the statutory demand was issued, or there is a genuine dispute as to whether the loan is due and payable: Tuffrock at [12]-[13] and [15]. As to the first matter, Essential Media submitted that where a debt is alleged to have arisen under a loan, it is critical to examine the terms of the loan to determine if the debt is actually due and payable: In the matter of Litigation Insurance Pty Limited [2017] NSWSC 334 at [34]-[39] (Gleeson JA). Since there was no written loan agreement or any evidence of an oral agreement, the Court could not assess the terms of the loan to identify whether the loan was actually "due and payable". Thus, the oft-cited principle that, where a loan is found to exist but terms of repayment are absent, the loan is repayable on demand, cannot be applied here: cf. Ogilvie v Adams [1981] VR 1041 at 1043 (Fullagar J). As to the second matter, Essential Media submitted that the factual circumstances surrounding the purported loan meant it could not be due and payable as Essential Media was in dire need of money at the time and it could not have been intended that the loan be immediately repaid. The situation was said to be analogous with Tuffrock at [17], where the loan was repayable either after reasonable notice had been given or when the company was able to repay it, having regard to its own operating and financial constraints.
2. Hilton Cordell submitted that a simple contract of loan which does not provide for the time of repayment is understood to create an obligation to repay immediately: Haller v Ayre [2005] 2 Qd R 410 at [19]-[22], [26]-[32] citing Ogilvie v Adams. Thus in the present case, the loans were due and payable. The facts and arguments advanced in Tuffrock were said to be different and have no relevance here. In Tuffrock, the issue was not whether there was a loan simpliciter repayable on demand but whether the terms of the loan required repayment upon the recipient of the loan considering it appropriate to do so having regard to the company's financial and operating position. The observation made by Black J at [17] that the loan did not become due for payment until a reasonable time after the statutory demand was served was responsive to a submission made to the effect that it was an implied term of the loan that it was repayable upon reasonable notice being given. What Black J said was not a statement of principle applicable to loans simpliciter. Even if what Black J said was a statement of general principle, it would be inconsistent with Ogilvie and the later decisions noted by Keane JA in Haller at [19]-[22] and [26]-[32], and should not be followed.

Conclusion

1. Drawing on my judgment in In the matter of ReNu Waste Pty Limited [2020] NSWSC 108 at [22]-[32], section 459E(1) of the Corporations Act provides that a person may serve a demand on a company relating to a debt or debts that the company owes which are "due and payable". A debt is 'due and payable' when it is ascertainable, immediately payable and presently recoverable or enforceable by action: Re Elgar Heights Pty Ltd (1985) 9 ACLR 846; [1985] VR 657 at 669 and 671 (per Ormiston J); Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 at [39]-[42] (per White J); NA Investment Holdings Pty Limited v Perpetual Nominees Limited (2010) 79 ACSR 544; [2010] NSWCA 2010 at [63] (per Lindgren AJA); Main Camp Tea Tree Oil Limited v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 per Barrett J at [17].
2. The learned author of Farid Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed, 2012, LexisNexis Butterworths) considers that such an interpretation is consistent with the underlying policy and purpose of Part 5.4 of the Corporations Act as the statutory presumption of insolvency should arise only in clear cases of indebtedness and the debt in question is one about which no other inference can be drawn in the event of non-payment, other than that the company was unable to pay it: at [2.36]. Further, in determining whether a debt is 'due and payable' for the purposes of section 459E, the courts tend to adopt a pragmatic and commercial approach: at [2.38]. See, for example, HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234 per Master Newnes at [30]; Binshell Pty Limited v Broadway Australia Pty Limited [2002] NSWSC 54 per Barrett J at [39]-[40].
3. A company may not dispute the existence of the debt claimed by the creditor, but dispute that the debt is "due and payable". The courts have vacillated as to whether such a dispute should be dealt with under section 459H(1)(a), section 459J(1)(a) or section 459J(1)(b): see Portrait Express at 751 per Bryson J cf NT Resorts Pty Limited v Deputy Commissioner of Taxation (1998) 16 ACLC 957; (1998) 153 ALR 359 at 367 per Finkelstein J; A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 per Barrett J at [19] and In the matter of Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234 per Brereton J at [19]. In In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467, Black J concluded that a statutory demand claiming monies which were not due and payable gave rise to a defect in the demand that would cause substantial injustice for the purposes of section 459J(1)(a), would also be an abuse of the statutory demand procedure for the purposes of section 459J(1)(b), and, in that case, should also be set aside by reason of a genuine dispute as to whether the monies were due and payable: at [27] and [41]. In Tuffrock, Black J noted that a genuine dispute as to whether the debt is due and payable can provide a sufficient basis to set aside a creditor's statutory demand under section 459J(1)(b), and was satisfied in that case that a genuine dispute had been established as to whether the debt was due and payable and set the demand aside under section 459J(1)(b): at [15] and [18].

ORDERS

1. For these reasons, I make the following orders: 1. Pursuant to section 459G of the Corporations Act 2001 (Cth), order that the statutory demand dated 20 March 2020 issued by Hilton Cordell & Associates Pty Limited to Essential Media and Entertainment Pty Ltd be set aside. 2. Order the defendant to pay the plaintiff's costs of these 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. Decision last updated: 31 July 2020