- Anning v Anning

Application to set aside the KFT Demand

The KFT Demand described the amount of the debt as: "Cash or electronic funds transfer payments by [KFT] to [JFEP] or third parties by way of loans by [KFT] to [JFEP], made on or about the dates below and in the sums set out below." A table in turn referred to a loan account as at 6 August 2013 of $5,950; a loan of $25,388 by payment of purchase of a motor vehicle on 19 December 2013; loans of $5,000 on 2 and 13 January 2014; a loan of $11,000 on 30 January 2014 in payment for the purchase of a motor vehicle; loans of $15,000 on 28 February 2014 and 16 June 2014, less repayments to date of $30,000, for a total of $52,338. That Demand was verified by Basil's affidavit dated 18 August 2017 in similar terms to his affidavit verifying the LMS Demand.
Bradley led evidence as to these matters in his affidavit dated 11 September 2017 filed in the KFT proceedings. He indicated that he did not know what the amount of $5,950 recorded as the loan account at 6 August 2013 related to and denied that amount was owed; he refers to a loan to buy a vehicle, but claims to have repaid it by bank cheque which was not led in evidence; and he refers to several other amounts claimed as "loans" and indicates that, on occasion, they appear in JFEP's bank statements but he does not recall asking Basil for money and did not believe that he needed to obtain funds from Basil at the time. Both Basil and Ms Lau were cross-examined as to the first transaction in relation to the purchase of a motor vehicle, and there was inconsistent evidence as to whether the payment was made by Basil personally, or by KFT, or possibly by a third entity, Link No 2 Pty Ltd ("Link No 2") to which I will refer below. Bradley also referred, in paragraph 28 of that affidavit, to a repayment of $68,000 made on 6 August 2013, but it is apparent that that repayment related to an earlier advance which is not the subject of the KFT Demand; and to three repayments of $10,000 each made on 6 March 2014, 17 February 2017 and 20 May 2017, which KFT accepts were made.
An issue also arises as to whether Link No 2, not KFT, had advanced all or a substantial part of the monies relied in the KFT Demand to JFEP. Basil's evidence was that, prior to 2016, he controlled another company, Link No 2, which was the trustee of a family trust and which has since been deregistered, and that funds from Link No 2's bank account were paid to JFEP as loans and the loans under Link No 2 were "transferred" to KFT on 30 June 2015. It appears that matters relating to Link No 2 were managed by Basil's wife or an external accountant, who did not give evidence in the application. In cross-examination, Basil accepted that there was no formal document for any assignment between Link No 2 and KFT and he did not send a written document to either KFT or JFEP in respect of any assignment of a loan from Link No 2 to JFEP. His evidence in cross-examination as to whether there was any consideration for the transfer of the alleged loans from Link No 2 to KFT was unclear (T42), and there is no other evidence of the payment of any consideration by KFT for the assignment. Basil also accepted in cross-examination that there was no notice of a transfer of debt or assignment of a debt from Link No 2 to KFT to JFEP and the accountants "would have transferred the amount" or taken some other step when instructed to close down Link No 2's account (T45).
Ms Lau's evidence was also that the loans from Link No 2 were transferred to KFT by journal entries (Lau 2.11.17 [15]) and the accounting records of Link No 2 indicate that at least the claims made in the KFT Demand of $823.28 referable to traffic fines and the claims of $11,000 and $25,388 relating to purchase of motor vehicles originally related to transactions between Link No 2 and JFEP, and record a "[t]ransfer JF[EP] accounts to KFT per B[asil] K[levansky]" in the amount of $36,388 (Lau 2.11.17, Annexure F). Ms Lau's evidence in cross-examination was also that she was not involved in transferring monies into JFEP in respect of Link No 2 or KFT and she had not ever seen a loan agreement between JFEP and KFT (T53). She did not manage KFT or Link No 2 and she did not know whether there were any such minutes or resolutions passed by KFT in respect of any loan to JFEP (T53). Ms Lau's evidence in cross-examination was also that the majority of the transactions involving KFT (or more precisely Link No 2) occurred before Ms Lau took up employment with Basil and she could provide no further information about them (T59-60). She had no knowledge as to whether there had been any formal assignment of a debt from Link No 2 to KFT (T61). She accepted in cross-examination, by reference to the financial records of Link No 2, that relevant debts were extinguished in Link No 2, because that company was to be deregistered, and were "journaled across" to KFT, and she believed that that occurred only by journal entry, and did not expect that KFT had paid any consideration for the transfer of the amount of $51,388 from Link No 2 to it (T63). Her understanding was also that the transaction was implemented by a book entry in the books of KFT (T63-64).
The grounds identified in the Originating Process, on which the JFEP seeks to set aside the KFT Demand under s 459H of the Corporations Act, are relevantly that JFEP does not owe a debt to KFT; the monies advanced by LMS to KFT were advanced for the purpose of providing capital to JFEP and represent an investment in JFEP by KFT; the monies advanced to JFEP by KFT were advanced as a gift to it by KFT; or the debt claimed by KFT is not a debt on which KFT may sue to recover. I understand the last ground, like the similar ground in respect of LMS, to raise questions whether the relevant arrangements involved an intention to enter legal relations or otherwise had contractual effect and whether any debt was presently due and payable. It is common ground between the parties that the application to set aside the KFT Demand was served within the twenty-one day period within which it was required to be served under s 459G of the Corporations Act.
Mr Eardley pointed, in opening, to the absence of evidence of an assignment of the relevant liabilities in favour of KFT and submitted that a journal transaction was not a sufficient basis for the transfer of assets and liabilities from one company to another (T16). Mr Eardley also submitted that the amounts transferred from Link No 2 to KFT were receivables of $36,388 and $15,000 broadly corresponding to the amount of the KFT Demand of $52,338. Mr Eardley submitted that if (which JFEP denies) Link No 2 had made a loan to it, KFT had neither made that loan nor taken an assignment of the relevant debt, and could not maintain a claim for debt based on no more than a journal entry (T17). In closing oral submissions, Mr Eardley submitted that there was clearly no written loan agreement between KFT and JFEP; there was no valid assignment of a debt owed by JFEP to Link No 2 to KFT in law or in equity; and there was no loan agreement between JFEP and Link No 2, and therefore nothing that was capable of being assigned (T68).
In opening, Mr Stapleton submitted that Link No 2 had made some initial advances, then became deregistered, and the receivables were "transferred" to KFT, without identifying how that transfer had been effected (T18-19). He also submitted that the evidence establishes that the advances were made and there exists a pattern of repayment of loans consistent with JFEP's knowledge that the advances were loans to be repaid and that the amounts are due to be repaid. He submits that there is no evidentiary basis for a contention that the monies advanced were capital invested in JFEP, where KFT had previously been issued shares in JFEP and he again relies on Basil's evidence that the money advanced was in the nature of loans, not a gift, and the evidence of Ms Lau, to similar effect. He submits that KFT can sue to recover the debt, implicitly because it is the subject of a binding legal arrangement, and is presently due and payable.
There is no evidence of an assignment in writing signed by Link No 2, to bring about an assignment of the debts in law to KFT under s 12 of the Conveyancing Act 1919 (NSW). KFT relied on a letter dated 8 June 2017 from the solicitors for LMS and KFT to JFEP as a notice of assignment of the debt owed to Link No 2 to KFT, although that would not assist it where there is no evidence of such an assignment. That letter indicated that the solicitors were instructed that: "KFT and LMS have made advances by way of loans to [JFEP] which: (a) as to the loans from KFT have been repaid in part, leaving a balance of $62,338.00; and (b) in respect of loans from LMS, have not been repaid, and the outstanding balance is $80,698.28." That letter also noted that interest had not been charged on the outstanding amount of the loans and demanded immediate repayment of the total amount of $143,036.28. That letter did not refer to Link No 2 or to any loan made by it, or to any assignment, and it does not seem to me to constitute notice of such an assignment. Rather, that letter, and the KFT Demand that followed, proceeded on the basis that KFT had made advances that had in fact been made by Link No 2.
There is authority that, if it were established that KFT were the assignee in equity of the debts owed to Link No 2, then it would be a creditor in equity and entitled to issue the creditor's statutory demand, although real issues may then have arisen as to the adequacy of the description of the debt in the KFT Demand: compare Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223 at [35]-[38]. In Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd [2003] NSWSC 1265, Palmer J referred to authority that, for the purposes of a winding up application, the concept of "creditor" includes both a creditor at law and a creditor in equity, and held that the term "creditor" must have the same meaning in s 459E for the purposes of a creditor's statutory demand, at least where the equitable creditor is the assignee in equity of the whole, rather than a part, of the company's debt. His Honour observed that, where there is an equitable assignment of a debt, either the creditor at law or the creditor in equity may make a statutory demand on the debtor and may apply to have the debtor wound up in default of compliance.
In Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd [2008] NSWSC 3 at [42], Austin J took the same view, observing that, where an assignment is for valuable consideration, the assignee becomes an equitable assignee of the debt and that: "An equitable assignee of a debt is a creditor within the meaning of s 459P(1)(b), entitled to apply for a winding up order (Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966 at [18] per White J, citing Re Steel Wing Co Ltd [1921] 1 Ch 349; Re Allebart Investments Pty Ltd (1969) 92 WN (NSW) 726; and Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd [2003] NSWSC 1265 at [14])." That approach was also recently followed by Robb J in Re Beechworth Land Estates Pty Ltd (Admin Apptd) and Griffith Estates Pty Ltd (Admin Apptd) (No 3) [2015] NSWSC 733; (2015) 298 FLR 233; (2015) 106 ACSR 495.
There is, however, no evidence that KFT gave any consideration for the assignment of the debt by Link No 2 to it to allow that assignment to take effect in equity on that basis. There is also a serious question to be tried as to whether Link No 2 had done all, or any part of, what was necessary to be done on its part to bring about an effective assignment of the debt, being a legal chose in action, as set out in the authorities (to which Counsel did not refer) that deal with the equitable assignment of a legal interest: for example, Anning v Anning [1907] HCA 13; (1907) 4 CLR 1049, Corin v Patton [1990] HCA 12; (1990) 169 CLR 540; Ku v Song [2007] FCA 1189; (2007) 63 ACSR 661 at [117]-[118]. A genuine dispute is therefore established as to whether that assignment has become effective in equity, to allow KFT standing to issue the KFT Demand in respect of all or a substantial part of the claimed debt. It would be no answer to that difficulty for KFT to contend (although I do not understand it to have done so) that only the substantial part, and not all, of that debt was affected by that issue, since the overstatement of any debt owed to KFT (as distinct from Link No 2) in the KFT Demand would itself support an order setting aside that demand under s 459J of the Corporations Act: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 at 750; First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256.
For these reasons, and because a genuine issue as to whether any debt owed to KFT was due and payable would arise for the same reasons as in respect of the LMS Demand, the KFT Demand must also be set aside under s 459J of the Corporations Act.

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