By originating process filed on 11 April 2017, the plaintiff company Acu Rate Pty Limited applies pursuant to (CTH) Corporations Act 2001, s 459G, for an order setting aside a creditor's statutory demand dated 22 March 2017 and served on it on 31 March by the defendant, Health Innovations International Pty Limited. The demand requires payment of a sum of $13,172.58, described in the schedule to the demand as follows:
Loans due and payable by the debtor company to the creditor $13,172.58.
The demand was accompanied by the affidavit of Robert Angyal, also of 22 March 2017, which referred to the debt in precisely the same terms and deposed that the total amount was due and payable, and that the deponent believed that there was no genuine dispute about the existence or the amount of the debt.
As a question arose in respect of the standing of the directors who gave the instructions for institution of the proceedings, the Court on 7 August 2017 made an order pursuant to Corporations Act, s 237, that PFT 2005 Pty Limited, a shareholder which is associated with one of those directors, have leave nunc pro tunc to institute and prosecute the proceedings on behalf and in the name of the company, upon terms that if so required, it indemnify and keep harmless the company in respect of any costs of the proceedings in and adverse costs order.
The plaintiff relies on Corporations Act, s 459H, contending that there is a genuine dispute as to the existence of the debt referred to in the demand and that it has an offsetting claim, and s 459J, contending that there is a defect in the demand which will be causative of substantial injustice if the demand is not set aside.
Defect in the demand causative of substantial injustice?
It is convenient to deal first with the submission that is there a defect in the demand, secondly, with the question of genuine dispute, and then with the offsetting claim.
It will be observed from the terms of the demand and its schedule, as I have set them out above, that it refers to the sum of a number of loans and does not specify the separate debts which comprise the sum demanded. In Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation, [1] Lindgren J said at [54]:
Clearly, a statutory demand relating to two or more debts must give a 'description' of the individual debts and state their amounts as well as state the total of those amounts.
In Condor Asset Management Ltd v Excelsior Eastern Ltd, [2] Barrett J with reference to a schedule to a demand which referred to "short term loans advanced by the trustee of the GDK Financial Solutions Trust who have assigned the debts owing to Excelsior Eastern Limited $15,768" agreed with what Lindgren J said, and added at [21]:
The clear intention is that a separate description and a separate amount be stated for each debt, together with an aggregate amount for all together. The cases in which, as envisaged by the asterisked footnote, 'total amount' will not be applicable as is the case where there is only one sum under the 'amount of the debt' because there is only one debt. It is this analysis that underlies Lindgren J's observation.
As Barrett J also observed, the approach taken by Lindgren J was approved and adopted by Nicholson J in Delta Beta Pty Ltd v Vissers, [3] in holding that where a statutory demand related to several debts, compliance with s 459E(2)(e) entails specification of individual debts and the total amount of all debts. His Honour concluded (at [24]) that noncompliance with those requirements amounted to a "defect" in the statutory demand, so that the question then became whether the defect was of a such a quality that substantial injustice would be caused until the demand was set aside. His Honour observed that a defect would not be productive of substantial injustice if the demand, viewed in the light of what the company already knows or could reasonably be expected to know, contains sufficient information to assess its liability for the amounts demanded, citing the judgment of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd. [4]
In Re YCH Logistics (Australia) Pty Ltd, [5] I observed that a creditor's statutory demand must contain a sufficiently clear and accurate description of the debt claimed to identify to a reasonable person in the shoes of a director of the debtor company the general nature of the debt, to a sufficient degree that the director can assess whether there is a genuine dispute as to its existence or amount, or any offsetting claim. The demand must enable the company served to identify with precision the debt, or each and every one of the multiple debts upon which it is based and where multiple debts are claimed each must be itemised, together with the total sum claimed. Failure to describe a debt with sufficient clarity is a defect in the demand, although such a defect will warrant setting aside the demand only if the Court is satisfied that it will be productive of a substantial injustice unless the demand is set aside. [6]
Plainly the subject demand fails to comply with those requirements, because it does not specify the six separate debts which comprised the subject of the demand. The only question, then, is whether that will be productive of substantial injustice if the demand is not set aside.
The defendant says that the plaintiff ought to have been able to identify the components of the demand because the various advances are annotated as loans from the defendant in the company's bank statements and identifiable as such in its general ledger. In fact, I think the general ledger compounds the difficulty rather than assisting the defendant's position. The general ledger records the existence of three loan accounts, one in the name of Abby Bloom, one in the name of Robert Angyal, and one in the name of EIM-Zoran (EIM is an entity associated with the director Zoran Milijasevic). The Abby Bloom loan account shows an opening balance of $16,050 as at 1 July 2010, then 24 entries some of them shown as "CR" (which presumably means credit) and others "GJ" (which presumably means general journal, but one cannot be certain) totalling $66,634.03, bringing the total account to $82,684.03 as at 15 February 2017. Amongst those 24 entries can be identified the six which are the subject of the demand, and they are in various ways annotated as "Loan from HII" or "HII loan" or to similar effect. Similar annotations appear in the company's bank statements which record receipts of those moneys. However, they have all been credited not to a loan account in the name of the company, but to a loan account in the name of Abby Bloom. It seems to me that the recipient of this demand would have had no clue as to how the sum was made up, because it does not identify the six payments or six advances relied on. Even if a distinction were drawn between loans by the defendant and loans by Abby Bloom, it would not be evident from a demand for the total amount that that reflected the total of those from the defendant, selected from a total of 24 in the same loan account ledger. Nor did it provide any sufficient information to allow the plaintiff to scrutinise the bank accounts and work out to which advances the demand referred, so as even to be able to identify them as advances by the defendant, if that is what they were.
That this was so was confirmed by the plaintiff's s 459G affidavit, in which the plaintiff's director Mr Milijasevic deposes that he understood the claim to relate to funds expended by Dr Bloom in connection with a trip to Israel - which it transpired was not the subject matter of the demand at all. That was, however, the plaintiff's understanding, and that it went to some effort to deal with the matter on the basis of that understanding shows that the defect was one that was productive of substantial injustice.
Accordingly, the plaintiff is entitled to succeed on that ground.
[3]
Genuine dispute?
Nonetheless, I shall deal with the second ground, namely whether there is a genuine dispute as to the existence of the debt.
I have already explained that the moneys the subject of the demand, though apparently sourced from the defendant, were treated in the general ledger as part of Dr Bloom's personal loan account, and not as a separate loan from her company. This was carried forward into the financial statements of the company, which record (as long term liabilities) directors or shareholders' loans, which inferentially include this amount contained as it is in Dr Bloom's loan account. There is no separate reference in the accounts or the notes to them to any loan from the defendant.
Where a director or a shareholder procures an entity associated with her or him to advance funds to a company in which he is interested in this kind of context, it is not unknown for a question to arise as to the identity of the lender. Such a question arose in Hashman v Australian Medico Legal Group Pty Ltd. [7] In that case, I concluded (at [17]) in circumstances where there was a dispute as to whether the moneys were advanced to the company by the shareholder personally or by a company associated with him, that the most important objective evidence bearing on the question of who was, as against the company, the lender, was provided by the company's financial statements and ledger, which were probative that so far as the company was concerned, the sole lender was the shareholder personally, regardless of where he may have sourced the funds. In the Court of Appeal, [8] both Leeming JA and White JA, in separate judgments, with both of whom Basten JA agreed, would have given less weight than I did to the company's financial statements; but White JA relied on the dealings and conversations between the shareholder and the company, while Leeming JA recognised that ultimately it made no difference to the outcome which was correct. Regardless of whether the company's financial statements and records are the most important evidence or simply some evidence on the question, it is undeniable that they found a reasonable argument that the lender in this case was Dr Bloom and not the defendant, notwithstanding that the funds might have been sourced from the defendant. It will ultimately be a matter for trial as to the weight to be given to the company's financial statements and ledger in that respect, but what cannot be denied is that they found a reasonable argument.
In those circumstances it is plain that there is a genuine dispute as to the existence of the debt, because there is a genuine dispute as to the identity of the lender to the company of the funds in question. The plaintiff is therefore entitled to succeed also on that ground.
In those circumstances, it is unnecessary to consider any further the plaintiff's contention that it also has an offsetting claim.
[4]
Conclusion
Being satisfied that there is a defect in the demand which is productive of substantial injustice and that there is a genuine dispute as to the existence of the debt, the subject of the demand, the Court orders that:
1. The creditor's statutory demand dated 22 March 2017 and served by the defendant on the plaintiff on 31 March 2017 be set aside.
2. The defendant pay the plaintiff's costs.
No costs would have been incurred in respect of the director issue, if I can characterise it as such, had the defendant consented to the setting aside of the demand shortly after the proceedings were instituted. In circumstances where it must have been evident that if there were a dispute about directorship then it was necessary for someone to bring the proceeding on behalf of the company, investment of time and effort in arguing that question was a waste of time as much by the defendant raising it as by the plaintiff not removing it earlier.
I do not propose to make any special costs order in respect of that part of the litigation.
[5]
Endnotes
(1995) 55 FCR 562.
[2005] NSWSC 1139.
(1996) 20 ACSR 583.
(1993) 47 FCR 226.
[2013] NSWSC 1874 at [10].
See also the judgment of Black J in In the matter of Halal Meats Pty Ltd [2015] NSWSC 2041 at [12] and [13].
[2016] NSWSC 1773.
Australian Medico-Legal Group Pty Ltd v Claireleigh Mosman Pty Ltd [2017] NSWCA 218.
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Decision last updated: 14 March 2018