Bennell v Netlink Australia

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2773/02 RAYMOND BENNELL V NETLINK AUSTRALIA PTY LTD JUDGMENT 1 HIS HONOUR: This is a tangled proceeding between two litigants who are not legally represented. For a time the defendant obtained legal representation and there were some negotiations towards resolution of the matter, but the negotiations failed and the legal representative of the defendant withdrew, and so at the final hearing both parties were not legally represented. The defendant is a company and, by leave, it was represented by its sole director, Mr Mirko Petrick. I have not required him to file the affidavit contemplated by Part 11 rule 1A, but he informed me at the beginning of the hearing that he understood that he was at risk that an order for costs might be made personally against him. The proceedings 2 There are three matters before the Court. The first is the plaintiff's application for final relief pursuant to Order 1 of his originating process filed on 20 May 2002. The application is for the winding up of the defendant on the ground of insolvency, alleging failure to comply with the statutory demand which, according to the originating process, was served on the defendant on 26 April 2002. 3 The second matter is an interlocutory application by the defendant, filed on 18 June 2002, for various orders, including in particular an order that a statutory demand served on it by the plaintiff be set aside. I have taken the view that this interlocutory application and the application for winding up the defendant should be considered together, as the evidence in each is relevant to the other. For the reasons that I shall set out, I have decided that the defendant should be wound up, and that the interlocutory process to set aside the statutory demand should be dismissed. 4 The third matter is an interlocutory process filed by the defendant on 11 June 2002 seeking a wide variety of orders, including orders under s 1324 of the Corporations Act designed to restrain the plaintiff from approaching or communicating with anyone in association with the defendant company. The interlocutory process seeks many other orders, some of which seek forms of relief that are clearly inappropriate to be sought by way of interlocutory application in winding up proceedings. I informed the parties that I would deal with this interlocutory application after dealing with the plaintiff's application to wind up the defendant, on the basis that if the application for winding up failed, the defendant would be given the opportunity to read evidence in support of the interlocutory application. 5 However, having decided, for the reasons that I shall give in this judgment, that the defendant should be wound up, my view is that the interlocutory process should be dismissed. To the extent that it seeks to restrain the plaintiff from communicating with persons in association with the defendant, and to obtain similar injunctions, the application is effectively superseded by the winding up order, and once that order is made there will be no arguable basis for relief of that kind. To the extent that it seeks other kinds of relief, such as that "the plaintiff be found guilty of fraud", or of defamation, or of breaching Court orders, or various other matters, the application should be brought, if at all, as a separate proceeding by verified statement of claim. I shall therefore dismiss this interlocutory process. 6 In addition to the present winding up proceeding, there is another proceeding between the parties and Mr Petrick, No 2610 of 2001. In that proceeding the plaintiff seeks against Mr Petrick and others various interlocutory and final orders with respect to the management of the affairs of the present defendant and other companies. The plaintiff made an interlocutory application in that proceeding for orders based upon an allegation that Mr Petrick was in contempt of previous orders of the Court. 7 A proceeding was taken in the Supreme Court of Western Australia for winding up of a subsidiary of the defendant called Netlink Hospitality Australia Pty Ltd. Peter Marsden was appointed official liquidator of Netlink Hospitality by order of the Supreme Court of Western Australia on 18 April 2002. 8 A proceeding was taken in this Court by the Australian Securities and Investments Commission against Mr Petrick, the present defendant and Netlink Hospitality, No 3477 of 1999. On 9 August 1999, various interlocutory orders were made, including orders restraining the defendants from offering securities in Netlink Australia or Netlink Hospitality, or accepting subscription moneys from investors. On 5 October 1999 the Court made final orders including declarations that Mr Petrick, Netlink Australia and Netlink Hospitality had contravened the fundraising provisions of the Corporations Law, and permanent injunctions including orders to restrain them from offering securities of the two companies for subscription and from accepting money in relation to any such a offer. Evidentiary difficulties 9 The hearing of the matter was made very difficult by the absence of legal representation. Progress was tediously slow, especially during the defendant's evidence and submissions, because of inadequate preparation of the case, as well as (but to a lesser extent) limited legal knowledge. A full transcript was taken, but it does not show the amount of time that was taken up between each of the points made by Mr Petrick, while he organised his papers and read his notes and collected his thoughts. Mr Petrick displayed in Court very considerable difficulty with the management of documents. This is relevant because one of the factual issues in contention is whether certain documents were served on him. He has given evidence that they were not, but that evidence is rendered unreliable by the observed fact that he had difficulty locating and identifying documents even in Court. 10 The evidence before me comprises affidavits, principally by the plaintiff and Mr Petrick, and some documentary exhibits. There was no oral evidence and no cross-examination, and yet on some issues it is necessary for me to decide whether to believe the plaintiff or Mr Petrick. The absence of oral evidence is, to a degree, repaired by the fact that the plaintiff and Mr Petrick conducted their own cases and addressed me at length. Although their submissions were not, of course, evidence on oath, I was able to observe them and make an assessment of their credibility. Given that they were not legally represented, and their lack of skill in organising and presenting material, I very much doubt that cross-examination of each by the other would have assisted me. 11 While I dealt with such objections as were raised by each side to the affidavit evidence of the other side, it was obvious from a reading of the affidavits that they were open to objections of other kinds, principally on the grounds of form and irrelevancy, and the ground that many of the assertions were submissions rather than evidence of facts. I decided that, given the other demands on the Court's time in a hearing within the duty list, I should not exclude such materials from the evidence when there was no objection specifically raised. To work through all the many affidavits that were read and to exclude parts of them on such grounds would have been, in my view, an unproductive as well as a very time consuming exercise. The statutory demand 12 The plaintiff's claim for an order for winding up is based upon a statutory demand under s 459E of the Corporations Act, dated 24 April 2002, for a debt of $12,558.38. The statutory demand was made by the plaintiff and was directed to the defendant. The amount claimed was in fact less than the amount of the judgment debt, interest and costs, the correct amount of which was shown in the schedule to the statutory demand. It has not been contended that the statutory demand was invalid or ineffective by virtue of this discrepancy. The defendant has at no stage paid the amount the subject of the statutory demand to the plaintiff or anyone else. 13 The debt claimed in the statutory demand was identified in the schedule as comprising a principal sum of $10,000, said to be investment money due as a result of a default judgment in the Sutherland Local Court on or about 27 April 2001, together with interest and costs in particularised sums totalling $12,567.95. The claim to this debt arose in the following circumstances. 14 The defendant company raised money from various investors, some of whom have claimed that there have been breaches of the corporations legislation and that they are entitled to recovery of their investments. Those claims are complicated by the fact that a related entity of the defendant, Netlink Hospitality, also raised investment funds in circumstances where it was not always clear (on the evidence before me now) whether the investors dealt with one company or the other; and it appears also that some of the funds may have been raised or intended to be raised through subscriptions for units in a trust. 15 A person called Juliette Vlaski took a proceeding against the company in the Local Court at Sutherland to recover investment monies of $10,000 plus interest. There is in evidence a record that a bank cheque was obtained by Ms Vlaski for $10,000. Although the bank cheque was made payable to Netlink Hospitality, a receipt was issued, on 8 March 2000, by the defendant in her favour for $10,000 for "shares in Netlink Australia Pty Ltd". The plaintiff says that those shares were never issued, and Mr Petrick has not claimed that any shares were issued. The plaintiff also says that this transaction occurred contrary to the injunction issued by this Court in the ASIC proceeding. It is unnecessary for me to decide whether that is so. On about 27 April 2001 Ms Vlaski entered judgment against the defendant for the principal sum, interest and costs, in the total sum of $12,567.95. 16 On 22 April 2002 Ms Vlaski entered into an agreement with Netlink Marketing Inc of Alberta Canada under which Ms Vlaski assigned the judgment debt to the plaintiff as nominee of Netlink Marketing Inc in return for a share of a limited partnership called Netlink Global, of which Netlink Marketing Inc was the general partner, together with 20,000 free shares in a future company planned to be registered in Alberta Canada in the name Netlink Holdings Limited for listing on the Canadian Venture Exchange, and also a free franchise as referred to in the limited partnership agreement. Pursuant to that agreement, Ms Vlaski and the plaintiff entered into an instrument of assignment of debt on the same day, by which Ms Vlaski purported to assign to the plaintiff the amount owing on the judgment debt together with interest. 17 On 9 May 2002, approximately one year after it had been entered, the defendant as judgment debtor filed a motion in the Local Court at Sutherland seeking to set aside the default judgment in favour of Ms Vlaski. The application was supported by an affidavit by Mr Petrick, which contended that after he received the claim, he contacted the judgment creditor's solicitors and "following the making of certain arrangements they advised me that the matter was now settled". He also asserted that the judgment debtor was never indebted as alleged or at all, and that units in the Jeff Talbot Trust, which were the subject of the judgment creditor's claim, were not owned by or otherwise subject to the control of the judgment debtor. The judgment debt was set aside, pursuant to this application, on 5 June 2002. 18 On 14 August 2002 the Sutherland Local Court made an order striking out the defendant's defence to Ms Vlaski's claim for debt and entering judgment for the plaintiff in the total amount (including interest and costs) of $12,076.90. This occurred after the plaintiff gave affidavit evidence before the Local Court, annexing documents which appeared to show that Ms Vlaski paid $10,000 to the defendant for shares in the defendant and, although documents were prepared for her to subscribe for units in the Jeff Talbot Trust, those documents were not signed. In deciding to strike out the defence, the Magistrate referred to the defence as "vexatious". On 22 August 2002 the plaintiff in the Local Court proceedings made an application for the issue of a writ of execution to enforce that judgment. It appears that the writ of execution has not yet been returned. 19 For reasons I shall explain, it is not necessary for me to decide whether there is or has at any time been a genuine dispute with respect to whether the defendant owes the amount claimed in the Local Court proceedings. If it were necessary for me to do so, however, I would be persuaded by the confused and unsatisfactory nature of the affidavit by Mr Petrick in the Local Court in support of the defendant's application to set aside the default judgment, and by the decision of the Magistrate to strike out the defendant's defence, that there was no genuine dispute as to the existence of that part of the amount claimed in the statutory demand which corresponds with the Local Court judgment entered on 14 August 2002, namely $12,076.90. I shall deal with the validity of the assignment of the judgment debt later. Service of the statutory demand and other documents 20 The evidence includes a company search made on 20 May 2002 which shows that the registered office of the defendant at that time was at Adelaide Accounting, ground floor, 481 Port Road Croydon South Australia 5008. I infer that the same address was the registered office of the defendant throughout April 2002. A later company search, made on 22 August 2002, is also evidence. It shows that, commencing 5 July 2002, the registered office of the defendant is Tax Express Pty Ltd, Unit 15, 419 Church Street, Parramatta NSW 2150, and states that the principal place of business of the defendant is 481 Port Road, Croydon SA 5008, commencing 23 May 2001. 21 By her affidavit made on 22 August 2002, Kylie Jamieson of Adelaide Accounting gave evidence that on 3 April 2002 the firm advised the Australian Securities and Investments Commission in writing that they had withdrawn their consent for their premises to be used as the registered office of the defendant. There is an imprint on the copy letter annexed to her affidavit suggesting that it may have been first transmitted by facsimile on 29 April. Be that as it may, it appears, as I have said, that the Commission's records were still showing the Adelaide Accounting address as the address of the defendant's registered office on 20 May 2002. Ms Jamieson gave evidence that after she received the plaintiff's telephone call on 26 April 2002, in which the plaintiff told her that the Commission's register was still showing her firm's office as the registered address, she took the matter up with a Mr Bowker of Independent Corporate Services in Perth, who delivered a copy of the letter of 3 April to the Commission and confirmed that the Commission's database had been correctly adjusted on 1 May 2002. That evidence does not accord with the company search to which I have referred. I prefer the documentary evidence of the company search to Ms Jamieson's evidence on this point. 22 On 18 April 2002 the plaintiff posted a copy of the interlocutory application for contempt in proceeding No 2610 of 2001 to the present defendant, which is also a defendant in the 2001 proceeding, by express post addressed to the defendant, for the attention of Mr Petrick, at the South Australian address. The letter was returned to him, unopened, on 26 April 2002, marked "not at this address returned to sender". For present purposes it is relevant to note that, according to the evidence of the plaintiff which I accept on this point, the envelope was not returned until after the plaintiff posted the statutory demand on 24 April. 23 On 18 April 2002 the plaintiff also visited a property at 7 Chamberlain Road, Bexley, New South Wales, which he understood to be the home address of Mr Petrick. He found the property closed up and apparently not in use, with local newspapers accumulating at the front door and uncut lawn. He inquired of the next-door neighbours and was informed that the property had been sold to a kindergarten, whose premises were nearby. The plaintiff visited the kindergarten and returned to the premises with the kindergarten's representative, who told him that Mr Petrick did not live at 7 Chamberlain Road any more and that the kindergarten had purchased the property. He was informed that the kindergarten did not have any forwarding address for Mr Petrick. 24 The plaintiff made contact with Mr Petrick on his mobile telephone on the same day. According to Mr Petrick's evidence, he told the plaintiff that "the documents must be sent to PO Box 25, Bexley NSW 2207", and when the plaintiff responded to the effect that he could not serve documents to that address, Mr Petrick says he told the plaintiff "if you want me to receive the documents then this is the address at which I will receive the documents". It seems to me probable that these words were said, although the identity of the "documents" to which Mr Petrick referred is not clear from his evidence. The plaintiff says that Mr Petrick refused to have any substantial discussion with him and hung up the phone. That is probably also true. At that stage the plaintiff's position was that he had a post office box address for Mr Petrick in Bexley, and the mobile telephone number, and the address of the registered office of the defendant company in South Australia, but no residential address for Mr Petrick. 25 On 24 April 2002 the plaintiff mailed the statutory demand to the defendant, for the attention of Mr Petrick, care of the South Australian address. The envelope contained only the statutory demand. There was no affidavit or covering letter. The envelope was subsequently returned to the plaintiff, at a date not disclosed by the evidence, marked "returned to sender not known at this address". 26 On 26 April 2002 the plaintiff telephoned Adelaide Accounting and spoke to Kylie Jamieson. She told him that the office was still the registered office of the defendant and that she had received instructions from the client on that day to withdraw the consent of Adelaide Accounting to having the defendant's registered office at their address. Ms Jamieson confirmed that she had received another express post envelope, forwarded on 24 April 2002 (evidently the envelope containing the statutory demand) and that she was going to return it to the plaintiff forthwith, and also advise the Commission that the address of Adelaide Accounting was no longer the registered office of the defendant. The plaintiff wrote to Adelaide Accounting on 26 April 2002 confirming these matters and asking for written confirmation that Adelaide Accounting had ceased to be the registered office of the defendant. 27 Mr Petrick gave evidence that he was not informed by anyone at Adelaide Accounting that the statutory demand had been received and returned to the plaintiff. That statement is consistent with the other evidence in the case and I accept it. 28 Mr Leslie Jamieson of Adelaide Accounting Services Pty Limited wrote to the plaintiff by facsimile dated 29 April 2002. The plaintiff replied on 29 April 2002, pointing out that an ASIC Extract dated 23 April 2002 confirmed that the registered office of the defendant company was care of Adelaide Accounting. 29 On 30 April 2002 the plaintiff served a copy of the interlocutory application relating to contempt in the 2001 proceeding on Mr Petrick personally at the Supreme Court Registry in Sydney. At that time the plaintiff was aware that a copy of the interlocutory application posted to the defendant's registered office had been returned unopened. He was not aware that the envelope containing the statutory demand had also been returned, although he had been informed by Ms Jamieson that she intended to return that envelope as well. He asked Mr Petrick whether he had a copy of the statutory demand, and Mr Petrick said "I don't know anything about that". The plaintiff then handed Mr Petrick a signed copy of the statutory demand and informed him that the document had been served by registered post on the registered office of the company on 24 April 2002. 30 Mr Petrick initially denied that he was in the Supreme Court building on 30 April 2002, but the plaintiff put into evidence a form of Application for Access to a Court File signed by Mr Petrick and bearing that date. Subsequently Mr Petrick admitted that he was in the Court on that day but he denies that he was served with a copy of the statutory demand at that time. Given his change of evidence and his evident difficulty during the hearing in managing and locating documents, I prefer the plaintiff's evidence to his evidence on this point. Mr Petrick admitted in his affidavit made on 17 June 2002 that he was served with a bundle of papers on a date that he stated to be 1 May 2002, but he asserted that the bundle did not include the statutory demand. My finding is that the date of service was 30 April rather than 1 May, and that he was served with documents including the statutory demand. 31 The plaintiff and Mr Petrick appeared before the Registrar on 3 May 2002. The plaintiff says that he filed in Court an affidavit of service made on 2 May 2002, deposing to personal service of the statutory demand on Mr Petrick on 30 April 2002, and gave a copy of that affidavit to Mr Petrick. Mr Petrick denies having received it. I prefer the evidence of the plaintiff to Mr Petrick's evidence on this point. The Court's file in proceeding No 2610 of 2001 shows that the plaintiff and Mr Petrick appeared before the Registrar on 3 May 2002, and that an affidavit by the plaintiff sworn on 2 May 2002, deposing to service on Mr Petrick on 30 April 2002, was filed in Court on that day. In my opinion it is likely that the Registrar would have asked Mr Petrick whether he had a copy of the affidavit and whether he objected to it being filed, as the plaintiff says in his affidavit made on 20 August 2002, and that when the affidavit of 3 May 2002 was filed before the Registrar Mr Petrick would have received a copy. 32 On 9 May 2002 the plaintiff wrote to Mr Patrick Foran, an officer of the Australian Securities and Investments Commission, complaining that the registered offices and principal places of business of the defendant and certain other companies, as shown on the Commission's database, were incorrect, and that the address of Mr Petrick who was the sole director of those companies was also false. He contended that Adelaide Accounting had withdrawn its consent to its office being the registered office on 5 May 2002. The Commission replied to the plaintiff on 5 June 2002, saying that it had written to the director of the company seeking compliance with the Corporations Act, but that it was unable to provide the director's address to the plaintiff. 33 The plaintiff posted a copy of the originating process and his affidavit made on the same day, which annexed a copy of the statutory demand, to the defendant on 20 May 2002, at the South Australian address. On 28 June 2002 Mr Petrick wrote to the plaintiff informing him that the defendant had a new registered address at the Parramatta address noted above. 34 Mr Petrick contends that he first became aware of the statutory demand on 3 June 2002. His application to set the demand aside was filed on 18 June 2002. That would have been within the 21 day time period prescribed by s 459G, if the statutory demand had been served on 3 June 2002, but not if it was served in April or early May. Was the statutory demand validly served? 35 The defendant contended that the statutory demand was not validly served, because the envelope containing it was returned, in circumstances where the plaintiff ought to have known at all relevant times that an envelope addressed to the South Australian address would not be received by the defendant. I was taken to various decisions including Re Future Life Enterprises Pty Ltd (1994) 12 ACLC 274, F P Leonard Advertising Pty Ltd v K D Travel Service Pty Ltd (1993) 11 ACLC 1203 and Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467. Mr Petrick also referred to CGU Workers' Compensation (Vic) Ltd v Carousel Bar Pty Ltd (1999) 17 ACLC 1213, Cox v Rappslash Pty Ltd (1991) 9 ACLC 1289 and Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87. The plaintiff added references to Quicksafe Freightlines Pty Ltd v Shell Co of Australia Ltd (1985) 3 ACLC 237 and Unique Product Marketing Pty Ltd v Bortek Sales Pty Ltd [2000] QDC 314 (1 November 2000). 36 In my opinion it is unnecessary to examine these authorities closely here. I considered the principles arising out of them in my judgment in the Paliflex case. In the present case the critical question is to determine when the statutory demand was served for the purpose of measuring the 21 day period set by s 459G (2) for an application to set the demand aside. Since the application in this case was filed on 18 June 2002, it is out of time unless the statutory demand was served after 27 May 2002. If the application is outside the 21 day time period, it cannot be entertained: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 37 The statutory demand was posted on 24 April 2002. I have found that it was posted to the address that was the registered office of the defendant at that time. The plaintiff became aware that the document was unlikely to be brought to the attention of Mr Petrick, the sole director, when he spoke to Kylie Jamieson on 26 April 2002. However, he then provided a signed copy of the statutory demand to Mr Petrick personally on 30 April 2002, and on 3 May 2002 he provided Mr Petrick with an affidavit which deposed to the personal service of the statutory demand on 30 April 2002 and enclosed another copy. At the very latest, therefore, Mr Petrick was apprised of the contents of the statutory demand on 3 May 2002. By that time, in my opinion, the statutory demand had been "served" on the defendant for the purposes of s 459G (2). Therefore the application to set the statutory demand aside is well out of time and should be dismissed for that reason. Allegations of abuse of process 38 In the David Grant case the High Court appears to have left open the possibility that a plaintiff in winding up proceedings might be prevented from relying on the presumption of insolvency arising out of non-compliance with a statutory demand if the giving of the demand was an abuse of process: at 184 CLR at 279. 39 The defendant claims that there was an abuse of process in this case, although the precise assertion is not easy to distil from Mr Petrick's written and oral submissions. Part of the assertion relates to the plaintiff's refusal to accept service of court documents through the concierge of the building where he resides. Mr Petrick also alleges that the plaintiff invited the occupant of the kindergarten in Chamberlain Road Bexley to destroy court documents after they had been left at Mr Petrick's residential address. He says that the plaintiff should have used his post office address in Bexley, but that he did not do so. He asserts that on 3 April 2002 Adelaide Accounting withdrew its consent to its address being used as the address of the registered office of the defendant, and yet the plaintiff continued to address envelopes to the South Australian address. There are other similar assertions in Mr Petrick's written submission. In my opinion, for reasons already given, the facts as I have found them to exist on these matters do not constitute a case of abuse process. 40 It is relevant to consider whether the assignment of Ms Vlaski's debt to the plaintiff was a valid assignment, not in order to assess the validity of the plaintiff's statutory demand (a matter excluded from consideration by s 459S, as explained below), but in order to decide whether the plaintiff is abusing the process for the giving of a statutory demand under Part 5.4 of the Corporations Act. 41 As at 22 April 2002, Ms Vlaski's judgment debt had not been set aside. It was capable of being assigned under s 12 of the Conveyancing Act 1919 (NSW). The instrument of assignment of debt dated 22 April 2002, signed by Ms Vlaski and the plaintiff, complied with the requirements of s 12. It was an absolute assignment in writing under the hand of the assignor and did not purport to be by way of charge only. Section 12 requires, for a valid assignment at law, that express notice in writing be given to the debtor. It is not necessary for the notice to be given by the assignor. In the present case, express notice in writing was given by the plaintiff to the defendant when the statutory demand was served. Paragraph 2 of the statutory demand said that the amount claimed was due and payable by the company due to a judgment in favour of Ms Vlaski which was assigned to the plaintiff on 22 April 2002. It is clear, in my opinion, that the statutory demand satisfied the express notice requirement of s 12. 42 The only point open to doubt, in my opinion, is whether an instrument which constitutes express notice completing an assignment under s 12 can be, at the same time, a statutory demand for payment of the debt which becomes due at law to the assignee only when that express notice is given. Master Bredmeyer appears to have given an affirmative answer in Clearance Nominees Pty Ltd v Discount Acceptance Corporation Pty Ltd (1997) 25 ACSR 531, 533. I respectfully agree. Section 459E (4) says that a person may make a demand relating to a debt even if the debt is owed to the person as assignee. That subsection begs the question whether all of the steps necessary to produce the consequence that the debt is owed to the assignee must be taken before the statutory demand is made. 43 In my opinion, however, the correct analysis is that the same instrument may constitute express notice of the assignment for the purposes of s 12 and also a valid statutory demand for the purposes of s 459E. The assignment from Ms Vlaski to the plaintiff was effective in equity, being for valuable consideration, on 22 April 2002 when it was made. Thereafter Ms Vlaski was under an equitable obligation to account to the plaintiff for any payment of the debt that she might have received. The plaintiff was the creditor in equity. The statutory demand made the position clear to the defendant both in its capacity as the debtor whose debt had been assigned, and in its capacity as a debtor subject to a statutory demand for payment. It informed the defendant that its creditor had become the plaintiff. It required payment to the plaintiff. The instrument simultaneously completed the assignment at law and constituted a demand for payment by the true creditor, the assignee. Nothing in the Conveyancing Act or the Corporations Act requires that the notice of assignment and the statutory demand be separate documents, and there is no reason of public policy for insisting that this be so. 44 My conclusion is that the assignment of the debt was valid, express notice having been validly given by the same instrument that served as a statutory demand under s 459E. What is the effect of s 459S? 45 Section 459S provides as follows: "(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent." 46 The meaning and effect of s 459S was considered by the Court of Appeal of New South Wales in Switz Pty Ltd V Glowbind Pty Ltd (2000) 33 ACSR 723. However, the point in issue in that case does not directly arise for consideration here. Of more direct relevance are other cases as to the exercise of the Court's discretion under the section, which I summarised in the Paliflex case at 17 ACLC 479ff. The section operates, as Hayne J observed in Texel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535, 537, as a "safety net" in the sense that there are special cases in which a dispute as to the existence of the debt may be litigated at the time of the application for winding up in insolvency, even if there has been no application under s 459G. 47 I expressed the view in Paliflex (17 ACLC at 481), after considering other cases, that the exercise of the discretion to grant leave under s 459S involves three considerations, namely: (i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand; (ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party's conduct at that time; and (iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent. 48 In the present case, factor (i) does not point to the exercise of the discretion in favour of the defendant. So far as one can tell from Mr Petrick's submissions and the evidence, the defendant wishes to dispute the Vlaski debt on the ground that Ms Vlaski subscribed her money for the acquisition of units in the Jeff Talbot Trust rather than for shares in the defendant that were never issued to her. The issue was addressed by the Magistrate at Sutherland Local Court, who described the defence based on that ground as vexatious. The evidence before me now suggests that the defence has no substance. 49 Factor (ii) also operates against the defendant. Given my finding that Mr Petrick received a copy of the statutory demand on 30 April and another one on 3 May, no reasonable explanation has been advanced as to why the application to set aside the statutory demand was not made in a timely fashion. Rather, the evidence suggests that Mr Petrick was making it difficult for the plaintiff to serve him with documents in any proceedings, and was refusing to talk to him on the telephone. His conduct raises the inference that he was endeavouring to take advantage of difficulties of service so as to thwart the plaintiff's attempts to pursue him in litigation. 50 Factor (iii) is also unhelpful to the defendant. I shall explore the evidence as to actual insolvency below. Suffice it to say that on balance, it appears that the defendant is unable to pay its debts as and when they fall due even if the Vlaski debt is disregarded. 51 In all the circumstances, I see no reason for granting leave to the defendant to raise any matter excluded, in the absence of leave, by s 459S (1). 52 The section prevents the defendant, in the absence of leave, from relying on any ground in the winding up hearing, upon which it could have relied if it had made a timely application under s 459G. The following grounds advanced by the defendant cannot be considered, in the absence of leave: (a) that Ms Vlaski's debt is not owed by the defendant to the plaintiff or at all; (b) that the statutory demand was not accompanied by an affidavit as required by s 459E (3). Insolvency 53 The application for winding up in this case is an application under s 459P that the company be wound up in insolvency. The ultimate question is whether the defendant is insolvent in the sense defined in s 95A of the Corporations Act. 54 Section 459C (2) states that the Court must presume that a company is insolvent if, during or after the three months ending on the day when the application was made [that is, the application for winding up, made in this case on 20 May 2002], the company (inter alia) failed to comply with a statutory demand. My conclusions so far mean that the defendant has failed within that period to comply with the plaintiff's statutory demand, and consequently the Court is to presume that the defendant is insolvent. Section 459C (3) provides that the presumption of insolvency operates except so far as the contrary is proved for the purposes of the application. It is therefore open to the defendant to prove, notwithstanding the presumption, that it is in fact solvent. 55 The evidence includes some financial statements purporting to be financial statements of the defendant for the year ended 30 June 2000. The provenance of these documents is unclear. They show a net loss for the year of $24,382.20 but cash on hand of $262,862.03 and current liabilities of only $50,471.67. The "cash on hand" apparently includes an account with Netlink Hospitality in the sum of $259,821.28. As I have said, an order was made for the winding up of Netlink Hospitality on 18 April 2002. The balance sheet shows equity investment of $899,487.39 and negative retained and current earnings, leaving an equity of $302,734.90. In my opinion the financial position presented by these documents is too confused for me to make any firm conclusions as to the defendant's solvency based on the documents alone, and in any event the documents relate to the year to 30 June 2000, whereas I am required to determine the solvency of the defendant as at the present time. 56 Mr Petrick was examined on 19 July 2001 pursuant to an examination summons issued by Sutherland Local Court consequent upon the judgment entered for Juliet Vlaski. He said that the company had no assets and that he was trying to come to some arrangement to pay its shareholders personally. He said that the judgment debt was still owing "but being questioned". This evidence appears on its face to be inconsistent with Mr Petrick's affidavit of 5 July 2002, in which he said that the defendant was currently trading in that it provided services through him, that it had no trade creditors and no debts to any financial institution on account of loans or other accommodation. He claimed that the only alleged debts of which he was aware were those asserted by the plaintiff, Mr Talbot, and certain other investors. 57 According to a company search dated 22 August 2002 the defendant has not lodged its annual return for 2001. 58 There is some evidence before me of other debts owed by the defendant. According to an affidavit by Mr Jeff Talbot, the defendant is indebted to him by virtue of his paying subscription moneys for shares that were never issued. The amount claimed appears to be $49,506.19. There is also evidence that as at 19 June 2002 Grosvenor Project Marketing was a creditor of the defendant for $4019.06, on an invoice rendered in June 2001. There is some evidence to the effect that a debt is owed by the defendant to Silkpoint for $343,632 and debts are said to be owing to franchisees investing with the defendant for a total amount of $757,451. The plaintiff also claims to be owed $623,140 for consulting fees. 59 Mr Petrick disputes all of these debts. He denies that the defendant is indebted to the plaintiff, and says that certain other debts were incurred by Netlink Hospitality rather than the defendant. On the evidence before me, I am not prepared to make any finding that the debts are due and owing by the defendant to the persons identified as creditors, except in one case. The one case is the debt to Grosvenor Project Marketing, which appears to be proved by the evidence upon which the plaintiff relies, which indicates in specific terms that the debtor is the defendant. Mr Petrick sought to give further evidence relating to this debt in his final written submissions, rather than on oath, but that imprecise evidence would not change my conclusion even if properly given. 60 The defendant relied on affidavit evidence given by Doulmin Petrick (also known as Chris Petrick), who says he is a "qualified accountant" and former employee of the defendant, who was "involved in the accounting production intermittently since 19 May 1999". His evidence is that the company ceased trading in late 1999 when it handed over its operations to Netlink Hospitality, and that "the consequences of that hand over of operations [are] indeterminate in the absence of further investigation". After identifying several small assets which, he said, were written down to nil in the books of the company, he said that there was a "long-term receivable" due from Netlink Hospitality of about $564,000, repayment of which would depend upon receipt of moneys owing, evidently to Netlink Hospitality, by third parties. He said that those receivables were subject to unfulfilled reciprocal arrangements, and therefore the collectability of "the latter" (by which I take him to refer to the debt said to be owed by Netlink Hospitality to the defendant in the sum of $564,000) was questionable. He said that the continuity of operations was dependent on the ongoing injection of funds by the sole director, Mr Mick Petrick, who, he said, had every incentive to continue to do so. The affidavit concluded by asserting that in the absence of Mr Petrick's support, it would appear that the company would not be capable in itself of meeting the recent $12,076.90 claim against it. 61 Mr Doulmin Petrick's evidence is so general and non-specific that it is of very little assistance. The only matter of significance is his conclusion that in the absence of support from Mr Petrick, the company would not be capable of paying the judgment debt in favour of Ms Vlaski. 62 If I were required to make an assessment of the solvency of the defendant without the benefit of any presumption, my conclusion would be that it is insolvent. The debt owing to the plaintiff as assignee of Ms Vlaski was the subject of a judgment in June 2001, and although it was subsequently set aside, the judgment has been restored. The debt has not been paid. As at 19 June 2002, the debt to Grosvenor Project Marketing had been outstanding for a year. The defendant has not produced any evidence of payment. Given the very confused picture painted by the other evidence going to solvency, the fact that these two debts have been outstanding for so long is, in my opinion, evidence that the company is insolvent in the requisite sense. However, for the reasons I have given, I am aided by the presumption arising out of s 459C (2). The defendant has failed to rebut the presumption of insolvency. Therefore the ground for winding up the company has been made out. 63 Shortly before the conclusion of the hearing, Mr Petrick sought to adduce evidence that he had personally paid debts of the defendant in the past. I refused to permit the tender of that evidence, principally on the ground that the evidence would not assist me to decide any of the matters before me for decision. The fact that the director of the company had paid some debts of the company in the past would not render the company solvent unless there was evidence of some arrangement by which he would continue to do so, or at least reasonable grounds for expecting that he would do so. The evidence was not tendered to prove any such arrangement or expectation. Conclusions 64 I am satisfied that the company is insolvent for the purposes of Part 5.4 of the Corporations Act. In my opinion the making of a winding up order is entirely appropriate. I have no confidence at all that in the hands of Mr Petrick, the company can prosper, because he has demonstrated that he is unable to deal effectively with important documents such as the statutory demand in this case, and his conduct of this proceeding has shown a more general inability to deal with commercial subjects rationally and efficiently. It is very much in the interests of the creditors of the company that it be taken out of his hands and placed in external administration. In reaching my conclusions I have not made any findings of wrongdoing against Mr Petrick. I note, however, that the plaintiff has made serious allegations against Mr Petrick, at least some of which will be appropriate to be investigated by the liquidator. 65 I should also note that Mr Petrick has made serious allegations of misconduct against the plaintiff. I have not made any findings of wrongdoing against the plaintiff. Again, to the extent that the allegations against the plaintiff relate to the affairs of the defendant, they may be matters appropriate to be investigated by the liquidator. 66 Mr Petrick also alleges that the plaintiff has endeavoured to avoid service of court documents, especially in recent times. He does not claim, however, that he has been prevented, by inability to serve documents, from giving any evidence or making any submission in the present proceeding. It is therefore unnecessary for me to adjudicate upon such claims here. 67 The plaintiff has succeeded and is entitled to an order for costs against the company. I do not think this is an appropriate case for making an order that Mr Petrick pay costs personally. 68 My orders, intended to dispose finally of this proceeding, will therefore be: (1) that the defendant be wound up in insolvency; (2) that Peter William Marsden (whose consent is in evidence) be appointed liquidator of the defendant; (3) that the plaintiff's costs of the proceeding and all applications in the proceeding be costs in the winding up of the defendant, ranking under s 556 (1) (b) of the Corporations Act; (4) that the defendant's interlocutory process filed on 18 June 2002 be dismissed; (5) that the defendant's interlocutory process dated 7 June 2002 and filed in court on 11 June 2002 be dismissed. **********

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