4195/03 - BIRON CAPITAL LIMITED v VELOWING PTY LIMITED
JUDGMENT
1 On 7 August 2003, the plaintiff filed an originating process seeking an order that the defendant be wound up in insolvency. This followed service on the defendant by the plaintiff of a statutory demand dated 10 June 2003 in respect of a debt of $2,822,500.00 described in the demand as:
"Amount due and owing from the company to the creditor pursuant to a guarantee dated 29 November 2002."
2 The amount claimed by the demand was not paid, secured or compounded within the period of 21 days after service. It is therefore open to the plaintiff to rely on the presumption of insolvency created by s.459C(2)(a) of the Corporations Act 2001 (Cth) in pursuing its application for a winding up order.
3 By an interlocutory process (styled notice of motion) filed on 3 December 2003 and heard by me on 8 December 2003, the defendant sought an order that:
"… leave be granted pursuant to section 459S of the Corporations Act for the Defendant to oppose the Application for Winding up on the grounds set out in the Notice of Objection to Appointment of Liquidator filed on 28 November 2002."
4 The document entitled Notice of Objection to Appointment of Liquidator reads as follows:
"1. The Statutory Demand served on the Defendant on the 19th June 2003 upon which the Plaintiff relies is shown to be pursuant to a guarantee dated 29th November 2002. No guarantee dated 29th November 2002 exists between the Plaintiff and the Defendant.
2. The Defendant is solvent and accordingly leave should be granted under S459s of the Corporations Act.
3. The Defendant has a claim against the Plaintiff which has arisen since the time for compliance with the Statutory Demand which will result in the plaintiff not being a creditor of the Defendant.
4. The dispute about the Plaintiff's debt is material to proving that the Defendant is solvent.
5. The proceedings are an abuse of process in that the debt upon which the statutory demand is based is being challenged by way of the Cross Claim in Supreme Court Common Law Proceedings No 11963 of 2003 and accordingly it is an abuse of process to use the Corporations Act in relation to this dispute between the parties.
6. This Notice of Objection is supported by the Affidavit of Barry Francis Anstee dated 13th October 2003."
5 As the statutory demand makes clear, the debt asserted by the plaintiff arises from a guarantee, although it is the defendant's contention that the guarantee it gave was a guarantee dated 15 January 2003, not one dated 28 November 2002 as stated in the statutory demand. The guarantee given by the defendant to the plaintiff was one element of a wider transaction. The plaintiff lent money to a company called Bassoak Pty Ltd which, in return, gave certain security to the plaintiff by way of fixed and floating charge. Guarantees were given by the defendant and other parties. The plaintiff in due course appointed a receiver in exercise of a power conferred by the charge. In August 2003, the receiver sold certain land owned by Bassoak for $12,200,000. It is contended by Bassoak and its principal, Mr Anstee, that two consequences flowed from this sale. First, the application of the net proceeds of sale against Bassoak's debt to the plaintiff caused the outstanding balance to be reduced to about $1 million, with the liability of the guarantors (including the defendant) being correspondingly reduced. Second, Bassoak and Mr Anstee contend that the sale by the receiver was at an undervalue, with the consequence that a right of redress in damages or by way of equitable compensation has arisen in Bassoak and the guarantors and the net position as between Bassoak and the plaintiff (and hence between the defendant and the plaintiff) is further reduced. It is contended that at least $1 million more than the contracted price of $12.2 million could and should have been obtained upon the sale by the receiver. In support of that contention, the defendant has put in evidence a valuation dated 18 October 2002 showing a value of $15.5 million.
6 It is these two consequences of the sale by the receiver and their effect on the state of the account between Bassoak (and hence the defendant as guarantor) and the plaintiff that the defendant wishes to raise in defending the winding up application. It is obviously the view of the defendant and its advisers that opposition to the winding up application by reference to the consequences of the sale by the receiver in August 2003 will be precluded by s.459S unless leave under that section is granted. It seems to me, however, that that view is not well founded.
7 The statutory demand is, as I have said, dated 10 June 2003. Mr Anstee's evidence is that it was served on him (and therefore upon the defendant) at 4.45 pm on 19 June 2003. An application under s.459G for an order setting aside the statutory demand could have been made within 21 days after such service (s.459G(2)) but, once that period of 21 days had expired, it would not have been legally possible for such an application to be made: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. Any application made within the period of 21 days to which I have referred would, of necessity, have been advanced by reference to and in reliance on facts and circumstances existing at the time it was made, that is, facts and circumstances that had arisen before the end of the 21 day period.
8 In a case such as the present where no application under s.459G was in fact made, the effect of s.459S is to preclude, in the absence of leave, opposition to the winding up application on a ground "that the company could have so relied on, but did not so rely on", the word "so" referring back to the phrase "relied on for the purposes of an application by it [the served company] for the demand to be set aside". This means that the only preclusion the section effects in such a case is the preclusion of reliance on a ground that the company served with the statutory demand could have asserted in making an application within the relevant 21 day period, had such an application been made. The reference in s.459S(1)(a) to "an application by it for the demand to be set aside" (which carries over into and gives meaning to s.459S(1)(b)) is, of necessity, a reference to such application as the company could have made within the stipulated 21 day period.
9 In this case, the defendant, in opposing the winding up application, wishes to rely on the proposition that the debt asserted in the statutory demand has, as a consequence of the receiver's sale, been reduced to about $1 million and that the defendant, as one of the guarantors, has an offsetting claim because of the alleged inadequacy of the price at which that sale was made. The 21 day period within which a challenge to the statutory demand could have been mounted on the grounds of genuine dispute as to the amount of the debt and the existence of an offsetting claim expired in July. The events that would have founded a challenge on the grounds of genuine dispute and offsetting claim occurred in August. Those grounds, as activated by and arising from the events of August, are thus not grounds on which the defendant could have relied in making an application under s.459G for an order setting aside the statutory demand, given that that application was capable of being made only within a period of 21 days that had expired before the occurrence of those events.
10 Implicit in what I have just said is the proposition that, in speaking of "a ground … that the company could have relied on", s.459S is concerned not with a ground of a particular kind or description in a generic sense but, rather, with a ground that was actually available to be asserted according to facts and circumstances existing at the time when it was open to the company to resort to the s.459G procedure. This, it seems to me, is consistent with the statutory purpose as elucidated by the High Court in David Grant (above) and also by the Court of Appeal in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661. The procedure under Division 3 of Part 5.4 (in which s.459G appears) exists as a means of dealing with disputed debts, offsetting claims and defects in demands before a winding up application is heard. Such matters are meant to be resolved in a conclusive way in advance of the court's considering whether a winding up order on the grounds of insolvency should be made, with the s.459C(2)(a) presumption of insolvency either in place or not in place according to the outcome at the preliminary stage. As was observed in both the cases to which I have referred, there are elements of apparent harshness in this approach but the statutory intention is clear.
11 It is not the statutory intention, however, that a defendant should be shut out from advancing a defence to the winding up application, based on genuine dispute as to the debt the subject of the statutory demand or the existence of an offsetting claim, unless circumstances are such that the defendant has either not succeeded in an attempt to have the demand set aside on that ground or failed to take the opportunity to make such an attempt. Where the circumstances giving rise to the asserted dispute as to the existence or amount of the debt or as to the existence of the offsetting claim did not exist during the period of 21 days referred to in s.459G, the defendant neither had nor failed to take advantage of the opportunity.
12 My conclusion therefore is that the defendant does not need leave under s.459S to defend the winding up application on the grounds arising from the sale by the receiver in August 2003. Reverting to the Notice of Objection to Appointment of Liquidator set out above, the only matter which, on the basis I have outlined, is within the scope of s.459S is that raised in paragraph 1 concerning the date of the guarantee. It was open to the defendant to raise that matter by way of s.459G application within the relevant period of 21 days but it did not do so. But because the accuracy or otherwise of statement in the statutory demand as to the date of the guarantee cannot possibly be regarded as one which, in terms of s.459S(2), is material to proving the defendant's solvency, there can be no grant of leave under s.459S in respect of that matter.
13 In the result, the claim in the defendant's interlocutory process filed on 3 December 2003 is dismissed but, of course, without prejudice to the defendant's ability to defend the winding up application in the ways referred to in these reasons.
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