Chahwan v Euphoric Pty Ltd [2020] NSWSC 244 | Case summary

Chahwan v Euphoric Pty Ltd [2020] NSWSC 244 | Case summary | Zoe

Judgment

GLEESON J: Before the Court are related applications by MABJ Group Pty Ltd (MABJ) for leave under s 237 of the Corporations Act 2001 (Cth) to commence and prosecute proceedings in the respective names of Boutique Ettalong Beach Pty Ltd (BEB) and Boutique Mollymook Living Pty Ltd (BML) (together the companies) to set aside statutory demands served on those companies by Architexture Australia Pty Ltd (Architexture).
Of present significance are two demands served on BEB and one demand served on BML which claim debts for the provision of architectural services relating to property development projects undertaken by BEB at 46 Webb Street, East Gosford (debt claimed of $42,800) and 130-132 Broken Bay Road, Ettalong (debt claimed of $45,850) and by BML at 19 Kurrawa Avenue, Point Clare (debt claimed of $350,000).
Architexture asserts that the statutory demands were served on 26 February 2020, in which circumstance the 21-day period in which to file and serve an application to set aside the statutory demands expires on 17 March 2020: s 459G(2). If proceedings to set aside the demands are not commenced and served within the 21 day period, then the companies are taken to have failed to comply with the demands under s 459F(1) and a presumption of insolvency will arise under s 459C(2)(a).
The two companies have common directors and shareholders: the directors are Ms Mandeep Kang and Mr Ibrahim Chambour and the 50 per cent shareholders in each company are MABJ and Chambour Property Pty Ltd (Chambour Property). On 4 March 2020, Chambour Property commenced proceedings against the companies, among others, seeking a winding up order on the just and equitable ground under s 461(1)(k) of the Corporations Act.
An applicant for leave bears the onus of establishing that each of the matters specified in s 237(2) of the Corporations Act are satisfied on the balance of probabilities: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26]. If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. On the other hand, if any of the requirements of s 237(2) are not satisfied, then the Court should not grant that leave: Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69; [2009] NSWCA 183 at [64]-[65]; Chahwan v Euphoric Pty Ltd (t/as Clay & Michel) [2008] NSWCA 52; (2008) 65 ACSR 661 at [117].
The evidence shows that the directors of the companies have not been able to agree on the response to the statutory demands. Accordingly, MABJ seeks leave to bring proceedings in the name of the companies to set aside the statutory demands. Such relief is sought on an interim basis under s 241 of the Corporations Act: Re RUS Holdings (Australia) Pty Ltd [2012] NSWSC 1075; Re Legal Practice Management Group Pty Ltd & Ors [2017] NSWSC 1500.
The second and third defendants, Chambour Property and Mr Chambour do not oppose the grant of interim relief under s 241 but submit that MABJ should be required to provide security for the indemnity it has proffered to the companies. This issue is addressed below.
The applications for interim relief can be dealt with briefly. MABJ has standing as a member to bring proceedings on behalf of each company under s 236(1)(a)(i) of the Corporations Act, subject to the grant of leave under s 237: s 236(1)(b).
Corporations Act s 237(2) identifies the requirements for the grant of leave, including where leave is sought on an interim basis. It is plain that each company itself will not bring the proceedings to set aside the statutory demands. The requirement in s 237(2)(a) is satisfied. It is not in dispute that 14 days' notice of the applications has been given to the companies. The requirement in s 237(2)(e) is satisfied.
As to the requirement in s 237(2)(b) that the applicant is acting in good faith in seeking to commence and serve the proceedings to set aside the statutory demands, I am satisfied, on an interim basis, and without making any final determination of the s 237 applications, that the commencement of each proceeding to set aside the statutory demands is made in good faith, where in the absence of such proceedings the presumption of insolvency will arise under s 459C(2) with respect to each of the companies.
As to the requirement in s 237(2)(c) that it is in the interests of the company that the applicant be granted leave, I am satisfied that it is in the best interests of the companies that leave be granted to commence and serve the proceedings, where the companies' opportunity to avoid the consequence of the presumption of insolvency would otherwise be lost. A relevant matter in this regard is the indemnity proffered to the companies by MABJ with respect to their costs of the proceedings and any adverse costs orders that might be made against the companies.
Chambour Property and Mr Chambour are content with the form of the indemnity proffered to the companies, but submit that the indemnity should be supported by security, suggesting that an amount of $5,000 should be paid into the trust account of MABJ's solicitors to be held pending the outcome of the proceedings. I do not agree that security is required to support the indemnity in this case. Nor do I read anything in The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 at [18]-[22] as imposing some form of onus on the party proffering an indemnity to demonstrate that security is not required. Nothing in the evidence suggests that MABJ would be unable to pay any amount required to be paid if the indemnity was called upon by the companies.
As to the requirement in s 237(2)(d) that there is a serious question to be tried, I am satisfied for the purposes of this interim application, that MABJ has established a serious question to be tried that the companies have a genuine dispute as to the existence of the debts claimed by Architexture in the statutory demands.

[3]

Conclusion and Orders

There should be a grant of leave on an interim basis under s 241 of the Corporations Act for MABJ to commence and serve proceedings to set aside the statutory demands served on the companies by Architexture. However, given the pending winding-up proceedings against the companies on the just and equitable ground which, if ordered, would render the proceedings to set aside the statutory demands otiose, the grant of leave should be expressly limited such that the companies are not to take any further steps in the proceedings without the leave of the Court.
For these reasons, the Court made the following orders on 16 March 2020: 2020/78643: (1) Upon the plaintiff by its counsel providing the usual undertaking as to damages, pending hearing and determination on a final basis of the plaintiff's application (Application) for leave to commence and prosecute proceedings in the name of Boutique Ettalong Beach Pty Ltd (the Company) to set aside statutory demands issued by Architexture Australia Pty Ltd to the Company, pursuant to s 241 of the Corporations Act 2001 (Cth), the plaintiff be authorised on an interim basis to commence such proceedings in the name of the Company only, by filing and serving originating processes substantially in the form annexed to the originating process filed 11 March 2020 and marked "A" and "B" together with affidavits in support, but to take no further step in the proceedings without leave of the Court. (2) The Court notes the plaintiff's undertaking to the Company to, in the first instance: (a) pay the Company's costs in respect of the proceedings to be commenced pursuant to order 1; and (b) indemnify the Company against any adverse costs order incurred in the proceedings commenced pursuant to order 1. (3) The Application be listed for directions on 23 March 2020. (4) Liberty to apply on 48 hours' notice or such shorter period as a judge of the Court may allow, specifying the nature of the orders which are sought. (5) These orders be entered forthwith. 2020/78606: (1) Upon the plaintiff by its counsel providing the usual undertaking as to damages, pending hearing and determination on a final basis of the plaintiff's application (Application) for leave to commence and prosecute proceedings in the name of Boutique Mollymook Living Pty Ltd (the Company) to set aside a statutory demand issued by Architexture Australia Pty Ltd to the Company, pursuant to s 241 of the Corporations Act 2001 (Cth), the Plaintiff be authorised on an interim basis to commence such proceedings in the name of the Company only, by filing and serving an originating process substantially in the form annexed to the originating process filed 11 March 2020 and marked "A" together with affidavits in support, but to take no further step in the proceedings without leave of the Court. (2) The Court notes the plaintiff's undertaking to the Company to, in the first instance: (a) pay the Company's costs in respect of the proceedings to be commenced pursuant to order 1; and (b) indemnify the Company against any adverse costs order incurred in the proceedings commenced pursuant to order 1. (3) The Application be listed for directions on 23 March 2020. (4) Liberty to apply on 48 hours' notice or such shorter period as a judge of the Court may allow, specifying the nature of the orders which are sought. (5) These orders be entered forthwith.

Chahwan v Euphoric Pty Ltd

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