1 The plaintiff makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendants. The statutory demand is dated 15 December 2008. It relates to debts totalling $533,557.73 which are judgment debts arising from orders of the Federal Court of Australia plus interest thereon.
2 It is common ground that part of this amount has been paid or otherwise satisfied or credited and that the balance remaining is $426,364.78. The plaintiff does not assert the existence of any dispute about this balance of $426,364.78. It accepts that that amount is due and payable to the defendants. Nor does the plaintiff contend that it has any offsetting claim. There is, accordingly, no reliance on any part of s 459H in relation to the s 459G claim.
3 Rather, the plaintiff relies on s 459J and specifically s 459J(1)(b). The scope and effect of that provision were described by Gummow ACJ, Heydon, Brennan and Kiefel JJ in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 at [24]:
"This provision, set out earlier, authorises the Court to set aside a statutory demand if it "should be set aside" for "some other reason" than that provided in par (a) of s 459J(1), namely apprehended substantial injustice because of a defect in the demand."
4 In relying on s 459J(1)(b), the plaintiff puts forward several matters to which I must now refer. First, the plaintiff points out that its liability under the Federal Court orders was a joint and several liability imposed upon both the plaintiff and another company, Triad, in circumstances, it seems, where Triad had a significantly larger interest in the subject matter of the proceedings. That notwithstanding, the orders created joint and several liability and, unfortunately for the plaintiff, Triad became insolvent and is now in liquidation. As a result, the plaintiff has been left to bear the financial burden alone without contribution by Triad.
5 Second, the plaintiff refers to the fact that it has given the defendants security for its indebtedness in the form of a second and unregistered mortgage of two properties at Annandale. In that way it has showed itself to be attentive to its obligation.
6 Third, the plaintiff has already paid a substantial part of the overall liability it incurred as a result of the Federal Court proceedings which, in its totality, exceeded the amount in the statutory demand. The demand, I should say, covered very predominantly costs orders. The plaintiff adds that it has made this substantial payment again without contribution by Triad.
7 Fourth, the plaintiff has led evidence from which it asks the Court to conclude that funds sufficient to enable it to pay the balance of the indebtedness in full will be received by it soon, although exactly when this might be is not precisely stated. On this, I am bound to say that the evidence does not really go beyond showing that the plaintiff has an entitlement as an income beneficiary under the Virgo Trust of $627,449.76 in respect of the year to 30 June 2008. The evidence does not permit me to make any finding about the extent to which and time at which this entitlement may be satisfied by payment.
8 Fifth, the plaintiff says that the defendants have not suggested that recovery by them would take place any sooner if the plaintiff were wound up.
9 Ms Richards, who appeared for the plaintiff, sought to make good her central submission based on s 459J(1)(b) by drawing an analogy with cases under previous legislation concerning adjournment of a winding up application. In particular, she referred to Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675 and Fire & All Risks Insurance Ltd v Southern Cross Exploration NL (1986) 10 ACLR 683. Each of these was a case in which a court called upon to determine a winding up application adjourned the hearing on the footing that the defendant company's financial position looked likely to improve in such a way that winding up might be avoided. There was, in other words, an exercise of the court's undoubted power, which still exists, to hold off making a winding up order even when grounds for making such an order have been shown.
10 As Mr Alkadamani submitted on behalf of the defendants, however, it is a mistake to seek to import into the present debate thinking relevant to the court's clear discretion to hold off making a winding up order even though grounds for a winding up have been established. And this is particularly so where the principles concerned pre-date the enactment of the present Part 5.4.
11 Part 5.4 seeks to ensure that questions about statutory demands are determined separately from a hearing of a winding up application. The objective is to ensure that the result of a creditor's attempt to obtain the benefit of a presumption of insolvency through service of a statutory demand should be known - and definitively known - before the hearing of any winding up application.
12 The statutory provisions as a whole and s 459S in particular aim to confine issues about the effectiveness of the statutory demand to s 459G proceedings heard and determined in advance of the winding up hearing so that that hearing, when and if it subsequently occurs, will proceed on the basis that there is (or, as the case may be, is not) an established but admittedly rebuttable presumption that the company concerned is insolvent.
13 The Part 5.4 regime has elements of rigidity to it. It is in some ways unforgiving. Both Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 and Spigelman CJ in Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661 referred to aspects of the harsh operation of the statutory provisions. As their Honours noted, these are deliberate aspects of the statutory intention and purpose.
14 It is with the purpose of Part 5.4 in mind that one approaches s 459J(1)(b). The question posed by that provision is whether there is some good reason beyond and separate from those with which s 459H and s 459J(1)(a) are concerned for setting aside a statutory demand. Section 459J(1)(b) confers a remedial jurisdiction.
15 The Court of Appeal of the Australian Capital Territory described the provision in Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3 as follows (at [27]):
"What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318."
16 In that case, the creditor had agreed to withdraw the statutory demand but later reneged on its agreement. Those circumstances were seen as coming within the relevant concept of unconscionability.
17 Section 459J(1)(b) will operate where the person serving a statutory demand has "engaged in conduct that was unconscionable or an abuse of process or had given rise to substantial injustice", these being words of Black CJ, Einfeld, Sackville JJ in Hall Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318 which were also applied by the Queensland Court of Appeal in KW & KM Quinn Investments Pty Ltd and Deputy Commissioner of Taxation [2004] QCA 91.
18 Both counsel referred to the decision of the Court of Appeal in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24. The Court of Appeal there observed that substantial injustice has been confirmed by case law as a criterion for setting aside a statutory demand. It was emphasised, however, that injustice must be judged by reference to the purpose that Part 5.4 is intended to serve. Thus, Santow JA observed (at [35]:
"There being no defect in the demand, reliance was placed upon whether there be ' some other reason ' as would satisfy s459J(1)(b). The claimants contend that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be ' sound or positive ground or good reason ' to set aside the statutory demand for ' some other reason ', which was consistent with the legislative intent of Pt 5.4 of the Act: Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (supra) at 757 per Bryson J; Kezarne Pty Limited v Sydney Asbestos Removal Services Pty Limited (1998) 29 ACSR 11 at 18 per Austin J. It is the claimants' contention that the reasons given by the trial judge do not satisfy the latter requirements but are indeed based upon some broad form of perceived fairness or reasonableness."
19 Also pertinent are the observations of Young J, CJ in Eq (at [57] to [61]):
"[57] I agree with Santow JA and with his reasons. I merely wish to add one or two observations.