Global Cement (North Qld) P/L v. Benchmark Debtor Finance P/L ; ARMC Concrete Products Pty Ltd v Benchmark Debtor Finance P/L [2007] QSC 143

CORPORATIONS - WINDING UP IN INSOLVENCY - FAILURE TO COMPLY WITH STATUTORY DEMAND - where there were errors in the statutory demand - whether errors deemed the statutory demand invalid pursuant to s 459E Corporations Act 2001 (Cth)

CORPORATIONS - WINDING UP IN INSOLVENCY - FAILURE TO COMPLY WITH STATUTORY DEMAND - where there were errors in the statutory demand - where applicant did not comply with statutory demand - whether respondents should be restrained from making an application to wind up the applicant company on a presumption of insolvency founded upon non-compliance with the statutory demand

PRACTICE AND PROCEDURE - ABUSE OF PROCESS - Whether respondent's reliance on incorrect statutory demand in winding up proceedings constitutes an abuse of process

Bankruptcy Act 1966 (Cth) s 306,

Corporations Act 2001 (Cth) s 9, s 459E, s 459G, s 459J

Service and Execution of Process Act 1992 (Cth)

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, applied

Dominion Pty Ltd v Pico Holdings Incorporated [2001] VSC 458; (2002) 40 ACSR 137, applied

Kleinwort Benson Australia Pty Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, distinguished

Nasrawi Group of Companies Pty Ltd v Byrne Earth Moving and Engineering Pty Ltd [2005] QSC 2, followed

Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287, cited

Re Commercial Trade Finance Pty Ltd (1995) 19 ACSR 188, applied

Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867; (2002) 165 FLR 72, applied

[1] LYONS J: There are two applications before me and in each of them the respondent is Benchmark Debtor Finance Pty Ltd. The applications are in effect identical and I will deal with application 3245/07 on the assumption that what I say in relation to that application will also apply to 3246/07.

[2] The applications are made pursuant to the Corporations Act 2001 (Cth) ("the Act") and the Supreme Court Act 1995 (Qld). The applicants seek declarations and orders in respect to creditor's statutory demands served pursuant to s 459E of the Corporations Act 2001 (Cth). In particular, the applicants seek declarations that the creditor's statutory demands (both dated 16 February 2007) are not a creditor's statutory demand for the purposes of s 459E of the Act; and secondly, an order that the respondent be restrained from making any application to wind up the companies on a presumption of insolvency founded upon non-compliance with the statutory demands dated 16 February 2007.

[3] On or about 16 February 2007 the respondent ("the creditor") served a creditor's statutory demand on each of the applicant companies ("the companies"). On 9 March 2007 the companies made an application to set aside the demand. The address for service on the demands was an address in New South Wales and the applications to set aside the demand were served in New South Wales but not in accordance with the Service and Execution of Process Act 1992 (Cth) ("SEPA") and did not have the relevant SEPA notice attached. Accordingly, the court had no jurisdiction to hear the applications to set aside the demands as there had not been valid service. Orders were therefore made dismissing the applications with costs. An application to set aside the statutory demand was not therefore filed and served within the 21 day time limit from the service of the demand required by the Act; the decision of David Grant & Co Pty Ltd v Westpac Banking Corporation[1] having held that s 459G defined the jurisdiction of the court by imposing a time requirement as an essential requirement to the right to apply to set aside the demand.

[4] The date by which the respondent in both applications is entitled to commence a winding up application in reliance on the statutory demand and raise the statutory presumption of insolvency is 15 June 2007.

[5] As the applicant in each application is precluded from having the statutory demand set aside, it has applied for other relief namely declarations and orders in relation to the creditor's statutory demand served pursuant to s 459E of the Act namely

(1) a declaration that the creditors statutory demand dated 16 February 2007 is not a creditor's statutory demand for the purposes of the Act and

(2) a declaration that the respondent is not a creditor of the company and

(3) an Order that the respondent be restrained from making any application to wind up the Company on a presumption of insolvency founded upon non compliance with the statutory demand.

[6] At the hearing the applicant in each application did not pursue the second declaration but sought a declaration that the demand was not a valid demand for the purposes of the Act, as well as the restraining order. The basis of the application is that there has been no judicial determination on a number of issues namely:

(a) whether the statutory demand complies with s 459E of the Act;

(b) whether there is a genuine dispute about the debt;

(c) whether the company has an offsetting claim; and

(d) whether the creditor is a creditor of the company.

[7] The applicant concedes that the scope for the grant of equitable relief has been narrowed by the introduction of part 5.4 of the Act and issues such as indebtedness and challenges to standing are difficult to raise after there has been non-compliance with the statutory demand. The applicant submits however that notwithstanding the introduction of part 5.4 of the Act there remains discretion in the court to restrain the institution of winding up proceedings where there is an abuse of process on the authority of Pacific Communication Rentals Pty Ltd v Walker.[2]

[8] The applicant relies on the decision in Nasrawi Group of Companies Pty Ltd v Byrne Earth Moving and Engineering Pty Ltd [3] as support for the proposition that a declaration can be obtained where there is a deficiency in form. The applicant submits that the demand does not comply with s 459E(3) of the Act because the demand is not a demand which is in compliance with s 459E(1). Section 459E provides:

"Creditor may serve statutory demand on company

A person may serve on a company a demand relating to:

(a)

a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b)

2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

The demand:

(a)

if it relates to a single debt--must specify the debt and its amount; and

(b)

if it relates to 2 or more debts--must specify the total of the amounts of the debts; and

(c)

must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and

(d)

must be in writing; and

(e)

must be in the prescribed form (if any); and

(f)

must be signed by or on behalf of the creditor.

Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a)

verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b)

complies with the rules.

A person may make a demand under this section relating to a debt even if the debt is owed to the person as assignee.

A demand under this section may relate to a liability under any of the following provisions of the Income Tax Assessment Act 1936:

(a)

section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;

(b)

subsection 221YHDC(2);

(c)

subsection 221YHZD(1) or (1A);

(d)

subsection 221YN(1);

(e)

section 222AHA;

and any of the provisions of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953, even if the liability arose before 1 January 1991.

Subsection (5) is to avoid doubt and is not intended to limit the generality of a reference in this Act to a debt."

[9] The applicant submits that the demand is not in compliance because the affidavit in support of the statutory demand required by s 459E(3) does not verify a debt owing by the company to the creditor.

[10] In particular, the affidavit of Peter Langham accompanying each of the statutory demands dated 16 February 2007 recites at paragraph 1: "I am a director of the creditor named in the statutory demand, which this affidavit accompanies, relating to the debts owed by Australia World Pty Ltd."[4] Clearly the affidavit does not correctly refer to the applicant company but rather to a completely unrelated entity called Australia World Pty Ltd. The applicant submits therefore that the body of the affidavit does not identify the company in any way as being the debtor. The applicant submits therefore that s 459E(3) has not been complied with as the demand has not been accompanied by an affidavit that "(a) verifies that the debt, or the total amount of the debts, is due and payable by the company; and (b) complies with the rules".

"For the purposes of subsection 459E (3) of the Law, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must: -

(a) be in accordance with form 7 and state the matters mentioned in that form; and

(b) be made by the creditor or by a person with the authority of the creditor or creditors; and

(c) not state a proceeding number, or refer to a court proceeding, in any heading or title to the affidavit."

[12] The applicant submits that essential information that is required to be contained in the supporting documentation has not been provided.

[13] The applicant also submits that attached to the demand is a summary but the summary does not appear to be an exhibit to the affidavit and in any event it submits that the summary is not a record of Global Logistics Management Corporation Pty Ltd.

[14] Before turning to the issue of the inherent power of the court to stay proceedings, it is convenient to examine the provisions of the Act dealing with statutory demand, namely division 2 of part 5.4 and division 3 which specifically deals with applications to set aside statutory demand. Section 459J essentially provides that in an application under s 459G to set aside a demand the court should not set aside a statutory demand because of a defect in the demand unless substantial injustice will be caused or there is some other reason why the demand should be set aside. Accordingly even in an application brought within the strict time limits under s 459G a demand will not be set aside for a defect unless substantial injustice will be caused unless the defect is set aside, or there is some other good reason.

[15] Section 9 of the Act defines "defect" in relation to a statutory demand as follows:

"(a) an irregularity; and

(b) a misstatement of an amount or total; and

(c) a misstatement of a debt or other matter; and

(d) a misdescription of a person or entity."

[16] The applicant states that in the present case the errors are not simply a defect which would be covered by the provisions of s 459J(2) but rather support a finding that there has been a complete failure by the creditor to verify that the company owes a debt. The applicant is essentially asserting that the deficiency is of a more fundamental character than a defect. The applicant submits that the identification of a different party cannot be mis-description of a person or an entity as set out in s 9. The applicant states that s 459J(2) and s 9 cannot cure a failure to comply with a requirement which is made essential by the Act. The essential requirement is to verify that the creditor is a creditor of the company. In this regard the applicant relies on the line of authorities flowing from Kleinwort Benson Australia Pty Ltd v Crowl[5] in relation to the validity of bankruptcy notices and states that similar principles apply in the current case.

[17] The essence of the submission by the applicant is that the creditor has failed to comply with a requirement which is made essential by the Act and therefore it is an abuse of process to allow the creditor to proceed to winding up. In particular the prejudice to the company will be that the company will be forced to prepare for a winding up hearing on the basis of demonstrating solvency and rebutting the s 459C presumption in circumstances where the applicant submits no presumption has properly arisen. Accordingly, the applicant submits that there has been no service of a demand which complies with s 459E and the creditor should not be allowed to present a winding up petition as no presumption of insolvency has arisen.

[18] The basis upon which a statutory demand can be set aside is set out in s 459J of the Act and as courts have consistently maintained, the provisions of the Act "in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies."[6]

[19] I agree with the submission of the respondent that the matters that are raised by the applicant in support of the application for a declaration are matters which could have been agitated if the application to set aside the statutory demand had been properly constituted. However it was not and the application was dismissed. The applicants are arguing however that these issues can in fact be reargued before this court in these applications because they indicate that the statutory demand was not in fact a demand at all due to the failure to comply with the essential elements. Furthermore they submit that because it would be an abuse of process for the respondents to commence winding up applications in reliance on the statutory demand, the inherent jurisdiction of the court to control its own processes has been enlivened and the declarations and orders should follow.

[20] Turning then to the merits of the application I am not satisfied that the deficiency in the accompanying affidavit in support of the statutory demand in the two applications was such that it would have resulted in the statutory demand being set aside pursuant to s 459J(1)(a) or (b) of the Act. The information set out in the demands was correct. The demands were in writing and each specified the debt namely $14,292.44 in the case of Global Cement and $30,827.89 in the case of ARMC Concrete Products. Each demand also required each company to pay the amount within 21 days after service and each demand was signed on behalf of the creditor. In addition the demands were each accompanied by the affidavit in support which was in the correct form and which verified the amount of the debts set out in the demand. In paragraph one of the form (which was correctly headed with the names of the creditor and the debtor company set out) the deponent inserted the wrong company name and stated that he was a director of the creditor named in the statutory demand "relating to debts owed by Australia World Pty Limited" rather than the correct companies, namely the applicants in both these actions. The affidavit would otherwise appear to be in accordance with r 5.2. The documentation clearly set out the amount due and payable by the debtor company. The demand was correct; it was the supporting affidavit which was not. In all the circumstances I consider that the wrong description in the supporting affidavit was such that it would be considered an irregularity because the information required to be conveyed by the Act and the Rules had indeed been provided. Furthermore there was no evidence of any substantial injustice or other reason why the demand should be set aside.

[21] Whilst I note the applicant's submission in relation to the similarities to the Bankruptcy Act and the reliance on the authorities, I consider they are of limited assistance in terms of dealing with the specific provisions of the Act and the specific facts of this case. In particular I note that in the Kleinwort[7] decision the issue related to an understatement of interest in the bankruptcy notice and the judgement of the majority held:[8]

"If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.

It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice."

[22] In the present case there was no evidence that any uncertainty arose.

[23] As previously discussed, for the applicants to secure injunctive relief they must show that there is likely to be an abuse of process as discussed in David Grant & Co Pty Ltd v Westpac Banking Corporation.[9] In the present case however there is nothing to suggest any collateral or ulterior purpose on the part of the respondent in either of these proceedings.

[24] In the decision in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd[10] Palmer J said:[11]

"Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding up is not to collect payment of its debt or, in default to have 'the company wound up', but is, rather, to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality."

[25] In the decision of Re Commercial Trade Finance Pty Ltd[12] Helman J in fact refused to make such an order and held:

"The applicant must show by clear evidence, which it accepted, that it is entitled to a dispensation from the rigours of the scheme in Part 5.4. It has failed to do that."

[26] The power to make an order such as is sought in this application was referred to but not granted in Dominion Pty Ltd v Pico Holdings Incorporated.[13] In that case, no order was made because there was an absence of any merit in the application because no substantial injustice flowed from the failure to include an address for service within the state.

[27] In this case the applicants in their application make no reference to an injustice alleged to be suffered as a consequence of the defect in the supporting affidavit.

[28] In the decision of Nasrawi Group of Companies Pty Ltd v Byrne Earthmoving,[14] Douglas J considered a similar application for a declaration that the statutory demand was not a statutory demand within the meaning of the Act. His Honour stated:[15]

"The reasons of the Court of Appeal of New South Wales in Braams Group Pty Ltd v Miric [2002] NSWCA 417; (2002) 171 FLR 449; 44 ACSR 124 at [28]- [47], [79]-[86] make it clear why the introduction of Part 5.4 has narrowed the scope for the grant of equitable relief where no application has been made to set aside the statutory demand. See also, in particular, Spender J in Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235, 238-240 and Santow J in Mandarin International Developments Pty Ltd v Growthcorp (Australia) Pty Ltd (1998) 143 FLR 408, 421 where their Honours discuss the current relevance of McLelland J's approach in L & D Audio Acoustics Pty Ltd."

"The authorities suggest, however, that, although there remains a discretion to restrain the institution of a winding up application where there has been an abuse of process, the grounds relied on by McLelland J are not consistent with the structure of the present statute if no application to set aside the demand has been made in time. When no application to set the demand aside has been made, the other circumstances where the bringing of a winding up application would be treated as an abuse of process are extremely rare. One example of such a rare case occurred in Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287 where Brownie J enjoined proceedings based upon a failure to comply with a statutory demand where the creditor had, without justification, removed the company's financial records, thus preventing the company from assessing the creditor's claim within the 21 day period."

[30] In the current case, I am not satisfied that this is one of those rare cases where the demand should be set aside. In all of the circumstances I do not consider that the irregularity in the supporting affidavit is such that to allow the creditor to proceed to winding up on the basis of insolvency could be considered to constitute an abuse of process.

[31] As Douglas J in Nasrawi Group of Companies Pty Ltd v Byrne Earthmoving[17] stated:[18]

"The grant of a declaration in a situation like this would undermine the regime established by the Act for applying to set aside a statutory demand by creating a fresh opportunity to dispute the existence of a debt when the statutory scheme is designed to ensure that such disputes should be raised within the period prescribed by the Act. There is also another appropriate occasion where the applicant may seek leave, pursuant to s. 459S of the Act, to advance its arguments about the character of the debt claimed and, more importantly, to assert its solvency, namely at the hearing of any winding up application."

[32] Accordingly both applications are dismissed. I shall hear the parties as to costs.

[1] [1995] HCA 43; (1995) 184 CLR 265.

[2] (1993) 12 ACSR 287.

[3] [2005] QSC 2 at [2].

[4] Exhibit DBS1 to the Affidavit of DB Stephenson sworn 22 May 2007.

[5] [1988] HCA 34; (1988) 165 CLR 71.

[6] David Grant & Co v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at p 270.

[7] [1988] HCA 34; (1988) 165 CLR 71.

[8] [1988] HCA 34; (1988) 165 CLR 71 at [16]- [17].

[9] [1995] HCA 43; (1995) 184 CLR 265.

[10] [2001] NSWSC 867; (2002) 165 FLR 72.

[11] [2001] NSWSC 867; (2002) 165 FLR 72 at [29].

[12] (1995) 19 ACSR 188.

[13] [2001] VSC 458; (2002) 40 ACSR 137.

[14] [2005] QSC 2.

[15] [2005] QSC 2 at [9].

[16] [2005] QSC 2 at [8].

[17] [2005] QSC 2.

[18] [2005] QSC 2 at [15].