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2By originating process filed on 6 March 2012, the company seeks an order pursuant to s 459G setting aside the statutory demand. 3No complaint is made about the form of the demand, nor is there any dispute about service, nor that the application was brought within time. The sole issue is whether, for the purposes of s 459H, there is a genuine dispute between the company and the defendants about the existence or amount of the debt to which the demand relates, and/or whether the company has an offsetting claim. 4The debt claimed arises out of the purchase by the company from the defendants of shares in a group of three companies; namely, Wingaway Air Pty Ltd (Wingaway), Heron Airlines Travel Pty Ltd (Heron) and Avtex Air Services Pty Ltd (Avtex). By a share sale agreement made on 22 July 2011 between the defendants as vendor and the company as purchaser, the defendants agreed to sell and the company agreed to purchase shares in Wingaway and Heron for a total consideration of $2.3 million. 5Annexure B to that agreement relevantly provided as follows: Timing of Payment under Clause 3 The consideration referred to in Clause 3 is payable as to a deposit of $200,000 or security as agreed, and $800,000 (the Financed Amount) by 30 June 2011 or such later dates as the parties may agree, and $1,300,000 (the Vendor Finance) by equal monthly instalments until 30 June 2014 (Settlement). The Vendor acknowledges that the deposit of $200,000 has been paid as to $100,000 with the balance of $100,000 to be paid by 31 October 2011 and for which adequate security has been given in the form of a motor vessel (value $250,000). ... These monthly payments to the Vendor will include any other payments due by the Purchaser to the Vendor pursuant to this Agreement or the Agreement for Sale of Shares in Avtex Aviation Pty Limited entered into around the same time as this agreement (the Avtex Agreement). 6Annexure C to that agreement provides as follows: Undistributed Profits and Long Service Leave and Holiday Pay Obligations The Vendor and Purchaser agree and acknowledge that an agreed amount of undistributed profits existed in Wingaway at 30 June 2011 of $580,000 which is to be distributed to the Vendors (the Undistributed Profits). In addition for the purposes of this Agreement certain amounts of Long Service Leave and Holiday Pay (the LSL amount) are owing to staff of Wingaway and Heron as at the date of this Agreement. The LSL amount is agreed to be $85,000 and is to be paid out by Wingaway forthwith. It is agreed that the Undistributed Profits have been or will be reduced by: a) an amount of $200,000 previously paid as a dividend to the Vendors, plus b) an amount of $145,000 to be paid to the Vendors during July 2011 as a further dividend, plus c) the LSL amount of $85,000 The balance of the Undistributed Profits being $150,000 will be withheld by Wingaway until such time as the Workers Compensation Audit currently being undertaken is completed. Once completed any amount payable pursuant to the audit will be deducted from the said balance of the Undistributed Profits. 7Also on 22 July 2011, the defendants as vendor and the company as purchaser agreed, by share sale agreement made that day, that the defendants would sell and the company purchase the shares in Avtex Air Services Pty Ltd, for a consideration of $200,000. 8Annexure B to that agreement provided as follows: Timing of the Payments Under Clause 3 and Long Service Leave The Vendor and Purchaser acknowledge and agree that for the purposes of this agreement that certain amounts of Long Service Leave and Holiday Pay (the LSL amount) are owing to staff... The LSL amount are [sic] agreed to total $70,000 and this amount is to be deducted from the Consideration referred to in Clause 3. Approximately $28,000 of this LSL amount has already been paid out leaving approximately $42,000 to be paid. This remainder will be paid by Avyex at the rate of approximately $14,000 per month for the next 3 months until 30 September 2011. The Consideration referred to in Clause 3 will then be reduced by an amount equal to the LSL amount of $70,000 and the balance of the Consideration being $130,000 will then be payable by 12 equal monthly instalments by the Purchaser to the Vendor commencing from the time when the LSL amount is fully paid out, which should be by 30 September 2011. 9Contemporaneously with those agreements, on 22 July 2011, the transfers of the shares the subject of the sales were approved and registered. The first defendant resigned as a director, and Mr Seller, the principal of the company, was appointed a director and secretary of each of the companies in which the share sales took place. 10It will be observed from the part of annexure B to the first of the agreements to which I have referred above, that the consideration was payable under the agreement, as to a deposit of $200,000 which was acknowledged to have been paid or secured in lieu of payment, and as to $800,000 by 30 June 2011 or such later date as the parties may agree. While it might be assumed that they had agreed to some later date by virtue of the agreement itself being dated 22 July 2011, there is no evidence otherwise as to agreement on a later date, or as to the $1.3 million to be paid by vendor finance. 11The company endeavoured to obtain finance from a financier for the sum of $800,000, but was unsuccessful in doing so. On 13 October 2011, Aquatic Air (another company under the control of Mr Seller), Wingaway, Heron and the company entered into a number of further agreements with the defendants. Chief amongst them, for present purposes, is a security agreement which recites the share sale agreement, and that the share sale agreement provided that the purchase price was to be paid by the company to Mr and Mrs Siewert as follows: B The Share Sale Agreement provides that the Purchase Price is to be paid by the AT Air Group to Siewert as follows: (1) two hundred thousand dollars ($200,000) on or prior to the date of that agreement which has been received by Siewert; (2) eight hundred thousand dollars ($800,000) on or prior to 30 June 2011 or such later date as the parties agree; and (3) one million three hundred thousand dollars ($1,300,000) by equal monthly instalments until 30 June 2014 which has been received by Siewert as to $110,000. 12The security agreement further recited in recital C that the company had not paid part of the purchase price in accordance with the share sale agreement. It will be observed from recital B set out above that the vendor finance component was regarded as having been paid to the extent of $110,000, but the finance amount of $800,000 had not been paid. 13Clause 2.1 provided that, except to the extent that the document expressly otherwise provided, it did not affect a person's rights, obligations, powers or remedies under the share sale agreement. 14By cl 3.1, Mr and Mrs Siewert acknowledged that they had received an amount of $310,000 from the company, on account of part payment of the purchase price. This appears to comprise $100,000 paid at the outset by an associated company of Mr Seller's as the deposit, a further $100,000 subsequently paid as the balance of the deposit, which had not until that point been secured, and $110,000 treated as payments of the vendor finance, and appropriated for that purpose by Mr and Mrs Siewert from the bank accounts of the companies in which the shares were sold, which accounts had apparently, contrary to the provisions of the share sale agreement, not been transferred to the control of the company and Mr Seller. 15Otherwise, by cl 3.2, the company acknowledged that it was indebted to the defendants in the amount of the secured money on account of the delayed payment of the purchase price. For that purpose, "secured money" was defined as $1,190,000, being the remainder of the purchase price payable under the share sale agreement and the security agreement. 16Clause 3.3 provided as follows: 3.3 Repayment (1) The Secured Money must be paid in full by AT Air Group to Siewert on or before 30 June 2014 (Repayment Date). (2) The Secured Money is to be paid by AT Air Group in the following manner: (a) equal monthly instalments of $30,000.00 plus interest with the first instalment payable on 31 October 2011; and (b) the remainder of the Secured money (including interest) by the Repayment Date. (3) The Secured Money must be paid in accordance with paragraph (2) by electronic funds transfer (on a direct debit basis) to the account nominated by Siewert from time to time. If required, AT Air Group and the Security providers must sign and authorise all necessary documents (including direct debit forms) to give effect to the preceding sentence. (4) AT Air Group may pay the Secured Money or any part thereof and accrued Interest to Siewert prior to the Repayment Date without penalty or charge. 17By cl 5, Aquatic Air, which owned a property in Pearl Bay Avenue, Beauty Point, appointed Mr Siewert its power of attorney to sell that property, which was believed to be worth about $2.5 million, to repay the outstanding mortgage to the National Australia Bank of $1.8 million, and to pay the balance to the defendants, in return for which the purchase price was reduced by a further $700,000 to $1.29 million. A call option deed was entered into, better to perfect the obligations created by that clause. 18It is not in dispute that instalments payable under the security agreement for the period 13 October 2011 to the date of the demand were not paid; nor is it in dispute that, save for $10,000 appropriated from the Avtex account, the balance under the Avtex agreement has not been paid. However, the company says that it has at least an arguable claim to have the security agreement set aside, and a number of offsetting claims, and that the result of the appropriation of funds from the accounts of the companies in which the shares were sold is to satisfy part of its obligations under the security agreement. 19At the core of the company's case in this respect is the evidence of Mr Seller that, prior to execution of the 13 October security agreement, he had a conversation with Mr Siewert in which the latter said: I acknowledge that you have paid $310,000 so far for the shares. $200,000 was the initial deposit you paid. The further $110,000 I have transferred from the company's accounts since 22 July 2011. I have not transferred any other money from the company's bank accounts. 20Mr Seller says that he did not then have access to the company's bank accounts, and that he believed, at the time of entering into the security agreement, that the only amounts that had been paid from the company's bank accounts was $110,000. He says that the company and Aquatic entered into the October 2011 agreements in reliance on the assurance that no other moneys had been transferred from Heron's, or Wingaway's, bank accounts. 21In a subsequent affidavit, sworn in related proceedings in which the plaintiff seeks to have the security agreement set aside, he deposes that had he known "that Mr Siewert had been paid over $600,000 from the company's bank accounts, then he would not have signed the security agreement or the other documents I signed that day. I would have pursued debt finance with Scottish Pacific". Although counsel did not submit it, in so many words, I think one element of the defendants' case was that Mr Seller's assertion of reliance on such a representation in that way was inherently incredible, given the position in which he then found himself - being unable to raise the $800,000 due under the 22 July agreement - encountering difficulties in obtaining debtor finance, including the defendants' objections to that course, and enjoying the benefits accruing to him or to the company under the security agreement, including the reduction in price of $700,000, with the Siewerts effectively to bear the inconvenience and risk (although also the benefit of) the sale of the Mosman property. There is much to be said for that view. On the other hand, Mr Seller was not cross-examined, and the threshold on an application of this kind is not a high one. With some diffidence, I have come to the conclusion that it would be wrong to reject his evidence of reliance as inherently incredible, in the absence of his evidence having been tested, challenged or contradicted. Reference was also made to an e-mail emanating from Mr Seller on 16 September 2011, in which he had said, "There has been over $500,000 paid so far to Dieter under our arrangements...". Although that runs strongly contrary to the position he maintains in respect of reliance, Mr Marshall proffered from the bar table the possible explanation that it referred to some payments made before the 22 July agreement was executed, and I have taken that possible explanation into account in declining, on that ground, to find that Mr Seller's assertion is inherently incredible. 22That means that there is an arguable, if faintly arguable, case that the company's entry into the security agreement was procured by a misrepresentation. As to whether it is arguable that there was a misrepresentation, it is clear that most, if not all, of the payments appropriated by Mr Siewert appear to be payments that would have been due to the vendors under the 22 July agreement. On the other hand, it also seems uncontroverted that, under the 22 July agreement, control of the bank accounts should have passed to the company and Mr Seller, and not remained in the hands of Mr Siewert, and that Mr Siewert was not, in that sense, authorised to make payments or appropriate moneys out of the bank accounts. 23For that reason, I think the better view is that there is an argument that the security agreement might be set aside for misrepresentation. But if it were, that would result, as Mr Marshall acknowledges, in the parties being restored to the position in which they were under the 22 July agreement. Under that agreement, the company is undisputedly indebted to the defendants for the sum of $800,000, to which I have referred. It is probably also indebted in respect of some further amounts on account of the vendor finance; but the evidence and the submissions do not clearly quantify that, at this stage. 24I do not accept the submission that the $800,000 is a different debt from that referred to in the creditor's statutory demand. What the security agreement did was to take the purchase price under the original agreement and make a number of variations to the arrangements for its payment; but it did not lose the character of being the purchase price under the original agreement, although it made variations to how it was to be paid. 25In my view, the consequence is that, whatever may be said as to the balance of it, there is no genuine dispute that the company is indebted to the defendants to the extent of at least $800,000. The consequence of that, for the purpose of s 459H, is that I find that the admitted amount of the debt is $800,000. 26The company raised in its evidence and submissions three alleged offsetting claims. 27The first is referred to in paragraph 98(a) of Mr Seller's affidavit of 6 March 2012, said to be $105,323.86 for breach of a warranty in the Wingaway share sale agreement. This allegation does not rise above mere assertion, and there is no evidence to establish that there would be an arguable, let alone provable, offsetting claim in that respect. 28The same must be said of the claim, referred to in paragraph 98(b) of the same affidavit, for $82,906 for breach of a warranty in the Avtex share sale agreement relating to under-provision of employee retrenchment amounts. Indeed, Mr Marshall conceded that the particularity of the claim as advanced was inadequate to allow it to be maintained; a concession which I think must extend implicitly to that in paragraph 98(a) to which I have referred. 29Paragraph 98(c) of the same affidavit raises an offsetting claim for $60,360.71, advanced in respect of outgoings for the Mosman property, which Mr and Mrs Siewert were obliged to pay under clause 5.7 of the security agreement. This claim descends to significantly greater particularity and documentation. However, as explained by Mr Seller, "I caused AT Air Group (the company) through Wingaway to pay these amounts". What that appears to mean is that the amounts were paid by Wingaway, at the request of AT Air Group. Ordinarily, such a transaction would be reflected on loan account between AT Air Group and Wingaway. In any event, as between the payer and the Siewerts, if anyone had a claim, it would likely be Wingaway. In those circumstances, I am unable to be satisfied that the company has an offsetting claim in that respect. 30The consequence of those conclusions is that for the purposes of section 459H(2), the admitted total is $800,000 and there is no offsetting total. The substantiated amount of the demand is therefore $800,000. In those circumstances, I propose to make an order under section 459H(4) varying the demand, and declaring the demand to have had effect as so varied as from when it was served on the company. 31My orders are: (1)Order that the creditor's statutory demand dated 10 February 2012 and served 14 February 2012 be varied pursuant to s 459H(2) by substituting for the first sum of $1,197.030.82 the sum of $800,000, and by substituting for the total sum of $1,317,030.82 the sum of $920,000. (2)Declare that the demand has had effect as so varied as from 14 February 2012, upon which date it was served on the company. (3)Order that the originating process be otherwise dismissed. (4)Order that the plaintiff pay the defendants' costs assessed in the sum of $15,000. (5)Pursuant to section 459F(2)(a)(i), extend time for compliance with the creditor's statutory demand, as so varied, to 4 July 2012.