In the matter of Brookhollow Investments Pty Limited

Legislation Cited: - Corporations Act 2001 (Cth) s 459S

Cases Cited: - Consolidated Constructions Pty Ltd; Re The Satellite Group Limited (2000) 35 ACSR 565; [2000] NSWSC 984
- Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290
- Re Garslev Holdings Pty Ltd [2023] NSWSC 609
- Re Vangory Holdings Pty Ltd [2015] NSWSC 546
- Switz Pty Ltd v Glowbind Pty Ltd [2000] 48 NSWLR 661; [2000] NSWCA 37

Category: Procedural rulings

Parties: Assetinsure Pty Ltd (Plaintiff/Respondent)
Brookhollow Investments Pty Ltd (Defendant/Applicant)

Representation: Counsel:
T E O’Brien (Plaintiff/Respondent)
G D McDonald (Defendant/Applicant)
Solicitors:
Polczynski Robinson (Plaintiff/Respondent)
Emerson Lewis (Defendant/Applicant)

File Number(s): 2025/65964

JUDGMENT – ex tempore (Revised 15 May 2025)

Nature of the application

1. By Originating Process filed on 19 February 2025, the Plaintiff, Assetinsure Pty Ltd (“Assetinsure”) applies to wind up the Defendant, Brookhollow Investments Pty Ltd (“Brookhollow) on the basis of the presumption of insolvency arising from an unsatisfied creditor’s statutory demand (“Demand”). That Demand was issued on 28 October 2024 and claimed the amount of $1,348,668.02 being the total of two amounts paid out by Assetinsure in respect of unconditional undertakings issued by Assetinsure, for which Assetinsure contends that Brookhollow is guarantor, plus a relativity small amount of legal costs. The Demand was issued some six months ago, although the winding up application was filed on 19 February 2025, in the context that no application was made by Brookhollow to set aside the Demand.

2. Now, by Interlocutory Process filed on 9 May 2025, again some six months or so after the Demand, Brookhollow seeks leave under s 459S of the Corporations Act 2001 (Cth) to oppose the winding-up application on the ground that it disputes the debt claimed in the Demand. I will first refer to the applicable evidence, and then to the principles by which this application is to be determined.

Affidavit and other evidence

3. Brookhollow tenders a Deed of Indemnity and Guarantee dated 6 March 2018 (“Deed”) between Assetinsure and other parties including Quasar Constructions (Commercial) Pty Ltd (“Quasar Constructions”), which refers to guarantors as specified in item 1 of Schedule 1. The Deed includes a document described as "Schedule", which also has in the top right-hand side of the page a reference to Schedule 2, which records, in part 1, the guarantors as including, inter alia Brookhollow in its own right and as trustee for the Brookhollow Unit Trust.

4. Mr McDonald, who appears for Brookhollow, seeks to develop a point of construction, namely that the Schedule, because it is described at the top right at Schedule 2, does not identify the guarantors, notwithstanding the reference in it in Part 1 to the guarantors, and the identification of Brookhollow as a guarantor. It is not necessary or appropriate to determine the strength of that argument for the purposes of this application. Mr McDonald also points to cl 3.1 of the Deed, which is an unconditional guarantee of Assetinsure's obligations by the guarantors and emphasises the language of that clause in its second sentence, that:

“The guarantor must upon demand immediately pay to Assetinsure any guaranteed money owing by the Contractor under this deed which is not paid on its due date.”

5. Mr McDonald also draws attention to an unconditional indemnity in cl 3.2 of the Deed which again requires payment "upon demand". The language of those clauses underpins a dispute that Brookhollow seeks to raise in respect of the debt claimed in the Demand, as to whether Assetinsure has issued the necessary demand for payment of the debt under the guarantee or at least has issued the necessary demand under the guarantee to Brookhollow, prior to issue of the Demand.

6. Brookhollow also reads the affidavit dated 18 March 2025 of Mr Ross, who was, at the date the Demand was issued, one of the two directors of Brookhollow. Mr Ross there sets out the then assets of Brookhollow, prior to a subsequent step taken, to which Mr McDonald draws attention, by which the amount then held by Brookhollow in a bank account was reduced by partial discharge of a liability owed to National Australia Bank in respect of a facility. Mr Ross there refers to the fact that Brookhollow is the registered proprietor of two commercial properties situated at Baulkham Hills; there are several leases registered against the title of one of those properties, which include a lease for two suites to Quasar Constructions which is now in liquidation and is no longer paying rent on the premises; and Mr Ross there refers to the substantial value of the relevant properties, as determined by an external valuation that is, admittedly, now some two or so years out of date.

7. Mr Ross there contends that Brookhollow is solvent. Rightly, in my view, Mr McDonald now accepts that that is not the case, as matters stand, if the debt is owed to Assetinsure, since Brookhollow has been unable to refinance its real property assets so as to borrow upon them or otherwise realise their value in a manner that would allow it to pay the debt owed to Assetinsure when due. I return to the significance of that proposition for this application below.

8. Mr Ross there noted that he had sought advice as to Assetinsure’s claim, which, I pause to note, was by that time a winding up application based on the unsatisfied Demand, and identified several "concerns" as to aspects of that claim, including whether the Deed was entered into by Brookhollow in breach of the terms of the trust; whether the bonds that underlie the Deed were validly issued; and Brookhollow's entitlement to seek contribution from co-guarantors for indemnification from Quasar Constructions. Two aspects of that evidence are notable, given Mr McDonald's submissions. The first is that Mr Ross did not there appear to have any doubt that Brookhollow was in fact party to the Deed, notwithstanding any question as to the reference to "Schedule 2" in the schedule to that Deed. The second is, no question was then raised as to whether a prior demand had been made upon Brookhollow as required by the Deed.

9. Mr McDonald has also taken me, in submissions, to the balance sheet of the Brookhollow Unit Trust, for which Brookhollow is trustee, for the year ended 30 June 2024. That balance sheet shows an excess of assets over liabilities but, as Mr McDonald rightly recognises, the then excess of assets over liabilities cannot establish solvency, unless it is possible to realise those assets in a manner which will allow Brookhollow to pay its debts as and when they fall due.

10. By a second affidavit dated 9 May 2025, sworn in support of the application brought under s 459S of the Act, Mr Ross refers to his first affidavit filed in the proceedings and notes that he and Mr Honan were directors of Brookhollow from 5 June 2024 until late November 2024 when Mr Honan resigned as a director of Brookhollow. That is of some significance because, as I noted above, the Demand was issued on 28 October 2024, and the 21 day period in respect of the Demand likely expired by late November 2024, while Mr Honan remained a director of Brookhollow. Assetinsure in turn tenders part of an affidavit dated 1 May 2025 sworn by Mr Calabretta, Brookhollow's solicitor in the proceedings, which indicates that Mr Honan was, as of late April 2025, taking steps to recreate Brookhollow's accounts and expected to have that task completed by the end of that week. That is of some significance because, as Mr O'Brien, who appears for Assetinsure, points out, it indicates that Mr Honan remains available to Brookhollow and is indeed doing work for Brookhollow in respect to these proceedings. Mr Honan did not give evidence as to the steps which he took, if any, to respond to that Demand when it was received.

11. Returning to Mr Ross's second affidavit, he again sets out the nature of the property holdings of Brookhollow and refers to the history of the voluntary administration and then liquidation of Quasar Constructions and to the issue of the Demand by Assetinsure. Significantly, he points to the fact that, about a month prior to Mr Honan's resignation as a director of Brookhollow, on 31 October 2024, Mr Honan sent him an email attaching the Demand issued by Assetinsure. That indicates that, at that time, both Mr Ross and Mr Honan knew of the issue of that Demand.

12. Mr Ross's evidence is that, prior to the receipt of the Demand on 31 October 2024 from Mr Honan, he does not "recall" ever seeing any invoice from Assetinsure issued to Brookhollow or any letter of demand issued by Assetinsure to Brookhollow, implicitly under the Deed. He indicates that at that time, he was attending Brookhollow's office every second day or so. There are significant deficiencies in that evidence. The first is that it is evidence of non-recollection, not evidence of non-receipt of such a prior demand issued by Assetinsure to Brookhollow. The second is that it does not address the position of receipt of a demand under the Deed by Mr Honan, or by any other member of the staff or executive, on Brookhollow’s behalf. In applications of this kind, it is not unusual to see evidence, for example, as to enquiries made of other persons to determine whether they have received a document, but non-receipt is not established, nor is any question of non-receipt raised, merely by one officer of the company saying that he or she does not recall receiving a particular document, where that leaves open the possibility that other officers of the company have received that document.

13. I have not neglected the fact that Mr McDonald places emphasis upon the fact that Assetinsure does not lead evidence to establish that it had issued a prior demand to Brookhollow under the guarantee, prior to the issue of the Demand. However, the onus in establishing a genuine dispute, and the onus in establishing an application for leave under s 459S of the Act, rests on Brookhollow. Assetinsure is under no obligation to establish any matter, unless and until Brookhollow leads sufficient evidence to shift any evidentiary onus to it. Here, it does not seem to me that the evidence rises to that point, because it does not go beyond Mr Ross' lack of recollection to raise any basis for an inference that Brookhollow had not received a prior demand issued by Assetinsure, which could shift any evidentiary onus upon Assetinsure to lead evidence in response.

14. Mr Ross in return refers to subsequent communications in respect of the Demand with Mr Honan, and consultations with a solicitor and senior barrister, although Mr Ross expresses a degree of uncertainty as to who those persons were acting for. During the period in which those conversations were taking place, no application to set aside the Demand was made. Mr Ross does, however, refer to other steps which were taken, including Mr Honan's organising a without prejudice meeting with representatives of Assetinsure and representatives of unitholders in the Brookhollow Unit Trust, Brookhollow and a third party. Mr Ross’ evidence is that he did not attend that meeting.

15. Mr Ross' evidence is that, in late November 2024, by which point the 21 day period in respect of the Demand would have already expired or be close to expiring, he did not turn his mind to make any application to set it aside, and he is not aware that any legal advice was given to Brookhollow about making or not making that application. Again, two things should be noted about that evidence. First, it may be understandable that Mr Ross did not address that issue, where Mr Honan appears to have had a greater role in dealing with the Demand, but that is no explanation of Brookhollow's failure to respond to the Demand, if it had a basis to raise a genuine dispute as to the debt claimed. Second, Mr Ross’ lack of awareness of the legal advice given to Brookhollow does not advance matters, because it does not establish that Brookhollow was not given legal advice in respect of the matter, received by Mr Honan rather than Mr Ross.

16. Mr Ross in turn further addresses the question of solvency but, as I noted above, his evidence ultimately appears to reduce to the proposition that Brookhollow is presently able to pay “ordinary” debts, other than the debt owed to Assetinsure, as and when they fell due; but is not able to pay the debt owed to Assetinsure, other than by a refinancing which to date it has been unable to achieve, although it hopes to achieve it in the future. The position is, as Mr McDonald rightly accepts, that Brookhollow may therefore be solvent if the debt is not owed to Assetinsure; it is not presently solvent, if the debt is owed to Assetinsure; and Brookhollow has a hope that the position will change, if it is able to achieve a refinancing in the future which it cannot achieve in the present.

The applicable principles

17. Mr McDonald rightly pointed to the fact that the applicable principles in this area are well-established and he draws attention to the summary of those principles by Nixon J in his recent decision in Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290 (“Kong v Kong”). Before turning to that summary, I should address several other decisions to which Mr McDonald referred.

18. First, Mr McDonald referred to Consolidated Constructions Pty Ltd; Re The Satellite Group Limited (2000) 35 ACSR 565; [2000] NSWSC 984, where Santow J referred to the question of what evidence may be needed in an application of this kind. His Honour noted that the explanation in that case for the failure to move to set aside a creditor’s statutory demand lacked cogency, but was not "so deficient as an explanation as to disqualify" the defendant company at the threshold. I do not read that decision as indicating any requirement for "deficiency" of evidence in order to decline leave under s 459S of the Act. Rather, his Honour's observation is directed to the fact that s 459S of the Act allows the Court a discretion, to be exercised by reference to several factors, to which I will refer below. The weakness of evidence as to one of those factors is not "disqualifying" in any strict sense, although his Honour rightly recognised that the lack of cogency of such evidence, weighed with other factors, would tend against a successful application.

19. Mr McDonald also refers to my review of the relevant principes in Re Vangory Holdings Pty Ltd [2015] NSWSC 546 (“Vangory”), to which Nixon J subsequently referred in Kong v Kong, where I referred to the scope of the section and (at [10]) to the matters relevant to an application for leave under s 459S of the Act, namely whether there is a serious question to be tried on the ground sought to be raised; the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor’s statutory demand, involving an evaluation of the reasonableness of the debtor's conduct at the time when the application might have been made; and whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent. I also there noted (at [20]) that the reasonableness of the company's conduct can be taken into account in assessing the sufficiency of the explanation to raise a ground of opposition to the creditor’s statutory demand in time and that leave is less likely to be granted where there is some default on the part of the company or its advisors in that regard.

20. Mr McDonald also refers to the observations of Hammerschlag CJ in Eq in Re Garslev Holdings Pty Ltd [2023] NSWSC 609 at [11], where his Honour expressed the view that the position taken in several previous cases, to the fact that the discretion under s 459S of the Act should be used "cautiously, and even sparingly" given the policy of Pt 5.4 was not correct. His Honour there expressed caution as to an approach taken in case law that reads down the circumstances in which a particular discretion should be exercised, and I appreciate that there are observations in the case law which caution against that approach. His Honour went on to acknowledge, rightly, at [15] that:

“Plainly the court must keep steadily in mind the policy of Pt 5.4 to avoid a dispute as to the existence of the debt being litigated at the time of the winding-up application...".

21. His Honour then went on to note that:

“An approach which notionally permits of the result, in the same set of circumstances, that leave is granted where no pre-imposed caution or reluctance is exercised, but leave is refused if it is, cannot, in my opinion, be sound. Each application must be carefully scrutinised. However, scrutiny is not equivalent to caution or reluctance.”

22. It seems to me that the reference in earlier cases to "caution" and the "sparing" exercise of the discretion reflects no more than the recognition of the statutory policy of Pt 5.4, to which his Honour referred that an application to set aside a creditors' statutory demand for a genuine dispute should ordinarily be brought within the 21 day period specified in the Act before a presumption of insolvency arises and not in a winding-up application. It does not seem to me that that approach raises any real prospect that, in any particular case, any such caution or sparing exercise of the discretion, would lead to a different result than the application of the statutory policy would require, and I do not understand the earlier case law to be inconsistent with the proposition that each application must be carefully scrutinised on is merits. In any event, it seems to me that neither the caution nor sparing exercise of the discretion to which earlier cases referred, nor the absence of any presumption to which Hammerschlag CJ in Eq referred, would make the slightest difference in this application, or in many applications of this character.

23. In Kong v Kong, to which Mr McDonald referred, Nixon J in turn reviewed the applicable principles, by reference to Vangory, and also pointed to the distinction between the "strict" and the "broader" approach to the question of the materiality of a ground of dispute to proving whether the debtor is solvent, with reference to the Court of Appeal’s approach in Switz Pty Ltd v Glowbind Pty Ltd [2000] 48 NSWLR 661; [2000] NSWCA 37. Here, as in many cases, it is not necessary to distinguish between the two approaches. Mr McDonald rightly accepts that, as matters stand, Brookhollow would be insolvent if the debt to Assetinsure is due and payable. In those circumstances, it would satisfy even the "strict" approach to materiality, as formulated on the narrower view.

Determination

24. I here have regard to the matters noted above that are relevant to an application under s 459S of the Act, and to all of the circumstances, in determining whether leave should be granted under that section. It is doubtful that a serious question to be tried is raised, on the evidence, as to whether the Demand could be set aside on the basis that a genuine dispute exists as to the debt claimed in the Demand. The two bases on which that dispute were raised were, first, the possibility that the reference in the Schedule to the Deed to Brookhollow, as a party to the guarantee, was not operative, but that proposition is significantly undermined by Mr Ross evidence which recognised that Brookhollow was party to the guarantee as guarantor. The second proposition was the possible absence of an earlier demand under the guarantee issued by Assetinsure, but it seems to me that there is no evidence that raises a real question as to that matter. Mr Ross' evidence here rises no higher than to establish a lack of recollection on his part as to whether he had seen such a demand issued under the guarantee and does not and cannot establish that other persons within Brookhollow, including most obviously Mr Honan, had not received a demand under the guarantee prior to the issue of the Demand.

25. The second question in an application of this kind is the sufficiency of the explanation as to why any genuine dispute was not raised in an earlier application to set aside the Demand. It seems to me that, here, the evidence does not provide sufficient explanation of that matter. In Kong v Kong, Nixon J pointed to the warning that appears on a creditor’s statutory demand as to the significance of the creditor’s statutory demand and the risk to which a party is exposed by taking no application to set it aside. Here, the Demand was received by Brookhollow, which had an accountant as one of its directors, and the evidence indicates that some steps were taken to seek to meet with Assetinsure in respect of the debt which is the subject of the Demand. Mr Ross' evidence establishes his lack of involvement in a decision whether or not to apply to set aside the Demand, and no attempt is made to address Mr Honan's involvement in that matter. There is, for example, no suggestion that lack of knowledge, inadvertence, or some other accident, led to Brookhollow’s failure to bring an application to set aside the Demand, in a timely way, in the present circumstances. It seems to me that, to use the language of the cases, the evidence explaining the lack of an application to set aside the Demand lacks cogency and provides little basis for the leave that is here sought.

26. The third relevant matter is the materiality of the relevant ground, namely any genuine dispute as to the debt owed to Assetinsure, to prove that Brookhollow is solvent. I accept that, on the position that Mr McDonald has now rightly articulated, the existence of the debt owed to Assetinsure is highly material to the solvency of Brookhollow, where Brookhollow accepts that it is now insolvent, if that debt is owed.

27. It seems to me that, in these circumstances, notwithstanding the materiality of the question of the existence of the debt to Brookhollow's insolvency, the weakness of the basis on which a dispute is raised as to the debt underlying the Demand, and the lack of cogency of any explanation of Brookhollow’s failure to move to set aside the Demand promptly, is such that I should not exercise the Court's discretion to grant leave under s 459S of the Act to Brookhollow to oppose the winding-up application on the ground that Brookhollow disputes the debt.

Orders

28. The interlocutory application filed on 9 May 2025 is dismissed with costs.

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