In the matter of Forza Plumbing Systems Pty Ltd (ACN 152 442 978) [2013] NSWSC 1234

Judgment (Ex tempore) 1HIS HONOUR: By originating process filed on 15 March 2013, the plaintiff Forza Plumbing Services Pty Limited seeks relief pursuant to (Cth) Corporations Act 2001 ss 459G, 459H and 459J by way of an order setting aside a statutory demand dated 21 February 2013 and served on it by the defendant BCP Plumbing Pty Limited. The statutory demand claimed a debt of $56,403.12, said to be the balance of a consulting fee of $110,000 after a number of payments made up to the date of the demand. It was verified by an affidavit of Brendan Paul Carson sworn 21 February 2013. No issue arose as to timely filing and service of the originating process. 2The first question is whether, as the plaintiff contends, there is a genuine dispute as to whether the debt is due and payable. In this respect, at least as the hearing progressed, it became clear that it was not in issue that the amount referred to in the demand was owed by the plaintiff to the defendant. However, the plaintiff's principal case was that, while it was owing, it was not due and payable and, therefore, not available to found a demand. 3The plaintiff is the trustee of a unit trust called the Ding Ji Sui Guan Trading Trust, a unit trust in which there are three equal unit holders: Mackay Family Nominees Pty Limited, as trustee for the Mackay Family Trust and whose director is Brendan Carson, the same Mr Carson who is the director and sole shareholder of BPC Plumbing; secondly, JDPHL Pty Limited, as trustee of the JDPHL unit trust, whose director and shareholder is Mr Paul Hanson, who is also the sole shareholder in and director of the plaintiff; and Houston Plumbing Services Pty Limited, as trustee of the Greg Houston Family Trust, whose principal is one Greg Houston. The trust carries on the business of importing from China certain plumbing products. 4According to Mr Hanson, who swore the s 459G affidavit for the plaintiff, the transaction that gave rise to the debt claimed in the demand occurred in about June 2011. Other evidence enables this to be fixed more or less at about 12 June 2011, when relevant entries were made in the ledgers of the plaintiff. According to Mr Hanson, at about that time it became apparent that there were profits of approximately $300,000 available in the trust, and that to minimise taxation it was advisable to have those funds distributed to the unit holders or their nominees as "consultancy fees" for services rendered. 5According to Mr Hanson, he, Mr Houston and Mr Carson had a conversation to the following effect: Hanson: Apparently to minimise tax obligations we can pay consultancy fees down to us. If we can agree on an amount then we can pay the consultancy fees down over time and subject to cash flow. Carson: How often would they be paid, these consultancy fees? Hanson: Ideally monthly but subject to availability of cash flow and funds. Carson: I could do with the money. 6The plaintiff's "consultancy fees" ledger reveals that, with effect from 30 June 2011 amounts of $100,000 were accrued, by way of consultancy fees, to the defendant and to Greg Houston and $50,000 to each of Wida Plumbing Services Pty Limited and Hodge Group. 7There is conflicting evidence and explanations to explain the accrual for Wida and Hodge Group, but Mr Hanson says that he arranged an offset of $55,000 of the consultancy fees against a debt owed to the trust by his company Wida Plumbing Services. Elsewhere, his solicitors assert that a similar amount was offset against a loan owed by another of his companies to the plaintiff. The differences between $110,000 and $100,000 (and $55,000 and $50,000) are presumably due to GST. 8In any event, Mr Carson, in his affidavit, says that in the financial year in question the trust had made an operating profit before tax in excess of $300,000 and that, on or about 30 June, the three principals met and agreed that the trust would pay each of their entities, as consultancy fees, a sum of $100,000 plus GST in recognition of services performed. Mr Carson says that he nominated the defendant as the entity to receive his consultancy fee. Mr Carson says that at the time of this discussion "we did not talk about how or when they would be paid". He did not immediately press for payment "because I was content at that time for the funds to remain in the trust to expand the business, given the Mackay's one-third interest." 9When the evidence of both the protagonists and the entries in the ledgers and the accounts are considered, it is clear enough that with effect from 30 June 2011, the unit holders in the trust agreed to distribute available profits by way of consultancy fees (rather than by way of distribution of dividend), presumably for taxation reasons, and that each would receive $110,000 in that way. 10The affidavit of William Allan Tyrrell, filed in Court only today, demonstrates that $110,000 remains owing to Greg Houston Plumbing Pty Limited; that $56,403.12, the amount claim in the demand, remains owing to BPC Plumbing Pty Limited; and that an amount of $55,000 remains owing to Hodge Group Pty Limited. It is rather more difficult to work out exactly what has become of the consulting fee in respect of Mr Hanson's interest. However, the fact that those amounts remain outstanding, and that Mr Carson, on his own evidence, did not immediately press for payment but was content for the funds to remain in the trust, lends some credence to the contention that there was no contemplation that the funds would be paid immediately and in one sum. I do not think it detracts from this that the payment of consultancy fees was undoubtedly accrued as an expense of the plaintiff in the 2011 tax year and incurred as income by the defendant (and no doubt the other payees) in that year. That is because, to obtain the tax advantage in question, it was necessary that it be treated as a payment in that year, which has as a necessary corollary that it be treated as income in that year on an accruals basis. That does not mean that on a contractual basis it was due and payable at the same time as it was accrued. 11Moreover, Mr Carson gives evidence that, having included the consultancy fee as part of the defendant's income returned for the 2011 year, he incurred a tax debt in respect of it. Mr Hanson, on his behalf, negotiated a payment arrangement with the Tax Office. Although Mr Carson says in his affidavit that the payment arrangement required BPC to pay $2,000 per fortnight commencing 18 May 2012, examination of the payment plan (at Court Book page 261) reveals that it in fact provided for payment of $2,000 on a four weekly, not a fortnightly basis, from 18 May 2012 until the debt was repaid finally on 30 November 2012. However, in the context of that payment arrangement, according to Mr Carson: Paul then offered that Forza, (being the trustee of the trust from 1 January 2012) would pay BPC Plumbing $2,000 per fortnight. The first such payment was made on 18 May 2012. From July 2012 Paul increased the payments to $5,000. To the best of my recollection, this occurred without my request. 12I interpose that Mr Hanson says otherwise, and says that the increase was in response to threats made to him by Mr Carson. I do not need to resolve that issue because, for present purposes, accepting Mr Carson's version, that would involve a voluntary - that is to say without consideration - increase in the amount of the payments made above those payable under the instalment plan between the plaintiff and the defendant. 13It seems to me, on that basis, that it must be arguable that, at least by 18 May 2012, the agreement between the plaintiff and the defendant was that the consultancy fee of $110,000 - or more precisely the balance of it after a payment of $7,397 that had already been made - would be paid off by instalments of $2,000 per fortnight. In fact, as the demand itself reveals, payments of $2,000 were made on 18 May, 1 June, 20 June and 28 June 2012, and also on 13 July 2012. Payments of $5,000 were made on 6 July, 20 July, 27 July, 9 August, 10 August and two on 28 August 2012. An additional payment of $1,200 was also made on 6 July 2012. Together, they reduced the indebtedness to $56,403. If payments had been made at the rate of $2,000 per fortnight, in accordance with the instalment plan from 18 May 2012, that would have reduced the debt only to $63,603. Accordingly, on the date at which the demand was issued, the plaintiff was, on that analysis, ahead of the instalment plan and it could not, in those circumstances, be said that any amount was then due and payable by the plaintiff to the defendant. 14On that footing, it seems to me that applying the undemanding test required to establish a genuine dispute in this context, that the plaintiff has established a genuine dispute as to whether the amount claimed in the demand or any amount was due and payable by it to the defendant as at the date of the demand on 21 February 2013. 15Had I not come to that conclusion, it would have been necessary to consider an alternative argument. The accounts tendered through Mr Tyrrell's affidavit this morning show that each of the three unit holders, including the trustee of the Mackay Family Trust, is indebted to the plaintiff for $152,625.13. 16The plaintiff's affidavit explained, in paragraph 22, that these debts arose when Forza Plumbing Supplies, the previous trustee, financed the buying out of a previous unit holder, Pinbah Pty Limited, by lending each of the other unit holders $150,000. On that basis it seems distinctly arguable that the trustee of the Mackay Family Trust (of which Mr Carson is the sole director and shareholder), is indebted to the plaintiff for $152,000. As has been mentioned, Mr Carson is also the sole director and shareholder of the defendant, which is owed some $56,403 by the plaintiff. 17The question would have been whether, although there was not an offsetting claim in the strict sense, the identity of the beneficial interests in the Mackay Family Trust and BPC Plumbing, coupled with the circumstance that the indebtedness to BPC Plumbing was, in effect, a notional distribution of profits made by agreement between and at the direction of the unit holders in the trust, would have amounted to "some other reason" to set aside the demand. 18While I am, prima facie, attracted to the view that it would, there is at least a serious doubt whether such an argument is sufficiently raised on the s 459G affidavit to comply with the Graywinter principle and, in any event, Mr Cassimatis, who appeared for the defendant, sought an adjournment to consider and obtain instructions on the very late affidavit of Mr Tyrrell. Had this question been dispositive, I would have acceded to that application but, as I have been able to decide the case on the primary basis argued, it is unnecessary to do so. 19For the foregoing reasons, however, in my view the plaintiff has succeeded in surmounting the low threshold required to establish a genuine dispute as to whether the debt in question is due and payable and, in those circumstances, the creditor's statutory demand must be set aside. 20I order that the creditor's statutory demand dated 21 February 2013 by the defendant to the plaintiff be set aside. I order that the defendant pay the plaintiff's costs assessed in the sum of $10,000.