In the matter of Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) [2015] NSWSC 771

Supreme Court of NSW|2015-05-20|Before: Black J

A 243; (2005) 219 ALR 555 - Partners of Piper Alderman v Sharjade Pty Ltd [2011] NSWSC 6 - Primespace Property Investment Ltd v Vienne Pty Ltd [2015] FCA 326 - Re 8D Pty Ltd [2013] NSWSC 1297; (2013) 279 FLR 98 - Re Armcor Heating and Cooling Pty Ltd [2014] NSWSC 137 - Re Glenevan Pty Ltd [2015] NSWSC 201 - Re International Materials and Technologies Pty Ltd [2013] NSWSC 787; (2013) 282 FLR 362 - Re Marlan Financial Services Pty Ltd [1999] VSC 435; (1999) 33 ACSR 259 - Re Statewide Developments Pty Ltd [2011] NSWSC 1537 - Re Watson Road Moss Vale Developments Pty Ltd [2013] NSWSC 783 - Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 - Tomic Industries Pty Ltd [2012] NSWSC 1478 - Topfelt Pty Ltd v State Bank of New South Wales (1993) 120 ALR 155; 12 ACSR 381 - TQM Design and Construct Pty Ltd v Golden Plantation Pty Ltd [2011] NSWSC 500 - Ultimate Manufacturing Pty Ltd v Lyell Morris Pty Ltd (1995) 13 ACLC 1268 Category: Principal judgment Parties: Pran Central Shopping Centre Pty Ltd (Plaintiff) Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd (Defendant) Representation: Counsel: M S Henry (Plaintiff) R Mansted Defendant)

Solicitors: Kemp Strang (Plaintiff) Marque Lawyers (Defendant) File Number(s): 2015/14005

Judgment

By Originating Process filed on 15 January 2015, the Plaintiff, Pran Central Shopping Centre Pty Ltd ("Pran Central") seeks an order that the Defendant, Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) ("Company") be wound up under ss 459P and 459Q of the Corporations Act 2001 (Cth) and consequential orders for the appointment of liquidators and costs. The Originating Process identifies the grounds of the application as that, on 24 December 2014, a creditor's statutory demand dated 18 December 2014 ("Demand") was deemed served on the Company, which has failed to comply with the Demand.
Pran Central relies on affidavits of Ms Weiss dated 12 January 2015 and 16 February 2015, which are directed to service of the Demand, and on an affidavit of its Company Secretary, Mr Zucker, dated 15 January 2015 to prove non-payment of the amount claimed in the Demand. There is no contest in these proceedings that the amount claimed in the Demand was not paid. A further affidavit of Mr Zucker dated 17 April 2015 establishes that the amount of the rent now claimed to be due to Pran Central exceeds the amount initially claimed in the Demand. Pran Central also relies on an affidavit of the centre manager of the retail shopping centre situated in Prahran Victoria which relates to the circumstances in which the Company took out and commenced to occupy the relevant premises at that centre. Pran Central also relied on other formal evidence which is required in respect of a winding up application, which was not contested.

The nature of the Demand and background facts

The Demand was, as I noted above, dated 18 December 2014 and was served, in a practice that seems to me to be generally undesirable, immediately prior to the Christmas break, at a time that the Company was least likely to have staff available to direct adequate attention to it and its legal advisers were also least likely to be available. The Demand was addressed to the Company at its registered office, situated at a firm of accountants, and claimed a debt of $28,428.59, referable to invoices said to be dated 14 November 2014 (sic) and 12 November 2014. (One of those invoices was misdescribed since it was in fact dated 14 October 2014, but that misdescription was not raised by the parties and is unlikely to have caused confusion where a copy of the invoice was attached to the Demand.) The amounts claimed in the Demand related to rent, outgoings and promotion levies arising under a lease of retail shopping premises in a shopping centre in Victoria, in which an outlet was operated by a franchisee of the Company or of an entity associated with it.
The Demand identified the creditor as Pran Central and identified its registered office address in Sydney in its opening paragraph as follows: "The Company owes Pran Central Shopping Centre Pty Ltd (ACN [omitted]) of [address omitted], Sydney, NSW, 2000 ("the creditor") the amount of $28,428.59, being the total of the amounts of the debts described in the Schedule."
The Demand also specified the address of the creditor for service of copies of any application to set aside the Demand and supporting affidavit as: "Centre Management Office, Pran Central Shopping Centre, Level 1, 325 Chapple Street, Prahran Vic 3181 (Attention [name of centre manager]) Telephone: [number omitted] Fax: [number omitted]."
An affidavit accompanying the Demand, sworn by the Property Services Manager of Pran Central verified that the debt claimed was due and payable and that there was no genuine dispute as to its existence or amount.
There is evidence that the Demand did not come to the attention of the Company's accountant, who occupied the offices that were the Company's registered office until 8 January 2015, when a further letter dated 7 January 2015 attaching a copy of the Demand was delivered to that registered office, the Company's place of business and the director's residence, and Pran Central's General Counsel sent an email to the director of the Company enclosing a copy of that letter and the Demand. It appears the director of the Company was then, as might be expected, on holidays, and that email did not immediately come to his attention.
The Demand was referred by the Company to its solicitor by 12 January 2015, and that solicitor advised Pran Central's General Counsel that the Company had not received the Demand that had been addressed to its registered office, although he acknowledged the receipt of the letter dated 7 January 2015 enclosing the Demand. Pran Central's General Counsel then advised the solicitor that the time for compliance with the Demand would expire on a "generous calculation" on 14 January 2015 and that Pran Central intended to commence proceedings to have the Company wound up immediately after that date. The Company did not seek, between 12 January 2015 and 14 January 2015, to apply to set aside the Demand. Instead, on 13 January 2015, it changed its name from Charlie Lovett Pty Ltd to Leasing Holdings Pty Ltd and a new company was incorporated under the name Charlie Lovett Pty Ltd.
On 15 January 2015, consistent with the approach previously foreshadowed by Pran Central's General Counsel, Pran Central filed an Originating Process seeking an order that the Company be wound up and, on 19 January 2015, it sought the appointment of a provisional liquidator. The application for appointment of a provisional liquidator was resolved on the basis that the Company's director gave an undertaking to the Court in respect of dealings with the Company's assets.
By judgment delivered on 18 February 2015 ([2015] NSWSC 281), Brereton J granted leave under s 459S of the Corporations Act to the Company to oppose the winding up on the basis that there existed a genuine dispute between Pran Central and the Company as to the existence or amount of the debt to which the Demand relates.

The grounds of opposition to the Demand

Pran Central relies on service of the Demand and the presumption of insolvency that arises from the Company's non-compliance with it. By its notice of grounds of opposition to the winding up application filed under s 465C of the Corporations Act, the Company identifies five grounds of opposition to the winding up application, namely that (1) the Demand does not comply with s 459E(2) of the Corporations Act and is invalid and of no effect; (2) the Company did not fail to comply with the Demand within the meaning of s 459F of the Corporations Act, in circumstances that the Demand was not served on it; (3) if the Demand was served on or after 8 January 2015, the Originating Process dated 15 January 2015 did not comply with s 459Q of the Corporations Act and is invalid; (4) the Company does not owe Pran Central the amount alleged by the Demand by reason of a genuine dispute between the Company and Pran Central about the existence of the debt; and (5) the Company is able to pay all its debts, as and when they become due and payable. I will address those issues in turn.

Whether the Demand complies with s 459E(2) of the Corporations Act

As I noted above, the first basis on which the Company opposes the winding up is that the Demand does not comply with s 459E(2) of the Corporations Act. That section requires, inter alia, that a creditor's statutory demand must be in the prescribed form. The prescribed form is Form 509H which, in paragraph 6, requires a creditor's statutory demand to contain: "The address of the creditor for service of any copies of any application [to set aside a creditor's statutory demand] and affidavit is (insert the address for service of the documents in the State or Territory in which the Demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitor)."
As I noted above, the Demand served by Pran Central did not comply with the first requirement in paragraph 6, so far as it specified an address for service situated at the shopping centre in Victoria, not in New South Wales where Pran Central's registered office was situated and where the Demand had been served (or purportedly served) on the Company. The Company also contends that the specification of the address in the Demand is "problematic" so far as it identifies an individual, the centre manager, who was not a director of Pran Central on whom an application to set aside the Demand could be served and identifies a facsimile number for service of the Demand. The Company also contended that the Demand did not specify the address of solicitors acting for Pran Central, but there is no evidence that external solicitors were then acting for Pran Central in respect of the Demand.
Ms Mansted, who appears for the Company, rightly points out that, had the Company sought to serve an application to set aside the Demand at the address specified in Victoria, in the manner which paragraph 6 of the Demand invited it to do, that service would inevitably have been ineffective. Service of an application to set aside the Demand in Victoria would have needed to comply with s 9 of the Service and Execution of Process Act 1992 (Cth) which requires that such service take place either by leaving the relevant process at or sending it by post to Pran Central's registered office, which is situated in New South Wales, or serving it personally on a director resident in Australia. As Ms Mansted points out, service of an application to set aside the Demand at the shopping centre, which was not Pran Central's registered office, or by delivery to the centre manager who was not a director of Pran Central, or by facsimile to the number specified would not have complied with the requirements of that section: Elan Copra Trading Pty Ltd v JK International Pty Ltd [2005] SASC 501; (2005) 226 ALR 349; Re 8D Pty Ltd [2013] NSWSC 1297; (2013) 279 FLR 98. Ms Mansted submits, and I accept, that these matters had the consequence that the non-compliance with paragraph 6 of Form 509H had the potential to mislead the Company that service in the manner specified would be valid, when it would not comply with s 9 of the Service and Execution of Process Act. Ms Mansted also submits, and I also accept, that this deficiency would not have arisen had, in compliance with Form 509H, Pran Central's registered office in New South Wales been identified as the relevant address for service.
Ms Mansted refers to Topfelt Pty Ltd v State Bank of New South Wales (1993) 120 ALR 155 at 167; 12 ACSR 381, where Lockhart J observed that a deficiency in the form of a demand may be so fundamental that, despite s 467A of the Corporations Act, it is "incapable of assuming the description of statutory demands" within the meaning of the Corporations Act. In Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631, Dodds-Streeton J observed that only deficiencies of a gross and exceptional character would deny a document the status of a statutory demand. Ms Mansted also submits that the issues as to the specification of Pran Central's address are not merely a "defect" in the statutory demand, for the purposes of s 467A of the Corporations Act, so far as they have a misleading character, and that they deprive the Demand of the character of a creditor's statutory demand under the Act: Re International Materials & Technologies Pty Ltd [2013] NSWSC 787; (2013) 282 FLR 362 at [16]. In oral submissions, Ms Mansted submitted that the flaws in the Demand were of a misleading character and were so significant as to render that document not properly a creditor's statutory demand under the Corporations Act, or alternatively that the flaws in the Demand amounted to a substantial defect for the purposes of s 467A of the Corporations Act (T9).
Mr Henry, who appears for Pran Central, accepts that the Demand was not in the prescribed form so far as it specified an address for service for an application to set it aside in Victoria. However, Mr Henry submits that, where a creditor's statutory demand identifies an address of the creditor, being its registered office, in the same State as that in which the relevant demand was served and no application to set it aside is made, the demand is not a nullity and will not be set aside and it is not deprived of effect. Mr Henry refers in that regard to Everkind Pty Ltd v Hazenform Pty Ltd [2010] NSWSC 1031 at [16]-[20]; Re International Materials and Technologies Pty Ltd above at [13]-[23]; Re Armcor Heating and Cooling Pty Ltd [2014] NSWSC 137 at [3]-[6]; Primespace Property Investment Ltd v Vienne Pty Ltd [2015] FCA 326 at [24]-[26]; and Re Glenevan Pty Ltd [2015] NSWSC 201 at [3]-[9]. I do not accept that those cases, which I will address below, establish a proposition of the generality which Mr Henry seeks to draw from them. I accept that the fact that a creditor's statutory demand specifies the address of a creditor, being its registered office, in the same State as that in which the relevant demand was served may be relevant to whether the specification of an address for service outside that State is misleading, to the extent necessary to either invalidate the Demand or give rise to substantial injustice. That will depend upon the circumstances in the particular case. None of the cases to which Mr Henry refers involve the particular circumstances of this case, including the provision of detailed information provided in the address for service that had the potential to mislead the recipient as to how an application to set it aside could be served, as I have noted above.
In Ultimate Manufacturing Pty Ltd v Lyell Morris Pty Ltd (1995) 13 ACLC 1268, Mahoney M noted the possibility that, where the address for service in the relevant State was not properly specified in a creditor's statutory demand, and an applicant's failure to make an application to set aside the demand under s 459G of the Corporations Act was due to that defect and not the fault of the applicant, then that might well cause substantial injustice that could not be remedied except by dismissing the motion for winding up, since an order for costs would not impact on the injustice suffered. Master Mahoney's approach, it seems to me rightly, focussed on whether the relevant matter was causative of the failure to apply to set aside the demand. In Re Marlan Financial Services Pty Ltd [1999] VSC 435; (1999) 33 ACSR 259, Byrne J referred, inter alia, to Ultimate Manufacturing and observed (at [22]) that: "[T]he insertion in the demand of an interstate address for service upon a corporate creditor is not only a non-compliance with the prescribed form but creates the possibility of being positively misleading."
In Everkind Pty Ltd v Hazenform Pty Ltd above, Barrett J (as his Honour then was) held that the inclusion of an address outside New South Wales in paragraph 6 of a creditor's statutory demand, which did not comply with the prescribed form, did not cause that demand to be a nullity nor provide a basis for it to be set aside, where service at the creditor's registered office could be effected in New South Wales, the same State as that in which the creditor's statutory demand was served on the debtor company.
On the other hand, in Re International Materials and Technologies Pty Ltd above, a creditor's statutory demand was served on a company in New South Wales and specified an address for service in Victoria which was not the registered office of the creditor, but the address of solicitors acting for it, so that service at the nominated address for service would not have been effective service under the Service and Execution of Process Act 1992 (Cth). Importantly, in that case, the creditor's registered office was situated outside New South Wales so the debtor company could not effectively serve at the registered office without compliance with that Act, which would not be satisfied by service at a solicitor's office. Brereton J observed (at [16]) that the specification of the address of an interstate solicitor for service in that case was calculated to, in the sense of likely to: "entrap the debtor into failing to comply with the requirements of the Service and Execution of Process Act and thereby precluding it from making a valid and effective application to set aside the creditor's statutory demand." His Honour also observed (at [17]) that, once a demand had that character: "It would be a travesty of justice if a creditor, having entrapped a debtor into not making a valid application to set aside a demand … could then rely on that notice in winding-up proceedings." His Honour noted (at [18)] that a "defect", for the purposes of ss 9 and 459J of the Corporations Act "does not extend to fundamental deficiencies that deprive the demand of the character of a demand under s 459E(2)" of the Corporations Act. His Honour noted (at [20]) that the non-compliance with a requirement to provide an address for service within the State in that case, which deprived the debtor company of the ability to make a valid application to set aside the demand, was so serious and fundamental as to deprive the demand of the quality or character of a demand under s 459E "in that it failed, in a material and fundamental way, to comply with the prescribed form referred to in s 459E(2)(e)" and (at [21]) that the appropriate remedy was to declare the demand to be null and void, which had the effect of precluding any subsequent reliance on it. His Honour also indicated that he would differ from the view expressed by Barrett J in Everkind above, if that decision were read as permitting a creditor, by a detailed specification of an address for and means of service outside the State, to misdirect the debtor as to how such service could effectively be achieved. Those observations were, however, as I noted above, made in the context of a creditor's statutory demand issued by a creditor situated outside New South Wales, where no option for service was available other than service under the Service and Execution of Process Act.
In Ege Foods Australia Pty Ltd [2014] NSWSC 983, Brereton J noted that the observations in Topfelt above, on which Ms Mansted relies and to which I referred above, had been repeated in many judgments, although rarely applied, and that there were few cases in which a demand had been held to be a nullity, although he referred to his decision in Re International Materials and Technologies Pty Ltd above as one of those cases. His Honour also noted (at [25]) that the approach in Re International Materials and Technologies above involved the proposition that: "[A] failure to comply with a mandatory requirement of s 459E that adversely affects the ability of the company to make a valid application to set aside the demand is not a mere defect which may render the demand liable to be set aside only if it is productive of substantial injustice, but a non-compliance with a mandatory requirement that deprives the demand of the character of a compliant demand and renders it ineffective." His Honour also noted (at [26]) that not every departure from the prescribed form will amount to a fundamental non-compliance with the statutory requirements of s 459E(2) of the Corporations Act, and his Honour's approach seems to me to leave it open to the Court to have regard to whether the relevant failure in fact had any adverse impact on the debtor company's ability to set aside the relevant demand. His Honour also noted (at [35]) that a winding up application should be dismissed, if such an application required the plaintiff to satisfy the Court that the Company was insolvent, and where there was no effective creditor's statutory demand to trigger a presumption of insolvency and no other evidence of insolvency. That result might follow in this case, if the Demand is found to be a nullity.
In Re Glenevan Pty Ltd above, Brereton J took the same view as Barrett J in Everkind, and reached the contrary result to Re International Materials and Technologies on the particular facts, where paragraph 1 of a creditor's statutory demand identified an address in the same State as the debtor was located, at which an application to set aside the creditor's statutory demand could have been effectively served without resort to the Service and Execution of Process Act, had such an application been made. Ms Mansted seeks to distinguish that decision on the basis that the Demand in this case did not merely specify two alternative addresses, leaving it open to the Company to serve an application to set aside the Demand at the address in the correct State, but provided detail as to the address for service in Victoria that would distract the Company from the possibility of serving at Pran Central's registered office in New South Wales. There is force in that submission, but it does not address whether that result occurred on the relevant facts in this case.
In Re Armcor Heating and Cooling Pty Ltd above at [5], Brereton J in turn noted that a non-compliance with Form 509H, where the address of the creditor for service was not in the State or Territory in which a creditor's statutory demand was served on a debtor company: "… is no small matter. It can result in a debtor company being seriously misled into failing properly to serve its application, and they are deprived of a proper opportunity of applying to set aside a statutory demand." In that case, his Honour nonetheless proceeded to wind up a company, where no application to set aside a creditor's statutory demand was made and where the evidence before him amounted to an admission of insolvency so as to support an application for winding up in insolvency.
I have also had regard to the decision in Primespace Property Investment Ltd v Vienne Pty Ltd above, to which Mr Henry referred. However, that decision seems to me to be distinguishable so far as the plaintiff in that case had conceded that it could point to no substantial injustice as a result of the statutory demand providing an address for service outside the State. No such concession is made in this case.
In oral submissions, Ms Mansted seeks to distinguish this case from Everkind and Glenevan, on the basis that the reference to an address outside the State, telephone number, contact person who is not a director, and facsimile number were so misleading as to bring the case within the territory of Re International Materials and Technologies, and take it outside the territory where a statutory demand simply specified one address within a State and another outside it (T47). It seems to me that, as Ms Mansted submits, the specification of the address for service in paragraph 6 of the Demand was fundamentally misleading. It was at least likely to induce the recipient of the Demand, if it had proceeded to bring an application to set aside the Demand, to consider that that application could, or indeed should, be served in Victoria at an address that was not the Company's registered office; that it could or should be served on the shopping centre manager, who was not a director of Pran Central; and that it could or should be served by facsimile, since a facsimile address was specified for service. Had the Company taken any of the steps that the address for service in the Demand contemplated, in order to set it aside, an application to set aside the Demand would have failed. However, it seems to me that the misleading character of paragraph 6 of the Demand was not so fundamental as to render it a nullity, within the principle in Topfelt.
It seems to me that the Demand is properly treated as constituting a creditor's statutory demand for the purposes of the Corporations Act, although it contained an irregularity in the description of the address for service which was a "defect" in the statutory demand, for the purposes of ss 9 and 467A of the Corporations Act. That irregularity or defect had a capacity to mislead which was not, so far as the evidence goes, realised in this case. Whether the winding up application should be dismissed is therefore governed by s 467A of the Corporations Act, which provides that such an application must not be dismissed unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied, for example, by an adjournment or order for costs.
Mr Henry in turn submits that substantial injustice cannot be caused where the Company never attempted to set aside the Demand. I do not accept that proposition in those wide terms. However, that submission draws attention to the absence of any evidence led by the Company to indicate that the address for service specified in the Demand in fact had any such practical impact upon it. Conversely, Ms Mansted submits that it is not material that the Company did not attempt to serve an application to set aside the Demand because, inter alia, the substantial injustice referred to in s 467A of the Corporations Act is not necessarily "practical" injustice and there may be injustice in allowing a party to rely on a misleading statutory demand to wind up a company in insolvency, particularly where the Company had limited time to respond to the Demand.
I accept that the matters to which I have referred in paragraph 26 may, in some circumstances, readily have led to substantial injustice such that the Demand would have been treated as invalid and the winding up application dismissed. However, that does not seem to me to be the case here, where there is no evidence that the specification of the address for service had any actual impact on the Company's approach to the Demand. If there were any evidence that the Company had been misled, by being confused as to how it should go about serving an application to set aside the Demand, or by seeking to effect service of such an application in the manner contemplated by paragraph 6 of the Demand, I would readily have declined to make a winding up order, following the approach noted in Ultimate Manufacturing above, Re International Materials and Technologies above and Ege Foods Australia above at [33]. However, in this case, the Company's director, who gave affidavit evidence in the proceedings, led no evidence to that effect, nor did the Company's solicitor. There is no evidence that the Company considered making an application to set aside the Demand, albeit the time for it to do so was constrained by the matters to which I refer below. In these circumstances, I do not consider that substantial injustice, or any injustice, has in fact been caused to the Company by the misleading statement of the address for service contained in the Demand. That matter had no impact unless and until it affected an application or potential application to set aside the Demand and there is no evidence that that occurred.
Accordingly, I am satisfied that the winding up application should be determined on the basis the Demand was effective, notwithstanding the irregularity in the address for service specified in it, and Pran Central can, subject to the matters below, rely on the presumption of insolvency arising from non-compliance with it.

The time at which the statutory demand was served

As I noted above, the Company contends that it did not fail to comply with the Demand within the meaning of s 459F of the Corporations Act, in circumstances that the Demand was not served on it or, alternatively, if the Demand was served on or after 8 January 2015, the Originating Process dated 15 January 2015 did not comply with s 459Q of the Corporations Act and is invalid.
The question turns upon when the Demand was served, or deemed to be served, upon the Company. Pran Central relies on service of the Demand by post. Mr Henry points out that, under s 109X(1)(a) of the Corporations Act, a creditor's statutory demand may be served on a company by, among other things, posting it to that company's registered office. In Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354; (2007) 229 FLR 243 at [76], in discussing a provision corresponding to s 109X of the Corporations Act, Basten JA noted that it imposed responsibility on the intended recipient for ensuring that the document does not go astray after delivery to the postal address; see also Partners of Piper Alderman v Sharjade Pty Ltd [2011] NSWSC 6 per Barrett J at [15]. Mr Henry also points out that, under s 29(1) of the Acts Interpretation Act 1901 (Cth), service by post is deemed to be effected by properly addressing, pre-paying and posting that demand as a letter and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post; and, under s 160(1) of the Evidence Act 1995 (NSW), absent evidence raising doubt, a postal article sent by pre-paid post addressed to a person at a specified address in Australia is presumed to be received at that address on the fourth working day after being posted. Mr Henry relies on Dwyer v Canon Australia Pty Ltd [2007] SASC 100 at [6]-[9] and Re Watson Road Moss Vale Developments Pty Ltd [2013] NSWSC 783 at [9]-[13].
There is evidence that the Demand was posted by Pran Central by pre-paid post addressed to the Company's registered office on 18 December 2014 (Weiss 12.1.2015 [2]; Weiss 16.2.2015 [2]-[3]). Mr Henry submits, and I accept, that the fourth working day after 18 December 2014 was 24 December 2014 and, absent evidence to the contrary, the Demand was deemed to be served on the Company at its registered office on that date. Mr Henry therefore submits that the time for compliance with the Demand was 21 days after it was served, under s 459F of the Corporations Act, and expired on 14 January 2015. Ms Mansted responds that the contrary has been proved, for the purposes of s 29 of the Acts Interpretation Act 1901, so that it has been established that the Demand was not received by the Company, and that evidence has been advanced raising a doubt as to whether the Demand was received within the meaning of s 160(1) of the Evidence Act 1995.
Mr Henry rightly draws attention to the distinction between non-delivery and non-receipt of a creditor's statutory demand. Service by post upon a company may be established where a letter is properly addressed, pre-paid, posted as a letter and sent to the Company's registered office, for the purposes of s 29(1) of the Acts Interpretation Act; and the fact of non-receipt does not displace deemed delivery of the document, if delivery is not disproved: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 96: Dwyer v Canon Australia Pty Ltd above; Deputy Commissioner of Taxation v Contract Synergies Administration Pty Ltd [2011] FCA 743 at [7], [10]. In this case, as in Deputy Commissioner of Taxation v Contract Synergies Administration Pty Ltd above, there is no evidence that the Demand was returned by Australia Post as undelivered. The evidence of the Company's accountant, Mr Pisani, that he personally did not receive the Demand until a later date, to which I refer below, does not prove non-delivery to the accounting firm that was the Company's registered office.
Mr Pisani's evidence, by his affidavit dated 11 February 2015, is that his firm has three directors and five employees, including two office administrators who are responsible for collecting mail from the firm's post office box and letterbox, and opening and distributing the mail to relevant employees. Both office administrators worked part time up to 23 December 2014; one of them has been on maternity leave since that date; and the other has continued working on Mondays, Tuesdays and Wednesdays since that date. Mr Pisani's evidence is that his firm was, not surprisingly, closed for the Christmas period between 23 December 2014 and 4 January 2015, and that he came into the office on a few occasions and checked the mail each time he was in the office. His evidence is that he was on leave between 8 and 15 January 2015 and, when he returned to the office on 16 January 2015, a letter dated 7 January 2015 from Pran Central to the Company referring to and enclosing a copy of the Demand was on his desk. His evidence is that he had not previously seen the Demand and that he undertook a search of the firm's offices for the Demand but was unable to locate it. His evidence, admitted with a limiting order under s 136 of the Evidence Act so that it did not prove the matters for which he was informed, was that: "I then made enquiries with [the firm's] employees, including Ms Bostock, as to whether they had received or knew the whereabouts of the Statutory Demand and was informed by the employees that they had not received and were unaware of the Statutory Demand."
It does not seem to me that the presumptions which arise under s 29 of the Acts Interpretation Act and s 160 of the Evidence Act have been displaced. Mr Pisani's evidence goes to when he personally saw the Demand, on his return to the office on 16 January 2015. His evidence does not disclose sufficient information as to any system maintained by his firm, including for example, for recording mail as it is received, to support an inference that the Demand was not in fact delivered to his firm's post office box or letterbox and did not go astray within that firm. His evidence is further weakened by the fact that he did not make any inquiry of Ms Little, in circumstances that his evidence indicates that she may have dealt with the Demand had it been received on 22 or 23 December 2014. The fact that the principal of an accounting firm did not receive a creditor's statutory demand, and that others within the firm do not specifically recall that demand, does not seem to me sufficient to displace the presumption of delivery that otherwise arises under s 109X of the Corporations Act, s 29 of the Acts Interpretation Act and s 160 of the Evidence Act in the relevant circumstances, at least absent more cogent evidence as to the mail system adopted within that firm. I note, for completeness, that it is unclear whether, in the present case, mail addressed to the accounting firm's street address, which was the Company's registered office, was diverted to its post office box; however, nothing turns on that matter since, even if that were the case, the presumptions in s 29 of the Acts Interpretation Act and s 160 of the Evidence Act would apply: Tomic Industries Pty Ltd [2012] NSWSC 1478; Re Watson Road Moss Vale Developments Pty Ltd above at [12].
Ms Mansted alternatively submits that the directors received a copy of the Demand by email sent on 8 January 2015, which did not come to their attention until 12 January 2015. Ms Mansted submits, on that basis, that service of the Demand did not occur until 12 January 2015, and that the Originating Process issued by Pran Central on 15 January 2015 was commenced before the time for compliance with the Demand had expired. It is not necessary to address that submission where I have held that service was deemed to be effected by earlier delivery to the Company's registered office.
Ms Mansted also relies on the observation in Partners of Piper Alderman v Sharjade above at [22] that a person who has complied with the requirement for service may not be permitted to rely on service, if he or she knows that the document did not in fact come to the attention of the person served. She relies upon the fact that the Company's solicitor advised Pran Central's General Counsel, after 12 January 2015, that the Company had not received the Demand until that date. I do not accept that that advice falls within this principle. Its consequence was that Pran Central knew that it was alleged that the Demand had not been received by the Company, not that it knew that the Demand was not in fact received, and still less that it knew that the Demand was not delivered to the accountant's firm. For all Pran Central knew, the Demand could have been mislaid within Mr Pisani's firm. The position is quite distinct from that where, for example, a person knows that he or she has served a document at a vacant lot, which is in error still recorded as the address of a Company's registered office.
Accordingly, I am satisfied that 21 days had elapsed after the Demand was deemed to be served on the Company prior to the commencement of the winding up proceedings and non-compliance with s 459Q of the Corporations Act is not established.

Whether there is a genuine dispute as to the existence of the debt

As I noted above, the Company contends that it does not owe Pran Central the amount alleged by the Demand, by reason of a genuine dispute between the Company and Pran Central about the existence of the debt relied on in the Demand. Counsel helpfully reached agreement, in the course of oral submissions, that there was a genuine dispute as to whether Pran Central's obligations as to fit-out of the relevant premises were complied with, and the only issue that needed to be determined was whether liability of the Company to pay rent under the lease commenced on 27 May 2014 for the purposes of s 31 of the Retail Leases Act 2003 (Vic), and, if it did, the Company would succeed in establishing a genuine dispute as to the debt existed, by reason of s 31 of the Retail Leases Act (T21).
The Company contends that it is not liable to pay rent or any other amount payable under the lease by reason of s 31 of the Retail Leases Act, which provides: Payment of rent when landlord's fit out not completed (1) This section applies to a retail premises lease if - (a) the liability of the tenant to pay rent under the lease starts when the tenant enters into possession of the retail premises (whether or not the tenant is required to enter into possession by a specified date); and (b) the landlord has obligations under the lease concerning the fit out of the premises (that is, the landlord is required to provide some or all of the fit out before the tenant enters into possession of the premises). (2) The retail premises lease is taken to provide that - (a) the tenant is not liable to pay rent, or any other amount payable under the lease by the tenant (such as an amount payable for outgoings), in respect of any period before the landlord has substantially complied with the landlord's obligations concerning the fit out of the premises; and (b) except on reasonable grounds of safety, the landlord is not entitled to deny the tenant possession of the premises merely because the landlord has not complied with those obligations.
The potential application of s 31 of the Retail Leases Act in turn depends on the question whether, in the relevant circumstances, the "liability of the tenant [ie the Company] to pay rent under the lease" started when the Company entered into possession of the rented premises. Mr Henry submits that the Court should determine this question. Ms Mansted responds that, where the dispute is genuine, it should be resolved by the statutory scheme prescribed by the Retail Leases Act for the determination of such disputes. It is, of course, open to the Company to invoke that statutory scheme, if it wishes to do so. However, the question which I must determine is the Company's solvency, and I should not refrain from determining the application of s 31 of the Retail Leases Act where it is necessary to do so to determine that question.
The relevant lease was for a term of 10 years commencing on 27 May 2014 and ending on 26 May 2024. Clause 3.1 provides: "The [Company] must pay the annual base rent specified in Item 2 of the Schedule (as increased from time to time in accordance with this lease) to [Pran Central] or as it directs by equal monthly instalments in advance on the first day of each month. If the lease commences on a day that is not the first day of a month, the first and last payments must be proportionate." Clause 3.2 provides that rent, outgoings and promotions levies must be paid free of deduction, set-off or counterclaim. Clause 29 provides for the Company, having obtained Pran Central's approval, to carry out certain fit-out work "from the commencement date" to be completed "by the end of the fit-out period" and provided that the Company must not commence trading in the premises before Pran Central certified that the Company's work was practically complete. Clause 29.1(a) of the lease in turn defines the term "fit-out period" as "the period six weeks from and including the commencement date of the Lease". Clause 30.1 provided for Pran Central to undertake certain works performed "prior to the commencement date", as specified in clause 30.1(b). Clause 30.2(b) of the lease relevantly provides that: "Despite any provision in this lease to the contrary, the [Company] is not obliged to pay annual base rent, from the commencement date until the end of the Fit-out period."
The Company contends that its liability to pay rent commenced on the commencement date, being the "handover date" on which it entered into possession of the Premises. The Company relies on cl 3.1 of the lease, which I have set out above, for this proposition. Ms Mansted also points out that Schedule 2 of the lease provides that the annual base rent is to be paid on a per annum basis, and submits that basis can only be referrable to the commencement date which is provided in the lease. Ms Mansted also submits that in the present case a pre-lease agreement, reflected in cl 30 of the lease, and correspondence between the parties (Nasser tab 8) contemplated that the "handover date" would be the first business day after specified works had been completed by Pran Central and that Pran Central had given notice on 27 May 2014 of the completion of the works specified in the letter of offer dated 12 February 2014 (Nasser tab 12). Ms Mansted points out that the lease was signed the day before, 26 May 2014; specified its commencement date as the same date as the handover date, being 27 May 2014, and, she submits, the liability to pay the rent commenced from that date. Ms Mansted in turn submits that the rent-free "fit-out period" referred to by Pran Central in submissions relates to the fit-out to be installed by the Company within the café, although that does not seem to me to deprive it of the character of a rent-free period.
Ms Mansted submits that the Company's liability to pay rent was incurred on the commencement date since, at that date, it became inevitable that it would be liable to pay rent, notwithstanding that an invoice would not be rendered on that day, and the existence of a "rent holiday" during the period of liability was not material to that question. Ms Mansted also submits, and Mr Henry accepted, that the result of the contrary construction was that a lessor could avoid the operation of s 31 of the Retail Leases Act by providing for the rent under a lease to commence a day after the commencement of the lease.
Pran Central responds that s 31 of the Retail Leases Act does not apply, on the proper construction of s 31(1)(a), because the Company's liability to pay rent under the lease did not commence when it entered into possession of the premises, but six weeks later, when the fit-out period under the lease expired, by which time it had already been in possession of the leased premises for six weeks. Mr Henry points out, with substantial force, that cl 30.2(b) of the lease provides that the Company "is not obliged to pay" rent within the period of the rent holiday, and that that language excludes the existence of a liability to pay such rent, both in law and in practice. Pran Central also relies on the fact that the Company paid rent for the period 8 July 2014 to 31 October 2014 (Zucker 17.4.2015 [10]-[13]). It does not seem to me that that matter assists Pran Central, where that course could readily be explained by ignorance of the Company's statutory rights under the Retail Leases Act, rather than amounting to any waiver of them.
The position as to turnover rent payable under the lease also arose in the course of oral submissions. Mr Henry contends that the turnover rent under the lease is not within the concept of "rent" in s 31, so far as it is, in substance, a commission on sales. It is not necessary to determine that question given the conclusion that I have reached on other grounds. Second, Mr Henry submits that turnover rent is not payable until, at the earliest, within one month of the first anniversary of the commencement date under the terms of the lease, and in any event until sales were made by the Company (T57). Mr Henry also submits, and I accept that, on that basis, turnover rent was not payable and there was no liability for it at the time at which the Company entered into possession of the premises (T58).
The language of s 31 of the Retail Leases Act does not seem to me to be particularly straightforward. In particular, there is a lack of clarity as to the concept "the liability of the tenant to pay rent", which could refer either to an obligation to pay rent, as a matter of legal obligation or to a practical obligation to pay rent. Ms Mansted refers to the Explanatory Memorandum to the Retail Leases Bill 2003 (Vic), which describes the operation of that section as follows: "Clause 31 provides that if the landlord is responsible for providing some or all of the fit-out, and his or her obligations have not been met by the time the tenant is to occupy the premises, then the tenant is not liable to pay rent while those obligations are unmet, and except on the grounds of safety, the landlord cannot refuse the tenant possession just because he or she has not met their obligations." I do not find that paragraph of particular assistance, because the explanation of its operation in the Explanatory Memorandum is at a level of generality that does not address the issue of construction that I must decide.
The decision in Gani v Maiolo [2012] NSWADTAP 10 provides some assistance as to the proper construction of the section. In that case, the Administrative Decisions Tribunal Appeal Panel held that the corresponding section, s 17 of the Retail Leases Act 1994 (NSW), was not applicable when the liability to pay rent commenced on a date stipulated in the lease, 13 May 2010, being a date later than that on which the term of the lease commenced. The decision adopted by the Administrative Decisions Tribunal Appeal Panel was in turn adopted by Hall J, on appeal, in Gani v Maiolo [2012] NSWSC 1417 at [92] and the Court of Appeal in Gani v Maiolo [2013] NSWCA 107 at [11] - [12] identifies no disagreement with the reasoning of the Appeal Panel or Hall J. Mr Henry submitted that the same approach should be adopted, so far as a rent free period was involved, in this case. Ms Mansted seeks to distinguish that decision on the basis that the liability to pay rent in that case commenced after the tenant had been informally permitted to enter into possession of the premises; by contrast, Ms Mansted contends that, in this case, the liability to pay the annual rent and the turnover rent commenced on the commencement date, although there is a period during which the lessor has agreed that it will not enforce the tenant's liability to pay the rent, and that, as a matter of construction and as a matter of policy, should not allow the lessor to escape the operation of s 31 (T54). The suggested distinction seems to me to turn on the proper construction of the section.
With some hesitation, it seems to me that s 31 of the Retail Leases Act, in adopting the phrase "the liability of the tenant to pay rent under the lease starts", directs attention to when, under the terms of the lease, rent is required to be paid. In the present case, it does not seem to me that either as a matter of law, or as a matter of practicality, it can be said that the Company's liability to pay rent under the lease started when it entered into possession of the retail premises, when it had the benefit of a rent free period from that date. I am not persuaded that the potential consequences of that construction to which Ms Mansted refers lead to the contrary result. Any risk that a tenant could be deprived of the statutory protection contemplated by s 31 of the Retail Leases Act by allowing very short rent free periods at the commencement of a lease is mitigated by the fact that, first, a tenant would not be obliged to agree to such a period and give up the protection of the Retail Leases Act and, second, the statutory unconscionability regimes might well be applicable, were the artifice of allowing short rent free periods used to seek to defeat the protections available to a tenant under the Retail Leases Act and corresponding legislation.
I am therefore satisfied that s 31 of the Retail Leases Act did not apply, in the relevant circumstances, so as to exclude a liability to pay rent under the lease, including for the period in which a franchisee traded from the premises and rent was in fact paid.

Whether the Company is solvent

The Company also seeks to establish its solvency, contending that it is able to pay all its debts as and when they become due and payable. Ms Mansted submits that the Company is a special purpose or "pass through" vehicle, and its only source of debt was the payments in respect of the lease with Pran Central, such that its solvency is established if a genuine dispute, or absence of liability to Pran Central, is established. However, Ms Mansted accepted, in the course of submissions, that this ground of opposition to the winding up application does not assist the Company, if it fails on each of the previous grounds, as it has. That concession seems to me to have been properly made, since the Company's accounts do not suggest that it has funds available to meet Pran Central's claim for rent against it. I should nonetheless address this issue, against the contingency that an appellate Court may take a different view as to any of the other issues that I have determined above. Mr Henry submits, and I accept for the reasons set out below, that, where it is necessary for the Company to displace the presumption of insolvency arising from non-compliance with the Demand, the evidence led by the Company is not the fullest and best evidence of its financial position, and it has not displaced that presumption.
Where I have held that the Demand is not a nullity, the question of the Company's solvency must be approached on the basis that Pran Central can rely on the presumption of insolvency arising from the Company's non-compliance with the Demand. The effect of that presumption was summarised by a unanimous High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1 at [28], observing that: "...where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption."
Whether the Company has established its solvency is to be determined by reference to the statutory test in s 95A(1) of the Corporations Act which has effect that, relevantly, the Company is solvent if and only if it is able to pay all its debts as and when they become due and payable. Section 95A(2) has effect that a person who is not solvent is insolvent. That definition adopts a cashflow test of insolvency that turns upon the income sources available to the Company and the expenditure obligations that it has to meet, rather than a balance sheet test which would focus on the value of its assets and liabilities, although a balance sheet test can provide context for the application of the cashflow test: Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 at [370]ff. Whether the Company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively in all the circumstances, including the nature of the Company's assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49]. In order to displace the presumption arising from non-compliance with the Demand, the Company must generally present the "fullest and best" evidence of its financial position, and that unaudited accounts, unverified claims of ownership or valuation, or assertions of solvency arising from a general review of the company's accounts would not generally be sufficient for that purpose: Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711; TQM Design and Construct Pty Ltd v Golden Plantation Pty Ltd [2011] NSWSC 500 at [18]; Re Statewide Developments Pty Ltd [2011] NSWSC 1537 at [58].
The Company relies on an affidavit of Mr Pisani dated 17 March 2015. Mr Pisani is, as I noted above, the Company's accountant. His evidence is that the Company holds eight leases in respect of premises from which franchisees operate (or, in the case of the premises leased from Pran Central, formerly operated) and a bank account as trustee for the CL Leasing Unit Trust ("CLLUT"). His evidence is that the Company holds several of those leases in its own right, and others in its capacity as trustee for the CLLUT. He refers to the annual report and trust tax return for the CLLUT for the financial year ending 30 June 2013 and further balance sheets and profit and loss statements prepared for the period to 30 June 2014. Mr Pisani's evidence is that the profit and loss and balance sheet that he had prepared for the Company in its own capacity and as trustee for the CLLUT, for the year ended 30 June 2014, does not record the liability of the Company in respect of the leases which it holds, because no funds were received by the Company on account of rent in respect of the leases.
The Company's accounts as at 30 June 2014 disclose assets of $1,000, in the nature of cash on hand, and no liabilities, giving rise to equity of $1,000, and no gross or net profit for the year. The balance sheet of CLLUT as at 30 June 2014 in turn indicates a modest deficiency of net assets of $4,585, and a further balance sheet of the trust as at 31 January 2015 shows current assets of $37,000 and current liabilities of $22,000; total assets of $93,000 and total liabilities of $98,000 and a modest deficiency in total assets of $4,660. Mr Henry emphasises that the balance sheet for the Company as at 30 June 2014, as annexed to Mr Pisani's affidavit dated 17 March 2015, is now 9 months out of date.
Mr Henry also points out that, as Mr Pisani's affidavit recognised and as I noted above, the Company's accounts do not reflect the rental obligations arising because the Company is party to several leases of premises from which franchisees operate Charlie Lovett outlets, in its own right and as trustee for the CLLUT, and itself pays the rent directly on one of those leases, for premises at Neutral Bay, and is presumably liable for the rent on the others, although in practice its franchisees make direct payment of that rent to the lessors of the other premises. The absence of reference to liabilities in the Company's financial accounts is particularly striking in respect of the Neutral Bay premises, where the Company concedes that it actually receives and pays out money in respect of rental, rather than the franchisee paying that rent directly to the lessor (T55). Ordinarily, one might expect the Company's accounts would record its income and expenditure at least in respect of a lease where rent is paid directly by the Company, even if they did not also record income and expenditure in respect of the leases where rental was paid directly by franchisees, and, at least by a note, recognise the Company's potential liability on such leases if a franchisee failed to pay that rent to the lessor. The Company's accounts do not do so.
It seems to me that Mr Pisani's evidence and the Company's accounts are not sufficient to displace the presumption of insolvency that is available to Pran Central, because they do not address the Company's ability to pay its debts, as and when they fell due, on a cashflow basis and because they do not adequately address the position under the leases, albeit that the Company's liability on some of those leases is in practice discharged by payments being made by its franchisees to the lessors. The Company has therefore not displaced the presumption of insolvency that arises from its failure to comply with the Demand.

Orders and costs

Accordingly, I make the following orders:
The Defendant, Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) be wound up.
Nathan Vance Landrey and Ross Andrew Blakeley be appointed joint and several liquidators of the Defendant.
Pran Central sought an order that its costs be paid out of the Company's assets. It seems to me that application may raise questions of some complexity in the relevant circumstances. Although Pran Central has succeeded in the winding up application, I have held that the form of the Demand on which it relied was misleading in a significant respect, and the service of the Demand in that form had the potential to cause prejudice to the Company, particularly where the Demand was served shortly before Christmas. Although I have held that the fact of such prejudice has not been established, those matters may raise a real question whether some other order should be made as to Pran Central's costs than would generally follow from its success in the winding up application. I will hear the parties as to costs if they seek to be heard.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 June 2015

Corporations Act 2001(Cth)ss 9, 95A(1), 95A(2), 109X, 109X(1), 459E, 459E(2), 459F, 459G, 459J, 459P, 459Q, 459S, 465C, 467A

Retail Leases Act 2003(Vic)s 31, ss 31, 31(1)

Evidence Act 1995(NSW)ss 136, 160, 160(1)

At a glance

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