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[2025] NSWSC 715
General information, not legal advice.
Supreme Court of NSW
2025-07-07
Brereton J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Roar Equipment Pty Ltd [2025] NSWSC 715
Hearing dates: 30 June 2025
Date of orders: 7 July 2025
Decision date: 07 July 2025
Jurisdiction: Equity - Corporations List
Before: Brereton J
Decision: The interlocutory process is dismissed
Catchwords: CORPORATIONS – insolvency – winding up – application for leave under s 459S of the Corporations Act – where applicant failed to serve the s 459G application within the statutory period – where applicant seeks to rely on the ground that the debt claimed in the statutory demand is disputed – whether requirements for leave under s 459S are satisfied – application dismissed
Legislation Cited: Corporations Act 2001 (Cth)
Cases Cited: Aussie Hoist Property Pty Ltd v Mulqueen [2018] FCA 1493
BRC Group Pty Ltd as Trustee for the BRC Group Unit Trust v Watagan Park Pty Ltd as Trustee for the Clancy Family Trust MKT2 [2025] VSCA 36 Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACSR 609
David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; [1995] HCA 43
Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113
Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163
Giannarelli v Wraith (No 2) (1991) 171 CLR 592; [1991] HCA 2
Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777
Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161
In the matter of Doughkyo Leasing Pty Ltd [2025] NSWSC 676
In the matter of Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290
In the matter of Pioneer Cryogenics Pty Ltd (2015) 108 ACSR 461; [2015] NSWSC 1202
In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546
Re the Satellite Group Ltd; Consolidated Constructions Pty Ltd v The Satellite Group Ltd (2000) 35 ACSR 565; [2000] NSWSC 984
Soundwave Festival Pty Ltd v Altered State (WA) Pty Ltd (No 1) [2014] FCA 466
Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37
Texts Cited: F Assaf, Assaf’s Winding Up in Insolvency, 3rd ed, 2021
Category: Principal judgment
Parties: Contronics Dry Misting B.V. (plaintiff)
Roar Equipment Pty Ltd (defendant)
Representation: Solicitors:
BlackBay Lawyers (plaintiff)
Henry William Lawyers (defendant)
File Number(s): 2025/140648
Publication restriction: N.A.
The plaintiff (Contronics Dry Misting) has commenced proceedings to wind up the defendant (Roar Equipment) in insolvency pursuant to s 459A of the Corporations Act 2001 (Cth). Those proceedings rely on the failure by Roar Equipment to comply with a statutory demand that was served by Contronics Dry Misting on 20 February 2025. By an Interlocutory Process dated 23 June 2025, Roar Equipment has applied for leave under s 459S to oppose the winding up application on the ground that the debt claimed in the statutory demand is disputed.
For the reasons set out below, the application for leave will be dismissed.
(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
The matters relevant to an application for leave under this section are 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.
In the balance of [10], Black J went on to say (again omitting references):
The discretion conferred by s 459S of the Corporations Act is to be exercised cautiously and sparingly and with regard to the purpose of Part 5.4 of the Corporations Act to provide for determination of any objections to a creditor’s statutory demand by an application under s 459G of the Corporations Act, rather than at the time of the winding up application.
The first two matters identified by Black J, that is: (1) whether there is a serious question to be tried on the ground sought to be raised; and (2) the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor’s statutory demand, are not matters that s 459S expressly requires to be taken into account. They are a convenient statement of matters that can be expected to be relevant and weighed in the exercise of the discretion. The third matter, that is (3) whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent, is a standalone statutory precondition to the grant of leave.
I will consider the three matters in turn.
Roar Equipment wishes to oppose the winding up application on the ground that the debt that is the subject of the statutory demand is in genuine dispute. That is a ground that was available to Roar Equipment to apply to set aside the statutory demand, but it failed to make that application within time. Without leave, Roar Equipment cannot rely on that ground at the hearing of the winding up application.
The debt claimed by the statutory demand is the sum of €24,224.25. Roar Equipment contends that, for various reasons, there is a serious question to be tried about whether there is a genuine dispute about this debt.
First, it contends that the invoices that are the subject of the statutory demand were issued by Contronics Engineering BV (Contronics Engineering) but the company that issued the statutory demand was Contronics Dry Misting, a different company. The contention is that there is a serious question to be tried about whether there is any debt owed to the plaintiff, Contronics Dry Misting.
Second, it contends that as to €5,670 of the €24,224.25, there was an agreement by Contronics Engineering to pay or offset that amount and it was never paid or credited to Roar Equipment. It also contends that €15,750 of the amount claimed related to a particular invoice dated 29 March 2024 (invoice 240281) but the goods and services the subject of that invoice were never provided. As to the balance of €2,804.25 (€24,224.25 – (€5,670 + €15,750)), it contends that this is not owing once equipment returned to Contronics Engineering is taken into account. These matters are supported by evidence from Mr Flynn, the director of Roar Equipment.
Third, it relies on a payment it made on a without admissions basis on 28 May 2025 in the amount of €5,125.10, which would leave an outstanding debt of €19,099.15. That amount was calculated, according to Mr Flynn, on the basis of the net amount that Roar Equipment is said to owe Contronics Engineering based on invoices issued (€679,822.25), less allowance for payments made (€238,484.35) and equipment returned (€420,462.80) and less the amount claimed by invoice 240281.
It was submitted for Contronics Dry Misting that mere assertion in an application to set aside a statutory demand (including in an affidavit in support) that there is a genuine dispute as to the existence or amount of a debt is insufficient, relying on Aussie Hoist Property Pty Ltd v Mulqueen [2018] FCA 1493 and BRC Group Pty Ltd as Trustee for the BRC Group Unit Trust v Watagan Park Pty Ltd as Trustee for the Clancy Family Trust MKT2 [2025] VSCA 36 at [40]-[47]. Those cases concerned applications to set aside a statutory demand under s 459G on the basis that there is a genuine dispute about the existence of the debt (see 459H). In the latter case, the Court held as follows:
[47] The decision in [Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404] provides extensive guidance as to the requisite content of an affidavit ‘supporting’ an application for the purposes of s 459G(3)(a). We consider that the following principles have particular relevance to this case:
(a) The affidavit must ‘support’ the application by providing the basis for establishing that there is a genuine dispute about the existence or amount of the debt.
(b) Most commonly this will be done by the deponent describing the dispute. That description will delineate the scope of the dispute.
(c) The ground for resisting the demand must be raised expressly, by necessary inference, or reasonably available inference.
(d) Where the dispute about the existence or amount of the debt is based purely on the construction of a document, the requirement may be satisfied by exhibiting the document.
(e) Mere assertion that the debt is disputed is insufficient.
(f) An affidavit filed within time that does not identify the dispute later sought to be relied upon is not a ‘supporting affidavit’ insofar as the different genuine dispute is concerned. The question of sufficient identification will be considered in context, having regard to the degree of specificity with which the initial dispute is defined.
The test for the purposes of the application in this case is different. Roar Equipment does not have to establish that there is a genuine dispute. It has to establish that there is a serious question to be tried about whether there is a genuine dispute.
The statutory demand was served on 20 February 2025.
Section 459G provides:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within the statutory period after the demand is so served.
(3) An application is made in accordance with this section only if, within that period:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
The relevant statutory period is 21 days (see s 9). The statutory period in this case expired on 13 March 2025. That was a hard deadline. The Court does not have power to extend time: David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; [1995] HCA 43.
The application to set aside the statutory demand was filed on 12 March 2025, with a supporting affidavit of Mr Flynn that was made on 11 March 2025. On 12 March 2025, the solicitors for Roar Equipment wrote to the solicitors for Contronics Dry Misting, advising that the application had been filed and asked if they had instructions to accept service. By reply on the same day, the solicitors for Contronics Dry Misting confirmed that they had those instructions. The email went on to make some observations to the effect that the relevant invoices lying behind the demand were issued in 2023 and 2024 and had not been disputed and no offsetting claims had been advanced.
Roar Equipment did not serve the s 459G application and supporting affidavit on 12 March 2025, or on 13 March 2025.
On 18 March 2025, the solicitors for Contronics Dry Misting wrote to the solicitors for Roar Equipment noting that the application and supporting affidavit had not been served. The response that came later that day from Roar Equipment’s solicitor was: “My apologies. I thought these had been sent to you by courier, but can find no record of it. The documents are attached”. The application to set aside the statutory demand, having been served beyond the statutory period, was dismissed with costs on an indemnity basis on 31 March 2025.
The only evidence before me to explain the delay were communications that I have identified in paragraphs [16] and [18]. The submission made for Roar Equipment was:
No further evidence is adduced of the reason for the delay. The best inference available to the Court is that the late service was an error on the part of the solicitors for Roar Equipment.
…courts have considered that it is a sufficient explanation of the defendant’s conduct that it took steps to comply with section 459G, even though that compliance was inadequate. While these cases do not establish a rule, they do suggest that it will be a relevant consideration that a company has made a genuine effort to bring the issue to the attention of the Court in the manner required by section 459G.
Those cases support the proposition that each case must be considered on its own facts to determine whether or not there is a sufficient explanation. The facts in those cases were materially different to those in the present case. In Pioneer Cryogenics, Black J accepted “with considerable hesitation” an explanation that involved a statutory demand served on a small company shortly before Christmas and evidence from its managing director that he was unable to obtain legal advice on how to respond until mid-January. In Ewe**n Stewart & Associates v Blue Mountains Virtual Air Helitours, White J referred (at [21]) to the “vital importance of the 21-day time limit prescribed by s 459G” and (at [50]) to the need for caution in giving leave bearing in mind that the “safety net provided by s 459S should be used sparingly so as to ensure that disputes about debts are dealt with at an early stage after service of the statutory demand”. Other cases dealing with an assessment of the delay where fault can be attributed to legal advisors include Re the Satellite Group Ltd; Consolidated Constructions Pty Ltd v The Satellite Group Ltd (2000) 35 ACSR 565; [2000] NSWSC 984 at [16]-[19] and In the matter of Doughkyo Leasing Pty Ltd [2025] NSWSC 676 at [51]-[52].
The importance of making and serving any application to set aside a statutory demand, and the serious consequences of a failure to do so, are made clear on the face of the statutory demand. Neither Mr Flynn nor his advisors can or try to suggest that they were unaware of the importance of serving the application within the 21 days. Yet there is little evidence available to explain the debtor’s conduct at the time when the application should have been served. There is no affidavit evidence on the topic from either Mr Flynn or his solicitor. All I have are the communications that I have referred to above. I would infer that instructions were given to file proceedings (because proceedings were filed). I was expressly not asked to infer that there were instructions to serve the application and supporting affidavit. I am asked to infer that the fault lay with the solicitors. If the explanation is merely that the solicitors overlooked serving the documents, I would not regard that as a sufficient explanation to justify a grant of leave under s 459S. It was a matter for Roar Equipment about whether to waive privilege in communications with its solicitor and I cannot draw adverse inferences by reason of a decision not to do so. But Roar Equipment runs the risk that without evidence of an explanation, it fails to establish that there is a sufficient explanation: Giannarelli v Wraith (No 2) (1991) 171 CLR 592; [1991] HCA 2 at 605. In the absence of evidence that explains anything more about why the application and supporting affidavit were not served in accordance with s 459G, I am unable to be satisfied that there is a sufficient explanation. The imperative to serve the application within time was or should have been known to Mr Flynn (as the director of a company who had received a statutory demand) and to the company’s advisors.
There is no sufficient evidence to enable the Court to make a proper evaluation of the reasonableness of the debtor’s conduct at the time when the application might have been made. If I was to grant leave in this case, it could not be said the discretion conferred by s 459S was exercised cautiously and sparingly. A cautious and sparing approach could not accept as reasonable the explanation advanced in this case for the failure to take the critically important step of serving any application to set aside a statutory demand within 21 days. There is policy lying behind Part 5.4 of the Corporations Act that objections to a statutory demand should be determined swiftly. One way that is achieved is by the strict time limit in s 459G. That time limit would be undermined if leave could readily be obtained under s 459S without an acceptable explanation for the failure to meet the requirements of s 459G. If I was to grant leave in this case, where the explanation for the failure to comply with the requirements of s 459G is merely that the Court should infer that there was solicitor error, it would undermine the policy and purpose of Part 5.4. The outcome may be seen as a harsh one for Roar Equipment, but that is a consequence of the legislative scheme: see at 279 per Gummow J.
Section 459S(2) provides that leave is not to be granted unless the Court is satisfied that the ground is material to proving that the company is solvent. This is not a consideration that merely gets weighed in the mix with the other relevant matters; it is a mandatory pre-condition of any grant of leave.
There appears to be an open question about whether the defendant has to prove that it would be solvent if the debt does not exist. There is authority suggesting an applicant for leave must prove that the debt must be the difference between solvency and insolvency, or “pivotal”, or “crucial”, or “determinative” of solvency, which requires proof that if the debt exists the company will be insolvent but that if it does not exist, the company will be solvent. This has been described as the narrow or strict approach, and is often associated with the decisions in Switz Pty Ltd v Glowbind Pty Ltd*;* Glowbind Pty Ltd v Switz Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37 at [53]-[56] and Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 at [19]-[21]. In Switz v Glowbind, Spigelman CJ noted at [54] that if a company “intends to prove it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to ‘proving’ its solvency, cannot be satisfied”. The alternative approach is that the test is satisfied when the existence or otherwise of the relevant debt is relevant to or has the capacity to have influence or effect on the question of solvency. This has been described as the broader approach: see Hanson Construction Materials Pty Ltd v FEC Civil Pty Lt**d [2009] NSWSC 161 at [28]; Ewen Stewart & Associates v Blue Mountains Virtual Air Helitours at [48]; Soundwave Festival Pty Limited v Altered State (WA) Pty Limited (No 1) [2014] FCA 466 at [36]-[39]; Vangory Holdings at [26]-[33]; In the matter of Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290 at [24]-[30]. The dichotomy between the two approaches may be false: see Pioneer Cryogenics at [18]. The parties did not make any submissions about which approach should be adopted in this case.
Contronics Dry Misting submitted that the presumption of insolvency applies on this application and that to discharge this presumption of insolvency, Roar Equipment needed to present to the Court the “fullest and best” evidence of its financial position, relying on Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACSR 609 at 617 per Hayne J. There is authority that where a company has the burden to prove solvency, unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: (2003) 45 ACSR 711; [2003] NSWCA 163 at [16].
I make the following orders:
The interlocutory process filed on 23 June 2025 is dismissed.
By 5pm on 14 July 2025 the parties are to:
(a) advise my Associate of any agreed costs order; (b) in the absence of agreement, serve and provide to my Associate submissions on costs (limited to 2 pages).
**********
Aussie Hoist Property Pty Ltd
Mulqueen
(1995) 184 CLR 265
(1991) 171 CLR 592
(2000) 48 NSWLR 661
(2021) 64 VR 404
Relevantly for this case, s 459C provides that for the purposes of the application to wind up Roar Equipment under s 459P, the Court must presume Roar Equipment is insolvent because it has failed to comply with a statutory demand. The effect of s 459S is that at the hearing of the winding up application, except with leave, Roar Equipment cannot rely on grounds that it could have relied on to apply to set aside the statutory demand, but failed to do so. The presumption of insolvency arising from s 459C does not apply at a hearing of an application for leave under s 459S, which will ordinarily occur prior to the winding up application. However, the application for leave falls to be determined in circumstances where the presumption (which is rebuttable) will be made at the winding up application.
It follows that the presumption of insolvency is not to be made on this application. Rather, what arises is the question of whether the ground on which Roar Equipment wishes to rely is material to proving that it is solvent at the hearing of the winding up application, where the presumption will be made.
The surest way for a company to establish that a ground is material to proving that a company is solvent is for the company to prove that it would be insolvent if the debt it wishes to put in dispute exists, but prove (by the fullest and best evidence) that it would be solvent if that debt does not exist. In that case, the materiality is established. On one view, this is what is called for by the strict approach to s 459S: see F Assaf*, Assaf’s Winding Up in Insolvency,* 3rd ed at [11.32]. Whether the decision in Switz v Glowbind goes that far is open to question.
In this case, Roar Equipment relied on very little evidence to support the contention that the ground it wishes to advance is material to proving that it is solvent. Roar Equipment relied on what Mr Flynn described as a balance sheet of Roar Equipment as at 26 May 2025. There is no evidence about who prepared the balance sheet or of the systems that were used to generate the document. Only by inference does Mr Flynn say that he believes that the balance sheet correctly states the assets and liabilities of Roar Equipment. The balance sheet shows current assets of $1,279,471.44 and current liabilities of $755,330.06 (and hence a working capital ratio of 1.69). There are trade creditors of $309,124.82. Whether this figure includes any part of the debt claimed by Contronics Dry Misting is not revealed.
Looking just at the current liabilities and current assets, there seems to be good reason to suppose that a debt of €19,099.15 (equivalent to approximately $34,250) would not mean the difference between solvency and insolvency. Roar Equipment relied on the balance sheet recording cash holdings of $34,974.91 and it was submitted that the debt would substantially deplete the company’s cash resources, “which would have a material impact upon the company’s ability to pay its debts as and when they fell due”. Whether that is true or not would depend on how quickly and reliably other current assets could be realised. The balance sheet includes inventory of a value in excess of $1m and trade debtors of around $125,000. There is no evidence to suggest that these amounts are overstated or could not be realised quickly to enable debts to be paid as and when they fall due. There is also evidence from Mr Flynn projecting that Roar Equipment expects to trade profitably in the 2025-26 financial year. Contronics Dry Misting points to the absence of evidence about cash reserves since 26 May 2025 and about access to credit.
Section 459S requires that Roar Equipment satisfy the Court that the ground it wishes to advance is material to proving it is solvent, in circumstances where it will have the burden of showing that it is solvent. In Switz v Glowbind, Spigelman CJ held (at [53]) that this “directs attention, in part, to what it is that the company intends to prove and how it intends to prove it”. Whether one takes the strict or broad approach, there needs to be a proper basis for the Court to be satisfied that the ground is material to proving solvency, and that will inevitably raise the question of what the applicant proposes to do to rebut the presumption of insolvency at the winding up application.
Roar Equipment acknowledged that its evidence as to whether the debt is material is “scant”. Whether I take a narrow or broad approach, the evidence is not sufficient for the Court to be able to be satisfied that the ground is material to proving that the company is solvent. In Soundwave Festival v Altered State (WA), Wigney J observed (at [37]) that under the broad approach, materiality will be established if there is evidence that the company would undoubtedly be insolvent if the debt was owed and evidence that it might be solvent if the debt is not owed. On the evidence, I cannot be satisfied that the company is insolvent if the debt is owed. Nor am I satisfied that if it is insolvent if the debt is owed, that it might be solvent if it is not owed. Roar Equipment is not a large company but, even so, the debt that is claimed is relatively small. The company is forecasting a period of profitability. For instance, it forecasts a profit of over $80,000 in the current month. The (very limited) evidence does not permit me to conclude that a debt of €19,099.15 (or €24,224.25) would be material to the question of solvency, whether I take the narrow or broad approach.
I cannot conclude that Roar Equipment has established the condition for leave required by s 459S(2).