BETWEEN : MAMMOTH INVESTMENTS PTY LTD (ACN 008 735 797)

LONDON PARTNERS AUSTRALIA PTY LTD (ACN 057 549 925)

Corporations - Statutory demand - Expiration of time to apply to set aside demand - Allegation of abuse of process by seeking winding up order in case of a disputed debt - claim for injunction to restrain winding up proceedings - Injunction refused

Corporations Act 2001, s 459A, s 459E, s 459S

House of Tan Pty Ltd v Beachris Pty Ltd (1966) 14 ACLC 1536

1 EM HEENAN J: This is an application by Mammoth Investments Pty Ltd for equitable relief in the nature of declarations and accompanying orders which would have the effect of restraining the first defendant from proceeding with a winding-up application of the plaintiff consequent upon the service of a statutory demand for the payment of a debt.

2 As is said by the plaintiff in the amended statement of claim at par 15, on 28 March 2002 the second defendant caused the first defendant to serve a statutory demand on the plaintiff pursuant to s 459E of the Corporations Act which stated that the plaintiff was indebted to the first defendant in the sum of $493,668.78 in respect of profits made from share sale transactions by a company and a creditor from which the company has retained the creditor's portion of the profits which are due and owing to the creditor, the company being the plaintiff and the creditor being the first defendant.

3 It would have been possible for the plaintiff, under the statutory regime, to apply within time to have that demand set aside on the grounds that the debt was the subject of a genuine dispute - s 459A. Apparently the plaintiff wished to do this, but through a mistake, perhaps due to its solicitors, perhaps not, the application was not made within the time limit prescribed. The decision in the High Court of Australia in David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 185 CLR 265 is authority for the proposition that the time cannot be extended and that therefore this statutory demand stands.

4 There is qualified scope in the course of winding-up proceedings, if they are subsequently commenced, for the company, with leave of the Court, to dispute the existence of a debt upon which the statutory notice was founded. That is to be found in s 459S of the Corporations Act 2001, but leave will not be granted by the Court on any such application unless the Court is satisfied that examining the question of whether or not the debt is due is material to proving that the company is solvent.

5 The company, however, wishes to forestall winding-up proceedings because of the risk that serious adverse consequences to it may occur by further triggering securities which it has to other creditors. It is endeavouring to avail itself of this alternative remedy by applying for what is, in effect, injunctive relief to restrain the first defendant from proceeding with any winding-up application on the ground that to do so would be an abuse of the process of the Court.

6 That such a remedy is available cannot be contested. It has been acknowledged by the High Court of Australia in the decision in David Grant and Co Pty Ltd (supra) itself, and a number of cases in which the doctrine has previously been developed and explained have been expressly approved by the judgment of Gummow J in that case at page 279 of the report.

7 This remedy was the subject of examination in Goldman Asset Management Pty Ltd v Prudential-Bache Securities (Australia) Ltd, unreported; SCt of WA (Steytler J); Library No 980449; 27 July 1998. I am satisfied that the remedy which the plaintiff seeks to avail of is open in the case before the Court, and it is necessary therefore to consider whether or not the evidence which has been placed before the Court justifies its application.

8 Mr Zelestis QC, for the applicant, has taken the Court to a number of decisions which were cited with approval in the David Grant case, including Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287, a decision of Brownie J, SCt of NSW Equity Division, and more particularly the decision of Gramwick Investments Pty Ltd v Advanced Underpinning Pty Ltd [2000] NSWSC 1131; (2001) 19 ACLC 593, SCt of NSW, (Hamilton J), December 2000.

9 In this last case Hamilton J refers to the decision in David Grant, cites the passage relied upon by Mr Zelestis QC from the judgment of Gummow J and proceeds to reach a conclusion at par 4 in the following terms:

"In the present case I find it has been established that there is a genuine dispute as to the whole of the debt claimed by the defendant as the foundation for the notice of demand and that the plaintiff is both solvent and has adequate funds to meet the defendant's claim if it is proved inappropriate litigation. I hold that it would be an abuse of the process of this court for a winding-up summons to be filed, to wind up the company, and in those circumstances I am prepared to grant the relief as now sought."

10 Counsel for the plaintiff applicant contends that the action of this creditor in attempting to pursue claims for winding up the company gives rise to an inference that it is motivated to achieve an abuse of process or by an animation which should be regarded as an abuse of process.

11 There are a number of reasons upon which counsel relies, but underlying them all is a notion that the pursuit of the claim by the alleged creditor is an initiative entirely disproportionate to the occasion in that it must be accepted that there is severe dispute about the existence of the debt and that no explanation for pursuing winding-up proceedings other than to create pressure for the immediate satisfaction of the disputed obligation should be recognised.

12 Counsel for the plaintiff adds a following factor which is perhaps of some significance. His client has publicly, in this Court today, offered the defendant a bank guarantee for the whole of the disputed debt of $493,668.78, plus a further $100,000 to cover anticipated interest and costs to cover the contingency that the debt might be adjudged due after trial. He offers, as a condition of any injunction which might be granted if relief is given, that there be liberty to apply if a substantive action to prove the debt is not entered for trial within 12 months.

13 Counsel for the plaintiff also offers further unspecified but readily comprehensible terms that the details of the proposed bank guarantee should be formulated and disclosed and that the plaintiff should have 14 days within which to do this. The first defendant company has declined this offer, pointing out that there is no guarantee that, if accepted, the terms offered by the bank will be sufficiently secure if there were to be an intervening liquidation and also pointing out that there is a possibility that other creditors may come forward and pursue liquidation proceedings.

14 Perhaps the terms offered by the plaintiff could be modified to meet those contingencies and offer a variety of assurances to meet them. I do not exclude that possibility. However, the principal position of the first defendant appears to be that, as a creditor, it is entitled to be paid immediately and it should not be obliged to wait. Furthermore, it points out that by pursuing a claim for the winding up of the company, it is doing no more than the law allows and is following the procedure introduced by the amendments to the Corporations Law in 1992.

15 We come therefore to assess what it is that may constitute the basis for the allegation of abuse of process. Mr Zelestis QC, in the course of argument, has indicated that this is not an occasion for any kind of preliminary broad-brush assessment of the solvency of the company and that the question of abuse should be determined without regard to the question of the solvency of the company, though he has acknowledged that in certain circumstances patent solvency or patent insolvency may be factors which influence the decision.

16 It must, of course, be accepted that this is not the occasion to embark upon any determination of whether the company is insolvent. The effect of the notice is to create a presumption of insolvency which can be challenged and examined at the hearing of any winding-up proceedings and, as was said by Tamberlin J in Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd 414 19 ACSR 411, and I quote:

"The statutory scheme contemplates that argument as to the solvency of a company is intended to be considered as a ground of opposition on the hearing of the winding-up application and is not a matter which should be determined prior to that time at an application such as the present. This is a further reason why the present application fails. The question whether the company is solvent is one for the ultimate hearing of the winding-up application."

17 His Honour refers to further authority in support of that proposition. However, in my opinion, the question of solvency does have, at least, a peripheral bearing on the question of whether or not there is an abuse of process or whether an inference as to abuse should be drawn. As was demonstrated in the Gramwick Investments case, a Court may be ready to draw an inference that a creditor is animated by improper purposes and is acting in abuse of a process of a Court if it wishes to avail of a winding-up proceeding in circumstances where a company is indisputably solvent and can clearly pay the debt which is disputed, if due.

18 This has led me, in the course of submissions, to examine the evidence which has been proffered by Mammoth Investments Pty Ltd as to its solvency. This is comprised in an affidavit of Mr Carratti sworn 5 June of this year, and annexures at pages 6 and 8 of that document, which relate to details in an earlier affidavit and to a balance sheet of the company on 29 April 2002.

19 Unfortunately, those documents have a number of major shortcomings. They are not orthodox accounts, they do not purport to be accounts of the plaintiff company alone, they do not even purport to be accounts of a consolidated group of which Mammoth Investments Pty Ltd is the parent. They are an aggregation of the assets and liabilities of a series of companies, the connections between which are very diffuse and unexplained.

20 Similar criticisms can be made of the accounts of Mammoth Investments Pty Ltd which have been offered. Again they are not orthodox accounts, they have not been audited, there is no admissible evidence of underlying valuations for substantial real property, nor is there any ageing of the liabilities which are said to be revealed. I am not prepared to conclude from those materials that the plaintiff is unmistakably solvent.

21 An attempt has been made by the first defendant, through a search of public registers, to examine the asset and liability position of the plaintiff and associated companies. Comprehensive searches of corporate and land securities have been attempted and the documents have been assembled and annexed to an affidavit of Mr Morton bearing today's date. However, the results of that effort are also inconclusive. There are no valuations in support of land said in the aggregate to be worth $145,000,000. There is no clear picture in support of solvency emerging from the materials.

22 In these circumstances, I am not prepared to draw any inference that persistence in the winding-up proceedings, by following statutory methods by this first defendant, is an abuse of the process of the Court. I do not consider that any basis for injunctive or other equitable relief has been made out. I consider that the question of solvency can be raised by the plaintiff if winding-up proceedings are brought and that, if this particular debt is likely to have a crucial effect on the question of the solvency of the plaintiff, it may be possible to obtain leave under s 459S of the Corporations Act to raise that in the proceedings.

23 Accordingly, I am not disposed to grant injunctions or any other relief sought on this application. The plaintiff's application will be dismissed.