Mangraviti Pty Ltd, Joe v Lumley Finance Ltd

CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - Application to set aside a Statutory Demand - whether demand can be set aside for "some other reason" - whether lack of fair notice of demand constitutes "some other reason" for s 459J(1)(b).

LEGISLATION CITED : Corporations Act 2001 (Cth) - s 459C(2), s 459G(2), s 459J(1)

• Faji (Australia) Constructions Pty Limited v AC Professional Accounting Pty Ltd [2009] NSWSC 180 CASES CITED : - FP Leonard Advertising Pty Limited v KD Travel Service Pty Ltd (1993) 12 ACSR 136 - Future Life Enterprises Pty Ltd, Re (1994) 33 NSWLR 559

PARTIES : Joe Mangraviti Pty Ltd (Plaintiff) Lumley Finance Limited (Defendant)

COUNSEL : L. Fermanis (Plaintiff) D.M. Jay (Defendant)

SOLICITORS : Conomos & Spinak (Plaintiff) Rockliffs Solicitors (Defendant)

4076/09 Joe Mangraviti Pty Ltd v Lumley Finance Ltd

1 This is an application to set aside a Statutory Demand dated 26 June 2009. The application is made upon three grounds. The first is that the Statutory Demand contains a defect and that substantial injustice would be caused unless the Demand is set aside under s 459J(1)(a) of the Corporations Act 2001 (Cth). The second ground is that there is "some other reason" why the Demand should be set aside pursuant to s 459J(1)(b). The third ground is that there is a genuine dispute as to the existence of the debt. 2 I have come to the conclusion that the Statutory Demand should be set aside upon the second ground. It may be that a further Statutory Demand will be issued which will avoid some, if not all, of the problems inherent in the present Statutory Demand. At least one of the defects complained of is a mistake which would doubtless be cured in a second Statutory Demand. I do not think it is appropriate to discuss at this stage the merits of whether there is a genuine dispute. It is better to leave that contest to be fought - if it is to be fought at all - if and when a second Statutory Demand is properly issued and served. I confine my reasons to the ground upon which I set aside the Statutory Demand under s 459J(1)(b). Facts

3 The Statutory Demand was served at a place which was at the time of service the registered office of the Plaintiff according to the records of ASIC. A search conducted by the Defendant's solicitor prior to service of the Demand showed the registered office as "Mangraviti Partners, Suite 1, 27-29 Burwood Road, Burwood". 4 The affidavit of the process server showed that he had effected service on 29 June 2009 by placing the Statutory Demand and the accompanying affidavit under the door of Suite 1, 27-29 Burwood Road, Burwood. At the time, Suite 1 was a vacant office, as the process server recorded in his affidavit. 5 In his affidavit of 11 August 2009 in support of the Originating Process to set aside the Statutory Demand Mr Mangraviti, who is the sole director of the Plaintiff, says that he received the Statutory Demand and affidavit by facsimile on 24 July 2009 under cover of a letter from the Defendant's solicitors which advised that the Demand had been served on the Plaintiff on 26 June 2009 and that unless the debt was paid by 27 July, the Defendant would proceed with an application to wind up the company. 6 These proceedings were commenced on 6 August 2009. If service of the Statutory Demand was validly effected on the Plaintiff on 26 June 2009 then the commencement of these proceedings was well outside the limitation period for the commencement of proceedings provided by s 459G(2) of the Corporations Act and the application will have to be dismissed out of hand without consideration of whether or not there was a genuine dispute. 7 The affidavit of Mr Mangraviti of 11 August suggested implicitly, but did not state explicitly, that 24 July 2009 was the first notice that he, as controlling the mind of the Plaintiff, had of the service of the Statutory Demand. The application of the Plaintiff proceeded on that basis. However, I did not think it appropriate to let the matter proceed on the basis of implication alone. Mr Mangraviti was given leave to supplement his evidence by making it clear, as he did in the witness box, that it was indeed the fact that he had not received any notice by any means of service of a Statutory Demand on the Plaintiff until he received the letter from the Defendant's solicitors on 24 July 2009. By that time, as I have said, the statutory period for the commencing of proceedings to set aside the Statutory Demand had already expired. 8 The solicitors for the Defendant knew that the Statutory Demand had been left at a vacant office when they received the affidavit of service from the process server. That affidavit was sworn on 22 July 2009. It was receipt of that affidavit which put the solicitors on notice that it was possible that the Plaintiff had not received actual notice of the Statutory Demand. For that reason, therefore, the Defendant's solicitors sent a facsimile to Mr Mangraviti on 24 July 2009 attaching the Statutory Demand and accompanying affidavit and requiring payment within three days. 9 The evidence of Mr Mangraviti is that the office at Suite 1, 27-29 Burwood Road had been vacated at some time in April 2009. He had given instructions to his personal assistant to give the appropriate notice to ASIC changing the registered office of the company. The personal assistant has given evidence explaining that although she endeavoured to make the change on-line, somehow that miscarried and the change of registered office was not in fact recorded by ASIC until August 2009, after service of the Statutory Demand. Consideration

10 I am satisfied that service of the Statutory Demand was validly effected at the then registered office of the Plaintiff on 29 June 2009. Equally, however, I am satisfied that it was not until after the s 459G(2) period for filing an Originating Process had expired that the Plaintiff first became aware of the service of the Statutory Demand. Those circumstances are now known to the Defendant, if they were not apparent when the affidavit of Mr Mangraviti was filed and served around about 11 August 2009, yet the Defendant insists that the Statutory Demand cannot now be challenged and, as it has not been satisfied by payment, it says that the Plaintiff must be presumed to be insolvent by virtue of s 459C(2)(a). 11 The facts of this case are, I think, similar to the facts of a number of previous cases in which it is established that a Statutory Demand has been duly served at the debtor's registered office but did not come to the attention of the debtor prior to expiry of the statutory period for filing an Originating Process to set it aside. One such case was FP Leonard Advertising Pty Limited v KD Travel Service Pty Ltd (1993) 12 ACSR 136. There, service on the debtor had been effected by post at the registered office. The service was valid but the Statutory Demand nevertheless had not come to the attention of the debtor. Santow J said, at 139: "But what is the effect, in the present circumstances, of coming to know after postal delivery that the company, no longer resides at the registered office address? … One line of authority, based on a doctrine of 'fair notice', would suggest that in cases where there is knowledge that the address is 'false' or 'non-existent' then service will not be effective: Re Gasbourne Pty Ltd (1984) 8 ACLR 618; 2 ACLC 103. This has been formulated in different ways including not being 'misled' by the register: Re Otway Coal [1953] VLR 557 at 563. And that it would be an abuse of process to allow judgment in cases, where the Defendant knew that the statement of claim had not come to the attention of the Defendant: Deputy Federal Commissioner of Taxation v Abberwood Pty Ltd (1990) 2 ACSR 91; 8 ACLC 528.

But Abberwood can be distinguished. There the Defendant had independent contact with the directors of the company. Yet the Defendant told them nothing of the process sent to the registered office and later returned by a subsequent occupant with a notification that the company was no longer at that address. This was held to be an abuse of process. That, in my judgment, should be the proper basis for such an exception to the statutory requirement. Abuse of process underlies the notion of lack of 'fair notice ." 12 His Honour in that passage referred to "abuse of process" as underlying the notion of lack "fair notice". In Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559, at 564F to 565C, McLelland CJ in Eq discussed this passage from the judgment in FP Leonard and agreed with it save that he qualified it to a limited extent, namely that it was not, strictly speaking, apposite to call what had happened "an abuse of process"; rather, the absence of notice of a Statutory Demand prior to the expiry of the period for applying to set it aside would constitute "an overriding ground for refusing relief notwithstanding that there has been effective service". 13 In the present case, the facts are somewhat different from those which McLelland CJ in Eq had to consider in Re Future Life Enterprises. As I have said earlier, the Defendant's solicitors must have suspected by 24 July 2009 that, by reason of service at a vacant office, the Statutory Demand had not come to the actual attention of the Plaintiff by the time the limitation period expired. There was further ground for believing that to be the case when Mr Mangraviti's affidavit of 11 August was received. If the Defendant did not know that fact with certainty before Mr Mangraviti gave confirmatory evidence today, it knows the fact now, yet it nevertheless insists that the Plaintiff is precluded from any application under s 459G because the s 459G(2) limitation period has expired. 14 In my opinion, those circumstances attract the principle of lack of fair notice to which both Santow J and McLelland CJ in Eq refer in the cases which I have cited - they fall within the provisions of s 459J(1)(b) in that they constitute "some other reason why the demand should be set aside". That ground for setting aside a Statutory Demand exists quite independently of whether a genuine dispute as to the debt has been shown: see e.g. Faji (Australia) Constructions Pty Limited v AC Professional Accounting Pty Ltd [2009] NSWSC 180, at [31] per Barrett J. 15 The principle underlying Pt 5.4 Divs 2 and 3 Corporations Act is that a creditor should have a quick and efficient means of requiring a debtor who disputes the debt to "put up or shut up". If the debtor wishes to contest the debt and the Statutory Demand founded upon it, then it must file an application under s 459G within the time limited by subsection (2). If that opportunity is not taken, then the presumption of insolvency arises under s 459C(2)(a) and is available to the creditor in a winding-up application. 16 It is inherent in this policy that there be a real opportunity given to the debtor to "put up or shut up" and that the consequences for failure to file an Originating Process within time should not be visited on a company which is proved never to have received actual notice of the Demand within the time available to oppose it. In my opinion, where those facts are established in a challenge to the Statutory Demand there is, prima facie, "some other reason why the Demand should be aside" under s 459J(1)(b). I say "prima facie" because there may be other circumstances in a particular case which militate against setting aside the Demand. 17 Mr Jay of Counsel, who appears for the Defendant, says that if the Plaintiff had lodged with ASIC duly and promptly a notice of change of registered office then service at the vacant office would never have occurred. He says that if the Plaintiff is now confronted with a Statutory Demand without any opportunity of opposing it, then that misfortune is one which the Plaintiff has brought upon itself and it must suffer the consequences. 18 It is true that failure to notify ASIC promptly of the change of registered office is the Plaintiff's fault. Affidavit evidence has been put on explaining how that happened. There is no suggestion in that evidence that the failure was due to anything other than inadvertence, delay or mistake or was prompted by a desire to avoid or defeat creditors. If any such dishonest intention had been shown, clearly the Plaintiff should not be allowed to benefit from it. 19 In my view, it is far too high a price to pay for an innocent, if neglectful, failure to notify a change of registered office promptly that the Plaintiff be precluded from opposing the Statutory Demand pursuant to s 459G by reason of the expiry of the s 459G(2) limitation period. 20 I take all those circumstances into account in arriving at the conclusion that there is "some other reason" to set aside the Demand under s 459J(1)(b). I order that the Statutory Demand be set aside. Costs

21 These proceedings succeeded on a point which arose from the Plaintiff's own failure to notify promptly the change of its registered office. It was open to argument as to whether the Defendant should have appreciated earlier than today the fact that the Plaintiff had received no notice of this Statutory Demand until 24 July 2009. For the reasons I have given, I am satisfied that by 24 July 2009 the Defendant was aware of circumstances which certainly suggested that the Plaintiff had not received actual notice of service. One could say that it was, in a sense, put upon enquiry as to whether service had been effective to draw the Statutory Demand to the attention of Plaintiff. 22 I do not think the position was made absolutely clear until Mr Mangraviti gave his evidence today. Further, although the Plaintiff has succeeded, it has succeeded on a point which arose by reason of its own default in failing to notify promptly a change of registered office. In those circumstances I think that the appropriate order for costs is that each party should bear its own costs of the proceedings. I so order.

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