BETWEEN : PEAK HILL MANGANESE PTY LTD (ACN 091 867 426)

Corporations - Winding up - Statutory demand - Requirement that debt be described as "due and payable" - Adequacy of accompanying affidavit where these words not included - Attempt to set aside statutory demand due to alleged inadequacy of affidavit - Refusal to set aside on ground that application not made within prescribed time limit - Capacity of applicant to raise the same issue by way of an application for injunctive relief - Application for injunctive relief refused on the ground that, prima facie, a statutory demand must be set aside pursuant to the statutory procedure

Corporations Act 2001 (Cth), Form 7, Form 509H, Pt 5.4, s 459C, s 459E, s 459G, s 509H, s 459J, s 459S, s 1322

Beralt Pty Ltd v Joe Battaglia Plastering Pty Ltd [2001] 1 Qd R 232

Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148

CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345

Dolvelle Pty Ltd v Australian Macfarm Pty Ltd (1998) 43 NSWLR 717

Hamihall Pty Ltd v A T Phillips Pty Ltd [1994] FCA 1446; (1994) 54 FCR 173

House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536

Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd t/as Royce Roofing Services (1998) 29 ACSR 11

Mammoth Investments Pty Ltd v London Partners Australia Pty Ltd [2002] WASC 157

Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 160 LSJS 288

Siskina (Cargo Owners) v Distos Compania Naviera SA; The Siskina [1979] AC 210

1 HASLUCK J: The plaintiff, Peak Hill Manganese Pty Ltd, has applied for leave to amend the writ of summons in this matter. If the proposed amendment is allowed that will have the effect of introducing a claim for declaratory relief concerning the validity of a statutory demand made pursuant to provisions of the Corporations Act 2001 (Cth) ("the Act"). It will also allow the plaintiff to seek an injunction restraining the defendant, Hydraplant Equipment Pty Ltd, from applying to have the plaintiff wound up for non-compliance with the statutory demand in question.

2 The issue raised by these applications is whether it is open to the plaintiff to obtain relief in respect of an alleged irregularity in the making of a statutory demand other than by resorting to the regime established by the Act in regard to the making and setting aside of statutory demands.

3 The plaintiff's applications were supported principally by the affidavits of Dean George Scook sworn 22 May and 3 June 2003. The defendant relied upon the affidavits of its manager, Geoffrey Frans Groenenberg sworn 27 May and 10 June 2003 and the affidavit of its solicitor, Lisa Daniella Chighine sworn 24 May 2003.

4 These affidavits reveal that the plaintiff engaged the defendant to install screening and crushing equipment at a mining operation being conducted by the plaintiff at Peak Hill. The arrangements between the parties were evidenced by written agreement dated 4 October 2002.

5 The equipment was installed on or about 22 October 2002 and was utilised by the plaintiff thereafter. According to the defendant the equipment was operated continuously, although there were a number of occasions on which the principal crusher did not crush ore because there was no ore available or ore was being moved.

6 The defendant sought payment from the plaintiff for moneys said to be due pursuant to the contractual arrangements. This gave rise to various exchanges between the parties in which the plaintiff raised various complaints about the operation of the equipment and the nature of the arrangements.

7 It is not necessary for present purposes to traverse the full range of issues reflected in these exchanges. However, I note that by letter dated 26 February 2003 written by Mr Hamish Sprague on the letterhead of the plaintiff company Mr Sprague purported to confirm that the agreed current outstanding principal amount was owed to the defendant "as per the agreement previously signed between yourself and Mr Dean Scook on behalf of our company."

8 An earlier letter, dated 18 February 2003, from Mr Groenenberg as managing director of the defendant company to the plaintiff, refers to a meeting on Tuesday, 18 February regarding outstanding payments and submits the figure of $148,299.07 as the "total payable". According to Mr Groenenberg, on 19 February 2003, Mr Scook came to the defendant's offices and in his presence marked each page of the office copy of the said letter with the words "okay" and his initials to confirm the agreed debt.

9 This is disputed by Mr Scook in his affidavit of 3 June 2003. He agrees that on 18 February 2003 he met with Mr Groenenberg at the defendant's offices to discuss their invoices. His evidence is to the effect that ultimately the parties agreed that the maximum amount which could be charged in the invoices was $148,652.88 and that there were still matters outstanding which needed to be adjusted separately and set off against "this outstanding amount." He concedes that he met Mr Groenenberg on the following day and endorsed the letter dated 18 February 2003 as alleged. However, he contends that he only initialled and signed both pages of the letter with the intention of acknowledging that the parties had agreed on the calculations regarding the amount to be charged for each invoice.

10 Mr Scook said further at par 23 of his affidavit that:

"By signing the second page of the letter from Hydraplant dated 18 February 2003, I did not intend to acknowledge that Peak Hill was indebted to Hydraplant in the sum of $148,299.07 and that Hydraplant was entitled to charge Peak Hill in respect of further amounts if payment had not been made by 21 February 2003."

11 The defendant continued to press for payment of the amount said to be due but without success.

12 It was against this background that the defendant sought to initiate the procedure allowed for by Pt 5.4 of the Act concerning winding up in insolvency.

13 Section 459E(1) of the Act provides that a person may serve on a company a demand relating to a single debt that the company owes to the person provided the debt is due and payable. Related provisions require that the demand specify the debt and its amount, be in writing, be in the prescribed form, be signed by or on behalf of the creditor, and be accompanied by an affidavit that complies with the rules and verifies that the debt is due and payable by the company.

14 Form 509H of the Act sets out the requirements for a "creditor's statutory demand for payment of debt". I note in passing, having regard to annotations forming part of the prescribed form, that two alternatives are open to the creditor in regard to par 2 of the statutory demand. An assertion can be made in par 2 either that the amount is due and payable by the company or that an affidavit is attached verifying that the amount is due and payable by the company.

15 The creditor is required by par 5 of the form to inform the debtor company that pursuant to s 459G of the Act a company served with a demand may apply to a court for an order setting the demand aside provided the application is made within 21 days after the demand is served.

16 A statutory demand and accompanying affidavit were prepared by the solicitors for the defendant. The relevant affidavit sworn by Mr Groenenberg on 19 March 2003 reads as follows (omitting the inessential parts):

"1. I am the Managing Director of the creditor and I am authorised by the creditor to make this affidavit on its behalf.

2. I have inspected the business records of the creditor in relation to the account of Peak Hill Manganese Pty Ltd ('the debtor company') with the creditor.

3. The facts herein contained are within my knowledge or are based on my inspection of the creditor's business records.

4. The debtor company is indebted to the creditor in the sum of $148,299.07 being the agreed amount owing under an agreement dated 4 October 2002 between the creditor and the debtor company for the hire of plant and a plant operator.

5. To date, the debtor company has not paid to the creditor the agreed amount as set out in paragraph 4 of this affidavit.

6. I believe that there is no genuine despite about the existence or amount of the debt owing by the debtor company to the creditor."

17 The affidavit in question was specifically described as an affidavit accompanying statutory demand. The statutory demand was dated 19 March 2003 and signed by a solicitor for the defendant. It is headed "creditor's statutory demand for payment of debt" and refers specifically to par 459E(2)(e) and Form 509H of the Act.

18 The defendant's statutory demand states that the plaintiff company owes Hydraplant Equipment Pty Ltd the amount of $148,299.07 being the amount of the debt described in the schedule. It states that the creditor requires the company within 21 days after service of the demand to pay to the creditor the amount of the debt or to secure or compound the same to the creditor's reasonable satisfaction. It includes the required reference to the procedure for setting the demand aside pursuant to s 459G of the Act within 21 days.

19 Paragraph 2 of the defendant's statutory demand was expressed in this way:

"Attached is the affidavit of Geoffrey Frans Groenenberg dated 19 March 2003 verifying that the amount is due and payable by the company."

20 I note in passing that by s 459E(3)(b) of the Act the demand must be accompanied by an affidavit that not only verifies that the debt is due and payable but also complies with the rules. The relevant rule is O 81G r 31 of the Rules of the Supreme Court which provides that the affidavit must be in accordance with Form 7 and state the matters mentioned in that form. The effect of Form 7 (as it appears in Seaman's Civil Procedure at par 6730) is to require the deponent to state that the debt is due and payable by the debtor company.

21 Put shortly, then, both Form 509H and Form 7 of the Act seem to require that the accompanying affidavit will contain an assertion that the debt, the subject of the statutory demand, is due and payable. In the present case, par 2 of the statutory demand characterised the accompanying affidavit of Mr Groenenberg dated 19 March 2003 as verifying that the amount of $148,299.07 was due and payable by the plaintiff company. However, it is apparent from an examination of the Groenenberg affidavit that it does not contain an explicit assertion that the amount is due and payable.

22 It appears from the affidavit of Ms Chighine that on 20 March 2003 the statutory demand and accompanying affidavit of Mr Groenenberg were served at the registered office of the plaintiff.

23 According to Mr Scook, the plaintiff was minded to set aside the statutory demand upon the ground that the plaintiff was entitled to set off against the amount claimed damages in respect of delays, downtime losses, wasted labour costs and other losses suffered by the plaintiff as a result of the defendant's alleged negligent installation and operation of the subject equipment.

24 The plaintiff was of the view that there existed a genuine dispute between the parties with regard to the entire amount claimed in the statutory demand. An affidavit was prepared on behalf of the plaintiff directed to the existence of a genuine dispute between the parties as a basis for setting aside the demand pursuant to s 459H of the Act.

25 On Thursday, 10 April 2003 the plaintiff served at the offices of the defendant's solicitors an originating application aimed at setting aside the statutory demand. The defendant's solicitors disputed the validity of the service and contended that this and other defects, including the omission of a return date, meant that the application to set aside was irregular.

26 The plaintiff's application to set aside the statutory demand was heard before Master Newnes of the Supreme Court on 2 May 2003. The learned Master found that the application had not been made within 21 days after the statutory demand was served on the plaintiff, because an exact copy of the originating application had not been served on the defendant within the prescribed time limit. He therefore dismissed the application without moving to consider whether there was a genuine dispute between the plaintiff and the defendant about the existence or amount of the debt.

27 It seems that at the hearing before Master Newnes counsel for the plaintiff drew attention to an alleged irregularity in the defendant's statutory demand and accompanying affidavit. Counsel contended that the documents, and the affidavit in particular, did not contain an explicit reference to the debt being due and payable. I understand that no ruling was made concerning this matter because the defendant insisted that in the absence of a valid application pursuant to s 459G of the Act to set aside the demand, it was not open to the Master to rule upon such an issue.

28 In the meantime, the plaintiff had commenced proceedings against the defendant by writ of summons issued 29 April 2003 in which relief was sought against the defendant for breach of contract.

29 As a consequence of the Master's refusal to set aside the statutory demand, the plaintiff has now applied to amend the writ of summons. Further, the plaintiff seeks an injunction to restrain the defendant from applying to have the plaintiff wound up for non-compliance with the statutory demand. It is immediately apparent that by this avenue the plaintiff seeks to revisit the question of whether the statutory demand and accompanying affidavit complied with the requirements of the Act.

30 The plaintiff submits that the documents relied upon by the defendant fail to comply with the requirements of the statutory regime because they do not contain an explicit reference to the debt being due and payable. This means that the winding up application foreshadowed by the defendant has no prospect of success.

31 The plaintiff contends that it would be an abuse of the Court's process for the defendant to proceed further upon the basis of flawed documentation. The plaintiff says also that the balance of convenience weighs in favour of the granting of a restraining order in that serious commercial consequences will flow from the defendant being the subject of a winding up application. Put shortly, the presence of the winding up application will constitute a breach by the plaintiff under existing credit arrangements and expose the plaintiff to the potential of having a receiver appointed.

32 In addition, the plaintiff argues, the application will jeopardise existing arrangements with local indigenous people regarding native title issues, it will detrimentally affect the plaintiff's credit rating and is likely to cause the plaintiff to suffer prejudice in the negotiation of contracts for the purchase of mining tenements and the purchase or lease of mining equipment.

33 On the other hand, the plaintiff contends, the only prejudice to the defendant if an injunction is granted will be an inability to proceed with a winding up application on the basis of the existing statutory demand which, in any event, is fundamentally flawed. It is open to the defendant to withdraw the existing demand and proceed with a further statutory demand.

34 The defendant questions the entitlement of the plaintiff to obtain injunctive relief in circumstances where the learned Master refused to set aside the statutory demand in the manner allowed for by the statutory regime.

35 The affidavits filed on behalf of the defendant contain evidence bearing upon the balance of convenience issue and an alleged insolvency of the plaintiff. Reference is made to the presence of other creditors and the alleged inability of the plaintiff to dispose of its product at a price sufficient to cover its existing liabilities.

36 Mr Groenenberg says at par 119 of his affidavit sworn 27 May 2003 that by reason of the various matters deposed to by him the defendant is concerned that the plaintiff is insolvent and that the legal proceedings have been instituted merely to delay payment to the defendant of the agreed debt. He refers to a concern that the plaintiff will be unable to meet the undertaking as to damages it has filed if called upon to do so.

37 It will be useful at this stage to take a closer look at the statutory provisions concerning statutory demands as a preliminary to winding up in insolvency.

38 It emerges from earlier discussion that by s 459E of the Act a person may serve on a company a demand relating to a debt that is due and payable. By s 459G the company may apply to the court for an order setting aside a statutory demand within 21 days. It is not necessary for present purposes to look at s 459H in detail concerning the existence of a dispute between the parties or offsetting claim. However, s 459J makes provision for a statutory demand to be set aside on other grounds. Section 459J reads as follows:

"1. [Power to set aside demand} On an application under section 459G, the Court may order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

2. [Mere defect not ground to set aside} Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."

39 If the statutory demand is not set aside and remains in force then this will give rise to a presumption of insolvency. Section 459C(1) provides that the Court must presume that the company is insolvent if the company failed to comply with a statutory demand. By s 459C(3) such a presumption operates except so far as the contrary is proved for the purposes of the application.

40 Section 459S reads as follows:

"1. [Grounds disallowed without leave] 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) [No leave unless ground material to solvency] 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."

41 In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290 Hayne J made various observations at 336 as to the rationale underlying these provisions. He said, inter alia, that the only significance that the statutory demand has is that if there is a failure to comply with it then the company is deemed to be insolvent. Thus the demand is no more than a precursor to an application for winding up in insolvency. On the hearing of the application to wind up, the company may not oppose the application on grounds that it might have taken in any application to set aside the demand, unless those grounds are material to proving that the company is solvent.

42 There are observations of a similar kind in McPherson: The Law of Company Liquidation (4th ed) at 64. The learned author suggests that a statutory demand bears similar features to a bankruptcy notice, in substance, and in a way it achieves the same purpose. Like a bankruptcy notice, and because it sets in motion winding up proceedings which can have serious consequences for the debtor company, it has been held in the past that the procedure prescribed for demands must be strictly adhered to.

43 The view of the courts as to the strictness with which the process will now be considered seems to vary. While the latest provisions are designed to overcome the fact that demands were struck down on very technical grounds in the past, some Judges and Masters have been more strict than others. However, it seems clear that because creditors can gain the benefit of presumed insolvency if they serve a demand on a company before initiating winding up proceedings they should ensure that demands are expressed in clear, correct and unambiguous terms.

44 The plaintiff in the present case relied heavily upon the recent decision of Barrett J in Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726. In that case, the creditor's accompanying affidavit failed to state that there was a debt which was "due and payable". The affidavit simply stated that "the debtor is indebted in the amount now demanded." Barrett J was persuaded to set the demand aside pursuant to s 459G(1)(b) of the Act upon the basis of being satisfied that there was "some other reason" why the demand should be set aside.

45 In the course of his judgment Barrett J observed that in the light of the radical consequences which may result from non-compliance with a statutory demand, the value to be placed upon adherence in all material respects to the statutory requirements is necessarily high. It is not open to a creditor whose debt is merely owing to resort to the statutory demand procedure. The expressed words of both the legislation and the prescribed form of affidavit make it clear that the assertion of the debt status as being both due and payable is part of the message the creditor is compelled to convey in order to become entitled to the presumption of insolvency.

46 His Honour recognised that a slavish use of a particular verbal formula for its own sake or some parrot-like resort to the words "due and payable" is not necessarily decisive. What is essential is that the documents put the company on notice in an unambiguous way of all the matters the legislation requires. The creditor's contention that the debt, as well as being a debt, is both due and payable is one such matter. However, his Honour noted in passing that the sufficiency of the verification required by the statute cannot be judged by arguing backwards from the content of the prescribed form. The sufficiency of the statutory demand and the accompanying affidavit must be determined by reference to the requirements of the statute.

47 In the context of an appeal from a decision of a Master granting an order setting aside a statutory demand, Barrett J concluded that the statutory demand and accompanying affidavit in question did not fully and fairly inform the recipient of essential matters. In the course of his judgment Barrett J said this at 731:

"17. A statement that one person 'owes' a particular sum to another and 'is indebted' in that sum asserts no more than the existence of a debt, that is, an obligation to pay the sum concerned. It says nothing about the time at which the obligation must be performed. It therefore says nothing about whether the sum concerned is 'due' or 'payable'. It is, of course, axiomatic that a debt, in the form of a payment obligation, may be presently owing but not yet either 'due' or 'payable'. It may likewise by 'owing' and 'due' but not yet 'payable', although it is not possible for a debt 'owing' to be 'payable' but not 'due': Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 9 BCL 256 per King CJ. A statement that a sum is 'due and payable' thus connotes not only that it is 'owed' (so that the debtor is 'indebted') but also that the time for payment has arrived and the obligation to pay is an unqualified and unfettered obligation requiring immediate performance.

18. On this basis, I consider that the Master went too far in finding that the word 'indebted' in the affidavit, even viewed in conjunction with the word 'owes' in the demand itself, conveyed the message that any sum was 'due'. He was certainly correct, however, in holding that the words used carried no connotation that any sum was 'payable'.

19. In the result, the Master came to the correct conclusion in deciding that the affidavit did not comply with s 459E(3)(a) or conform with Form 7, in that it did not verify that the debt or total to which the demand referred was 'due and payable by the company'..."

48 At a later stage at 733, his Honour went on to make these observations:

"27. The Master's concern was not that the affidavit did not use the words 'due and payable' but, rather, that the message those words are apt to convey was not contained in the affidavit, at least in so far as the 'payable' aspect was concerned. The significance, in this particular case, of that omission - or, on the view I take, of the more extensive omission of references covering both 'due' and 'payable' - become even more pronounced in the light of the immediately preceding correspondence between the parties to which I shall refer in due course. This is particularly so when a letter sent by Main Camp to ARG some nine days before service of the demand sought, by 1 May 2001, a statement 'as to how ARG proposed to repay the debt ... by no later than 31 May 2001" [emphasis added]. The statutory demand of 2 May 2001 to which the affidavit was so intimately related thus purported to impose a deadline of 23 or perhaps 24 May 2000 in relation to debts in respect of which a letter sent nine days earlier had referred to an expectation of payment by 31 May 2001.

28. As the Full Federal Court observed in Spencer Constructions (above), the ultimate issue in s 459J(1)(b) cases of 'other reason' is one of legislative intent. As I have already said, the legislative intent here is that the company is entitled to receive in the s 459E(3) affidavit a clear and unmistakable assertion that there is a present and unconditional obligation to pay. That assertion may be conveyed by various forms of words. It is not conveyed by the words used in this case."

49 Counsel for the plaintiff sought to apply these observations to the circumstances of the present case. Counsel was obliged to acknowledge that in the present case, the statutory demand contained an explicit reference to the debt being "due and payable" in par 2 of the demand, and that passage in the demand appeared to comply with one of the two alternatives allowed for by the prescribed Form 509H. However, counsel for the defendant argued, the accompanying affidavit, as in the Main Camp case (supra), did not include the words "due and payable" with the result that the demand and accompanying affidavit were flawed and should be characterised as ineffective.

50 Counsel for the plaintiff went on to refer to Re Beralt Pty Ltd (2001) 1 QR 232. In that case the statutory demand did not contain wording to the effect that an application to set aside the demand had to be made within 21 days. The debtor filed its application to have the demand set aside within 21 days, but failed effectively to serve the application within the time limit. Ambrose J concluded that as a result of the defective service, the procedures to set aside the statutory demand provided for by s 459G and s 459J of the Act were not available to the applicant.

51 However, Ambrose J went on to hold that, having regard to the insufficiency of the demand, the debtor company was entitled to apply for an injunction restraining the creditor from making an application to wind up upon the basis of a demand which appeared to be defective. His Honour was of the view that the omission of certain words from the demand could not be characterised as merely a defect with the result that the saving provision in s 459J(2) of the Act did not apply.

52 I pause to say that, for present purposes, it is important to understand the basis upon which Ambrose J considered that there was power to make a restraining order. He referred with approval to certain observations made by Lockhart J in Topfelt v State Bank (NSW) [1993] FCA 589; (1993) 47 FCR 226 at 393 in which his Honour said that there may be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Act.

53 Ambrose J went on to hold at par 59 that, in his opinion, the deficiency in the statutory demand in the case before him was so fundamental that it did not come within the description of a statutory demand to which s 459E of the Act refers. He said further at par 60 that a statutory demand which fails to inform a debtor company of certain essential matters cannot be treated as an effective demand for the purposes of s 459E, albeit that it comes within the definition of statutory demand because it purports to be one.

54 It was against this background that his Honour went on to make these further observations:

72. Both parties had the opportunity to fully argue the effect of the deficiency in the statutory demand. In my view the defect to which I have referred was such as to deprive the debtor company of notice of the time within which it was entitled to seek to have the demand set aside if it wished to avoid the statutory consequence of non-compliance with it.

72. While I lack the jurisdiction to set that demand aside, it would be appropriate if possible to avoid the expense and likely commercial consequences to the applicant should the respondent seek to apply to have the applicant wound up for non-compliance with that demand. In my view a court would not wind up the applicant having regard to the defect in the demand. In my judgment this consideration justifies the making of a declaration as to the effectiveness of that statutory demand.

73. Under s 459F(2)(a)(ii) the period for compliance with the defective statutory demand in this case will expire seven days after the determination of this application.

74. If during that period the respondent does not undertake not to make application to wind up the applicant under s 459Q, in my view it will be open to the applicant to seek an injunction to restrain the respondent from making such an application to avoid the commercial consequences of such an application being made irrespective of the result of its outcome.

75. I declare that the statutory demand dated 14 April 1999 served by Queensland Trade and Services Pty Ltd as agent of the respondent upon the applicant on 19 April 1999, does not substantially comply with the essential requirements of s 459E of the Corporations Law and Form 509H, and non-compliance with it is insufficient to support an application to wind up the applicant.

76. In the event that the respondent does not by Tuesday, 7 September 1999 undertake not to apply to have the applicant would up for non-compliance with that statutory demand, I give the applicant leave to apply forthwith for an injunction restraining the respondent from making such an application."

55 Counsel for the plaintiff in the present case went on to submit that Re Beralt (supra) could be regarded as persuasive authority for the proposition that an injunction should be granted to restrain the issue of winding up proceedings in circumstances where the statutory demand relied upon is not capable of giving rise to a presumption of insolvency. Counsel contended that the reasoning of Ambrose J could be applied directly to the circumstances of the present case.

56 Counsel submitted further that it would be an abuse of the processes of the Court for the defendant in the present case to proceed with a winding up application on the basis of a statutory demand and accompanying affidavit which were seriously flawed and should not be regarded as sufficient to give rise to a presumption of insolvency: Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196. It was therefore argued that an injunction should be granted in order to forestall the abuse of process.

57 Counsel for the defendant did not dispute that there must be strict adherence to the requirements of the statutory regime allowing for a statutory demand to be made which could lead to a presumption of insolvency. According to counsel for the defendant, such a view underpinned the defendant's opposition to the grant of an injunction in the circumstances of the present case.

58 The intent and purpose of the legislative scheme established by Pt 5.4 of the Act was to create a procedure which limits the debtor's right to ventilate arguments bearing upon the sufficiency of the demand to an application to set aside the statutory demand made pursuant to s 459G, strictly within the time limit set. The consequence of a demand not being set aside pursuant to the prescribed procedure was not necessarily fatal to a debtor company's position. The statutory demand simply led to a presumption of insolvency. It remained open to the debtor company to rebut the presumption in the manner allowed for by the statutory regime. Accordingly, a court should not be persuaded to grant injunctive relief in equity.

59 Counsel for the defendant relied upon the fact that the plaintiff had failed to make an application to set aside within the strict time limits. Thus, the absence of any ruling upon the sufficiency of the demand was due to a default on the plaintiff's side. This was an issue which could not and should not be reopened in proceedings for declaratory and injunctive relief which were instituted outside the statutory regime.

60 Further, and in any event, counsel for the defendant submitted, the statutory demand and accompanying affidavit were in a sufficient form. The statutory demand contained the words "due and payable" and when the demand was read in conjunction with the words used in the affidavit the debtor company had been put on notice, in an unambiguous way, of all the matters the legislation requires. The present case was unlike the circumstances in Main Camp (supra). In that case the surrounding correspondence was arguably inconsistent with the date fixed by the demand. The affidavit spoke only of the debtor company being "indebted" to the claimant. However, in the present case, the correspondence preceding the demand, and the fixing of the sum of $148,299.07 as the amount due and payable, was consistent with the defendant's position at all stages subsequent to the plaintiff signing an acknowledgement of the debt on 19 February 2003. Moreover, in this case, the affidavit not only referred to the plaintiff being "indebted" to the defendant but also spoke of the amount being claimed as "being the agreed amount owing". This amounted to an assertion that the debt was due and payable.

61 Counsel for the defendant relied upon various decided cases in support of the defendant's position. Reference was made to Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681; (1997) 147 ALR 444. In that case a Full Court of the Federal Court held that s 459J of the Act requires that, if a defect is "in the demand", the demand is only to be set aside if substantial injustice will be caused. If the defect is in relation to the demand, rather than in the demand itself, then the demand may only be set aside if the court is satisfied that there is some reason why the demand should be set aside. The "other reason" required by s 459J(1)(b) must be a reason other than a defect in the demand. The Full Court observed at 449 that s 459G(2) of the Act makes it quite clear that the legislative intent is that defects in relation to statutory demands are not to result in invalidity save and except as provided in s 459J(1).

62 Counsel referred also to the decision of Steytler J in Goldman Asset Management Pty Ltd v Prudential Bache Securities (Australia) Ltd, unreported; SCt of WA; Library No 980449; 27 July 1998. In that case an application to set aside a statutory demand was brought one day out of time whereupon the plaintiff applied for an injunction to restraining winding up proceedings as an abuse of process on the ground that the debt was disputed.

63 In the course of his judgment his Honour referred to the decision of the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 in which the High Court held that s 459G defined the jurisdiction of the court by imposing a time requirement as an essential condition to the right to apply to set aside a statutory demand. Section 459G was specific in its terms and was not supplemented or qualified in its construction or operation by s 1322 of the Act with the result that an extension of time could not be granted pursuant to the latter provision.

64 His Honour cited with approval certain observations made by Gummow J at 279 to the effect that although, in some circumstances, Pt 5.4 of the Act may appear to operate harshly, that is a consequence of the legislative scheme. In an appropriate case, where a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process, relief may be available to the company in a court of general equity jurisdiction.

65 Against that background, Steytler J accepted that superior courts have a general jurisdictional power to stay proceedings that are an abuse of process. However, in his view, the effect of the enactment of Pt 5.4 of the Act was to effectively limit the exercise of that jurisdiction to special cases. For example, the power to stay might be exercised if the failure by the company to serve a s 459G application within time was the result of something done or not done by the creditor. Another example might be a case in which the company upon which the statutory notice is served is undoubtedly solvent. However, in such a case there would have to be more than a mere assertion by the company to that effect.

66 Counsel for the defendant referred also to Dromore Fresh Produce Pty Ltd v W Paton (Fertilizers) Pty Ltd (1997) 137 FLR 307. That case concerned an appeal from a decision of the Master striking out an application to set aside a statutory demand on the grounds that the application was filed one day late. On appeal, the plaintiff contented, inter alia, that the demand was not a statutory demand within the meaning of s 459E of the Act and hence there was nothing served on the relevant day which could trigger off any time period under s 459G(2) of the Act.

67 Austin J observed that the policy of the Act was that all objections to the statutory demand must be made in good time and at the time of the first challenge. He indicated that the scheme of the law now is that the onus is on the debtor to file a proper application within 21 days, and if it does not, then it is virtually precluded from relying on technicalities. He approved submissions by counsel for the creditor to the effect that there is no room for a situation where a default by the creditor with respect to the statutory demand or the accompanying affidavit can be other than a matter which the Court is to consider under s 459G(1). His Honour went on to say that the decided cases establish this except in the very rare case where the demand itself falls right outside anything that could be regarded as a purported demand.

68 The plaintiff in the present case alleges that the statutory demand procedure initiated by the defendant as creditor in the present case was defective in that the statutory demand and accompanying affidavit did not plainly and sufficiently assert that the debt in question was due and payable. It was open to the plaintiff to apply to set aside the statutory demand within 21 days in the manner allowed for by s 459G of the Act and to rely upon the alleged defect in doing so. It is clear from the evidentiary materials before me that the plaintiff failed to make that application within the prescribed time limit with the result that the statutory demand remained on foot.

69 It emerges from my review of the decided cases that the statutory demand procedure must be strictly adhered to in all respects including that part of the procedure which allows for the setting aside of a demand pursuant to an application made within strict time limits.

70 The statutory regime ameliorates to some extent the consequences of a failure to set aside within the prescribed time limit by allowing the company subjected to a demand an opportunity to rebut the presumption of insolvency that might otherwise prevail. Section 459S allows the debtor company to raise other lines of defence with the leave of the Court. These provisions reinforce the view contended for by the defendant in the present case that a challenge to the validity of the statutory demand must be made pursuant to s 459G of the Act because the statutory regime identifies this provision as the appropriate avenue of relief. Such a view is consistent with the reasoning of Austin J in Dromore (supra).

71 This view of the matter weighs against the grant of injunctive relief in the circumstances of the present case. Relief by way of restraining orders can be granted where there is a serious issue to be tried and the balance of convenience weighs in favour of the grant of relief. However, for the reasons I have just given, a party seeking to set aside a statutory demand cannot necessarily satisfy the Court that there is a serious issue to be tried simply because the statutory demand and accompanying affidavit relied upon by the creditor are allegedly flawed. The issue to be examined is whether an injunction can properly be granted in circumstances where the applicant for relief has failed to set aside the demand in the manner allowed for by the statutory regime.

72 The decided cases, and especially Re Beralt (supra), suggest that in certain circumstances an applicant might be able to obtain injunctive relief, notwithstanding a failure to comply with the statutory procedure to set aside. This might be so where the nature of the flaws complained of have misled the debtor as to the time limits, or as to the need to make an application to set aside or, alternatively, if the flaws are such that the statutory demand in question does not purport to be a statutory demand or are so fundamental that the demand cannot reasonably be characterised as a statutory demand.

73 However, in the present case, I am not persuaded that the flaws complained of are sufficiently fundamental for an observer to conclude that the demand made was not a statutory demand at all. Here, the statutory demand in question purported to comply with the statutory requirements. It contained an explicit reference to the debt being "due and payable" in the manner allowed for by the prescribed form. The preceding correspondence was entirely consistent with such a claim.

74 There may be room for argument as to the adequacy of the accompanying affidavit (being a matter I will return to shortly) but, to my mind, it cannot be said that this was not a demand sufficient to activate the statutory procedure, or that the plaintiff was likely to be misled as to the need to make an application to set aside if it wished to do so. The plaintiff itself recognised a need to apply to set aside but, in the event, failed to do so within the prescribed time.

75 I note in passing that in Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd [1995] FCA 1163; (1995) 129 ALR 308 Branson J observed at 317 that the Act does not provide for the setting aside of affidavits. It provides for the setting aside of statutory demands. Thus, it is significant in the circumstances of the present case, that the demand contained an explicit, and, to my mind, sufficient reference to the debt being due and payable.

76 Against this background, I do not consider that it is necessary for me to rule upon the sufficiency of the accompanying affidavit in order to resolve the application for injunctive relief. The statutory demand procedure required that an application to set aside the demand be made within 21 days. The procedure had to be strictly adhered to. Thereafter, it was not open to the plaintiff to challenge the regularity of the demand by seeking relief in equity or by relying upon an alleged abuse of process, save in the very limited circumstances mentioned in earlier discussion, none of which apply in the present case.

77 In my view, this conclusion is consistent with the reasoning of Austin J in Dromore (supra) and the various authorities which establish that the statutory procedure must be strictly adhered to. I consider that Re Beralt (supra) can be distinguished in that the injunctive relief allowed for in that case depended upon a finding that the statutory demand was fundamentally flawed. The documents in the present case are not flawed to that extent.

78 In my view, the reasoning in Main Camp (supra) does not apply directly to an application of the present kind because Barrett J was not dealing with an application for an injunction. He was concerned with an appeal against a decision of the Master within the framework of the statutory regime. Further, the conclusion he came to was significantly affected by the presence of a letter that tended to confuse the nature of the demand being made. His reasoning applies principally to an issue which I have not found it necessary to decide, namely, the question of whether the language used in the documents can be characterised as an assertion that the amount is "due and payable", notwithstanding that this verbal formula was not actually used in the subject documents.

79 It follows from the conclusion I have just expressed that, in my view, the decision in Wildtown (supra) has no application to the circumstances of the present case. The defendant cannot be said to be involved in an abuse of process in seeking to proceed further pursuant to a statutory demand that has not been set aside and in circumstances where it cannot be said that the documentation was flawed to such an extent that an application for declaratory relief is bound to succeed. As to this aspect of the matter, I take account also of the fact that it remains open to the plaintiff to endeavour to rebut the presumption of insolvency arising from the presence of a statutory demand that remains on foot.

80 I am not necessarily convinced that the accompanying affidavit in the present case fails to comply with the prescribed form in that it fails to refer expressly to the debt being "due and payable". When the affidavit is read in conjunction with the statutory demand and weight is given to the combination of the words "indebted" and "amount owing" in the affidavit itself, there appears to be a basis for contending, as allowed for by the reasoning of Barrett J in Main Camp (supra), that the deponent has, in effect, asserted that the debt is due and payable. I am conscious also that, having regard to s 459G(2) of the Act, the Court must not set aside a statutory demand merely because of a defect.

81 However, for the reasons I have provided, I do not find it necessary to express a final view about this aspect of the matter. The observations I have just made simply underpin my earlier conclusion that the documentation in the present case cannot be regarded as so fundamentally flawed or misleading as to provide a basis for equitable relief beyond that which is allowed by the statutory regime.

82 When I turn to the balance of convenience issue I am immediately conscious that the plaintiff is entitled to argue that it will be severely affected by a flawed demand in the manner described in its principal supporting affidavit. Nonetheless, I am confronted with a lack of persuasive evidence bearing upon the solvency of the plaintiff. I am unable to arrive at any provision or conclusion concerning that issue one way or the other. On the other hand, the defendant has made out a compelling case that it has been pressing for payment of an acknowledged debt for a considerable period of time and in circumstances where further delay is likely to result in disadvantage to the defendant. It follows that I am not satisfied that the balance of convenience favours the plaintiff in putting forward its case for the grant of an injunction. For this reason also, the application for an injunction will be refused.

83 This brings me finally to the application for leave to amend. Parties should generally be allowed leave to amend with a view to bringing forward a claim that can be properly advanced so that all matters in controversy between the parties can be determined. However, an application for leave to amend should not be allowed where the proposed claim is untenable and has no prospects of success. I am conscious that the Court must be cautious in dealing with applications to amend that it does not deter a party from advancing contentious propositions in an area of the law that is still evolving. Nonetheless, it follows from the views I have expressed concerning the application for declaratory and injunctive relief that I am not prepared to grant leave to amend in the manner proposed by the plaintiff's minute.

84 The application for leave to amend in terms of the minute of proposed amended writ of summons dated 22 May 2003 is dismissed. The plaintiff's application for an interlocutory injunction is refused. I will hear from the parties as to whether any further orders or directions are required.