Plaintiff v Defendant

Plaintiff v Defendant - [2006] VSC 338 - VSC 2006 case summary — Zoe

[18]

14 It is not disputed that the statutory demand was served on 12 April 2006 and that Land Mark neither complied with it nor applied to set it aside within the period prescribed by s459G(2) of the Act.

15 By an affidavit sworn 6 June 2006, John Grezos, the sole director and secretary of Land Mark, deposed that the debt the subject of the statutory demand was not due and payable and that the company was solvent. Mr Grezos stated that he did not receive a copy of the statutory demand until a week after service, because it was served at the company's registered office care of its accountants, on 19 April 2006. When Mr Grezos received the statutory demand, he did not realise its implications until Land Mark 's solicitor, Mr Egan, explained them on 16 May 2006.

16 On 16 May 2006, there were discussions between Mr Grezos and Mr Crema and between Mr Egan and Crema's solicitor, Mr Leonidas. By that date, Land Mark had already been served with the originating process and Mr Crema's verifying affidavit.

17 Land Mark, as appears from Mr Grezos' affidavit, became, at an unspecified date, the registered proprietor of land situated at 23-33 Lonsdale Street, Melbourne and obtained a permit to construct a 29 level residential and office facility tower on it.

18 Pursuant to a contract dated 21 April 2004 between Crema and Land Mark ("the contract"), the parties agreed that Crema, a builder, would construct the tower for a price of $30.2 million.

19 Land Mark obtained a loan facility from the Public Trustee of Queensland ("the Public Trustee") and City Pacific Ltd ("City Pacific") ("collectively, the financiers") for $46.5 million, with a $2 million "stand by" facility pursuant to a deed of loan executed 27 April 2004 ("deed of loan").

20 The loan was secured by a first registered mortgage and second registered mortgage over the tower property in favour of the Public Trustee and City Pacific respectively, and by deeds of charge.

21 Mr Grezos deposed that Crema was unwilling to commit to the fixed price contract initially required by the financiers. Following negotiations between all parties, it was agreed that the financiers would fund a maximum of $30,200,000 for the construction of the tower and that any costs overruns and additional costs would be payable by Land Mark, but only after completion of the project.

22 Mr Grezos referred to clause 47.6 of the contract, which provides:

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26 Under the process established for payment, the superintendent T Waisberg & Associates, would issue a certificate, which would be referred to Napier & Blakeley Pty Ltd, the quantity surveyors. The financiers would pay the amount (not to exceed the contract sum) to Crema on the recommendation of the quantity surveyors.

27 Mr Grezos deposed that the most recent certificate of the superintendent dated 10 May 2006 (recommendation for payment 20) indicated that all progress payments had been paid other than progress payment 20. Mr Grezos asserted that progress payment 20 was paid on 19 May 2006 and that there was no amount due and payable to Crema. Rather, Crema had been overpaid by the sum of $636,905 for variations, which was not yet due and payable.

28 Mr Grezos further deposed that Land Mark was solvent, in that its assets exceeded its liabilities. The tower property, on an "as if complete" basis, had been valued at between $56.223 million and $68.099 million by CB Richard Ellis dated 6 December 2005 ("the 2005 valuation").

29 By his first affidavit sworn 26 June 2006, Kenneth Wallace, Land Mark 's accountant, stated his opinion that Land Mark was solvent within the meaning of s.95A of the Act.

30 He exhibited a report he had prepared which indicated that Land Mark had net assets of $13.629 million and total current liabilities of a hire purchase liability for $4,337, the Crema invoice of 26 May 2006 for $890,061 and other day-to-day invoices for $83,000.

31 Mr Wallace stated that the current amount drawn by Land Mark and owing to the financiers on the loan facility of $46.5 million (together with the standby facility of $2 million) as at 20 June 2006 was $46.487 million, leaving a balance of $2,012,757.

32 He deposed that the company's bank account with the NAB bank account was in credit to a little over $80,000 and that Land Mark had no other current debts.

33 By his affidavit sworn 19 June 2006 in response to the first Wallace affidavit, Mr Crema deposed that although only $81,460 of the Crema invoice dated 26 May 2006 was currently outstanding, that invoice was not the only amount owed to Crema. The payments received by Crema from Land Mark as at 19 May 2006 totalled $32,093,583. As at 19 May 2006, the sum of $763,883.51 (relating to short payments for invoices from November and December, 2005, and February, March, April and May, 2006) remained outstanding.

34 Mr Crema contended that the alleged standby facility under the letter of offer was available only in the event that a contingency sum was allocated by the quantity surveyor for approved variations or damages. It was not available "at call".

35 Further, he deposed that Land Mark had apparently failed to comply with its obligation under the tripartite deed to submit its Business Activity Statements ("BAS") to the Australian Taxation Office ("ATO") as soon as possible (so that any refund of GST could be deposited with the financiers). Its NAB account did not disclose any funds remitted from the ATO.

36 Mr Crema disputed that progress payment 20 was paid in full to Crema on 19 May 2006, asserting that payment was short by $100,324. He denied that all other progress payments had been fully paid as at 10 May 2006. He disputed that by clause 47 of the contract, variations were not to be paid for until after practical completion.

37 The affidavit of Charles Leonidas, solicitor for Crema, sworn 19 July 2006 exhibited his correspondence with Gadens Lawyers, the solicitors for City Pacific Limited, one of the financiers. Mr Leonidas' letter to Gadens Lawyers dated 12 July 2006 referred to Land Mark's outstanding debt of $763,883 to Crema and to significant short payment. He acknowledged that the financiers had no direct obligation to Crema, but requested payment. Mr Leonidas stated that Crema was considering its position. It had served a notice to inspect, but had not suspended the works.

38 The letter stated that Mr Leonidas believed that the full amount of $46.5 million of the loan had been drawn down. It enquired about breach, interest payments, remittance of GST refunds and how much further funding would be made available to complete.

39 The letter of Ms Burney of Gadens Lawyers to Mr Leonidas, dated 18 July 2006, advised that the financiers, as mortgagees, proposed to send Land Mark a Notice to Pay under s.76 of the Transfer of Land Act ("TLA") for a total of $55,486,063, comprising loan arrears of principal of $46.877 million, interest and various additional expenses.

40 The affidavit of Mr Egan sworn 2 August 2006 disputed that a debt of $763,883 was outstanding to Crema. He stated that there had been no short payment, because on Land Mark's calculations, Crema had been overpaid by $703,167.

41 Mr Egan acknowledged receipt of a Notice to Pay on 18 July 2006, but contended that it was defective and breached the deed of loan. He exhibited his letter of 2 August 2006 which asserted that the specified default in the Notice to Pay of failure to pay interest from 18 March was inconsistent with the most recent statement of the loan account, which indicated that interest was paid on 31 March, 30 April and 30 May 2006.

42 Mr Egan advised that Land Mark had taken steps to refinance its debt in order to pay the Public Trustee, and, (under protest), the amount demanded by Crema. He referred to letters of Global Capital Corporation (Global Capital"), a finance broker, and anticipated approval of finance within 14 days from 27 July 2006.

43 By an affidavit sworn 2 August 2006 Mr Grezos also disputed that $81,400 was outstanding on the 26 May 2006 invoice, because Crema had been overpaid $703,167 out of the total payment of $32,797,716, including GST.

44 He reiterated that Crema's entitlement at any specific time during construction was limited to an amount equal to the percentage of the works completed, measured by reference to the contract sum of $30.2 million. He stated that the total of money paid by Land Mark to Crema was $32,093,483 - not $32,797,716, as Mr Crema claimed.

45 He asserted that the Notice to Pay was defective, as Land Mark had made all interest payments and was not in default under the deed of loan. The tower was almost completed, its value exceeded the amount of the loan facility and Land Mark was, in any event, seeking to refinance the loan through Global Capital.

46 By a third affidavit sworn 4 August 2006, Mr Grezos stated that the only relationship between Land Mark and Crema was pursuant to the contract and he had not authorised the purchase of any goods or chattels from Crema. He deposed that he had been informed that the tower had not reached the state of practical completion. He again referred to the anticipated refinancing.

47 By his third affidavit sworn 4 August 2006, Mr Egan deposed that Crema's initial demand made by a letter dated 10 April 2006 for the sum claimed in the statutory demand related to money due under the contract between Land Mark and Crema, as opposed to goods sold and delivered. Crema's letter of 10 April 2006 was thus inconsistent with the statutory demand.

48 Mr Egan further deposed that Mr Grezos had informed him that he, Mr Grezos, did not receive a further Notice to Pay on 1 August 2006. Mr Egan asserted that Land Mark was not in arrears under the loan from the financiers because, under the deed of loan, interest was to be drawn down from the funds advanced.

49 He stated that the deed of loan provided a "cushion" of $2 million to cater for overruns. If the amount borrowed exceeded $46.5 million, the additional $2 million would be available to provide the lender with interest pending the completion of the works or refinancing.

50 Mr Waisberg, the superintendent, by his affidavit sworn 4 August 2006, deposed that his role involved the receipt of Crema's claim for progress payments in respect of the building. He first attends the construction site, determines whether the claim is valid and prepares a construction Progress Valuation Report. When he provides a certificate, it is forwarded to Napier Blakeley Pty Ltd, which verifies it on behalf of the financier, which in turn pays the certified amount to Crema.

51 Mr Waisberg deposed that he had now received progress payment claim number 23 from Crema, but had not yet prepared the relevant report, nor authorised payment.

52 Mr Waisberg stated that he attended the tower construction site on 1 August 2006 and it had not achieved completion or practical completion. He estimated that the total construction cost will not exceed $31.4 million.

53 By her affidavit sworn 8 August 2006, Ms Burney of Gadens Lawyers, the solicitors for the Public Trustee, deposed that the correct figure for interest as at 18 July 2006 was $1,804,042.30, but had been incorrectly stated as only $186,404.23 in the Notice to Pay dated 1 August 2006, by reason of a typographical error.

54 She stated that the sum of $55,486,063.75 although disputed by Land Mark, was correct as at 18 July 2006, and had not been paid. Further, as at 8 August 2006, the company owed the Public Trustee $56,065,771.87. A new Notice to Pay reflecting that would be served.

55 The Public Trustee's Notice to Pay dated 8 August 2006 pursuant to clause 12.3 of the deed of loan stated that the amount of secured moneys due and payable as at 8 August 2006 was $56,065,771.87 comprising:

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56 The affidavit of Timothy Dorgan, articled clerk of Gadens Lawyers, deposed that he hand delivered the Notice to Pay dated 8 August 2006 on 8 August 2006.

57 By his affidavit sworn 15 August 2006, Gregory Gregory, the Chief Financial Officer of Land Mark, deposed that he had been unable to obtain an up to date loan statement for the loan facility. Because the financiers made payments directly to Crema, he could not calculate the current indebtedness of Land Mark to Crema.

58 By his fourth affidavit sworn 15 August 2005, Mr Grezos reiterated that "the issue of whether there is any further current indebtedness or not is also hampered by the fact that the financiers have not forwarded the accounts". He stated that Land Mark proposed to pay the sum of $800,000 into Court.

59 Mr Wallace, by his second affidavit sworn 15 August 2006, further addressed the issue of Land Mark's indebtedness to Crema. He stated that Land Mark had paid at least $22,994 to Crema, either directly or through financiers.

60 Mr Wallace stated that initially, Land Mark had claimed the payments from the financiers, and subsequently forwarded them to Crema (less the moneys paid into a retention account). Subsequently, however, (a precise date is not given) Crema arranged for a bank guarantee in lieu of the retention account, and thereafter, payments were made directly to Crema by the financiers.

61 Mr Wallace stated that he prepared a document dated June 2006 on the basis of Land Mark 's cheque butts, NAB bank statements and the financier's statements.

62 He stated that his examination indicated that City Pacific had paid Land Mark directly the sum of $30,954,797.62 and Land Mark had paid $1,520,738.72. The meaning of the statement was unclear. Mr Wallace appeared to acknowledge that in order to determine the indebtedness, it was necessary to know what payments had been made by the financiers to Crema but that the necessary statements between Crema and the financiers had not been provided.

63 Although Mr Wallace concluded that, in his opinion, after examining the books of Land Mark and reconciling the Crema account, nothing was owed, but rather, there had been an over payment, his assertion appeared to be qualified by the acknowledgement that he did not have access to the accounts between Crema and the financiers.

64 Mr Wallace opined that if Land Mark were placed in liquidation, it would diminish the amount of the return to the secured creditors, because the maximum valuation of $68 million could not be achieved on a liquidator's sale. If a winding up occurred, unsecured creditors (estimated in the order of $650,000) would not receive a dividend.

65 He also referred to potential adverse consequences to Mr Grezos and other companies in the Grezos group, which had provided cross guarantees. Mr Wallace opined that if Land Mark were permitted to refinance the loan, it could complete the construction of the tower and secure considerable profit, to the benefit of all parties.

66 By his affidavit sworn 15 August 2006, Kevin Bartlett of Land Mark's accountants, reconciled the account of Land Mark with Crema. On the basis of the reconciliation, he concluded that Land Mark was not indebted to Crema. Rather, applying Crema's records, the sum of $22,994 had been overpaid. Applying the records of Land Mark and the financiers, Land Mark had overpaid $354,887. Mr Bartlett acknowledged, however, that he could not verify the balance of Land Mark's account with Crema, due to the failure to respond to his requests for information.

67 The fourth affidavit of Mr Grezos, sworn 15 August 2006, referred to Mr Egan's calculation of the amount Land Mark owed the financiers.

68 He stated that he anticipated that the sum would be paid by an advance from Global Capital for $54.11 million upon receipt of an updated valuation and anticipated that the tower could then be completed by Crema.

69 Mr Waisberg, the superintendent, had informed him that the construction cost would not exceed $31.4 million exclusive of GST, and Mr Grezos believed that Crema had been paid $32,554,893 inclusive of GST. The project (based on the construction of 123 apartments and 59 car spaces at the tower building) should result in a gross realisation of $70 million, including GST.

70 Mr Grezos expressed apprehension that a liquidator would sell the units semi-completed, resulting in loss and damage to secured and unsecured creditors. He believed that it would advantage all creditors if the project were refinanced, rather than the company wound up. A profit would be obtained. Mr Grezos stated that he had personally guaranteed the indebtedness of the company to Crema and the financiers.

71 By his fourth affidavit sworn 15 August 2006, Mr Egan asserted an extensive experience of financing commercial developments. He calculated the indebtedness of Land Mark to the financiers on the basis of the provisions of the deed of loan and the statement of loan account from City Pacific Limited dated 21 June 2006. He calculated that the current amount to be refinanced in order to discharge the liability to the lender was $50,316,761 as at 31 August 2006. He stated that a total amount of $51,573,321 was payable.

72 Mr Egan stated that the statement of loan account from City Pacific Limited dated 21 June 2006 showed interest being paid and drawn from the principal balance up to and including 31 May 2006, covering the period ending 31 May 2006 as interest payable monthly in arrears. The three Notices to Pay by the Public Trustee, in so far as they relied on a failure to pay interest accrued from 18 March 2006, were therefore defective.

THE LEGISLATION

73 The relevant sections of the Act are set out below:

74 Section 95A states:

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WHETHER STATUTORY DEMAND A NULLITY

86 Although the definition of "statutory demand" in s.9 of the Act comprehends a "purported statutory demand", the appellants submitted that the flaws in the statutory demand in the present case were so fundamental that it did not constitute even a purported statutory demand, but was rather a nullity. In consequence, although Land Mark had neither complied nor applied to set it aside within the time prescribed by s.459G, there was no non-compliance with a statutory demand pursuant to s.459F, no consequential presumption of insolvency under s.459C and no requirement for leave to rely on any complaint or dispute in relation to the statutory demand as a ground of opposition to the application to wind the company up.

87 By s.459S(1) of the Act, the Court's leave is required in order to oppose a winding up application based on non-compliance with a statutory demand on a ground which could have been relied on in an application under s459G. By s.459S(2), leave must not be granted unless the matter is material to proving the company's solvency. Therefore if the company contended that it would be solvent whether or not the debt the subject of the statutory demand is due and payable, s.459S(2) would preclude a grant of leave to raise arguments which were or could have been relied on to set aside the statutory demand.[1]

88 In the present case, Mr Fajgenbaum, senior counsel for the appellants, did not dispute that the appellants could have relied on the arguments they now sought to raise in opposition to the winding up application (whether the alleged deficiencies in the statutory demand were properly characterised as defects, irregularities, fundamental flaws or otherwise) in the context of an application to set aside the statutory demand. No application under s.459G was made because Land Mark's director did not realise the significance of the statutory demand until after the prescribed time had elapsed.

89 Mr Fajgenbaum acknowledged that if the alleged flaws were not established, or, although made out, did not render the statutory demand a nullity, leave under s.459S would be required in order to raise the arguments. Whether leave could be granted depended on whether the grounds were material to proving the company's solvency. As the sum owed to the financiers (whether it was $56 million, as stated in the Notice to Pay dated 8 August 2006, or $46 million, as contended by the appellants) far exceeded the debt the subject of the statutory demand, the validity of the Notice to Pay rendering the sum due and payable was central to the determination of solvency. The status of the statutory demand was, in turn, significant to the validity of the Notice to Pay, as non-compliance with a statutory demand was one of the two events of default relied upon, both of which the appellants disputed.

90 Given the inter-related issues, the alleged nullity of the statutory demand is central to the appellants' opposition to winding up, but confronts the Court with a dilemma. If it hears the appellants' arguments on nullity, it may ultimately conclude that leave under s.459S was required to raise them, but that such leave could not or would not have been given. Counterbalancing that, an absolute refusal to entertain the arguments on nullity could result in error and injustice. The preferable course, in my opinion, is to hear the arguments, at least to the extent necessary in order to determine whether leave is required.

91 In Topfelt,[2] a case decided shortly after the introduction of Part 5.4, Lockhart J considered, in the context of an application to set aside a statement demand, whether certain deficiencies could justify the conclusion that a statutory demand was not a statutory demand. In Topfelt, the applicant contended that the statutory demand was not a statutory demand within the definition of s.459E, or was defective, because it did not state the source or rate of the interest and claimed it as a continuing liability. Further, no address for payment was specified in the statement demand.

92 Lockhart J held that the statutory demand obliged the applicant to make inquiries of various kinds in order to calculate the amount of interest claimed. It thus could not be complied with on its face, and although no substantial injustice was alleged, the deficiencies, which gave rise to uncertainty, constituted reason why the statutory demand should be set aside pursuant to s.459J(1)(b).

93 His Honour rejected the contention that the demand did not answer the description of a statutory demand for the purposes of Part 5.4 due to the nature and extent of the deficiencies. He acknowledged that "there may, however, be cases where the 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 Corporations Law"[3] but concluded that, 'The demand purports to follow the prescribed form of a statutory demand, but falls into error in its description of the moneys claimed to be due by the applicant. Nevertheless, it purports to be a statutory demand".[4]

94 Lockhart J noted that a "statutory demand" was defined to mean "a document which is or purports to be a statutory demand", and that the definition of "defect" was inclusive, extending to "not only an irregularity, but a misstatement of an amount or total and a misdescription of a debt or other matter and a misdescription of a person or entity".[5] The inclusive definition was, in his view, designed to prevent an unduly narrow reading down of the word "defect" to exclude major defects in the construction of s.459J and other relevant sections. As such, a statutory demand could not be set aside under s.459J(1) by reason of even a major defect unless substantial injustice would be caused. That outcome accorded with the objective of Part 5.4 to avoid the invalidation of statutory demands on the basis of technical deficiencies, rather than the commercial justice of the matter.

95 Lockhart J observed that "the new Part 5.4 of the Corporations Act does not recognise two regimes: one dealing with documents that suffer from major defects such that they cannot be described as statutory demands for the purposes of Part 5.4 of the Corporations Law; and another dealing with documents that suffer only from minor defects and are capable of being saved from invalidity by the operation of s.459(2). This is a distinction which the parliament has sought to avoid and which for many years bedevilled the law and practice relating to bankruptcy notices".[6]

96 He also noted the apparent tension between, on the one hand, s.459S, which aimed to ensure that objections to defects in statutory demand occur primarily before any application to wind up the company is made, and, on the other hand, the provisions of s.467A(b), which may permit the dismissal of the winding up application on the basis of a defect in the statutory demand where irremediable substantial injustice has been caused. His Honour questioned, but did not decide, whether s.467A applied to a defect which did not relate to solvency.

97 He considered that s.467A may apply to cases where a statutory demand was so defective that it would be unjust to allow it to be the vehicle for the presumption of insolvency, despite a failure to apply under s.459G to set it aside. For example, if a statutory demand omitted any reference to the right to apply to set it aside or to the consequences of failing to do so, it "may be a case of deficiencies so grave that the document did not constitute a statutory demand". If it were a statutory demand, "the Court would not set it aside at that stage because that is a function to be performed at the earlier time when application is made under s.459G",[7] but could still take it into account when exercising the discretion.

98 In the present case the appellants did not rely on s.467A or contend that defects in the statutory demand caused substantial injustice that could not be remedied. Their case was that the statutory demand was a nullity. It is therefore unnecessary to consider the construction of s.467A.

99 In Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd,[8] Hill J considered that the omission of the notes in the prescribed form of the statutory demand, did not mean that the statutory demand was not a statutory demand at all. He stated:[9]

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103 In NT Resorts, Finkelstein J dismissed the application of a company to set aside a statutory demand served by the Deputy Commissioner of Taxation ("DCT"). The applicant conceded that it was indebted to the DCT in the amounts specified, but argued that the debts were not due and payable when the statutory demand was served. Alternatively, it argued that there was a genuine dispute about whether the debts were due and payable.

104 Finkelstein J rejected the company's contention that, on the evidence, the debts were not due and payable because the DCT had agreed to extend the time for payment.[14] He also rejected the contention that it was genuinely arguable that an extension had been granted

105 In that context, his Honour noted that when an applicant relied on s.459H(1)(a) or s.459(1)(b), it was only necessary to show that there was a genuine dispute about the existence or amount of the debt, or that the company genuinely claimed an off setting claim. In contrast, when the complaint was that there was a defect in the statutory demand, it was necessary to establish the defect before the demand could be set aside, because "An arguable defect will not do".[15]

106 He observed that when it is alleged that a debt specified in a statutory demand is not due and payable, it is unclear under which of the four available grounds the company must apply for an order setting aside the demand.[16] Finkelstein J disagreed with Bryson J's conclusion in Portrait Express Sales Pty Ltd v Kodak (Australia) Pty Ltd[17] that s.459(j)(a) applied to such a case, because "the inclusion with debts which were due of a claim for payment of debts which at the date of the statutory demand had not fallen due is, in my opinion, a defect in the demand within the general meaning of 'defect'."[18]

107 Rather, Finkelstein J considered that "where a creditor serves a statutory demand that relates to a debt that is not due and payable this is a deficiency of a more fundamental character than a defect that may be the subject of an application under s.459J(1)(a)."

108 That conclusion was influenced by his recognition that if s.459J(1)(a) applied, the Court would be required to resolve a substantive dispute between a creditor and a company in the summary process of an application to set aside a statutory demand. His Honour considered that either s.459H(1) or (a) and s.459J(1)(b) was the ground available to an applicant alleging that the statutory demand specified only a debt that was not due and payable.

109 The observations of Finkelstein J in NT Resorts, Lockhart J in Topfelt, and Hill J in Kalamunda in relation to a document which did not constitute a statutory demand were made as obiter in the context of applications to set aside a statutory demand.

110 Lockhart and Hill JJ appeared to envisage that only deficiencies of a gross and exceptional character would deny a document the status of a statutory demand, given that a purported statutory demand is included in the definition.

111 Finkelstein J recognised merely that it was "arguable" that where the only debt specified in a statutory demand was a debt not due and payable, it would not be a statutory demand at all.

112 Further, his Honour considered that an applicant alleging that the debt specified in the statutory demand was not due and payable can and should apply to set it aside pursuant to either s.459H(I)(1)(a) or s.459J(1)(b).

113 As such, the judgment of Finkelstein J does not support the appellants' argument that a company can fail to apply to set aside a statutory demand under s.459G, and on the winding up application, circumvent the restrictions imposed by s.459S simply by contending that the statutory demand is a nullity on the basis that the specified debt is not due and payable.

114 Such an outcome would be contrary to the pre-eminent objective of Part 5.4 of "quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly"[19]. It would subvert the intended operation of Part 5.4 expressed in the Explanatory Memorandum as follows:[20]

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115 In my opinion, whatever the status of a statutory demand upon proof of an allegation that the specified debt is not due and owing, such an allegation constitutes a ground which may be relied upon in an application to set aside the statutory demand and, if no such application is made, s.459S will apply. Before any argument based on the status of the statutory demand could be made, leave would have to be granted on proper material, and the allegation proved.

116 The fallacy in the appellants' submission on nullity in the present case is that it assumes that they have succeeded in the arguments which they require leave to raise.

117 The appellants do not seek leave pursuant to s.459S and as (for reasons set out below) the relevant complaints do not appear material to proving solvency, leave could not be granted.

118 It follows that, in the absence of leave, the appellants were not entitled to oppose the application for winding up on the basis of their complaints in relation to the statutory demand. For completeness, however, I briefly consider their principal submissions.

119 First, the appellants contended that the statutory demand was a nullity because the specified debt was not due and payable, as any indebtedness of Land Mark to Crema arose solely pursuant to the contract, which, by clause 47.61 provided that the payment of any indebtedness exceeding $30.2 million (the contract price) plus GST would be deferred until after the date of practical completion. The appellants initially contended that Land Mark, at the date of the statutory demand, had already paid Crema a total sum which exceeded the maximum sum due prior to practical completion, which had not yet been achieved. Alternatively, they contended that pursuant to clause 37.2 of the contract, Land Mark was not required to pay Crema more than an amount equal to the percentage of the contract work completed. They submitted that only 96% of the contract work had been completed, and Land Mark was, in consequence, not obliged to pay more than 96% of the contract sum, which it had already paid.

120 Ultimately, at the hearing of the appeal, the appellants conceded that although they disputed the debt claimed in the statutory demand, they were unable to prove their contentions. The indirect system of payment necessitated access to the financial statements and accounts from Crema and the financiers in order to establish the amount of Land Mark's indebtedness, which the appellants had been unable to obtain.

121 Secondly, the appellants submitted that the statutory demand was a nullity because it was not in the prescribed form, contrary to s.459E(2)(e) of the Act, and was not signed by or on behalf of the creditor, contrary to s.459E(2)(f).

122 The prescribed form 509H set out in the Second Schedule of the Corporations Regulations contains notes which state, inter alia:

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123 The statutory demand in the present case is signed: "Comlaw Solicitors" under the printed words "COMLAW, Solicitors for Crema (Vic) Pty Ltd".

124 Mr Fajgenbaum contended that "Comlaw" was a firm name and not a legal entity that held a practising certificate. Further, he submitted that it was unclear who had signed the document.

125 The plaintiff was granted leave to file the affidavit of Charles Leonidas sworn 31 August 2006. Mr Leonidas deposed that he is the principal and sole proprietor of "Comlaw Barristers and Solicitors" and trades under the business name "Comlaw Barristers and Solicitors". He further deposed that he signed the statutory demand above the printed words "Comlaw, Solicitors for Crema (Vic) Pty Ltd".

126 Mr Fajgenbaum argued that the signature by the solicitor for the creditor in the solicitor's business name did not comply with the statutory requirements and was sufficiently grave and fundamental to render the statutory demand a nullity. He submitted that although the requirement was embodied in the Notes included in the prescribed form, the obligation set out in the Notes had mandatory statutory force pursuant to s.459E. As such, non-compliance was not a contravention of a provision of the Act capable of correction under s.1324 of the Act, or a deficiency capable of correction under Rule 1.7 of the Corporation Rules in the case of substantial compliance. Rather, it was "a failure to do what the law requires in connection with a form". He further submitted that the signature did not precisely conform to the solicitor's business name.

127 Section 459E(2)(f) requires that the statutory demand must be signed by and on behalf of the creditor.

128 In my opinion, that requirement was satisfied. The statutory demand was signed by Mr Leonidas, Crema's solicitor, who had Crema's actual authority to sign on its behalf.

129 Section 459E(2)(3) requires, in terms, that the statutory demand be in the prescribed form, if any. Form 509H is prescribed. Assuming that non-compliance with an obligation set out in the notes in relation to execution of the document constitutes non-compliance with the requirement that the statutory demand must be in the prescribed form, I am not persuaded that the signature in the present case failed to comply.

130 The statutory demand was signed by Mr Leonidas, the creditor's solicitor. Note 1 does not expressly prohibit a solicitor from signing in his or her business name; nor, in my opinion, is there any implicit prohibition on a solicitor signing in his firm or business name.

131 In Dennis Hangar Pty Ltd v Kanambra,[21] Heerey J declined to set aside a statutory demand signed by the creditor's solicitors in the firm's name, "Wilmoth Field & Warne", above the typed words "Wilmoth Field & Warne" and the description "solicitors and agents for [the creditor]", on the ground that there was no proof of the solicitor's express authority. His Honour considered it sufficient that, on the balance of probabilities, the creditor had authorised the solicitors to sign on its behalf. He accepted the legitimacy of the solicitor signing in the firm's name.

132 In my opinion, nothing contained in s.459E(2)(e) or Note 1 to the current prescribed form 509H suggests a different conclusion.

133 If, contrary to the above, signing by the solicitor in his or her firm or business name or a recognisable variation thereof, constituted a non-compliance with s.459E(2)(e), in my opinion it would constitute no more than a defect which, had it been raised in the context of an application to set aside a statutory demand in the present case, would not have been found to lead to substantial injustice. If such execution constituted an irregularity, deficiency or non-compliance, it would not, in my view, be sufficiently serious or fundamental to deprive the document of the character of a statutory demand and render it a nullity.

134 Thirdly, the appellants submitted that the statutory demand was a nullity because it claimed a debt due and owing on the basis of three specified invoices, but no details of the invoices were given and the invoices were not attached. The appellants complained that the statutory demand did not convey exactly what the alleged debt was for. It was only when Land Mark was served with the third affidavit of Mr Crema sworn 19 July 2006 that it received any adequate explanation of the alleged debt.

135 Mr Fajgenbaum submitted that this was not a mere irregularity, defect, shortcoming, imperfection or lack of completeness. It was an alternative basis on which the debt was not due and owing, rendering the statutory demand a nullity.

136 In my view, the appellants' third complaint (and the other contentions set out in the written submissions filed before the Master which were not pressed) would not, if established, be flaws of a fundamental character such as to rob the statutory demand of the status of even a purported statutory demand.

137 It follows that in my opinion, the statutory demand is not a nullity. All the alleged deficiencies could and should have been raised in an application to set aside the statutory demand.

SOLVENCY

138 As the statutory demand was not a nullity and was neither set aside nor complied with, Land Mark is presumed to be insolvent pursuant to s.459C of the Act. By s.459D(1), the Court may take into account a contingent or prospective liability in determining whether or not the company is solvent.

139 It is open to the company to prove solvency without obtaining leave under s.459S, because solvency is not a ground on which it could have relied in an application to set aside the statutory demand.[22]

140 In Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd,[23] Weinberg J held that a debtor company presumed insolvent due to non-compliance with a statutory demand had failed to rebut the presumption of insolvency by proving to the requisite civil standard that it was able to pay all its debts as and when they became due and payable. His Honour stated:

[85]

• The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: s459C(2) and (3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 per Spender J; Commissioner of Taxation v Simionato Holdings Pty Ltd. [1997] FCA 125; (1997) 15 ACLC 477 per Mansfield J.

• In order to discharge that onus the Court should ordinarily be presented with the "fullest and best" evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.

• Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.

• There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company's assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (supra); Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (supra) at 465-466.

• The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (supra) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J.

• The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (supra) at 466-467.

• It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (supra)."

[92]

150 Clause 12.3 of the deed of loan provides that a certificate of the lender stating the amount owing or contingently owing by the borrower at a certain date under the deed, the rates of interest applicable to the secured money, that a particular event of default has occurred or any other matter arising under the deed of loan is, for all purposes, prima face evidence of the facts stated in the certificate.

151 In my opinion, there is no basis for impugning the validity of the Notice to Pay. I have found that Land Mark failed to comply with the statutory demand, which constitutes an event of default. Although it is unnecessary to determine whether the ground of failure to pay interest is also made out, the Notice to Pay pursuant to clause 12.3 of the deed of loan constitutes prima facie evidence of the facts there stated (including the statement that the amount of $56,065,771.87 is outstanding) which has not been rebutted. It follows that the sum of at least $56 million is currently due and payable. The daily interest on the loan exceeds $20,000 per day.

152 Land Mark's sole substantial asset is the tower property which is subject to the mortgages and deeds of charge of the financiers and Crema. Unless the loans can be refinanced within a relatively short time the company will be unable to pay its debts as they fall due, irrespective of the debt the subject of the statutory demand.

153 Land Mark has negotiated with Global Capital to obtain refinancing of the loans. The letter of Global Capital to John Grezos of Land Mark dated 4 August 2006 advised that it had received an indicative offer for a loan amount of $10.5 million (presumably for a first tranche) or not exceeding 85% of the combined market value of the security property as assessed by a panel valuer. The letter referred to a number of terms and conditions, including a registered second mortgage over the property, an establishment fee of 2.20% including GST and an administration fee of 0.22% per annum including GST, paid half yearly in advance. The letter stated that the terms were indicative only and that it did not constitute an offer of finance.

154 A further attached letter of Global Capital dated 4 August 2006 confirmed conditional approval of Land Mark's commercial loan application subject to the satisfaction of specified conditions. The loan amount was stated to be $49,000,000 (but limited to not greater than 70% of the valuation of the proposed security property - such valuation currently estimated at $70,000,000 - for a five year term.)

155 Associated fees and costs included an application fee estimated at $269,500 including GST, a valuation cost (unspecified) and legal fees estimated at $45,000. Special conditions included a formal redirection of the 2005 valuation for mortgage purposes at a level no less than the existing gross of $68,009,116 and confirmation from an external accountant that all taxes were current and up to date.

156 The evidence filed on behalf of the appellants initially indicated that refinancing could be arranged by mid August 2006 and subsequently by 25 August 2006, but at the hearing of the appeal on 28 August 2006, refinancing had not been secured.

157 The appellants were granted leave to file an affidavit exhibiting a valuation report of CB Richard Ellis dated 24 August 2006 ("the 2006 valuation report") during the course of the hearing of the appeal.

158 The 2006 valuation report was prepared for Global Capital in relation to the Land Mark Tower, 23-33 Lonsdale Street. It valued the property on two bases: (a) gross realisation as if complete, and assuming individual title for individual sale, at $66,982,000 (inclusive of GST), or $61,601,044 (exclusive of GST); and (b) gross realisation as if complete based on a lease to Dingle Partners Pty Ltd for 54 apartments based on a net rental of $1,432,215 per annum at $68,266,000 (inclusive of GST) or $62,768,688 (GST exclusive).

159 The 2006 valuation report is based on stated critical assumptions, including that the development is completed in accordance with the approved plans and as described in the report, the level of finishes are as detailed in the report, a certificate of compliance is issued with individual titles at completion, that there are individual sales, as opposed to sales in one line, that the information provided by Land Mark is accurate, that the deed of agreement to lease to Dingle Partners becomes an executable lease with no variation, that 41 pre-sales contracts are all discharged and the relevant apartments become available for sale.

160 It is clear that many of the critical fundamental assumptions on which the 2006 valuation report is based have not been satisfied. The building is not complete. It would appear that it is about 96% complete. Counsel for the appellants did not contend that there was an executed lease to Dingle Partners. The financiers' consent to any lease is required pursuant to the securities, but has not been obtained. Further, the reference made in the 2005 valuation to contracts in relation to seven apartments provided to consultants in lieu of fees is unexplained.

161 As Mr Kirby, counsel for Crema, and Mr Cawthorn, counsel for the financiers, contended, the indicative offer of Global Finance was non-binding and had, in any event, expired. Many conditions applied. It specified a loan to a maximum of 85% of the valuation of the tower property so that in order to secure a loan of $56 million, a valuation of about $70 million would be required. Further, if a valuation of $70 million for the tower property were obtained and $56 million were advanced, an additional amount of about $7 million would be required to cover the associated fees and costs.

162 The maximum updated valuation exclusive of GST is, in any event, $62,768,688, based, inter alia, on a lease which has not been secured and the condition of completion, applicable to all the values, has not been satisfied.

163 In the present case, no independent expert evidence on solvency was advanced on behalf of the appellants. The evidence which was adduced was not persuasive. Land Mark did not present audited or up to date financial statements. There was a dearth of supporting documentation or material to explain the calculations and entries. As Mr Kirby submitted, the material advanced by Land Mark contained opinion evidence by persons whose expertise was not established. It was replete with hearsay, argument and submission, was confusing, and contained inconsistencies. The only disclosed bank account revealed a debit balance of $4,000 as at 31 May 2006. The possibility that at least seven apartments had been offered in lieu of consultants fees was not clarified. Mr Wallace did not refer to the matter. The appellants' evidence was principally "bald assertion" by persons who were not independent or not qualified to give opinion evidence. The "fullest and best" evidence of Land Mark's financial position was not presented to the Court.

164 Ultimately, the appellants conceded that they were unable to prove their assertions in relation to the disputed amount claimed by Crema or the state of the accounts between Land Mark and the financiers, because the necessary up to date financial statements and financial records were unavailable.

165 I am satisfied that the amount of at least $56 million is currently due and payable to the financiers and that there is currently no binding or firm offer to refinance that sum. Further, the 2006 valuation report is based on assumptions which are unsatisfied and the highest ascribed value would not support the advance of a sum sufficient to pay out the financiers and to discharge the fees and costs associated with refinancing.

166 The company has, throughout the period of the dispute, anticipated that it would secure refinancing by specified dates which have passed without the receipt of a firm offer. In all the circumstances, the presumption of insolvency has not been rebutted. In my opinion, the company is insolvent.

DISCRETION NOT TO MAKE WINDING UP ORDER

167 Section 467(1) of the Act provides:

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Cases Cited (5)