Plaintiff v Defendant

1. On 12 October 2021, Michael Tsahrelias was killed in a workplace accident at a stonemasonry business operated by the plaintiff, L H Holding Management Pty Ltd ('L H Holding'), at a factory premises in Somerton.
2. In 2023, criminal proceedings were commenced in this Court against L H Holding and its sole director, Laith Hanna, alleging they were in breach of s 39G of the Occupational Health and Safety Act 2004 (Vic).
3. On 25 July 2023, L H Holding and Mr Hanna pleaded guilty to workplace manslaughter.
4. On 19 February 2024, Croucher J of this Court convicted L H Holding and it was fined $1,300,000. Mr Hanna was convicted and placed on a community corrections order.[1]
5. Croucher J also made orders that day pursuant to an application made under s 85B of the Sentencing Act 1991 (Vic) ('Sentencing Act') that L H Holding and Mr Hanna pay the defendant, Georgia Tsahrelias, the sister of Mr Tsahrelias, compensation of $120,000 ('Compensation Order').
6. On 18 March 2024, the Director of Public Prosecutions ('DPP') filed notices of appeal pursuant to s 287 of the Criminal Procedure Act 2009 (Vic) ('Criminal Procedure Act') appealing the sentences given to L H Holding and Mr Hanna on the ground that the sentences were manifestly inadequate.[2] There was no appeal in respect of the Compensation Order.
7. Section 311 of the Criminal Procedure Act provides:

Stay of certain orders during appeal period

(1) This section applies to an order under section 84, 85B or 86 of the Sentencing Act 1991 made by the Supreme Court or the County Court.

(2) Unless the Supreme Court or the County Court otherwise directs, an order referred to in subsection (1) is stayed during the appeal period.

(3) If an order is stayed under subsection (2) and the conviction is set aside on appeal, the order does not take effect unless the Court of Appeal otherwise orders.

(4) The Court of Appeal may set aside or vary an order made by the Supreme Court or the County Court under subsection (2).

(5) Rules of court may provide for securing the safe custody during the appeal period of any property the subject of an order referred to in subsection (1).

1. The expression 'appeal period' is defined in s 3 of the Criminal Procedure Act as meaning:

...the period permitted by or under this Act or any other Act for commencing an appeal under Part 6.3 or, if a notice of appeal or notice of application for leave to appeal under Part 6.3 is filed within that period, the determination of the appeal.

1. The DPP's appeal was commenced under s 287 which is found in Div 3 of Pt 6.3 of the Criminal Procedure Act the provisions of which are concerned with appeals by the Crown against sentence. The stay of the Compensation Order under s 311(2) accordingly operates during the 'appeal period' referable to the conviction associated with the Compensation Order.
2. The Criminal Procedure Act does not describe the nature of the stay imposed by operation of s 311(2) i.e. whether it was a stay of operation of the order or a stay of execution.
3. The character of the stay is of significance in the resolution of this application. L H Holding contended the stay imposed by s 311(2) is a stay of the operation of the Compensation Order, the effect of which is that the sum claimed in the demand was not due and payable at the time of service of the demand as required by s 459E(1) of the Corporations Act (2001) (Cth) ('Act'). Ms Tsahrelias, however, contended the stay was in the nature of a stay of the execution of the Compensation Order and was therefore no impediment to the service of the statutory demand.
4. When Croucher J made the Compensation Order on 19 February 2024, he did not 'otherwise direct' that there be no stay of the order as contemplated by the terms of s 311(2). Accordingly, by operation of s 311(2) of the Criminal Procedure Act and pursuant to s 85B of the Sentencing Act, the Compensation Order was initially stayed from 19 February 2024, the date of the Compensation Order, for the period permitted under the Criminal Procedure Act for commencing an appeal.[3] Subsequently, as a result of the DPP filing the notices of appeal against the sentence on 18 March 2024, the stay then continued to operate on and from 18 March 2024 until the determination of those appeals on 11 April 2025. As will be seen, however, Ms Tsahrelias made application to Croucher J seeking an order from him to 'otherwise direct' and to lift the stay. His Honour did so on 1 July 2024, after service of the statutory demand the subject of this application ('Demand').
5. On 22 March 2024, Ms Tsahrelias' solicitors wrote to L H Holding's solicitors foreshadowing that Ms Tsahrelias would be serving a statutory demand claiming a debt of $120,000 in respect of the Compensation Order. In response, on 26 March 2024, L H Holding's solicitors notified Ms Tsahrelias' solicitors of their contention that there was a continuing stay of the Compensation Order dated 19 February 2024 by reason of the filing of the appeals by the DPP.
6. On 28 March 2024, when there was a stay by force of s 311(2), the solicitors for Ms Tsahrelias served the Demand on L H Holding. The statutory demand, dated 28 March 2024 and signed by Ms Tsahrelias' solicitor, Mr Simiele, read as follows:

Form 509H

(Paragraph 459E (2)(e))

Corporations Act 2001

CREDITOR'S STATUTORY DEMAND FOR PAYMENT OF DEBT

To L H Holding Management Pty Ltd ACN 118 908 660 of 18 Glenfern Place, Glenroy VIC 3046 ("the company").

1. The company owes Georgia Tsahrelias of 59 Ryder Street, Niddrie, VIC 3042 ("the creditor") the amount of $120,000.00, being the amount of the debt described in the Schedule.

2. The amount is due and payable by the company.

1. The creditor requires the company, within 21 days after service on the company of this demand:

(a) to pay to the creditor the amount of $120,000.00; or

(b) to secure or compound for the amount of $120,000.00, to the creditor's reasonable satisfaction.

1. The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F (2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company.

2. Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:

(a) an affidavit supporting the application must be filed with the court; and

(b) a copy of the application and a copy of the affidavit must be served on the person who served the demand.

1. The address of the creditor for service of copies is Carbone Lawyers of 302 King Street, Melbourne, VIC 3000.

1. The schedule to the demand described the debt claimed as:

Debt as per the Order of Justice Croucher of the Supreme Court of Victoria dated 19 February 2024 and penalty interest.

1. It will be seen that while the additional words 'and penalty interest' appear in the schedule to the Demand, no penalty interest is claimed in a monetary sum.
2. L H Holding complains that, although on its face the Demand made a claim for penalty interest which was not included the Compensation Order, it was not accompanied by an affidavit in Form 7 of the Supreme Court (Corporations Rules) 2023 (Vic) as required by s 459E(3) of the Act. The mention of the claim for penalty interest and the absence of the accompanying affidavit formed the bases of two further grounds pressed by L H Holding to set aside the Demand under s 459J of the Act.

1. L H Holding makes application by originating process seeking orders under ss 459H and 459J of the Act that the statutory demand be set aside. It claims there is a genuine dispute about the existence of the debt within the meaning of s 459H and that further, or alternatively: (i) the Demand is defective under s 459J(1)(a); and (ii) there is 'some other reason' why the Demand should be set aside under s 459J(1)(b).
2. The application was supported by an affidavit of Mr Hanna sworn 16 April 2024, together with an affidavit of L H Holding's solicitor, Mr Ward, sworn 5 September 2024.
3. Ms Tsahrelias opposes the application and relies upon an affidavit of her solicitor, Mr Simiele, sworn 2 September 2024. Both parties also relied on written submissions.

The application to Croucher J for a direction that the s 311(2) stay be lifted

1. Some weeks after the commencement of this proceeding, on 8 May 2024, Ms Tsahrelias applied to Croucher J to vary the Compensation Order nunc pro tunc on application of the slip rule[4] and s 311 of the Criminal Procedure Act.
2. The apparent purpose of that application was to enable Ms Tsahrelias to contend in this proceeding that the Compensation Order was not stayed on and from the date that it was made by his Honour on 19 February 2024.
3. On 1 July 2024, after hearing the application for the lifting of the stay, Croucher J ordered pursuant to s 311(2) of the Criminal Procedure Act that, with effect from that day, the Compensation Order was no longer stayed.[5] In his reasons, Croucher J was clearly mindful of the effect of the stay; he referred to the existence of the statutory demand and made several observations in regard to it.[6] However, his Honour declined to make an order nunc pro tunc so that the stay was in force from 19 February 2024 until 1 July 2024.[7]
4. The factual background is not controversial and resolution of this application essentially involves consideration of two issues.
5. The first, which I regard as being the primary ground, involves a consideration as to whether there is 'some other reason' under s 459J(1)(b) of the Act, or alternatively that L H Holding has established a genuine dispute, arising from the nature of the stay provided by s 311 of the Criminal Procedure Act. L H Holding contended that, by reason of it being a stay of operation, the Compensation Order was not due and payable at the time of service of the statutory demand. If Ms Tsahrelias had served a statutory demand after Croucher J lifted the stay on 1 July 2024, the argument based on this ground would clearly not be available to L H Holding.
6. The second issue, which I consider to be somewhat secondary given the decision I have come to on the first, requires the application of the principles as to what constitutes a 'defect' within the meaning of s 459J(1)(a) to the alleged deficiencies in the Demand the subject of this application and a consideration of whether, by reason of the mention of a claim for penalty interest, there is 'some other reason' to set aside the Demand pursuant to s 459J(1)(b).

1. L H Holding's submissions made reference to ss 459E and 459J of the Act which relevantly provide:

Creditor may serve statutory demand on company

(1) A person may serve on a company a demand relating to:

(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum...

(2) The demand:

(a) if it relates to a single debt - must specify the debt and its amount...

(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(1) On an application under section 459G, the Court may by 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) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

Was the debt claimed 'due and payable' when the demand was served?

1. L H Holding's submissions observe that s 459E(1) of the Act provides that in order to support a statutory demand, a debt must be 'due and payable' and must remain so throughout the entire period of compliance.
2. L H Holding observes that s 311(2) of the Criminal Procedure Act imposes a 'stay' but the nature of such stay is neither defined nor characterised by the Criminal Procedure Act. It contended the stay imposed by s 311 is a stay of operation of the Compensation Order under s 85B of the Sentencing Act, such that it suspends the legal effect of the judgment and the rights conferred under it.[8] This is to be distinguished from a stay of execution of the judgment.
3. L H Holding contended the stay of the Compensation Order gave rise to a ground that the statutory demand should be set aside for 'some other reason' under s 459J(1)(b) of the Act[9] or, alternatively, is the basis of a genuine dispute as to the existence of the debt the subject of the Demand.
4. In this regard, counsel for L H Holding referred to the explanatory memorandum of the Criminal Procedure Bill 2006 (Vic) which observed that sentences are not stayed when an appeal has been made, but s 311 of the Criminal Procedure Act provides for specific exceptions, including where there has been a compensation order made under s 85B of the Sentencing Act which will be automatically stayed unless the Court 'otherwise directs'.[10] I note, however, that the explanatory memorandum makes no reference to the nature of the stay and merely recites the terms of s 311 of the Criminal Procedure Act. It is of no assistance in clarifying the position in that regard.
5. Counsel submitted that because s 311(2) of the Criminal Procedure Act does not include the words 'of execution' and only provides that the order will be stayed, the Court should construe that to mean the stay is a stay of operation which suspends the effect of the order for all purposes; if parliament had intended the former meaning, it would have inserted the specific word 'execution' into s 311(2).
6. Counsel made reference to examples of where the expression 'stay of execution' appears, including r 64.39 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). That rule speaks expressly of a stay of execution in the context of an appeal and provides '[e]xcept so far as the Court of Appeal otherwise orders - an application for leave to appeal or appeal shall not operate as a stay of execution or of proceedings under the decision appealed from'.
7. Counsel referred to authorities which discuss and highlight the significance of the difference between a stay of execution and a stay of operation of an order in the context of bankruptcy and corporate insolvency law.
8. Among these was Re Hughes; ex parte Westpac Banking Corporation ('Re Hughes'),[11] where Merkel J considered the issue in the context of a bankruptcy petition and the standing of a judgment creditor to be substituted as creditor and have carriage of a petition. In Re Hughes, Westpac obtained a judgment against the debtor, Mr Hughes, who had appealed the judgment. The Victorian Court of Appeal had ordered that execution on the judgment be stayed pending the hearing and determination of Mr Hughes' appeal. Merkel J observed:[12]

The stay of execution appears to have been ordered under O 64, r 25 of the General Rules of Procedure in Civil Proceedings 1996 of the Supreme Court of Victoria.[13] The legal processes available by way of enforcement, but stayed under the order, are those set out in Orders 66 to 76 inclusive. In my view, a distinction is to be drawn between a stay of execution of a judgment and a stay on the operation of the judgment. In principle, a stay of execution relates solely to a stay in respect of the legal processes of enforcement which are available in respect of the judgment but does not, of itself, suspend or otherwise affect the validity or operation of the judgment. A stay on the operation of the judgment, suspends the operation and the legal effect of, and the rights conferred under, the judgment.

The legal consequences of a stay of execution were stated succinctly by Denning J in Clifton Securities Ltd v Huntley and Others:

A stay of execution only prevents the plaintiffs from putting into operation the machinery of law - the legal processes of warrants of execution and so forth - in order to regain possession. It does not take away any other rights which they have. It does not prevent their exercising any right or remedy which they have apart from the process of the court.

1. Merkel J went on to hold that the stay of execution was not an impediment to Westpac seeking to be substituted as a petitioning creditor.
2. In Scope Data Systems v BDO Nelson Parkhill,[14] Barrett J was concerned with an application to set aside a statutory demand founded on a judgment of the Local Court of New South Wales. The applicant to set aside the statutory demand had appealed the judgment and the relevant court rule provided that when notice of appeal had been given, a stay of execution was imposed until final determination of the appeal. Counsel for L H Holding emphasised that in Scope Data, the nature of the stay imposed was a stay of execution. Barrett J referred with approval to the observations of Merkel J in Re Hughes that a stay on the operation of the judgment as distinct from the stay on execution suspends the operation and legal effect of and the rights conferred under the judgment.[15]
3. Counsel contended the policy underlying the stay under s 311(2) of the Criminal Procedure Act was that where there is an appeal on foot in respect of the associated criminal matter, the compensation order should not be given any effect until the outcome of the appeal is known. This supported a construction that the nature of the stay imposed by s 311(2) was a stay of the operation of the Compensation Order.
4. As such, Counsel contended L H Holding had established that it was plausibly arguable the debt claimed in the statutory demand was not due and payable at the date of service of the Demand. He submitted this constituted 'some other reason' why the Demand should be set aside under s 459J(1)(b) of the Act and that it also gave rise to a genuine dispute under s 459H of the Act.

The claim for 'penalty interest' without specification of the amount claimed

1. L H Holding also contended the statutory demand should be set aside under s 459J(1) of the Act for two reasons, arising from the words 'and penalty interest' mentioned in the Demand.
2. The first concerned the absence of the accompanying affidavit required by s 459E of the Act where a claim was made in the Demand for penalty interest which was not included in the Compensation Order. L H Holding submitted that if a statutory demand includes a claim for post-judgment interest, the authorities[16] indicate it must be accompanied by a supporting affidavit verifying that the debt is due and payable, failing which the statutory demand should be set aside for 'some other reason' pursuant to s 459J(1)(b) of the Act.
3. In Anderson Formrite v CASC Hire Pty Ltd,[17] Siopis J considered a situation where a creditor had obtained judgment against the debtor for $195,554. An arrangement was reached to pay the debt in instalments. Two payments of $50,000 were made but no further payments were forthcoming. The creditor served a statutory demand on the debtor claiming the balance owing, describing the debt as the balance of the judgment debt, less the payments made. There was no accompanying affidavit attached to the demand. Siopis J considered then an affidavit in support of the demand was required and set the demand aside on the ground of 'some other reason' under s 459J(1)(b). His Honour stated:

The rationale for exempting a statutory demand for the very sum of a judgment, from the need for verification by an accompanying affidavit is apparent. The judgment speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute.

However, once the statutory demand is for a sum different from the sum in the judgment, the rationale for the exemption from the verification no longer applies because extraneous events or circumstances have intervened. There is then a need to identify the amount claimed by reference to the extraneous intervening events and circumstances. Further, these intervening events and circumstances are capable of giving rise to disputes as to the amount of an outstanding debt and, also, as to the continued existence of the debt. Thus, it is possible, depending on the nature of any agreement that the debtor and creditor may have reached in relation to the compromise or further payment of the judgment debt, that liability in respect of the judgment debt may have been discharged, to be replaced by a different contractual obligation (see McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 at 183‑185). In these circumstances, the same considerations which underlie the introduction of the legislative requirement for verification of statutory demands for amounts that were never the subject of a judgment apply equally to demands for amounts different from the sum in respect of which a judgment was given. It follows, in my view, that a narrow construction should be given to the words 'judgment debt' in s 459E(3) of the Act so that the exemption is confined to demands for the very amount in respect of which judgment was obtained, and not for any different amount.[18]

1. Counsel submitted that here, because a claim was mentioned for 'penalty interest', the Demand was required to be accompanied by an affidavit verifying it as required by s 459E of the Act.
2. Further, and I understood this to be a corollary of the second ground, it was submitted that the Demand is defective and ought to be set aside under s 459J(1)(a) of the Act. L H Holding contended that the description of the debt in the Demand was ambiguous and unclear. It did not include any explanation of what amount of 'penalty interest' was allegedly payable or how the amount of 'penalty interest' was composed or calculated and required L H Holding to speculate upon what Ms Tsahrelias was demanding. In this regard, Mr Hanna deposes in affidavit evidence as to his uncertainty with what amount of 'penalty interest' Ms Tsahrelias was claiming and what was required to be paid.
3. Reference was made to the statement by Austin J in LSI Australia v LSI Holdings[19] that a statutory demand is required to clearly and unambiguously articulate the matters required by s 459E of the Act_._ Austin J stated:[20]

A statutory demand is required by Form 509H to 'describe' the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand.

1. L H Holding's submissions also referred to the decision of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd[21] where his Honour observed:[22]

It is not asking too much that creditors who issue statutory demands under the Corporations Law should ensure that the demands are expressed in clear, correct and unambiguous terms. If the creditors wish to have the benefit of the presumption of insolvency, the least they can do is to tell the debtor companies in clear terms what amounts are due, whether they include interest or not, and, if so, the amount.

1. Reference was made to Mr Simiele's affidavit for Ms Tsahrelias who asserts that 'no additional amount whatsoever for any penalty interest' was claimed in the Demand. The plaintiff submitted that L H Holding had no way of knowing with any degree of certainty this was the case, given the Demand explicitly stated that the Compensation Order, together with penalty interest, was being claimed.
2. It was contended by L H Holding that this defect gives rise to substantial injustice if the statutory demand is not set aside under s 459J(1)(a) by reason that the lack of information and clarity concerning the quantification of the 'penalty interest' allegedly payable put L H Holding in the unacceptable position of having to decide whether to make an application to set aside the Demand without knowing precisely how the claim was made and, therefore, whether it could rely on a genuine dispute.[23]

1. Ms Tsahrelias submitted there is no genuine dispute about the existence of the debt the subject of the Demand. Her counsel referred to the commentary in Ford, Austin & Ramsay's Principles of Corporations Law where, in the discussion as to whether a stay of execution of a judgment constitutes a genuine dispute for the purposes of s 459H of the Act, it is observed: [24]

A stay of execution of a judgment creating a debt prevents enforcement of the judgment but does not 'call in question the "existence" of the judgment debt so as to be the source of what s 459H(1)(a) refers to as "a genuine dispute ... about the existence of" the debt...'

A stay of execution is to be distinguished from a stay of operation of a judgment which suspends the judgment's effect of conferring rights and creating a debt...

1. Counsel for Ms Tsahrelias submitted that L H Holding has conflated the concept of a stay of operation and stay of execution; the former is a concept unknown in insolvency law and generally arises in situations such as non-pecuniary injunctions,[25] court-ordered disqualifications[26] and analogous orders.[27]
2. It was contended that the stay of the Compensation Order imposed by s 311(2) of the Criminal Procedure Act was a stay of execution and that the courts have previously found, where stays have been obtained for judgments pending an appeal, they are a stay of execution;[28] a stay of such a character does not prevent the judgment being claimed in a statutory demand.[29]

1. Ms Tsahrelias submitted that the reference to 'penalty interest'a in the schedule of the statutory demand does not constitute a defect for the purposes of s 459J(1)(a) of the Act; the Compensation Order was for $120,000 and the Demand claims that exact amount. The Compensation Order was a judgment debt.[30] Therefore, no affidavit is required to verify the debt under the Demand. Further, Ms Tsahrelias contended it would be absurd to require an affidavit to verify the 'penalty interest' as it is not something sought by the Demand.
2. Ms Tsahrelias also contended that as the quantum sought under the Demand was for the exact amount under the Compensation Order, there is no disconformity between the Compensation Order and the claim made in the Demand. Even if there was a discrepancy due to the debt being described in the schedule of the Demand as including 'penalty interest', Ms Tsahrelias submitted that discrepancy is not sufficient to constitute 'some other reason' to set aside the Demand under s 459J(1)(b) of the Act.
3. Ms Tsahrelias submitted that even if the reference to 'penalty interest' in the schedule of the Demand constitutes a defect, it is not one that causes substantial injustice. In this regard, it was observed that the Compensation Order was consented to by L H Holding and was not later challenged by it when Ms Tsahrelias brought a successful application to have the stay lifted. As a consequence, Mr Hanna could not have found the Demand to be 'vague or ambiguous' by reason that it had failed to 'identify the general nature of the debt to a sufficient degree to [enable him to] assess whether there was a genuine dispute as to the existence or amount of the debt'.
4. In oral submissions, Counsel for Ms Tsahrelias described the reference to penalty interest in the schedule of the Demand to be 'otiose', stating that a 'reasonable objective reader' in Mr Hanna's position would have known that if $120,000 had been paid, the Demand would have been satisfied; again, there was no requirement for Mr Hanna to perform any calculations to assess what was being demanded from him as Mr Hanna consented to the Compensation Order and would have known precisely what the debt the subject to the Demand was for.
5. Ms Tsahrelias submitted that L H Holding has not identified any substantial injustice it would suffer because of the defect in the schedule of the Demand. Ms Tsahrelias said that for L H Holding to raise the issue about the lack of quantification of the penalty interest liability had, at this point, 'no practical utility'.

1. Ms Tsahrelias submitted L H Holding has not specified the 'other reason' alluded to in Mr Hanna's affidavit in support of the originating process. She contends this offends what was formerly known as the Graywinter principle and such submission should not be entertained.[31]
2. It was submitted that if L H Holding was seeking to rely on its argument that the stay of the Compensation Order imposed by s 311(2) of the Criminal Procedure Act was a stay of operation, rather than a stay of execution as a basis for its contention that the Demand should be set aside for 'some other reason', that submission should fail. Reference was made to the decision of Tatlers.com.au v Davis ('Tatlers')[32] where a partial stay had taken effect on the underlying judgment after the statutory demand had already been served and subsequently set aside for some other reason pursuant to s 459J(1)(b) of the Act because:[33]

[w]hen s 459J(1)(b) is invoked, the court is called upon to decide what will best serve the statutory purpose at the time it considers the question. The court should therefore approach the matter in the light of circumstances prevailing at that time rather than by merely paying attention to some historical snapshot. The question for decision in the present proceeding is whether, having regard to the statutory purpose of providing a means for the creation of a statutory presumption of insolvency by reason of the non-payment of a single debt, the circumstances now prevailing in relation to the particular debt in question are such that the court should allow the presumption to arise or prevent its arising.

1. Ms Tsahrelias submitted that on an application of Tatlers, the Court should look at the present circumstances, not when the statutory demand was issued and the Compensation Order was stayed pursuant to s 311(2) of the Criminal Procedure Act. Presently, the Compensation Order is not stayed, having been lifted by Croucher J on 1 July 2024, and remains unpaid. Ms Tsahrelias submitted that to accept L H Holding's position would be to look at what happened previously and to set the Demand aside based on a now 'defunct stay' on the Compensation Order.
2. Ms Tsahrelias also submitted the Court should not overlook Croucher J's decision to lift the stay on the Compensation Order[34] and the comments made by his Honour about L H Holding's 'inevitable impending insolvency',[35] the assumption that the 'statutory demand proceeding will now fall away [and] save all parties from incurring further expense,'[36] as well as his Honour's urging that L H Holding pay the Compensation Order 'as soon as practicable'.[37]

1. The jurisdiction which the Court exercises in applications to set aside statutory demands on the grounds that there are genuine disputes or offsetting claims is now well settled and have been canvassed in numerous authorities.
2. In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq),[38] the Victorian Court of Appeal described the applicable principles in the following terms:[39]

The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a 'plausible contention requiring investigation' of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the 'ultimate question' of the existence of the debt at a substantive hearing should not be compromised.

The court is required to determine whether the dispute or offsetting claim is 'genuine'. It has been said that the criterion of a 'genuine' dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or offsetting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.[40]

1. In applications to set aside statutory demands which require the Court to investigate contested legal issues, the approach which has been taken in the authorities is that the Court will generally not proceed to determine or make conclusions about such matters.
2. It may be that in certain cases where the question of construction is a simple one and where there are no factual issues to be resolved, the relevant Court may come to a determination of a contested legal issue. An example of this is Lodge Partners Pty Ltd v Pegum,[41] a case which concerned the construction of a document in the context of whether there was a genuine dispute in respect of a debt, where Lindgren J observed:[42]

Where the dispute relates to a simple question of construction that can be decided following a short hearing and there is no factual issue to be resolved, the Court will decide the question and if construction is against the company the dispute will not be classified as "genuine"...

1. In my recent judgment of Re Strategic Conferences Pty Ltd, [43] I referred to a number of authorities in which the Court was requested to embark on and reach a conclusion in respect of a legal issue, such as the construction of a statute or the effect of the terms in a contract in the context of determining whether there is a genuine dispute or offsetting claim.[44] The conclusion that I drew from that examination of the authorities is that while there are occasions where a court will express a conclusion as to 'a short point of law', this is not the usual or 'ordinary' position. The Court should be mindful of the jurisdiction being exercised in s 459H; that is, a consideration of whether the position being advanced by an applicant is genuine and objectively arguable and warrants further investigation in an inter partes setting. The authorities make clear that the threshold to establish a genuine offsetting claim is relatively low and the court should hesitate to resolve legal questions other than straightforward ones of this character. [45]
2. This approach is exemplified by the decision of the New South Wales Court of Appeal in Creata (Aust) v Faull,[46] where the Court considered the constructions of the relevant provisions of a deed being put up by the parties in an application to set aside a statutory demand were each plausible and cogently arguable. The Court then observed:[47]

Neither side's argument was so obviously correct or incorrect as to put the issue of construction beyond the realms of reasonable debate. Ultimate resolution could only come from an objective determination, in appropriately constituted proceedings, of what a reasonable business person would have understood the clauses to have meant. Central to any such determination would be the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.

This was not a case in which counsel for Creata presented a 'patently feeble argument' as to the true construction of cl 4(b) and cl 4(c). Nor was the answer to the question of construction 'as plain as a pikestaff', to quote again the words used in Spacorp... As this Court said in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372; 92 ACSR 27; [2012] NSWCA 365 (Infratel Networks)at [46], s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. This was such a case; and there was nothing to displace the principle ordinarily applicable. Competing but plausible submissions on the question of construction should have led to a finding that there was dispute on that question and therefore dispute as to the existence of the debt the subject of the statutory demand.

1. Another illustration of the principle is the decision of Sackville J in Trecomax Pty Ltd v Prentice[48] where the facts were, as they are here, essentially uncontentious. Resolution of the application involved a consideration of whether or not a legal submission by the plaintiff as to the operation of the terms of a partnership deed gave rise to a genuine dispute. Sackville J, after observing that the plaintiff's submission faced 'formidable difficulties', and considered the case to be 'close to the borderline of genuine dispute', on an application of the authorities found the ground raised was 'real and not spurious, hypothetical illusory or misconceived' and that it was not appropriate 'to explore the issues further'.[49]
2. In Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd,[50] Barrett J (as his Honour then was) said:

While it has been said that 'a short point of law or the construction of documents or agreed facts' may, unlike a disputed question of fact, be determined upon a s 459G application, it does not follow that the court is compelled to make such a determination. In the case of a legal argument, determination might be appropriate if it were, in the words of McLelland CJ, ... a 'patently feeble legal argument'.[51]

1. In my opinion, the principles applied in the context of construction of contracts also apply to a court that is being asked to embark on the interpretation of a statute, particularly where the provision in question has not been the subject of consideration by an appellate court. In my opinion, it is exemplified by the consideration of the question here as to whether the stay under s 311(2) of the Criminal Procedure Act should be characterised as a stay of execution or a stay of operation of the Compensation Order.
2. In my view, it is only necessary to establish that there is a plausible contention requiring investigation that the debt is not due and payable; an applicant is not required to establish the matter on the balance of probabilities.[52]
3. As to ss 459J(1)(a) and (b), in Re MHC Pathology Pty Ltd,[53] Hetyey AsJ made the following general observations, which I respectfully adopt:[54]

The case law makes clear that sub-paragraphs (a) and (b) of s 459J(1) are mutually exclusive. The only source of power to set aside a demand on the basis of a defect is found in s 459J(1)(a) and not s 459J(1)(b). In other words, the provisions do not overlap.

The term 'defect' as it appears in s 459J is given a wide and inclusive definition by s 9 of the legislation and may encompass an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, or a misdescription of a person or entity. But the expression 'defect' in s 459J does not imply any degree of proportionality or distinguish between defects which are major or minor in nature. Even significant defects in a demand are to be determined under s 459J(1)(a).

The question of whether substantial injustice will arise unless the demand is set aside depends on the nature of the particular defect identified and the surrounding circumstances. The requisite injustice must be experienced by the debtor company itself, but the concept cannot be treated as a proxy for disciplining a creditor who has failed to adhere to the form of the demand.

...

[T]he authorities are clear that the 'other reason' required by s 459J(1)(b) cannot be a defect in the demand. Something else is required. In Arcade Badge Embroidery Co Pty Ltd v DCT, the Court of Appeal of the Australian Capital Territory found that the other reasons envisaged by s 459J(1)(b) include 'conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice'. Whilst the discretion conferred by the provision is broad, a judge should not set aside a statutory demand under s 459J(1)(b) simply because she or he subjectively considers it fair to do so. The Court's power under the sub-section exists to maintain the integrity of the statutory demand procedure in Part 5.4 of the Corporations Act and to counter its subversion.

Is it arguable that the debt claimed in the demand is not 'due and payable'?

1. In my opinion, this application can be disposed of by consideration of whether it is arguable that the nature of the stay under s 311 is a stay of the operation of the Compensation Order such that the debt claimed in the Demand was not due and payable at the time of service of the Demand.
2. I consider that issue can be considered both in the context as to whether that issue gives rise to a genuine dispute in respect of the debt or whether it constitutes 'some other reason' as to why the Demand ought to be set aside.
3. In Assaf's Winding up in Insolvency, the author made the following distinction between a stay of execution and stay of operation:[55]

A stay of execution of a judgment debt does not alter the status of that debt from being due and payable... A stay of execution relates solely to a stay in respect of the legal processes of enforcement which are available in respect of the judgment. Such a stay does not, of itself, suspend or otherwise affect the validity or operation of the judgment. On the other hand, a stay on the operation of the judgment suspends the operation and the legal effect of, and the rights conferred under, the judgment. Accordingly, whether a stay will affect the status of a judgment debt as due and payable will turn upon the nature and extent of the stay granted.

(emphasis added)

1. In whichever context the issue is considered, I consider L H Holding has established that it is plausibly arguable that the stay imposed by s 311(2) at the time of service of the Demand was a stay of operation of the Compensation Order, with the effect that it was not then immediately due and payable, presently recoverable or enforceable by action.[56] As such, the Demand should be set aside.
2. In coming to that view, I consider that there is nothing in the text of s 311 which necessarily points to the stay being a stay of execution. Under the terms of s 311, the stay on a compensation order is imposed for the appeal period despite, as here, there being no appeal in respect of the compensation order and it being consented to on the occasion it was made. The explanatory memorandum accompanying the Criminal Procedure Bill 2006 (Vic) is of no assistance in clarifying what the nature of the stay is.
3. By way of observation, s 311 is a provision which seems designed and intended to suspend recovery by the beneficiary of a civil order for compensation under s 85B of the Sentencing Act during the period where an appeal under Pt 6.3 of the Criminal Procedure Act in the associated criminal matter by the Crown or the defendant is on foot and yet to be determined. If that is so, I consider that purpose is better achieved by the stay being a stay of the operation of the order. As is clear from the discussion above as to the different consequences and effects of stays of operation and execution, the latter would not impair the ability of a creditor to serve a demand and perhaps then obtain a winding up of a corporate defendant in circumstances where the outcome of the associated appeal is not yet known and where the conviction might well be overturned.
4. It is a fundamental requirement of s 459E of the Act that the debt the subject of a statutory demand be due and payable and, in my view, this issue clearly gives rise to a genuine dispute which is not hypothetical, spurious or misconceived. I do not accept Ms Tsahrelias' submission that the decision of Tatlers cuts across such a fundamental statutory requirement. Put simply and without wishing to labour the point, L H Holding has to my satisfaction established that it has a cogent plausible argument that the Compensation Order was not payable at the time of service of the Demand; the lifting of that stay some time after that did nothing to change the position in that regard. I regard the observations of Croucher J to which Ms Tsahrelias' counsel referred to be obiter and are not binding on me in reaching my conclusion here.[57]
5. It is necessary to identify which particular provision of the Act is the source of the Court's statutory jurisdiction to set aside the Demand. Whichever of the statutory provisions (i.e. s 459H(1)(a), s 459J(1)(a) or s 459J(1)(b)) is resorted to, the Court must be satisfied before doing so that there is a plausible contention requiring investigation that the debt is not presently due and payable.[58] As I have said, this has been established to my satisfaction.
6. In the matter of Re Forte Street Sydney Construction Pty Ltd,[59] Black J gave consideration as to which provision, s 459H or s 459J of the Act, should be applied to set the demand aside in circumstances where it is found to be arguable that the demand includes a claim for a debt that is not yet due for payment. His Honour stated:

In Re Essential Media and Entertainment [2020] NSWSC 990 at [98]-[102], Rees J undertook a comprehensive review of those authorities, pointing to the fact that there had been some inconsistency in the case law as to whether claims or amounts not due and payable should be treated as giving rise to a genuine dispute or some other reason to set aside a creditor's statutory demand, and concluding that, where the court found that there was a plausible contention requiring investigation that a debt was not presently due and payable, a creditor's statutory demand may be set aside under section 495H(1)(a) of the Act on the basis that a genuine dispute exists, or alternatively, on the basis that there is some other reason to set aside the demand under section 459J(1)(b) of the Act.

I prefer the view, which I have adopted in earlier cases, that, where a debt is not presently due and payable, a creditor's statutory demand should be set aside under s 459J(1)(b) of the Act rather than under s 459H(1)(a) of the Act: Re Benjamin & Khoury Pty Ltd [2023] NSWSC 756; Re Sydney Hire NSW Pty Ltd [2023] NSWSC 1580 at [21]. There is good reason for that approach, where the service of a creditor's statutory demand claiming a substantial amount that is not yet due and payable wrongly places the recipient of the demand at risk that it is presumed to be insolvent, unless it pays an amount that is not yet due or incurs the costs of an application to set aside the demand. Where a creditor's statutory demand is set aside for some other reason, no question of determining any lesser substantiated amount arises, as would be the case if a genuine dispute was found under section 459H(1) of the Act.

...

It is not necessary or appropriate for me to reach a conclusion on any final basis in that regard, because it is sufficient to set aside the Demand on the basis that there is a genuinely arguable case that a substantial part of the amount claimed by Arctec in the Demand is not presently due and payable, so as to give rise to some other reason to set aside the Demand. It seems to me that there is plainly a genuinely arguable case as to that matter here, where it is plainly open to Forte to contend that the determination of the District Court does not alter the fact that it has not reached a view that the defects that it notified to Arctec had been properly rectified, a fortiori given the wider issues that have now emerged as to defects in the development. I am satisfied, on that basis, that the Demand should be set aside in its entirety, because there is some other reason to do so consistent with the authorities to which I have referred above.

1. Although Black J refers in his reasons to different views as to the appropriate provision to be applied, it will be seen that in circumstances somewhat similar to the present, his preference was that that the demand should be set aside under s 459J(1)(b) of the Act.[60]
2. In the circumstances of this matter, I prefer the approach of Rees J in Re Essential Media and Entertainment[61] which is referred to by Black J. I will set the Demand aside on the basis that L H Holding has established the existence of a genuine dispute under s 459H(1)(a).
3. While the foregoing disposes of the application, for completeness it is appropriate to state my conclusions in respect of whether the mention of 'penalty interest' gives rise to a ground under either limb of s 459J of the Act to set aside the Demand.[62]

Is there a defect in the demand which causes substantial injustice?

1. The addition of the words 'and penalty interest' but the absence of any quantified claim for such penalty interest was an error and would be characterised as 'an irregularity', one of the several types of defect mentioned in the definition of 'defect' in s 9 of the Act. However, to attract the jurisdiction to set aside the Demand under s 459J(1)(a), I must also be satisfied that it will cause L H Holding substantial injustice. Section 459J(2) provides that the court must not set aside a statutory demand merely because of a defect.
2. In my opinion, the inclusion of the reference to 'penalty interest' would not, when viewed objectively, give rise to L H Holding being confounded, misled or confused as to what it had to do to prevent a statutory presumption of insolvency from coming into existence, so as to give rise to an injustice. To adopt the words of Austin J in LSI Australia v LSI Holdings,[63] I do not consider the Demand here to be so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of L H Holding's director, the general nature of the debt to a sufficient degree so that the director can assess whether there is a genuine dispute as to the existence or amount of the debt.[64]
3. In this regard, I do not consider the Demand has failed to properly inform the plaintiff how much it was required to pay to satisfy the Demand. The amount, $120,000, is referred to four times in the Demand. Paragraph 1 asserts that L H Holding owes Ms Tsahrelias $120,000. Paragraph 3 mentions that amount twice: it states that she requires that sum be paid to her or that it be secured to her reasonable satisfaction. The schedule, although it mentions 'penalty interest', claims the amount of $120,000 only. Unlike the statutory demand in Topfelt Pty Ltd v State Bank of New South Wales Ltd,[65] which was found to be defective because interest was being claimed on a continuing basis,[66] the Demand here only sought one amount - i.e. $120,000.

The demand was not accompanied by a supporting affidavit

1. I reject Ms Tsahrelias' submission that LH Holding's agitation of this ground should not be permitted as it offends what was formerly known as the Graywinter principle by reason that such ground was not raised 'expressly by necessary inference or by a reasonably available inference'[67] in the affidavit of Mr Hanna supporting the application. Paragraph 16 of Mr Hanna's affidavit expressly mentions this in plain terms and it is squarely raised; it is not necessary for the particular statutory provision, s 459J(1)(b), to be identified, that is more properly the subject of submission.
2. However, I do not consider the Demand was required to be accompanied by a supporting affidavit under s 459E of the Act. When viewed objectively, despite the 'defective' mention of penalty interest, the Demand made a claim for payment of the Compensation Order and nothing more; the Compensation Order was a judgment debt and therefore an affidavit verifying the debt was not required.[68]
3. I will order that the statutory demand dated 28 March 2024 which was served on the plaintiff by the defendant be set aside. I will hear the parties on the question of what order should be made for costs.

[1] R v LH Holding & Hanna [2024] VSC 90.

[2] The appeal was determined on 11 April 2025. See Director of Public Prosecutions v LH Holding Management Pty Ltd [2025] VSCA 75.

[3] Section 288 of the Criminal Procedure Act 2009 (Vic) provides that the DPP had 28 days to file an appeal and the appeal period would have expired on 18 March 2024.

[4] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 36.07 ('Supreme Court Rules').

[5] Tsahrelias v Hanna & L H Holding (2024) 73 VR 551, 585.

[8] Re Hughes; Ex parte Westpac Banking Corporation [1997] FCA 1324; Alam v Quest Enterprises [2006] NSWSC 752; Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57.

[9] Citing In the matter of Forte Sydney Construction Pty Ltd [2024] NSWSC 495.

[10] Explanatory Memorandum, Criminal Procedure Bill 2008 (Vic) 113-114.

[11] [1997] FCA 1324; BC9706380 ('Re Hughes').

[13] The precursor to r 64.39 of the Supreme Court Rules.

[14] [2003] NSWSC 137; (2003) 199 ALR 56.

[16] See generally the discussion in F Assaf, Assaf's Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) [4.28] where reference is made to Anderson Formrite v CASC Hire Pty Ltd [2005] FCA 1424; (2005) 147 FCR 379, 391-392 ; Re GTH Equipment Pty Ltd [2017] NSWSC 1617 [29]-[31].

[17] [2005] FCA 1424.

[19] [2007] NSWSC 1406.

[21] [1993] FCA 890.

[23] Citing Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 1257 [18].

[24] Lexis Nexis, Ford, Austin & Ramsay's Principles of Corporations Law (online at 15 April 2025) [27.063.6] (citations omitted).

[25] See Kelly & Hughes [2019] FamCA 621.

[26] See Hennessey v Commissioner of Police, New South Wales Police Force [2019] NSWSC 1046.

[27] Zouki & (2) Ors v Water Administration Ministerial Corporation [2001] NSWLEC 61.

[28] See Alam v Quest Enterprises [2006] NSWSC 752; Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd & Anor [2007] NSWCA 57.

[30] See s 85M of the Sentencing Act 1991 (Vic) which provides that 'a compensation order ... must be taken to be a judgment debt due ... and payment of any amount remaining unpaid under the order may be enforced in the court by which it was made'.

[31] Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; cf Sceam Construction Pty Ltd v Clyne [2021] VSCA 270 [42]-[43] where it was observed that the term 'Graywinter principle' should be avoided ('Sceam').

[32] [2006] NSWSC 1055; (2006) 203 FLR 473 ('Tatlers').

[34] Tsahrelias v Hanna & LH Holding [2024] VSC 420.

[38] [2015] VSCA 330 (Kyrou, Ferguson and Kaye JJA) ('Malec').

[39] Ibid [47]-[50]. See also my discussion in Re Strategic Conferences Pty Ltd [2025] VSC 374 on Malec.

[40] Malec [47]-[50] (citations omitted).

[41] [2009] FCA 519; (2009) 255 ALR 516 (Lindgren J).

[43] [2025] VSC 374 (Gardiner AsJ).

[46] [2017] NSWCA 300; (2017) 125 ACSR 212.

[47] Ibid 220-221 (Barrett AJA with whom Gleeson and White JJA agreed).

[48] Trecomax Pty Ltd v Prentice [2004] FCA 1057; (2004) 50 ACSR 314 (Sackville J).

[49] Ibid, [41]. This approach was upheld by the New South Wales Court of Appeal in Infratel Networks Pty Ltd v Grundy's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 297 ALR 372 (Hoeben JA, Young AJA & Ward J) [45]-[46] in the context of whether the court should embark on the construction of a contract.

[50] [2009] NSWSC 1192.

[51] Ibid[45] (Barrett J, as his Honour then was) (citations omitted).

[52] Re Longjing Pty Ltd [2017] NSWSC 1534; (2017) 123 ACSR 456, 464-465 (Gleeson JA), citing Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, 613 (Beazley P, Meagher JA and Gleeson JA); MNWA Pty Ltd v DCT [2016] FCAFC 154; (2016) 250 FCR 381, 411 (Rares J, in dissent); In the matter of JF Essential Power Pty Ltd [2018] NSWSC 435 [24]

[53] [2020] VSC 789.

[54] Ibid [64]-[66], [75] (Hetyey AsJ). For further principles regarding the operation of s 459J(1)(b), see also Re Smartdial Pty Ltd [2023] VSC 435 [79]-[88] (Gardiner AsJ).

[56] Re Elgar Heights Pty Ltd [1985] VicRp 67; [1985] VR 657, 669, 671 (Ormiston J); Main Camp Tea Tree Oil v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 [17] (Barrett J).

[58] Re Essential Media and Entertainment [2020] NSWSC 990 [102].

[59] [2024] NSWSC 495.

[60] See Re Forte Street Sydney Construction Pty Ltd [2024] NSWSC 495 [21] where Black J makes reference to his earlier decision of Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467 [40] and following.

[61] [2020] NSWSC 990.

[62] See above para [73], referring to Olympic Holdings Pty Ltd v Interwest Investments Pty Ltd (1998) 16 ACLC 124 (Master Sanderson).

[63] [2007] NSWSC 1406.

[65] [1993] FCA 589; (1993) 47 FCR 226.