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[2009] QSC 122
Supreme Court of Queensland
2009-05-22
Wilson J
Original judgment source is linked above.
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - SUPPORTING AFFIDAVIT - TIME FOR MAKING OR FILING - where respondents issued statutory demands on 25 February 2009 - where statutory demands accompanied by affidavits sworn 24 February 2009 - whether statutory demands should be set aside pursuant to s 459J(1)(b) Corporations Act 2001 (Cth) because affidavits incapable of satisfying the requirements of s 459E(3)
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - ASSESSING GENUINENESS - GENERALLY - where debt owed to respondents - where dispute as to whether debts due and payable - where agreement reached between parties - whether agreement released applicant from its obligations - whether there is a genuine dispute as to the debts
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENERALLY - whether the statutory demands are an abuse of process
Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2006] QSC 247; [2007] 2 Qd R 199, considered
ASIC v Marlborough Gold Mines Limited [1993] HCA 15; (1993) 177 CLR 485, cited
Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd [2005] ACTSC 39; (2005) 190 FLR 466, followed
David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, cited
Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 43 NSWLR 717, distinguished
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, cited
Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867, cited
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, cited
Technology Licensing Ltd v Climit Pty Ltd [2001] QSC 84; [2002] 1 Qd R 566, considered
Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196; (2002) 172 FLR 35, followed
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, cited
[1] Wilson J: Ri-Co Holdings Pty Ltd ("the applicant") has applied to set aside two statutory demands - one served by Allied Sandblasters Pty Ltd (proceeding no 2866/09) and the other served by Darryl Alwyn Beutel (proceeding no 2867/09). As the two matters have a common factual substratum and raise the same legal issues, they were argued together. I shall refer to the two creditors as "the respondents".
[2] The respondents held all of the issued share capital in Allied Protective Coating Pty Ltd. By a Share Sale Deed made on 26 July 2007 they sold the shares to the applicant for $6.7 million. The purchase price was to be paid by way of a deposit of $500,000 and the balance on completion.
[3] Completion occurred, but the applicant failed to pay part of the purchase price.
[4] The respondents issued statutory demands in October 2008 in respect of the outstanding balance. Negotiations ensued and an agreement was reached between the solicitors for the applicant and the respondents in November 2008. I shall consider that agreement below.
[5] The balance of the moneys owing under the Share Sale Deed not having been paid, on 25 February 2009 the respondents issued further statutory demands. On 18 March 2009 the applicant filed these applications to set aside the demands.
[6] The respondents have filed affidavits sworn on 1 May 2009 confirming that the debts remain unpaid.
[7] Each of the demands was dated 25 February 2009. Allied Sandblasters Pty Ltd claimed $293,791.67 and Beutel claimed $587,583.35.
[8] Each was accompanied by an affidavit sworn on 24 February 2009 by which the deponent swore that the debt mentioned in the demand was due and payable and that he or she believed there was no genuine dispute about its existence or amount.
[9] In each application the following grounds are relied on:-
(b) that there is a genuine dispute whether the debt is due and payable; and
Provisions of the Corporations Act 2001
[10] By s 459E of the Corporations Act 2001(Cth) a creditor may serve on a company a demand relating to a debt that is due and payable. Subsection (3) provides:-
"(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
[11] Non-compliance with a statutory demand results in a presumption of insolvency, which may be a basis for winding up a company.[1]
[12] An application to set aside a statutory demand may be made under s 459G; it may only be made within 21 days after the demand is served.[2] Under s 459H the Court must set aside the demand if there is a genuine dispute between the company and the creditor about the existence of the debt. Section 459J provides:-
(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."
[13] The applicant submits that the statutory demands should be set aside pursuant to s 459J(1)(b) because the affidavits sworn on 24 February 2009 (the day before the demands were signed) were incapable of satisfying the requirements of s 459E(3).
[14] The efficacy of an affidavit purporting to verify the debt on which a statutory demand is based, but sworn before the date of the demand, has been considered in a number of single judge decisions in various Australian jurisdictions and a decision of the Western Australian Full Court - Wildtown Holdings Pty Ltd v Rural Traders Company Ltd.[3] The cases do not speak with one voice. As the Corporations Act is Commonwealth legislation, concern for comity requires me not to depart from the decision of the Western Australian Full Court unless I am convinced it is plainly wrong.[4]
[15] In Wildtown the affidavit was sworn two days before the demand was signed. Another 22 days passed before the demand, accompanied by the affidavit, was served. Templeman J (with whom Steytler and Miller JJ agreed) considered this to be a deficiency in the affidavit rather than a defect in the demand.[5] It followed that the applicant had to demonstrate that it was a "reason why the demand should be set aside" within s 459J(1)(b). His Honour considered the decision of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd,[6] which he regarded as distinguishable, and concluded[7] -
"...An affidavit executed two days before a statutory demand cannot verify that demand. The fact that no updating affidavit was filed is, in my view, another reason why the demand should be set aside pursuant to s 459J(1)(b)."
[16] Dolvelle was a winding up application under Part 5.4 of the Corporations Law, based on non-compliance with a statutory demand. The affidavit which had accompanied the statutory demand had been sworn two days prematurely, but there had not been an application to set aside the demand. The company opposed the application on the ground (inter alia) that because the affidavit had been executed before the demand, the demand was defective and there was no basis for winding up under Part 5.4. Santow J rejected this submission. He said[8] -
"It is with some hesitation that I have concluded that the word 'must' in s 459E(3) is not comparable in effect to the words 'may only' in s 459G(2) such as to render an application based on such a statutory demand outside Pt 5.4 merely because the accompanying affidavit is two days premature. The requirement (of exact coincidence of date for verification of the statutory demand), though important, is not to be treated as an essential integer of the relief sought; there is of course no dispute that the amount remains unpaid. It thus follows that s 459S is applicable..."
"Thus treating s 459S as applicable, clearly enough the ground here relied upon is not material to proving that the company is solvent in circumstances where it is not in dispute the debt in question remains unpaid, more particularly where no contention has been made pursuant to s 459G that the debt is genuinely in dispute.
[18] In Wildtown Templeman J said[10] -
"[54] Santow J ... held that a winding-up application based on a statutory demand did not fall outside Pt 5.4 of the Law:
'... merely because the accompanying affidavit is two days premature. The requirement (of exact coincidence of date for verification of the statutory demand), though important is not to be treated as an essential integer of the relief sought; there is of course no dispute that the amount remains unpaid.'
[55] The reason for Santow J's conclusion lies in s 459Q of the Law, which sets out the requirements for a winding-up application based on a failure to comply with a statutory demand. The application must have a copy of the demand attached to it. It must also be accompanied by an affidavit verifying the debt and the fact that the debt is due and payable. However, the affidavit which accompanied the statutory demand is not itself relevant to the winding-up application. Hence, as Santow J said, an irregularity in the verification of the statutory demand is not fatal to a winding-up application based on a failure to comply with that demand.
[56] This, I think, distinguishes Dolvelle from the present case.
[57] It is noteworthy that despite the conclusion reached by Santow J, he required an affidavit to be filed 'in conformity with s 459E(3) stating the up-to-date position'. In other words, even though the inadequacy in the affidavit which accompanied the statutory demand was insufficient to invalidate the winding-up application, it was nevertheless necessary to comply with s 459E(3) of the Law."
[19] In Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd[11] the affidavit which accompanied a statutory demand had been sworn five days before the demand was signed. The deponent swore that the debt mentioned in the statutory demand was due and payable by the debtor company. Higgins CJ of the ACT Supreme Court reviewed the authorities, including Wildtown, which he followed. His Honour found "a logical difficulty in [someone] deposing to the existence and truth of a statement made in a document that is to be brought into existence five days in the future."[12] He said[13] -
"[14] An affidavit that verifies a previously formulated and drafted notice of demand could rationally verify the debt mentioned therein as at the date of that subsequent affidavit. However, the converse does not follow. At the same time this affidavit was sworn, it could only be presumed that the debt it purported to verify as then due and owing was the same as the debt demanded five days later. Even if that leap of logic could be made, the affidavit does not verify the debt as being due as at the date of delivery of the notice. Some payment, for example, might have been made. No doubt an updating affidavit might have been made and delivered with the demand. "
Earlier Chesterman J of this Court had taken the same view in Technology Licensing Ltd v Climit Pty Ltd[14]-
" [24] The applicant has another point. Relying upon s 459J(1)(b) of the Corporations Law it submits that there was another reason why the demand should be set aside. It is that the demand was not accompanied by an affidavit verifying that the debt was due and payable by the applicant. Section 459E(3) provides that a demand 'must' be accompanied by such an affidavit. The point here is that Mr Page's affidavit was sworn on 15 December 2000 and thus pre-dates the demand by four days.
The point is a good one. A statutory demand can only be issued with respect to a debt that is due and payable at the time of the demand. Section 459E(3) clearly intends that the demand be verified by an affidavit that speaks to the circumstances existing at the time when demand is made. Proof that a debt was owed on 15 December is not proof that it was owed on 19 December.
[25] I conclude that the mandatory requirement of s 459E(3) was disregarded and an important safeguard in the operation of the scheme of proving insolvency to support an order winding up a company was ignored. The decision of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd[15] does not stand in the way of such a result. The conclusion in Dolvelle was that because this point had not been taken in an application to set aside the statutory demand, s 459F prevented it being taken on the subsequent application for the winding up of the company. It is, I think, clear from his Honour's reasons[16] that had the point been taken on an application brought pursuant to s 459G it would have resulted in an order setting aside the statutory demand."
[20] Like Holmes J in McDermott Projects Pty Ltd v Chadwell Pty Ltd,[17] I do not think that what Chesterman J said in the last sentence of the passage I have just quoted is a correct reading of Santow J's reasons. In Santow J's view s 459E(3) is not mandatory in its effect. Holmes J agreed with Santow J. I respectfully agree with Chesterman J that it is mandatory in effect, contrary to the view of Santow J and Holmes J.
"My own inclination is to conclude that reliance upon such an affidavit does create a defect in procedure which is, however, capable of being cured by the swearing of another affidavit dealing with the state of indebtedness at the time of the demand. To be effective, however, such an affidavit may need to be served either with the demand or, perhaps, a reasonable time before the expiration of the 21 days available to the debtor to apply to set aside the demand."
I respectfully differ from His Honour. A subsequent affidavit, so long as it is served with the demand, may be effective to validate the demand process, but an affidavit sworn after service of the demand confirming that the debt remains unpaid cannot do so. As Higgins CJ said in Chadmar[20] -
"[52] It is not clear what is meant by Templeman J, in Wildtown Holdings by the reference to the 'updating affidavit'. I can see no objection to the serving of an affidavit that is sworn some days before the demand is made, along with the demand and a further affidavit verifying that the debt, remained due and payable on the date the demand is made. In other words, re-affirming, as at the date of the demand, the matters stated in the prior affidavit. I do not think, however, that such an affidavit could rectify a demand that might otherwise be liable to be set aside for non-verification simply by the later delivery, after the demand is made, of an updating affidavit. A debtor only has 21 days to apply to set aside the demand. If a later 'updating affidavit' could be effective, a debtor could be deprived of its right to have the demand set aside save on the ground of 'genuine dispute'. It could mean, if the debtor did not raise and support a genuine dispute, comforted by the failure to deliver a demand prima facie complying with s 459E(3), that the debtor might then be out of time to raise the issue. This is quite apart from the shortening of the time within which to marshal evidence to support the existence of a 'genuine dispute or _off_setting claim'."
" [54] I acknowledge that there has been, amongst judges at the first instance, a difference of opinion as to whether (a) an affidavit predating the demand it purports to verify can leave the demand standing in the absence of some substantial injustice to the debtor; or (b) whether the predated affidavit is a fatal flaw itself.
[55] It will be apparent that I will incline to the latter view. I acknowledge that, on service of a demand, a debtor would not know whether the demand or affidavit, each bearing the same date was first executed. However, the rule is that, generally, the law does not take account for fractions of a day (see for example, Lester v Garland[22]). A document may be a 'proposed demand' though it be unsigned. However, it is conceivable that if it was shown, contrary to the presumption of regularity, that an affidavit purported to verify a document yet to be brought into existence, the situation may well be otherwise (for example, Clarke v Bradlaugh[23]). That is not a difficulty if the demand, though unexecuted, is in fact verified by the affidavit. A 'proposed' demand is capable of verification.
[56] However, it seems to me, that the matter is settled by the Full Court decision in Wildtown. Whilst I accept that Santow J would not have regarded a verification of the demand before it was brought into formal existence as necessarily fatal, it seems to me that Templeton J certainly did. I accept also that Dolvelle is distinguishable, as Templeman J holds. Dolvelle is explicable on the basis that whilst an unverified demand is liable to be set aside, it is not a nullity for the purposes of the Act.
[57] It follows that the plaintiff is entitled to succeed in its application. Therefore, the demand notice is set aside pursuant to s 459J(1).
[58] The affidavit pre-dating the demand notice is no mere 'defect'. The affidavit is, in form and substance, ineffective to verify the demand. Hence, s 459J(2) does not save it."
[23] I respectfully concur in and adopt the analysis in Wildtown and Chadmar. The demands should be set aside under s 459J(1)(b).
[24] In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd[24] the Full Court of the Federal Court reviewed the case law about the meaning of "genuine dispute" in this context, and concluded pithily -
That formulation has been adopted in subsequent cases.
[25] In each matter the applicant concedes that the debt is owed to the respondent, but disputes that it is due and payable. It relies upon the agreement made in November 2008.
[26] That agreement is to be found in an email from the applicant's solicitor to the respondents' solicitor dated 13 November 2008 and the response made the following day. Relevantly it provided:-
"1. That the sum of $140,000.00 be paid to Allied Sandblasters and Darryl Beutel on the 14.11.08 (from the Allied Protective Coating Pty Ltd a/c) in reduction of the monies owing;
[27] The payment of $140,000 was made to the respondents' solicitors on 14 November 2008 and further payments totalling $250,000 were made on 10 February 2009. Beutel and Poole (the director of the applicant) have not agreed to make any further payments. Accordingly, the applicant contends, no further amount of the debt is currently due and payable.
[28] On the other hand, the respondents contend that the agreement did not release the applicant from its obligations under the Share Sale Agreement or vary those obligations; all it did was to provide a regime for repayment of an outstanding debt. Their counsel submitted that clause 7, by which the respondents agreed not to take further action with regard to the previous statutory demand before 31 December 2008, was the death knell of the applicant's argument - that in the circumstances it was well nigh impossible to interpret the agreement as somehow suspending the applicant's obligations under the deed beyond that date.
[29] I am inclined to the view that the applicant's construction of the agreement is little more than barely arguable, with the result that there is no genuine dispute as to the debts. But in light of my earlier conclusion about the effect of the premature swearing of the affidavits, it is not necessary for me to consider this further.
[30] The applicant contends that the statutory demands are an abuse of process, and that that is another reason for setting them aside pursuant to s 459J.
[31] By clause 5 of the agreement made in November 2008 the parties contemplated amendment of a lease agreement. Late on Thursday 12 February 2009, two days after the further payments totalling $250,000 were made, the solicitors for the respondents sent the applicant's solicitor an email to which a draft lease was attached. In the email they said -
"I also point out that the surrender of the existing Lease and the 2 new Leases were required to satisfy the provisions of the settlement agreement reached between our respective clients as set out in your email 19 November 2008. Your client is required to enter into the new leases to comply with Clause 5. Would you please print out each document in triplicate and arrange for your client to sign them and return the signed document to me urgently. If the signed documents are not received by close of business 18 February 2009, my client reserves the right to institute proceedings based on the Statutory Demand."
[32] On 19 February 2009 the applicant's solicitor told the respondents' solicitors that he was awaiting instructions. Instructions that a full review of the document was required were received the next day.
[33] The statutory demands were served on 25 February 2009.
[34] The applicant contends that the statutory demands were used to obtain a collateral advantage, namely, to force it to execute the lease document, and that that was an abuse of process.[25] The respondents argue that the correspondence did no more than require the applicant to fulfil its promise to execute the document, and to indicate that if it did to do so, they would consider themselves free to use the statutory demand procedure to recover the outstanding debt.
[35] I doubt that the correspondence went any further than the respondents submit it did, but it in the circumstances it is not necessary for me to decide this question.
[36] In each application the statutory demand should be set aside.
[37] Having heard Counsel on costs, in each application I order the respondent pay the applicant's costs of and incidental to the application to be assessed on the standard basis.
[2] David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265.
[4] ASIC v Marlborough Gold Mines Limited [1993] HCA 15; (1993) 177 CLR 485 at 492; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135].
[5] [2002] WASCA 196; (2002) 172 FLR 35 at para [32], [51].
[8] (1998) 43 NSWLR 717 at 727.
[9] (1998) 43 NSWLR 717 at 728.
[10] [2002] WASCA 196; (2002) 172 FLR 35 at [54] - [57].
[12] [2005] ACTSC 39; (2005) 190 FLR 466 at [5], [38].
[14] [2001] QSC 84; [2002] 1 Qd R 566 at [24] - [25].
[16] (1998) 43 NSWLR 717 at 726-727.
[17] [2002] Qd R 363 at 365.
[21] (2005) 190 FLR 46 at [52] - [57].
[24] [1997] FCA 681; (1997) 76 FCR 452 at 464.
[25] Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867; Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 526.
Ri-Co Holdings (Australia) Pty Ltd v. Allied Sandblasters Pty Ltd; Ri-Co Holdings (Australia) Pty Ltd
Beutel [2009] QSC 122
(1993) 177 CLR 485
(2005) 190 FLR 466
(1995) 184 CLR 265
(1998) 43 NSWLR 717
(2007) 230 CLR 89
(1997) 76 FCR 452
(2002) 172 FLR 35
(1992) 174 CLR 509
(2005) 190 FLR 46