CORPORATIONS – WINDING UP – WINDING UP AND INSOLVENCY –
STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND
– GENUINE DISPUTE
– GENERALLY – where the applicant has been served with a statutory
Source
Original judgment source is linked above.
Catchwords
CORPORATIONS – WINDING UP – WINDING UP AND INSOLVENCY –STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND– GENUINE DISPUTE– GENERALLY – where the applicant has been served with a statutorydemand – where thereare parallel proceedings in the Supreme Court –whether the issuing of the statutory demand is an abuse of processCorporations Act 2001 (Cth) ss 458G, 459H, 459JAustralian Communication Exchange Ltd v Pilot Partners Pty Ltd[2017] QSC 176, citedBatistatos v Roads and Traffic Authority (NSW) [2006] HCA 27(2006)226 CLR 256, citedBritten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd
[2013] NSWCA 344
(2013) 85 NSWLR 601, cited
Grounded Construction Group Pty Ltd v KW Civil & Construction Pty
Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48
(2011)
244 CLR 427, applied
Re Sebbella Pty Ltd [2025] VSC 409, followed
The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd
(No 2) (1996) 20 ACSR 170, followed
Thomson v Australia and New Zealand Banking Group Ltd [2024] QCA 73,
followed
UBS AG v Tyne [2018] HCA 45
(2018) 265 CLR 77, considered
Williams v Spautz [1992] HCA 34
(1992) 174 CLR 509, considered
Judgment (66 paragraphs)
[1]
[1] On 1 August 2025 the respondent served a statutory demand on the applicant, claiming it was owed $6,368,054.19 AUD by the applicant. It is argued by the applicant that the statutory demand is an abuse of process.
[2] The issue in this case is whether there is a reason for the statutory demand to be set aside.
[3] For the reasons which follow, the statutory demand is not an abuse of process and as a result the application is dismissed.
[2]
[4] On 16 April 2024, the respondent as Lender and the applicant as Borrower entered into a loan deed under which the respondent advanced to the applicant the sum of £1.1 million.
[5] On 16 April 2024 loan documents were signed.[1] The applicant was required to pay in advance monthly interest payments at 4 per cent in the amount of £44,000, commencing 19 April 2024 and concluding on 18 March 2025. The applicant was also required to repay the principal sum loaned in the amount of £1,100,000 by 18 April 2025.
[6] The applicant fell into arrears and subsequently defaulted under the loan deed by failing to make principal and interest payments as follows:
[3]
(a) October 2024 £44,000;
(b) November 2024 £44,000;
(c) December 2024 £44,000;
(d) January 2025 £44,000;
(e) February 2025 £44,000;
(f) March 2025 £44,000; and
(g) April 2025 £1,100,000.
[4]
[7] On 11 April 2025, the respondent instructed Australian solicitors (M Behlau & Associates) to issue a notice of default to the applicant through Mr Morris, director of the applicant, and copied to the guarantors.
[8] On 29 July 2025, Mr Magalhaes instructed Mr Aoutin to instruct M Behlau & Associates to issue the statutory demand. It was issued on the basis that the director of the applicant had conceded there was no dispute as to the existence of the debt owed to the respondent and the applicant was in default under the loan deed.
[9] Mr Magalhaes says at paragraph 17:
[5]
"The reason that I instructed Mr Aoutin to instruct M Behlau & Associates to issue the statutory demand was because I believed that the applicant is insolvent because it owes, and has been unable to pay, the amount demanded (and would not be able to pay even if judgment were delivered on that amount), and, so, it would be appropriate to take steps or having the applicant wound up if it is insolvent. This is especially so where Mr Sam Morris of the applicant informed me on 8 April 2025, and I believe, that a former employee has misappropriated funds of the applicant, which may need to be recovered by a liquidator."
[6]
[10] The total amount owed by the applicant to the respondent as at 29 July 2025 was £3,108,339.04 or $6,368,054.19 AUD.
[11] Mr Aoutin in his affidavit[2] states that he is the chief administrative officer of the respondent. He refers to the loan deed. In an email dated 25 March 2025 from him to the applicant[3] he said:
[7]
"Whilst we welcome and continue without prejudice communication, the formal position of [the respondent] remains unchanged as per the aforementioned letter. We kindly reiterate our request for you to take the following actions included in the attached:
[8]
Acknowledge your obligation to make all payments due under the loan deed as they fall due.
Confirm within seven days that the company has the ability to meet its obligations under the loan deed.
Settle the outstanding arrears and interest falling due totalling £155,808.52 in fully cleared funds within 14 days."
[9]
[12] On 31 March 2025, Mr Morris on behalf of the applicant replied[4] stating:
[10]
"Please find our response to the four requests outlined in your recent correspondence.
[11]
Acknowledgement of obligation - We acknowledge our obligations under the loan deed and remain committed to meeting those obligations in accordance with the terms therein.
Confirmation of ability to meet obligations - We cannot confirm the company will be in a position to meet its obligations under the loan deed. We anticipate that incoming revenue will significantly contribute to this over the coming weeks.
The settlement of arrears and interest - While we note your comment on the outstanding arrears an interest of £155,808.52, we must advise that we are not currently in a position to settle this amount in full."
[12]
[13] On 7 May 2025, the respondent commenced proceedings in the Supreme Court of Queensland against the applicant and five other parties.
[14] The application sought that "Judgment be entered in favour of the Applicant against the first to sixth Respondents pursuant to Clause 4.5 of the Loan Deed dated 16 April 2024, in the amount of £2,200,430.41 converted to an equivalent Australian dollar sum as at the date of order."[5]
[15] By consent it was agreed that the originating application listed on 8 August 2025 be adjourned to the registry and the matter proceed by way of Claim and Statement of Claim which was to be filed and served by the respondent on or before 5 September 2025.
[16] It should be noted though that there were reasons for this step. On 15 July 2025, the solicitors for the applicant wrote to the respondent's solicitors[6] in which it was noted:
[13]
"We have been provided with the originating application filed 7 May 2025 which we understand is returnable before the Supreme Court on 18 July 2025...We acknowledge that the applicant's position is that on the face of the material filed these proceedings would appropriately be commenced by originating application however in practical terms we would submit that the parties consent to an order whereby these proceedings proceed by way of claim and statement of claim.
[14]
At this time, we are still trying to particularise more detailed instructions from our client though from the material provided to date we expect that there will be third party notices issued to multiple parties from which our client will seek indemnification. Further given the opposition our client has experienced to obtaining records which ordinarily he would be entitled to hold we expect the issue of notices for non-party disclosure will also be required to support the indemnification claimed by our client. For these reasons we would submit that there is no way that the applicant or our client would be able to achieve a necessary resolution without proceeding by way of claim and statement of claim."
[15]
[17] On 5 September 2025, M Behlau & Associates on behalf of the respondent referred to consent orders made on 7 August 2025 as to the filing of the Claim and Statement of Claim.[7] It was noted:
[16]
"If the plaintiff files its claim and Statement of Claim the first defendant would be required to file a defence. However, if:
[17]
(a) The first defendant does not succeed in setting aside the statutory demand; and
(b) the plaintiff obtains orders to wind up the first defendant for insolvency;
[18]
then, there may be no need for the first defendant to file a defence."
[19]
[18] It was further noted it would inefficient and costly for this to occur and an extension was sought as to the filing of the Claim and Statement of Claim.
[19] On 5 September 2025, the applicant's lawyers replied[8] noting that they were not instructed to agree to the proposal to delay the filing of the Claim and the Statement of Claim but stated:
[20]
"should you require a reasonable extension for the filing of same we would obviously recommend that to our client."
[21]
[20] On 9 September 2025, a further letter was sent by the respondent's solicitor requesting an extension to the filing of the Claim and Statement of Claim.[9]
[21] Ultimately, on 15 September 2025[10] the applicant's lawyers did not consent to the extension asking, "would you please advise by return when you expect you will be in position to provide that Claim and Statement of Claim."
[22]
[22] Turning to the applicant's material, Mr Sam Morris in his affidavit dated 22 August 2025 refers to the fact that the respondent commenced proceedings in the Supreme Court of Queensland and the consent order concerning the Claim and Statement of Claim.
[23] He states, "the conversion of the proceeding to a claim reflects the fact that there are contested issues of fact. The applicant also intends to join third parties to those proceedings." He further said, "the issuing of the statutory demand in the face of ongoing litigation and prior agreement to proceed by claim is improper and an abuse of process."
[24] Mr Morris has also filed a second affidavit dated 17 September 2025 to which I have had regard.
[25] There are no particulars given as to what the alleged factual dispute might be and there are no particulars given as to the alleged abuse of process, beyond the fact that there is an originating process filed in the Supreme Court with a consent order as to the filing and serving of the Claim and Statement of Claim.
[27] In reliance on Grounded Construction Group Pty Ltd v KW Civil & Construction Pty Ltd[11] it is submitted that the issuing of the statutory demand is an abuse of process as the respondent is pursuing parallel processes.
[28] The applicant distinguishes the case of K2M Investments Pty Ltd v Unita (Qld) Pty Ltd.[12]
[29] It submits that in all of the circumstances, the Western Australian case is authority for the proposition that what has happened here is an abuse of process.
[24]
[30] The respondent submits that the applicant in its supporting affidavit gives no reason to the Court that there is a genuine dispute as to the existence or amount of the debt. It submits that the proceedings in the Supreme Court were agreed to proceed by way of Claim and Statement of Claim, not because the applicant wished to raise factual issues as to indebtedness, but because it wished to join third parties for indemnification. The respondent consented to this course.
[31] It is submitted that the supporting affidavit does not dispute the debt. It is submitted that the applicant has admitted that it owes the debt. It is further submitted it cannot be proved on the material an abuse of process has occurred. An abuse of process occurs where proceedings are used for an improper purpose; it is oppressive to another party or it would bring the administration of justice into disrepute. Parallel proceedings of themselves are not an abuse of process.
[32] It is submitted that the case of K2M Investments is on all fours with the present case. The case should be followed unless clearly or plainly wrong. It is also submitted that the line of authority relied on by the applicant may be distinguished.
[33] It is submitted that insufficient grounds have been raised in the supporting affidavit and the material to give rise to the conclusion that there is an abuse of process.
[34] The applicant has not proved that there is another reason to set aside the statutory demand. In the circumstances the application should be dismissed.
[25]
[35] Section 459J(1)(b) of the Corporations Act provides that a court may, by order, set aside a statutory demand if it is satisfied that there is some other reason why the demand should be set aside.
[36] The principles which apply to an application to set aside a statutory demand on the grounds that there is a genuine dispute have some relevance.
[37] In Thomson v Australia and New Zealand Banking Group Ltd,[13] the Court of Appeal set out that the principles to be applied are as follows:
[26]
(a) for a dispute to be genuine, it must be bona fide and truly exist in fact;
(b) the grounds for alleging the existence of a dispute must be real and not spurious, hypothetical, illusory or misconceived;
(c) the dispute must have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. Something between mere assertion and the proof that would be necessary in a court of law may suffice;
(d) a genuine dispute may involve a plausible contention requiring investigation and raise the same sort of considerations as the serious question to be tried test that applies in the case of interlocutory injunctions;
(e) the Court should not uncritically accept statements about an alleged genuine dispute which are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or inherently improbable;
(f) if the dispute appears to be something merely created or constructed in response to the pressure represented by the service of the statutory demand, then it is not advanced in good faith and will not be regarded as genuine; and
(g) whilst the underlying nature of the dispute about the existence of a debt must be exposed, the Court will not deal with the merits and nothing of substance will be decided.
[27]
[38] It was noted at [41] that the Court does not conduct a mini trial or extended inquiry and does not determine the merits of the dispute. It determines whether a bona fide dispute exists.
[39] In Ligon 158 Pty Ltd v Huber[14] it was noted that the evidence for the applicant need not necessarily be the fullest or the best evidence available. The evidence need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. Further, it was said the task confronting the company is by no means a difficult or demanding one.[15] It was also said that the claim will only fail where the claim is so devoid of substance that "no further investigation is warranted".
[40] In this particular case, the applicant does not argue that there is a defence or dispute regarding the existence of the debt, more rather it relies on an allegation of an abuse of process. However, in this regard, there is a bare allegation of this without more. It must be noted there is no material relied on which suggests that there is any defence to be had to the proceedings. Also, the applicant's agent has admitted the debt. There is also an explanation as to why the Claim and Statement of Claim have not been filed.
[41] The Western Australian case relied on by the applicant may be distinguished here. In Grounded Construction Group Pty Ltd v KW Civil & Construction Pty Ltd[16], Lundberg J set aside a statutory demand for a little over $1,000,000. It is true that his Honour found that there was an abuse of process because there were two proceedings on foot and the defendant should not have served the statutory demand, but this was because there was an inconsistency between the two processes, and this gave rise to oppression on the plaintiff.[17]
[42] There were issues of dispute between the parties. The defendant issued two payment claims to the plaintiff and the non-payment of these two payment claims led to the issuing of a civil action. The applicant in the proceedings before Lundberg J submitted that it had offsetting claims which should be offset against the amount claimed. The plaintiff sought to set aside the demand or have it varied to an amount of $418,454.26. Particulars of this dispute included a liquidated damages claim and a property damage claim. It was also noted there was an adjudication proceeding. In those circumstances, may be distinguished in the present case. The statements made by Lundberg J at [263] must be read in the context of the facts of the case.
[28]
"[53] The first difficulty with this submission is that K2M's application makes no reference to s 459J of the Act, and K2M did not apply to amend the application to refer to that section. Even if K2M had applied to amend, permitting K2M to raise a new ground as a basis for setting aside the Demand at such a late stage would offend the Graywinter principle.
[29]
[54] In any event, I am not satisfied that Unita's service of the Demand constitutes an abuse of process.
[30]
[55] A creditor who serves a statutory demand does not invoke the process of a court. A statutory demand is not a proceeding, either curial or non-curial in nature. Instead, the function of a statutory demand is to facilitate proof of a company's inability to pay its debts by creating a rebuttable presumption of insolvency if the demand is properly served and not met. Accordingly, the issuing of a statutory demand cannot strictly constitute an abuse of process, although analogous considerations can apply and inform the scope of s 459J(1)(b) of the Act.
[31]
[56] Used in that sense, an abuse of process will occur where the purpose of bringing proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers. In the context of the statutory demand procedure, there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt.
[32]
[57] While improper purpose might exist if the creditor uses the statutory demand facility knowing that the debt is the subject of a genuine dispute, or knowing that the company is solvent, there is no evidence of that in the present case. Here, the Demand was served on K2M on 14 September 2022, more than a month before K2M filed its notice of intention to defend and defence in proceeding BS No 10089 of 2022 on 21 October 2022. I am not satisfied that Unita's conduct in making of the Demand after it instituted proceeding BS No 10089 of 2022 but before the filing and serving of a defence, demonstrates that the Demand was made for an improper purpose. (Citations omitted)
[33]
[46] In the circumstances, his Honour refused the application to set aside the statutory demand.
[47] K2M is far closer to the present case than Grounded Construction. Like in K2M, I did not consider in this case that there was any evidence tendered to support the bare allegation that the issuance of the statutory demand was an abuse of process.
[48] Other cases justify the conclusion that the mere fact there are other proceedings on foot is not enough and there needs to be something more which justifies the assertion that there is an abuse of process.
[49] In The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2)[21] Santo J noted at page 177 that the basis of disputation of the claimed debt has a direct and immediate bearing on whether the parallel proceedings are or are not an abuse of process. His Honour stated:
[34]
"Thus if the debt is not seriously, or bona fide, disputed, it is difficult to see how there could be an abuse of process on the grounds of parallel proceedings. That is why the latter question cannot be considered independently of the former. Thus, the parallel proceedings are not inevitably an abuse of process."
[35]
[50] Likewise, in Re Sebbella Pty Ltd[22] Efthim AsJ referred to the cases relied on by Sundberg J in Grounded Construction. In Sebbella, the plaintiff sought to set aside the statutory demand as an abuse of process. The defendant had issued proceedings in the Victorian County Court claiming $424,850.02 in connection with a loan. Under that agreement, $117,753.50 had been lent. The plaintiff filed a defence and counter claim on 9 January 2025 which he admitted the loan; that the advance was made under the loan; that the plaintiff had not repaid the loan and the plaintiff was indebted in an amount of $117,753.50. Efthim AsJ considered the three cases referred to and noted at [17-19]:
[36]
"[17] The defendant submits that it is important that the Court should not look at two proceedings and say that it must be an abuse of process. The defendant also submits, prima facie, there may be an abuse of process if there are two parallel proceedings but before it is determined that there is an abuse of process the circumstances giving rise to the two parallel proceedings need to be considered.
[37]
[18] In that regard, I also note that Barrett J in Re Zarzar Pty Ltd made it clear that there is no explicit rule precluding parallel resort by a creditor to both the statutory demand procedure and debt recovery proceeding.
[38]
[19] In my view, the circumstances in this case are different to those in Re Zarzar Pty Ltd, Re Modern Wholesale Jewellery Pty Ltd and Re 47 Industrial Pty Ltd. Here, the plaintiff has admitted that the debt is owing and an application was not filed until after that admission was made. The principle stated in Re Zarzar Pty Ltd does not apply to this factual situation before me."
[39]
[51] The three authorities may be distinguished here.
[52] Whilst the categories of abuses of process are not closed[23], in order to prove an abuse of process ordinarily a party needs to establish that the process is being used for an improper purpose; is oppressive and or would bring the administration of justice into disrepute.[24]
[53] In Michael Wilson & Partners Ltd v Nicholls[25] the High Court said that an abuse could exist where proceedings were issued in a second forum, and it would be "unjustifiably oppressive to the party that is named as defendant in both forums."
[54] In this particular case there is no or insufficient evidence upon which an inference can be drawn that the issuing of the statutory demand is being used for an improper purpose; that the proceeding is oppressive or that the proceeding would bring the administration of justice into disrepute.
[55] The fact is the debt is not disputed here and the other proceedings explained as being relevant only to indemnification from third parties.
[56] The onus is on the applicant to prove why the statutory demand should be set aside.[26] The onus has not been discharged.
[40]
[57] There is insufficient evidence to justify the contention that there is an abuse of process here. There is no "other reason" why the demand should be set aside.
[41]
The application is dismissed.
I will hear the parties on the question of costs.
[42]
[1] Affidavit of Ricardo Magalhaes dated 15 September 2025.
[43]
[2] Affidavit of Mr Aoutin dated 15 September 2025.
[44]
[3] Affidavit of Mr Aoutin dated 15 September 2025 page 23.
[45]
[4] Affidavit of Mr Aoutin dated 15 September 2025 page 25.
[46]
[5] Affidavit of Sam Morris dated 22 August 2025 CFI 2 - Exhibit B.
[43] The decision of K2M Investments Pty Ltd v Unita (Qld) Pty Ltd[20] is much more like the present case. In K2M, the applicant applied to set aside the statutory demand alleging there was a genuine dispute about the debt and further alleging there was an abuse of process.
[44] Ultimately, Cooper J found there was no genuine dispute and his Honour then turned to the allegation of abuse of process. His Honour noted that K2M's submission was that the demand constituted an abuse of process because it was served after Unita had instituted proceedings seeking, in part, the same debt claimed in the demand. It was submitted that the case was within a recognised class of abuse of process cases, where proceedings are instituted against a party in a second forum when there are proceedings against that party pending in another and the continuance of the second would be an abuse of process of the first.