Successful Set Aside of Statutory Demand in NSW Supreme Court

The claimant applied to set aside a statutory demand served by the respondent. The court found that there was a plausible contention regarding the existence of the alleged debt, leading to the statutory demand being set aside.

OUTCOME: Allowed

New South Wales Supreme Court

CITATION : [COMPANY] v [COMPANY] [2010] NSWSC 1302

HEARING DATE(S) : 09/11/10

JUDGMENT DATE : 9 November 2010

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 9 November 2010

DECISION : Statutory demand set aside. Defendant to pay plaintiff's costs on the indemnity basis.

CATCHWORDS : CORPORATIONS - winding up - winding up in insolvency - application for order setting aside statutory demand - defendant abandons statutory demand except as to one element - whether genuine dispute as to existence of debt - obvious dispute obviously genuine - demand set aside - appropriate case for indemnity costs

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459G, 459H(1)(a)

CATEGORY : Principal judgment

CASES CITED : [COMPANY] v [COMPANY] (1994) 12 ACSR 785

PARTIES : [COMPANY] - [RESPONDENT] - Defendant

FILE NUMBER(S) : SC 2010/231833

COUNSEL : [redacted] Mr [RESPONDENT] G [RESPONDENT] - Defendant

SOLICITORS : [redacted] [NAME] [RESPONDENT] Lawyers - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

TUESDAY 9 NOVEMBER 2010

2010/231833 [COMPANY] v [COMPANY]

1 The plaintiff ("[NAME]") applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 25 June 2010 served on it by the defendant ("[NAME]"). 2 The statutory demand relates to two debts or alleged debts totalling $34,202.62 described in its schedule as follows:

"Pursuant to the tax invoice number 180610 issued by [[COMPANY] 137 005 488 sent to [[COMPANY] 100 570 723 on 18 June 2010 for the principal amount $33,202.62 $33,202.62 plus Legal costs incurred by the Creditor upon the issuance of this Notice, supporting affidavit, search, correspondence and advice $ 1,000.00 Total amount $34,202.62"

3 When the hearing began, Mr [COUNSEL], who appeared for [NAME], indicated that the statutory demand was not pressed except in respect of one item of $10,000 to which I shall come. 4 The first of the alleged debts referred to in the statutory demand is said to be "pursuant to" the particularly described invoice. It must be said at once that an invoice of its nature cannot in general create or be the source of a debt. Rather, it has the character of a request or demand for payment in respect of a sum for which liability has already arisen from some independent source, such as by the supply of goods or services. 5 The only item in the invoice and therefore in the schedule to the statutory demand in respect of which [NAME] seeks to sustain the demand is an item of 4 August 2009 entitled "PWC Fee", the position of [NAME] being that [NAME] owes $10,000 to [NAME] for "PWC Fee" and that that sum is due and payable. 6 The evidence may warrant (and for the moment I assume it does) findings that [NAME] owed PriceWaterhouse Coopers $10,000 for professional services, that Mr [NAME] paid $10,000 to [NAME] and that Mr [NAME] recorded that money as owing to him by [NAME] under a pre-existing loan agreement between him and [NAME]. 7 There are two obviously missing links, it seems to me, taking the evidence at its highest. One is any evidence of an obligation of [NAME] then to pay $10,000 to [NAME]. The second is any evidence that [NAME] paid $10,000 to PWC. 8 Mr [NAME], a director of [NAME], has given evidence that there is no record of any relevant debt of [NAME] to [NAME] recorded in [NAME]' books and that he is not aware of the existence of any such debt, although it must be noted that Mr [NAME] was not a director at the relevant time. 9 The most that has been put on behalf of the defendant is an implication that the making of the payment by Mr [NAME] which he then charged to [NAME] caused [NAME] to become indebted to [NAME]. No evidence of any promise of [NAME] to pay is identified. [NAME] has a 55 percent shareholding in [NAME]. There is evidence of [NAME] having given financial support to [NAME] by way of a letter of comfort addressed to its auditors. There may also have been other aspects of financial support that [NAME] gave to [NAME]. But the fact that a shareholder in a company makes a payment to an outsider which benefits the company cannot, of itself, justify the conclusion that a debt of the company to the shareholder has arisen. 10 In this proceeding, the court is not concerned to come to a firm conclusion as to the existence of the alleged debt of $10,000. Its sole task is to decide whether, in the words of McLelland CJ in Eq in [COMPANY] v [COMPANY] (1994) 12 ACSR 785, there is on the question of the debt's existence "a plausible contention requiring further investigation". 11 In the circumstances that emerge from the evidence that I have outlined, there is quite obviously a plausible contention that there is no indebtedness of [NAME] to [NAME] in the sum of $10,000. The forum in which the question of the existence of any such debt should be determined is a debt collecting court, not a company court. 12 The ground put forward by the plaintiff based on genuine dispute within s 459(H)(1)(a) is amply made out. There is no need to deal with the plaintiff's alternative submission based on alleged abuse of process. 13 I order that the statutory demand dated 25 June 2010 served on the plaintiff by the defendant be set aside.

(Submissions on costs) 14 The successful plaintiff claims an order that the unsuccessful defendant pay its costs. There can be no question about that. Such an order will be made. 15 The plaintiff also says that the costs should be assessed on the indemnity basis. I accept that submission. 16 The defendant's attempt to sustain the statutory demand by showing that there was no genuine dispute was spectacularly unsuccessful. Indeed, the defendant conceded the plaintiff's claim at the outset except as to the $10,000 item concerning PWC. I have said in relation to that that it was quite obvious that a plausible contention existed. 17 The defendant nevertheless persisted in relying on the implication of a promise to pay in circumstances of earlier financial support. The defendant ought to have conceded the plaintiff's claim in respect of all items in the demand and avoided this matter coming to court at all. 18 There has been "relevant delinquency" on the defendant's part warranting the assessment of costs on the indemnity basis. 19 The costs order therefore is that the defendant pay the plaintiff's costs of the proceedings, such costs to be assessed on the indemnity basis. **********

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