Associate Justice Heytey has had a busy start to the year with 2 decisions regarding applications under the Corporations Act 2001; Re Slodyczka & Farren Pty Ltd [2022] VSC 19 and Re Amville Constructions Pty Ltd [2022] VSC 65.  Associate Justice Gardiner considered an application to set aside a statutory demand in Re Wynyard Victoria Pty Ltd [2022] VSC 81.

Re Slodyczka & Farren Pty Ltd [2022] VSC 19

The key issue in this application was whether there was proper service of a statutory demand and whether the presumption of insolvency was rebutted. 

FACTS

Slodyczka & Farren Pty Ltd (‘the defendant’) was first registered on 14 December 2015. In response to the COVID-19 pandemic, it commenced a business in March 2020 for the manufacture and sale of face masks.  Between April 2020 and August 2020, Lion & Horn Pty Ltd (‘the plaintiff’) providing it with marketing services to sell of its masks [1].

In early February 2021, the plaintiff purportedly served the defendant with a statutory demand dated 3 February 2021, which claimed the sum of $36,091.77 in relation to an outstanding invoice dated 28 August 2020 for its marketing services . The defendant did not comply with the demand within the 21-day statutory period.

By originating process filed on 11 April 2021, the plaintiff sought to wind up of the defendant pursuant to ss 459A and 459P of the Corporations Act 2001 (Cth) relying upon the statutory presumption of insolvency contained within s 459C(2)(a) of the Corporations Act.

The Court framed the questions for consideration as being, at [9]:

(a) was service of the statutory demand effective?

(b) is the defendant solvent?

(c) should the Court grant the defendant leave pursuant to s 459S(2) of the Corporations Act to oppose the winding up application on one or more grounds that the defendant could have relied upon in seeking to set aside the demand, but did not so rely? Further, is such a ground material to proving the Company is solvent?; and

(d) should the Court dismiss the plaintiff’s application under s 467(1)(a) of the Corporations Act as a matter of discretion?

DECISION

Service

In reviewing the legislation and legal principles the courtstated:

• under s 109X(1)(a) of the Corporations Act, aa statutory demand, may be served on a company by leaving it at, or posting it to, the company’s registered office [11].
•  section 29 of the Acts Interpretation Act 1901 (Cth) states relates to interpretation of “serve” and “give” documents:

(1) Where an Act authorises or requires any document to be served by post, whether the expression “serve” or the expression “give” or “send” or any other expression is used, then the service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.
(2) This section does not affect the operation of section 160 of the Evidence Act 1995.

•  Section 160 of the Evidence Act 2008 (Vic) relevantly provides:

(1) It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the seventh working day after having been posted [13].

the ‘deemed service limb’ is effected by the act of posting a statutory demand and accompanying affidavit by prepaid mail to a company’s registered office if the address on the envelope was the company’s registered office at the time when the letter was posted [14].  To establish service

• an applicant for a winding up order must prove the following matters either by way of direct evidence or by inference [15]:

(a) the envelope bore the correct name and address;

(b) the envelope enclosed the relevant document to be served;

(c) the correct cost of postage was used to send the envelope; and

(d) the envelope was placed in the post.

•  to negate the statutory presumption of service, a defendant company must adduce admissible evidence to establish non-delivery of the demand [16} and the court cited In the matter of Kornucopia Pty Ltd (No 1) (‘Kornucopia (No 1)’), [17], where Sifris J set out the evidentiary burden  in displacing the the presumption of service stating:
  • it is necessary to prove non-delivery of the statutory demand to the premises of the company’s registered office, or delivery to some address other than the registered office and if so proof of non-delivery is effective as proof of non-service 
  • ‘if there is no evidence of actual delivery or non-delivery, then the presumption will apply and the item will be deemed to be delivered in the ordinary course of post’
  • there is, implicit in the statutory regime, ‘an expectation that there will be in place at the registered office a system for the safe and secure reception of documents delivered by post
  • non-receipt of the statutory demands would not, therefore, have been a solid foundation upon which an inference of non-delivery could have been drawn.
  • proof of non-receipt at a place by its occupant, as distinct from non-receipt by a person who is not an occupant, may prove non-delivery
  • mere denial of non-receipt by the addressee does not suffice to prove ‘non-delivery’, evidence of non-receipt at a place by an appropriate occupant but, depending on the cogency of the evidence, it may  be sufficient to create a doubt for the purposes of s 160 of the Evidence Act. 

The court found that there was unequivocal evidence that the demand and affidavit in support were placed into an envelope addressed to the defendant at its registered office and posted in the ordinary course, and that the documents were not returned. The deponent was not cross-examined on these points [20].
The defendant submitted that it did not receive the statutory demand within the statutory periodand relied on the process the company used to process mail to support that contention [21].  The court noted that the deponent giving that evidence was unable to say whether or not the statutory demand was collected from the defendant’s mailbox and taken to the relevant office for sorting because he was not one of the employees  tasked with regularly checking the mailbox. And those other employees did not give evidence [22].  This was a telling mistake.  Nor was there any evidence as to whether the defendant’s usual process was adhered to during the relevant period [23].  Another error in preparation.  

His Honour concluded that the defendant failed to rebut the presumption that the demand was served at its registered office and posited as a more likely possibility that it was delivered to the registered office but not brought to the attention of the defendant’s officers who could have responded to it [24].   He found that the demand was delivered to the defendant’s registered office in the ordinary course of post by no later than 15 February 2021.  Accordingly the plaintiff is able to rely upon the statutory presumption of insolvency under in s 459C(2)(a) of the Corporations Act  [25].

Solvency

The court set out the legal principles regarding establishing solvency stating:

• Section 459C(2)(a) of the Corporations Act presumes a company to be insolvent if the company failed to comply with a statutory demand within the due time [27].
• the test for solvency, at  s 95A(1), is whether a company can pay its debts as and when they become due and payable [28].
• citing Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd, the  principles governing the assessment of solvency of a debtor company [29]:
  • In order to prove solvency the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent:
  • the following are not probative of solvency:
    • inaudited accounts
    • unverified claims of ownership or valuation
    • bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared
  • there is a distinction between solvency and a surplus of assets.  The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency
  • the cash flow test for solvency does not mean that the extent of the company’s assets is irrelevant to the inquiry.
  • credit resources available to the company must also be taken into account
  • the question of solvency must be assessed at the date of the hearing.
•  insolvency is determined from a consideration of the debtor’s financial position in its entirety and, ‘generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity’ [31].
•  in determining solvency, commercial realities will be relevant in assessing what resources are available to a company to source the income necessary to meet its liabilities [32].
•  whether a company is able to pay its debts as and when they fall due is ultimately a question of fact with the debtor having the onus of displacing the statutory presumption of insolvency and establishing solvency [33]. 

The defendant relied on affidavits of a certified practising accounting together with a solvency opinion by a registered auditor and and audited accounts [34]. The plaintiff accepted that the defendant’s audited accounts are admissible but  impeachable [39] and tested that evidence in detail [40] – [48].  The defendant ultimately successfully rebutted the statutory presumption of insolvency [52] and the winding up proceeding was dismissed.

Application under section 459S

Notwithstanding finding solvency his Honour considered the defendant’s interlocutory application for leave under s 459S of the Corporations Act.  He described s 459S of the Corporations Act as providing a ‘safety net’ tagainst the potentially harsh operation of the statutory demand regime [57].  The court stated that the discretion under the section should be exercised cautiously and sparingly.

 When considering a  s 459S  application his Honour stated that:

• it is often dealt with prior to the final hearing of the application to wind up the company in insolvency as a preliminary issue [58].
• citing Chief Commissioner Stamp Duties v Paliflex  the exercise to be undertaken was:

(i) a preliminary consideration of the defendant’s basis for disputing the debt which was the subject of the demand;
(ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party’s conduct at that time; and
(iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent.

•  an assessment of whether there is a serious question to be tried does not involve a final determination of the claim sought to be raised [62] which involves a preliminary consideration of whether the defendant has a seriously arguable case that the debt is the subject of a bona fide dispute or offsetting claim.
• as a general principle, s 459J of the Corporations Act should not be used to ventilate a dispute about the existence or amount of the debt claimed in a statutory demand [70].
• the Court is unable to grant leave under s 459S(2) unless it is satisfied that the ground is ‘material to proving that the company is solvent’. What is meant by ‘material’ in the context of s 459S(2) is not settled but the preferred approach by the Court is that  a ground will be material to proving a company is solvent if it has a capacity to have some influence or effect in proving a company is solvent. His Honour cited the High Court decision of  Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Recs and Mgrs Apptd) in support of that interpretation.

The court found that because the company was solvent irrespective of the debt it was unnecessary to consider the interpretation of ‘material’ [76]. Had the defendant failed to establish solvency under s 95A of the Corporations Act, his Honour would ultimately have granted  leave under s 459S to raise the grounds concerning the plaintiff’s debt. and the grant of leave carries with it an ‘implicit positive assessment’ of the prospects of a genuine dispute and offsetting claim being established [77].

 

Re Amville Constructions Pty Ltd [2022] VSC 65

In Re Amville Constructions Pty Ltd the basis for the application to set aside a statutory demand was whether there was a genuine dispute or an offsetting reason. There wasn’t.

FACTS

Amville, a registered builder, entered into a domestic building contract with Ms Shuxiang (Lily) Li (‘the building contract’) on or about 18 February 2020 to construct three two-storey units at 6 Grevillia Court, Glen Waverley, Victoria (‘the property’) [2]. 

During the construction various subcontractors were engaged. Following a dispute between Amville and an original bricklayer, on or about 10 May 2021, Amville placed an online advertisement on the ‘hipages’ platform seeking urgent bricklaying works, with the materials to be provided by Amville. The defendant responded to the advertisement that same day and received the plaintiff’s contact details via hipages. The defendant’s director, Mr Lee Skinder (“Skinder”), then called Mr Neville Duncanson (“Duncanson”), a director of Amville, to discuss the job. Skinder and Duncanson met at the property on 11 May 2021. What was said then is in contention. It is uncontentious that the defendant subsequently performed bricklaying work at the site [3].  The defendant rendered an invoice for the sum of $11,176 (inclusive of GST) On 20 May 2021 and emailed it to the plaintiff. Despite repeated communications sent by the defendant to the plaintiff  the invoice was not paid [4].

In June 2021, a dispute between Li and Amville resulted in Li purporting to terminate the building contract on 5 July 2021 [5]. On 15 September 2021, the defendant issued the statutory demand for the amount claimed in the invoice. The plaintiff commenced this application to set aside the demand on 6 October 2021 [6].

The court stated that during the course of the proceeding Amville changed the way in which it articulated the grounds in support of its application. It ultimately sought to set aside the statutory demand on the following alternative bases, [10]:

(a) there is a genuine dispute under s 459H(1)(a) of the Act about the existence of the debt the subject of the demand because Amville was not responsible for payment of the defendant’s invoice. Instead, it was the responsibility of the owner of the property, Ms Li, to make the payment;
(b) there is a genuine dispute about the parties to the relevant subcontract for the provision of the bricklaying at the property. It is said that any contract was between Amville and Mr Skinder but not the defendant itself;
(c) there is a genuine dispute about the amount claimed by the defendant in the statutory demand. The defendant has overcharged for work performed at the site and did not attend for the number of hours claimed on the relevant invoice. Further, the defendant is not entitled to payment in circumstances where the work is defective and incomplete;
(d) Amville has an offsetting claim against the defendant pursuant to s 459H(1)(b) of the Act in respect of the alleged defective and incomplete work;^[2] and
(e) the statutory demand should be set aside for ‘some other reason’ under s 459J(1)(b) of the Act because it was accompanied by a covering letter which also made an improper demand for payment of legal costs.^[3]

DECISION

The court stated that it must calculate the ‘substantiated amount’ of the demand in accordance with the formula prescribed in s 459H(2). Section 459H(3) provides that where the substantiated amount is less than the statutory minimum, the Court must set the demand aside [12].

His Honour set out the relevant principles applicable when determining whether there is a genuine dispute under s 459H(1) of the Actm stating, at [13]:

(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 raising 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.

Those principles apply equally where the basis is of an offsetting claim the following additional principles also apply, at [14] :

(a) a genuine offsetting claim ‘means a claim on a cause of action advanced in good faith, for an amount claimed in good faith’.^[14] In this context, ‘good faith’ means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful;
(b) there must be some evidence to indicate the nature of the offsetting claim and the way in which it is calculated, including any loss which is said to arise;
(c) however, it is not necessary to particularise the offsetting claim to the last ‘dollar and cent’.^[17] The evidence need only be sufficient for the Court to make an estimate of the amount of the offsetting claim,^[18] which must be capable of being quantified in monetary terms.

His Honour emphasised that while the hurdle for establishing a genuine dispute or genuine offsetting claim is a relatively low one, an applicant must nevertheless satisfy the Court that such a dispute or offsetting claim exists on the balance of probabilities [16].

Genuine Dispute

The plaintiff contended that Ms Li, as owner of the property, was liable to pay the debt claimed by the defendant [18].  His Honour was “unpersuaded by that argument” because:

• Amville’s evidence regarding the circumstances and terms of such an arrangement was:
  • equivocal,
  • lacking in precision; and
  • contradictory [19].
• Li gave unequivocal evidence that she never had a conversation where it was agreed she would be responsible for payment of the defendant’s invoice [20]. That prompted a further affidavit where it was deposed that there was now  a separate conversation with Li it was expressly agreed she would make payment to the defendant. The court wondered why this separate conversation with Li was not raised in an earlier affidavit. The court regarded this as an important omission which undermined the genuineness of the dispute [20].
• the contemporaneous written record simply did not support Amville’s contention that there is a genuine dispute about whether it was the plaintiff or Li who was to pay the defendant for its bricklaying works [23].
• Amville’s contention was “entirely at odds” with a series of text messages sent and received by the directors of Amville [24] – [28].
• evidence that Li had made payments to other tradespersons who worked on the project was inadmissible in proving the existence of any agreement under which she was responsible for paying the defendant [30].

Contracting party

Amville contended that the first time it became aware of the existence of the defendant was upon receipt of its invoice [31]. The Court acknowledged that a dispute about a contracting party or debtor/creditor relationship may constitute a genuine dispute for the purpose of s 459H(1) of the Act however the onus lies with the plaintiff in establishing the existence of a genuine dispute about the correct contracting party on the balance of probabilities [32]. In that regard the court regarded a genuine dispute about whether Amville’s contract was with the defendant or not was spurious and not plausible [33] becauseL

• the court regarded it  as entirely unremarkable that a tradesperson would operate through a corporate entity and be its public face.
• no one from Amville queried the contracting party at the time the defendant’s invoice was sentor at any time prior to the issuing of the statutory demand. This point was not taken in a letter sent by Amville’s solicitors to the defendant’s solicitors on 4 October 2021, following service of the statutory demand.
• the first time this issue  was  raised was in an affidavit sworn on 6 October 2021 [34].

Hours worked

Amville claim there is a genuine dispute about the amount claimed by the defendant in its statutory demand because the defendant has overcharged for work performed at the site and did not attend for the number of hours claimed.  The court found this submission wanting because :

• it was imprecise  and did not rise above mere assertion as there is no specification of which days were not worked for the full nine hours or what were the actual number of hours worked on those days.
• the defendant’s evidence was that Amville’s representative was only on site for no more than 20 minutes a day and even Amville’s affdiavit material conceded that the key deponent was only present for approximately one hour at a time [35].

Alleged defective and incomplete brickwork

The defendant asserted  a genuine dispute on the basis that:

• the work was defective and incomplete and that the works that were completed were defective [36].  It relies on a building inspection report commissioned by Li in the context of her dispute with the plaintiff which catalogues a litany of defective works  including defective brickwork on a front entry brick pier, defective brickwork flashing on top of windows, misaligned brick parapets, improper installation of sisalation of the brick veneer wall in the dining room of one unit, incorrect brickwork installation of a bedroom wall, ncomplete brick window sills and a failure to clean the brickwork of excess mortar. A schedule of the costs of rectification is in the sum of $11,375 [37]; and 
•  an invoice would only be rendered upon completion of the job.

The Court was less than impressed with this argument because:

• defective or incomplete brickwork was only specifically identified at the hearing of the matter and not in the affidavit material filed by the plaintiff.
• Amville  engaged other bricklayers to perform works at the property.There were at least three bricklayers engaged to perform works on the property 
• no attempt was made to to identify which defective or incomplete brickwork should be attributed to the defendant as opposed to the other bricklayers.
• there was no evidence to suggest that the plaintiff raised any concerns about the quality and extent of the work undertaken by the defendant prior to or following the issuing of its invoice or before service of the statutory demand.
• there is no evidence to suggest the plaintiff ever insisted on the defendant’s representatives attending the property to complete outstanding work prior to paying its outstanding invoice [38].

Notwithstanding those “obvious deficiencies” the court found that the  plaintiff has “belatedly, but barely, cleared the evidentiary hurdle ” in establishing the existence of a genuine dispute in respect of a portion of the alleged defective and incomplete brickwork. On that basis the court found there was a genuine dispute in relation to $3,080 of the amount claimed in the statutory demand being the cost of rectifying the parapets and 25% of the remaining $11,060 for rectification and completion of the brickwork. The Court varied the statutory demand for the purposes of ss 459H(2) and (5) to be $8,096 .

Setting aside for ‘some other reason’ under s 459J(1)(b)

The plaintiff contented that the statutory demand should be set aside  under s 459J(1)(b)  because it was accompanied by a covering letter which made an improper demand for payment of legal costs. The plaintiff submits that:

(a) demands for payment of legal costs should not be made unless there is a contractual right for those payments; and

(b) demands made without a contractual basis constitute a breach of rule 34 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 which stipulates that a lawyer must not in any communication mislead another person or make any statement which grossly exceeds the legitimate exertion of their client’s rights.

The Court accepted the defendant’s submission that the plaintiff is prevented from raising this ground because it was not identified expressly, or by reasonable inference, in the s 459G affidavit filed in support of the application within the statutory period,

The result was that the statutory demand was varied by substituting the sum of $8,096 for the sum of $11,176.

Re Wynyard Victoria Pty Ltd [2022] VSC 81

In Re Wynyard Victoria Pty Ltd [2022] VSC 81 Associate Justice Gardiner set aside a statutory demand 

FACTS

The basis for the application was a loan by Mr Rentoul (“Rentoul”), who was also a 50% shareholder in the plaintiff, to the plaintiff [4].   Ms Tate (“Tate”) held] the other 50% of the issued shares in the plaintiff.  The plaintiff  operates a café and a restaurant in South Melbourne [14].

The terms of the advance were not the subject of written formal documentation. There were disparities in the evidence between the plaintiff’s and Rentoul’s accounts of the events giving rise to the transaction the subject of the demand [5].

Rentoul issued and served a statutory demand (the ‘demand’) on the plaintiff on 10 March 2021 pursuant to s 459G of the Corporations Act (2001) Cth (the ‘Act’). The statutory demand claimed that the plaintiff is indebted to Rentoul for $72,694.34. The debt was described in the schedule to the demand as , at [2]:

The company defaulted on the payments under a loan agreement dated 1 February 2019 to pay the Creditor as set out in the attached affidavit of Steven Kenneth Rentoul pursuant to a loan agreement dated 1 February 2019.

By originating process filed on 30 March 2021, the plaintiff applied to set aside the demand under ss 459H, 459J(1)(a) and 459J(1)(b) of the Act.  The specific bases,  described in Tate’s affidavit, at [12], was:

(a) the debt claimed in the demand was not due and payable at the date of service of the demand;

(b) the demand should be set aside by reason that Wynyard would suffer substantial injustice by way of being put under improper pressure to pay monies which were not due; and

(c) the alleged debt is not due and payable and the demand should therefore not be regarded as a statutory demand.

 Tate stated that:

• between August 2018 and February 2019  Rentoul advanced the plaintiff a total of $85,000 in three separate electronic funds transfers of:

(i) on 27 August 2018, $15,000;
(ii) on 13 December 2018, $20,000; and
(iii) on 13 February 2019, $50,000.

• on or around 1 February 2019, she and Rentoul verbally agreed that the first and second advances along with the third advance (which was yet to be made) should be a loan by Rentoul to the plaintiff.  There were no terms and conditions as to repayment.  That would be finalised at a later date.
• there was no agreement in writing executed by the parties nor any discussion concerning the consequences of any default in repayment.
• the loan agreement did not come into existence on 1 February 2019.
• on 9 May 2019 Rentoul emailed Tate a loan repayment schedule which provided for payments across 36 months, with interest payable of ‘about 6.15%’. On or around the same date and during a discussion conducted at the restaurant, she and Rentoul orally agreed that, rather than making monthly repayments the plaintiff would instead make a daily payment of $87 inclusive of applicable interest over a 36-month period with the commencement of payments conditional upon the business ‘establishing consistently well (sic) income from a decent level of evening trade’  No other terms were discussed or agreed.
• the loan agreement was entered into on or around 9 May 2019.
• the obligation to make payments only commenced on 11 July 2019 when the repayment conditions were satisfied and the loan was obliged to be fully repaid by 11 July 2022.
• she maintained a schedule which recorded the payments made , the running balance and the sum outstanding as at 24 March 2020 as being $66,273.30 [18].
• that between 11 July 2019 and 24 March 2020, repayments of $22,011, comprised of 253 daily payments, were made .
• on or about 25 March 2020 she discussed the implications of COVID with Rentoul &:
  • he  offered, and, on the same day transferred, a further $8,500 to the plaintiff’s bank account. While the transfer would be a loan there was no discussion as to whether it was to form part of the original loan advance or whether it constituted a separate arrangement.
  • was adamant that the plaintiff  cease all regular payments from the business
  • it was not discussed whether interest would continue to accrue on the principal loan while repayments were suspended [19].
• with Rentoul agreeing on 25 March 2020 that payments should be suspended, the requirement to make any further repayments was deferred and has not yet recommenced [20].
• since 25 March 2020, she and Rentoul have not discussed, nor has she received correspondence from Rentoul proposing that repayments  be resumed, amending the agreement or regarding a notice of default or termination of the loan arrangement [21].
• in or around January 2021 she proposed a meeting with Rentoul to discuss the loan and the date for the resumption of the repayments with him however no such discussion took place.
• as the obligation to make repayments was suspended and not resumed, that there is no debt that has fallen due for payment to  Rentoul.
• as the debt was ‘contingent and/or prospective’ there was no contingency upon which the loan advance would be repayable [22].
• it was not a term of the loan that Rentoul could require immediate repayment of any outstanding amount at his discretion [23].
• the amount demanded clearly exceeds the actual balance due and payable which is a defect that will cause substantial injustice  [23].
• the demand does not attach any schedule which details the calculation of the balance claimed and that the composition of the alleged debt is not particularised.
• it was only after the advances of August and December 2018 and February 2019 that the total sum of the loan reached $85,000 and the loaned amounts were made over a period of several months [42]
• she was only made aware that Rentoul was drawing on a line of credit at around the time he made the third advance in February 2019 [44].
• she was never presented with the February Repayment Schedule [45].
• there was no loan agreement in existence as of 1 February 2019, as the plaintiff and Rentoul had not agreed on any key terms [48];
• the plaintiff did not started making repayments on 11 July 2019 because Rentoul had complained about its failure to make repayments of the loan [49].
• except for the demand, she has not received any written or verbal demand for repayments to commence or requiring repayment of any principal sum under the loan [49]
• the first repayment was made because that was when the plaintiff’s turnover was of such a level as to activate the Repayment Commencement Condition [49].

As a result of the above Tate states, at [25], that the amount claimed in the demand does not reflect:

(a) what was agreed with Mr Rentoul regarding suspension of repayments;

(b) the outstanding principal sum under the loan as at the date of the demand of which she contends to be $66,273.30;

(c) the aggregate of daily repayments of $87 which would have otherwise been due had she and Mr Rentoul not agreed to suspending repayments between the date that repayments were allegedly suspended on 25 March 2020 and the date of the demand, 10 March 2021 (inclusive), $30,537; or

(d) the interest that would have accrued on the outstanding principal sum during the period when payments were suspended until the date of the demand.

Needless to say Rentoul’s evidence varied markedly as he states:

• the demand relates to a loan at the request of Tate in August 2018 [26] where he indicated that he could only the advance by way of loan as the source of the funds was Rentoul’s wife’s credit facility with Bank of Queensland [28].
•  he could only advance the funds if he was paid the interest which was accruing on that facility to enable repayments to be made to service the facility [28].
• Tate agreed to this and that on that basis he agreed to lend the plaintiff $85,000 [28].
• while the February Repayment Schedule does not bear a date it mentions a start date of 1 February 2019. It identifies monthly dates for payment, a running balance and other amounts including interest accruing on the amount outstanding [30] with.
  • the first instalment was due on 1 July 2019 and consisted of a payment of $1,827, comprised of $444.62 interest and an appropriation of $1,382.38 towards repayment of the principal.
  • a payment of $2,610 per month until the final payment of 1 July 2022, when a payment of $2,335.40 was required to discharge the loan [30]
• in or around May 2019, when he had a discussion with  Tate concerning the plaintiff’s failure to make repayments Tate proposed that he accept payment of the sum of $87 a day, equating to 6.15% per annum principal and interest.  It would be easier for the plaintiff to make a daily payment to ensure that the loan was repaid on time. Rentoul states that he agreed to this and sent her an email with the May Repayment Schedule.
• the May Repayment Schedule notes a loan of $85,000, a monthly interest rate of 0.51% (which approximates the 6.15% annual interest mentioned in the February Repayment Schedule) and a loan period of three years with 12 payments per year of $2,591.65 [32].
• there was never any discussion to the effect that the plaintiff would only repay the daily loan repayment upon achievement of the business ‘establishing consistently well (sic) income from a decent level of evening trade’ [34].
• he disputes Ms Tate’s evidence that no other terms were discussed or agreed between himself and plaintiff.  He said he made it clear to Tate that the funds loaned came from his wife’s line of credit with Bank of Queensland and were required to be promptly repaid in order to avoid paying interest on that facility.
• Tate only began repayments on 11 July 2019 because he had raised the failure to make repayments with her following their meeting in May [35].
• he never had a discussion with Tate to the effect that the repayments should be suspended as  the COVID-19 lockdown period when the plaintiff did not trade was not significant and the plaintiff continued to trade on a take-away basis, with the assistance of his wife working at no cost in the month of July 2019 [36].
• he raised the issue of repayment of the loan on a number of occasions with Tate’s response that she would need to make enquiries with the plaintiff’s bookkeeper [37].
• there was no meeting arranged by Tate in January 2021 to discuss the loan and the resumption of repayment of the loan [38].
• the amount due and payable by the plaintiff as at the date of the demand was correct, that the loan has been in default for some time and his wife’s Bank of Queensland account has been incurring interest [39].

DECISION

The Court acknowledged that the principles relating to  a genuine dispute are well settled and cited and quoted from  Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)  and Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd^[ stating:

•  in establishing 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 [6].
• it is not necessary for the applicant to advance a fully evidenced claim [6].
• 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. [6]
• 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 criterion of a ‘genuine’ dispute requires that the dispute:
  • be bona fide and truly exist in fact;
  • that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived;
  • 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.
  • accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence
  • except in such extreme cases, 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 [6].
• an applicant will fail in establishing a genuine dispute if the contentions are so devoid of substance that no further investigation is warranted.
• the court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger [7].
• the threshold for establishing a genuine dispute or offsetting claim is a low one and by no means difficult or demanding
• when applying to set aside a statutory demand the task confronting a company of establishing the ‘genuineness of a dispute or offsetting claim is no more onerous than that which it would confront if it were seeking to meet an application brought by the creditor for summary judgment’.
• even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow [9].

The Plaintiff submits that the disputed issues giving rise to a genuine dispute include:

(a) commencement date of the loan agreement;

(b) terms of loan agreement, particularly including consequences of default;

(c) whether the alleged debt was due and payable at the date of the demand;

(d) the quantum of the debt; and

(e) whether the parties agreed to suspend the requirement to make further repayments on 25 March 2020.

Rentoul contended that:

• the loan was repayable on demand and that to the exten that the plaintiff contended that the position was subsequently varied was not sustainable as there was no consideration moving to Rentoul [64]. 
• the loan agreement was formed on 1 February 2019 [65]

His Honour found that  while Rentoul’s submissions had much force, particularly in regard to the legal issues relating to consideration in support plaintiff’s contention it’s position was  arguable with factual and legal questions warranting further investigation in a conventional inter partes proceeding [53] relevantly stating:

• evidence of the parties is most unclear in relation to the nature of the agreement. Rentoul contends that the advance was a loan simpliciter payable on demand but then  contends that the terms of the loan were for repayment by instalments over three years [66].  Between July 2019 and March 2020 253 repayments were made by the plaintiff which Rentoul accepted without demur. Those payments were consistent with an agreement to pay by instalments [67].
• variance in the factual positions contended for by the parties are not capable of resolution in an application of this character [68].
• the plaintiff had a plausible basis for contending that as of May 2019, it had an agreement that it could repay the advance over three years with the final instalment being due in 2022 [70]

The Court considered that it is plausibly arguable, at the time the statutory demand was issued on 10 March 2021, that with reference to the repayment schedules, the loan was not one repayable on demand [71] and that the factual scenario was so unclear that the subject transaction should be the subject of a conventional inter partes trial.  Accordingly the court found there was a genuine dispute in respect of the debt claimed in the demand [73].

ISSUES

While none of these decisions advanced any proposition of law they each conducted a thorough analysis of different issues arising from applications to set aside statutory demands. 

In  Re Slodyczka & Farren Pty Ltd  shows the challenges of rebutting the presumption of service.  The applicant’s task was always a difficult one but could have been made easier had relied on the evidence of those directly involved in the collection of mail.  It is also a useful decision in setting out the process by which a court will consider solvency in rebutting a presumption fo insolvency.  The Court also reviewed the operation of the uncommonly used section 459S of the At.  

 Re Amville Constructions Pty Ltd  provides useful guidance on what not to do in bringing an application.  There were always going to be significant factual problems in alleging that the builder was not the contracting party with a sub contractor. That was made worse by the Court was not impressed by the mass of material filed which was of no relevance. The court was not overly impressed by the approach taken by the plaintiff.   Inconsistent evidence and critical evidence relating to an agreement being in later affidavits when it should have filed initially did not improve matters.  Nor general and imprecise complaints about hours worked and defective works.  Making many and varied complaints about work done, hours worked and general performance does not necessarily improve the quality of an application.  It can highlight the weaknesses.  Making the intitial affidavit as comprehensive and internally consistent as possible is critically important.   It was not suprising that the application was dismissed.

Re Wynyard Victoria Pty Ltd  is good example where the facts and the law are such that there is a basis for a genuine dispute.  The court may have concerns as to the strength of the plaintiff’s arguments however the facts made it clear that the terms of the agreement were not settlement, some of the actions of Rentoul were such as to be consistent with the plaintiff’s claim.   

What is clear from each of the matters is that significant effort and logical analysis should go into drafting affiavits at the outset.  That includes making sure the right persons are filing the affidavits.  People who are as close as possible to the facts the subject of the affidavit. Avoiding internal inconsistencies seems an obvious point to make but one that was lacking in Amville.