In recent decisions of Sportsco Pty Ltd v Singh Group Pty Ltd (No 2) [2011] VSC 576 (per Ferguson J) and BKW Investments Pty Ltd v Training Connect Limited [2011] FCA 1314 (per Cowdroy J) the courts considered applications to set aside statutory demands. In Sportsco the court, hearing an appeal from an Associate Justice, refused to set aside the application.  In BKW the court set aside the application.

Sportsco Pty Ltd v Singh Group Pty Ltd (No 2)

Facts

The underlying dispute related to the purchase of a franchise business.  Singh, the purchaser, submitted that the statutory demand on Sportsco for $70,500 was a refundable deposit under the franchise agreement. Sportsco, the vendor, applied to set aside the demand claiming there was a genuine dispute concerning the debt and that it had an offsetting claim.  Singh alleged there was an agreement that the money was refundable if it was unable to obtain finance for the franchise business.  Singh did not obtain finance.  While Singh was provided with an  an offer to lease premises from which the franchise would operate it was never executed by Singh.  Sportsco claimed there was a dispute as to what constituted the agreement and whether the agreement was subject to finance. It also claimed Singh was liable to pay a franchise royalty fee of five years as a consequence of the breach and was liable for damages of approximately $300,000.

Decision

Ferguson J referred to TR administration proprietor Ltd V Frank marketing and Sales Brochure Ltd as support forthe proposition that Read the rest of this entry »

In Australian Securities and Investments Commission v Healey Middleton J found against the directors of Centro Properties Limited.  It is a very long and detailed decision which provides an excellent summary of the obligations of directors.

Facts

ASIC alleged that the approval of the consolidated financial accounts of Centro Property Limited. Centro Property Trust and Centro Retail Trust for the financial year ending 30 June 2007 contravened sections 180(1), 344(1) and 601FD(3) of the Corporations Act 2001. Those contraventions included failing to disclose $1.5billion of short term liabilities of Centro Property and $500 million of Centro Retail by classifying them as non current liabilities and failing to disclose guarantees of short term liabilities of an associated company of about US $1.75 billion that had been given after the balance date (see [24] for a detailed summary of the issues).  Middleton J found that those matters were well known to the directors or, if not well known to them, should have been [11] & [23].

Middleton J found, at [8], the directors failed “..to take all reasonable steps required of them, and acted in the performance of their duties as directors without exercising the degree of care and diligence the law requires of them.”  His consideration of the facts with respect to each director is found at ([289] – [532]).  It is too extensive to comment upon here.  The focus of this post is on the legal principles enunciated by Middleton J.

Decision

Middleton J highlighted the consequences of the breaches and why they are significant when he said, at [10]:

This proceeding is not about a mere technical oversight. The information not disclosed was a matter of significance to the assessment of the risks facing CNP and CER. Giving that information to shareholders and, for a listed company, the market, is one of the fundamental purposes of the requirements of the Act that financial statements and reports must be prepared and published. The importance of the financial statements is one of the fundamental reasons why the directors are required to approve them and resolve that they give a true and fair view.

Principles

Middleton j restated the obligations and responsibilities of a director as: Read the rest of this entry »

Two decisions of the Supreme Court last week, provide a very detailed and useful analysis regarding applications to set aside a subpoena and a summonses.  In Burchell & Anor v Hill & Ors a non party sought to set aside a subpoena issued under Rule 42A.01.    In Re Bill Express Limited (in liq) , the applicant, appealing from a decision of Gardiner AsJ,  sought to set aside a liquidator’s summons for production.

Burchell & Anor v Hill & Ors

Facts

The plaintiff issued a subpoena to the National Australia Bank Limited, a non party. The NAB objected to Read the rest of this entry »

Yesterday’s Federal Court decision in Grant Thornton Services (NSW) Pty Limited v St. George Wholesale Distributors Pty Ltd (No 2) throws up both a curious factual situation but the relatively little considered section 459(S) of the Corporations Act 2001. It is also a salient and sombre lesson in how to run an application.

Facts

Grant Thornton Services (NSW) Pty Ltd (“Grant Thornton”) provides accounting services.  It provided those services to the “Paul’s Warehouse” group of companies.  St George Wholesale Distributors Pty Ltd (St George) is part of that group but unlike other companies in that group it had net asssets.  Grant Thornton issued invoices on St George totalling $91,305.50. When the invoices were not paid Grant Thornton issued a statutory demand.  St George neither paid the sum nor applied to set aside the demand.  When St George found itself the subject of winding up application it roused itself to apply for leave to oppose the application on the basis that there was a genuine dispute. Leave is required because, per section 459 (S), St George could have earlier applied to set aside the statutory demand because there was a genuine dispute.

The issues

Section 459(s) (pars [7]  – [10])

To get leave section 459(s) requires that a court is satisfied that the ground is material to proving that a company is solvent.