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 two recent decisions the Victorian Supreme Court considered the issue of what is meant by genuine dispute for the purposes of setting aside a statutory demand under section 459G(1) of the Corporations Act with the Court in  Freestyle Energy Limited v Renewtek Pty Ltd finding there was a genuine dispute while in  Re LPD Corporation Pty Ltd the Court refused to set aside a statutory demand.  In the third decision, Renegade Rigging Pty Ltd v Hanlon Nominees Py Ltd, the Court considered the service of statutory demands.  These decisions which will be of use to practitioners who practice insolvency law.

LPD Corporation

In determining whether there was a genuine dispute Davies J set out the relevant principles:

1. any dispute must be a genuine dispute [3] and one which is bona fide and 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.

The Federal Court decision in  Lodge Partners Pty Ltd v Pegum is a salutory lesson that while the threshold for determining whether there is a genuine dispute is low where the facts are essentially agreed and the main dispute  is the construction of a contract a court can and does make that call. In this proceeding that construction was against the applicant and the statutory demand was not set aside. On his way to that conclusion Lingren J provided a very useful analysis.

Issues  

The focus here was on what constitutes a genuine dispute.  Lingren dealt with that in a two stage process. At [17] he quickly reviewed the authorities and distilled the principle that no “genuine dispute” exists where  the contentions by the applicant is devoid of substance such that “no further investigation is warranted.”  He said: Read the rest of this entry »