Re Australian Builders Group Pty Ltd [2022] VSC 254 (20 May 2022): statutory demand, s 459G, application to set aside, genuine dispute about existence and/or amount of debt & whether due and payable because condition precedent in deed not met,validity of notice, principles of economic duress

May 23, 2022

In Re Australian Builders Group Pty Ltd [2022] VSC 254 the Supreme Court, per Hetyey AsJ, set aside a statutory demand based on a genuine dispute based on the construction of an agreement and default notice but also by a claim of duress.

FACTS

On or around 1 June 2017 Mind, a not-for-profit organisation providing community-managed specialist mental health services entered into an agreement with Australian Win Win Investment Pty Ltd (‘the landlord’) to lease a property located at 691 High Street, Thornbury, Victoria (‘the property’ and ‘the lease’ respectively) for an amount of $130,000 per annum (approximately $10,833.33 per calendar month) [1].

In early May 2018, Mind and ABG entered into a sublease agreement for the property (‘the sublease’). The parties to the sublease agreed that ABG would pay a reduced amount of rent of $121,000 per annum (approximately $10,083.33 per calendar month) [2].

From February 2019, ABG began to fall into arrears & by 15 April 2021, it owed Mind approximately eight months’ rent, totalling $82,279.92 (‘the arrears’). Pursuant to a repayment deed, ABG agreed to make regular payments of the arrears of $2,500 plus GST, together with interest, per week.

Regarding the repayment Read the rest of this entry »

CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd, in the matter of CBS Commercial Canberra Pty Ltd [2022] FCA 544 (12 May 2022): application to set aside statutory demand, offsetting claim,

May 15, 2022

The Federal Court, per Halley J, set aside a statutory demand in CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd, in the matter of CBS Commercial Canberra Pty Ltd [2022] FCA 544 in finding that an offsetting claim constitutes a genuine dispute. It is a very good decision setting out the complications of offsetting claims arising from building contracts relied upon in setting aside a statutory demand which is based on a certificate and judgment obtained under the Security of Payments Act.

FACTS

CBS engaged Axis as a sub-contractor to undertake work at a building site located in Gungahlin in the Australian Capital Territory [12].

The chronological events Read the rest of this entry »

Bioaction Pty Ltd v Ogborne, in the matter of Bioaction Pty Ltd [2022] FCA 436 (26 April 2022): 459G of the Corporations Act 2001, whether service within 21 days

April 27, 2022

In Bioaction Pty Ltd v Ogborne, in the matter of Bioaction Pty Ltd [2022] FCA 436 the Federal Court considered, for the first time by the courts, the deeming provisions of sections 105A and 105B of the Corporations Act regarding service applications to set aside a statutory demand within the 21 day time limit,.  

FACTS

By originating process filed on 3 February 2022, the plaintiff, Bioaction Pty Ltd, sought an order setting aside a statutory demand pursuant to s 459G of the Corporations Act dated 12 January 2022 served by the defendant, Gordon Ogborne (“Ogborne”) [5].

Bioaction  specialises in the design, manufacturing and installation of systems to eliminate or mitigate odorous, hazardous and corrosive gases & Ogborne was its Chief Financial Officer / Chief Operating Officer from December 2019 until November 2021, when he was made redundant [7].

Ogborne and Bioaction were in dispute as to his entitlements where Ogborne claimed he was entitled to any additional sum [8].

On 13 January 2022, Ogborne served the statutory demand on Bioaction seeking payment of $240,688.31 being unpaid:

  • salary,
  • superannuation,
  • salary in lieu of termination,
  • annual leave and
  • redundancy

pursuant to an employment contract [9].

The statutory demand was Read the rest of this entry »

Re Slodyczka & Farren Pty Ltd (Costs) [2022] VSC 102 (4 March 2022): application for costs by the defendant; where presumption of insolvency rebutted, multiple defences relied upon

March 9, 2022

The postscript to Re Slodyczka & Farren Pty Ltd [2022] VSC 102 is a decision by Associate Justice Hetyey regarding costs of the application. 

FACTS

in the substantive judgment  the plaintiff’s application to wind up the defendant in insolvency was dismissed.

The relevant facts for the purpose of considering a costs order were:

  • whilst the matter was commenced by originating process filed on 11 April 2021, there were delays and adjournments [2] resulted in two previous costs orders being made being:
    • on 7 July 2021, consent orders were made which, among other things, required the plaintiff to pay the defendant’s costs thrown away by reason of an adjournment of the hearing originally scheduled that day (‘the first costs order’).
    • at the next hearing date, on 27 July 2021, it was adjourned at the request of the defendant to enable it to put on supplementary material on the question of solvency, including audited accounts for the 2019/2020 and 2020/2021 financial years. The plaintiff’s costs of the hearing be reserved (‘the second costs order’).

The defendant opposed the winding up application on the following alternative bases [4]:

(a) service of the plaintiff’s statutory demand dated 3 February 2021 (‘the statutory demand or the demand’) was defective;

(b) the defendant was solvent and could displace the statutory presumption of insolvency;

(c) the defendant should be given leave pursuant to s 459S of the Corporations Act2001 (Cth) (‘theCorporations Act’) to oppose the winding up application on a ground or grounds it could have relied on for the purpose of an application to set the demand aside. The grounds sought to be raised were: (i) there was a genuine dispute about the amount of the debt claimed in the statutory demand in accordance with s 459H(1)(a); (ii) the defendant had an offsetting claim for the purpose of s 459H(1)(b) of the Corporations Act; and (iii) the demand was defective and a substantial injustice would be caused to the defendant if the demand was not set aside pursuant to s 459J(1)(a) of the Corporations Act; and

(d) pursuant to s 467(1)(a) of the Corporations Act, the Court should dismiss the plaintiff’s application as a matter of discretion.

In the substantive judgment the court held that, [5]:

  • the defendant failed to rebut the presumption of service of the statutory demand under s 29(1) of the Acts Interpretation Act 1901 (Cth).
  • the defendant succeeded in displacing the statutory presumption of insolvency on the basis that it was cash flow positive and balance sheet solvent. The proceeding was dismissed on this basis.
  • the defendant’s application under s 459S of the Corporations Act was not granted because the grounds sought to be raised in respect of the plaintiff’s debt were not material to proving solvency however  had the defendant failed to establish solvency the corut would haveultimately have granted it leave
  • the defendant could not to pursue its argument that the Court should dismiss the plaintiff’s application in accordance with the Court’s discretion under s 467(1)(a) of the Corporations Act because of a lack of proper notice to the plaintiff Read the rest of this entry »

Treasurer outlines proposed changes to insolvency laws

September 24, 2020

Yesterday and first thing this morning the media was abuzz, with coverage from the Guardian,  the Sydney Morning Herald, the ABC and the Financial Review (amongst many other news outlets) with news of proposed changes to the insolvency laws as embargoed releases were provided to them last night.

The Treasurer revealed the proposed changes to the insolvency laws.  That will significantly affect  professionals who practice insolvency law such as myself.

The Treasurers’ media release relevantly provides:

The Morrison Government will undertake the most significant reforms to Australia’s insolvency framework in 30 years as part of our economic recovery plan to keep businesses in business and Australians in jobs.

The reforms, which draw on key features from Chapter 11 of the Bankruptcy Code in the United States, will help more small businesses restructure and survive the economic impact of COVID-19. As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner.

Key elements of the reforms include:

    • The introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on some key features of the Chapter 11 bankruptcy model in the United States.
    • Moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model which will allow eligible small businesses to restructure their existing debts while remaining in control of their business.
    • A rapid twenty business day period for the development of a restructuring plan by a small business restructuring practitioner, followed by fifteen business days for creditors to vote on the plan.
    • A new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.
    • Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to meet the needs of small business.

The reforms will cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom who have less than 20 employees.

Together, these measures will reposition our insolvency system to reduce costs for small businesses, reduce the time they spend during the insolvency process, ensure greater economic dynamism, and ultimately help more small businesses get to the other side of the crisis.

On 22 March 2020, the Government announced temporary regulatory measures to help financially distressed businesses get to the other side of COVID-19. On 7 September 2020 the Government announced a further extension of this relief to 31 December 2020.  The new processes will be available for small businesses from 1 January 2021.

The 10 page fact sheet is found here and Read the rest of this entry »

Commonwealth extends trading while insolvent protections

September 9, 2020

The Attorney General announced yesterday that the Commonwealth Government will extend the insolvency and bankruptcy protections previously enacted in relation to:

  • trading while insolvent
  • increasing the threshold at which creditors can issue a statutory demand and the time for responding to a statutory demand.

The protections will extend until 31 December 2020.

The Attorney General’s media release provides:

The Morrison Government will continue to provide regulatory relief for businesses that have been impacted by the Coronavirus crisis by extending temporary insolvency and bankruptcy protections until 31 December 2020.

Regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

These measures were part of more than 80 temporary regulatory changes the Government made designed to provide greater flexibility for businesses and individuals to operate during the coronavirus crisis.

The extension of these measures will lessen the threat of actions that could unnecessarily push businesses into insolvency and external administration at a time when they continue to be impacted by health restrictions.

These changes will help to prevent a further wave of failures before businesses have had the opportunity to recover.

In addition, the Government is providing an unprecedented level of support totalling $314 billion to cushion the blow for workers, households and businesses during the coronavirus crisis.

As the economy starts to recover, it will be critical that distressed businesses have the necessary flexibility to restructure or to wind down their operations in an orderly manner.

The Government will continue to help businesses successfully adapt and restructure so that they can bounce back on the other side of this crisis.

As the Age reports in ‘More harm than good’: Businesses get reprieve but thousands still set to fail on the the changes, importantly that the extensions may actually harm rather than benefit Read the rest of this entry »

Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841 (16 June 2020): s 477(2B) Corporations Act 2001 application, approval for liquidator to retain solicitor who act for creditor of the company in liquidation

July 16, 2020

In Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841 White considered the relevant principles in considering an application under section 477(2B) of the Corporations Act 2001.

FACTS

Between August 2009 and November 2017, ABCL had supplied concrete to Concrete Supply [5].

In October 2017, ABCL discovered that it had been underpaid about $12 million by Concrete Supply.  The underpayment was disguised by false entries made by one of its employees.  ABCL sought payment of the shortfall from Concrete Supply. On 14 November 2017, the directors of Concrete Supply resolved that it was, or was likely to become, insolvent and appointed Messrs Cooper and Cantone at Worrells as administrators. On 19 December 2017, the creditors of Concrete Supply resolved that it enter into a Deed of Company Arrangement (” DOCA”) [5].

ABCL opposed the Read the rest of this entry »

Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 (15 May 2020); deed of company arrangement, Corporations Act sections 588FA and 588FE, voidable transactions

June 11, 2020

In Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 Middleton J considered the operation of the sub sectin 588FE(2B) involving the voidable transactions and whether payments were made under the administrator of a deed of company arrangement.

FACTS

On 29 October 2013, Mr Yeo and Mr Rambaldi were appointed as joint and several administrators of Ready Kit Cabinets Pty Ltd (in liq) (” the Company”) [8].

The DCT  commenced proceedings seeking to wind up the Company before the appointment of  Yeo and Rambaldi as voluntary administrators [9].  The first meeting of the Company’s creditors was convened and held on 7 November 2013 [10].  On 14 November 2013,  Yeo and Rambaldi issued a circular to creditors in which they advised that the second meeting of the Company’s creditors would be held on 22 November 2013. Yeo and Rambaldi provided creditors with a copy of a s 439A report with the circular [11].  At the second meeting of creditors  a resolution was passed that the Company should execute a deed of company arrangement [12].

On or about 11 December 2013, the DOCA was executed by:

  • each of the Company (by its then administrators,  Yeo and Rambaldi),
  •  Yeo and Rambaldi as deed administrators, and
  • the Director [13].

His Honour identified key provisions of the DOCA as:

  • Recital H. [14], that:

This Deed binds all Creditors of [the Company] pursuant to Section 444D of the Corporations Act and [the Company], all officers and members of [the Company], and the Administrators pursuant to Section 444G of the Corporations Act.

  •  management and control of the Company’s day-to-day business affairs were returned to the Director;
  • a fund was established and controlled by the Deed Administrators which constituted the whole of the property available for distribution to participating creditors [15];
  • the Company and Director made certain covenants and undertakings, including in respect of the Company’s compliance with its taxation obligations [15]; and
  •  upon default of the DOCA by the Company or the Director, the Deed Administrators were to convene a meeting of creditors to determine whether to terminate the DOCA and wind up the Company [15].

Between 11 December 2013 and 5 July 2017, the Company was returned to the management and control of the Director and continued to trade [16]. During this time the Company incurred fresh liabilities Read the rest of this entry »

A’la Carte Homes Pty Ltd v AAPD CO P/L [2019] VSC 108 (5 March 2019): application to set aside, section 459J Corporations Act

March 13, 2019

In A’la Carte Homes Pty Ltd v AAPD CO P/L [2019] VSC 108 the Supreme Court, per Randall AsJ, set aside a statutory demand. The key issue was the failure of the assignment of a debt being described in the statutory demand or accompanying affidavit.

FACTS

The application was made under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth). The orders sought were Read the rest of this entry »

C Tina Pty Ltd v Warners Electroplating Pty Ltd [2019] VSC 66 (18 February 2019): Application to set aside statutory demand, s 459G Corporations Act 2001

February 21, 2019

In C Tina Pty Ltd v Warners Electroplating Pty Ltd [2019] VSC 66 Associate Justice Gardiner set aside a statutory demand.

FACTS

On 1 October 2018, the defendant (‘Warners’) served on the plaintiff (‘C Tina’):

  • a creditors statutory demand for payment of debt; and
  • an affidavit in support sworn by Grant Warner on 26 September 2018 [1].

The Demand related to two invoices totalling $166,332.10 for work and labour done and materials supplied [2].

On 19 October 2018, C Tina made application by originating process to set aside the Demand [3].

The application is based on the ground that C Tina has a genuine dispute in relation to the debt in that it never contracted with Warners and that Read the rest of this entry »