A G Coombs Pty Ltd v M & v Consultants Pty Ltd (in liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2018 00136

A G COOMBS PTY LTD (ACN 005 653 332)	First Plaintiff
- and -
A G COOMBS (NSW) PTY LTD (ACN 134 239 768)
Second Plaintiff
v
M & V CONSULTANTS PTY LTD (ACN 079 957 387 (IN LIQUIDATION)	Defendant

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JUDGE:	SLOSS J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 August 2018
DATE OF JUDGMENT:	22 August 2018
CASE MAY BE CITED AS:	A G Coombs Pty Ltd v M & V Consultants Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 468

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CORPORATIONS – Failure to comply with a statutory demand – Presumption of insolvency enlivened – Part 5.4 of the Corporations Act 2001 (Cth) – Plaintiffs contend they are ‘unquestionably solvent’ and that threatened winding up applications would plainly fail – Injunction sought to restrain creditor making any application for winding up.

EQUITY – Interlocutory injunction – Allegation of abuse of process in the technical sense described in Williams v Spautz (1992) 174 CLR 509 and under the ‘second branch’ of Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation (Cth) [1978] VR 83 – Whether ‘second branch’ remains available in light of ASIC v Lanepoint Enterprises Pty Ltd (receivers and managers appointed) (2011) 244 CLR 1 – Whether prima facie case of abuse of process made out.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr G Bigmore QC with Mr B Devanny of counsel	HFW Australia
For the Defendant	Mr P Fary of counsel	Madgwicks Lawyers

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

The plaintiffs’ case........................................................................................................................ 5
The defendant’s response............................................................................................................ 8
The evidence as to the solvency of the plaintiff companies................................................. 13

Part 5.4 regime – limited scope for restraining alleged ‘abuse of process’............................ 17

Jurisdiction to grant injunctive relief........................................................................................... 20

The plaintiffs’ submissions............................................................................................................ 21

A prima facie case exists............................................................................................................... 21
The balance of convenience....................................................................................................... 22
History of the dispute....................................................................................................... 22
The plaintiffs contend that the balance of convenience favours granting an injunction 24
The plaintiffs contend that an application under s 459P is likely to result in irreparable damage to each of them....................................................................................................... 25
The plaintiffs contend that damages would be an inadequate remedy................... 26

The defendant’s submissions........................................................................................................ 27

An abuse of process is not established.................................................................................... 27
The balance of convenience does not favour granting an injunction.................................. 28

Determination of the plaintiffs’ application............................................................................... 30

The plaintiffs have not established a prima facie case of abuse of process.......................... 30
If the question arose, the balance of convenience would favour the grant of injunctions 35
Disposition................................................................................................................................... 36

HER HONOUR:

Introduction

On Friday 15 June 2018, the plaintiffs filed an originating process on RedCrest seeking urgent interlocutory relief and final relief by way of an injunction to enjoin the defendant from making an application under s 459P of the Corporations Act 2001 (Cth) to wind up each of the plaintiffs in insolvency in connection with statutory demands dated 3 May 2018 served by the defendant on each of the plaintiffs.

Each of the plaintiffs is a constituent part of the A G Coombs group of companies. The business was founded in 1945 and has operated continuously since then, with permanent offices in Queensland, New South Wales, Australian Capital Territory and Victoria. Currently it employs more than 650 staff nationally and has an annual turnover in excess of $250 million. A G Coombs’ primary business has historically been in the design, supply, installation and servicing of mechanical services in the commercial building industry. The business also has several other divisions which provide technical advisory services, design services, fire protection supply and installation and technical facilities management.

The first plaintiff, A G Coombs Pty Ltd, was incorporated in 1980. The second plaintiff, A G Coombs (NSW) Pty Ltd was incorporated in 2008 as the business expanded into New South Wales. In these reasons, I will refer to the plaintiffs collectively as ‘A G Coombs’ or ‘the plaintiffs’.

The defendant, M & V Consultants Pty Ltd (in liquidation), is a supplier and installer of insulation products, of the kind typically used to wrap air conditioning ducts and other equipment, primarily for the purposes of minimising heat transfer.

A G Coombs has had a working relationship with M & V Consultants Pty Ltd since about December 2012 when A G Coombs engaged it to work on the ‘Box Hill Hospital project’. They have worked together on a variety of projects since then, including the ‘T1’ and ‘T2’ projects, which involved the construction of a large multi-storey office building in the Barangaroo precinct in central Sydney.

By a resolution of the director of M & V Consultants Pty Ltd on 4 April 2018, Mr Jason Glenn Stone and Mr Glenn Franklin were appointed jointly and severally as voluntary administrators. On 4 May 2018, Messrs Stone and Franklin were appointed as liquidators.

On 3 May 2018, Mr Stone, as administrator of the defendant, caused statutory demands to be served on A G Coombs, for the total sum of $865,751.70, comprised of:

(a) a demand for $831,145.70 to A G Coombs Pty Ltd; and

(b) a demand for $34,606 to A G Coombs (NSW).

The statutory demands were delivered on 7 May 2018. They relate only to works undertaken by the defendant that are the subject of the Barangaroo T1 and T2 projects in Sydney. In his affidavit sworn on 3 August 2018, Mr Stone deposes that the amounts sought in the statutory demands comprise only a portion of the total claim that M & V Consultants Pty Ltd has against A G Coombs. In that regard, he says that during the period since he was appointed as administrator, and then as liquidator, he has been investigating additional claims that M & V Consultants Pty Ltd has against A G Coombs. During that process, he has identified a balance of retention moneys of $48,060.46 due in respect of the completion of the Monash Children’s Hospital and Bendigo Hospital projects, and a further sum of $7,554,440.05 for additional works performed by the company in relation to the towers at the Barangaroo project.

Following service of the statutory demands, the plaintiffs’ solicitors wrote to the defendant’s solicitors on 22 May 2018, setting out details of the history of disputation between the parties, denying that any debt was owing and requesting that the plaintiffs withdraw their demands, failing which the plaintiffs would commence an application to set them aside. Correspondence then ensued between the solicitors for the respective parties.

On 30 May 2018, each of the plaintiffs made applications under s 459G of the Corporations Act 2001 (Cth) to set aside the statutory demands. An affidavit of Mark Mitchell sworn 29 May 2018, the general manager of A G Coombs, was filed in support of those applications. However, through an oversight of their solicitor, the s 459G applications were not served on the defendant’s solicitors until about 5 June 2018, with the result that service was not effected within the 21 days prescribed under s 459G(3)(b) of the Act. A G Coombs acknowledges that the applications were not served within time. They accept that the period allowed for an application under s 459G cannot be extended.

Section 459F relevantly provides that where, at the end of the 21 day period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. That non-compliance has effect for the purpose of certain applications, including an application made under s 459P to wind up the company in insolvency. Section 459C of the Act relevantly provides that:

(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a)the company failed (as defined by section 459F) to comply with a statutory demand; or
. . .

(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.

The statutory consequence of the failure of each plaintiff to apply for an order setting aside the respective statutory demand (within the requisite period of 21 days after the demand was served) is that each company is taken to have failed to comply with the demand, whereupon the defendant became entitled to apply to the Court under s 459P for each of the plaintiffs to be wound up in insolvency. On such an application to wind up brought by the defendant within the three month period specified in s 459C(2), the Court ‘must presume that the company is insolvent’.

On 12 June 2018, the plaintiffs’ solicitor wrote to the defendant’s solicitor and enquired as to its intentions with respect to the statutory demands. The defendant’s solicitor responded the next day, confirming that it anticipated receiving instructions to immediately commence winding up proceedings against each of the plaintiffs. On Friday, 15 June 2018, the plaintiffs commenced this proceeding.

The plaintiffs’ summons seeking urgent interlocutory relief was listed before me as the Commercial Court Duty Judge on Monday, 18 June 2018. On that day, each of the parties was represented by counsel, and orders were sought and made, by consent, adjourning the hearing of the plaintiffs’ application for an interlocutory injunction to 18 July 2018 (or so soon thereafter prior to 24 August 2018[1] as the matter could be heard), so as to enable the parties to participate in a mediation. The mediation took place, but it was not successful in resolving the matter. Accordingly, on 17 July 2018, further orders were made, by consent, fixing the hearing of the plaintiffs’ application for an interlocutory injunction to be heard before me as the Commercial Court Duty Judge on Wednesday, 15 August 2018, and a timetable was fixed for the filing and service of affidavit material and outlines of submissions in advance of the hearing.
[1]The reference to 24 August 2018 is a reference to the end of the time period of three months specified in s 459C(2) (see above) which invokes the presumption of insolvency following service of a statutory demand.

At the hearing, the following filed material was relied upon by the respective parties:

(a) on behalf of the plaintiffs —

(i) affidavit of Alexander McKellar, solicitor for A G Coombs, sworn 15 June 2018, save for paragraph 38 which was not read (the ‘first McKellar affidavit’);

(ii) affidavit of Mark Mitchell, general manager of A G Coombs group, sworn on 29 May 2018, filed in support of the plaintiffs’ applications made under s 459G (the ‘first Mitchell affidavit’);[2]
[2]The Mitchell affidavit appears as exhibit ‘AM-8’ to the affidavit of Alexander McKellar sworn 15 June 2018.

(iii) further affidavit of Mark Mitchell sworn on 8 August 2018 (the ‘second Mitchell affidavit’);

(iv) affidavit of Allan Lichomets, finance manager of A G Coombs group, sworn 7 August 2018 (the ‘Lichomets affidavit’);

(v) further affidavit of Alexander McKellar sworn 10 August 2018 (the ‘second McKellar affidavit’); and

(vi) outline of submissions filed on 10 August 2018;

(b) on behalf of the defendant —

(i) statutory demands served on each of the plaintiffs dated 3 May 2018 and affidavit accompanying each demand sworn by Glenn Franklin, registered liquidator and administrator of M & V Consultants Pty Ltd, on 3 May 2018;[3]
[3]The statutory demands and affidavit accompanying each demand appear as exhibit ‘AM-1’ to the first McKellar affidavit.

(ii) affidavit of Jason Glenn Stone, registered liquidator, sworn on 3 August 2018 on behalf of M & V Consultants Pty Ltd (the ‘Stone affidavit’); and

(iii) outline of contentions filed on 13 August 2018.

The parties are agreed that the relevant three month period in which the defendant can rely upon the statutory presumption of insolvency to found a winding up petition expires on Friday, 24 August 2018. Given that timing, and the attendant urgency to determine the application for injunctive relief, these reasons have been prepared quickly and without the benefit of a transcript of the hearing.[4] Nevertheless, I have attempted to address the gist of the arguments advanced in the course of the hearing, which in the case of the plaintiffs departed substantially from those set out in their written outline.
[4]The Commercial Court Practice Note SC CC 1 provides that a transcript is required to be provided for all interlocutory hearings: [11.15]. It is unclear when transcript was ordered for the plaintiffs’ application, but a transcript was only provided to the Court hours before the delivery of this ruling.

The plaintiffs’ case

In the present case, the plaintiffs allege that there is a genuine dispute about the amounts the subject of the statutory demands, and that there are offsetting claims exceeding the amount of those demands. They say the failure to serve their s 459G applications was an oversight by their solicitor and that the filing of any winding up applications by the defendant is likely to result in irreparable damage to each of them, even if the applications were subsequently dismissed on the plaintiffs demonstrating their solvency. In those circumstances, the plaintiffs seek urgent injunctive relief from the Court to restrain the defendant from proceeding to file applications for the winding up of each of the plaintiffs, alleging that it would be an abuse of process were the defendant to proceed to do so.

The plaintiffs acknowledge that this proceeding cannot be used collaterally to challenge the operation of Part 5.4 of the Corporations Act. However, they claim that, in the circumstances, the defendant is abusing the processes of the court (in the Williams v Spautz[5] sense) by maintaining the demands and threatening to apply to wind up the plaintiffs.
[5](1992) 174 CLR 509 (‘Williams v Spautz’).

Further or alternatively, they rely upon ‘the well-known principle of abuse of process as it relates to winding up applications’.[6] In essence, they say the threatened winding up applications would plainly fail because the plaintiffs are ‘unquestionably solvent’; and the liquidators of the defendant have every opportunity to investigate and resolve the state of accounts between the parties in the conventional way, instead of exploiting the unfortunate failure of the plaintiffs to serve in time. In that regard, in their written outline, the plaintiffs rely upon the additional or alternative bases for injunctive relief recognised by Judd J in Wimpole Properties Pty Ltd v Beloti Pty Ltd (No 3)[7] where his Honour stated that:[8]

there may be an abuse of the winding up process, although the facts may be insufficient to invoke inherent jurisdiction of the court to prevent an abuse of process of the kind under consideration in Williams v Spautz.

[6]See Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 69 NSWLR 374, at [51]-[57]; plaintiffs’ outline of submissions, at [17].

[7][2012] VSC 219.

[8]Ibid, at [145].

During the course of the interlocutory hearing, however, counsel for the plaintiffs sought to advance a further basis for injunctive relief, by relying upon the ‘second branch of Fortuna Holdings’, a reference to the decision of McGarvie J in Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation (Cth).[9]
[9][1978] VR 83, at 93.

Against that background, given the protean nature of the abuse of process case being advanced by the plaintiffs, the Court requested that counsel for the plaintiff articulate the abuse of process said to arise. After a short adjournment, the following statement was provided:

1.The plaintiffs submit that to file a winding up application relying on the presumption of insolvency in the face of substantial solvency of both plaintiffs would constitute an abuse of process.
2.Or, at least where the defendant is aware that the plaintiffs contend on credible evidence that they are solvent, and where the [defendant] had previously threatened litigation against the plaintiffs, and withdrawn that threat, in March 2017, it is an abuse of process to file winding up proceedings when it is plain that conventional litigation is the appropriate course.
3.That is because it is to be inferred in such circumstances that the defendant must have an ulterior purpose where the intended winding up proceedings are bound to fail (because of the solvency of the plaintiffs).[10]

[10]See plaintiffs’ ‘note as to abuse of process’, prepared and handed up by counsel during the hearing on 15 August 2018.

Counsel then elaborated on the new alternative formulation (as set out in paragraphs 2 and 3 above), by submitting that in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd,[11] the Court of Appeal of New South Wales confirmed that it remained open to the Court to restrain the presentation of a winding up petition under the ‘second branch’ of Fortuna Holdings in circumstances where there is a more suitable alternative means of resolving a disputed claim against the company sought to be wound up.
[11](2007) 69 NSWLR 374 (‘Australian Beverage Distributors’), at 387 [57] per Beazley JA (with whom Hodgson and Santow JJA agreed).

Further, in addressing the plaintiffs’ asserted ‘substantial solvency’ that would operate to render any winding up application an abuse of process (as set out in paragraph 1 above), counsel submitted that as a matter of logic, it must be improper to file a winding up application with the ‘true motive’ of collecting a disputed debt rather than with the intention of winding up the company in relation to which the application is made. Counsel for the plaintiffs relied on the view expressed by Mandie J in Commissioner for State Revenue of Victoria v The Roy Morgan Research Centre Pty Ltd, that:

. . . in some cases it may be so clear that a company is solvent that it would be appropriate to restrain a winding up application and not force a company to go to the ultimate hearing to prove solvency.[12]

[12](1997) 24 ACSR 73 (‘Roy Morgan’), at 75.

In Roy Morgan, however, his Honour emphasised that ‘in reality’ the question of solvency ‘does come down to a consideration of the material.’[13] He noted that a substantial body of material had been placed before the court in an endeavour to show that the company is solvent. Nevertheless, his Honour said he had difficulty ‘in reaching the conclusion that it is so clear that the company is solvent that it is an abuse of process for this winding up application to have been brought or to proceed’[14] and held that, on an interlocutory hearing, he was unable to determine the issues as to solvency that had been raised ‘with sufficient confidence so as to say that the company is solvent and to assert that the application constitutes an abuse of process.’[15]
[13]Ibid.
[14]Ibid, at 75-76.
[15]Ibid, at 76.

The defendant’s response

The defendant submits that, in dealing with the plaintiffs’ application for an interlocutory injunction, the Court must have regard to the ‘harsh’ regime established under Part 5.4 of the Corporations Act. As Gummow J observed in David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation:[16]

No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz [(1992) 174 CLR 509 at 518-522, 532-537]. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction.

[16](1995) 184 CLR 265, at 279 (with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed) (‘David Grant’).

In oral submissions, counsel for the defendant adverted to three particular features of the regime. First, where a company has failed to comply with a statutory demand it is presumed insolvent for the purposes of an application for winding up brought under s 459P, and it bears the onus of proving its solvency. Counsel contended that the statutory presumption is relevant in a context where, as here, the plaintiffs, on the hearing of their application for an interlocutory injunction, seek to have the Court draw inferences as to their solvency. Secondly, under s 459S, a company cannot, without leave of the Court, oppose a winding up application based on a failure to comply with a statutory demand on a ground on which it could have relied in an application to set aside the statutory demand (whether or not it made such an application). Thirdly, where a defence of solvency is advanced, in order to discharge its onus, the company is required to adduce the ‘fullest and best’ evidence of its financial position.[17] Counsel for the defendant submitted that in the present case, notwithstanding their presumed insolvency, the plaintiffs nevertheless seek to sidestep the harsh regime of Part 5.4 by alleging an abuse of process on the part of the defendant.
[17]See Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J. See also Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, at [44] per Weinberg J.

The terms ‘solvency’ and ‘insolvency’ are relevantly defined in s 95A of the Corporations Act.[18] As Spigelman CJ explained in Switz Pty Ltd v Glowbind Pty Ltd:[19]

[55]The process of proving solvency is not some kind of forensic game. Solvency is a matter peculiarly within the knowledge of the company. The primary source of information on the solvency of the company must be the company itself.
[56]It may well prove to be the case that whether or not a particular debt is owing is material, indeed crucial, to a company being able to establish its solvency. However, if the company itself is not prepared to mount a case which contemplates that as a possibility, then it is not open to the Court to be "satisfied" in the sense required by s 459S(2) on the basis that the company should be protected from itself. As I have said, the fact that the company does intend to so contend would not determine the issue of whether the disputed debt is "material", let alone whether leave should be granted under s459S(1).

[18]Section 95A provides that:

(1)A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.

(2) A person who is not solvent is insolvent.

[19](2000) 48 NSWLR 661, at 674 [55]–[56].

The defendant submits that on the approach contended for by the plaintiffs, there is no role for s 459S if the company is, as the plaintiffs assert, ‘demonstrably solvent’, because leave can only be granted under that provision if the Court is satisfied that the ground on which the company seeks to rely is material to proving that the company is solvent. Thus, where a debt is disputed but its existence would not threaten the company’s solvency, it would not be possible to obtain leave under s 459S to rely on the fact that it is disputed.

The defendant accepts that the Court has power to restrain threatened winding up proceedings where the pursuit of such proceedings would constitute an abuse of process. But, it says, the onus of proving abuse of process lies on the person alleging it, and the onus is a heavy one to discharge.

Counsel for the defendant referred to the two types of ‘abuse’ contended for by the plaintiffs. He said the defendant accepts that ‘collateral purpose’ abuse of the kind considered in Williams v Spautz can, if demonstrated, provide a basis for the grant of injunctive relief. But the defendant questions whether the type of abuse contemplated by the ‘second branch’ of Fortuna Holdings, where there is said to be a more suitable process available for the determination of the disputed indebtedness, does provide an independent ground for intervention by the Court. Counsel for the defendant submitted that notwithstanding that in Australian Beverage Distributors the New South Wales Court of Appeal accepted that the court retains a discretion to make an order under the second branch of Fortuna Holdings, following the decision of the High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd,[20] the position now is that the scope for a company to seek injunctive relief is limited and the general principle (that a company will not be wound up on a disputed debt) no longer applies given the statutory presumption of insolvency in s 459C.
[20](2011) 244 CLR 1 (‘ASIC v Lanepoint’).

In ASIC v Lanepoint, ASIC sought leave to have Lanepoint Enterprises Pty Ltd, a company within the Westpoint Group of companies, wound up in insolvency. It relied on the presumption of insolvency under s 459C(2)(c). Lanepoint filed a notice of opposition, claiming that it was solvent. At first instance, it was held that the company had not rebutted the presumption of insolvency which arose. On appeal, it was held that as the debt was disputed, other parties ought to be joined to the proceedings before the company’s solvency was determined.

The High Court[21] reversed the decision of the Full Federal Court,[22] and held that the general principle that a company would not be wound up over a disputed debt did not apply to ASIC’s application. ASIC’s application was one that was brought under s 459P(1)(f) and it relied upon the presumption of insolvency under s 459C(2)(c). In those circumstances, ASIC did not claim it was a ‘creditor’ and did not seek to wind up the company on the basis of a debt owed.
[21]Gummow, Heydon, Crennan, Kiefel and Bell JJ.
[22]North and Siopis JJ, Buchanan J dissenting.

The Court, in a joint judgment, considered the effect of the 1993 amendments to Part 5.4 insofar as they concern a creditor’s application, against the background of the reasons of the majority in the Full Federal Court, stating:[23]

[28]Under the present statutory scheme, where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption. This may be contrasted with the position which formerly pertained, where the presumption that a company was unable to pay its debts could not arise if the debt the subject of the demand was shown to be the subject of a genuine dispute of substance.
[29]More relevant to the reasons of the majority in the Full Court is the principle applied by the court in winding up proceedings brought under the former legislation, where the statutory demand process was not invoked. It will be recalled that the principle was based upon the potential abuse, by creditors, of the winding up process to compel a solvent company to pay a genuinely disputed debt. On that basis alone it could have no application to ASIC, which did not claim the status of creditor and did not seek winding up on the basis of a debt owed. It brought its application under the statutory entitlement given by s 459P and in reliance upon the presumption of insolvency in s 459C(2)(c), which operates on the fact of the appointment of receivers and managers. More fundamentally, because the principle has no application in the case of an insolvent company, it cannot apply in the context of the current Pt 5.4, where the statutory presumption of insolvency operates.
[30]The majority in the Full Court were therefore wrong to conclude that the general principle could apply to ASIC's application or that it continues to apply to creditors' proceedings, given the presumption provided by s 459C. The current statutory scheme provides no basis for an assumption in favour of a dismissal or stay of proceedings where a company disputes the existence or amount of a debt.

[23](2011) 244 CLR 1, at 14 [28]-[30] (emphasis added).

Their Honours also noted that as the majority in the Full Federal Court were persuaded to a conclusion that a stay should have been ordered, they having formed the view that Part 5.4 manifests a legislative policy that a dispute as to a debt should be resolved separately and apart from the winding up process, further examination of Part 5.4 was required. Having done so, their Honours stated:[24]

[32]There is a policy evident in the current statutory scheme that disputes concerning a statutory demand should, where possible, be determined prior to the determination of the winding up application and therefore separately from that application. The requirement of leave, to raise an objection at the hearing of that application which could have been taken in an application to set aside a demand, confirms this. But such a policy says nothing about what is to occur if there remains an issue about a debt at the time the application for an order for winding up in insolvency is heard. Sections 459A and 467(1)(c) make plain that the court retains a discretion to stay proceedings on an application to wind up a company in insolvency.
[33]What was said by Gibbs J in In re QBS Pty Ltd [[1967] Qd R 218] about practical considerations, which may attend the resolution of a dispute about the existence or extent of a debt, remains relevant to applications for winding up, subject to some qualifications arising out of the present statutory scheme. The court may consider that although such a dispute may affect a conclusion as to solvency, the dispute may be more conveniently resolved in other proceedings which have been, or will be, brought for that purpose. Much may depend upon the nature of the dispute, and the extent to which it is removed from the central question of solvency. In this regard the court will bear in mind that the question of solvency, which it is required to determine upon an application for winding up in insolvency, is affected by the statutory presumption. The starting point, where the presumption operates, is that the onus is on the company to rebut the presumption, by proof of its solvency. And when considering whether to separate out a dispute from the winding up proceedings, the court will also bear in mind the statutory objective, that such applications are to be determined within six months, subject only to extensions granted in special circumstances.

[24]Ibid, at [32]-[33] (emphasis added).

The defendant submitted that the effect of the legislative policy behind Part 5.4, as described in ASIC v Lanepoint, was that it did not follow that a winding up application would be an abuse of process merely because the indebtedness of the plaintiffs was disputed and the plaintiffs may appear to be solvent. In that regard, it submitted that the decision of Hamilton J in Gramwick Investments Pty Ltd v Advanced Underpinning Pty Ltd[25] was no longer good law.[26]
[25][2000] NSWSC 1131.
[26]See also Farid Assaf, Statutory Demands and Winding up in Insolvency (LexisNexis Butterworths, 2 ed, 2012), at 541 [10.67].

Further, the defendant submits that where, as here, the Court is being asked to grant relief by way of an interlocutory injunction, it should not pass unnoticed that because the three month period fixed by s 459C(2) will expire on 24 August 2018, the practical effect of any grant of interlocutory relief will be the same as final relief. In those circumstances, the Court’s jurisdiction to restrain proceedings as an abuse of process is one to be exercised with great circumspection and then only on clear and persuasive grounds.

The evidence as to the solvency of the plaintiff companies

Each of the plaintiffs, primarily through Mr Allan Lichomets, adduced evidence of their asserted ‘substantial solvency’. In his affidavit, having produced details of the cash at bank held by each of the plaintiffs, and of their (unaudited) financial accounts and solvency, Mr Lichomets expressed the opinion that the plaintiff companies ‘are presently not only solvent but financially healthy and profitable businesses.’[27] His opinion was said to be based on the following:[28]
[27]Lichomets affidavit, at [39].
[28]Lichomets affidavit, at [40].

a.AGCPL [the first plaintiff] has a strong equity position of just short of $15,000,000 with long term retained earnings of more than $12,000,000;
b.AGCPL’s raw liquidity ratio for the 2018 financial year of 1.06;
c.All federal and state government taxes are paid up to date for each entity;
d.All employee contributions including superannuation, LSL, redundancy and so forth are paid up to date for each entity;
e.AGCPL has a strong working relationship with all of its financial facility providers including Westpac, Macquarie, Swiss Re and IAL and as at the date of this affidavit was not in breach of any covenant with any financial institution with the exception of the failure to serve the application to set aside the statutory demands within time;
f.Each entity is regarded as creditworthy with its suppliers and is within its trading terms with its supply chain particularly all major suppliers and subcontractors and that position is unchanged for at least the last 12 years;
g.Each entity has no disputed contractual claims of any substance from suppliers or subcontractors that I am aware of with the exception of this proceeding. AGC’s level of disputation has historically been very low and that position is unchanged for at least the last 12 years;
h.Each entity has very strong management and governance procedures and is actively managed by a highly experienced board of directors and managers within the A. G. Coombs Group;
i.The A. G. Coombs business has been a going concern for more than 70 years; and
j.AGCPL has a strong credit rating as shown in the Dun & Bradstreet Report attached and marked AL-08.

Further, he said:[29]

Based on current work in hand and the strong current demand in the building industry I expect that each of AGCPL and AGCNSW [the second plaintiff] will remain not only solvent but profitable businesses for the future.
Absent an extraordinary and unforeseeable series of events each of AGCPL and AGCNSW will remain solvent for as far as I can foresee.
This position would remain unchanged even if AGCPL and AGCNSW paid, or was ultimately ordered to pay the full amount set out in each of the statutory demands.

[29]Lichomets affidavit, at [41]-[43].

In support of that position, in his affidavit, Mr Lichomets stated openly that ‘A. G. Coombs is prepared to pay the sum of $865,751.70 into trust pending resolution of any claim the liquidators may bring generally in accordance with proposed orders attached hereto and marked AL-03.’[30]
[30]Lichomets affidavit, at [7] (emphasis in original).

The defendant submits that the presentation of the accounting materials and the opinions held by the finance director of the A G Coombs group does not ‘prove’ that each company is solvent. Rather, the material has been put forward on behalf of the plaintiffs on the basis that the position as to solvency it presents is ‘so clear and overwhelming’ that for the defendant to do anything other than capitulate in the face of it is demonstrably an abuse of process. The defendant denies that is the case. The defendant submits that here, each A G Coombs company is to be presumed insolvent because it has failed to comply with a statutory demand and the defendant is proceeding to pursue a debt that it considers to be due and owing.

Counsel for the defendant submitted that in the evidence as to solvency advanced on behalf of the plaintiffs there is a tendency to focus on the debt the subject of the statutory demands, but noted there is also evidence before the Court of a much larger debt owing, being the additional $7.5 million or so that the defendant contends is owed by the plaintiffs to the defendant. In his affidavit, Mr Stone, the liquidator, says as follows:[31]

I am investigating additional claims that the [defendant] has against AG Coombs that are not subject to the invoices issued by the [defendant] to AG Coombs and in the absence of any further information from AG Coombs, I have determined the following further claims:
(a)the balance of retention monies of $48.060.46 due in relation to the completion of the Monash Children’s Hospital and Bendigo Hospital projects;
…
(b)the sum of $7,554,440.05 for additional works performed by the [defendant] in relation to the towers at the Barangaroo project…

[31]Stone affidavit, at [13] (emphasis in original).

The evidence put forward by the plaintiffs does not deal with the defendant’s claims for the additional $7.5 million, and the plaintiffs have not yet responded to the underlying claims. Counsel for the plaintiffs submitted that it was merely an ‘ambit’ claim and should be treated as such, but counsel for the defendant responded by contending that the claim for $7.5 million will nevertheless feature in any solvency analysis to be undertaken. Counsel for the defendant submitted that while the notified claim for $7.5 million is one based on a quantum meruit, it is properly to be regarded as a ‘debt’ for accounting purposes, and ultimately there will be a determination of whether that additional sum is a debt that is owing. For present purposes, however, it is relevant to note that the liquidator deposes in his affidavit that, after investigating the matter, he has determined that the defendant has a proper basis for bringing its claims for the additional sum of $7.5 million.

Counsel for the defendant submitted that the Part 5.4 regime contemplates that issues as to solvency will be tested on the hearing of the application for winding up, where the company, in order to discharge its onus, is required to adduce the ‘fullest and best’ evidence of its financial position.[32] In the present case, the defendant does not accept that the evidence adduced on behalf of the plaintiffs is the ‘fullest and best’, or that it proves that those entities are solvent. By way of example, the defendant noted that a significant proportion of the first plaintiff’s current assets as at 30 June 2018 consisted of ‘trade and other receivables’, which it said it should not have to accept at face value. Further, the current assets included un-invoiced works in progress, the value of which exceeded the difference between current assets and current liabilities. The defendant contended that in circumstances where the statutory presumption of insolvency applies, the question of solvency should not effectively be determined by the Court on the basis of material of a significantly lesser standard than would apply on a winding up hearing.
[32]See Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J. See also Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, at [44] per Weinberg J.

In addition, the defendant submitted that the Court should bear in mind the time at which the various aspects of the extant evidence have emerged and should not find, on the basis of material put forward after the plaintiffs’ application was commenced, that the defendant acted improperly in seeking to rely upon the statutory demands it issued at a time when it did not possess that material.

Part 5.4 regime – limited scope for restraining alleged ‘abuse of process’

Despite the rigour of the statutory demand procedure established by Part 5.4 of the Corporations Act, it does not, as Finn J observed in Hardel Property Holdings Pty Ltd v Allmark Property Management Pty Ltd,[33] ‘totally preclude an application for an injunction to restrain an abuse of process in the initiation or prosecution of winding up proceedings founded on non-compliance with [a] statutory demand’.[34] In reaching that view his Honour referred to the passage from the judgment of Gummow J in David Grant[35] (set out at paragraph 25 above). Finn J continued, noting that ‘[a]n abuse of process in the technical sense to which [Gummow J] referred occurs when a party institutes proceedings “for a purpose or to effect an object beyond that which the legal process offers”’.[36]
[33](2008) 26 ACLC 122 (‘Hardel Property Holdings’).
[34]Ibid, at 123.
[35](1995) 184 CLR 265, at 279.
[36]Hardel Property Holdings (2008) 26 ACLC 122, at 123, citing Williams v Spautz (1992) 174 CLR 509, at 523.

It is clear that the regime established by Part 5.4 of the Corporations Act does not preclude allegations of an abuse of process where the abuse is alleged to be the institution of proceedings for an improper purpose. There is, however, some uncertainty as to the extent to which the abuse of process principles decided under the previous winding up regime continue to apply today, particularly in the context where a winding up application is brought based on non-compliance with a statutory demand. When the decision of the High Court in ASIC v Lanepoint is viewed against the background of the Court’s rejection of the approach taken by the majority in the Full Federal Court below, it seems unlikely that any scope remains for the continued application of the ‘second branch’ of Fortuna Holdings type of abuse of process, particularly in a case where an application for winding up is pursued on the basis of presumed insolvency.

I note that in Georgiou Building Pty Ltd v Perrinepod Pty Ltd,[37] in circumstances where the company seeking to wind up Perrinepod had previously obtained judgment against it and that judgment debt remained unsatisfied, Allanson J was of the view that following the decision of the High Court in ASIC v Lanepoint, the ‘earlier cases on the “second branch” of the principle of abuse of process as it relates to winding up applications cannot now be applied’.[38]
[37](2012) 261 FLR 211.
[38]Ibid, at 218 [37].

In State Bank of New South Wales v Tela Pty Ltd (No 2),[39] Barrett J explained the essential difference between the present regime established under Part 5.4 and that which applied under the former regime, as follows:[40]

[9]It is important to recognise that Gummow J’s formulation [in David Grant] refers to “an abuse of process in the technical sense of that term ...”. This, coupled with the reference in the following sentence of his Honour’s judgment to injunctive relief, makes it clear that the jurisdiction concerned is the inherent jurisdiction of the Court to stay proceedings which are an abuse of process. Mr Darvall’s attempt, on Tela’s behalf, to resist the making of a winding up order on the basis of an alleged abuse of process must therefore be approached from the same perspective as if it were an application to stay the winding up proceedings on that ground.
[10]The essence of an abuse of process in a context such as the present is some improper purpose on the part of the applicant or plaintiff (here, the Bank). There will be an abuse of process if the Bank’s purpose in bringing the winding up proceedings “is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers”: Williams v Spautz . . .
[11]The scheme of the legislation makes it clear that a creditor who has duly served a statutory demand which remains unsatisfied for the relevant period has a right to seek winding up. In former times, it was regarded as an abuse of process for such an application to be pursued in circumstances where the debt was disputed or an off-setting claim existed. The rationale was that winding up proceedings were not the appropriate occasion for those matters to be addressed and that the threat of such proceedings, with their serious commercial consequences, involved resort to the particular remedy for a purpose regarded by the law as improper. All that has been changed by Part 5.4. It is now abundantly clear that, unless the Div 3 [of Part 5.4] process is employed by the company concerned to ventilate in advance, by way of opposition to the statutory demand, any claim it has about the existence or amount of the debt or any off-setting claim, it is perfectly legitimate for the creditor to proceed with a winding up application even though such a dispute or off-setting claim may in fact exist.

[39](2002) 188 ALR 702.

[40](2002) 188 ALR 702, at 705 [9]-[12] (emphasis added).

Against that background, the author of the leading textbook on statutory demands and winding up in insolvency observes that ‘only in rare circumstances will it be an abuse of process for a creditor which has a presumption of insolvency in its favour to proceed with a winding-up application.’[41] I share that view.
[41]Assaf, Statutory Demands and Winding up in Insolvency (LexisNexis Butterworths, 2 ed, 2012), at 530 [10.37], citing Kelly v J Stockwell and Co Pty Ltd [2007] NSWSC 214 at 5 (per Barrett J).

Further, it is important to note that the comments made by Gummow J in David Grant about abuse of process relate only to solvent companies, rendering it unlikely that the bringing of a winding up application could be considered an abuse of process where the debtor company is insolvent. In Elite Motor Campers Australia v Leisureport Pty Ltd,[42] a debtor company brought an application for injunctive relief, seeking to restrain a creditor from bringing a winding up application following the debtor company’s failure to comply with a statutory demand. The debtor company sought relief on the basis that it was solvent, notwithstanding its failure to comply with the demand. In rejecting its application Spender J stated:[43]

The essence of the applicant's case is that, relying on the first of the categories referred to by McClelland J in the L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180; 1 ACLC 536 on the financial material on which the applicant relies, the proceedings for a winding up will fail because the applicant will not be able to prove that the company is insolvent. That case, of course, pre-dated the enactment of Pt 5.4 of the Corporations Law.
Under that Part, however, there is a presumption of insolvency arising from a non-compliance of a statutory demand; it is not for the applicant to prove that the company is insolvent. Where there is the presumption of insolvency, it is for the company presumed insolvent to prove that it is solvent, so as to rebut the presumption which arises by virtue of the circumstance of non-compliance.
If the applicant's submission be correct, it would mean that every creditor of a solvent company (being a company solvent in fact) would be liable to be enjoined from presenting a winding-up application after the company had failed to comply with the statutory demand, regardless of the knowledge of the creditor of the company's position so far as solvency is concerned.
The regime established by Pt 5.4 is based on a presumption of insolvency in circumstances where a company has failed to comply with a statutory demand. Where there has been such non-compliance, it is competent for an application to be made under s 459P of the Corporations Law for an order that the company be wound up and, on such an application, it is competent for the company the subject of the winding up application, to prove that it is solvent. In those circumstances, it seems to me clear that the question of solvency is a matter to be canvassed, should the debtor company wish to in those winding-up proceedings, by the debtor company seeking to rebut the presumption of insolvency, pursuant to s 459(3) of the Corporations Law.

[42](1996) 22 ACSR 235 (‘Elite Motor Campers’).

[43]Ibid, at 239.

In that case, Spender J noted that the debtor company sought to rely upon material (to which objection was taken) that was said to establish ‘that the company is clearly solvent.’[44] But his Honour found it was ‘unnecessary to determine’ whether he should receive the material relating to solvency of the company ‘because accepting, for present purposes, that the material did establish that the company was solvent, but that it had failed to comply with a statutory demand, it is not an abuse of process for the creditor to commence winding up proceedings.’[45]
[44]Ibid, at 237.
[45]Ibid, at 238.

Jurisdiction to grant injunctive relief

Section 37 of the Supreme Court Act 1986 (Vic) provides that the Court may by order, whether interlocutory or final, grant an injunction ‘if it is just and convenient to do so, and such orders may be made ‘unconditionally or on such terms and conditions as the Court thinks just’. In considering whether an interlocutory injunction should be granted, the Court must be satisfied that the applicant has made out a prima facie case, that damages would not be an adequate remedy and that the balance of convenience would favour the grant of such relief.

In Australian Broadcasting Corporation v O’Neill,[46] Gummow and Hayne JJ said of the first enquiry, as to whether plaintiff has made out a prima facie case, that ’it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial’.[47] Their Honours confirmed that the plaintiff is not required to show that it is more probable than not that at trial the plaintiff will succeed, and in this regard they reiterated the following observations of the Court (Kitto, Taylor, Menzies and Owen JJ) in Beecham Group Ltd v Bristol Laboratories Pty Ltd:[48]

How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.

[46](2006) 227 CLR 57.

[47]Ibid, at 82 [65].

[48](1968) 118 CLR 618, at 622.

Further, in determining where the balance of convenience lies, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[49] As the Court of Appeal noted in Bradto Pty Ltd v State of Victoria,[50] there is a relationship between ‘a prima facie case’ or ‘a serious question to be tried’ and ‘the balance of convenience’. The two requirements need to be examined together. It follows that if the claim of a plaintiff is weak, then the balance of convenience must be more strongly in favour of the plaintiff before the court grants injunctive relief.
[49]See Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, at 73 [35] (per Maxwell P and Charles JA).
[50]Ibid, at 82 [84] (citations omitted).

The plaintiffs’ submissions
A prima facie case exists

In relation to the prima facie case enquiry, the plaintiffs initially submitted that there are three grounds which indicate that the statutory demands have been issued and maintained by the defendant for an improper purpose:

(a) first, the statutory demands were accompanied by an affidavit of an administrator (who is now a liquidator) of the company who had been appointed less than a month earlier, based solely from inspection of the books and records of the companies, there being no suggestion of the proper investigation expected of an insolvency practitioner;

(b) secondly, the plaintiffs put the defendant on notice of the dispute prior to the expiration of the demands, and notwithstanding the lack of independent knowledge of the transactions by the liquidators, no consent to setting aside the demands was forthcoming. Furthermore, as set out in the first Mitchell affidavit (filed in the s 459G proceeding and referred to above), a fulsome review of the books and records of the company would have shown that the alleged debts were in genuine dispute and had been for several years; and

(c) thirdly, in circumstances where the plaintiffs are demonstrably solvent, the statement from the defendant that it will seek to apply to wind up the plaintiffs on the statutory presumption of insolvency must have been made in order to exert commercial pressure on the plaintiffs who would suffer irreparable harm by virtue of the filing of winding up applications (even though those applications would be doomed to fail).

During the course of the hearing, however, it became clear that the plaintiffs now rely upon a further ground of alleged abuse, based on the ‘second branch’ of Fortuna Holdings, to the effect that where the defendant is aware that the plaintiffs contend on credible evidence that they are solvent, and where the defendant had previously threatened litigation against the plaintiffs, and withdrawn that threat, in March 2017, it is an abuse of process to file winding up proceedings when it is plain that conventional litigation is the appropriate course. This ground formed the thrust of the oral submissions made on behalf of the plaintiffs at the hearing. The form of orders the plaintiffs handed up at the hearing were to the effect that the Court should make orders for payment of the amount of $865,751.70 into a joint account, or into Court, to be held until the conclusion of this proceeding; that the defendant have leave to file a statement of claim alleging its grounds for claiming the amounts set out in the statutory demands; and that this proceeding be transferred to the Technology, Engineering and Construction (TEC) List and listed for directions before the judge in charge at the first available opportunity.

The balance of convenience
History of the dispute

In oral submissions, counsel for the plaintiffs summarised the history of the dispute between the plaintiffs and M & V Consultants Pty Ltd, noting that since about September 2015 there had been discussions between them concerning claims made by M & V Consultants Pty Ltd on the T2 Barangaroo project. A meeting had been held in mid-October 2015 at which A G Coombs had requested further substantiation in respect of certain invoices issued by M & V Consultants Pty Ltd and a reconciliation of invoices issued against the contract sum. Mr Mitchell deposed that he did not believe M & V Consultants Pty Ltd ever provided the substantiation or reconciliation requested. Further, he said, that until sometime in early 2017 he believed the claims made by M & V Consultants Pty Ltd on the T2 project had been resolved, ‘as there was no further relevant communication from M & V in connection with the [T2] project and M & V was proceeding with the works on the subsequent T1 project.’[51] Similar issues then arose with the T1 project. Correspondence ensued from the (then) solicitors for M & V Consultants Pty Ltd on 10 March 2017, alleging that A G Coombs owed amounts in respect of the Barangaroo T1 and T2 projects ($887,300), the Bendigo Hospital project ($176,009) and the Monash Children’s Hospital project ($150,480) and if payment was not received in full by 23 March 2017 legal proceedings would immediately follow.[52] Further meetings and discussions took place, and documents were exchanged.
[51]See exhibit ‘AM-8’, at [44].
[52]Ibid, at [49].

Mr Mitchell says he sent an email to M & V Consultants Pty Ltd on 20 March 2017, summarising the outcomes of their meeting on 17 March 2017, including the outcome of the discussions on the Monash, Bendigo and Barangaroo T2 and T1 projects, in which he identified:[53]

a.a balance was due to M & V on each of the Bendigo Hospital and Monash Children’s Hospital projects;
b.the claims on the T2 Project had previously been resolved; and
c.A G Coombs considered that M & V had been paid more than its entitlement on the T1 Project but would consider any further response from Sharyn when provided.

[53]Ibid, at [55].

In that email, under the heading ’General’, Mr Mitchell also expressly acknowledged receipt of M & V Consultants Pty Ltd’s letter ‘withdrawing the threat of legal action.’[54] He added that in respect of Barangaroo T1 project he was ‘happy to meet again with Kevin to work through with [Malvin]/Sharyn if needed’.[55] On that same day, Mr Mitchell also sent a formal letter setting out the outcomes of the meeting and A G Coombs’ reconciliation of each of the projects.
[54]See exhibit ‘JGS-5’ to the affidavit of Mr Stone.
[55]Ibid.

Further meetings and discussions have since been held. Mr Mitchell says that it remains the case that A G Coombs is ‘unable to reconcile the invoices issued by M & V with orders placed, work undertaken by M & V or on any other basis.’[56] Mr Mitchell does not dispute that retention monies are payable in respect of the Bendigo Hospital and Monash Children’s Hospital projects, subject to A G Coombs’ right to set off against any such sum debts or damages due to it, but he says he has identified an overpayment made to M & V Consultants Pty Ltd in an amount which exceeds the retention sums.
[56]See exhibit ‘AM-8’, at [66].

Since those discussions and meetings took place, Mr Stone, as liquidator of M & V Consultants Pty Ltd, has been conducting further investigations. Recently, he notified A G Coombs that he proposes to pursue additional claims against the plaintiffs, referable to the completion of the Bendigo Hospital and Monash Children’s Hospital projects (totalling $48,060.46) and the Barangaroo T1 and T2 projects (totalling an additional $7,554,440.05). Mr Mitchell says that he understands that those substantial further claims ‘do not form part of the statutory demands issued’[57]‘ and ‘[t]he claims are otherwise denied as according to A. G. Coombs records all amounts due to the Defendant have been paid.’[58]
[57]See second Mitchell affidavit, at [13].
[58]Ibid, at [14].

The plaintiffs contend that the balance of convenience favours granting an injunction

On the balance of convenience enquiry, the plaintiffs submit that the injury that would be suffered by the plaintiffs should wind-up applications be brought would be severe and require the companies to take extensive and expensive steps to maintain their financing arrangements and building contracts. On the other hand, the defendant would only be held out of its (worthless) statutory right to apply to wind up the plaintiffs and would have every opportunity to establish its claims in the conventional way.

The plaintiffs contend that an application under s 459P is likely to result in irreparable damage to each of them

The plaintiffs have filed evidence, primarily from their solicitor, Mr McKellar, as to the potential impact the bringing of an application for winding up will have on them. In his first affidavit, Mr McKellar makes reference to the financial arrangements that have been entered into by the plaintiffs by way of borrowing facilities with a major Australian bank, bond facilities with Australian and international underwriters, operating leases for vehicles, and for tools, plotters and copiers, insurance finance arranged through a major Australian bank, and finance arrangements in connection with its IT hardware. The terms of the plaintiffs’ main facility agreement, which are exhibited to his first affidavit, make clear that it is an ‘Event of Default’ when ‘the Obligor becomes Insolvent’. The facility agreement defines ‘Insolvent’ to include circumstances where ‘it is taken (under s 459F(1) of the Corporations Act) to have failed to comply with a statutory demand.’ The consequences of an Event of Default include (A) that all Secured Moneys are immediately due and payable; or (B) the Facility Limit is cancelled; or (C) the obligation to provide further banker’s undertakings ceases.

Mr McKellar also deposes that many typical subcontracts in the commercial building industry contain terms permitting the termination of a contract if an application for winding up is made, or an application for winding up is made and not stayed within a specified period.[59] Mr McKellar has confirmed that ‘the contracts entered into by the Plaintiffs include terms permitting termination for insolvency, as that term is defined in the contracts, which include the making of an application for a winding up application [sic] which is not stayed within 14 days.’[60] He also states that ‘many government tenders for construction work at state and federal level include a requirement to identify any adverse corporate history, including any winding up applications, which are significant criteria in assessing tenders for such work.’[61]
[59]See first McKellar affidavit, at [31].
[60]Ibid, at [32].
[61]Ibid, at [34].

Against that background, Mr McKellar summarises the position by stating that the making of a winding up application ‘could’:[62]

a.Result in the withdrawal and immediate repayment of the entirety of the Plaintiffs’ finance facility; and/or
b.Prevent the Plaintiff tendering for new work by reason of its inability to access funding for bank guarantees or bonds;
c. Result in the immediate termination of many of its contracts with its clients; or
d.Result in creditors ceasing the provision of services or withdrawing or no longer providing credit terms.

[62]Ibid, at [35].

Further, Mr McKellar states that he is informed by the managing director of the A G Coombs group that the ‘knock on effects’ of the withdrawal of the group’s finance facilities and/or the cancellation of any of its major contracts ‘would’ be likely to result in:[63]

a.immediate forced redundancies of a significant number of A G Coombs almost 700 staff including many long term employees;
b.significant and irreparable reputational damage to the A G Coombs business and brand which has been built over more than 70 years;
c.its industry standing as the leading provider of specialist building services in Australia being diminished;
d.loss of client confidence, support and ongoing opportunities including, in particular, the loss of an ability to tender for state and federal government projects; and
e.a consequential impact on A G Coombs’ valued suppliers and specialist contractors.

[63]Ibid, at [36].

On the hearing of this interlocutory application none of the evidence has been tested.

The plaintiffs contend that damages would be an inadequate remedy

The plaintiffs must also demonstrate that if no injunction was granted, but its claim was ultimately vindicated, it will have suffered irreparable harm for which damages will not be an adequate remedy.

Here, the plaintiffs submit that damages would not adequately compensate them, because as soon as the applications to wind up are filed, notified to the Australian Securities and Investments Commission and advertised, the plaintiffs will suffer immediate, irreparable reputational damage.

The defendant’s submissions
An abuse of process is not established

The defendant contends that the plaintiffs have not established that the threatened winding up proceedings would be an abuse of process, for the following reasons:[64]
[64]Defendant’s outline of submissions, at [23].

(a) the fact that the liquidator was appointed around one month prior to issuing a statutory demand does not prove a want of “proper investigation expected of an insolvency practitioner” – let alone abuse;
(b) liquidators have an obligation to act expeditiously in calling in the assets of the company in liquidation;
(c) the fact that the defendant did not withdraw the statutory demands despite asserted disputes by the plaintiffs is not evidence of abuse – this is a bootstrap/self-serving argument;
(d)the inference that the plaintiffs seek to draw as to the defendant’s motive “to exert commercial pressure on the Plaintiffs” because “the Plaintiffs are demonstratively [sic] insolvent” [sic] is not available because:
i) the alleged proof of solvency came after the steps taken by the defendant to issue statutory demands;
ii)the evidence relied upon by the plaintiffs (which is not the “fullest and best”[65]) does not prove that it is solvent in any event:
[65]The defendant noted that this could be compared to Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 (per Weinberg J).
1. there are no current audited accounts;
2. there is no valuation evidence to back up the claimed asset position in the accounts;
3. it is apparent that the [A G Coombs] entities are now in default under the facility agreements – and accordingly those obligations are at call;[66]

ii) the evidence relied upon to support the inference is far from “clear and persuasive”.

(b) the matters relied upon by the plaintiffs would appear to be little more than a backdoor way of getting around s 459S of the Act.
[66]The defendant noted that the A G Coombs entities ‘may contend that this default occurred after the plaintiff [sic] served its statutory demand. Nevertheless, on the question of abuse, the [A G Coombs] entities appear to elide the distinction between matters known to the plaintiffs before and after the issue of the statutory demand’.

The balance of convenience does not favour granting an injunction

Counsel for the defendant submitted that when the Court comes to consider the balance of convenience, it should not take too seriously the plaintiffs’ submission to the effect that ‘terrible things will happen to these companies if a winding up application is brought.’ That is because the material adduced by the plaintiffs’ solicitor makes plain that there has already been an event of default, in that each of the plaintiffs is ‘Insolvent’ because in each case ‘it is taken (under s 459F(1) of the Corporations Act) to have failed to comply with a statutory demand.’ The evidence is silent as to whether the plaintiffs’ financiers and other relevant contracting parties in the commercial building industry have been informed of that failure to comply. In those circumstances, the defendant submits that, viewed objectively, any damage has already been done, and the plaintiffs cannot advance the potential for loss to be suffered on the filing of an application for winding up as a factor to be weighed in their favour when the Court is assessing the balance of convenience.

For its part, the defendant submits that the balance of convenience does not favour the grant of an injunction because:[67]
[67]Defendant’s outline of submissions, [24].

(a) the [A G Coombs] entities have not proved that they are solvent;
(b) the [A G Coombs] entities assert potential for “extensive and expensive steps to maintain their financing arrangement and building contracts” – but it would appear that the failure to comply with the statutory demands (admitted) was itself a default the existence of which the [A G Coombs] entities were under a statutory obligation to inform their financiers of;[68]
(c) the [A G Coombs] entities do not explain what impact winding up proceedings have on building contracts – the LendLease contract produced demonstrates that the [A G Coombs] entities defaulted by failing to comply with the statutory demand;
(d) the plaintiffs also assert that they will suffer immediate, irreparable reputational damage – but its position is no different to any other company that fails to comply with a statutory demand – the publication requirements are requirements created for the benefit of the public;
(e) while it may be contended that the provisions of Part 5.4 operate harshly, that is what Parliament intended in striking the balance between companies and persons seeking payment from them;
(f) because of the requirement that winding up proceedings be issued within three months of the non-compliance with the statutory demand,[69] the practical effect of an injunction will be to forever shut the defendant out from bringing a winding up proceeding against the [A G Coombs] entities.

[68]The defendant noted that the ‘[A G Coombs] entities are already presently contractually obliged to inform their Financier of the Event of Default under clause 12.1(e) of the facility agreement. Relevantly:

· (clause 1.1): Event of Default means any of the events or circumstances described in clause 12.1.

· (clause 12.1(e) (insolvency)): It is an event of default if an Obligor becomes “Insolvent”’.

· (clause 1.1 – Insolvent(e)): A person is insolvent if it is taken (under section 459F(1) of the Corporations Act) to have failed to comply with a statutory demand.

· (clause 11.1(g) (notice to Financier): Each Obligor promises to provide information to the Financier including notice to the Financier as soon as it becomes aware of (i) an Event of Default.’

[69]Section 459C(2) of the Corporations Act.

The defendant also contends that the approach taken by the plaintiffs, of proceeding by way of an application for injunction founded on an alleged abuse of process, is one that demonstrably undermines the statutory purpose of Part 5.4 of the Corporations Act. The defendant observes that:[70]
[70]Defendant’s outline of submissions, [25]-[27].

25.It would be a curious result if the [A G Coombs] entities could get what in substance is final relief in an interlocutory hearing on matters that would be insufficient to make out a defence at trial of the winding up proceeding:
(a) the evidence of alleged solvency is not sufficient to discharge the [A G Coombs] entities onus of proof in a winding up hearing;
(b) the alleged dispute is foreclosed by s 459S of the Act.

26. Cognizant of the strictures of Part 5.4 of the Act, the [A G Coombs] entities have sought to repackage these matters as an abuse of process without satisfying the “heavy onus” to make good such an allegation. The approach undermines the statutory purpose of Part 5.4 of the Act.
27. The [A G Coombs] entities appear to emphasize their size, but their position is no different to that of any other entity that has failed to comply with a statutory demand. The [A G Coombs] entities are entitled to defend the winding up proceedings on the ground of solvency, and would have the onus of making good such a defence.

Determination of the plaintiffs’ application
The plaintiffs have not established a prima facie case of abuse of process

As noted earlier, the jurisdiction to restrain the bringing of winding up proceedings where there has been non-compliance with a statutory demand is one that, since the enactment of the insolvency reforms of 1993, is to be exercised sparingly. But the High Court’s decision in David Grant makes clear that in appropriate cases a demonstrated abuse of process may properly attract the exercise of that jurisdiction.

I turn now to consider a couple of clear examples. As will be apparent, the present case concerns a very different situation to that which arose in these cases. In Hardel Property Holdings,[71] Finn J noted that the evidence before him was to the effect that Hardel did not receive any demand for payment from Allmark in respect of the alleged outstanding management fees until September 2007. When Hardel made enquiries of Allmark as to the alleged debt, it received 17 invoices including nine invoices on which the statutory demand was based. All of the invoices were directed to a Ms Hentzchel, a bookkeeper employed by the Hardel Group from 28 December 2003, even though some predated her appointment. Apart from those invoices, there was nothing before his Honour to show that project management services were in fact provided by Allmark in respect of which the fees were allegedly payable.
[71](2008) 26 ACLC 122.

Finn J found that a prima facie case, in the sense earlier described, had been made out. Relevantly for present purposes, his Honour said:

[25] When one considers cumulatively what is suggested by the three matters upon which Hardel Holdings relies, I consider that a prima facie case in the sense I have described has been made out. A use of the statutory demand procedures in respect of a debt known to be spurious would give rise to an abuse of process if the statutory demand in turn was used to found a winding up application, the more so if, as alleged here, there is some evidence suggesting the likelihood that the statutory demand procedure itself is being used for some tactical purpose relating to proceedings in another court.

Another case where abuse of process was successfully made out was RH Mortgage Corp Ltd v Kerry Ann Properties Pty Ltd.[72] There, Barrett J made orders that the defendant be permanently restrained from making an application for the plaintiff to be wound up in insolvency relying on a failure by the plaintiff to comply with a statutory demand dated 24 December 2010 served on the plaintiff by the defendant.
[72][2011] NSWSC 298.

In that case, the plaintiff asserted that there would be an abuse of process if the defendant petitioned for winding up in reliance on non-compliance with the demand for two reasons:

(a) first, the defendant had failed to comply with the requirement that it specify in the statutory demand an address in New South Wales for service; and

(b) secondly, the use of a statutory demand to found a presumption of insolvency is impermissible where the demand is based on a debt known to be non-existent.

Relevantly, in dealing with the second ground, his Honour found that on no conceivable basis did any of the matters referred to by Mr Pearse, the sole director of the defendant, in his explanation of the basis of the claim give rise to a debt. Rather, his Honour said ‘[i]f the plaintiff were in due course found to be liable, it would be liable for damages, not debt’.[73] His Honour continued:

[24]On the material before the court, there was no rational basis on which the defendant could have believed, when it served the statutory demand, that a debt in the sum of $412,000 was owing due and payable by the plaintiff to the defendant. Mr Pearse made it clear in his letter that he did not hold any such belief. He referred to a “claim against your client for at least $412,000 (Four Hundred and twelve Thousand Dollars)”. By using the words “claim” and “at least”, Mr Pearse showed, first, that there was a claim as distinct from an entitlement to be paid and, second, that the relevant sum was not certain — in other words, that essential and fundamental elements of a debt were lacking.
[25] The situation is thus one in which the defendant resorted to the statutory demand procedure for a purpose for which the law does not allow. The legislation works on the basis that a creditor to whom a debt is owing due and payable may seek, by serving a statutory demand, to achieve the benefit of a presumption of insolvency for the purposes of pursuing winding up proceedings. The legislation does not countenance the obtaining of the benefit of such a presumption by a person to whom a debt is not owing, due and payable by the company, who has no more than some imperfectly articulated claim for damages and who knows that the person’s position is as just described. For such a person deliberately to resort to the statutory demand procedure in respect of such a claim, having made it clear to the company concerned that the claim is, to the person’s knowledge, of that nature, is a perversion of the statutory process.
[26] That is the position here. Mr Pearse’s letter makes it perfectly plain that the defendant did not consider a debt of $412,000 — or any other amount — to be owing, due and payable to it by the plaintiff and, in that frame of mind, served a purported statutory demand referring to what was (and was known to the defendant to be) a false and spurious debt.
[27] The plaintiff would have succeeded in having the statutory demand set aside had it made a valid s 459G application. It did not make such an application. But in the circumstances of egregious misuse of the statutory demand procedure exhibited by the facts of this case (coupled with the circumstance that the defendant’s claim obviously represents some form of retaliation for the plaintiff’s having taken enforcement action under its security), any application by the defendant for winding up of the plaintiff relying on the plaintiff’s failure to comply with the demand dated 24 December 2010 would be an abuse of the process of the court. This is because it would be within the “second branch” referred to by McGarvie J in Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VR 83 and approved by the Court of Appeal as continuing to be applicable today in Australian Beverage Distributors Pty Ltd v Evans & Tait Premium Wines Pty Ltd [2007] NSWCA 57 ; (2007) 69 NSWLR 374, that is, where: due to the availability of the more suitable alternative remedy, the court hearing the petition would in the circumstances, in the exercise of its discretion, decline to make a winding up order, at least while the circumstances remain as they are at the time of the application for an injunction.
[28] In this case, the “more suitable alternative remedy”, while the defendant’s claim remains in the form stated in Mr Pearse’s letter, is that that claim should be determined and, if found proved, be quantified in appropriately constituted proceedings outside the ambit of the winding up provisions of the Corporations Act.

[73]Ibid, at [23].

In my view, essentially for the reasons advanced by the defendant, the plaintiffs have failed to make out a prima facie case of abuse of process in the technical sense of that term as explained in Williams v Spautz. The onus the plaintiffs bear is a heavy one to discharge. The evidence adduced, which has not been tested on the interlocutory hearing, falls well short of demonstrating that the liquidator of the defendant, by foreshadowing the making of applications for the winding up of each of the plaintiff companies, is doing so for an improper or ulterior purpose. I am not satisfied that it is open to the Court to infer that the liquidator must have had an ulterior purpose. Rather, the liquidator has foreshadowed the making of winding up applications against the background of statutory demands having been served, and in circumstances where each of the plaintiffs failed to comply with those demands and, as a result, is now to be presumed to be insolvent if winding up applications are made. If the plaintiffs had served their s 459G applications within the statutory time limit, they may have succeeded in having the statutory demands set aside.

While the plaintiffs claim that they are demonstrably solvent, under the Part 5.4 regime the issue of solvency is one that falls to be determined on the application for winding up brought under s 459P. Where a company raises a defence of solvency, against the background of the statutory presumption of insolvency having been enlivened, the company is required to adduce the ‘fullest and best’ evidence of its financial position in order to discharge its onus. Unless the abuse is manifest, it is unsatisfactory for the Court to determine, on an interlocutory hearing seeking to restrain the bringing of an application under s 459P, whether each of the plaintiffs is solvent, particularly when the practical effect of the interlocutory determination will be to finally decide the matter. Under the Part 5.4 regime, once the presumption of insolvency has been enlivened, the issues as to solvency of the plaintiff companies fall to be determined in the course of the hearing of the application to wind up, and on the basis of the ‘fullest and best’ evidence of their respective financial positions.

For the reasons outlined earlier, it seems unlikely that any scope remains for the continued application of the ‘second branch’ of Fortuna Holdings type of abuse of process, particularly in cases where an application for winding up is pursued on the basis of presumed insolvency. If, in the face of the Part 5.4 regime and following the decision of the High Court in ASIC v Lanepoint, it nevertheless remains available, the plaintiffs contend that the particular facts of this case manifest an abuse of process. That is because, in the plaintiffs’ view, conventional litigation is the appropriate avenue for determining the existence (and quantum) of the disputed indebtedness, in circumstances where the defendant previously threatened the plaintiffs with litigation in relation to the debts the subject of the statutory demands, before withdrawing that threat in March 2017. Since, contrary to its earlier position, the defendant now contends that there is an amount due and owing to it, the plaintiffs submit ‘it is plain that conventional litigation is the appropriate course’, particularly given that other litigation may in any event be pursued in relation to the alleged indebtedness for the additional $7.5 million, being a claim raised by the liquidator following an investigation and assessment of all of the defendant’s claims against the plaintiffs.

Insofar as the debts the subject of the statutory demands are concerned, the defendant has embarked on the Part 5.4 process in a manner consistent with the statutory scheme. The liquidator has given sworn evidence that there was a proper basis for serving the statutory demands (in his earlier role as administrator), there was opportunity for the plaintiffs to dispute the debts, and upon their failure to do so, the statutory presumption of insolvency was enlivened. As the High Court observed in ASIC v Lanepoint, ‘[t]he evident policy of Pt 5.4 is that there be a speedy resolution of applications to wind up in insolvency’.[74] In my view, it would be contrary to that policy to deviate from the statutory process so as to enable the plaintiffs to dispute the debts in satellite litigation, simply for the reason that they may well be solvent. In Australian Beverage Distributors, Beazley JA described the second branch of Fortuna Holdings as applying to cases where there is ‘a more suitable alternative means of resolving a disputed claim against the company sought to be wound up’.[75] In the present case, if the solvency of the plaintiffs is as clear-cut as they contend, it will remain open to them to dispute the debts underlying the statutory demands at a later point. It is only if they are unable to demonstrate their solvency to the requisite standard that they will be foreclosed from disputing the debts any further, and while that outcome may seem harsh, it is one envisaged by the statutory regime. As such, I do not consider that the plaintiffs have established that there is a more suitable alternative means of resolving the dispute as to the debts pursued by the defendant by way of the statutory demands.
[74](2011) 244 CLR 1, at [27].
[75](2007) 69 NSWLR 374, 386 [53].

In circumstances where counsel for the defendant has indicated that the defendant will be relying upon the alleged additional indebtedness of $7.5 million when issues as to the plaintiffs’ solvency fall to be determined on s 459P applications, in my view it seems likely that this factor will be a material one in the assessment of the solvency of one or both of the plaintiff companies. I do not accept that it is an ‘ambit claim’, as the plaintiffs submitted. As the claim is one which the liquidator believes has a proper basis, having been identified with the assistance of a quantity surveyor, it is appropriate that it is tested and weighed in the balance on the assessment of issues as to solvency on any s 459P applications.[76] On the limited and untested evidence as to the plaintiffs’ solvency before me, I am not prepared to conclude that the plaintiffs are so obviously solvent that the assessment exercise envisaged by the statutory regime should not be permitted to proceed.
[76]Of course, if it transpires that the liquidator’s application lacks a proper basis, he would likely face an application for costs on an indemnity basis.

Accordingly, even if the ‘second branch’ of Fortuna Holdings remains available, I am not satisfied that the plaintiffs have made out a prima facie case of abuse of process.

If the question arose, the balance of convenience would favour the grant of injunctions

If, contrary to the view I have reached, the plaintiffs had established a prima facie case of abuse of process, it would be necessary for the Court to consider the balance of convenience, and in particular the irreparable damage that the plaintiffs contend they will suffer if winding up applications are permitted to be filed. In my view, the material adduced by the plaintiffs’ solicitor suggests that there has already been an event of default under the main facility agreement. However, there is no evidence that the non-compliance with the statutory demands has been notified to the relevant counterparty at this stage. In those circumstances, although a winding up application may precipitate damage to the plaintiffs, at least some of that damage may be viewed as resulting from the plaintiffs’ failure to comply with the statutory demands.

As for the rest of the damage the plaintiffs contend may be occasioned, the ‘knock on effects’ of the withdrawal of the group’s finance facilities and/or cancellation of its major contracts, as described by Mr McKellar, are clearly very serious matters of great significance in the context of the AG Coombs group’s business. That said, given the industry standing of that business as the leading provider of specialist building services in Australia, its longstanding profitability and significant business relationships, it is unclear to what extent the ‘knock on effects’ are likely to occur. Conversely, it is clear that if injunctions were granted, the defendant would be prevented from filing winding up applications and thereby availing itself of the statutory process provided by Part 5.4. Contrary to the plaintiffs’ assertion, I do not regard that right as ‘worthless’. Nevertheless, I do not consider that the loss of that right (if injunctions were granted) would pose a greater risk of injustice than the risk of injustice to the plaintiffs (if injunctions were refused in error). Accordingly, were it necessary to do so, I would find that in all of the circumstances, the balance of convenience weighs more strongly in favour of the grant of the injunctive relief sought.

Disposition

It follows from the conclusions I have reached that the plaintiffs’ application for interlocutory relief should be dismissed. I will hear from the parties on the appropriate form of orders.

[2018] VSC 468

22 August 2018