Alam v Quest Enterprises

[2006] NSWSC 752

CITATION:	Alam v Quest Enterprises [2006] NSWSC 752
HEARING DATE(S):	17/07/06, 18/07/06
JUDGMENT DATE :	28 July 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
DECISION:	See para 44 of judgment.
CATCHWORDS:	PRACTICE & PROCEDURE – Plaintiffs obtained judgment against first defendant in proceedings 4284/04 – Consent orders stipulated that execution of judgment stayed upon certain conditions – Conditions included that defendants proceed expeditiously with foreshadowed cross-claim and comply with earlier orders of Court – Consent orders only partially complied with – Further consent orders stipulated that defendants’ cross-claim stayed until provision by defendants of security for plaintiffs’ costs and compliance by defendants with earlier orders of Court – Further consent orders not complied with – Application by defendants for end of stay on cross-claim and for stay on enforcement of judgment obtained by plaintiffs against first defendant – Whether stay of defendants’ cross-claim should be lifted or varied – Whether plaintiffs prevented from enforcing judgment – Defendants’ applications dismissed - CORPORATIONS – Winding-up – Plaintiffs (2534/06) sought winding-up of defendant – Whether service of statutory demand or winding -up application was in breach of consent orders staying execution of judgment obtained in proceedings 4284/04 – Order that plaintiffs entitled to proceed with winding-up application – Application to set aside statutory demand not proceeded with - Whether defendant entitled to leave pursuant to s 459S Corporations Act 2001 (Cth) to oppose winding-up application on grounds that could have been relied upon if an application had been duly made to set aside statutory demand– s 459S considered – Grant of leave to defendant refused.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Civil Procedure Act 2005 (NSW)
CASES CITED:	Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56 Re Hughes; ex parte Westpac Banking Corporation (unreported, Federal Court of Australia, Merkel J, 28 November 1997, BC9706380 Re Pollack; ex parte Deputy Commissioner of Taxation (1991) 103 ALR 133 L&D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560 Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; 17 ACLC 467; 42 ATR 309 Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 DAG International Pty Ltd v DAG International Group Pty Ltd [2005] NSWSC 1036
PARTIES:	Anis Alam & Ors v Quest Enterprises (NSW) Pty Ltd & Ors Anis Alam & Anor v Quest Enterprises (NSW) Pty Ltd
FILE NUMBER(S):	SC 4282/04; 2534/06
COUNSEL:	Plaintiff: P Hallen SC Defendant: D A Allen
SOLICITORS:	Plaintiff: Uther Webster Evans Defendant: Leonard Deane Lawyers

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

WHITE J

Friday, 28 July 2006

4282/04 Alam & Anor v Quest Enterprises (NSW) Pty Ltd & Ors
2534/06 Alam & Anor v Quest Enterprises (NSW) Pty Ltd

JUDGMENT

1 HIS HONOUR: On 27 May 2005, the plaintiffs obtained judgment against the first defendant in proceeding number 4282/04 (Quest Enterprises (NSW) Pty Ltd) for the amount of $316,167.13, together with interest. On 14 September 2005, the first and second defendants to those proceedings (Quest Enterprises and Mr Sam Cassaniti) filed a cross-claim against the plaintiffs. On 25 November 2005, orders were made by consent for the provision of security for the plaintiffs’ costs of defending the cross-claim. Subject to certain conditions, the plaintiffs undertook not to enforce the judgment they had obtained on 27 May 2005 until after 31 March 2006. The consent orders also provided for the stay of proceedings on the cross-claim until, amongst other things, the defendants had complied with earlier orders made in the proceedings for the provision of verified bills of account and supporting documents.

2 By notice of motion filed on 9 June 2006, the defendants seek orders to the effect that the stay of the cross-claim be lifted or varied, and enforcement of the judgment in favour of the plaintiffs given on 27 May 2005 be stayed until further order.

3 On 21 February 2006, the plaintiffs caused a statutory demand to be served upon Quest Enterprises pursuant to s 459E of the Corporations Act 2001 (Cth) requiring Quest Enterprises to pay the amount of $316,167.13 due under the judgment of 27 May 2005. The notice was not complied with.

4 On 28 April 2006, the plaintiffs filed originating process in proceedings 2534/06 seeking orders that Quest Enterprises be wound up in insolvency. On 22 June 2006, Quest Enterprises filed an interlocutory process seeking orders restraining the plaintiffs from proceeding with their application for winding-up. Alternatively, Quest Enterprises applies for leave pursuant to s 459S of the Corporations Act to oppose the winding-up application on the grounds that the debt described in the statutory demand upon which the plaintiffs rely was not due and owing at the date the statutory demand was sworn, or on the ground that the defendant has a genuine offsetting claim.

5 This judgment concerns the defendants’ notice of motion of 9 June 2006 in proceedings 4282/04, and Quest Enterprises’ interlocutory process in proceedings 2534/06 (the winding-up proceedings). The applications were heard together.

In a judgment of 26 May 2005, in proceedings 4282/04, Palmer J described the plaintiffs’ claim as one that the first and second defendants should account for moneys paid to them by the plaintiffs on account of fees, and for moneys received by them from the Australian Taxation Office as refunds of tax paid by the plaintiffs. The first and second defendants claimed that the plaintiffs were indebted to them for accountancy services.

6 On 17 August 2004, a number of orders were made in proceedings 4282/04, including the following:

“7. The First and Second Defendants each provide to the Plaintiffs verified bills of account alleged to be due and payable by the Plaintiffs, or any of them, and/or by the Third Defendant, together with documents supporting the amounts claimed therein, on or before 30 September 2004:

(a) in relation to the work and services allegedly provided to any of the Plaintiffs and to the Third Defendant;

(b) monies allegedly lent by the First and/or Second Defendant to any of the Plaintiffs and/or to the Third Defendant;

(c) the use to which the payments referred to in Paragraph 7 of the Plaintiffs’ Summons filed on 2 August 2004 were put and when.”

7 This was one of a number of orders made by consent following the first and second defendants’ failure to comply with earlier directions for the service of evidence and the production of records.

8 On 20 October 2004, the time for compliance with order 7 was extended until 27 October 2004, but it was not complied with. Proceedings 4284/04 were listed for hearing on 30 May 2005. On 25 May 2005, the first and second defendants applied to Palmer J to vacate the hearing date. That application was heard on 26 May 2005 and was refused. Palmer J noted that the defendants were in substantial default of the directions of the Court to file their affidavits. His Honour recorded a suggestion of senior counsel for the plaintiffs that:

“ In view of the substantial default of the first and second defendants in complying with the Court’s directions, the proper course would be to enter judgment for the plaintiffs on the plaintiffs’ claim against the first and second defendants, but to stay execution of that judgment upon conditions. The conditions would be that the first and second defendants be directed to file within a certain time their cross-claim and their evidence to establish their offsetting claim. If the first and second defendants comply with the timetable, the cross-claim will go on for hearing. And if the first and second defendants are successful to any extent, the amount to which they are found to be entitled under the cross-claim will be set off against the amount of the judgment debt which the plaintiffs have, execution of which has been stayed. ”

9 Palmer J considered the nature of the defence foreshadowed by the defendants, the considerable defaults of the first and second defendants, and the explanation proffered for those defaults. His Honour indicated that if the defendants were unable to establish a proper defence on the basis of the evidence filed to that date, then judgment would be entered for the plaintiffs, but upon the conditions indicated in the plaintiffs’ submissions. That is, if the first and second defendants prosecuted their foreshadowed cross-claim expeditiously and were successful, they would either extinguish the judgment debt of the plaintiffs, if the plaintiffs obtained judgment, or else the judgment debt would be reduced by the amount which the first and second defendants established by that cross-claim. At this time, the defendants had not filed a cross-claim.

10 On 27 May 2005, orders were made by consent for the entry of judgment against the first and second defendants for the amount of $316,167.13, plus interest. The orders provided that the execution of that judgment should be stayed upon conditions. The first condition was that the first and second defendants file and serve a cross-claim by 14 September 2005. The second condition was that the first and second defendants comply with orders 7 and 14 of the orders made on 17 August 2004, by 14 September 2005. The third condition was that the defendants proceed with the cross-claim with all due expedition. The consent orders provided that if the conditions were not complied with, the plaintiffs were to be at liberty to enforce the judgment without further notice. Provision was made for the first and second defendants to pay the plaintiff’s costs, b++ut for execution of the judgment on costs (to be entered after their assessment) to be stayed upon the same conditions.

11 The cross-claim was filed on 14 September 2005. However, the other conditions of the stay of the judgment were not satisfied. On 2 November 2005, the plaintiffs filed a notice of motion by which they sought an order that they be at liberty to enforce the judgment. They also sought an order that the cross-claim be struck out or stayed, or alternatively that the defendants/cross-claimants provide the plaintiffs/cross-defendants with security for their costs on the cross-claim.

12 On 25 November 2005, further orders were made by consent as follows:

“ THE COURT:
1. Makes an Order in terms of Order 1 as sought in the Plaintiffs’ Notice of Motion dated 2 November 2005.
2. Orders the First and Second Defendants to provide security (“Security”) for the Plaintiffs’ costs of defending the Cross Claim, in the sum of $150,000.00 to be paid into a Controlled Monies Account in the name of the First and Second Defendants, such account to be opened by the solicitor for the Plaintiffs within 7 days.
3. Notes the parties agreement that the security is to be paid by way of 3 equal fortnightly instalments, the first to be paid on or before 9 December 2005.
4. Notes that upon the compliance by the First and Second Defendants with paragraph 3 above, the Plaintiffs undertake that they will not enforce the Judgment entered on 27 May 2005, until after 31 March 2006.
5. Orders that the proceedings on the Cross Claim be stayed pending:
(i) Compliance with Order 2 herein; and
(ii) Compliance with order 7 of the orders made 17 August 2004 and entered 18 August 2004.
6. Orders that the First and Second Defendants pay the Plaintiffs’ costs of and incidental to the Plaintiffs’ Notice of Motion dated 2 November 2005, as agreed or assessed, forthwith.
…
8. Notes that the parties agree that the stay referred to in Order 5 shall continue until:
(i) Provision of the Security in accordance with order 2;
(ii) Compliance with Order 7 of the Orders made 17 August 2004; and
(iii) Payment of the costs referred to in Order 6.
9. Notes that in the event that the stay of proceedings on the Cross Claim is removed but Judgment has not otherwise been satisfied, the Plaintiffs undertaking to the Defendant in accordance with paragraph 4 will continue until leave is granted to the Plaintiffs to execute upon the Judgment.
… “

13 The first instalment of $50,000 for security of costs was not paid by 9 December 2005. It was paid on 22 December 2005. A second instalment was paid on 23 December 2005 but the cheque was dishonoured. Another cheque of $50,000 was deposited on 20 January 2006. A further deposit of $10,000 was made on that day. On 9 March 2006, the defendants made a deposit of $40,000 to the controlled moneys account as security for costs.

14 As previously noted, the plaintiffs served their statutory demand upon Quest Enterprises on 21 February 2006.

15 On 14 March 2006, Quest Enterprises filed an application under s 459G and 459J of the Corporations Act for an order setting aside the statutory demand. The originating process was sent by facsimile to the solicitors for the plaintiff on 15 March 2006. This was outside the prescribed period of 21 days following service of the statutory demand for the service of originating process to set aside the demand. Although the solicitor for Quest Enterprises had been told by the plaintiffs’ solicitor on 6 March 2006 that the statutory demand had been served on 21 February 2006, he proceeded on the assumption, apparently based on instructions from his clients, that the statutory demand was served on 22 February 2006. He believed that he had until that day to file and serve the application.

16 The originating process for the winding-up of Quest Enterprises was filed by the plaintiffs on 27 April 2006.

Application to Lift Stay of Cross-Claim in Proceedings 4282/04

17 The effect of orders 5 and 8 made on 25 November 2005 is that the cross-claim is presently stayed because the defendants have still not complied with order 7 made on 17 August 2005. (The stay is also expressed to continue until the defendants have paid the costs the subject of order 6 made on 25 November 2005. However, it is common ground that no bill or assessment of costs has been forwarded by the plaintiffs to the defendants. The plaintiffs did not rely on this matter for their contention that enforcement of the judgment was not and is not stayed.)

18 The defendants submitted that the stay of the cross-claim should be lifted on condition that the defendants file their evidence in support of the cross-claim within four weeks. The director of the first defendant, Mr Gino Cassaniti, deposed that the defendants would have their evidence completed within three weeks of receiving a defence. He sought to explain the delay in complying with the existing orders in relation to the provision of verified bills of account and supporting documentation on the ground that the second defendant, Mr Sam Cassaniti, is in prison, and that during 2005, Mr Sam Cassaniti’s time, and Mr Gino Cassaniti’s time, was largely occupied by preparing for Mr Sam Cassaniti’s criminal trial.

19 The evidence does not explain the defaults in complying with the orders of 17 August 2004, in accordance with the timetable agreed to on that date, or in accordance with the extended time agreed to on 20 October 2004. I would not lift the stay of the cross-claim on the faith of an estimate by Mr Gino Cassaniti as to when the defendants would be in a position to put on evidence in support of their cross-claim, when the defendants’ conduct of the litigation has been characterised by repeated defaults in complying with the Court’s orders for the provision of documents and the filing of evidence.

20 In any event, irrespective of the reasons the defendants remain in default of the orders made on 17 August 2004, no substantial reason is advanced for varying the regime to which the parties agreed on 25 November 2005. That regime provides for the cross-claim to remain stayed until, amongst other things, order 7 made on 17 August 2004 is complied with. No reason was advanced as to why the plaintiffs should not be given the verified bills of account and supporting documents which the first and second defendants agreed to provide almost two years ago.

21 I refuse the application that the stay of the cross-claim be lifted, or that the orders of 25 November 2005 in relation to the stay of the cross-claim be varied.

Stay of Execution of the Plaintiff’s Judgment

22 The defendants submitted that because there was an arguable cross-claim, there should be a stay of enforcing the plaintiffs’ judgment. The cross-claim is for an amount substantially in excess of the plaintiffs’ judgment. The defendants submitted that it was not in the interests of justice that the plaintiffs should be entitled to enforce their judgment (and it was submitted that proceeding with the winding-up application was a mode of enforcement) where it was arguable that the plaintiffs were indebted to the defendants in a substantially greater amount.

23 The claim that the plaintiffs were liable to the defendants for a greater amount than the amount claimed by the plaintiffs had been advanced prior to 27 May 2005. That claim has never been tested. Following the judgment of Palmer J on the application to vacate the hearing date, the parties agreed upon the regime whereby the plaintiffs were entitled to judgment for the amount claimed by them, but that the judgment would be stayed if specified conditions for the progression of the cross-claim were met. Those conditions were not met. The plaintiffs consented to a limited stay on those terms, and who did not oppose the defendants’ being allowed to file a cross-claim although the matter had been set down for final hearing. It would be unfair to the plaintiffs for a stay of the judgment now to be reimposed upon the mere assertion by the defendants that their cross-claim was a good one and that they were ready to proceed with it. There is no reason to vary the orders made by consent on 25 November 2005.

24 For these reasons, I will dismiss the defendants’ notice of motion of 9 June 2006 in proceedings 4282/04.

Injunction to Restrain the Plaintiffs from Proceeding with the Winding-Up Application

25 In substance, the claim that the plaintiffs be “restrained from winding up the defendant (Quest Enterprises)” is a claim that the originating process for the winding-up of Quest should be stayed or dismissed. As I understand it, the ground of that application is that the institution of the winding-up proceedings was an abuse of process because it was in breach of the orders made on 25 November 2005 in relation to the stay of enforcement of the plaintiffs’ judgment of 27 May 2005. Quest Enterprises also contends that if the judgment is now stayed, the plaintiffs would no longer be entitled to a debt which was immediately due and payable, and it would be an abuse of process for them to continue with the winding-up proceedings.

26 The plaintiffs submitted that service of the statutory demand was not a step of enforcement of the judgment of 27 May 2005. If the demand was not complied with, and no application was made to set aside the demand, there would be a presumption of insolvency. However, the service of a statutory demand, for the purpose of creating that presumption if the demand was not complied with, had no effect on satisfying the liability of the company under the judgment. No asset of the judgment debtor could be taken in execution by reason of the service of the statutory demand. Service of the demand could not cause the disclosure of any asset available to be taken in execution of the judgment. The service of a statutory demand was not one of the modes of executing a judgment prescribed in the Civil Procedure Act 2005 (NSW) or the Uniform Civil Procedure Rules 2005 (NSW).

27 However, it is unnecessary to decide whether service of the statutory demand was within what the parties meant by the “enforcement” of the judgment of 27 May 2005. The plaintiffs’ undertaking in paragraph 4 of the orders of 25 November 2005 not to enforce the judgment until after 31 March 2006 was conditional upon the defendants’ complying with the agreement noted in paragraph 3 of the orders. That agreement required security of $150,000 to be provided by three equal fortnightly instalments, the first of them to be paid on or before 9 December 2005. The agreement for the provision of security required all three instalments to be paid by 6 January 2006. The first instalment was not paid by the due date. On 21 February 2006, when the statutory demand was served, $40,000 of the required security was still outstanding. Interest had been earned on the deposits totalling $110,000 for a shorter period than would have been the case had the agreement been honoured. As the first and second defendants had not complied with the agreement noted in paragraph 3 of the orders of 25 November 2005, the condition of the plaintiffs’ undertaking not to enforce the judgment of 27 May 2005 was not satisfied. Rather, pursuant to order 1, the plaintiffs were at liberty to enforce the judgment.

28 All of the security required to be provided by paragraph 2 of the orders of 25 November 2005 was provided by 9 March 2006. It does not follow that the plaintiffs were then bound by an agreement not to enforce the judgment. There had still not been compliance by the first and second defendants with the parties’ agreement as to the time by which the security would be provided. In any event, the plaintiffs’ undertaking not to enforce the judgment expired as at 31 March 2006, even if the first and second defendants had complied with the obligation to provide security. The originating process was not filed until 28 April 2006. Accordingly, even if service of the statutory demand or filing of the winding-up application were steps in enforcing the judgment, there was nothing to preclude the plaintiffs from taking such steps.

29 It was submitted by counsel for Quest Enterprises that it could be inferred that the statutory demand and originating process for winding-up were brought for the improper purpose of seeking to impede the first and second defendants’ prosecution of the cross-claim. There is no evidence to support that submission.

30 It was also submitted by counsel for Quest Enterprises that if execution of the judgment were stayed, there would no longer be a debt due and payable by the company to the plaintiffs, and the plaintiffs should then be restrained from proceeding with their application. Counsel for the plaintiffs correctly submitted that a stay of execution of the judgment, as distinct from a stay of the operation of the judgment, would not prevent the judgment debt from being due and payable (Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56 at [10]-[16]; Re Hughes; ex parte Westpac Banking Corporation (unreported, Federal Court of Australia, Merkel J, 28 November 1997, BC9706380 at 4–5); Re Pollack; ex parte Deputy Commissioner of Taxation (1991) 32 FCR 40 at 51; 103 ALR 133 at 143-144). In itself, this might not be a sufficient answer to this claim, as it may be an abuse of process to pursue a winding-up application if there is a substantial ground for disputing either the existence or the enforceability of the debt relied upon by the applicant (L&D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 at 183). However, the point does not arise as there is no ground to warrant a stay of either the execution or the operation of the plaintiffs’ judgment of 27 May 2005.

31 Counsel for Quest Enterprises referred to Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560. The present case has no relevant similarity to that case. In Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd, there was a substantial dispute at the time the winding-up application was filed as to the enforceability of a judgment debt for costs. The proceedings were brought for the improper purpose of seeking to deter the defendant company from proceeding with its claim to stay enforcement of the costs order, or to retaliate against that claim having been brought, and the proceedings were conducted against the company in a way which constituted an abuse of process. None of those considerations applies to the present case.

32 For these reasons, Quest Enterprise’s claim to restrain the plaintiffs from proceeding with the winding-up application should be refused.

Application Under s 459S of the Corporations Act

33 Quest Enterprises also seeks leave pursuant to s 459S(1) of the Corporations Act to oppose the winding-up application on the grounds that the debt described in the statutory demand upon which the plaintiffs rely was not due and owing at the date the statutory demand was sworn, or on the basis that the defendant has a genuine offsetting claim.

34 Section 459S provides:

“ 459S Company may not oppose application on certain grounds
(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent .”

35 In Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; 17 ACLC 467; 42 ATR 309, Austin J said (at [49]) that:

“ [49] In my opinion the exercise of the discretion to grant leave under s 459 S (1), involves three considerations, namely:
(i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand;
(ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party's conduct at that time; and
(iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent. ”

36 The critical question is whether the ground sought to be relied on is material to proving the company’s solvency. In Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661, Spigleman CJ, with whom Handley and Giles JJA agreed, said (at [53]-[54]):

“ … s 459S(2) directs attention, in part, to what it is that the company intends to prove and how it intends to prove it. If the company is not prepared to contemplate the possibility that its assertion of solvency is subject to qualification, then the Court cannot be ‘ satisfied’ of the mandatory pre-condition in s 459S(2). An objective element is introduced by the word ‘ material’ but that can only be determined after identifying the company's contentions.
54 If, as here, the company intends to prove that it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to it ‘ proving’ its solvency, cannot be satisfied. ”

37 The evidence as to the company’s solvency was sparse. No balance sheet, profit and loss account, or cashflow statement was tendered. There is evidence that the company no longer trades. The director of the company, Mr Gino Cassaniti, swore that he knew of no other creditor of the company other than the plaintiffs. He also deposed that the company had no property. On the other hand, he deposed to the company being owed substantial debts as at 30 September 2005, and to the fact that another partnership was required to collect the debts owing to the company. There was also evidence that the bank account in the name of Cassaniti & Associates had credit balances between 22 June 2005 and 4 May 2006 of amounts varying from a few thousand dollars up to $100,000, as well as occasional debit balances. It was not clear that the moneys standing to the credit of this account were assets of the company as the account would appear to have been a trading account and the evidence was that the company has ceased to trade.

38 Counsel for Quest Enterprises submitted that Quest Enterprises would not contend that if the debt of $316,000 was owing (I infer in the sense of its being due and payable) it could be paid.

39 It is unarguable that Quest Enterprises is liable to the plaintiffs for the judgment debt. Even if it is assumed that its cross-claim against the plaintiffs is well-founded, its cross-claim would not operate as a set-off against the judgment debt. If leave were given under s 459S(1) of the Corporations Act, at best Quest Enterprises would be in the position where it could demonstrate a genuine offsetting claim. However, this would not result in the setting aside of the statutory demand and the removal of the presumption of insolvency (Chief Commissioner of Stamp Duties v Paliflex at [48]). Leave can only be given under s 459S if the Court is satisfied that the ground which the company wishes to advance is material to proving that the company is solvent. The company is only solvent if it is able to pay its debts as and when they become due and payable. Establishing the existence of a genuine cross-claim would not put the company in a position that it could presently pay the judgment debt which is now due and payable. Nor would the existence of a genuine cross-claim be material to refuting an inference of insolvency to be drawn from the fact of non-payment of the judgment debt. It would provide no good reason for the company not paying the judgment debt (compare DAG International Pty Ltd v DAG International Group Pty Ltd [2005] NSWSC 1036 at [16]).

40 There is no evidence that if Quest Enterprises were allowed to assert the merits of its cross-claim on the hearing of the winding-up application that would have any material effect on the proof of its solvency. That cross-claim is presently stayed. There is no prospect of its being immediately determined so as to put Quest Enterprises in funds to meet the judgment debt if it is successful. There is no evidence that if Quest were permitted to rely upon the merits of its cross-claim, it could demonstrate that it had a cause of action on which it could raise funds to meet the judgment debt by way of factoring the debt, or obtaining a loan on the security of it. Accordingly, s 459S(2) precludes the grant of the leave sought.

41 Although there is evidence of work done for the plaintiffs by an individual or company trading under the name of Cassaniti & Associates which arguably gives rise to a debt, it is far from clear how much of any such debt is owed to Quest Enterprises. The company was not incorporated until 15 November 2000. Mr Sam Cassaniti and the company are cross-claimants. They claim a debt arising from letters of engagement said to have been entered into by the plaintiffs up to 1997 and for accounting services said to have been provided from 1985 to 2004. Whilst there was some particularisation of the dates at which work was said to have been performed, no attempt was made in submissions to quantify how much of the alleged debt is claimed to be due to Quest Enterprises, as distinct from Mr Sam Cassaniti, or whether the amount claimed to be due to Quest Enterprises exceeds the amount of the judgment debt. Therefore, even if the company could dispute that the judgment debt was presently due and payable to the extent the company had an arguable cross-claim, the company did not quantify the amount of alleged debt in the cross-claim so as to demonstrate a material effect on its solvency.

42 In the circumstances, it is unnecessary to consider the first of the two discretionary considerations referred to in Paliflex. The requirement of s 459S(2) is not met.

43 For these reasons, I refuse Quest Enterprise’s application for leave pursuant to s 459S(1).

Orders

44 In proceedings 4282/04, I order that the first and second defendants’ notice of motion filed on 9 June 2006 be dismissed with costs.

45 In proceedings 2534/06, I order that the defendant’s interlocutory process filed on 22 June 2006 be dismissed with costs.

46 The exhibits may be returned after 28 days.

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