Aspermont Ltd v Lechmere Financial Corporation
[2001] WASC 344
ASPERMONT LTD -v- LECHMERE FINANCIAL CORPORATION [2001] WASC 344
| Link to Appeal : |
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| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 344 | |
| Case No: | COR:162/2001 | 25 SEPTEMBER, 3 OCTOBER & 16 NOVEMBER 2001 | |
| Coram: | MASTER BREDMEYER | 14/12/01 | |
| 33 | Judgment Part: | 1 of 1 | |
| Result: | Application allowed in part | ||
| B | |||
| PDF Version |
| Parties: | ASPERMONT LTD (ACN 000 375 048) LECHMERE FINANCIAL CORPORATION |
Catchwords: | Corporations Statutory demand Genuine dispute |
Legislation: | Corporations Law, s 459G, s 459H, s 459J |
Case References: | Aspermont Ltd v Robash Pty Ltd (1997) 16 ACLC 485 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Ltd (1996) 21 ACSR 581 Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062 Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001 Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 12 ACLC 501 Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675 Jones v Dunkel (1959) 101 CLR 298 D & S Group v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794 Royal Brunei Airlines SDN BHD v Ming [1995] 3 WLR 64 Yong v Letchumanan [1980] AC 331 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
and
ASPERMONT LTD (ACN 000 375 048)
BETWEEN : ASPERMONT LTD (ACN 000 375 048)
- Applicant
AND
LECHMERE FINANCIAL CORPORATION
Respondent
Catchwords:
Corporations - Statutory demand - Genuine dispute
Legislation:
Corporations Law, s 459G, s 459H, s 459J
(Page 2)
Result:
Application allowed in part
Category: B
Representation:
Counsel:
Applicant : Mr S M Davies
Respondent : Mr S J Penrose
Solicitors:
Applicant : Michael Paterson & Associates
Respondent : Tottle Christensen
Case(s) referred to in judgment(s):
Aspermont Ltd v Robash Pty Ltd (1997) 16 ACLC 485
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Ltd (1996) 21 ACSR 581
Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062
Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001
Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
Case(s) also cited:
Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 12 ACLC 501
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675
Jones v Dunkel (1959) 101 CLR 298 D & S Group v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794
Royal Brunei Airlines SDN BHD v Ming [1995] 3 WLR 64
(Page 3)
Yong v Letchumanan [1980] AC 331
(Page 4)
1 MASTER BREDMEYER: This is an application to set aside a statutory demand dated 25 April 2001 issued by the respondent, Lechmere Financial Corporation (Lechmere) against the applicant, Aspermont Ltd (the applicant, the company or Aspermont) in these terms:
"Description of the debt Amount of the debt
Interest on a loan of $780,000 owed by $351,000.00
the company to the creditor which loan
bears interest at the rate of 15% per annum
payable half yearly in arrears, such interest
being due and payable but not paid in respect
of the half years ending on 30 June 1998,
31 December 1998, 30 June 1999,
31 December 1999, 30 June 2000 and
31 December 2000, the interest in respect of
each such half year being the sum of $58,500.00
The benefit of debts formerly owed by the $184,000.00
company to various trade creditors (namely,
Jackson McDonald, Minter Ellison, KPMG –
Chartered Accountants, KPMG Registrars
Pty Ltd, Deloitte Touche Tamatsu, Citibank
Limited, and Pearce and Cook) which debts were
assigned by those creditors to the Creditor in 1997
Total amounts of the debts: $535,000.00"
2 The application is made under s 459G of the Corporations Law and is on the basis that the company has raised a genuine dispute about the existence or amount of the debts to which the demand relates under s 459H and/or that, for some other reason, the demand should be set aside under s 459J.
3 In determining whether there is a genuine dispute, I accept the statements of law in the following cases. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 McLelland CJ held at 671 that a genuine dispute means:
" ... a plausible contention requiring investigation, and raises much the same sort of considerations as 'the serious question to be tried' criteria which arises on an application for an interlocutory injunction or for the extension or removal of a
(Page 5)
- caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other documents by the same deponent, or inherently improbable in itself it may be'. Not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' or a 'patently feeble legal argument or an assertion of facts unsupported by evidence'. "
4 In Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J stated:
"Division 3 ... prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'.
It is often possible to discern the spurious and to identify mere bluster or assertion, but beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)."
5 In Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062 at 1066:
"These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute."
(Page 6)
6 In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001 at 1011 Northrop, Merkel and Goldberg JJ said:
"A genuine dispute requires firstly that the dispute be bona fide and truly exist in fact, and secondly, the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived."
- That passage was adopted by the Full Court of this State in Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [27].
7 One of the applicant's affidavits is that of Mrs Appleyard, sworn 7 September 2001. It is an affidavit in reply. The respondent objects to the admissibility of this affidavit and I need to rule on that.
8 The applicant's application to set aside the statutory demand is dated 21 May 2001. Two affidavits were filed in support. One of Mr Cross, the plaintiff's secretary and one of Mrs Appleyard, each sworn 21 May 2001. Mr Cross' affidavit states in par 3:
"3. In addition to this affidavit, at the hearing of the matter, the Applicant will also rely on affidavits filed in COR 2 of 2001."
- Paragraph 6 of Mr Cross' affidavit reads:
"6. The Minutes of the Annual General Meeting of the Applicant held on 15 August 1997, show that on that day the persons present purported to pass a resolution to the effect that the Applicant would assume an obligation to pay the principal and interest of a loan made to Mr Kent of $780,000 which loan was said to bear interest at 15% per annum. The Minutes I refer to are attached to the affidavit of Andrew Kent sworn on 5 January 2001, pages 77 and 78."
(Page 7)
- and not raised in the respondent's affidavits. It was always part of the respondent's case that the debt of $780,000 was incurred by the company by a resolution passed at that AGM. The company knew that on 21 May, as per par 6 of Mr Cross' affidavit which I have quoted above.
10 In an application to set aside a statutory demand, the applicant has to set out the bones of its case in the initial affidavit or affidavits, that is the ones filed within the 21 day period. If it does so, it can expand on them later. That setting out is somewhat akin to a pleading. If not done, then a new point cannot be raised in a later affidavit. See Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Ltd (1996) 21 ACSR 581 and Aspermont Ltd v Robash Pty Ltd (1997) 16 ACLC 485, a judgment of Templeman J. I accept the statement of law in those cases. I think the new affidavit of Mrs Appleyard falls foul of the principle and I propose to strike out pars 3(e) and 3(f), 4 and 5 which challenge the validity of the Annual General Meeting. The remainder can stand.
11 I now rule on another preliminary matter. When argument concluded on 3 October 2001 and I reserved my decision, Aspermont's Annual Report 2001 (for the year ending 30 June 2001) was not out or was not available to the respondent. That report is signed by two directors – Mr Kent and Mr Cross - and is dated 28 September 2001. Attached to the report on the last page is a notice of annual general meeting to be held on 2 November. That notice is signed by Mr Cross as company secretary and is dated 9 October 2001. I infer from this that the Annual Report was sent out with this notice on 9 October or shortly thereafter. I consider the Report is arguably relevant and is genuinely fresh. It is not evidence which the respondent could otherwise have introduced. I consider it fresh evidence and I propose to admit it. It is attached to the affidavit of Miss Eaves of 13 November 2001.
12 Aspermont seeks to file an affidavit in response in the form of the affidavit of Mr Lewis Cross, sworn 16 November 2001, explaining some of the statements in the annual report which might otherwise be thought as admissions or reflecting on the company's credit. I propose to allow that affidavit with the deletion of par 8 and Exhibit "A" referred to in par 8. That paragraph and the exhibit is not evidence relating to the annual report and is not fresh evidence in the sense that it could not, with reasonable diligence, have been discovered earlier. It is also inadmissible on the authority of Aspermont v Robash, discussed earlier.
(Page 8)
1. Interest of $351,000 on a loan of $780,000
13 I will consider the first debt alleged in the statutory demand. By way of background, I mention that Aspermont is a public company based in Perth. It is a publishing company. It publishes Australia's Mining Monthly and six or seven other publications. It is controlled by Mr Andrew Kent. I say that because he is the Managing Director and he owns two-thirds of the shares through a private company. Mr Kent was born in Hungary. He was a stockbroker, I think, in the United Kingdom for many years. He now spends part of his time each year in England and part in Perth. He is not an English resident for tax purposes.
14 Lechmere is a company controlled by Mr Richard MacLellan. It is registered in the British Virgin Islands. Mr MacLellan is an accountant and is based in Monaco and he helps people who want to invest offshore. His main corporate vehicles in Monaco appear to be the EBC Trust Corporation, Euro Corporate Services Ltd and Vernon Finance Ltd. Mr MacLellan and Mr Kent had business dealings together over many years. Mr MacLellan is an investor in Aspermont. Mr MacLellan was on two occasions a director of Aspermont. The two men were once friends but are so no longer. They once trusted each other in business matters, but do so no longer.
15 Aspermont denies that it owes interest of $351,000 to Lechmere. It also denies that it owes a loan of $780,000 to Lechmere. I will discuss in some detail the evidence relating to the loan. Obviously, if there is no loan there is no interest payable and if there is a genuine dispute about the existence of the loan, there must be a genuine dispute about the existence of the interest.
16 What is the company's evidence against the loan which is said to raise a genuine dispute?
17 The first point is that there is no written loan agreement, meaning an agreement signed by both parties. That is true.
18 The second argument is that the company says that the money for the Lechmere loan of $780,000 to Aspermont came from Kent's company, Drysdale Investments Corporation BVI ("Drysdale").
19 In Mr Kent's first affidavit of 5 January 2001 he said he met Mr MacLellan in 1992 and MacLellan suggested the incorporation of a British Virgin Island company to hold assets under Mr Kent's control. This company Drysdale was set up. It was incorporated by Mr MacLellan
(Page 9)
- and was under his control but it was a trustee company for the benefit of Mr Kent and acted on his instructions. Mr Kent said that millions of dollars passed through Drysdale during the period 1992 – 1995. In a later affidavit of 14 September 2001, he said he originally provided MacLellan with assets to the value of $5 million to manage on his behalf. In 1992 – 1995 money was required for various purposes associated with Aspermont. At that time it was an unlisted public company controlled by Mr Kent. Mr MacLellan suggested that another trustee company should be used to advance the money to Aspermont, although the money would originate from Drysdale. Mr MacLellan said that the company was already in existence and would not result in any additional charges to Mr Kent. Mr Kent said he deferred to that judgment and that intermediary company was Lechmere. No particular reason is given in the affidavit as to why it was thought desirable to channel Drysdale's money to Aspermont through Lechmere.
20 Mr Kent said all went well until 1997 when he began to query some of the accounts produced by Mr MacLellan relating to Drysdale. Mr Kent's evidence, in very general terms, is that any money loaned from Lechmere to Aspermont came from Drysdale. No details are given as to the sums and dates advanced, nor is any documentary evidence given in relation to those advances.
21 At par 6.1 of that affidavit Mr Kent refers to six sums, said to have been advanced by Lechmere to Aspermont between 1992 and 1995, totalling $150,000. Mr Kent said that sum is not owed by the applicant to the respondent because it was discharged by an allocation of shares to the respondent on 10 November 1995. On that date Aspermont resolved to issue 400,000 shares at a par value of $2.50 per share to the respondent in full and final satisfaction of debts owed to the respondent at that time. The minutes of that meeting are annexed to Exhibit "J1". That $150,000 is not in issue in this case. It does not form part of the $780,000. It is the subject of an earlier statutory demand which was withdrawn, so I will say nothing more about it. It does show a series of loans from Lechmere to Aspermont in that period.
22 There is no supporting documentary evidence for Mr Kent's general assertion that the $780,000 loan asserted by Lechmere came from Drysdale. But even if the $780,000 did come from Drysdale, so what? Drysdale, Lechmere and Aspermont are separate legal entities. If Lechmere loaned money to Aspermont and interest on it is due, it can be recovered by legal process. If Drysdale loaned the same money to
(Page 10)
- Lechmere, which was loaned to Aspermont, then Drysdale can sue Lechmere in the British Virgin Islands or Monaco to recover the debt.
23 Mr Cross, in his affidavit of 21 May 2001, said – and this is really argument – that in issuing this statutory demand, and an earlier one which was withdrawn, Mr MacLellan has acted in breach of trust and if Aspermont were to pay out Lechmere's debt, Drysdale would be unable to recover the same sum from Lechmere, both being British Virgin Island companies. Counsel for Aspermont put it to me that the difficulties of one British Virgin Island company suing another one are very great, so that the court should not support a breach of trust and these arguments amount to some other reason under s 459J why the demand should not be set aside.
24 I am not persuaded by those arguments. Mr Kent is caught, and in my view should be caught, with his own petard. On his own evidence, he agreed with Mr MacLellan that Kent's money to be loaned to Aspermont would be loaned from Drysdale to Lechmere to Aspermont. That is his decision. There may have been some commercial reason or reasons why that was done that way. But, legally, if what he says is true, his remedy is to get Drysdale to sue Lechmere.
25 Lechmere's evidence, in general terms, is that, on a date which is not clear, it loaned $780,000 to Mr Kent to buy a half interest in Australia's Mining Monthly from a Mr Calcraft. In August 1997, Aspermont bought this half interest from Mr Kent for $780,000. It did so by taking over Mr Kent's debt to Lechmere and by giving him 9 million share options in Aspermont. Lechmere has a number of documents in support of its case, all of which come from Aspermont and thus are of special value, being contemporary documents against interest. But it should be said at the outset that there is no written loan agreement signed by the parties between Lechmere and Kent for $780,000, nor between Lechmere, Kent and Aspermont when Aspermont took over Kent's debt.
26 I will now outline the documentary evidence which exists for these transactions.
27 The first piece of evidence relates to the prior loan from Lechmere to Kent. It is found at "RM 23", pages 95 and 96 of Mr MacLellan's first affidavit. The first page is a copy of the fax dated 26 June 1996 from Elizabeth Petrich, whom I understand is an accounts clerk, on "Australia's Mining Monthly" letterhead to Richard MacLellan, EBC Trust Corporation in Monaco. The text reads:
(Page 11)
- "Dear Richard,
Copy of the with compliments slip and cheques sent this afternoon by air mail.
Kind regards,
[Signed] Elizabeth"
- The with compliments slip on "Australia's Mining Monthly" letterhead reads:
"Richard MacLellan
With Compliments
A Kent
1. 1.Payment of interest 1/1/96-30/6/96
$780,000 at 15% unsecured $58,500
Less 10% withholding tax $ 5,850
$52,650
2. A Kent Management – Consulting fees
Re AMM 1/1/96-30/6/96 $26,000"
That document appears to be in Ms Petrich's handwriting. Underneath that is a photostat of two cheques, each drawn to EBC Trust Corporation on behalf of Listed Securities Pty Ltd, as trustee for the Listed Securities Unit Trust. Each cheque is signed by E Petrich. The cheques are for $52,650 and $26,000. I am not concerned here with the $26,000 cheque. The cheques are in Australian dollars. There is other evidence that EBC Trust Corporation was a corporate vehicle controlled by Mr MacLellan.
28 There is other evidence that when Mr Kent bought a half interest in "Australia's Mining Monthly" with Mr Calcraft they were in partnership, and the vehicle for that "partnership" were units in the Listed Securities Trust. I consider that "With Compliments" slip and cheque is evidence that Listed Securities Pty Ltd owed EBC Trust Corporation $780,000 at 15 per cent interest. It is not direct evidence that Mr Kent owed that sum to Lechmere. Or it could be that Mr Kent arranged for the interest on his debt to Lechmere to be paid by Listed Securities Pty Ltd, of which he was half owner, and that it was paid at MacLellan's request to EBC rather than Lechmere. MacLellan says that was the only interest payment paid by Kent as it was later proposed that Aspermont take over Kent's debt.
(Page 12)
29 Secondly, there are the minutes of Aspermont's annual general meeting of 15 August 1997 (see Kent's first affidavit of 5 January 2001 at 77):
"ACQUISITION OF 50% OF AUSTRALIA'S MINING MONTHLY:
RESOLVED, pursuant to section 243Q of the Corporations Law, to authorise the Company to give a financial benefit to Mr. Andrew Kent, a director of the Company pursuant to a transaction whereby the company purchases from Mr Kent, Mr Kent's interest in the business known as 'Australia's Mining Monthly' upon and subject to the following terms and conditions:-
a. That the company (or a wholly owned subsidiary) acquire from Mr. Kent his 50% interest known as 'Australia's Mining Monthly' by purchasing, free from encumbrances, Mr. Kent's interest in the partnership with Mr. Leslie Robert Calcraft which carries on such business together with 50% of the issued units in the listed securities unit trust which provides certain management and administration services to that partnership for a consideration comprising:
i) the assumption of the obligation to pay the principal and interest in relation to a loan made to Mr. Kent of $780,000 by Lechmere Financial Corporation which loan bears interest of 15% per annum payable half yearly in arrears and repayable on the 30 June 2002; and
ii) the grant to Mr. Kent (or his nominee) of 9 million transferable options exercisable at any time prior to 30 June 2002 to acquire ordinary shares of $2.50 par value each in the capital of the company upon payment of the Company of 2.5 cents per share with the balance of $4.475 per share to be paid out of the share premium account of the Company and that the Company reserve in such account a sum sufficient to satisfy the foregoing if and when necessary.
(Page 13)
- b. That the Directors of the Company hereby authorised to take any and all steps not inconsistent with the foregoing that they consider appropriate to implement the foregoing proposed transaction.
The Chairman made a record of votes for and against the resolution and declared it carried and directed that the record of votes made as required by section 243ZB(4) of the Corporations Law be placed with the minutes of the meeting."
30 That is powerful admission evidence of a loan with interest in those terms.
31 The third piece of evidence is an explanatory memorandum of 16 pages sent out to shareholders of Aspermont on 14 July 1997 to explain the proposed transaction whereby Aspermont took over Kent's loan of $780,000 plus interest at 15 per cent in return for acquiring Kent's half interest in "Australia's Mining Monthly". The explanatory memorandum is found in a number of places, but I refer to it as annexed to Mr Peter Parsons' affidavit of 31 July 2001. I should add that Mr Parsons was a director of Aspermont at the time of the purchase of this half interest and had a big hand in drafting the explanatory memorandum and the resolutions and steering them through the annual general meeting. (I mention, in passing, that Mr Parsons, who describes himself now as a company director, had a brilliant career in law. He graduated from the Australian National University in 1976 with First Class Honours and the University Medal in Law. Subsequently, he was Fullbright Scholar and Sir Robert Menzies Scholar to Harvard University from which he graduated with a Master of Laws Degree in 1978. He is a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Society of Practising Accountants.) Mr Kent discussed with him how his half share in "Australia's Mining Monthly" could be purchased by Aspermont. The lengthy explanatory memorandum was sent out to shareholders with a covering letter of 14 July 1997 on Aspermont letterhead under the signature of Peter Parsons, Executive Director. I quote the letter:
"Dear Shareholders
As foreshadowed to you previously, it is proposed your company acquire a 50% interest in the well established business known as 'Australia's Mining Monthly'. The flagship of this business is one of Australia's leading trade journals for the
(Page 14)
- mining, oil and gas business, 'Australia's Mining Monthly'. As it is mainly available by subscription, a copy of a past issue is enclosed so that you may see its style and quality.
Because the proposed acquisition is from a director of the company, we must comply with Part 3.2A of the Corporations Law which requires shareholder approval in general meeting before a financial benefit may be provided to a related party of a public company. The resolution concerning this matter is numbered 5 in the accompanying notice of the 37th annual general meeting of the company and is the subject of the enclosed Explanatory Memorandum. Also enclosed are a proxy form and the 1996 Annual Report of the company.
Shareholders are urged to consider carefully all of the enclosed documents and are particularly encouraged to read in full the Explanatory Memorandum in respect of resolution 5 before drawing any conclusion on the proposal or otherwise determining how they will vote on such resolution at the annual general meeting. However, shareholders may care to note that your directors with no material personal interest in the transaction (other than Mrs. Kent, who does not wish to make a recommendation because the transaction is with a member of her family) unanimously recommend (as set forth in paragraph 8 of the Explanatory Memorandum) shat shareholders vote in favour of resolution 5 because the proposed transaction will provide the company with a commercially sound cash producing asset for a reasonable value for no immediate cash outlay.
Yours faithfully
(signed)
Peter Parsons
Executive Director"
32 As stated, the explanatory memorandum is 16 pages, and I quote from parts of it:
"3. THE BUSINESS
(a) 'AUSTRALIA'S MINING MONTHLY'
(Page 15)
- The principal activity of the Business is producing the well-known resources trade magazine Australia's Mining Monthly. The magazine has been published for over a decade and is well-known market leader in its sector and is published eleven times per year. In addition the Business has more specialised magazines, 'Australia's Longwalls' and 'Rising Stars of Australian Resources Scene'. The Business has its own staff, in addition to utilising reporting and contributions by well respected journalists. The Business operates from premises in Perth. Mr Kent's interest was acquired by him for $780,000 cash paid over time between 1993 and 1995.
- ... "
ASSESSMENT OF VALUE OF BUSINESS AND CONSIDERATION
(a) The Business
...
(b) Consideration
This sum is made up of a liability of $780,000 to be assumed from Mr Kent and share options to be issued to Mr Kent. The liability of $780,000 is a loan from Lechmere Financial Corporation which is due on or before 30 June 2002. The value of options in Aspermont Ltd is difficult to assess but considered very minimal and has been ascribed a notional value of $20,000 which has been arrived at after careful consideration of Aspermont's current financial position. In this regard it should be noted the recognised value of cash and receivables at 30 June 1996 is some $47,000 less than creditors and borrowings.
...
6. RISKS/BENEFITS
(Page 16)
- In assessing the proposed transaction the following risks and benefits are noted.
(a) Risks
(i) The ability of Aspermont to service the debt of $780,000 plus interest (at 15% p.a.) to be assumed from Mr Kent is presently entirely dependent on cash flow from the business. Based on profits of the business before interest and tax over the past three years, Aspermont Ltd expects to receive not less than $200,000 p.a. from Kent's interest and thus be able to service the interest payable in respect of the debt and should also be able to repay a substantial portion for the principal by the due date for repayment of the debt with the view to refinancing the residual debt if necessary against the interest of Aspermont in the business.
...
7.EFFECT OF RESOLUTIONS
• Resolution 5
If resolution 5 is passed, then the following will result:
(i) Aspermont Ltd as of July 1, 1997 will acquire Kent's interest.
(ii) Aspermont Ltd will assume from Mr Kent a liability to pay Lechmere Financial Corporation $780,000 on June 30, 2002 (the loan). Aspermont Ltd will be liable to pay interest on the loan at 15% p.a. payable half yearly in arrears.
(iii) Aspermont Ltd will grant to Mr Kent (and/or his nominee/s) 9,000,000 transferable options exercisable any time prior to June 30, 2002 to acquire ordinary shares of $2.50 per value each of Aspermont Ltd upon payment to
(Page 17)
- Aspermont of 2.5 cents per share with the balance of $2.475 per share be paid up out of the share premium account of Aspermont Ltd. As at June 30, 1997 such share premium account stood at $23,301,000 and if the entire number of options were exercised as aforesaid, the share premium account would reduce to $1,026,000.
- ...
- 8. STATUTORY REQUIREMENTS
(a) Part 3.2A of the Law
...
(b) S 243V
In accordance with s 243V of the Corporations Law the following information is provided:
(i) assuming Lechmere debt is a benefit to Mr Kent;
(ii) the proposed issue of partly paid shares to Mr Kent in the event that any of the options are exercised and the application of part of the share premium account of the company to pay up the balance owing on those shares may be considered to give rise to a financial benefit to be given by the company to that director;
(iii) ...
(c) Interest of directors
Mr Kent is a related party within the meaning of the Law to the proposed acquisition of the Business and related matters. Mr MacLellan is an associate of Lechmere Financial Corporation. ...
(d) Voting Restrictions
In accordance with the Law, neither Mr Kent, nor any associate of his will vote in respect of resolution 5.
(Page 18)
- ... "
33 This memorandum was also sent to the Australian Securities Commission (MacLellan at 120).
34 The fourth piece of evidence on the debt is the notice of the 37th Annual General Meeting which went out with the explanatory memorandum and Mr Parsons' covering letter. Resolution 5 in that notice was in these terms:
"To resolve pursuant to s 243Q of the Corporations Law to authorise the Company to give a financial benefit to Mr Andrew Kent, a Director of the Company pursuant to a transaction whereby the Company purchases from Mr Kent, Mr Kent's interest in the business known as 'Australia's Mining Monthly' upon and subject to the following terms and conditions:-
(a) that the Company (or a wholly owned subsidiary) acquire from Mr Kent his 50% interest known as 'Australia's Mining Monthly' by purchasing, free from encumbrances Mr Kent's interest in the partnership of Mr Leslie Robert Calcraft which carries on such business together with 50% of the issued units in the listed securities unit trust which provides certain management and administration services to that partnership for a consideration comprising of:-
(i) the assumption of the obligation to pay the principal and interest in relation to a loan made to Mr Kent of $780,000 by Lechmere Financial Corporation which loan bears interest at 15% per annum payable half yearly in arrears and repayable on 30 June 2002; and
(ii) the grant to Mr Kent (or his nominee) of 9 million transferable options exercisable at any time prior to 30 June 2002 to acquire ordinary shares of $2.50 par value each in the capital of the Company upon payment to the Company of 2.5 cents per share with the balance of 2.475 per share to be paid out of the share premium account of the Company and that the Company reserve in such account
(Page 19)
- a sum sufficient to satisfy the foregoing if and when necessary.
- (b) That the Directors of the Company are hereby authorised to take any and all steps not inconsistent with the foregoing that they consider appropriate to implement the foregoing proposed transaction."
35 That resolution was passed at the Annual General Meeting held on 15 August 1997, already referred to. The meeting was chaired by Mr Peter Parsons. Mr M Waterson was also present and it is recorded in the Minutes that Lechmere and Broadcast Strategies Pty Ltd were also present.
36 The fifth piece of evidence relating to this loan is found at par 34 of Mr MacLellan's affidavit. One interest payment was paid by Aspermont to Lechmere. It was $28,000, less $2,800 dividend withholding tax. It was paid on 18 December 1997 by electronic transfer. See his affidavit at pages 161 – 162. Page 161 is a copy of a fax from Mr MacLellan to Peter Parsons dated 11 December 1997. The fax is on Lechmere's letterhead which, at the top, states:
"All correspondence to
c/o EBC Trust Corporation
'Le Montaigne'
6, Boulevard des Moulins
MC 98000 Monaco".
- A phone and fax number are given. That letter refers to a telephone conversation "with Sylvie the other day" and asks that the interest payment of AUD$28,000 "which you wish to transfer" be paid to a bank account in the name of Corporate Management Services and details of the account are given, the account number and the bank which is Midland Bank PLC, Bond Street Branch, 129 New Bond Street, London, "Ref: Lechmere Financial Corporation".
37 Page 162 is a further fax from Lechmere (undated) on the same letterhead to Mr Peter Parsons of Aspermont Ltd in Perth from Mr MacLellan. It reads:
(Page 20)
- "Dear Peter,
Re: AUS$780,000 Loan Due 2002
This is to confirm with reference to the above facility that Aspermont Ltd is up to date with its interest payments to 31.12.97. The next interest payment is $58,000 which is due on 30.6.98.
Yours sincerely
Signed (illegible)
Authorised signatory
for and on behalf of
Lechmere Financial Corporation"
38 MacLellan pressed Kent for payment of interest without success. Meanwhile in mid-1998 the company borrowed from FAI to buy out Mr Calcraft's other half share in Australia's Mining Monthly. That loan was eventually extinguished by a share issue to FAI. Kent promised MacLellan that the debt would be paid out after an equity float to raise additional capital. MacLellan spoke to Kent and Parsons on numerous occasions about the float but it did not take place until February 2000.
39 The sixth piece of evidence is a Prospectus issued by Aspermont, dated 21 February 2000. The Prosectus issued under the names and signatures of A L Kent, J Lieberfreund, M V Stratton, N Bartholomaeus and M Paterson who were all directors at the time and Mr Kent's signature was signed by M Stratton "as agent for Andrew Kent". The Prospectus began with a covering letter from Mr Andrew Kent, Executive Chairman, commending the float. On page 4 of the Prospectus it is stated that the aim of the float is to issue 11 million new ordinary shares at an issue price of 20 cents each and, thus, raising $2,200,000. The proceeds of the issue will be used to:
"- Reduce long term debt;
- Acquire new Mastheads;
- Provide working capital;
- Pay costs associated with the issue."
- I quote from parts of the Prospectus at page 5:
(Page 21)
- "In 1995 Aspermont undertook a consolidation of its share capital, followed in 1997 by the settlement of its external creditors.
It was in 1997 that Aspermont began its rejuvenation with the acquisition of the first half of Australia's Mining Monthly, publishers of mining trade magazines. During that year the company was approached to consider selling its existing half share, rather than sell it, Aspermont purchased the balance thereby completing 100% ownership of the business by Spring of 1998. The operations are situated at 112 Cambridge Street, Leederville, Western Australia.
...
In addition to the funds raised as a result of this issue, $225,000 has been received by the company as a result of the conversion of 9,000,000 options by Mr Andrew Kent."
- I quote from page 9:
"APPLICATION OF FUNDS RAISED
The offer will raise $2,200,000 which will be expended as follows:
• Reduce long term debt $1,040,000
- • Acquire new Mastheads and
working capital $ 873,329
- • Pay costs associated to the issue $ 286,671
TOTAL $2,200,000"
- I quote from page 31:
"5. LECHMERE LOAN
The following information is a summary of the provisions of a loan agreement between the Company and Lechmere Financial Corporation, a foreign company registered in the British Virgin Islands:
(Page 22)
- • During the period 22 October 1992 to 6 April 1995 Lechmere advanced in total $150,000 for working capital;
- • In 1997 Lechmere assumed the liability for payment to all Aspermont's outstanding creditors equal to an amount of $184,000;
- • Also in 1997 Lechmere advanced a further $780,000 to assist with the acquisition from Mr AL Kent his 50% share of Australia's Mining Monthly;
- • Aspermont agreed to pay Lechmere interest at the rate of 15% per annum.
- As at 30 June 1999 the balance of the loan stood at $1,040,000, which will be repaid in full from the proceeds of the issue."
40 The eighth piece of evidence relating to this loan is found in the Minutes of the fourth meeting of the Due Diligence Committee dated 14 June 1999 found at page 96 of Mr Kent's first affidavit. The meetings of this Committee preceded the preparation of the Prospectus. Present at that meeting were Greg Hancock,Robert Rooke, Joseph Liebefreund, Laurie Shervington, Barry Padman, Michael Waterson and Andrew Kent. I quote from part of those Minutes:
"3.5 Related Party Transactions
JL gave the following presentation on related party loans which he has agreed to follow up with a paper which will ultimately form part of the Prospectus.
(a) The Lechmere Loan
Lechmere is a foreign company registered in the British Virgin Islands which has provided a loan to Aspermont made up of various components:
(i) Cash advances in 1992
(Page 23)
| Amount |
|
| $50,000 |
|
| $30,000 | |
| $40,000 | |
| $10,000 | |
| $10,000 | |
| $10,000 | |
| $150,000 |
$780,000 @ 15% per annum repayable on 30 June 2002.
(iii) The assumption of debt by Lechmere which occurred as follows:
Several creditors were owed money by Aspermont Limited. Lechmere agreed to pay out the creditors at 50 cents in the dollar.
The assumption of debt by Lechmere was $92,000 from $184,000.
(iv) Loan from Vernon Finance
This loan is now extinguished (see last minutes). It was for the amount of $375,000.
- The total of these loans comes to $1,489,779. The figure in the financial statements is $1,492,163.
(Page 24)
- These amounts are not set out in a single covering document however there are various documents which evidence these loans. JL has agreed to make these documents available to the Committee members.
RR requested a letter from Lechmere confirming the nature of the loans and the amounts payable.
AK noted that it is envisaged that the company will pay out these loans with moneys received from subscriptions."
41 The float in February/March 2000 was successful but the money raised was not used as stated in the Prospectus to "reduce long term debt $1,040,000", which refers to the total of the Lechmere loans and includes the $780,000 and interest now being considered. According to Mr Kent's statement in the company's Annual Report for 2000 at pp 2 and 6, the money was applied "to develop new publishing media on the Internet to complement the company's traditional print publications".
42 The respondent relies on the contrary evidence in the 2000 and 2001 Annual Reports.
43 In the Annual Report for 2000 (made up to 30 June 2000), signed by Mr Kent and Mr Lewis Cross as directors on 18 September 2000 and signed by Mr M J Waterson as auditor on 26 September 2000, a reference is made at Note 11 to related party loans $1,197,000. Explanation of this entry is given at Note 19 stating that these are loans from director related entities:
"1999 Aggregate of amounts loaned to
the company by companies associated
with the Director, Mr A L Kent $1,196,000
These loans bear interest at commercial rates and are not repayable within the next 12 months."
44 In the 2001 Annual Report, which I admitted as fresh evidence, under Note 19 "Related Party Transactions" the outstanding loans are reduced to $1,072,000 and the explanation is as follows:
"Loans from Director related entities:
Aggregate of amounts loaned to the
(Page 25)
- Company by Companies associated
with a Director, Mr A L Kent $1,072,000
These loans bear interest at commercial rates and are not repayable within the next 12 months. Interest has been waived by Mr Kent with effect from 1 July 2000 until such time as the Company is trading profitably."
- That Annual Report dated 28 September 2001 which was after these disputes began, is signed by Mr Kent and Mr Lewis Cross, directors, and an independent auditor's report is signed by Mr M J Waterson.
45 Mr Cross has tendered an affidavit in reply to this annual report, which I admitted, explaining how the sum in Note 19 is calculated:
"(a) Principal contingently owed to
Mr A L Kent $780,000
(b) Interest at 15% for 98/99 $117,000
(c) Interest at 15% for 99/00 $117,000
(d) Principal owed to Drysdale
Investments Corporation (BVI) $ 92,000
(e) Subtotal $1,106,000
(f) Less drawings by A L Kent $ 34,000
(g) TOTAL $1,072,000"
- Mr Cross' explanation for signing the accounts in that form is as follows:
"In preparing the accounts I and the other officers of the applicant were aware that there is litigation between the Applicant and the Respondent in relation to the money referred to in par (5) [I add this as a reference to the debt of $1,072,00]. In my dealings with the Applicant, Mr Kent has always maintained to me that the Respondent is a trustee for him. Accordingly if the Applicant is unsuccessful in the litigation and is required to pay any money to the Respondent, my understanding is that such money would be held by the Respondent as trustee for Mr Kent."
That explanation is self-serving and conclusionary and of no evidential value to me. At pars 12 and 13 Mr Cross states:
(Page 26)
- "12. I should also point out that obligations owed to a company are commonly referred to as 'loans' by accountants and the process by which these loans arise is commonly referred to as being 'loaned to the company', but this does not necessarily mean the same as 'loan' and 'loan' may be used in the legal sense.
13. The applicant used the words 'loan' and/or 'loaned' in Note 19 to denote an obligation (or potential obligation of the applicant). It was not intended to use the words in a legal sense or to convey information as to how the obligation (or potential obligation) came about."
46 Mr Waterson, an accountant at Marsden Partners, Jolimont, who has been the company auditor for some time, in an affidavit of 9 June 2001 supports the explanations offered by Mr Cross. I quote from his affidavit:
"6. The minutes of the annual general meeting of the applicant held on 15 August 1997, at which I was present, show that on that day the persons present purported to pass a resolution to the effect that the Applicant would assume an obligation to pay the principal and interest of a loan made to Mr Kent of $780,000 which loan was said to bear interest at 15% per annum.
7. Despite the resolution referred to in those minutes I have no record of the Applicant ever having taken any steps to become indebted to Lechmere in place of Mr Kent.
8. At the time of the shareholder meeting, to the best of my knowledge, Lechmere was acting on Mr Kent's instructions. Therefore, from my point of view, it did not matter whether obligation was owed to Lechmere or Andrew Kent.
9. After the shareholders meeting approved the resolution, an accounting entry was made in the accounts of the applicant to show a debt owed to Lechmere in the sum of $780,000.
10. I note that:
(Page 27)
- (a) I have seen no evidence that Aspermont ever took any steps to assume Mr Kent's obligation to Lechmere.
(b) I am advised by officers of the Applicant and verily believe that Lechmere has not provided any details of any agreement between Lechmere and Aspermont in relation to Lechmere's claim; and
(c) I am advised by officers of the Applicant and verily believe that Lechmere has not pointed to any transaction where there is privity between it and Aspermont or any consideration passing between Lechmere and Aspermont in return for Aspermont assuming liability in respect of Mr Kent's debt.
- 11. I note that that accounting entry has since been changed so that it no longer shows a liability to Lechmere, but instead reflect provision for an obligation to Mr Andrew Kent should he make a claim upon the Applicant for reimbursement of money he is required to pay to Lechmere in respect of a possible loan to him from Lechmere that existed on or about 15 August 1997. The provision for this debt is $1,072,500.
12. Based on the matters specified in paragraph 10 above, I verily believe that the Applicant owes no money to Lechmere, but may be require to pay money to Mr Andrew Kent should he in turn have to pay money to Lechmere. In my capacity of auditor of the Applicant I am satisfied with Andrew Kent being shown as a provisional creditor of the Applicant in respect of the sum of $780,000 plus interest."
47 This evidence is self-serving, conclusionary and argumentative. Mr Waterson was present at the Annual General Meeting of 15 August 1997 where the company agreed to take over Mr Kent's loan to Aspermont. As an auditor he owed a duty to the company to see that the information provided to shareholders in the lengthy explanatory memorandum was accurate. He was also a member of the Due Diligence Committee which prepared for the issuing of the Prospectus. The Committee clearly thought that the company owed $780,000 to Lechmere.
(Page 28)
- That fact was clearly stated in the Prospectus. His latest statements in the affidavit quoted by me are contradicted by his earlier statements. Also his reasoning is spurious. There is no loan agreement between Aspermont and Lechmere but there are significant company documents admitting the loan. A creditor can sue on an IOU signed by a debtor. A loan agreement signed by both creditor and debtor is not essential.
48 The company's evidence disputing the debt is blatantly inconsistent with the company's own documents, it is spurious, misconceived as to the necessity to have a loan agreement, and does not amount to a genuine dispute under s 459H.
49 Nor am I persuaded by the plaintiff's argument that they have raised some other reason why the demand should be set aside under s 459J. I do not believe that Kent, through Drysdale, loaned any money to Lechmere to lend to Aspermont. There are no documents in support. Would Mr Kent lend $780,000 in this way without any documentation? I think not. He would be silly if he did so. He is an experienced businessman and a man of substance. Even if he did, as he claims, if Lechmere recovers this debt he can get Drysdale to sue Lechmere. This may be difficult. MacLellan's company, Vernon Finance Ltd, holds the only share. The share certificate is annexed to Mr MacLellan's affidavit. Mr Kent does not have a share certificate. Mr MacLellan says Kent declined to sign any management agreement connecting him with Drysdale. Both are British Virgin Island companies. Drysdale is controlled by MacLellan. He says MacLellan breached trust in seeking to recover for Lechmere. As the beneficiary of Drysdale he can take legal steps to replace the trustee and then sue Lechmere. This is possible legally. It may have to be done in Monaco or the British Virgin Islands.
50 I have heard argument on the amount of interest due. As related above, one interest payment was paid post August 1997. Interest was thus up to date to 31 December 1997 (MacLellan p 162). Interest on $780,000 at 15 per cent, per annum = $117,000 per annum. Thus $175,500 interest was due on 30 June 1999. However in a letter dated 7 October 1999, Marsden Partners, Aspermont's auditors, asked MacLellan to confirm that $117,000 was owing on the Lechmere No 2 loan ($780,000) as at 30 June 1999. He confirmed that by a fax dated 21 December 1999. These faxes are found at Waterson's affidavit of 22 February 2001 pp 5 and 6. This omits a six month interest payment of $58,500. Whether that is a mistake on MacLellan's part I do not know. It was certainly a mistake on his part to say in that letter that this loan was repayable on demand. It was not. In this jurisdiction, I say it raises a genuine dispute as to $58,500. I will
(Page 29)
- reduce the demand by $58,500. The demand is good for $292,500. I will dismiss this application in relation to that part of the demand as reduced.
2. Debts assigned to Lechmere $184,000
51 The second debt listed in the notice of demand is as follows:
"The benefit of debts formally owed by the company to various trade creditors (namely, Jackson McDonald, Minter Ellison, KPMG – Chartered Accountants, KPMG Registrars Pty Ltd, Deloitte Touche Tomatsu, Citibank Ltd and Pearce and Cook (which debts were assigned by those creditors to the Creditor in 1997 ... $184,000."
52 The plaintiff's evidence of a genuine dispute over this debt is as follows. Mr Kent in his first affidavit of 5 January 2001 said he had no information on the debt but, after making further enquiries, the position was as stated in his solicitor's letter of 2 January 2001:
"The $184,000 debt is owed to Drysdale Investments Corporation not Lechmere Financial Corporation."
53 In his second affidavit of 18 January 2001 he annexes the seven offer acceptance and assignment documents – one for each creditor. The first one is typical. It is an offer by KPMG Chartered Accountants (the offeror) to Lechmere (the offeree) to assign its debt of $4,883.48 owed to it by Aspermont (the debtor) in return for a payment of a cheque for 50 per cent of that sum namely $2,441.74. KPMG agrees to accept that sum in full satisfaction of the debt. The document is dated 10 January 1997 and the offer is said to expire on 15 January 1997.
54 Mr Kent summarises the various sums paid to these seven creditors, totalling $92,389.76. He says that these sums were paid by Drysdale, not Lechmere and he produces Drysdale accounts as at 22 December 1997. These accounts are in the form of a ledger showing "movements" (the word used) on various dates between 14 January and 11 February 1997. They show various sums paid to those seven creditors, each of which reduces the balance held. For example, the first entry is 14 January 1997 KPMG, - $17,500, leaving a balance of $179,567. The seven entries are evidence that these seven sums which were paid to the trade creditors were debited from Drysdale's account. I mentioned the "- $17,500" entry opposite the name KPMG. That appears as $17,500 under the heading "Aspermont c/a" on the right hand side. The other debit entries on the left
(Page 30)
- hand side for the other six creditors appear as apparently positive entries under Aspermont c/a on the right hand side. This is evidence that Drysdale was debited with these sums and the right hand entries might mean that Aspermont was credited with those sums. These accounts are significant because they were prepared by MacLellan or someone in his office. As previously stated, MacLellan was the controller of Drysdale.
55 How does Mr MacLellan explain these accounts? At par 53 and onwards of his affidavit he states that the sole director of Drysdale is Euro Corporate Services Ltd, a company which he controls. The British Virgin Islands permit a company to be a director. The one issued share in Drysdale is owned by Vernon Finance Ltd. The one share in Vernon Finance Ltd is owned by Mr MacLellan. Mr MacLellan has produced documentary evidence of these matters. He says, at par 55:
"From the time Drysdale was incorporated until today, Mr Kent has declined to sign any management or other agreement connecting him with it. While the situation is unusual among people I deal with, it is not unique (particularly in the case of persons who are resident but not domiciled in the United Kingdom, which Mr Kent has told me is his situation). Notwithstanding this, because of my confidence in Mr Kent at the time Vernon Finance continued to fund various activities of Mr Kent. For its internal accounting purposes (sometimes referred to in European banking practice as 'shadow accounting') transactions involving Mr Kent and companies associated with me were also summarised in the name of Drysdale regardless of the legal structure that was actually used to provide any particular funding. Mr Kent ... would ask to see either 'Drysdale accounts' or ledgers supporting them, which from time to time we provided to him in draft form."
- I will return to these accounts later.
56 What is the respondent's evidence on this debt? Mr MacLellan annexes many documents relating to the payment of these debts. All seven trade creditors accepted the offer and funds were sent from overseas to a Sydney stockbroker and from there paid to the various creditors. Some were paid promptly, either on or before 15 January. A few were paid a little later. The last was paid on or about 11 February.
57 Mr MacLellan explains how this arrangement came about and has produced correspondence on it. He was approached by the resident Perth director, Mr Robert Pearce, an accountant, whether he would be willing to
(Page 31)
- fund the pay out of the only trade creditors, all of whom had old debts. The company had no money to pay them. It particular needed to pay KPMG as it would not do the 1996 company audit unless is was paid. It was agreed between Pearce and MacLellan that MacLellan would advance the money to pay out the debts by 50 per cent payments. Pearce sounded out the creditors and they were willing to accept half payment. There was no written agreement between MacLellan and Aspermont as to how MacLellan would be repaid.
58 In a letter dated 17 January 1997, from MacLellan, on Lechmere letterhead to Barry Cook, a director of Aspermont, MacLellan asked Cook to confirm "that the debts are now owed by Aspermont to Lechmere". He also asked for interest at 10 per cent per annum payable half yearly and asked Cook to confirm that this was the case. No confirmation was given.
59 In a letter dated 11 September 1997 (p 91 of the affidavit), Mr MacLellan, on behalf of Lechmere, detailed the full debts of the trade creditors totalling $187,635.24 and asked how Aspermont "proposed to deal with the repayment of the obligation that Aspermont had acquired earlier in the year". In a faxed reply of 12 September 1997 someone on behalf of Ms M Stratton, the company secretary of Aspermont, replied as follows:
"Aspermont Debts Acquired
I refer to your facsimile dated 11 September 1997, and advise that our accountants propose to deal with the AUD$187,635.24 debts acquired, by increasing Lechmere Financial Corporation's loan to the company by the same amount."
60 Aspermont's Annual Report for the year ended 30 June 1996 came out late. It is signed by Mr Kent, Executive Chairman and Mr Peter Parsons, Executive Director on 22 July 1997. At p 22 of that report it refers to "Subsequent Events" and one of which is as follows:
"In February 1997, Lechmere Finance Corporation in an arrangement with Aspermont's creditors, purchased the bulk of the company's outstanding debt. The majority of this had been outstanding for a considerable length of time. The effect of this arrangement in the accounts of the company has been to transfer the amounts owing to the abovementioned creditors, to Lechmere Finance Corporation. This will be recognised as such in the accounts for the 1997 year as a debt outstanding to Lechmere Finance Corporation."
(Page 32)
- As stated, that report was signed on the next page by Messrs Kent and Parsons.
61 For an assignment of a debt to be valid the debtor needs to be informed of the assignment from one creditor to another. I consider that this was done in this case. The whole assignment was organised at the request of Aspermont and it was advised of the payouts to the various trade creditors as they occurred and, as has been seen, and will be seen, accepted the assignment of debts. It also matters little that some of the payments to the creditors were made later than the date of expiry of the offer, namely 15 January 1997. Clearly, a creditor could refuse the half payment after that date, and could insist on the full payment. However, in accepting the half payment, as some creditors did, they would be estopped from suing Aspermont for the full debt.
62 On various dates in 1999 the Due Diligence Committee met to examine the company's affairs prior to issuing a Prospectus to raise capital from the company and also with a view of getting the company listed on the Stock Exchange. The fourth meeting of that Committee was held on 14 June 1999. I have already quoted from those Minutes. Andrew Kent, Michael Waterson, Joseph Leiberfreund and others were present. The whole quote is important but I will only mention part of it here:
"(iii) The assumption of debt by Lechmere which occurred as follows:
Several creditors were owed money by Aspermont Limited. Lechmere agreed to pay out the creditors at .50 cents in the dollar.
The assumption of debt by Lechmere was $92,000 from $184,000."
- And, later on, in those Minutes it is mentioned that AK – which stands for Andrew Kent, "noted that it is envisaged that the company will pay out these loans with moneys received from subscriptions".
63 I have also quoted from the Prospectus which appeared in February 2000. The relevant part for these purposes is:
"In 1997 Lechmere assumed the liability for payment to all Aspermont's outstanding creditors equal to an amount of $184,000."
- After detailing the various parts of the loan, the entry concludes:
(Page 33)
- "As at 30 June 1999 the balance of the loan stood at $1,040,000 which will be repaid in full from the proceeds of the issue."
- As previously related, the float was successful but the money was not repaid.
64 MacLellan's documents show that the money was sent by MacLellan to H P Cooper & Son, a Sydney stockbroker, and disbursed to the various creditors on MacLellan's faxed instructions on the EBC Trust letterhead. These instructions give the reference "Ref Lechmere Finance Corporation". MacLellan says in his affidavit that the money came from Lechmere. That may be true, or it could have been paid by Vernon Finance Ltd, the banker for the group, on behalf of Lechmere. Aspermont's documents, which I have outlined, are admissions that it owes the debt to Lechmere. Nevertheless, the 1997 accounts – the ledger mentioned – are significant. They show that Drysdale was debited with these seven sums - on the dates they were paid to the creditors. Drysdale may not have paid the sums to the creditors, via the Sydney stockbroker, but MacLellan, or one of his staff who prepared this ledger, debited Drysdale with the sums. Drysdale had a positive balance before and after these debits. That is evidence that Drysdale has paid those amounts to Lechmere. If paid by whoever, Lechmere cannot persist in its claim against Aspermont. This ledger emanates from MacLellan or his office. His evidence of "shadow accounting" does not convince me. That is the kind of evidence which would need to be explained by oral evidence. I consider the company has raised a genuine dispute that the debt may have been repaid by Drysdale and hence not now payable by Aspermont.
65 I propose to set aside this part of the demand.
66 I will hear the parties on the orders to be made and costs.
0
12
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