Asset Holding Pty Ltd v Rosta Electrical Industries Pty Ltd (In Liq)
[1995] FCA 278
•2 MARCH 1995
CATCHWORDS
CORPORATIONS - statutory demand - whether "genuine dispute" as to existence of debt.
Corporations Law, s 459H(1)(a)
Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 50 FCR 426
Rohalo Pharmaceutical Pty ltd v R P Scherer SpA (1994) 15 ACSR 347
ASSET HOLDINGS PTY LTD, TLS NOMINEES PTY LIMITED and CRMD NOMINEES PTY LIMITED v ROSTA ELECTRICAL INDUSTRIES PTY LTD (IN LIQUIDATION)
No. NG 3414 of 1993
NG 3415 of 1993
NG 3416 of 1993
Coram: Whitlam J
Place:Sydney
Date: 2 March 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NG 3414 of 1993
)
GENERAL DIVISION )
IN THE MATTER OF ASSET HOLDINGS PTY LTD
ACN 050 328 704
ASSET HOLDINGS PTY LTD
Applicant
ROSTA ELECTRICAL INDUSTRIES PTY LTD (IN LIQUIDATION)
Respondent
Coram:Whitlam J
Place:Sydney
Date:2 March 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
Order made by the Registrar on 2 November 1994 be set aside.
Statutory demand served by the respondent upon the applicant on or about 7 December 1993 be set aside.
The respondent pay the applicant's costs of the application under section 459G of the Corporations Law and of the application for review of the Registrar's decision.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NG 3415 of 1993
)
GENERAL DIVISION )
IN THE MATTER OF TLS NOMINEES PTY LTD
ACN 059 155 841
TLS NOMINEES PTY LIMITED
Applicant
ROSTA ELECTRICAL INDUSTRIES PTY LTD (IN LIQUIDATION)
Respondent
Coram:Whitlam J
Place:Sydney
Date:2 March 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
Order made by the Registrar on 2 November 1994 be set aside.
Statutory demand served by the respondent upon the applicant on or about 7 December 1993 be set aside.
The respondent pay the applicant's costs of the application under section 459G of the Corporations Law and of the application for review of the Registrar's decision.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NG 3416 of 1993
)
GENERAL DIVISION )
IN THE MATTER OF CRMD NOMINEES PTY LTD
ACN 059 156 026
CRMD NOMINEES PTY LIMITED
Applicant
ROSTA ELECTRICAL INDUSTRIES PTY LTD (IN LIQUIDATION)
Respondent
Coram:Whitlam J
Place:Sydney
Date:2 March 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
Order made by the Registrar on 2 November 1994 be set aside.
Statutory demand served by the respondent upon the applicant on or about 7 December 1993 be set aside.
The respondent pay the applicant's costs of the application under section 459G of the Corporations Law and of the application for review of the Registrar's decision.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
) NG 3414 of 1993
NEW SOUTH WALES DISTRICT REGISTRY ) NG 3415 of 1993
) NG 3416 of 1993
GENERAL DIVISION )
IN THE MATTERS OF ASSET HOLDINGS PTY LTD
ACN 050 328 704
TLS NOMINEES PTY LTD
ACN 059 155 841CRMD NOMINEES PTY LTD
ACN 059 156 026ASSET HOLDINGS PTY LTD
TLS NOMINEES PTY LIMITED
CRMD NOMINEES PTY LIMITED
Applicants
ROSTA ELECTRICAL INDUSTRIES PTY LTD (IN LIQUIDATION)
Respondent
Coram: Whitlam J
Place: Sydney
Date: 2 March 1995
REASONS FOR JUDGMENT
Applications for review of a decision of the Registrar.
These three applications have been heard together. Each of the applicants applied under s 459G of the Corporations Law ("the Law") to set aside a statutory demand served on it by the respondent on 7 December 1993. Their applications were
dismissed by the Registrar. The review has been conducted as a rehearing based upon the evidence before the Registrar.
In each demand the debt is described as "Loan funds advanced on 7 October, 1993, which are repayable on demand." Each applicant accepts that the respondent lent to it on or about that date an amount in excess of the statutory minimum. However, the applicants submit that the loans are not repayable until 17 September 1996.
When the loans were made, the affairs of the applicants and the respondent were under the control of Mr Theo Stavrianos and Mr Dick Ross. They were the directors of the respondent and of the applicant Asset Holdings Pty Ltd. Mr Stavrianos and his wife were the directors of the applicant TLS Nominees Pty Ltd, and Mr Ross and his wife were the directors of the applicant CRMD Nominees Pty Ltd. Mr Stavrianos and Mr Ross were advised by a Mr Don Lockyer, an accountant who provided services to the respondent and the applicants. These three men all gave evidence of the terms upon which the loans were made.
It is convenient to commence a chronicle of the relevant evidence by reference to a letter dated 17 September 1991 from the Commonwealth Bank of Australia ("the bank") to the respondent. In that letter the bank notified its approval of accommodation and advances to the respondent by way of an overdraft limit of $200,000 and a bills discount facility of $650,000. As to the term of these arrangements, the letter provided:
"TERM:
OVERDRAFT - The amount and adequacy of the overdraft limit will be reviewed annually or earlier as may be necessary in the light of developments. In the meantime, limit arrangements are to be respected at all times.
BILLS DISCOUNT - The facility is repayable on demand which the bank may make at any time but, unless the Bank makes such demand, the term of this facility is five years, with principal and interest repayments to commence in January 1992."
The security taken by the bank included a fixed and floating charge dated 1 October 1991. This deed of charge was later upstamped to secure a total amount of $874,000 following an advance of $24,000 made on 28 August 1992.
Mr Lockyer advised Mr Stavrianos and Mr Ross about the restructuring of a group of companies which included the applicants and the respondent. The subject loans were made in accordance with his advice. Mr Lockyer deposed that "in late August, early September 1993" he told Mr Stavrianos that such loans "should be linked into the Commonwealth Bank five year bill facility and be repayable at the same time the Bank bill facility falls due to the Commonwealth."
On 13 September 1993 the bank wrote to the respondent as follows:
"Review of your company's facilities is due in October to coincide with the end of the six month interest only agreement for the Bills Matured Account. The Bank requires that this facility must be cleared or a principal and interest repayment program be agreed. You will therefore need to provide the following by no later than the 10 October:-
.Cash flow budget for the next six months clearly showing Rosta's ability to service principal and interest repayments.
.audited Financial Statements for all company entities as at 30 June 1993.
Following receipt and analysis of the above information we will arrange a meeting with the Regional Manager so you may fully discuss your companies' future directions. We mention, however, that failure to meet the new deadline will leave the Bank with no option than to consider action under its security."
Mr Stavrianos and Mr Ross deposed that a directors' meeting of the respondent was held on 6 October 1993 and that directors' meetings of the applicants were held on 7 October 1993. In cross-examination, each of them insisted that the meeting on 6 October 1993 took place. In cross examination, Mr Stavrianos insisted too that he and his wife held a directors' meeting of TLS Nominees Pty Ltd. It was not suggested to either witness in cross-examination that the other meetings on 7 October 1993 did not take place.
Both witnesses agreed that there was no contemporaneous documentation of the decisions reached by the respondent and the applicants in respect of the loans made on 7 October 1993. The minutes annexed to their affidavits were prepared by the applicants' solicitor after the present proceedings were commenced. However, the general thrust of their evidence is clear enough. They had been advised beforehand by Mr Lockyer to make such advances repayable in 1996 at the expiration of the respondent's current bill facility with the bank. Mr Stavrianos explained that on 6 October 1993 he had spoken by telephone to Mr Lockyer, who was in Queensland, and he agreed with the proposition that both he and Mr Ross had on that day only been advised as to the manner in which the cheques were to be drawn.
The information requested by the bank in its letter of 13 September 1993 was not furnished by its deadline of 10 October 1993. Mr Lockyer deposed that he prepared draft minutes of the directors' meetings held on 6 and 7 October 1993 in or about that month. (Copies of those draft minutes were sent by fax to the applicants' then solicitors, Smits Leslie Barwick, on 22 November 1993.) The draft minute for the respondent recorded in respect of the loans that "Interest would be payable to this Company at a similar rate to that paid by the Company on the fixed loan from the Commonwealth Bank of Australia." However, the draft minutes for the applicants were slightly more explicit. They recorded that the loan "was provided by Rosta Electrical Industries Pty Ltd under a line of credit to [sic] the Commonwealth Bank of Australia. This loan to be repaid by the date of the expiration of the said line of credit."
On 2 November 1993 the respondent appointed Mr Kevin Shirlaw as its administrator under Part 5.3A of the Law. On 3 November 1993 Mr Paul Weston of Mr Shirlaw's staff met officers of the bank with Mr Stavrianos and Mr Ross. On 7 November 1993 Mr Lockyer wrote to the directors of the respondent enclosing financial statements for the period ended 31 October 1993. The balance sheet showed the loans to the applicants as "receivables" under current assets. The current liabilities showed $200,175 owing to the bank on overdraft and the non-current liabilities showed a loan from the bank of $650,436. Mr Lockyer referred in his covering letter to the "funding cost of the Non-current Loan from the Commonwealth Bank of $650,436 being funded" by companies which included the applicants.
On 16 November 1993 the bank appointed Mr Martin Brown as receiver of the respondent pursuant to the charge in its favour. On 25 November 1993 the applicants' then solicitors furnished Mr Brown with balance sheets for each of the applicants as at 31 October 1993, which had been prepared by Mr Lockyer. These balance sheets showed the loans from the respondent as current liabilities.
In his affidavit Mr Lockyer explained that the loans to the applicants were shown as "receivables" in the respondent's balance sheet furnished on 7 November 1993 because the software he used treats "inter company loans" this way. In cross-examination, Mr Lockyer said that all the balance sheets had been prepared "hurriedly" and that the relevant loans should have been shown respectively as non-current assets and non-current liabilities in the accounts furnished on 7 and 25 November 1993. Mr Lockyer said that he could not recall having seen the letter to the respondent from the Bank dated 17 September 1991, but that he had seen another letter from the bank dated 1991 or 1992 which said that the bank "would give a bill facility of $650,000 for a period of five years." Mr Lockyer was adamant that he had never considered the loan to be repayable on demand.
On 3 December 1993 Mr Brown signed the statutory demands which were served on the applicants on 7 December 1993.
Counsel for the applicants contends that there is a genuine dispute, in the case of each of the applicants, as to the existence of a debt within the meaning of s 459H(1)(a) of the Law. The authorities in this Court on the notion of a "genuine dispute" have
recently been collected in the judgment of Lindgren J in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 at 352-354. His Honour concluded (at 354):
"The task confronting a company applying to set aside a statutory demand of establishing the 'genuineness' of a dispute or claim is, in my opinion, no more onerous than that which would confront it if it were seeking to meet an application by the creditor for summary judgment."
I respectfully agree with his Honour's approach. The test is a familiar one and apt to ensure that a court does not examine the merits of the dispute other than to see if there is in fact a genuine dispute.
The evidence in the applicants' case is somewhat slight. In particular, the minutes annexed to the affidavits of Mr Stavrianos and Mr Ross, which were prepared long after the events in question and probably for the purposes of this litigation, may be safely ignored as casting any light on the actual decisions taken on 6 and 7 October 1993.
Counsel for the respondent submits that the evidence establishes either that there was no agreement as to the term of the subject loans, or that they were repayable on the same basis as the funds borrowed by the respondent from the bank. If the latter finding were made, then, upon the true construction of the arrangements between the respondent and the bank, the loans are repayable on demand. Accordingly, it is submitted that there is no genuine dispute.
Having regard only to the materials adduced before the Registrar, it seems quite likely that what the bank's letter of 13 September 1993 described as the respondent's "Bills Matured Account" is repayable upon demand. If that is correct, then, in the case of either of the findings contended for by counsel for the respondent being made, the money would be repayable instanter: Ogilvie v Adams [1981] VR 1041.
However, notwithstanding the advice of Mr Lockyer to link the loans made to the applicants to the respondent's bills discount facility, all three witnesses called by the applicants assert their understanding that such facility did not expire until 1996. It does not matter, in my opinion, what is the correct construction of the respondent's repayment obligations to the bank. The individuals who were the directing minds of the parties on both sides of the loan transactions, which are the subject of the statutory demands, say that they intended the loans should not be repayable until September 1996. It does not matter whether formal meetings of directors were ever convened. What matters is what was agreed between the respondent as lender and the several applicants as borrowers about repayment. Mr Stavrianos and Mr Ross may never have turned their minds to the possibility that the moneys owed by the respondent to the bank were repayable on demand. This may have been imprudent or even reckless on their part as directors of the respondent, but it does not mean that they did not agree that the loans made on 7 October 1993 were repayable in 1996. It is, after all, quite common for bill line facilities to be made available for five years.
I am satisfied that there is a genuine dispute as to the existence of the debt described in each of the statutory demands. Accordingly, the Court must set them aside pursuant to s 459H(3) of the Law.
In the context of this case, it is worth emphasizing what von Doussa J said in Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 50 FCR 426 at 428:
"As the outcome of this application will all too vividly demonstrate, a party serving a statutory demand based on a debt the existence of which is disputed by the company may be better advised to withdraw the notice and proceed immediately to litigate the claimed debt in a court of competent jurisdiction than to go to the expense and time of contesting whether the dispute is a "genuine dispute" within the meaning of s 459H."
The respondent must pay the costs of the applications before the Registrar and the Court.
I certify that this and the preceding eight pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam
Associate:
Date: 2 March 1995
Counsel for the applicants: D J Hammerschlag
Solicitor for the applicants: Baskin & Lewis
Counsel for the respondent: Stephen Rushton
Solicitor for the respondent: Clayton Utz
Date of hearing: 17 February 1995
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