Autolac Pty Ltd v O & H Distributors Pty Ltd

[2009] NSWSC 394

CITATION:	Autolac Pty Ltd v O & H Distributors Pty Ltd [2009] NSWSC 394
HEARING DATE(S):	12/05/09
JUDGMENT DATE :	13 May 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Originating process dismissed with costs
CATCHWORDS:	CORPORATIONS - winding up - winding up in insolvency - statutory demand - application for order setting aside -plaintiff alleges genuine dispute about existence of debt - no plausible contention shown - no matter of principle
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 459G, 459H(1)(a), 459H(1)(b), 459H(5), 459J(1)(a), 459J(1)(b)
CATEGORY:	Principal judgment
CASES CITED:	Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452
PARTIES:	Autolac Pty Limited - Plaintiff O & H Distributors Pty Limited - Defendant
FILE NUMBER(S):	SC 1010/09
COUNSEL:	Mr J Baird - Plaintiff Ms S T Chrysanthou - Defendant
SOLICITORS:	Hazan Hollander - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY, 13 MAY 2009

1010/09 AUTOLAC PTY LIMITED v O & H DISTRIBUTORS
PTY LIMITED

JUDGMENT

1 On or about 18 December 2008, the defendant (which I shall call “O & H”), served a statutory demand on the plaintiff (“Autolac”). The debt or alleged debt, the subject of the statutory demand is in the sum of $102,598.11 and is described in the schedule to the statutory demand as follows:

“Balance of the Purchase Price in the amount of $102,598.11 due to the Creditor by the Company under a written Business Sale Agreement that is undated between the Creditor as Vendor and the Company as Purchaser of a Business known as Autolac Newcastle as certificate by the Company to the Creditor in a worksheet submitted by the Company to the Creditor by email.”

2 By originating process filed on 5 January 2009, Autolac makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside the statutory demand. The affidavit filed in support of the application is the affidavit sworn on 5 January 2009 by Mr McDonald, a director of Autolac and the chief financial officer of its parent company, Allomak Ltd (“Allomak”). It is that affidavit that sets the limits of the plaintiff's case in accordance with Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452.

3 Mr McDonald's affidavit says in paragraph 14 that, by reason of the matters stated in paragraphs 12 and 13, "the plaintiff does not consider that it is indebted to the defendant company". There is thus reliance on

s 459H(1)(a) of the Act and the proposition that there is a genuine dispute as to the existence of the debt to which the demand relates.

4 In paragraphs 16 to 18 of the affidavit, Mr McDonald refers to an "offsetting claim" of $211,697.84 but he describes that claim as a claim that Autolac has against Habost Holdings Pty Ltd and refers to an invoice of 15 February 2008 issued by Autolac as evidencing or embodying the claim. The invoice is addressed to Habost Holdings Pty Ltd. Despite the issue of an invoice, the claim appears to be one for damages for breach of warranties given by Habost Holdings under a share sale agreement made in 2006.

5 There is in this part of the affidavit apparent reliance on s 459H(1)(b) of the Act. It is obvious, however, that if and to the extent that the plaintiff has a genuine claim of $211,697.84 or any other amount against Habost Holdings, that is irrelevant to the operation of s 459H(1)(b). I say this because, having regard to the definition of "offsetting claim" in s 459H(5), a claim can in the present context be an "offsetting claim" only if it is a claim that Autolac has against O & H. The postulated claim is one against another company, Habost Holdings. O & H is not liable in respect of any such claim and this is so even if, as Mr McDonald's affidavit suggests, Habost Holdings is a shareholder of O & H. It was for these reasons that Mr Baird eventually did not press any offsetting claim case on behalf of Autolac.

6 I turn therefore to the s 459H(1)(a) case and the proposition that there is a genuine dispute as to the existence of the debt the subject of the statutory demand. The first step is to appreciate the way in which the debt is said to arise. The schedule to the statutory demand says that the sum of $102,598.11 is due to O & H by Autolac under a written business sale agreement that is undated between O & H as vendor and Autolac as purchaser relating to a business known as Autolac Newcastle. It is further said that the amount is as certified by Autolac to O & H in a worksheet submitted by Autolac to O & H.

7 The sale agreement is in evidence. It was entered into in June 2007. O & H, then called Autolac Newcastle Pty Ltd, is the vendor. Autolac is the purchaser. Habost Holdings and another company, G J & L A O'Brien Pty Ltd, are also parties. They are described as the "covenantors". O & H as vendor agreed to sell the various assets of the Newcastle business to Autolac as purchaser for a price calculated and payable in accordance with clause 4.1. The expression "purchase price" is, not unnaturally, defined as the total amount payable by Autolac as purchaser to O & H as vendor for the purchase of the business.

8 The purchase price was expressed to be payable by instalments. The first instalment was to be satisfied by the issue of shares in Allomak, the purchaser's parent. The second and third instalments were to be satisfied in part by the allotment of Allomak shares and in part by the payment of cash. There was a provision saying that, except as otherwise provided in the agreement, payment was to be made to an account nominated by the vendor O & H.

9 It is common ground that a sum of $102,598.11 became due to O & H by Autolac. This is made clear by Mr McDonald's affidavit of 30 April 2009 and, in particular, its annexure B which is a summary of consideration paid and payable totalling $475,316.97. This summary refers to an outstanding balance of $102,598.11 which is described in the summary as "withheld". In fact, there are three items "withheld" that together total $102,598.11: one of $62,117.39 referable to September 2007, one of $9,728.15 for October 2007, and one for $30,752.57 for December 2008.

10 In the body of his affidavit of 30 April 2009, after referring to the summary of consideration paid and payable relating to sale of the business, Mr McDonald says:

“The total amount payable is $102,598 which is being withheld against the vendors.”

11 Mr McDonald annexed to the same affidavit a balance sheet of "Allomak Limited: Autolac Pty Ltd" at 30 April 2009 recording as a long-term liability "Autolac - deferred consideration (Newcastle branch purchase) $102,598.11."

12 The thesis Autolac seeks to advance, however, is that this admitted indebtedness of $102,598.11, although originally owing by Autolac to O & H under the business sale agreement, is now in reality owing to someone else and, from O & H's point of view, is no longer claimable. The central piece of evidence put forward by Autolac in relation to this is an exchange of emails between Mr McKenzie of Autolac and Mr Hyde of O & H in August 2007.

13 On 16 August 2007, Mr McKenzie emailed Mr Hyde a draft calculation of what he called "the final NTA adjustment payment". This refers to an adjustment payment of $107,677.57 due on 25 June 2007, a second payment of consideration due on 25 June 2008 of $72,221.30 and a third payment of consideration due 25 June 2009 also of $72,221.30. There is a further page obviously related to the first which refers to "total NTA adjustment payable" of $124,234.77.

14 Having received Mr McKenzie's email, Mr Hyde of O & H replied on 31 August 2007 by email in the following terms:

“Thanks for the latest Payment schedule.
As discussed I would like to reserve my right to check and discuss the latest calculation and figures with you. As I will be overseas from Thursday the 6th September I will arrange to meet with you on my return.
In the mean time would you arrange the payments of $141784.40 split half to Gary and half to Habost Holdings. Habost banking details are St George Bank BSB 332XXX Ac XXXXX XXX. Gary will advise his details.
The $24921.88 worth of shares should also be split 50/50 and as previously in Gary’s Name and Habost holdings.
Many thanks.”

15 It is the contention of Autolac that this communication amounted to a direction which caused the outstanding balance of consideration to be satisfied. Before going into that contention, however, I should refer to a document sent by Mr McKenzie to Mr Hyde on 29 September 2008, that is, a little more than a year after the draft calculation forwarded on 16 August 2007. The September 2008 document was in substantially the same form as the August 2007 document but, of course, updated. The document was described in the covering email as "The 2008 certificate for FY2008 (with accompanying work sheet)".

16 At the foot of the document is a section headed "Summary of consideration paid/payable". There are several items in the summary. They total $475,316.97. Against three of the cash items – the $62,117.39, $9,728.15, and $30,752.57 already mentioned – appears the word "withheld". In fact, the entries in this September 2008 document sent by Mr McKenzie to Mr Hyde correspond with those in the annexure B to Mr McDonald's affidavit of 30 April 2009.

17 I turn now to the way in which it is said by Autolac that its indebtedness in respect of the outstanding balance was satisfied. The starting point is said to be the direction in Mr Hyde's email of 31 August 2007. Autolac says that the email amounts to a direction by O & H to Autolac to pay all moneys due under the sale of business agreement to Garry O'Brien and Habost Holdings in equal shares, they being or being associated with the principals of O & H.

18 There are two immediate obstacles in the way of a conclusion that the direction in the email relates to the price instalment emerging or to emerge from the document emailed by Mr McKenzie on 16 August 2007. The first is that the sum of $141,784.40 referred to by Mr Hyde does not equate to or bear any obvious relationship to any sum payable as a purchase price instalment under the sale of business agreement. Second and in the same vein, Mr Hyde's first statement in his email of 31 August 2007 was that he would check the figures submitted by Mr McKenzie and meet with him on his return from overseas. This makes it clear that there was no agreed or accepted payment instalment as of 31 August 2007.

19 I nevertheless go back to the contention of Autolac based on the email of 31 August 2007 and what is said to be in effect a standing direction by O & H to Autolac that instalments payable by Autolac to O & H are to be paid instead as to one half to Garry O'Brien and as to one half to Habost Holdings.

20 Written submissions of Mr Baird counsel on behalf of Autolac read in part as follows:

“2. Pursuant to the direction of 31 August 2007, Autolac has paid amounts totalling $102,598.11 to GJ & LA O’Brien, has issued the requisite shares to GJ & LA O’Brien as directed and has also issued the requisite shares to Habost Holdings as directed.
3. Pursuant to the direction of 31 August 2007, Autolac has also paid to or for or on behalf of Habost Holdings amounts totalling $102,591.ll, by crediting that amount to the ledger account of Habost Holdings maintained in the books of account of Allomak (affidavit of S Booth sworn 8 May 2009). In that ledger the amounts totalling $102,598.11 have been credited against the Warranty Claim of $211,698.84, reducing it to $109,099.73.”

21 For present purposes it is paragraph 3 and the amount supposedly to be paid to Habost Holdings at the supposed direction of O & H that is relevant. To understand that paragraph it is necessary to refer to the quite separate transaction already briefly mentioned under which Allomak purchased the whole of the share capital of Autolac from Mr Hyde and Habost Holdings.

22 Early in 2008 Allomak made a claim against Mr Hyde and Habost Holdings by reference to a warranty in the share sale agreement. The sum claimed was the $211,697.84 referred to in the invoice to which reference has already been made. This is the sum referred to in paragraph 3 of the submissions.

23 I must say at once that, despite being taken to the several ledger entries in the books of Autolac and Allomak, I do not accept the basic proposition in paragraph 3. If, by virtue of the supposed direction of 31 August 2007, Autolac became obliged to pay Habost Holdings instead of O & H, no quantity or combination of book entries and accounting adjustments within the group of companies of which Allomak and Autolac form part can cause the obligation of Autolac owed to Habost Holdings to be applied in reduction of a claim Allomak considers itself to have against Habost Holdings.

24 If, as postulated, a debt was owing by Autolac to Habost Holdings, the only person who could, as it were, reorient the cash flow inherent in the debt was Habost Holdings. It could assign the debt. It could direct the debtor to pay someone other than itself. But the simple reality is that Autolac, the person by whom the debt was owed, could not by its own acts bring about a situation where payment by it to someone other than Habost Holdings would work to discharge the debt.

25 The proposition of law is not complex. If A owes money to B and B owes the same amount of money to C, there is simply nothing that A and C acting together can do to bring about a situation where A no longer owes money to B and B no longer owes money to C. Only if B actively participates can that position arise.

26 My conclusion is twofold. First, there is no soundly arguable basis for regarding the email of 31 August 2007 from Mr Hyde of O & H as any form of standing direction by O & H to Autolac to make payments to Mr O'Brien and Habost Holdings in equal shares instead of to O & H. A fortiori there was no assignment of debt, whether legal or equitable. Second, even if the direction had been effective in that way so that Habost Holdings became entitled to receive as against O & H, the series of book entries made by Autolac and Allomak was ineffective to bring about the result that Autolac's obligation to Habost Holdings had been satisfied by some form of application for the benefit of Allomak when Habost Holdings played absolutely no part in that exercise.

27 I would add that it is very significant, as Ms Chrysanthou of counsel pointed out on behalf of O & H, that Mr McDonald's affidavit sworn as recently as 30 April 2009 refers to the several items totalling $102,598.11 as "withheld" and that it is only in the subsequent affidavit of Mr Booth sworn on 8 May 2009 that any attempt is made to lay a basis for the contention that there had been some form of satisfaction by unilateral book entries within the corporate group of which the debtor Autolac was part. These timing factors lend credence to the suggestion of recent invention put forward by Ms Chrysanthou.

28 A plaintiff relying on the genuine dispute ground under s 459H(1)(a) will succeed if it raises a "plausible contention requiring further investigation" to adopt words used by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. The present plaintiff's case does not rise to that level.

29 The plaintiff also makes a claim by reference to s 459J(1)(b), that is, that there is some reason other than a reason stated in s 459J(1)(a) why the statutory demand should be set aside. The contention there is that Habost Holdings is engaging in some form of delaying tactic in relation to the implementation of an alternative dispute resolution regime under the share sale agreement which is the source of the warranty claim by Allomak.

30 It follows, so the submission runs, that resort by O & H, a company in which Habost Holdings holds shares, to the statutory demand procedure against Autolac, a company that is a subsidiary of Allomak, is an abuse of process in the sense that it is at odds with the purpose that the statutory demand process is intended to serve.

31 To state the proposition is to identify its fatal flaw. It is simply unsustainable. There is no basis for entertaining Mr Baird's invitation to disregard separate corporate entities and separate corporate personalities and to approach the matter on the basis of some kind of blancmange of competing commercial interests.

32 The originating process is dismissed with costs.

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