Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd
[2023] QSC 26
•20 February 2023
SUPREME COURT OF QUEENSLAND
CITATION:
Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd and others [2023] QSC 26
PARTIES:
BIG PINEAPPLE CORP PTY LTD ACN 150 898 909
(Applicant)
v
RANKIN INVESTMENTS (QLD) PTY LTD ACN 150 860 647
(First respondent)
RANKIN SUPER PTY LTD ACN 130 130 791
(Second respondent)
CMC PROPERTY PTY LTD ACN 128 857 429
(Third respondent)
FILE NO/S:
8180 of 2022
DIVISION:
Trial division
PROCEEDING:
Civil
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
20 February 2023
DELIVERED AT:
Brisbane
HEARING DATE:
17 October 2022
JUDGE:
Ryan J
ORDER:
The application is granted.
The statutory demand is set aside.
I will hear the parties as to costs.
CATCHWORDS
CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – GENUINE DISPUTE AS TO INDEBTEDNESS – where the applicant is a joint venture vehicle – where the joint venturers (R and K) agreed to fund their share of the joint venture using their own funds as capital – where instead, R caused his superannuation fund (which was not a party to the joint venture) to make part of his capital contribution – where the superannuation fund could not make such a contribution other than by way of a loan, earning interest – where the applicant therefore entered into a loan agreement with R’s superannuation fund – where K’s capital contribution was “converted” into a loan to the applicant as well, to ensure no unfairness – where R committed an event of default under the joint venture agreement – where K is thereby entitled to buy out R’s joint venture interest – where K wishes to do so and R’s joint venture interest is being valued – where, mid valuation, R’s superannuation fund served a statutory demand on the applicant for the amount lent to it – where R’s superannuation fund asserts that the loan is due and payable according to the loan agreement – where K asserts that the loan is not due and payable until R withdraws from the joint venture, notwithstanding the terms of the loan agreement – whether there is a genuine dispute about the debt being due and payable as at the date of the demand – whether the statutory demand process was being used for an improper purpose – whether “some other reason” exists to set the demand aside
Corporations Act 2001 (Cth), s 459A, s 459C(2)(a), s459E(1), s 459G, s259G(2), s 459H, s 459H(6), s 459J, s 459J(1)(b), s 459J(b)(i), s 459K s 459P, s 459S, s 495N
Superannuation Industry (Supervision) Act 1993 (Cth)Arcade Badge Embroidery Co Pty Ltd v DCT (2005) 157 ACTR 22, cited
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85, considered
David Grant & Co Pty Ltd v Westpac Baking Corp (1995) 184 CLR 265, considered
Dowling v The Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509, cited
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, cited
King v Henderson [1898] AC 720, cited
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, considered
MNWA Pty Ltd and Another v Deputy Commission of Taxation (2016) FCR 381, considered
Neutral Bay P/L v DCT; MA Howard Racing P/L v DCT; Broadbeach Properties P/L v DCT [2007] QCA 312, applied
Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2020] QSC 366, cited
Re: CSSC (Qld) Pty Ltd [2018] QSC 282, distinguished
Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72, cited
Rinfort Pty Limited and Another v Arianna Holdings Pty Limited (2016) 306 FLR 413, considered
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, cited
TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 07, considered
Turner Corp (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, cited
Williams v Spautz (1992) 174 CLR 509, citedCOUNSEL:
G Handran KC and O Cook for the Applicant
C Heyworth-Smith KC and R Kipps for the RespondentSOLICITORS:
Carter Newell Lawyers for the Applicant
Enyo Lawyers for the RespondentOverview
The Big Pineapple Unit Trust is a joint venture’s vehicle for the development of land in Woombye, Queensland, on which the “Big Pineapple” is located. The applicant (“BPC”) is its corporate trustee. BPC was registered in 2011. The joint venturers hold units in the trust and directorships and shares in BPC.
There have been changes over time to the persons and entities involved in the joint venture. By 2015, there were only two joint venture parties: Peter Kendall and CMC collectively (“the Kendall parties”); and Brad Rankin and Rankin Investments collectively (“the Rankin JV parties”). BPC’s current directors are Mr Kendall and Mr Rankin.
It was intended that the joint venture parties would fund the joint venture themselves (rather than rely on, for example, bank finance) and, until 2014, BPC’s financial statements conveyed that they did so. But in fact, the funding contributions of two of the original 2011 joint venturers – Mr Rankin and Franco Di Bartolomeo – included contributions by their self-managed superfunds, which were not parties to the joint venture. Mr Rankin’s superfund is the second respondent (“Rankin Super”).
Because of certain conduct by Mr Rankin in 2019 giving rise to an “Event of Default” under the joint venture agreement, the Kendall parties are entitled to buy out the Rankin JV parties’ interest in the joint venture at fair market value. An accountant is in the process of independently valuing that interest.
Mid-valuation, Rankin Super served a statutory demand on BPC, seeking repayment of the contributions it made over the years to BPC, which were, it asserts, by way of a loan, documented in loan agreements made in 2011 and 2015, which was due and payable on 30 June 2022.
BPC applied to have the statutory demand set aside under section 459G of the Corporations Act 2001 (Cth) on the basis that there was “some other reason” to do so under section 459J(1)(b) of the Act. It submitted that the statutory demand ought to be set aside either because there was a genuine dispute about whether the debt was payable on 30 June 2022; or because there had been, on the part of the first and second respondents, an abuse of process.
I find that there is a genuine dispute about whether the debt the subject of the statutory demand was due and payable on 30 June 2022. In other words, I find that there exists a plausible contention, which requires investigation, that the debt was not due and payable on 30 June 2022. Indeed, Mr Rankin himself agreed in cross-examination that, from 29 November 2012, he understood that the Rankin Super loan was not going to be repaid unless the joint venture ended, or he left the joint venture. The existence of the genuine dispute provides a reason for denying effect to the statutory demand as creating a ground for the winding up of BPC.
I therefore grant the application and order that the statutory demand be set aside.
My finding of a genuine dispute about the debt is enough to warrant an order setting the statutory demand aside and that is the finding upon which my order is based. However, the evidence also supports an inference that the statutory demand process has been used for a purpose beyond its intended purpose: namely, as part of an attempt by the Rankin JV parties to avoid their forced withdrawal from the joint venture by putting pressure on BPC to sell the venture before the Kendall parties exercise their right to compulsorily buy them out. Further, BPC relied upon the contributions of the joint venturers to meet its financial obligations, which would include an obligation to repay a loan. Mr Rankin’s position, that the Rankin JV parties would not contribute funds to BPC to enable it to meet the statutory demand was, in my view, unfair and demonstrative of the complications of the conflict position he was in as a director of both Rankin Super and BPC.
My detailed reasons follow.
Evidence
In reaching my decision to set aside the statutory demand, I considered the evidence about the creation of the debt and its financial treatment thereafter. I also considered the history of the joint venture, the relationship between Mr Kendall and Mr Rankin and the other matters at play contemporaneously with the issuing of the demand.
In 2011, Mr Rankin, Roger Lago, Franco Di Bartolomeo and entities associated with each of them, agreed to develop the land on which the Big Pineapple is located as a joint venture.
BPC was registered on 13 May 2011. Its original directors were Messrs Rankin, Lago and Di Bartolomeo. Its shareholders were Messrs Rankin, Lago and Di Bartolomeo. BPC was the trustee of a unit trust, entitled the Big Pineapple Unit Trust (the “BPUT”). The trust deed was signed on 13 May 2011. Its units were allotted as follows -
(a)100 to Murgatroyd Investments Pty Ltd (as trustee for the Crescent Developments Discretionary Trust) – Lago entities.
(b)50 to Rankin Investments Pty Ltd (as trustee for the Rankin Investment Trust) – Rankin entities.
(c)50 to Dibcorp Investments Pty Ltd (as trustee for the Dibcorp Investment Trust) – Di Bartolomeo entities.
Mr Di Bartolomeo and the corporate entity associated with him withdrew from the venture not long after it had been established. In effect, Mr Kendall and the third respondent, CMC bought them out.
BPC’s original accountant was Paul Balbuziente. That changed in March 2015, at which time Angelo Catalano was appointed BPC’s accountant and taxation agent. He had been Mr Rankin’s accountant and taxation agent since May 2003.[1]
[1]Mr Catalano’s affidavit evidence was before me. He was not required for cross-examination. Also in evidence were affidavits from Mr Kendall and Mr Rankin, who were required for cross-examination; as well as affidavits from Connie Rankin (the wife of Brad Rankin) and Ken Huang (the auditor of Rankin Super), who were not. There was no objection to any of the content of the affidavits or their exhibits.
An undated, but executed, Property Agreement recorded the terms of the agreement between BPC’s shareholders and unitholders for their “future relationship” in the joint venture for the “leasing, development and/or disposal” of the land on which the Big Pineapple is situated. The Property Agreement was executed in late 2011 after the Kendall parties bought out Mr Di Bartolomeo’s interest.
Since its commencement, the venture has required the financial support of the joint venturers – that is, its directors/shareholders and unit holders – and this is reflected in the Property Agreement. Under the heading “7 Finance and Equity” in the Property Agreement, the following conditions appear-
7.1The parties acknowledge that further funding will be required to complete certain development works in respect of the property.
7.2The finance and funding to be procured and/or provided shall be at all times on terms acceptable to the Board. The Joint Venturers have agreed that finance and funding from other persons comprising external sources (e.g. a Bank) will only be secured for the costs of the new development and no finance or funding will be secured to return cash to the Joint Venturers.
7.3All moneys borrowed for the purposes and/or for the benefit of, or loaned to, the Joint Venture by any party (“the Lender”) with the consent of the Board shall bear interest and shall be payable to the Lender at a rate equal to the rate of interest at such rate of interest acceptable to the Board (sic). Such interest shall become and form part of the expenses and shall be payable to the Lender at the time that expenses are payable and/or reimbursed pursuant to the terms of this Joint Venture.
Obviously, by those terms, loans from third parties required the consent of the Board. And funds from an entity other than a party could only be secured for the costs of new development.
The recitals to the Property Agreement explain at “E” that, “As at the date of this agreement, Roger, Peter/David and Brad are the directors of the Company who will assume primary responsibility for the (sic) compliance with this agreement by the Shareholders and Unitholders.[2] Under paragraph 5, “Activities of the Board”, the Board consists of three members, nominated or appointed by each of the Shareholders, or a Shareholder themselves.
[2]Having regard to the identity of the directors, the agreement must have been executed after the Kendall parties bought out the Di Bartolomeo’s interest in the JV. “David” was David Ahern. I infer that he and Mr Kendall were business partners, but he is not referred to as a director in ASIC’s BPC historical extract.
On 13 July 2011, Mr Rankin caused $25,000 to be advanced by Rankin Super to BPC. Other evidence established that this was a “funding solution” for Mr Rankin. Mr Di Bartolomeo also used funds in his self-managed superfund (the Di Bartolomeo Family Superfund) to make part of his contribution to the joint venture.
On 24 August 2011, Mr Rankin caused $1,000,000 to be advanced by Rankin Super to BPC.
On 25 August 2011, BPC signed loan agreements with Rankin Super and the Di Bartolomeo Family Superfund:
(a)Mr Rankin and Mr Di Bartolomeo, as directors of BPC, entered into a loan agreement with Rankin Super for an advance of $1,100,000. Mr Rankin and his wife, Connie Rankin, signed the loan agreement as the directors of Rankin Super.
(b)Mr Di Bartolomeo and Mr Rankin, as directors of BPC, entered into a loan agreement with the Di Bartolomeo Family Superfund for an advance of $1,000,000. Mr Di Bartolomeo and Maria Di Bartolomeo signed the loan agreement as directors of the Di Bartolomeo Family Superfund.
Obviously, these loan agreements were made before the Kendall parties joined the joint venture.
Under the 2011 loan agreements purportedly made between the superannuation funds (as Lenders) and BPC (as Borrower), the money advanced by the superfunds was only to be used for “the Approved Purpose”. The Approved Purpose was the purchase and development of the Big Pineapple Property. Interest was to accrue annually at the higher rate of 15%, unless the Borrower complied with the terms of clause 3.3 (which I will not set out), in which case the Lender would accept an interest rate of 12.5%. The loan agreement expired on the tenth anniversary of the “Advance Date” which was the date upon which the Advance was made available to the Borrower.
I say loan agreements “purportedly made” because BPC’s board had not resolved that BPC would enter into those loan agreements; nor were all of the 2011 members of the board aware that it had. Nor was Rankin Super’s loan, or its role in contributing joint venture funds for the Rankin JV parties, revealed in BPC’s financial statements for the year ending 30 June 2012, although a note was made about it in the financial statements for the year ending 30 June 2013.
BPC (by resolution of its board or otherwise) did not sign a loan agreement with Rankin Investments in 2011. Nor did it sign a loan agreement with the non-superfund entities associated with Mr Di Bartolomeo or Mr Lago.
BPC purchased the Big Pineapple property on 1 September 2011.
In December 2011, CMC purchased Mr Di Bartolomeo’s shares in BPC and Dibcorp’s units in the BPUT and the Kendall parties thereby joined the joint venture.
On 2 February 2012, Mr Rankin caused Rankin Super to advance $25,000 to BPC.
On 22 March 2012, Mr Rankin caused Rankin Super to advance $50,000 to BPC.
The total sum advanced by Rankin Super to BPC from 13 July 2011 until 22 March 2012 was $1,100,000. This matter proceeded on the basis that the expiration date of the 2011 loan agreement with Rankin Super was 22 March 2022 (the tenth anniversary of the Advance Date).
In addition to those amounts, Mr Rankin caused Rankin Super to advance $25,000 to BPC on 6 June 2012.
BPC’s balance sheet for the year ending 30 June 2012 recorded the following “Beneficiaries’ Funds”, which purported to represent the contributions of the joint venture parties to the joint venture (and reflected that the Kendall parties had bought out Mr Di Bartolomeo’s interest). The funds were treated in the 30 June 2012 accounts as trust capital and made no mention of the contribution by Rankin Super -
(a)The Crescent Developments D/T (Lago) – $3,660,000
(b)The Rankin Investments Trust (Rankin) – $1,830,000
(c)The Dibcorp Investments Trust (Di Bartolomeo) – nil; and
(d)The CMC Property Trust (Kendall) – $1,830,000.
On 3 August 2012, Mr Rankin caused Rankin Super to advance $12,500 to BPC.
Mr Catalano was a party to, or copied into, correspondence to and from Mr Balbuziente between 21 and 29 November 2012 about Rankin Super’s loan to BPC. The 30 June 2012 financial statements for BPC were sent to another member of his accounting firm, (Aiyaz Gaffar) by Balbuziente on 21 November 2012.
Relevant extracts from the emails and other correspondence appear in the table below and demonstrate the controversy over the nature of, and treatment in BPC’s financial statements of, the moneys contributed by the superfunds.
BPC’s accountant, Mr Balbuziente, insisted that Rankin Super’s contributions were to be treated as part of the capital contribution required of the Rankin JV parties. Mr Rankin’s own accountant, Mr Catalano, insisted that Rankin Super’s contributions ought to be treated as a loan by the superfund to BPC and, to ensure no disadvantage to the other joint venturers, proposed that their contributions be treated as interest-earning loans as well:
22 November 2012
Gaffar to Balbuziente – copying in Catalano (and others)
“Please note the draft financials and income tax return will change. It is our understanding that some of the funds currently shown as contributed by Rankin Investment Trust were actually contributed by B & C Rankin Superannuation Fund. Similarly, some of the funds currently shown as contributed by Dibcorp Investments Trust were actually contributed by DiBartolomeo Superannuation Fund.
As superannuation funds are involved, interest was charged on these loans. We will provide the interest calculations to you in due course.”
22 November 2012
Balbuziente to Gaffar (copying in Rankin, Kendall and Lago)
“It is my understanding that the unit holders contributed unencumbered funds into the Big Pineapple Unit Trust (BPUT) in accordance with their respective proportional unit holding. Consequently, I do not believe that there are any super fund loans to be recorded in the Balance Sheet nor any interest payable by the BPUT to any super funds.”
22 November 2012
3.42 pm
Catalano to Balbuziente (copying in Rankin, Kendall, Lago and Gaffar)
“… the loans were paid by the respective [super funds] to the BPUT, in addition to contributions made by Brad and Franco’s respective trusts.
Interest charges are to be accounted for in the books of the BPUT for these loans and for the loans contributed by the other stakeholders in the trust i.e. loans/funds injected by Lago and Kendall Entities.
Please note that all parties were advised that this would be the case/requirement prior to the acquisition of the property settling, given that Franco & Brad would be using Superfund monies as part of the acquisition funding process.”
22 November 2012
5.41 pm
Balbuziente to “[the] Guys”
“Hey Guys I assume that you have all read the email from Angelo Catalano [forwarding the email above]. I believe that we need to have a meeting … ASAP to sort out this issue, as this appears to be contrary to everyone else’s understanding, especially after the comments tabled at the last meeting.”
22 November 2012
Kendall to Balbuziente (copying in Catalano, Rankin, Lago and Gaffar)
“Paul, is it an issue as long as CMC and Lago are paid a corresponding amount of interest?”
22 November 6.16 pm
Catalano to Kendall (with no one else in copy)
“That’s correct Peter – it’s not an issue as that was the plan from the outset so Roger and then you are not disadvantaged while allowing Brad’s superfund to participate on commercial terms and comply for tax purposes.”
23 November 2012
9.47 am
Kendall to Catalano (copying in Rankin)
“Ang,
Was any of that ever minuted at the pre-purchase stage? Be great to have reference to it if it was because I would have thought charging interest against our loans to the Big Pineapple Corp irrespective of whether they are from a super fund or not would have been a no-brainer to give us as many tax credits as possible should we make a huge capital gain in say ten years on sale of the asset.”
23 November 2012
9.52 am
Catalano to Kendall (copying in Rankin)
“There were no minutes per se, just commercial loan agreements prepared for Franco and Brad’s superfund documenting the advance to the Big Pineapple Unit Trust Unit Trust (sic).”
26 November 2012
1.15 pm
Balbuziente to Catalano (copying in Rankin, Kendall, Lago and Gaffar)
Balbuziente also asked Catalano to provide “the minutes/reference sources verifying loan approvals together with terms and conditions”.
He continued, “Your email implies that Brad and Franco’s capital contribution to fund their respective purchase of the Big Pineapple is represented by a lower than 25% capital contribution plus some portion of debt to make up the difference, as the super funds are not unit holders. This is unclear. It is also unclear whether you subscribe to paying Franco’s super fund interest”.
He said he could not see what advantage there was in accruing interest to the BPUT – except to create a bigger tax loss.
29 November 2012
1.56.55 pm
Balbuziente to Kendall, Rankin and Lago
“Hey Guys,
This is a courtesy reminder as to the completion and lodgement of the 2012 BPUT tax return. It appears that there remains (sic) two items that need to be decided on, which are:
Whether there is to be Super Funds loans recorded in the Balance Sheet and subsequent interest calculated in the said year. As already mentioned previously, I do not believe this is the case. I also note that all three of you believed this was the case when you as directors, signed off on the accounts and tax return when you were in my board room after reviewing same. However only because of a depreciation issue (second point below) the return has been held up.
Whether it is worthwhile to amend the cost of “the train” and “the pineapple structure” considering the difficulty Lyn is going through, in identifying invoices relating to these items and to the law dollar values in question. In my humble opinion, I do not believe so.
Would you please advise.”
29 November 2012
2.05 pm
Catalano to Balbuziente (copying in Rankin, Kendall, Lago and Gaffar)
Catalano sent Balbuziente the 2011 loan agreements from the super funds to “the BPUT”. He explained that the utilisation of the super funds was a “funding solution” and not a tax driven exercise.
“The fact that the superfunds are not unitholders is not an impediment to the commerciality of the transaction, they are effectively a substitute for Bank Finance/Unit Holder loans in the transaction, without compromising/ disadvantaging the other stakeholders in the deal provided they also receive an Interest payment on funds advanced.
The loan agreements and associated interest charges are to ensure the Superfund’s (sic) meet their tax compliance obligations/requirements.
The interest charges can be capitalised to the loans for the two years ended 30 June [2013 – see email sent a moment later correcting the year from 2012].
We will calculate the interest and advise you of the relevant journals to post to the Big Pineapple accounts, in addition to the journal re the CMC Property Trust guarantee reimbursement of the DiBartolomeo Superfund Early loan repayment fee.
However going forward I suggest we physically flow the cash out and the funds can be injected back into the Unit Trust if need be by the respective stakeholders.”
3 December 2012
Balbuziente to Catalano (copying in Kendall, Rankin and Lago)
“Hi Angelo,
In light of [the email immediately above], I believe it would be best to have the three directors discuss the matter.
Because of the timing (close to Christmas and Brad leaving for overseas) this may need to be shelved for the short term …”
17 January 2013
Balbuziente to Catalano (letter, sent by email, copied to Kendall, Rankin and Lago)
In this letter, Balbuziente outlined his thinking, in the hope that he could work together with Catalano. He said, based on recent discussions, it seemed that Kendall, Lago and he had no knowledge of the loan agreements under which amounts of $1.1 million were said to been advanced to the Unit Trust and payable at interest in the order of 15% monthly.
He set out all the issues, from Lago’s point of view in particular, with the “loans” from the super funds and notes that they were not approved by Lago or the board and the reasons why they were unattractive (my word). Balbuziente continued:
“5. That said, Roger would contemplate recognising and approving loans on a mirroring basis (on appropriate terms) provided he could be satisfied that the relevant terms of the borrowing will not create tax and commercial problems particularly bearing in mind that the Unit Trust will not be generating income or cash sufficient to meet substantial interest payments for some considerable time.
6. Amongst other maters I need to understand what you propose concerning treatment of interest both commercially and for income tax purposes. My understanding is that if we “capitalise” the interest or pay it (as your email suggests) that interest will be assessable in the hands of each of the unit holders (whilst the corresponding loss or deduction will be trapped in the Trust). That will generate a most unfortunate tax outcome particularly given the amounts involved and the high rate of interest. Whilst it may be acceptable for a SMSF to pay tax on interest income which it does not really receive, most other taxpayers would not regard this as an acceptable outcome.”
Balbuziente asked Catalano’s advice about the course he proposed regarding the timing of the payment of interest; the course he had in mind concerning the recognition of the interest income and the deductibility of interest for income tax purposes; how he envisaged treating the difference between the $1.1 million in each loan agreement and the additional funds provided in each case; and whether CMC acquired a loan as well as units, and whether it acquired the loan inclusive or exclusive of interest accrued at the time of transfer.
24 January 2013
Catalano to Balbuziente (copying in Kendall, Rankin and Lago)
Catalano told Balbuziente that he was “of the view” that Roger was aware that Franco and Brad were using superfund moneys as part of the funding of their respective contributions – although, he acknowledged, it appeared that “the process may not have been clearly articulated and/or understood”.
He said the loan agreements were required “given that Brad and Franco’s superfunds were used to fund the majority of the contribution to the property acquisition, which is the basis of my comment re the treatment of the funds commercially for tax compliance purposes. As to the interest rate – there was nothing to stop the parties varying the terms or nominating an interest free period. He also said that CMC did not acquire a loan.
25 January 2013
4.17 pm
Lago to Catalano (copying in Rankin, Balbuziente, and Kendall)
In short, Lago told Catalano that he did not know the 2011 agreements existed – he did not see them until late 2012. Neither Franko nor Brad spoke to him about using superfunds to purchase the Pineapple.
“From the beginning it was clear that we would all bring our own cash to the table and leave the Pineapple and the adjoining properties unencumbered.” He asked for the minutes where this super funding was discussed. He did not understand why it took until late last year for Catalano to advise Balbuziente that the returns needed amending. All three directors had in fact signed off on the returns in October. They were not lodged because of an issue around depreciation.
He said the loan agreements meant nothing to him, “they were never agreed upon and won’t form part of the Pineapple JV going forward”.
25 January 2013
5.41 pm
Rankin to Lago (by iPhone)
Rankin asserted that Lago knew that he and “Frank” were “buying in” their super funds and asked the accountants to come up with a solution. He did not think a meeting would achieve anything.
25 January 2013
6.41 pm
Lago to Rankin (by iphone)
Lago re-asserted his position that he knew nothing about the loan agreements – and asked rhetorically why his name was not on them and why he would agree to them when they did not benefit him in any way.
25 January 2013
7.12.32 pm
Catalano to Lago (copying in Rankin, Balbuziente and Kendall)
“Roger
For your information the funds injected by you are also to be treated as a loan from your trust to the Big Pineapple with an appropriate loan agreement to be documented to be consistent across the board.
The financial statements as they currently stand are incorrect as they state that Brads (sic) trust injected 100% of his contributions when in fact it was a combination of loans from his superfund and trust, hence the accounts require amendment and it is not an issue for debate.
If your concern is the interest rate etc this can easily be varied, with all stakeholders to have mirror loan agreements with the big pineapple unit trust.
I will discuss all this with Paul next week.”
30 January 2013
10.18 am
Catalano to Balbuziente (copied to Rankin, Kendall and Lago)
This email attached, inter alia, the loan balances for Rankin’s entities. Catalano also confirmed his understanding that the loan agreement terms had been varied – the loans were interest free for 12 months with interest payable at 6% thereafter.
It seems the balances (and other journal entries) were not in fact attached. They were resent on 15 January 2013 at 10.06 am.
The balances were $1,125,000 (Rankin Super) and $705,000 (Rankin Investments) – a total of $1,830,000.
15 February 2013
Letter from Clayton Utz (“Clutz”) to Angelo Catalano
I infer that Lago instructed Clutz to advise him of the “best way forward” in relation to the loans to the Big Pineapple Unit Trust.
David Cominos, of Clutz, wrote to Catalano to “clarify” certain matters – such as the interest rate; the tax implications; the relative disadvantage to non-super unit holders etc.
Catalano forwarded the letter (at 4.40.23 pm) to Kendall and Rankin with a covering note as follows:
Guys
FYI attached.
This thing is starting to get beyond a joke.
Rankin asked Catalano “How do we handle this one? Faaaark?” Catalano said he would “reply today and go from there”.
18 February 2013
11.20
Catalano to Cominos (copying in Lago and Balbuziente)
Catalano replied to the various questions asked. Of note, he did not accept that the arrangement was disadvantageous to the unit holder lenders who were not super funds. He said, “The net result is neutral albeit there may be a timing difference depending on the individual parties (sic) personal circumstances”. He also said that all of the existing agreements had to be reviewed and varied if necessary and loan agreements for non-superfund lenders would be required if they had not already been prepared.
21 February 2013
Lago informed Catalano, who informed Kendall and Rankin, that his position on the proposed loan agreements had not changed.
29 April 2013
Balbuziente to Rankin, Kendall and Lago
Balbuziente reminded the directors that the 2012 tax return required lodgement. He said, “I accept that there has been some discussion on this matter, however it appears that the initial position remained unchanged i.e. that there will not be any loans in the trust, except for the capital injection by the unit holders.
He said if he did not hear from the direction by 3 May 2013, he would lodge the signed original return.
23 January 2014
4.19 pm
Balbuziente to Kendall, Rankin and Lago
“Hi Guys,
If you can recall, I sent you all an email advising that the 2013 Big Pineapple Corp Unit Trust Return [financial year ending 30 June 2013] was complete and required signatures, last October. I also suggested to have three separate meetings with each of you to discuss the accounts and hand over the hard copies to each respective partner.
Because I have not received a reply from anyone, I have attached a copy of same and ask you to check carefully and if found to be correct kindly sign where indicated and return to me via email …”
The financials included with the 2013 tax return included the Balance Sheet for the year ended 30 June 2013. Under the heading “Beneficiaries Accounts”, the Balance Sheet showed the “Rankin Investments Trust” as having an opening balance of $1,830,000 with capital contributed of $44,000 – a total of $1874,000 – with no mention of the contributions by Rankin Super.
On 4 February 2014, it was déjà vu. Mr Catalano sent an email to Mr Balbuziente noting that all of Rankin’s contributions were shown as having been made by Rankin Investments. He confirmed that Rankin Super made contributions during the 2012 financial year. He said that the 2012 financial statements would have to be amended to correct this error. He said that the loan/beneficiary account balances for the Rankin JV parties’ contributions, as at 30 June 2012 ought to read –
(a)$705,000 – Rankin Investments Trust;
(b)$1,125,000 – the B & C Rankin Superannuation Fund,
a total of $1,830,000.
He noted that no interest had accrued on those loans.
On 10 February 2014, Mr Balbuziente wrote to Mr Catalano (copying in Messrs Rankin, Kendall and Lago), noting his surprise that Mr Catalano was revisiting issues which were addressed the year before and maintaining that there was no need to amend the statements. He said –
… Nothing has changed from last year. Your transactions which show super fund payments have no relevance. I can only repeat what my instructions were from the unit holders (including Brad) that the Big Pineapple Corp Unit Trust was going to be funded solely by the unit holders i.e. CMC Property Pty Ltd ATF the CMC Property Trust; Rankin Investments (Qld) Pty Ltd ATF for Rankin Investments Trust and Murgatroyd Investments Pty Ltd ATF the Crescent Developments Discretionary Trust.
It was the responsibility of the unit holders to source their own finance.
On 11 February 2014, Mr Catalano emailed Mr Balbuziente (copying in Messrs Rankin, Kendall and Lago). He said he disagreed. Nothing had been resolved. “Source documents” confirmed the money trail – funds were transferred directly from Rankin Super to the Big Pineapple Corp Unit Trust. Rankin Super did not transfer the funds first to Rankin Investments.
On 18 February 2014, after a telephone call between Mr Balbuziente and Mr Catalano, Mr Balbuziente agreed to amend the 2013 financial statements on certain conditions, namely that –
(a)no interest would be charged/accrued without the unanimous approval of the unit holders; and
(b)the unit holders’/beneficiaries’ balances would be presented as liabilities, rather than as trust capital.
He said he was unable to amend the 2012 accounts.
As at 30 June 2013, the “Beneficiaries Accounts” show that, in each case –
(a)additional capital was contributed; then
(b)all of the contributions were taken in “drawings”; then
(c)the amounts drawn were “lent” to BPC as follows –
(i)$3,748,000 by the Crescent Developments D/T;
(ii)$1,847,000 by the Rankin Investments Trust; and
(iii)$1,874,000 by the CMC Property Trust.
Those amounts were shown as “Non-current Liabilities” in the form of unsecured loans from “Lago, Kendall, Rankin” on the balance sheet.
In the case of the amount lent by Mr Rankin, a note to the financial statements explained that $736,500 came from the Rankin Investments Trust and $1,137,500 came from the B & C Rankin Super Fund.
The 30 June 2014 balance sheet showed a small increase in the amount of each of the “unsecured loans”. Mr Lago’s loan was $3,758,000 (up by $10,000) and each of Mr Rankin’s and Mr Kendall’s were $1,879,000 (up by $5,000 in each case). The 30 June 2014 financial statements show no interest expense.
In 2014, Mr Lago and the entity associated with him withdrew from the joint venture – leaving the Kendall and Rankin JV parties as equal partners in it.
The evidence below reveals that Mr Kendall and Mr Rankin made approximately equal financial contributions to the venture. Mr Rankin’s contributions continued to include funds advanced directly to BPC by Rankin Super, as well as funds advanced by Rankin Investments. Mr Kendall’s contributions did not include any superannuation fund monies – only funds advanced by CMC.
The 30 June 2015, the financial statements showed a loan from the NAB in the sum of $3,600,000. They showed unsecured loans as follows –
(a)$814,000 (the Rankin Investments Trust);
(b)$1,137,500 (the B & C Rankin Super Fund); and
(c)$1,951,500 (the CMC Property Trust).
Three Deeds of Loan were executed on 1 July 2015 – to the knowledge of BPC’s then board. Their details were as follows:
(a)Deed of Loan between Rankin Investments and BPC, for $814,000, with a termination date of 30 June 2022, signed by Mr Rankin as the sole director of Rankin Investments, and by Mr Rankin and Mr Kendall as the directors of BPC.
(b)Deed of Loan between Rankin Super and BPC, for $1,137,500, with a termination date of 30 June 2022, signed by Mr Rankin and his wife Connie, as directors of their super fund, and by Mr Rankin and Mr Kendall as the directors of BPC.
(c)Deed of Loan between CMC and BPC, for $1,951,500, with a termination date of 30 June 2022, signed by Mr Kendall and David Ahern, as the directors of CMC, and by Mr Rankin and Mr Kendall, as the directors of BPC.
The deeds of loan are in identical terms.In each case, it is asserted in the recitals that the borrower (BPC, as trustee for the Big Pineapple Unit Trust) “has requested” the lender to advance funds to it; and that the lender has agreed to make the loan available to the borrower, in accordance with the terms of the deed.
The Rankin Investments deed concerns a loan of $814,000. The Rankin Super deed concerns a loan of $1,137,500. I will refer to these deeds as “the Rankin deeds”. The CMC deed concerns a loan of $1,951,500. The total of the amount lent in pursuance of the Rankin deeds is the same as the amount lent in pursuance of the CMC deed. The loans were stated to be repayable on 30 June 2022. It will be immediately apparent that the loan amounts are the equivalent of the unsecured loans listed on the 30 June 2015 balance sheet.
At all times since the financial year ending 30 June 2015, BPC recorded an interest expense accrued to Rankin Super, consistent with a loan advanced in the amount of $1,137,500.
Under cross-examination, Mr Kendall confirmed that, as a director of BPC, he was required to sign its tax returns and financial statements and he had done so in relation to the documents prepared for the 2014/2015 tax year onwards. He accepted that, by signing the documents, he acknowledged that they presented “fairly” the financial position of BPC. That included, obviously, their representation of the “unsecured loans” and their interest.
As at 30 June 2016, BPC’s non-current liabilities included a bank loan from the NAB for $3,600,000 and the following unsecured loans –
(a)$855,696 (the Rankin Investments Trust);
(b)$1,232,498 (the B & C Rankin Super Fund); and
(c)$2,088,194 (the CMC Property Trust).
The unsecured loans to BPC by Rankin and Kendall (via their related entities) were in identical amounts ((a) +(b) = (c)).
Under cross-examination, Mr Kendall accepted that the loan amounts had increased by the amount of interest owing on each loan. He accepted that the profit and loss statement for the financial year ending 30 June 2016 showed interest expenses for the loans. He accepted that the trust’s tax return included a “total interest expense” entry which related to the interest owing on the loans to BPC plus interest owed to the Australian Taxation Office of $148. He said he would have relied upon his accountant for the accuracy of the figures but added that he would have satisfied himself that the return was correct.
With respect to the year ending 30 June 2017, Mr Kendall accepted that there was an interest expense recorded in the profit and loss statement for that year, which represented the interest owed on the loans for that year; and that the amount of the loans had increased by a corresponding amount.
In March 2018, the NAB wrote to BPC about its finance facility. In its letter, it required additional lending covenants, which included that “related party loans”, that is, the 2015 loans to BPC from the first, second and third respondents, be subordinated to the bank. Mr Kendall said that Mr Rankin did not say that that requirement was problematic because the first and second respondent’s loans were repayable at call or on 30 June 2022. Mr Kendall relied upon the alleged implied representation (by omission) as evidence that Mr Rankin did not understand the loans to be so repayable.
As at 30 June 2018, the loan from the NAB was shown as a non-current liability in the amount of $4,960,000. The unsecured loans were as follows –
(a)$971,926 (the Rankin Investments Trust);
(b)$1,446,325 (the B & C Rankin Super Fund); and
(c)$2,419,535 (the CMC Property Trust).
At this point in time, the unsecured loans to BPC by Rankin and Kendall were not quite in identical amounts,[3] although they were close. Again, in evidence, Mr Kendall confirmed the accuracy of the financial statements, including statements made about interest expenses, and that the loan amounts had been increased by the interest owed in relation to each.
[3](a) plus (b) equals $2,418, 251.
In November 2018, BPC submitted a “Business Case” to the Department of Innovation, Tourism Industry Development, in support of an application for a Growing Tourism Infrastructure Grant (the “GTI Business Case”). In support of his application to have the statutory demand set aside, Mr Kendall relied upon certain representations about the loans made in the GTI Business Case. Those representations were said to have been made in a “Debt Schedule/Financing Facility Summary” which did not record that the loans provided to BPC by Rankin Super and Rankin Investments were repayable on 30 June 2022. Rather, the schedule recorded those loans as available until 30 June 2028.
As at 30 June 2019, the NAB loan was recorded on the balance sheet as a liability in the sum of $5,385,199. The unsecured loans were as follows –
(a)$1,826,593 (the Rankin Investments Trust);
(b)$1,566,771 (the B & C Rankin Super Fund); and
(c)$3,446,342 (the CMC Property Trust).
The loan in (a) plus the loan in (b) equals $3,393,364 – about $53,000 less than the loan in (c). Under cross-examination, Mr Kendall accepted that the interest expenses were properly recorded in the financial statements – including interest owed on the loans.
In 2019, Mr Rankin’s conduct led to an “Event of Default” under the Property Agreement. Under the agreement, the Kendall parties were therefore entitled to buy the Rankin JV parties’ interest in the joint venture (and assume ownership and control of the whole of the venture) if they wished to do so. The value of the Rankin JV parties’ interest (that is, the buyout figure) is to be determined by an independent accountant.
The valuation process is ongoing: having commenced, on one view, as long ago as December 2020, when Mr Kendall and Mr Rankin agreed to appoint Mr Sorbello of BDO to value the property; or at the latest, in October 2021, when Mr Sorbello was appointed. The parties made submissions to Mr Sorbello in March 2022 and wish to make (or perhaps have already made) others.
As at 30 June 2020, the NAB loan was at $7,500,000 and the unsecured loans were as follows –
(a)$2,871,867 (the Rankin Investments Trust);
(b)$1,697,621 (the B & C Rankin Super Fund); and
(c)$4,702,699 (the CMC Property Trust).
The Rankin loans were about $133,000 less than the Kendall loan. Under cross-examination, Mr Kendall agreed that, for this financial year, the interest expense amount was the sum of the interest owing on the loan from the NAB, and the loans from Rankin Investments and the B & C Rankin Super Fund. It did not include an amount of $333,357, which was the interest owed on the loan by CMC Property Trust. That amount appeared under the heading “All other expenses” rather than “Total Interest Expenses”. Mr Kendall said he was not sure why there had been that change in the way in which the interest owed on the CMC loan.
As at 30 June 2021, the NAB loan was at $7,500,000 and the unsecured loans were as follows –
(a)$3,295,015 (the Rankin Investments Trust);
(b)$1,838,944 (the B & C Rankin Super Fund); and
(c)$5,199,461 (the CMC Property Trust).
The Rankin loans were about $65,000 less than the Kendall loan. Under cross-examination, Mr Kendall agreed that the financial statements correctly recorded and dealt with the interest expense in relation to each of the loans. In other words, he “declared” (by signing the relevant documents) that there was an interest expense relating to the loan from the super fund and he agreed that he would not have so declared had there been no such loan.
As noted above, although the financial records for the 2011/2012 year show that funds were contributed by entities related to Lago, Rankin and Kendall, no agreements reflecting loans from those entities were executed at that time. Nor were loan agreements executed when the contributions were withdrawn (as drawings) and paid back into BPC in 2012/2013. Mr Kendall said that the first he became aware of a 2011 loan agreement between Rankin Super and BPC was in June 2022 (see below).
In April 2022, after Mr Rankin “discovered” the 1 July 2015 loan documents, he demanded that BPC repay the loans made to it by Rankin Investments and Rankin Super, in a total amount of more than $5.533 million (including interest). He contended, at that point in time, that the loans were repayable at call, and threatened to issue statutory demands if they were not repaid by 5 pm on 22 April 2022. The loans were said by Mr Rankin to have made in 2011 and documented (in the case of the loan from Rankin Investments) or re-documented (in the case of the loan from Rankin Super) in 2015.
Having made the demand for repayment of both the Rankin Investment and Rankin Super loans in April 2022, on 11 May 2022, Mr Rankin presented to Mr Kendall an “offer” (or, more accurately, an invitation to treat) made to BPC by Scott PDI to buy the land the subject of the joint venture for $30 million. Mr Rankin was keen to engage in negotiations with Scott PDI and to counteroffer $35 million. He said to Mr Kendall (through his lawyers), “Given the expense of the ongoing valuation process, please respond as soon as possible, and by say, Friday 13 May 2022”.
Mr Kendall’s position is that “the Pineapple is not for sale”. The valuation process is to take precedence. He and his interests intend to buy out the Rankin JV interests. They do not wish to sell “their half” of the joint venture (to Scott PDI or otherwise).
On 16 May 2022, Mr Rankin sent the Kendall parties a notice of meeting. It proposed that the board (that is Mr Kendall and Mr Rankin) discuss matters relating to the payment of the loans to Rankin Investments and Rankin Super and the Scott PDI letter.
Mr Kendall attended the board meeting on 1 June 2022, by telephone. Mr Catalano was present with Mr Rankin. During their discussion about the loans, Mr Kendall said –
… so far as I’m concerned, those loans were put in place, as you’d recall, when we brought (sic) Lago out, we, we didn’t have finance in place, so we tipped cash in for bridging finance, which by then I think it was sometime in February, the NAB funded it and repaid us. We then documented that.
Mr Kendall said his position was that the 2015 loan agreements referred to the bridging finance and they had been “extinguished”. Mr Catalano told Mr Kendall – in effect – that the 2015 loan agreements represented the cash “tipped in” to the venture at the beginning. He said –
… you guys each had $5.6 as a loan, over the time, from the beginning when you guys all tipped in, right, then you guys paid Lago, and we didn’t get extra finance from the NAB. I said you guys each put in extra, on top of that to take out Lago, and then NAB money came in to repay that top up. So your original loans, your loans went up … so technically speaking the loans went up to $7 million each, then you got the NAB facility to repay it back, it was just a timing thing to get rid of Lago, that’s all.
Mr Kendall “completely disagreed” and maintained that the 2015 loan agreements were put in place to document the bridging finance. He said that the original loans (the amounts tipped in) were “sitting on the balance sheet”. He asked, rhetorically, “Why on earth would we have put a loan agreement in place in mid-2015 … when we … bought the initial stake back in 2011”. (Mr Kendall had not, at the time of this conversation, re-read the correspondence from 2012/2013, set out in the table above.)
The conversation about the loans continued, with Mr Catalano and Mr Kendall doing most of the talking. Mr Catalano said (my emphasis) –
You gotta remember too, Brad’s [Rankin’s] got his super fund in there, so his contribution was by way of his super fund and his trust, so we have to have loan agreements in place for all that stuff. Alright, so anyway, it was all there …
…
I’m just playing a straight bat here. The loans are in place. Now for the loans to have been extinguished there would have to have been an issue of units, but that never happened. Right. So right now, your tip in, and Brad’s has always been, even Lago’s at the beginning, and Franco before your time, all the equity that went in, right, by everyone, was funded by way of loan. So when Lago exited, he got his loan repaid as part of that process. So mate, there’s precedent prior to this as to how this, the funding at the Big Pineapple works.
The parties met again on 16 June 2022. Mr Kendall’s view remained unchanged.
On 1 July 2022, Mr Rankin signed two statutory demands, one on behalf of Rankin Super and the other on behalf of Rankin Investments, which were served on BPC on that same date. I am concerned only with Rankin Super’s demand. The demand by Rankin Investments was not ultimately pursued.
The superfund demand asserted that BPC owed Rankin Super $1,992,140.76; and that that amount was due and payable.
Mr Rankin’s affidavit in support of the superfund demand asserted inter alia that he was the person who had the dealings with BCP which gave rise to the debt. He said, “I executed loan agreements between the creditor and the debtor on 25 August 2011 and 1 July 2015 on behalf of the creditor, and the debt consists of the amount of that loan, plus interest, that remains unpaid”.
The superfund demand was originally for $1,992,140.76. That amount was based on the incorrect calculation of interest. It was revised to $1,774,250.60 on (or by) 22 August 2022.
BPC filed an application to set aside the demand was on 13 July 2022. BPC argued that there was good reason to set aside the demand because –
(a)the debt to which the statutory demand relates is not due and payable;
(b)further investigation into the books and records of BPC is warranted;
(c)the debt claimed in the statutory demand process should not, at this juncture and before the valuation is concluded, be allowed to create a presumption of insolvency;
(d)Rankin Super was using the statutory demand process unjustly and unconscientiously; or
(e)Mr Rankin’s position as a director of both debtor and creditor (BPC and Rankin Super) created a conflict of interest or otherwise rendered the statutory demand process inappropriate.
The broad question for the Court on this application
In Neutral Bay P/L v DCT; MA Howard Racing P/L v DCT; Broadbeach Properties P/L v DCT [2007] QCA 312,[4] Keane JA[5] explained the operation of the relevant part of the Corporations Act 2001 (Cth) and the matter with which section 459J (and section 459H) is concerned – namely, whether there is good reason to deny effect to a statutory demand as creating a ground for the winding up of a debtor company (footnotes omitted, my emphasis)-
[4]To which I was referred by the applicant.
[5]As his Honour then was; and with whom Holmes JA (as her Honour then was) and Muir JA agreed.
[12]Section 459A of the Act empowers a court to wind up in insolvency an insolvent company on an application under s 459P. Section 459E(1) permits a person to serve a demand on a company for the payment of debts that are due and payable and are at least equal to the statutory minimum. Under s 459C(2)(a) of the Act, the court to which a winding up application is made must presume that the company is insolvent if, during or after the three months ending on the day when the application for the winding up is made to the court, the company failed to comply with a statutory demand. The company may apply to the court pursuant to s 459G of the Act for an order setting aside the statutory demand.
…
[15]Section 459K provides: ‘A statutory demand has no effect while there is in force under s 459H or s 459J an order setting aside the demand”. On the hearing of the appeal, [counsel for the appellant Deputy Commission of Taxation, who had served statutory demands on the respondents] accepted that, within the context of this Part of the Act, the “effect” of a statutory demand which is “in force” is to create a basis for winding up a company on the ground that it is insolvent. This acknowledgement conforms to the observation of Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia:
“the only significance that the statutory demand has is that if there is failure to comply with it then the company is deemed to be insolvent. Thus the demand is no more than a precursor to an application for winding-up in insolvency.”
[16]This observation draws attention to the statutory context in which s 459H and s 459J must be interpreted. While a statutory demand may be regarded as a perfectly legitimate means of attempting to collect debts which are due and payable, s 459H and s 459J are not concerned with whether a debt should be paid, but with whether a company should be wound up.[6]
[6]Keane JA cited Palmer J’s decision in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72, for the statement in [16] that a statutory demand made be regarded as a perfectly legitimate means of attempting to collect debts which are due and payable. However, as explained in Assaf, Statutory Demands and Winding up in Insolvency, 2nd edition, Lexis Nexis Butterworths, Australia 2012, Palmer J seemed to have resiled from that position in Owners Corporation Strata Plan 66609 v Perpetual Co Ltd [2010] NSWSC 497, in which his Honour reiterated the traditional purpose of the statutory demand.
In Neutral Bay, in the exercise of his discretion under section 459J(b)(i), the primary judge held that there was good reason to set aside the statutory demands because of the perceived unfairness involved in the likely impact of winding up upon the respondent’s challenges to their liabilities. On appeal, the appellant argued that section 459J(b)(i) was narrower than the primary judge appreciated and limited to cases of unconscionability or abuse of process.
In rejecting this argument and dismissing the appeal, Keane JA said at [79] that the discretion conferred by s 459J(1)(b) is of “broad compass” –
… It was described in these terms by the Full Court of the Federal Court in Arcade Badge Embroidery Co Pty Ltd v DCT (2005) 157 ACTR 22 at [27].[7] That the Full Court in that case went on to say that the discretion “extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice” does not suggest that the Court was seeking to give an exhaustive statement of the cases comprehended by the discretion which would exclude “unfairness” of the kind identified by the learned primary judge in this case.
[7]An authority on the applicant’s list of authorities.
At [84], his Honour said it may be preferable to avoid attempts to categorise a “reason” for setting aside a statutory demand under section 459J(1)(b) in terms of “unconscionability” or “abuse of process” because references to those legal categories distracted attention from the real question, which is whether there is good reason to deny effect to a statutory demand as creating a ground for the winding up of the debtor company.
Similarly, Rares J said in MNWA Pty Ltd and Another v Deputy Commission of Taxation (2016) FCR 381[8] (my emphasis) –
[81]… [T]he justiciable issue in an application under s 459G is whether the demand should be set aside or varied in amount on the bases set out in ss 459H and 459J. That issue is distinct from whether a debt exists as a matter of fact and does not finally determine any rights …
[82]The only fact that a decision under Div 3 of Pt 5.4 of the Act establishes is that the issuer either has, or does not have, a statutory demand on which the issuer can bring a winding up application if the company fails to comply with it. In other words, the decision simply determines the issuer’s entitlement to make an application under s 459Q to wind up the company based on a failure to comply with that statutory demand.
[8]An authority on the applicant’s list of authorities.
As the authors of Lexis Nexis’ Australian Corporations Legislation explain, the power to set aside the demand for “some other reason” exists to maintain the integrity of the Part 5.4 process. It should be used as necessary to counter attempted subversion of that process.[9] Further, as the authors of Ford, Austin and Ramsay’s Principles of Corporations Law explain at [27.065.27] of the loose-leaf service,[10] the service of a statutory demand is part of the preparation of proceedings for winding up in insolvency, and courts should guard against the abuse of that process –
Although a statutory demand does not itself commence any proceedings in a court, it is part of the preparation for proceedings for winding up in insolvency and courts regard it as their duty to ensure, in the public interest, that their process is not abused, as being a reason why a statutory demand tainted by fraud, or bad faith or served recklessly or vexatiously or otherwise served for an improper purpose can be set aside under s 459J(1)(b).
[9]Lexis Nexis Butterworths, Australia, 2020 edition, commentary on section 459J.
[10]17th edition, Lexis Nexis, 2018.
Genuine dispute
The dispute between the joint venture parties about the debt was not about its existence or amount but, rather, about whether it was due and payable on 30 June 2022.
Rares J explained in MNWA at [77], that when a genuine dispute exists as to the existence or enforceability of a debt, a statutory demand ought not to be used by a person claiming to be a creditor as a substitute for judicial proceedings for the ascertainment and final determination of rights. Of particular relevance in this case, His Honour said (my emphasis) –
[112]Since 459H(6) makes s 459H subject to s 459J, a genuine dispute about a demand for a debt, that raises the issue that it was not due and payable at the time of service, is capable of amounting to “some other reason” to set the demand aside under s 459J(1)(b). Thus, a genuine dispute that, for example, the debtor and creditor had made an arrangement for the payment of the debt claimed at a time later than the creditor asserted, could create “some other reason why the demand should be set aside” for the purposes of s 459J(1)(b).
Accordingly, the present application insofar as it concerned a dispute about the debt proceeded under section 459J(1)(b), rather than under section 459H(1)(a).
Martin CJ[11] observed in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44],[12] the test of “genuine dispute” which has enjoyed the greatest judicial support is that of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785[13]. A “genuine dispute” connotates “a plausible contention requiring investigation”. An applicant must establish that “the dispute is bona fide and exists in fact, and that the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived (Martin CJ at [45], citing Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452[14] and Turner Corp (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294).
[11]With whom Owen and Miller JJA agreed.
[12]An authority on the applicant’s list of authorities.
[13]An authority on the applicant’s list of authorities.
[14]An authority on the applicant’s list of authorities.
Thus, the question for me was whether the asserted dispute was a bona fide dispute, based on reasonable grounds, as to whether the loan from Rankin Super was repayable on 30 June 2022.
Abuse of process
Martin CJ explained in Createc at [49], that since the decision in David Grant & Co Pty Ltd v Westpac Baking Corp (1995) 184 CLR 265,[15] it has been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the grounds of an abuse of process. At [50], his Honour said, adopting the criterion from Williams v Spautz (1992) 174 CLR 509, stated-[16]
… [T]here will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers – such as the application of pressure to compel payment of the disputed debt.
[15]An authority on the applicant’s list of authorities.
[16]An authority on the respondent’s list of authorities.
Createc involved a finding that a statutory demand was issued as an abuse of process having regard to evidence that the creditor knew that there was a clear dispute over payment for a printer which was, from the debtor’s point of view, not fit for purpose. At [2], Martin CJ emphasised that the purpose of the statutory demand process was “to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up the company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment”.
Mr Kendall/BPC’s position
In resisting the payment of the statutory demand, Mr Kendall for BPC said none of the loans documented in the 2015 deeds is due and payable. He took two, quite different, positions in his evidence.
The first was that the three 2015 loans had been extinguished. He said the only funds provided by Rankin Investments and Rankin Super to BPC, which were to be repaid before the withdrawal of the Rankin JV parties from the joint venture or the end of the joint venture, were those paid in December 2014, to half-fund the withdrawal of Mr Lago from the joint venture. (CMC funded the other half.) Mr Kendall asserted that the 2015 deeds documented loans made in 2014, not the 2011 loans; and that the 2014 loans were repaid with finance from the NAB.
The second was that – notwithstanding the terms of the 2015 deeds – the “loans” were in fact the contributions of the joint venturers. They were not repayable at call or on 30 June 2022. Mr Kendall’s understanding was that the contributions were “converted” into loans, and the 2015 deeds were created, because of an accountant’s view of Rankin Super’s compliance obligations and the need to ensure that the Kendall parties were not disadvantaged.
Additionally, Mr Kendall said he was concerned that the two statutory demands were made for an improper purpose, namely –
(a)to have a liquidator appointed to BPC, to avoid the completion of the BDO valuation and avoid the forced withdrawal of Mr Rankin and the first respondent from the Big Pineapple joint venture and the sale of their units and shares to CMC; and/or
(b)to force Mr Kendall to agree to the applicant entering into an agreement with Scott PDI for the potential purchase of BPC’s land, to avoid the forced withdrawal of Mr Rankin and the first respondent from the Big Pineapple joint venture and the sale of their units and shares to the third respondent.
Having refreshed his memory from the email correspondence from 2012, Mr Kendall said, in effect, in his affidavit affirmed 9 September 2022, that he understood the 2015 loan deeds were created to ensure Rank Superfund’s compliance with its statutory obligations and to ensure that the Kendall parties, who had not contributed superannuation funds to the joint venture, were not disadvantaged. He explained as follows –
(a)Mr Balbuziente was concerned that Mr Catalano’s proposal to treat the contributions made by the unit holders as loans, and to have them charge interest on funds which were provided as capital would –
(i)be contrary to the agreement that existed between the original unit holders – that each would contribute unencumbered funds to the BPUT in accordance with their unit-holding proportions; and
(ii)disadvantage unitholders who had contributed their capital in unencumbered funds, who would pay tax on any interest accrued but would not actually be paid that interest by the applicant.
(b)Mr Kendall “initially” shared those concerns, but: “[A]t the time, I understood Mr Catalano’s [November 2012, January 2013 and February 2013] emails … to mean that changing the capital contributions in the applicant’s financial records to loans and recording a loan from the second respondent to the applicant in the applicant’s financial records would not make any difference to the applicant, the third respondent or Murgatroyd Investments Pty Ltd, and was required only so that the second respondent could satisfy its superannuation compliance requirements”. [17]
[17]Paragraph 9(c) of his September 2022 affidavit.
He said he agreed to changing the way in which the capital contributions were recorded because he understood the reason for the change to be nothing more than a way to ensure Rankin Super’s compliance. Had he been “so informed” (that there was another reason for the change), he would not have consented to it. Nor did he appreciate that signing the loan agreement would make any difference to BPC, CMC or Murgatroyd. Had he been informed that signing the loan agreement would have made a difference, he would not have signed it. No loan was repayable on 30 June 2022 but an allowance would be made for the loans made by the Rankin entities once Rankin’s interest had been valued and he withdrew from the joint venture.
Inconsistently with his 9 September 2022 affidavit, in cross-examination, he said the view he expressed on 1 June 2022 was still his view: the loans documented by the 2015 loan agreements had been “extinguished” by which he meant “paid” or “repaid”. The interest charge recorded in the financial statements was the interest accruing from the initial loans made in 2011. He agreed that the 2011 loans had not been repaid – but said the 2015 ones had. He was asked to explain the difference between his assertions (a) that the 2015 loan documents documented the money lent – then repaid – to pay out Lago and (b) that the 2015 loan documents were for superannuation compliance purposes (as he had stated in his affidavit). He said (not directly answering the question or reconciling the different positions) that once he had had his memory “refreshed” by referring to the email exchanges set out above, it came “flooding back”.
In re-examination, he said that all of the initial contributions were in cash because the BPC partners agreed not to involve banks in financing the venture because “if one of the partners ran out of money … a bank couldn’t get involved … and cause problems”.
As to the “conversion” (my word) of the contributions into loans, Mr Kendall said he had no problem with it – particularly after being told by Mr Catalano that it would make no difference to him (Mr Kendall). He said it seemed to him that the two accountants were arguing over something which was “trivial” and that the difference was subtle.
He was taken to an email dated 2 June 2022 from Mr Catalano to Mr Kendall’s solicitor. It attached copies of the executed loan agreements and trial balances for the years ending 30 June 2014 until 30 June 2021. It then listed 12 “key points” to note. Those points included the following statement –
6. Rankin (solely via Rankin Family Trust) and CMC Unit Trust each advances the Big Pineapple Trust $1.8 M each (“Bridging Loans”) in December 2014 to payout the Lago Loan i.e. “The Crescent Development Discretionary Trust” Loan. THESE ADVANCES WERE IN ADDITION TO CIRCA $1.9 M LOAN EACH GROUP HAD LENT THE BP AS AT 30 JUNE 2014.
Mr Kendall agreed that all of that was correct. It was also correct, he acknowledged, that “The Rankin Trust and CMC were repaid $1.4 M each on 16th March 2015 once the $3.6 NAB Loan Facility was settled by BP” (Mr Catalano’s eighth key point)”=. But, he said, it was incorrect to say that the bridging loans were not the subject of the 2015 loan agreements. He did not agree that the 2015 loan amounts “reflected the loan balances” of the 2011 advances (after repayment of the “bridging loan advances”) (Mr Catalano’s ninth key point). Nor did he agree with the following points –
10. These loan agreements provided for additional advances which would be governed by the original loan agreement.
11. In the case of Rankin Super loan to BP, the July 2015 Loan agreement replaced the August 2011 Loan agreement.
12. Interest on these loans has been claimed as an expense by BP since the 2016 year per the attached Trial Balance.
With respect to him, I found that Mr Kendall was confused about the reason for the 2015 loan agreements.
He was taken to his signature on the Rankin Super loan document and his attention was drawn to its termination date of 30 June 2022. It was put to him that that termination date was inconsistent with the loan being by way of bridging finance. He replied – in a way that was not directly responsive to the question – “It’s entirely consistent because there is no way – if I’d known that this was an active loan that had a termination date on it, I wouldn’t have signed it”. He said he signed it because it was “documenting a loan that we just put money in and pulled money out”. He agreed that the bridging loan had been repaid by the time he had signed the document. He repeated, in effect, that notwithstanding the stated termination date, “that loan agreement was simply so we had a record. It was a fair chunk of money. It was $3.6 million plus fees and whatever else was accounted for”. He acknowledged that: “in hindsight”, and “look[ing] at the numbers in a certain way” it looked “interesting”, but he said there was no question in his mind about what the loan was for.
He was taken to the emails sent in November 2012 and the discussion about BPC paying CMC and Lago “a corresponding amount of interest”. He agreed that he thought charging interest was a good idea. He agreed that he raised no issue with the charging of interest, even though that decision had not been ratified by the directors. He added, “but Mr Lago did [have an issue with it]”.
Mr Kendall was taken to the forecast document which had been prepared for BPC for the purposes of the GTI grant application. In it, the loan from Rankin Super was forecast out to 2028 – an assertion obviously contrary to the loan being “due and payable” on 30 June 2022. To make the point (I think) that the forecast document was inaccurate, King’s Counsel for Mr Rankin noted that the document also forecast the NAB loan as increasing each year (to 2028) even though the NAB loan was “on an annual extension period” and BPC had been told that it would expire on 28 February 2019. Mr Kendall said that BPC was in the process of renegotiating the NAB loan at the time of the preparation of the forecast document and that it was standard bank practice to have rolling credit facilities.
Mr Rankin/Rankin Super’s response
In affidavit material, Mr Rankin said – in effect – that Rankin Super had no ulterior motive for making the statutory demand. It merely sought the repayment of its loan on its due date, 30 June 2022. He noted that Rankin Super was not bound to the Big Pineapple joint venture, but that its conduct was governed by the Superannuation Industry (Supervision) Act 1993 (Cth). He said there had been no discussion with him about the loan being repayable only upon his withdrawal as joint venturer, or at the end of the joint venture, or in 2028 (as the grant application suggested).
Mr Rankin said Rankin Super “merely seeks performance of the signed loan agreement it has with BPC”. He asserted that BPC ought to be in a position to repay the loan – and added that if it were not in such a position unless it accepted the Scott PDI offer, then Mr Kendall ought to identify that was the case.
He denied that he sought to have a liquidator appointed to avoid the valuation or to force BPC to enter into an agreement with Scott PDI.
He referred, in his affidavit, to the representations Mr Kendall asserted he (Mr Rankin) had made to third parties about the Rankin Super loan (that is, that according to the grant application, the loan was in place until 30 June 2028 and that the subordination of the loan to the NAB loan was not problematic). Of those representations, he said that the grant was not pursued, nor did the joint venture continue after he and Mr Kendall fell into dispute. Those statements did not explain the representations consistently with the proposition that the 2015 loan from Rankin Super was due and payable on 30 June 2022.
Under cross-examination, he agreed that the large parcel of land, including the Big Pineapple, was purchased in something of a “fire sale” in 2011, when it was in a “bit of a state of ruin”. He agreed that the plan was to acquire it, develop the land and then dispose of it – with or without the Big Pineapple business. He agreed that each of the BPUT unit holders (or joint venture participants) had to contribute funds for the land’s purchase. He agreed that it had operated since with the financial assistance of the participants. He agreed that a participant was “responsible” for obtaining their own funds as required. He agreed that it was convenient for him, or necessary for him, to source some of his initial contribution from his self-managed super fund. It was suggested to him that the reason why loan agreements were executed in 2011 between BPC and Rankin Super, and BPC and Mr Dr Bartolomeo’s super fund, was because super funds were not permitted to lend money to related parties. He said he was not aware of that – that would be a question for his accountant. It was put to him that at the time the 2011 loan agreements were executed, there was no resolution of the BPC board to enter into them. He said he honestly did not know.
However, the evidence also supports the conclusion that the statutory demand process has being utilised by Mr Rankin for a purpose other than its intended purpose.
The Rankin JV parties applied to this Court for certain declarations which, had they been made, would have allowed them to avoid the consequences of Mr Rankin’s actions which were said to have resulted in an Event of Default. As noted above, they were unsuccessful in an application made to Davis J in May 2020 – with his Honour’s judgment delivered on 9 December 2020.[22] And their appeal against his Honour’s decision was dismissed on 30 July 2021.[23]
[22]Costs orders were made against the Rankin JV parties by Davis J on 21 May 2021 (CMC Property Pty Ltd & Ors v Rankin Investments (Qld) Pty Ltd (No 2) [2021] QSC 94.)
[23]Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2021] QCA 156. Issues around the relevant date for valuation purposes was settled by Davis J on 7 May 2021 (CMC Property Pty Ltd & Ors v Rankin Investments (Qld) Pty Ltd [2021] QSC 94.) The Kendall parties appeal against his Honour’s decision was dismissed on 20 August 2021 (CMC Property Pty Ltd & ors v Rankin Investments (Qld) Pty Ltd & Anor [2021] QCA 173).
In July, August and October 2020, Mr Rankin clearly conveyed his desire for the winding up of BPC.
Mr Rankin made his first demand for repayment of the loans made by Rankin Super and Rankin Investments in April 2022. The Scott PDI offer was presented to BPC/Mr Kendall in May 2022. Mr Rankin called board meetings thereafter to discuss the loans and the Scott PDI offer in May – obviously linking both things. He suggested that an acceptance of the PDI offer would avoid the expense of the valuation process which was underway. Mr Kendall’s position at those board meetings in June 2022 was that there were no loans outstanding. And, in any event, “the Pineapple” was not for sale.
The statutory demands were made thereafter.
That chronology of events gives rise to the inference that Mr Rankin issued the statutory demands to exert commercial pressure upon BPC to achieve his desired outcome, which was to avoid the Rankin JV parties forced withdrawal from the joint venture.
Other reasons for setting aside the demand would include the following:
(a)Issuing statutory demands during the compulsory buy-out process (including initially a demand for repayment of the contribution made by Rankin Investments) undermined the Property Agreement and de-railed the valuation; and
(b)BPC relied upon the contributions of the joint venturers to meet its financial obligations, which would include an obligation to repay a loan. Mr Rankin’s position, that the Rankin JV parties would not contribute funds to BPC to enable it to meet the demand was, in my view, unfair and a complication of his position of conflict as a director of both Rankin Super and BPC.
Costs
The applicant submitted that if it were successful in having the remand set aside, then Rankin Super ought to pay its costs – relying on section 495N of the Act.
The respondent made no written submissions as to costs – but sought to be heard on them at an appropriate time.
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