Elite Catering Equipment Pty Ltd v Serosthan
[2012] VSC 194
•11 May 2012
| Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2012 00045
| ELITE CATERING EQUIPMENT PTY LTD (ACN 115 315 921) | Plaintiff |
| v | |
| BORIS SEROSTHAN | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 April 2012 | |
DATE OF JUDGMENT: | 11 May 2012 | |
CASE MAY BE CITED AS: | Elite Catering Equipment Pty Ltd v Serosthan | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 194 | |
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CORPORATIONS – External administration – Application to set aside statutory demand pursuant to Section 459G of the Corporations Act2001 on basis of alleged genuine dispute – Accounts of plaintiff and other documents support defendant’s contentions as to existence of debt and are not satisfactorily rebutted by the plaintiff – Demand varied to reflect recalculation of interest by reason of reduction in principal component of demand.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Ravech | Spigler & Schwarcz |
| For the Defendant | Mr M J Kenny (solicitor) | Kalus Kenny |
HIS HONOUR:
On 21 December 2011, the defendant (Mr Serosthan) served a statutory demand dated 20 December 2011 on the plaintiff (Elite).
On 9 January 2012, Elite filed an originating process pursuant to s 459G of the Corporations Act making application that the statutory demand be set aside. Elite contends that there is a genuine dispute as to its indebtedness to Mr Serosthan.
The statutory demand claims that $233,355.07 is owing by Elite to Mr Serosthan. The schedule to the demand states as follows:
The Creditor loaned the sum of $140,000 (“the principal sum”) to the company in about February 2006.
By a letter dated 17 June 2008 the company agreed to pay the creditor interest on the amount of $140,000 at the rate of 19% per annum.
Interest in the sum of $93,355.07 has accrued since 17 June 2008.
In November 2011, Mr Serosthan commenced a proceeding in the Magistrates’ Court of Victoria against Elite and its directors, Vladimir Rozenvasser and Bessim Zechiri, (who were sued as guarantors) claiming the sum of $6,000 being the balance of a loan to Elite by Mr Serosthan under an agreement made 27 May 2007. That proceeding was settled on 15 February 2012. The $6,000 formed part of the $140,000 mentioned in the statutory demand and as such, Mr Serosthan accepts that the demand should be reduced by that sum. It follows that the amount claimed for interest, if upheld, will have to be recalculated on the lower amount.
Numerous affidavits have been filed in the application. Elite relies on affidavits of Vladimir Rozenvasser and Bessim Zechiri sworn 9 January 2012, 3 February 2012 and 18 April 2012, an affidavit of Peter Schwarcz sworn 3 February 2012, and Alan Harvey Shnider sworn 6 February 2012. Mr Serosthan relies on his affidavit sworn 25 January 2012, together with two affidavits of Michael Diamond sworn 2 February 2012 and 8 March 2012 respectively, an affidavit of Alan Harvey Shnider sworn 5 March 2012 and an affidavit of Michael Jonathon Kenny sworn 14 March 2012.
The amount claimed in the demand is comprised of $133,000 advanced by Mr Serosthan to Elite in February 2006 with the balance being made up of interest on that sum. The making of the advance is not disputed and the application involves consideration of whether there is a genuine dispute as to whether the funds advanced were a loan, as Mr Serosthan would have it, or were a capital investment in the business to be used as its working capital, as Elite contends.
Factual Background
Elite is the trustee of a unit trust which was established on 1 February 2006. The terms of the trust are set out in a deed of that date which has been signed by Messrs Rozenvasser and Zechiri as directors of Elite. The units in the trust are held in equal shares by Messrs Rozenvasser, Zechiri and Serosthan. They each hold the units as trustee for their respective family trusts. Each of the individuals are signatories to its cheque account with the Commonwealth Bank of Australia.
Elite carries on business as the manufacturer, importer and wholesaler of commercial refrigeration and catering equipment. Mr Rozenvasser deposes that shortly after the establishment of the unit trust, the three individuals entered into a written partnership agreement which was to govern the relationship between the parties with respect to the unit trust and the business conducted by Elite.
Mr Rozenvasser contends that the document records a previously concluded oral agreement made by Messrs Rozenvasser, Zechiri and Serosthan. The document was prepared by Mr Alan Shnider, a solicitor. Mr Shnider has sworn two affidavits which have been filed in this proceeding, one on behalf of Elite and the other on behalf of Mr Serosthan. In the first affidavit, which was filed on behalf of Elite, Mr Shnider said that the document recorded an agreement that was reached between the individuals in accordance with the instructions that he received from them at or about the time that he prepared it. In his second affidavit, which was filed on behalf of Mr Serosthan, Mr Shnider said that he drafted the document which he says was intended to characterise the payments as capital i.e. a loan, on the basis that the unit holders in the trust would discuss and resolve that issue, by which I understand him to mean that no agreement had been concluded in regard to that aspect of the relationship when he drafted the document. Messrs Rozenvasser and Zechiri, who are directors of Elite, contend that the agreement records the previously concluded oral agreement however, Mr Serosthan denies that it does.
There is controversy between the parties as to whether the partnership agreement was ever signed by the parties. Messrs Rozenvasser and Zechiri say that the document was signed, whereas Mr Serosthan says that it was not. Nor, he says, has it ever been presented to him for signature. Mr Shnider, in his two affidavits, appears to have given conflicting evidence in this regard. In his first affidavit, Mr Shnider deposed that he believed that the document had been signed by the parties however he was yet to check through his files and documents in storage from his old office to ascertain whether a signed copy of the agreement was amongst his papers. In his second affidavit, which was filed on behalf of Mr Serosthan, Mr Shnider states that he had only ever assumed that the agreement had been signed but had never been told that it was or seen a signed copy of it.
Mr Rozenvasser deposes that Mr Shnider told him prior to swearing his two affidavits that he had a signed copy of the partnership agreement document but he would need to look for it as he had moved offices since receiving the signed copy. Mr Rozenvasser’s evidence in this regard is supported by an email that he received from Mr Shnider on 4 January 2012.
Paragraph 7 of the partnership agreement states as follows:
Further Capital
7.If any further capital shall at any time or times be necessary or expedient for efficiently carrying on the business it shall be contributed by the partners equally or as otherwise agreed in writing. The parties acknowledge and agree that they shall each invest into the business the sum of $133,000 each. The sum of $100,000 each was paid in on the commencement of the business and each partner will pay in the sum of $33,000 over time as and when required by the business.
Mr Ravech, counsel for Elite, contends that there is a triable issue as to whether on a proper construction of clause 7 of the agreement the said sum of $133,000 was advanced as a loan or as a capital investment. He submits that discovery of documents and cross‑examination of deponents will be required to take place, so that the “surrounding circumstances” or “factual matrix” may be taken into account by the Court in construing the partnership agreement.[1]
[1]Lyon Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144 at [46] per Weinberg J.
Mr Serosthan says that in June 2008, Mr Rozenvasser told him that the company had no funds and could only survive if he, Mr Zechiri and Mr Serosthan, all advanced further funds to the company. Mr Serosthan declined to advance any further funds because Elite, he said, still owed him the entire first loan and the balance of the second loan (which was the subject of the claim in the Magistrates’ Court). He was concerned that he would not be repaid and was also perturbed by discovering that Mr Rozenvasser and Mr Zechiri had been repaid their loans in full.
He states that on 16 June 2008, Mr Rozenvasser asked him to attend a meeting with Peter Schwarcz of the firm Spigler and Schwarcz Solicitors. He deposes that Mr Schwarcz told Mr Rozenvasser in Mr Serosthan’s presence that the company should provide Mr Serosthan with a letter acknowledging its debt with interest and that Mr Schwarcz told Mr Rozenvasser how the letter should be worded.
Mr Serosthan states that on 17 June 2008, Mr Rozenvasser gave him the letter which was drafted in accordance with the advice that Mr Schwarcz had given at the meeting and that Mr Rozenvasser signed the letter in front of Mr Serosthan. The letter states as follows:
2008 – 06 – 17
This document is confirmation that each party (Bessim Zechiry (sic), Vlad Rozenvasser and Boris Serosthan) had contributed $140,000 (one hundred and forty thousand dollars) each towards the purchase of the business (Elite Catering Equipment Pty Ltd). As Bessim Zechiry (sic) and Vlad Rozenvasser received their $140,000 (one hundred forty thousand dollars) (sic) back by reimbursements, Boris Serosthan is entitled to receive interest on his contribution of $140,000 (interest rate is 19%) but may call for repayment of whole amount at any time on the base (sic) that $140,000 (one hundred forty thousand dollars) (sic) is an unsecured debt to the company.
Vlad Rozenvasser
Director
Mr Serosthan assumes that the reference to the sum of $140,000 is a rounding up from $139,000, as interest was also owing. Mr Serosthan states that he did not make a demand for repayment of the amount stated in the 2008 letter until recent times because he believed Elite could not pay it and that hoped that its fortunes would improve.
In his affidavit, Mr Schwarcz recalls that the meeting convened at his office was attended by Mr Rozenvasser and Mr Serosthan for the purpose of discussing the company’s affairs, but he denies the suggestion made by Mr Serosthan that he told Mr Rozenvasser to provide a letter in the terms alleged.
Mr Ravech contends that a dispute arises as to whether the letter of 17 June 2008 constitutes an admission by Elite that the sum of $133,000 was advanced by way of a loan rather than a capital investment in the business and that the plaintiff agreed to pay interest on that sum at a rate of 19% per annum.
Mr Ravech contends that the various deponents will need to be the subject of cross‑examination in a conventional inter partes trial. In this regard he says that Mr Shnider and Mr Diamond (who is an accountant) are in Mr Serosthan’s camp as they each had prior dealings with him and no association with either Mr Rozenvasser or Mr Zechiri. Further, it is said Mr Diamond has a continuing association with Mr Serosthan and Mr Shnider but none with Mr Rozenvasser or Mr Zechiri, who removed him as Elite’s accountant. Mr Ravech states that as a consequence of this, the Court should give no weight to the evidence of either Mr Shnider or Mr Diamond unless it is supported by objective contemporaneous documentation or corroborated by Elite’s witnesses.
Mr Rozenvasser initially denied authorship of the letter and said that he has no recollection of it.
Despite Messrs Rozenvasser and Zechiri’s initial denials as to knowledge of the letter, Mr Rozenvasser, in his affidavit of 18 April 2012, when responding to Mr Serothan’s affidavit which exhibits it, says that the signature looks like his but that if he did sign it he did so without reading it. He states that he is certain that he was not the author of it. In that regard he pointed to certain significant typographical errors and he says that he would not have put his name to a document which contains such errors. Included amongst those are the misspelling Mr Zechiri’s name. Mr Zechiri, Mr Rozenvasser’s co‑director, states that he never saw the letter, never knew of its existence and never authorised it on behalf of Elite.
In his affidavit, Mr Serosthan exhibits the balance sheets for the company for the financial years ended 30 June 2006 to 30 June 2010 and a draft balance sheet as at 30 June 2011. He obtained those documents from Mr Rozenvasser who provided them to Mr Serosthan’s solicitor, Mr Kenny, in July 2011. The 2006 accounts note under “Liabilities Loans – Directors” the sum of $368,500. That figure includes all the funds advanced by the three parties as of that date. He states that it is clear that the loan by him of $133,000 and the loans made by Messrs Rozenvasser and Zechiri were all included in the figure of $368,500 by reason that the total of the amounts outstanding to the other two totalled $235,500 as at that date. The balance sheet for the year ended 30 June 2007 shows that at that date the loan account had decreased from $368,500 to $229,326.68, a reduction of $139,173.32. Mr Rozenvasser says that as Elite did not repay any sums to him in that period, the entire reduction of the loan account consisted of repayments to Mr Rozenvasser and Mr Zechiri.
For the year ended 30 June 2008, the balance sheet shows that at that date the loan account had been reduced to $139,938.03, a reduction during that year of $89,388.65. Again, Mr Serosthan says that no sums were paid to him in respect of the loan during the period and the entire reduction in the loan account were repayments to Mr Rozenvasser and Mr Zechiri. By 30 June 2008 they had been repaid in full. The sum of $139,938.03 was comprised of the $133,000 advance by him, with the balance being the $6,000 which was the subject of part of the recent settlement in the Magistrates’ Court proceeding.
I note at this point that Mr Rozenvasser asserts in his first affidavit that the tax return and the financial statements for the year ended 30 June 2010 do not record any loan owed to Mr Serosthan, however, under non-current liabilities, there appears an entry “Loans-Directors $247,695.69” which appears to include Mr Serosthan’s loan. Those accounts were prepared by the new accountants engaged by Elite, GA Partner. Despite the fact that Mr Serosthan is not a director of Elite, the funds contributed by him have been described in that way in the earlier accounts. The entry is not explained in the notes for the accounts. The figure of $247,695.69 is curious since the other two advances to Messrs Rozenvasser and Zechiri were shown as having been repaid in previous years’ accounts by 30 June 2008.
The draft balance sheet for the year ended 30 June 2011, which was also prepared by GA Partners, also records under the heading “Other Current Liabilities” the entry “Boris Serosthan Loan Account” as being $142,943.78.
On 16 April 2008, Ms Murphy and Mr Diamond of Diamond Singer Partners attended a meeting at Elite’s business premises. Mr Rozenvasser, Mr Zechiri and Mr Serosthan were present and the purpose of the meeting was to conduct an annual review of Elite’s financial affairs.
Elite’s general ledger was tabled which indicated that the loan accounts for Mr Rozenvasser and Mr Zechiri had been repaid. That had occurred because Mr Rozenvasser and Mr Zechiri had been drawing funds in addition to their salaries from the company and those funds, drawn over and above their salaries, were treated in the ledger as a repayment of their loans. The ledger was an internally prepared accounting document prepared by Elite’s bookkeepers.
Mr Serosthan deposes that he received a salary which he declared as taxable income. In the 2006 year, his salary was $300 a week, plus a car allowance of $105 per week. From 2007 to early September 2010, the salary paid to Mr Serosthan was $500 a week, plus a car allowance of $105 a week. Mr Rozenvasser and Mr Zechiri drew amounts of $139,173.32 in the year ended 30 June 2007. Significantly, it will be recalled that this is the amount by which the directors’ loan accounts have decreased in that period. The drawings for the year ended 30 June 2008 were $89,377.65, again the amount by which the directors’ loans were shown to have decreased in the accounts for that period. Mr Diamond states that the amounts drawn from Elite by Mr Rozenvasser and Mr Zechiri for the year ended 30 June 2008 amounted to approximately $60,000 more than the $89,388.65 shown in the accounts. If all of the funds were characterised as drawings, then the loan accounts of Mr Rozenvasser and Mr Zechiri would each have been overdrawn by about $60,000. With their agreement, the amount of their drawings against their loan account was restricted to $89,388.65 for that year and the sum of about $60,000 was treated as wages paid to the wives of Mr Rozenvasser and Mr Zechiri.
Mr Serosthan did not receive a similar entitlement. Mr Diamond recalls that at the meeting on 16 April 2008 Mr Serosthan was concerned to hear of the sums being drawn by Mr Rozenvasser and Mr Zechiri. It was indicated at the meeting that Elite was in a poor financial position and Mr Serosthan says that this was because Mr Rozenvasser and Mr Zechiri had drawn out too much money.
Mr Diamond states that the balance sheets for the years ended 30 June 2006, 30 June 2007 and 30 June 2008 were prepared by his firm but after those periods the firm did not receive any further instructions. He was informed by an email on 10 December 2010 that another accounting firm would be performing the work. Mr Diamond says that the balance sheets that were prepared record the moneys initially provided by Mr Rozenvasser and Mr Zechiri and Mr Serosthan as “loans – directors”, including the loan account to Mr Serosthan, despite the fact he was not a director. He states that Mr Rozenvasser and Mr Zechiri, who were the directors of Elite, saw the balance sheets after the end of financial years referred to and signed off on the income tax returns for Elite. Mr Diamond states that he was never instructed to record the initial payments made by Mr Rozenvasser, Mr Zechiri and Mr Serosthan in any way other than as a loan repayable by Elite to them.
In his second affidavit, Mr Diamond deposes that for the years when his firm was the accountant for Elite, his partner Andrea Murphy and he would receive a general ledger prepared by Elite’s own internal bookkeeper. The general ledgers contained information entered into the plaintiff’s accounting software by Elite staff. Mr Diamond said that he had no involvement into what entries were made or how they were described and Ms Murphy informs him, and he believes that neither did she. The general ledgers that Ms Murphy and Mr Diamond received from Elite described the amounts drawn by Mr Rozenvasser and Mr Zechiri as “loan repayment”. The general ledgers for the years 2006 and 2007 are exhibited to Mr Diamond’s second affidavit. Mr Zechiri’s loan account opens with entries of $85,000 and $15,000 in March 2006. There are then debited a series of payments of $500, together with an additional advance of $20,000 in May 2006. At the end of the accounting period, Mr Zechiri’s loan account stands at $112,500. The opening deposit is described as “loan” for $85,000 and the advance on 29 May 2006 is described as “second loan to company”.
Mr Rozenvasser’s loan account contains similar entries. On 14 March 2006, there is an entry, described as “loan” for $110,000 followed shortly after on 17 March 2006 by an entry stating “machinery and T” $3,500. There then follows a series of debits against those amounts described as payments. On 23 May 2006, an entry “extra loan to company” of $17,000 appears.
In the same general ledger, Mr Serosthan’s loan account notes two entries, the first characterised as “loan” on 14 March 2006 for $110,000 and the second entry, described as “extra loan to company” for $23,000 occurred on 25 May 2006.
In the course of preparing the income tax return for the financial years 2006 to 2008, Mr Diamond and Ms Murphy met with Mr Rozenvasser and Mr Zechiri. Mr Diamond states that at those meetings he raised the issue of the funds that they had drawn over and above their wages, and Mr Rozenvasser and Mr Zechiri told Ms Murphy and Mr Diamond that they did not want to pay any more tax and so the funds drawn by them were to be offset against their loans rather than classified as wages. This is supported by the ledger entries that have been described above. As has already been observed, by 30 June 2008, the drawings of Mr Rozenvasser and Mr Zechiri exceeded the amounts that they had originally contributed by way of loan capital in early 2006. The effect of this in Elite’s books was that their loan accounts were shown as having been repaid in full. Mr Serosthan says that he was not aware of this until he attended the meeting on 16 April 2008 with Mr Rozenvasser, Mr Zechiri and Mr Diamond.
In his submissions, Mr Kenny emphasised that in their initial affidavits in support of the application, Mr Rozenvasser and Mr Zechiri denied the existence of the 17 June letter, but after Mr Serosthan exhibited the letter to his affidavit, Mr Rozenvasser, in his affidavit of 3 February 2012, effectively admitted signing the letter.
Mr Kenny says that while in their affidavits Mr Rozenvasser and Mr Zechiri blame Mr Diamond for incorrectly recording their drawings in the balance sheets, the balance sheets prepared after 30 June 2008, when Mr Diamond’s firm was no longer retained, continued to record the funds as a loan. This includes the draft balance sheet for the year ended 30 June 2011. Mr Kenny also submitted that there is no explanation from Elite as to why the general ledger referred to above, which was prepared by the internal bookkeeping staff of Elite, records the funds the funds drawn by Mr Rozenvasser and Mr Zechiri as repayment of their loans or why the $133,000 paid by Mr Serosthan to Elite is recorded in the general ledger as a loan.
Mr Kenny also makes reference to the fact that Mr Rozenvasser and Mr Zechiri claim that the drawings should have been recorded as salaries but draws attention to the fact that Elite was already paying substantial salaries to them and, from the year commencing 1 July 2008, to their wives.
I asked Mr Rapke, counsel for Elite, as to whether amended income tax returns had been filed for Mr Zechiri and Mr Rozenvasser which reflected the drawings as wages and he indicated that they had not despite the passage of time.
Mr Kenny also makes reference to a letter exhibited by Mr Rozenvasser to his affidavit of 3 February 2012 from Elite’s new accountants. That letter, dated 2 February 2012, from Abid Hussein, confirms that the initial payments made by the three unit holders were (i) from Mr Serosthan, $133,000, (ii) from Mr Rozenvasser, $123,000, and (iii) from Mr Zechiri, $112,500. Mr Hussein states that the description of the respective contributions should have been classified in the financial statements as unit holders capital and not loans. Mr Hussein states that his firm had been instructed by the directors (Mr Rozenvasser and Mr Zechiri) to amend the 2006 financial statements and all subsequent financial statements to reflect the correct classification of the unit holders capital contribution. I note, however, that Mr Hussein prepared Elite’s most recent financial statements, including a draft balance sheet for the year ended 30 June 2011. As has already been observed, under current liabilities, the entry Boris Serosthan Loan Account appears and is stated to be $142,943.78.
The position as to the partnership agreement to which I have referred and which is the subject of Mr Shnider’s affidavits is not entirely clear. As I have said, he has sworn an affidavit on behalf of both parties. On the one hand, at one point he believed that the document was signed by the parties and had to search amongst his records for a signed copy. Subsequently, he states that he only assumed that the document had been signed, had never been told that it had been, nor had he seen a signed copy of it. In my view, that document is of peripheral significance to the issue that I have to determine. Other documents, most particularly the letter of 17 June 2008 and Elite’s accounting documents consisting of balance sheets and ledgers over several years are of considerably more significance since they are, in my view, the best evidence available to assess the plausibility of the position that Elite contends for.
The principles to be applied in assessing applications under s 459G of the Corporations Act are the subject of many authorities. The Court need only find that the plaintiff has a genuine dispute about the existence or amount of the debt. It has been said that this does not impose a particularly high standard. The grounds for alleging a dispute or an offsetting claim must not be spurious, hypothetical, illusory or misconceived. To quote from the Full Court of the Federal Court in Spencer Constructions v Aldridge,[2] it must be “real”. In the well-known passage of McCelland CJ in Equity in Eyota v Hanave, his Honour said:
A genuine dispute connotes a plausible contention requiring investigation and raises much the same sort of considerations as a serious question to be tried arising on an application for the interlocutory injunction or extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute every statement in an affidavit, however equivocal, lacking in precision, inconsistent with the undisputed contemporary documents or other statements by the same deponent, or inherently and improbable in itself” it may not be – it may not having sufficient prima facie plausibility to merit further investigation as to its truth or a patently feeble legal argument or assertion of the facts unsupported by evidence.
[2](1997) 76 FCR 452.
In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[3] Dodds‑Streeton J stated:
While it is not a very exacting standard, on the one hand mere, assertion of a dispute or offsetting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The court must not enter into the merits of the dispute, but it is not crossing the line in regard to its legitimate role on these applications to consider evidence which “bears on whether or not the asserted dispute or offsetting claim is genuine”. Indeed that is its necessary function.
[3][2006] VSC 508, [48]
In my view, Elite has not established to the relevant standard that it has a genuine dispute in respect of the capital element i.e. the $133,000 claimed in the demand. The making of the advance is not disputed. Internal ledgers of Elite record the advances by the directors as loans, as do the balance sheets prepared not only by Mr Diamond’s firm, (which Mr Ravech said is partisan) but also by the new accountants engaged. Those documents reflect that Messrs Rozenvasser and Zechiri have been repaid the amounts that they have advanced by small instalments over time. Those repayments have been characterised as repayments and not as drawings or income from Elite as they would have it. They have signed off on the accounts which characterised the transaction in that way from 2006 to 2010 (and which are reflected in draft form for the year end 30 June 2011). Neither Mr Rozenvasser or Mr Zechiri have paid income tax on those sums, despite the present contention being made by them on Elite’s behalf that they were paid by way of salary i.e. assessable income rather than a repayment of capital, which would not. They have not filed income tax returns to this time which reflect what they contend to be the character of such receipts. Mr Rozenvasser ultimately effectively admitted signing the document of 17 June 2008 in which the debt is acknowledged. While its authorship is not able to be determined in the context of this application, it is an acknowledgement by Mr Rozenvasser that the company is indebted to Mr Serosthan for $133,000 together with an agreement that on and from the date of the letter Elite is obliged to pay interest at the rate mentioned. Mr Rozenvasser is a director of Elite and has authority to make such an admission on its behalf and it is not relevant that he did not read it before signing it or that his co‑director was unaware of the document.
In coming to the conclusion that the dispute is not genuine, I have not put any great weight at all on whether or not a partnership agreement was signed. My ultimate conclusion is based on the company’s internal accounting records and the balance sheets for the years 2006 and following which reflect the position being put by Mr Serosthan. Those accounts have been signed off by the directors. As late as 30 June 2011, Mr Serosthan’s advance was reflected, at least in the draft form of the balance sheet, as a loan.
The dispute is required to have some objective existence and Elite bears the onus of establishing the genuineness of the dispute. I do not consider that it has discharged that onus. Because of the decrease in the capital element of the demand by $6000, it will be necessary for there to be a recalculation of the interest component of the demand to reflect this. I will ask the parties to reach an agreement as to the amount to which the demand is to be reduced to and submit a form of appropriate order to my associate.
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