Emdon Investments Pty Ltd v Schelfhout Holdings Pty Ltd (in liq)

[1998] FCA 1151

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - Application to set aside a statutory demand under s 459G Corporations Law - offsetting claim under s 459H - nature of a “genuine dispute” – mere assertion of offsetting claim - effect of voluntary payments to third parties in discharge of debts - effect of subordination clauses in deed of company arrangement - effect of voluntary payments made after liquidation of companies.

Corporations Law, s 436A, s 459G, 459H

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353 (Followed)
Re Emanuel (No 14) Pty Ltd (in liq);  Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 (Applied)

EMDON INVESTMENTS PTY LTD (ACN 004 819 372) (APPLICANT) V SCHELFHOUT HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 004 408 495) (FIRST RESPONDENT) SCHELFHOUT INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 004 826 411) (SECOND RESPONDENT) WESDORPE INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 004 826 420) (THIRD RESPONDENT)
VG 3106 OF 1998

FINN J
SYDNEY (HEARD IN MELBOURNE)
5 AUGUST 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3106  of   1998

BETWEEN:

EMDON INVESTMENTS PTY LTD (ACN 004 819 372)
APPLICANT

AND:

SCHELFHOUT HOLDINGS PTY LTD (IN LIQUIDATION)
(ACN 004 408 495)
FIRST RESPONDENT

SCHELFHOUT INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 004 826 411)
SECOND RESPONDENT

WESDORPE INVESTMENTS PTY LTD (IN LIQUIDATION)
(ACN 004 826 420)
THIRD RESPONDENT

JUDGE:

FINN J

DATE OF ORDER:

SYDNEY (HEARD IN MELBOURNE)

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

The application be dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3106 of 1998

BETWEEN:

EMDON INVESTMENTS PTY LTD (ACN 004 819 372)
APPLICANT

AND:

SCHELFHOUT HOLDINGS PTY LTD (IN LIQUIDATION)
(ACN 004 408 495)
FIRST RESPONDENT

SCHELFHOUT INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 004 826 411)
SECOND RESPONDENT

WESDORPE INVESTMENTS PTY LTD (IN LIQUIDATION)
(ACN 004 826 420)
THIRD RESPONDENT

JUDGE:	FINN J
DATE:	SYDNEY (HEARD IN MELBOURNE)
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

This is an application under s 459G of the Corporations Law to set aside a statutory demand. As prosecuted at the hearing the ground relied upon is that there is an offsetting claim in a sum greater than the debt to which the demand relates.

Factual Background

The three respondent companies carried on business in partnership under the name “Shelson Roof Tiles”.  All were members of what has been described as the Shelson Group.  I do not know the corporate composition of the group although it is clear from the fragmentary evidence before me that there are at least several other members of it beyond the respondents.  Louis Schelfhout and his brother Charles Schelfhout were directors of the three respondents.  Louis Schelfhout was as well managing director of the applicant, Emdon Investments Pty Ltd (“Emdon”).

In effectuation of a debt reduction scheme, the partnership agreed on 31 March 1994 to sell its business and assets to Monier Roofing Ltd (“Monier”).  Completion date was 11 April 1994.  A clause of the sale agreement provided that from completion Monier would bear the losses, expenses and outgoings of the business.  It is agreed between the parties to this proceeding that among the assets so transferred were a Commodore motor vehicle and a forklift.  (I would note that the schedule to the 31 March agreement does not make explicit reference to the fork lift.)

It is the evidence of Mr Schelfhout for Emdon that between 6 January 1995 and 30 January 1996 it made seven payments totalling $4,448.44 on behalf of the respondent companies in relation to the forklift.  To whom the payments were made is not stated.  It is deposed that the payments were made by cheque though no documentary evidence has been put to confirm this in any way.  No indication is given by Mr Schelfhout as to why Emdon made these payments (if it was Emdon that made them).

In relation to the Commodore, Mr Schelfhout has deposed that two lease payments for the car totalling $3,604.77 were made on 11 May 1995 and 7 August 1995 for the benefit of the first respondent.  No reason for Emdon so doing has been advanced.

On 28 April 1995 Lindsay Maxsted and Stephen Hawke were appointed joint and several administrators of each of the respondent companies under s 436A of the Corporations Law. That provision enables a company to appoint an administrator if the board has resolved to the effect that:

“(a)in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time:  and

(b)an administrator of the company should be appointed.”

The Report as to Affairs of the three companies of 15 June 1995 show that as at 8 June 1995 the companies had a deficiency of assets over liabilities in excess of $1,200,000.00.

Emdon, I would note, had earlier lodged proofs of debt with the administrators in the sums of $61,102.00 and $22,100.13, the later being in the form of a priority claim by employees.  I have no reason to believe these debts were disputed though there is no evidence that they were accepted as such.

On 16 June 1995 a s 439A meeting of the creditors of the respondent companies resolved in relation to each of them that a deed on company arrangement be executed.  Such occurred on 6 July 1995 the deed containing (inter alia) a covenant that the Shelson Group would procure Emdon to make two payments of $30,000.00 to the administrators.  Such payments were not made.  Under cl A9 of the deed it was provided that Emdon, Shelford Roofing Pty Ltd, L & C Schelfhout, Monier and the National Australia Bank “shall subordinate their claims to all other claims admissible under the terms of the Deed”.

On 23 February 1996 a further deed was executed under which Emdon, Shelford Roofing Pty Ltd and Louis and Charles Schelfhout agreed as parties to continue to subordinate their claims in the event of any or all of the three respondents being placed in liquidation as a result of any default under the 6 July 1995 deed.

In late 1995/early 1996 Mr Schelfhout deposes that Emdon “on behalf of the Respondent companies” paid legal fees to a firm of solicitors in relation to accounts incurred by one or other of the respondent companies.  Those fees, it is said:

“[related to] the property at Cutts Avenue, Croydon (which was owned by the First Respondent), the negotiations with Monier regarding the sale of the goodwill and assets of the Respondent companies to Monier, and sundry other matters.  The amount paid by the Applicant on behalf of the Respondent companies is summarised as follows:-
Negotiations with Campbell Homes
   regarding Cutts Avenue  $  3,084.82
Action by employees (Fry, Kitto & Ors)  $    643.20
Auction of Cutts Avenue, property – disbursements             $    242.00
Costs associated with a ATO prosecution of the
   Firstnamed Respondent  $  2,337.80
Cost associated with negotiations with Monier  $21,318.21
$27,626.03
I have not been able to locate copies of the Statements of Account for the abovementioned amounts however now produced and shown to me and marked with the letters “LES7” is a bundle of matter/transaction reports from Mulcahy Mendelson & Round verifying that these amounts were owed on behalf of the company.”

The bundle of transaction reports exhibited is a thoroughly unrevealing one.  It would seem to be copies of business records of the law firm in question detailing disbursements made (i) in respect of “SHELSON & WESDORPE – COMPANY MATTERS” and (ii) AUCTION OF LOTS 29, 30 and 31 CUTTS” and in which, as best one can discern, the client would seem to be Mr Louis Schelfhout.  No evidence of, or evidence suggesting, actual payment by Emdon has been advanced.  Again no reason has been given as to why Emdon made the payments (assuming it did) even if the debtors were one or more of the respondent companies.

Likewise, after the appointment of the administrators, Emdon claims to have made payments to variously Douglas Partners, Croydon Excavations and Lilydale Hiring Pty Ltd for an environmental audit and clean up of the Cutts Avenue property said to be owned by the first respondent.  This work was said to be necessary to enable the property to be sold to reduce the respondents’ indebtedness to the National Australia Bank (“the NAB”).  It was claimed the administrators were aware of this work and “acquiesced in it”.

A bundle of invoices were put in evidence in relation to these payments.  The two from Douglas Partners were not addressed to any party in these proceedings, but to Shelford Roofing Pty Ltd.  The Croydon Excavation invoices were again to Shelford Roofing Pty Ltd and, seemingly, were related to a site other than Cutts Ave (ie Edith Drive).  The Lilydale Hiring invoices were to Shelson Roof Tiles.  There was no evidence of actual payment of these invoices by Emdon, nor of the reason why it did (if such was the case).

Also relied upon by Emdon were copy invoices from Pitcher Partners dated 22 September 1994 to 30 April 1995 addressed to “Messrs L & C Schelfhout, c/- Emdon Investments” which it says it paid.  The services rendered according to the invoices were professional accountancy services.  Some of the invoices refer to services involving the “Schelfhout group”;  others (eg 7 November) to (inter alia) Emdon.  There is nothing in the invoices to suggest that the debtors were other than the Schelfhout brothers or else Emdon.

On 16 October 1996 the respondent companies were put into liquidation with the administrators as liquidators, the companies having failed to comply with the deed of company arrangement.

In December 1996 Emdon borrowed $300,000 on the security of property of its own.  This sum, Mr Schelfhout deposes, was paid directly to the NAB to reduce “the indebtedness of the Respondent companies to the Bank”.  I emphasise that this occurred after the liquidation of those companies.  A further loan of $266,000.00 from a different lender guaranteed by Mr Schelfhout, his wife and his brother was also taken out.  Of the aggregate sum borrowed it is said $261,177.61 was applied by the NAB to the accounts of Emdon.  From bank statements of the first respondent two different accounts show credits received (though not from whom) of, variously, $139,490.09, $60,268.22 and $29,822.39.  These sums are said to have been paid out of the borrowed moneys.  These payments it is further said was made with the approval of one of the liquidators.

I would note that Mr Schelfhout has attempted in the following way to explain in part the paucity of documentation that would substantiate Emdon’s set-offs in respect of the various payments it is said were made on behalf of the respondent companies:

“Part of the difficulty experienced by the Applicant in providing documentation to conclusively prove its set-off is that when Monier acquired the assets and goodwill of the Respondent companies in 1994 it required the documentation for those companies to be packed up and removed from the building from where the Respondent companies and the Applicant were operating.  There is a massive amount of documentation containing the records which is yet to be fully organised.  Obtaining particular documents relating to that period has proven difficult.”

I merely observe that all of the payments relied upon to substantiate the set-off post-dated the sale to Monier, most by very significant periods.  The explanation given is unconvincing if not colourable.

The statutory demand dated 12 March 1998 was made on Emdon in the sum of $148,010.00. The present application was brought on 2 April seeking to have the demand set aside. Though it purports to rely upon both grounds specified in s 459H(1) of the Corporations Law, it is only that of an “offsetting claim" that has been seriously advanced in submissions.

The Applicant’s Claim

Put shortly the case for setting aside the statutory demand is that when one aggregates (a) the sums in respect of which proofs of debt have been lodged by Emdon (ie $61,102.00 and $22,100.13) and (b) the various sums said to have been paid for or on behalf of the respondents by Emdon referred to in the factual narrative above and for which it is alleged offsetting claims can be made, the total value of the offsetting claims exceeds the amount of the statutory demand.

Section 459H of the Corporations Law: a “Genuine Claim”

This section provides:

“459H(1)       [Court satisfied of dispute or offsetting claim]       This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b)that the company has an offsetting claim.

459H(2)         [Calculation of substantiated amount]       The Court must calculate the substantiated amount of the demand in accordance with the formula:

Admitted total – Offsetting total

where:

“Admitted total” means:

(a)the admitted amount of the debt;  or

(b)the total of the respective admitted amounts of the debts:

as the case requires, to which the demand relates;

“Offsetting total” means:

(a)if the Court is satisfied that the company has only one offsetting claim – the amount of that claim;  or

(b)if the Court is satisfied that the company has 2 or more offsetting claims – the total of the amounts of those claims;  or

(c)otherwise – a nil amount.

459H(3)         [Substantiated amount less than statutory minimum]       If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

459H(4)         [Substantiated amount equal to or greater than statutory minimum]       If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a)varying the demand as specified in the order;  and

(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

459H(5)         [Definitions]   In this section:

“admitted amount” in relation to a debt means:

(a)if the Court is satisfied that there is genuine dispute between the company and the respondent about the existence of the debt – a nil amount;  or

(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt – so much of that amount as the Court is satisfied is not the subject of such a dispute;  or

(c)otherwise – the amount of the debt.

“offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

“respondent” means the person who served the demand on the company.”

The proper approach to be taken in ascertaining whether a “genuine dispute” or a “genuine claim” has been made out has been expounded by the Full Court of this court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353. The court there expressed the view that (at 365):

“a ‘genuine’ dispute requires that:
.          the dispute be bona fide and truly exist in fact;
.          the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.
We consider that the various formulations referred to [in these reasons] can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute.”

Among the formulations so found helpful, and I here paraphrase, were that:

(i)a court will not determine contested issues of fact or law which have a significant or substantial basis in considering a set-aside application;

(ii)what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law;

(iii)the test to be applied is whether the court is satisfied there is a serious question to be tried;  and

(iv)      the standard of satisfaction required is not a particularly high one.

Are the Offsetting Claims Genuine?

There are four different groupings of offsetting claim that I need consider.  Each raises somewhat different considerations.  But before considering them I should refer briefly to the debt founding the demand.

In each of the Reports as to Affairs of the respondent companies prepared on 15 June 1995 for the purposes of their external administration, Emdon is recorded as a “sundry debtor” of the companies in the sum of $155,010.00.  Those Reports have appended to them a “Statement Verifying Report” signed by Mr Louis Schelfhout that confirms the respective report to be true to the best of his knowledge and belief.

Apparently $7,000.00 was received from the applicant in reduction of that debt leaving the debt as claimed in the Demand of $148,010.00.

1. The Debts for which proofs were lodged

In the Reports as to Affairs referred to above, while Emdon was referred to as a “priority creditor” in the sum of $22,100.13 in respect of “claims by employees” it does not appear in the list of unsecured creditors of any of the companies.  Nonetheless a proof of debt of $61,102.00 was lodged with the administrators.  Though the evidence does no more than indicate that the proof was lodged I am satisfied for present purposes that it relates to a genuine debt.  It has not so far been disputed by the respondents.

Subject then to the effect to be given the deed of 23 February 1996 subordinating Emdom as a creditor of the companies, I am satisfied that the two debts for which proofs have been lodged constitute offsetting claims for s 459H purposes.

1. The payments on account of the car and forklift

Even if it be assumed that the claimed payments were made by Emdon in respect both of the Commodore car and the forklift, I have no evidence of any sort as to why there were made.  Unless Emdon itself was the party contractually bound to make the payments – in which case no offsetting claim against the respondents could arise in the absence of a special arrangement between them and Emdon – the matter of the payments would seem to be something to which the respondents were complete strangers, the car and the forklift being formerly assets of the partnership which were disposed of to Monier and for which Monier accepted responsibility from 11 April 1994.

In these circumstances in the absence of any indication as to the nature and origin of the alleged offsetting claims, the claim itself cannot be regarded as more than assertion and somewhat extraordinary assertion at that.

1. The legal fees, the environmental audit and the Pitcher Partners accountancy fees

These payments (again assuming for the moment they were made by Emdon) are emblematic of the difficulty confronting this applicant.  It is that the commercial or economic reality of the operations of the group of companies in which Mr Schelfhout laboured by no means necessarily approximated with the law’s characterisation of the effects of those operations on the various entities in the group.

Even if Emdon made payments from what, at law, were its own resources for the benefit of another company or companies in the group one cannot assume for that reason, notwithstanding the benefit to the group as a whole and/or to the company or companies concerned, that Emdon thereby acquired any right recognised by law to be recompensed by the particular company or companies so benefited.

(i)        Emdon may, for example, have been obliged to make the payment because it had contracted for the service etc provided and was contractually obliged to make the payment, notwithstanding the contract itself was a contract for the benefit of a third party.  In which case, absent special agreement with the company or company concerned, no right of reimbursement would exist.

(ii)       Notwithstanding that the company (or companies) was (or were) contractually obliged to the third party in question to make the payment for services rendered to it (or them), Emdon may have made the payment voluntarily and “officiously” in which case it is probably still the case as a matter of Australian law that the payment was ineffective to discharge the debt in question:  see Re Emanuel (No 14) Pty Ltd (in liq);  Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 at 298.

(iii)      Emdon’s payment may have been authorised or ratified by the company or companies concerned in which case a right to reimbursement (some would say restitution) exists on contractual or other grounds:  see eg Mason and Carler, Restitution Law in Australia, para 841.

(iv)      The payment in discharge of a debt owed by a company or companies in the group, while effective to discharge the debt, may have been made gratuitously or for Emdon’s benefit and with the intention that it not have consequences for the company or companies concerned vis-a-vis Emdon.

Before considering the three groupings of payment, I note by way of background that notwithstanding that Emdon asserts that it was the payer of the various payments made and that Mr Schelfhout is the company’s managing director, no documentary evidence has been adduced by Emdon to substantiate even in some degree that it was the payer.

(a)       The legal fees

From the facts before me, even if it may properly be open to conclude that Emdon made payments to the firm of solicitors concerned, the evidence does not suggest that any payments so made were in respect of debts for which the respondent companies were liable.  At best in some instances, one or more of them may have been a beneficiary of the legal service provided.  But that is not enough to establish a primary liability in that company or companies for the fees.  The documentation more strongly suggests a third party contract with either Mr Schelfhout or Emdon as the client of the solicitor.  There is nothing before me to suggest an agency or other infra-group arrangement that could ground an off-setting claim.

On the material I cannot do other than regard the alleged off-setting claim as an assertion.  I simply do not know how that claim arises.

(b)       The environmental audit

Of the three bundles of invoices put in to support this claim, the first (from Douglas Partners) were all addressed to Shelford Roofing Pty Ltd.  Apart from having evidence that that company is a creditor of the partnership and a party to the deed of subordination, I know nothing of its place in the scheme of the Shelson Group.  Importantly, there is no evidence which would suggest that the respondent companies, and not Shelford Roofing Pty Ltd, incurred any liability in respect of the services rendered.  Even if Emdon paid on the two invoices, the party benefited thereby would have been Shelford Pty Ltd.

Of the second bundle of invoices (those of Croydon Excavations) the same difficulty for Emdon exists and the same conclusion must be arrived at.  The invoices again are directed to Shelford Roofing (the one that is indistinct seems to be so).  Further these invoices would appear to relate to a number of sites and not merely to that deposed to by Mr Schelfhout.

The Lilydale Hiring invoices are directed to Shelson Roof Tiles, that being the partnership name of the respondent companies. The only evidence I have of their being paid by Emdon is Mr Schelfhout’s own evidence. Significantly Emdon has not provided any documentary evidence to substantiate its claim in any way. Likewise I have not been provided with any evidence which throws light on the likely legal characterisation to be given the payment (if in fact made) and its effects in the relationship of the respondents and Emdon. As I noted earlier, a purported payment of another’s debt does not necessarily carry legal consequences for the debtor vis-a-vis the payer. Notwithstanding the relatively low threshold the applicant has to cross to make out a genuine offsetting claim for s 459H purposes, I remain unsatisfied that it has been crossed in the present case. I am being asked to accept assertion and no more.

I would have to say that my lack of satisfaction in this matter is compounded both by the unreliability of the evidence generally advanced to support the claims made in relation to the two other bundles of invoices and, more generally, by the illusory partial explanation given of the difficulty experienced in providing documentary evidence (ie the Monier sale).

The final comment I would make is that even if I am incorrect in the conclusion at which I have arrived in relation to the Lilydale Hiring invoices and it is the case that Emdon may have a claim against the respondents, it would make no difference to the actual fate of this application. The sums in question are small. They would not reduce below the statutory minimum the s 459H “substantiated amount” that I otherwise find.

(c)       Pitcher Partners’ accountancy fees

The copy invoices relied upon here all are consistent with the contractor for the accountancy services rendered being either Emdon or more probably the brothers Schelfhout.  They suggest no more than a contract for the benefit of the group (including both the respondent companies and Emdon) and, as such, lend no colour to the offsetting claim advanced by Emdon.  There is nothing in the material before me that suggests even remotely that the respondents were liable in any way to Pitcher Partners for fees for service. 

I reject this alleged claim.

1. The post-liquidation payments to the NAB

It is claimed that of the $566,000.00 (ie $300,000.00 and $260,000.00) borrowed by Emdon, $300,000.00 was paid to the NAB in reduction of the respondents’ indebtedness to the NAB.  It is said that Mr Maxsted was aware of, and “more than happy for the Applicant to make payment to the Bank”.  Mr Schelfhout has deposed that when the $300,000.00 was borrowed it was paid directly to the NAB.

On the documentary evidence before me, the loan approval to Emdon’s $300,000.00 borrowing has settlement date on 8 January 1997.  There is no documentary evidence of any direction to the lender to pay the loan moneys directly to the NAB.

Likewise, in respect of the later $260,000.00 borrowing by Emdon, the loan took effect on 12 March 1997.  Again there is no documentary evidence of a direction to pay directly to the NAB.

The only other evidence put before me to substantiate the claim made are bank statements of Shelson Holdings Pty Ltd that show that on 18 March 1997 two accounts in that company’s name received credits of variously $139,490.09, $60,268.22 and $29,822.39.  The identity of the payer is not revealed.

I find it difficult to square the documentary evidence with Mr Schelfhout’s evidence.  The latter suggests that the first loan of $300,000.00 was paid directly to the NAB for the purposes of debt reduction.  The bank statements, though, relate to a period after the second loan.  There is, to say the least, very real uncertainty as to the provenance of the credits shown in those bank statements.  I am not satisfied that they were referable to payments by Emdon, the more so as I am being asked to infer from indirect evidence what Emdon could have been expected to have supplied directly and more easily.

But even if it be the case that Emdon made the payments this does not of itself establish a genuine off-setting claim.  Emdon may well have wished for its own reasons to ensure that the NAB was paid its debt in full (or nearly so) notwithstanding the debtor companies were in liquidation and the liquidator obviously would have been more than happy for a third party to make a payment that reduced the claim the NAB would have to participate in dividends from the respondent companies.  What is far from apparent from the material before me is that there is a serious question to be tried that Emdon has an offsetting claim against the respondents arising from the payment.

There simply is no reason to assume that the liquidators may have intended (a) what in effect was a substitution of debtors (ie Emdon for the NAB) and (b) a “preferential” payment to the NAB and so authorised or ratified the payments.  There equally is no reason to assume that Emdon’s actions were such as would have the legal consequence it now asserts they did.

I referred earlier to the various possible legal consequences that could flow from payment of another’s debt.  While the present circumstance is not one of a payment arising from a third party contract, I have no reason to be satisfied that it is one that gives rise to a genuine claim to restitution from the respondents.  That assertion is in my view an implausible one given the post-liquidation context in which the payment is said to have been made and the dearth of evidence to support it.

It would, of course, have been open to the NAB to have assigned its debt in whole or in part to Emdon.  If such had occurred, a very different state of affairs would have existed.  It did not occur.
I am not satisfied that Emdon has an off-setting claim in respect of the alleged payments to the NAB.

The Off-setting Claims Found

I have only found that the two debts for which proofs were lodged could possibly give rise to off-setting claims.  These debts, though, were subject to the subordination clause (cl A9) in the deed of 6 July 1995 and the later deed of 23 February 1996 that continued the subordination of Emdon’s claims in the event of the liquidation of the respondents.

Neither deed purported to defer in any way Emdon’s liability to pay its debts to the respondents.  The companies were entitled to call in those debts to pay their creditors (other than subordinated creditors).  The subordinated debts could not be set-off against the debts owed the respondents.

Conclusion

Notwithstanding the variety of claims made by Emdon I am not satisfied that it has a single off-setting claim against the respondents, although I am satisfied that it has claims that could have been off-set against the admitted total but for the subordination clauses in the deeds to which I have referred. But even if there was no such subordination, the value of those claims is such as would leave a substantiated amount for s 459H purposes significantly in excess of the statutory minimum.

I would dismiss the application.

I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate:

Dated:             4 August 1998

Counsel for the Applicant:  Mr S O’Meara

Solicitor for the Applicant:  Russell Kennedy Solicitors

Counsel for the Respondent:                Mr Hyde

Solicitor for the Respondent:                Dunhill Madden Butler

Date of Hearing:  21 July 1998

Date of Judgment:  5 August 1998