In the Matter of Centurcorp Retail Pty Limited
[2012] NSWSC 1050
•17 July 2012
Supreme Court
New South Wales
Medium Neutral Citation: In the Matter of Centurcorp Retail Pty Limited [2012] NSWSC 1050 Hearing dates: 17 July 2012 Decision date: 17 July 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Creditor's statutory demand set aside with costs
Catchwords: CORPORATIONS - creditor's statutory demand - Corporations Act, s 459G - whether a genuine dispute exists Legislation Cited: (Cth) Corporations Act 2001, s 459H, s 459J Cases Cited: Central City Pty Ltd v Montevento Holdings [2011] WASCA 5
Beauty Health Group Limited v Shall [2011] NSWSC 77
B & M Davidovich Pty Limited v Professional Services Group Pty Limited [2012] NSWSC 134
Solarite Air Conditioning Pty Ltd v York International Australia [2002] NSWSC 411
Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896Category: Principal judgment Parties: Centurcorp Retail Pty Limited (First Plaintiff)
Wild Thing Retail Pty Limited (Second Plaintiff)
HZ SOL Pty Ltd (First Defendant)
Phillip Patrick Carter and Christopher Clark Hill as receivers and managers of HZ SOL Pty Ltd (in liquidation) (receivers and managers appointed) (Second Defendant)Representation: Counsel:
J Tobin (plaintiffs)
M Darke (defendants)
Solicitors:
Charnock O'Brien Legal (plaintiff)
Allens (defendant)
File Number(s): 12/132908
Judgment (ex tempore)
HIS HONOUR: The first defendant HZ SOL Pty Ltd is a company in liquidation, and the second defendants, Phillip Patrick Carter and Christopher Clark Hill, are receivers and managers of the first defendant, appointed by a secured creditor. On 5 April 2012, the defendants served on Centurcorp Retail Pty Ltd ("Centurcorp") a creditor's statutory demand, claiming a debt of $1,102,216.95, said to be due and payable by the company to the creditor in respect of goods supplied by the creditor to the company between 10 January and 28 June 2008, less an amount for credit issued by the creditor in favour of the company during that period. Also on 5 April 2012, the defendants served on Wild Thing Retail Pty Ltd ("Wild Thing") a creditor's statutory demand for a sum of $565,585.34, said to be the balance of a debt due and payable by the company to the creditor in respect of goods supplied by the creditor to the company between 3 January and 28 June 2008, less the amount of credit issued by the creditor in favour of the company during that period. By originating processes, each filed on 26 April 2012, the plaintiffs, Centurcorp and Wild Thing, respectively claim an order setting aside the relevant creditors statutory demand pursuant to (Cth) Corporations Act 2001, s 459H and, alternatively, pursuant to s 459J.
Background
When the debts to which the statutory demand relate were incurred, the first defendant, then known as Healthzone Solutions Pty Ltd, was part of a corporate group, the Healthzone Group, involved in the health food industry. Healthzone Solutions supplied the Group's products to wholesale and retail customers. Centurcorp and Wild Thing operated retail health food businesses. Their principal was Mr Peter David Roach. Centurcorp and Wild Thing purchased Health Food Products from Healthzone Solutions. It is not seriously in dispute, for present purposes, that during the period between January 2008 and 28 June 2010, Centurcorp purchased goods for its businesses from Healthzone, in respect of which an amount of $1,102,216.95 was not paid, and Wild Thing similarly purchased goods for its business, in respect of which an amount of $565,585.34 was not paid.
Mr Roach was also, at all material times, an executive director of Healthzone Solutions and its holding company, Healthzone Limited ("HZL"). Prior to 28 June 2010, other directors of the Healthzone companies invited Mr Roach to assume greater responsibility for, and involvement in, the Healthzone Group, but pointed out that, if he were to do so, he would need to separate himself from his retail businesses, so that it would be seen that he was devoting his time and interests to the Healthzone businesses, and that he was not affected by actual or potential conflicts of interest associated with his involvement in retail businesses that purchased goods from, and were indebted to, Healthzone Solutions.
Mr Roach deposes to a conversation that he had with other members of the board of Healthzone Limited, as follows:
I subsequently recall having the following discussions with members of the board of HZL, in particular Michael Jenkins, who was an executive director of HZL and chief financial officer of HZL at the time (Mr Jenkins), and Michael Wu, who was an executive director of HZL and largest shareholder in HZL at the time (Mr Wu):
Me: I really only have 2 options open to me for my disposal of my interests in the stores. (1) to sell to a competitor like Go Vita; or (2) sell to an existing Healthzone banner group operator or a party that will undertake to retain the stores in our network.
Wu: We don't want to like [sic] the stores to a competitor and it sends a bad message to our other franchisees.
Jenkins: Retaining the stores in our network must be a priority and would provide us with the best outcome.
I recall that following those discussions, it was determined to be in the best interests of HZL if my existing businesses that were supplied by Healthzone Group were not sold to a competitor of the group, or a competitor of existing customers of the group, but to an entity that was an existing customer of the Healthzone Group.
Mr Roach says that, subsequently, an existing Healthzone customer, Gold Mist Health Pty Ltd ("Gold Mist"), was identified as a possible purchaser of the Centurcorp and Wild Thing businesses, and that he had a further conversation with Mr Jenkins and Mr Wu to the following effect:
Following the identification of [Gold Mist] as a potential purchaser, I had a conversation with Mr Jenkins and Mr Wu to the following effect:
Jenkins: Gold Mist Health (GMH) is the right company for you to sell to. It is important that you have no continued connection with the Healthzone Group following your divestment of interest in your businesses that are supplied by the group. Gold Mist Health should acquire all of your Healthzone related interests completely. The sale should eliminate any interest you have in your existing stores and that includes any residual liabilities that your stores owe to the Healthzone Group, such that there are no outstanding obligations between your businesses and the group following the sale. There must be no possibility of any future conflict of interest arising because of your pre-existing arrangements with the group.
Wu: I agree with this. You should proceed with a sale of your interests to Gold Mist Health on this basis.
Me: I understand and agree. I will structure my deal with Gold Mist Health accordingly.
Subsequently, Mr Roach proceeded to negotiate a sale to Gold Mist of the businesses operated by Centurcorp and Wild Thing. He dealt principally with Mr Elwood of Deloitte's New Zealand in connection with that transaction. Meanwhile, he was aware that Mr Jenkins and Mr Wu were contemporaneously involved in negotiations with Gold Mist, for the possible acquisition by Healthzone of the shares in Gold Mist, once the sale of the Centurcorp and Wild Thing businesses to Gold Mist had been completed.
Mr Roach says that, on or about 28 June 2010, Centurcorp and Wild Thing entered into a contract for sale of business with Gold Mist. The contract in question states the completion date to be 28 June 2010, and identifies as the subject businesses the Wild Food stores at Bowral, Mittagong and Macarthur, and the store known as Healthy Life Liverpool, which was operated by Centurcorp. The vendors were Centurcorp, Wild Thing, and a third company, Wild Food Highlands Pty Ltd, not otherwise engaged in the present dispute. The purchase price was stated to be nil, and the assets and price was apportioned $975,000 to fixtures and fittings; $521,000 to stock; and an amount for "HZL liability", which was blank. The contract defined "nominated debt" as debt specific to Healthzone Limited; by clause 21 it was provided that "the purchaser is accepting the nominated debt of the business as part payment for the businesses". The evidence indicates that the total indebtedness of Centurcorp and Wild Thing to the Healthzone Group, connected with the businesses the subject of the sale, was at that time in the order of $2.8 million.
Mr Roach says that he had a conversation with Mr Elwood, to the following effect:
Ellwood: Can you provide the figure for the liability in the contract for the sale of your business to Gold Mist Health (that is, the First [Gold Mist Health] Agreement)?
Me: You will recall that [Gold Mist] is assuming all if my companies' liabilities to the Healthzone Group up to completion of the agreement which is to be 28 June 2010. The assets of the businesses amount to about $1,600,000 and the net position after assumption of these liabilities will be a negative net asset position of around $1,200,000 (the net position referred to in the preceeding paragraph being the product of $1,600,000 + ($2,800,000) = ($1,200,000)). Healthzone will confirm the value of the liabilities due to it. I will transfer the businesses for no cash consideration on this basis.
Subsequent to 28 June 2010, Mr Roach was appointed chief executive officer of the Healthzone Group.
On 23 August 2010, apparently in connection with the proposed acquisition by Healthzone of Gold Mist, Mr Robertson, a director of Healthzone Limited, prepared a balance sheet for Gold Mist identifying the impact on its financial position of the acquisition of the businesses of Wild Foods and Centurcorp. Relevantly, it brings to account inventories at $521,994, which closely corresponds with the amount so allocated in the contract; fixtures and fittings at $975,000, which corresponds with the amount so apportioned in the contract; and accounts payable of $2,807,738, which correlates with the amount that Mr Roach says that the businesses owed the Healthzone Group prior to completion of the contract.
Healthzone's half-year accounts, for the six months ended 31 December 2009, disclose (amongst balances outstanding with directors' related parties at that date), the sum of $2,127,000 as receivable from entities related to Mr Roach. While this does not correlate perfectly with the sum of approximately $2.8 million to which I have referred, it was, of course, some six months earlier, and a difference, and escalation, in that amount by on-going trading between January and June 2010 would explain it. Healthzone's preliminary financial report, as at 30 June 2010, discloses that receivables from directors' related parties, which had been $2,069,000 as at 30 June 2009, was reduced to nil. It is also worth noting that, whereas receivables from directors' related parties decreased in that way, other receivables and pre-payments increased from $1,861,000 to $4,522,000.
In the audited annual report for 2010, once again receivables from directors' related parties was shown as having decreased from $2,069,000 in the preceding year to nil, with other receivables and prepayments having increased from $1,113,000 to $3,827,000. The audited accounts also included an account of the acquisition by Healthzone Limited, on 30 June 2010, of 100 per cent of the issued share capital in Gold Mist. The relevant note explained that the purchase consideration was $1 million, together with net identifiable assets acquired at fair value of (negative) $6,617,000. The negative identifiable assets - that is to say, liabilities - included "trade and other payables" of $13,344,000, which, approximately although not by any means perfectly, corresponds with the adjusted liabilities of Gold Mist referred to in Mr Robertson's balance sheet, after inclusion of the $2,800,000 attributable to the assumption, by Gold Mist, of the liabilities of Centurcorp and Wild Thing to the Healthzone Group.
After 28 June 2010, Healthzone Solutions, according to Mr Roach - and there is no evidence to the contrary - made no demand on Centurcorp or Wild Thing for payment of their previous indebtedness, nor issued any statement or other form of request for payment. In reviewing the books of Healthzone Solutions, in order to inform themselves properly to issue the demands and swear the supporting affidavits, the receivers and managers identified and inspected at least some of the invoices included within the demand. Annexed to their affidavit are many of those invoices, or lists of them, which appear to be copies of the originals - addressed, for example, to Wild Food Macarthur Square. But, amongst them is a reprint of an invoice originally issued on 21 December 2009, addressed as follows: "The Wild Food Macarthur Square Gold Mist Pty Ltd." This indicates that in the books of Healthzone Solutions, by the time the reprint of the invoice was made, the indebtedness formerly associated with Wild Food Macarthur Square was now recorded as being associated with Gold Mist.
On 29 February 2012, Allens Arthur Robinson, acting for the receivers and managers of HZ SOL, wrote to the solicitors acting for Wild Food and Centurcorp, demanding payment of the sum of $2,790,000. On 13 March, solicitors for Wild Food and Centurcorp responded, disputing the indebtedness, and contending that Gold Mist had assumed outstanding liabilities to Healthzone Solutions as part of the sale of the Centurcorp and Wild Thing businesses. There then followed the issue of the creditor's statutory demands.
Genuine Dispute?
The test to be applied in considering whether there is, for the purposes of s 459H, a "genuine dispute" has been stated in many cases, including Central City Pty Ltd v Montevento Holdings [2011] WASCA 5, [9] - [17]; Beauty Health Group Limited v Shall [2011] NSWSC 77, [4]; and B & M Davidovich Pty Limited v Professional Services Group Pty Limited [2012] NSWSC 134, [15]. The effect of these decisions for present purposes can sufficiently be summarised by observing that the expression "genuine dispute" involves at least two elements, the first being an aspect of bona fides, in that there is a dispute genuinely advanced, and the second being an aspect of reasonableness, in that there is a dispute that has some reasonable basis. Thus it has been said that the expression "genuine dispute" connotes a plausible contention requiring investigation, so that a demand will be set aside if there is a bona fide disputed issue of fact or law which is not based on "spurious hypothetical illusory or misconceived grounds".
That said, the court need not accept uncritically as giving rise to a genuine dispute every factual assertion - no matter how imprecise, inconsistent with other material, or inherently improbable - or a patently feeble legal argument. The onus is always on the recipient of the demand to establish that there is a genuine dispute. In Solarite Air Conditioning Pty Ltd v York International Australia [2002] NSWSC 411, Barrett J, as his Honour then was, said (at [23]):
It is appropriate to dwell for a moment on the guidance provided by these cases. The tests of "plausible contention requiring investigation", "real and not spurious, hypothetical, illusory or misconceived" and "perception of genuineness (or lack of it)", applied in the context of a summary procedure where "it is not expected that the court will embark on any extended inquiry", mean that the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.
See also Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896, [17] - [18].
I turn then to apply the undemanding test of making out a genuine dispute to the facts of this case. The facts that I have recited illustrate a basis for supposing that, on or about 28 June 2010, and with effect from 30 June 2010, to which date Healthzone's acquisition of Gold Mist was apparently backdated, there was an understanding or assumption, of a tripartite character, involving the companies Gold Mist and Healthzone Solutions, that Gold Mist would be treated as being indebted to Healthzone Solutions, in place of the indebtedness previously owed by the companies in respect of the businesses, the subject of the sale.
For the defendants, Mr Darke has advanced a number of arguments as to why this should not be considered as establishing a genuine dispute. In particular, he submitted that the only relevant representation made on behalf of Healthzone Solutions was one as to how the sale of the Centurcorp and Wild Thing businesses should proceed, and that no representation was ever made as to what the legal relationship thereafter, between Centurcorp and Wild Thing on the one hand, and Healthzone Solutions on the other, would be. That argument is not without force, but representations need not always be express or explicit: they are sometimes implicit, and in this case, the potential that there was some such representation, assumption or understanding is amplified by the subsequent events, in which the accounts of Healthzone Solutions seemed to give effect to such an assumption. It was also put that no reasonable person in Mr Roach's position could have made such an assumption, it being said that any such position would have been quite contrary to the interests of Healthzone Solutions. Again, that argument is not without force, but it is not impossible that a person in Mr Roach's position would have made such an assumption, given Healthzone's apparent desire to acquire his exclusive services as its chief executive officer. Especially would that be so if there were no particular reason to doubt Gold Mist's ability to pay the debt.
It is quite correct, as Mr Darke submitted, that as Healthzone Solutions was not a party to the contract for sale of business, there was no legal novation of the debt, nor any legal release of Centurcorp and Wild Thing. On the other hand, the absence of an effective legal novation or legal release does not exclude the possibility that the rights of Healthzone could be affected in equity by an estoppel - or by an agreement outside the terms of the contract for sale of business itself but in a sense collateral to it - to the effect that it would release Centurcorp and Wild Thing, in consideration of their selling their health businesses to Gold Mist and Gold Mist agreeing to assume responsibility for that indebtedness.
In short, the accumulation of facts to which I have referred demonstrates a tenable basis for arguing that, from mid 2010 onwards, Healthzone Solutions, Wild Thing, Centurcorp and Gold Mist conducted their affairs on the common assumption that Gold Mist, and no longer Centurcorp and Wild Thing, were responsible for the relevant indebtedness to Healthzone; or, alternatively put, that Healthzone no longer looked to, or held, the companies responsible for the indebtedness or, further alternatively, in equity they had released that indebtedness. That is not to say that there are not powerful arguments to the contrary. I have referred to some of them.
Mr Darke also points out that at the time when the relevant accounts of Healthzone were prepared, Mr Roach was its chief executive officer - an observation the force of which is not entirely dissipated by the fact that the annual accounts were audited. But this is not a trial of the issue. It only involves ascertaining whether there is a plausible contention requiring further investigation. To me, it is manifest that there is a plausible contention requiring further investigation.
I am therefore satisfied that there is a genuine dispute in each matter for the purposes of s 459H. For those reasons, it is unnecessary that I consider the further argument advanced, under 459J, in connection with the adequacy of the verification of the indebtedness.
Orders
In each matter, I make the following orders:
(1) Order pursuant to (Cth) Corporations Act 2001, s 459H, that the creditors statutory demand dated 4 April 2012 served by the defendants on the plaintiff be set aside.
[Counsel addressed]
(2) Order that the First Defendant pay the Plaintiffs' costs.
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Decision last updated: 02 October 2012
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