In the matter of Doughkyo Leasing Pty Ltd

Case •

[2025] NSWSC 676

•

27 June 2025

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of Doughkyo Leasing Pty Ltd [2025] NSWSC 676
Hearing dates: 10 June 2025
Date of orders: 27 June 2025
Decision date: 27 June 2025
Jurisdiction:Equity - Corporations List
Before: Brereton J
Decision: The Originating Process and the Amended Interlocutory Process are dismissed
Catchwords:

CORPORATIONS – winding up – insolvency – statutory presumption of insolvency – plaintiff’s application to wind up defendant on the ground of insolvency pursuant to s 459A – where plaintiff relies on a debt that was not the debt that was the subject of the statutory demand - defendant’s application for leave under s 459S to oppose the winding up application on the ground that there is a genuine dispute - whether plaintiff has standing as a creditor under s 459P(1)(b) to bring winding up application – whether there is a genuine dispute about the alleged debt forming the basis of the winding up application – where the plaintiff does not have standing as a creditor – where the pursuit of these proceedings would have been an abuse of process if the plaintiff had standing – originating process and amended interlocutory process dismissed

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (receivers and managers appointed) (2011) 244 CLR 1; [2011] HCA 18

Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 189 FLR 309; [2005] NSWSC 397

Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; [1999] NSWSC 15

Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075

Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113

Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2002) 194 ALR 138; [2002] NSWSC 851

Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Guardian Group Australia Pty Ltd v Lu [2005] NSWSC 1299

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26

In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25

Re Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290

Re the Satellite Group Ltd; Consolidated Constructions Pty Ltd v The Satellite Group Ltd (2000) 35 ACSR 565; [2000] NSWSC 984

Soundwave Festival Pty Limited v Altered State (WA) Pty Limited (No 1) [2014] FCA 466

Sui v Jiang (No 2) [2025] NSWCA 86

Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37

Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527

WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496

Texts Cited:

N.A.

Category:Principal judgment
Parties: Good Fortune Property Holdings Pty Ltd (plaintiff)
Doughkyo Leasing Pty Ltd (defendant)
Representation:

Counsel:
S Golledge SC, APF Ryan (plaintiff)
N Simone (defendant)

Solicitors:
HWL Ebsworth Lawyers (plaintiff)
Somerset Ryckmans (defendant)
File Number(s): 2024/335250
Publication restriction: N.A.

JUDGMENT

  1. This concerns two applications. By an originating process filed on 10 September 2024, the plaintiff applies for an order under s 459A of the Corporations Act 2001 (Cth) that the defendant be wound up in insolvency. By an amended interlocutory process filed on 10 June 2025, the defendant seeks relief on the basis that the proceedings being prosecuted by the plaintiff is an abuse of process and, effectively in the alternative, leave under s 459S to oppose the winding up application on the ground that there is a genuine dispute.

  2. For the reasons given below, I propose to dismiss both applications.

Relevant background

  1. The plaintiff owns commercial premises at Harris Street in Ultimo. It entered into a lease of those premises to the defendant on 29 August 2023. There was a dispute almost immediately about various matters, including about fit-out works and the suitability of the premises. Breach notices were served by the plaintiff in early 2024. In May 2024, the plaintiff took possession of the premises.

  2. On 22 May 2024, the plaintiff served a statutory demand on the defendant claiming $132,000 as a debt in respect of unpaid rent said to be owing under the lease for the period October 2023 to May 2024. There is no issue about the proper service of the demand.

  3. On 5 June 2024, the (former) solicitors for the defendant wrote to the solicitors for the plaintiff to assert that there was a genuine dispute about the debt. The letter set out the basis for the dispute. The letter invited the plaintiff to withdraw the statutory demand. The plaintiff did not take up the invitation.

  4. The opportunity for the defendant to apply to set aside the statutory demand under s 459G expired on 12 June 2024. The defendant commenced proceedings in the Federal Court of Australia to set aside the statutory demand on 13 June 2024. The defendant contends that the failure to commence the proceedings within time was the fault of its former lawyers. The Federal Court proceedings were dismissed with costs in August 2024.

  5. On 28 August 2024, the parties, with their lawyers, attended a mediation. A document called a “Binding Heads of Agreement” was executed on that day. It is an important document and it is appropriate to set out the relevant parts:

The Parties entered into this Binding Heads of Agreement on the basis that they are immediately bound regardless of whether or not a formal document comes into existence, however the Parties intend to bring into existence a more fulsome document.

1.   On or before 9 September 2024 Doughkyo is to pay Good Fortune the amount of $180,000 inclusive of:

a.    Rent payable by Doughkyo to Good Fortune pursuant to the lease entered on or about 29 August 2023 (Lease) which is the subject matter of the Federal Court Proceedings NSD758/2024 (Federal Court Proceedings).

b.    Order for costs made on 9 August 2024 in the Federal Court Proceedings in the agreed amount of $45,000 inclusive of GST.

2.    Subject to compliance by Doughkyo of its obligations in paragraph 1, Good Fortune covenants not to commence any wind-up proceedings against Doughkyo in relation to the creditor’s statutory demand dated 20 May 2024.

3.    Subject to paragraph 4 below, Doughkyo undertakes and covenants to enter into a lease with Good Fortune in the same terms as the Lease, for the same premises as the Lease, subject to the following: …

e.    Doughkyo is responsible for undertaking any fit out works, including electrical works that may need to be undertaken at the premises to enable it to conduct its business at the premises, including without limitation the electrical upgrade work which is the subject matter of the dispute in the Federal Court Proceedings…

4.    Doughkyo undertakes and covenants to execute and return the lease referred to in paragraph 3 above, together with disclosure statement within 7 calendar days of receipt of the draft lease and disclosure statement.

5.    Doughkyo releases Good Fortune from all Claims in relation to the Lease.

6.    Subject to compliance by Doughkyo with its obligations within this Binding Heads of Agreement, Good Fortune releases Doughkyo from all Claims in relation to the Lease and the order for costs in the Federal Court Proceedings.

The contemplated “more fulsome document” never eventuated but there is no dispute that this was a binding contract upon execution. There is a dispute about the proper construction and operation of the agreement.

  1. A copy of a lease for execution was provided by the plaintiff’s solicitors to the defendant’s (current) solicitors on 2 September 2024. The defendant’s solicitors requested changes to the lease terms, which led to a revised form of lease being sent to the defendant’s solicitors on 4 September 2024. On 8 September 2024, some further changes to the proposed terms of lease were sent from the defendant’s solicitors, under cover of an email that stated:

The changes give effect to the agreement between our respective clients (e.g. the commencement of payment of the rent) and other changes that our client requires especially in relation to the Fitout Works.

Can you please let us have your client’s urgent instructions so that our client can arrange for transfer of the settlement payment?

  1. On 9 September 2024, the plaintiff’s solicitors wrote to the defendant’s solicitors advising that the settlement sum was due on that day and had not been received. The email stated that no further extension would be given. The defendant’s solicitor responded on the same day indicating that payment would be made that day once the plaintiff had provided a response to the suggested amendments to the lease. There was a response 10 minutes later from the plaintiff’s solicitor asserting that the draft lease was not relevant to the obligation to pay the settlement amount. Nevertheless, at mid-afternoon on 9 September 2024, the plaintiff’s solicitor provided a substantive response to the requested lease amendments. Most requested changes were rejected but there was some accommodation. The plaintiff’s position was that the $180,000 was to be paid that day and an executed lease was to be provided by the following morning.

  2. The $180,000 was not paid on 9 September 2024. On the morning of 10 September 2024, the defendant’s solicitor advised that if the plaintiff confirms “that the building is presently fire safety compliant” then the $180,000 would be paid by midday. The plaintiff’s solicitor advised that the plaintiff agreed that if the premises were not fire safety compliant in their present state, it would bear the responsibility of ensuring they were compliant. They asserted that the obligation to pay the settlement sum and entry into the lease were mutually exclusive. They asserted that the plaintiff would accept the settlement sum if paid by midday, failing which an application to wind up the defendant would be made later that same day (which was contemplated to be the last day to serve a winding up application without the statutory demand becoming stale). The application was filed as threatened.

  3. The $180,000 has not been paid. There has been no new lease. The premises are now occupied by a third party. No-one suggested that there was a possibility that there could still be a lease between the plaintiff and the defendant.

Does the plaintiff have standing?

  1. The plaintiff contends that it has standing to apply for the defendant to be wound up in insolvency because it is a creditor: see s 459P(1)(b). The plaintiff needed to establish that it is a creditor at the date the matter came to the Court for determination (10 June 2025): Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 189 FLR 309; [2005] NSWSC 397 at [15]. At the hearing, the plaintiff contended that it is a creditor because the defendant has not paid the $180,000 that remains outstanding pursuant to the binding heads of agreement. The defendant contended that this debt is disputed.

  2. If there had been no binding heads of agreement and the plaintiff had relied on the debt that was the subject of the statutory demand, the defendant could not have disputed the plaintiff’s standing as a creditor: Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527 at [69] per White J. However, that is not the debt that the plaintiff advances as the debt that gives it standing as a creditor. That does not defeat the application. The plaintiff is able to establish standing on the basis of a debt that was not the subject of a statutory demand, provided that debt is otherwise established: WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496 at [136].

  3. Where a plaintiff seeks to substitute at the hearing of the winding up application a new debt, not being the debt that was the subject of a statutory demand, the situation is akin to one that arises when there is a substitution of applicants on a winding up application pursuant to s 465B. A useful statement of principle and analysis of authority in that context is found in Tokich Holdings at [62]-[82]. Applying those principles to the circumstances of this case (and subject to some matters raised below at [33]-[36]), the defendant would not be wound up on the basis of the disputed debt of $180,000 unless that dispute is resolved. Unless resolved in the plaintiff’s favour, the plaintiff cannot establish that it has standing. Ordinarily, the winding up jurisdiction is not to be used to resolve questions as to whether a debt exists.

  4. In this case, the plaintiff contended that the Court should resolve the dispute because it contended that the dispute about the $180,000 is not a genuine one. The plaintiff accepted that if I am satisfied that there is a genuine dispute, the defendant would not be wound up by reason of the debt of $180,000. The plaintiff and defendant both contended that the Court is to be guided by principles that are to be applied when setting aside a statutory demand on the basis that there is a genuine dispute about the debt, and referred to the classic decision of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.

Is there a genuine dispute about the debt of $180,000?

  1. For the following reasons, I have concluded that there is a genuine dispute about whether there is a debt of $180,000.

  2. On the plaintiff’s case, the debt that was the subject of the statutory demand (in the amount of $132,000) was conditionally compromised by the binding heads of agreement. I have set out clause 1 of the binding heads of agreement at [7] above. Clause 1(a) refers to rent payable pursuant to a lease which is the subject of Federal Court proceedings, which were the (dismissed) proceedings to set aside the statutory demand. That can only be a reference to the rent that was claimed to give rise to the debt that was the subject of the statutory demand (the $132,000). Clause 1(b) reflects an apparent agreement in respect of the costs of the Federal Court proceedings (for $45,000).

  3. By clauses 2 and 6, the plaintiff made promises to the defendant that were conditional upon the defendant paying the $180,000. On the plaintiff’s case, that condition was not satisfied and so the conditional promises made by clauses 2 and 6 were not enlivened. It meant that the plaintiff was free to commence winding up proceedings based on the statutory demand (which it has done) and was also free to sue the defendant for unpaid rent and pursue the costs order. The plaintiff contends while it could choose to sue the defendant for unpaid rent and pursue the costs order, the defendant remained liable to pay the $180,000 and the plaintiff remained free to pursue the defendant for that debt. However, the plaintiff accepts that it could not recover the $180,000 and, in addition, recover the $132,000 and any amount pursuant to the costs order.

  4. It seems that on the plaintiff’s case, the binding heads of agreement has been terminated. The binding heads of agreement can only be read as imposing an obligation on the plaintiff to enter into a lease with the defendant. It has not done so, and indeed has apparently entered into a lease with a third party. On one view, the failure by the defendant to pay the $180,000 was repudiatory and the plaintiff elected to accept that repudiation, thus terminating the binding heads of agreement and relieving the plaintiff of the obligation to enter into a lease with the defendant. Termination would discharge future obligations but leave accrued obligations untouched: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477. On the plaintiff’s case, termination of the agreement after 9 September 2024 would not discharge the obligation upon the defendant to pay the $180,000 (assuming it is otherwise payable), because that was an accrued liability.

  5. On the plaintiff’s case, an election to terminate the binding heads of agreement would leave the plaintiff with the right to pursue the $180,000, or choose instead to pursue the $132,000 and the costs order – but it could not have both. It would have to make an election at some point. It is an election between inconsistent rights, being the right to either: (1) recover as a debt the sum of $180,000 being an amount conditionally agreed to be paid to settle the claims for $132,000 and the costs order, or (2) to give up the right to recover the $180,000 and, instead, pursue the $132,000 and the costs order. It would be in the plaintiff’s interests to keep the choice alive for as long as possible, but it would be required to make a choice at some point. The plaintiff would have an economic incentive to pursue the $132,000 and the costs order if it considered that the amount of the unpaid rent and the value of the costs order exceeded $180,000.

  6. The defendant contends that the debt of $180,000 is disputed for a number of reasons. It contends that the $180,000 provided for by the binding heads of agreement was wholly or primarily on account of an advance payment of rent for the final year of the proposed new lease. It contends that the claim for the rent under the former lease for the period from October 2023 to May 2024, which was the subject of the statutory demand, was essentially compromised by the binding heads of agreement for $0. The contention appears to be that as the lease was not entered into, the obligation to pay the $180,000 fell away. I understand that the defendant contends that the debt of $132,000 was not reinstated and nor could the plaintiff pursue the costs order, because they had been compromised for nothing.

  7. The evidentiary support for this contention is slight to non-existent. Mr Mu, who is the sole director of the defendant, gave evidence that:

The payment of the $180,000 by Doughkyo to Good Fortune that was contemplated by the Heads of Agreement was essentially an advance payment of the 5th years rent under the proposed new lease (which was to be paid in advance).

The difficulty with this evidence is that it does not state that it was a mutual contemplation. Mr Mu does not refer to any communications between the parties about the notion that the $180,000 reflected an advance payment. There is no evidence of any such communications. If it was agreed, one would have expected it to be the subject of some written communication between the parties, including in the lead up to 9 September 2024. But there is nothing. I am unable to conclude that the contention that the $180,000 provided was wholly or primarily on account of an advance payment of the final year of rent has any evidentiary foundation and I reject it. The evidence is so weak that it does not give rise to a plausible or genuine dispute.

  1. The defendant also contends that the obligation to pay the $180,000 was not triggered because of the position in respect of the fire safety compliance of the premises. The argument seems to be that the obligation to pay the $180,000 was contingent because one of the things that the $180,000 was buying was a lease of premises that were fire safety compliant, or that there was some kind of breach of contract by the plaintiff because the premises that were the subject of the proposed lease were not fire safety complaint, with the result that the defendant was excused from paying the $180,000, or there was some kind of offsetting claim. The precise legal form of the argument was hard to discern. It is not clear whether, on this argument, the consequence is that the binding heads of agreement fell over and the plaintiff was free to pursue the debt of $132,000 and the costs order. There is evidentiary support for the proposition that the absence of fire safety compliance was put forward by the defendant as the reason for not paying the $180,000. But I do not consider that there is a basis in the terms of the binding heads of agreement for suggesting that the obligation to pay the $180,000 was contingent on fire safety compliance. The matter is not referred to in the agreement at all. I am unable to conclude that this gives rise to a genuine dispute.

  1. However, there is an alternative contention that indicates that there is a genuine dispute. The defendant observes that the liability for $180,000 does not arise in conjunction with or in addition to the debt underlying the statutory demand. This is consistent with the plaintiff’s acceptance that it cannot recover both: (1) the $180,000, and also (2) the $132,000 in unpaid rent and the fruits of the costs order. As I have observed, at some point the plaintiff must make an election between the claim for $180,000 and reverting to its claim for $132,000 and the pursuit of the costs order. It arguably has made that election.

  2. When the plaintiff commenced these proceedings on 10 September 2024, it seems that it was seeking to keep its options open. The originating process referred to the statutory demand and contended that the defendant failed to pay the amount of the debt demanded within 21 days after the demand was served. But it contends that the plaintiff “also” relies on the failure of the defendant to pay the $180,000 on 9 September 2024 in accordance with the binding heads of agreement.

  3. However, since the commencement of these proceedings, the plaintiff has taken formal steps to recover the $132,000 in unpaid rent and to enforce the costs order of the Federal Court.

  4. The first step was the commencement and prosecution by the plaintiff of proceedings in the District Court. By a statement of claim filed on 3 December 2024, the plaintiff sued the defendant for alleged breaches of the lease dated 29 August 2023. The claim expressly includes a claim for loss of rent for the period 1 October 2023 to 13 May 2024, as well as for loss of rent payable after 13 May 2024 and other matters, such as re-leasing costs. There is no pleaded claim for the $180,000. The conclusion that the proceedings in the District Court, at least so far as they claim loss of rent for the period from 1 October 2023 to 13 May 2024, is inconsistent with the position advanced by the plaintiff in this Court seems inescapable. That was frankly conceded by Mr Golledge SC for the plaintiff, who submitted that there were “grave difficulties” with the District Court proceedings and that they were liable to be summarily dismissed.

  5. The second step concerns action taken by the plaintiff in the Federal Court. On 17 March 2025, the plaintiff filed a bill of costs in respect of the costs order made on 9 August 2024, seeking total costs and disbursements in the sum of $52,963.51. The plaintiff cannot consistently pursue this bill of costs and assert that the defendant owes $180,000 pursuant to the binding heads of agreement which compromised the amount payable pursuant to the order for costs. Again, Mr Golledge accepted as much and informed the Court that he had been instructed to admit that the steps taken in the Federal Court in filing the bill of costs were “wrongheaded”.

  6. As McHugh JA said recently in Sui v Jiang (No 2) [2025] NSWCA 86 at [71], the doctrine of election is concerned with situations in which a party confronts a mandatory choice between inconsistent rights, such as the right to terminate a contract and the right to insist on further performance. McHugh JA cited the following passage from Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 41:

The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner, The Law Relating to Estoppel by Representation [3rd ed. (1977), p. 313]: ‘It is of the essence of election that the party electing shall be “confronted” with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.

The question that arises is whether there is a plausible contention requiring investigation that the plaintiff has made an election to pursue the alleged unpaid rent of $132,000 and the costs order instead of the pursuit of the alleged debt of $180,000.

  1. There is in my view a plausible contention that when the plaintiff commenced proceedings in the District Court to recover the unpaid rent of $132,000, which was not done as an alternative to the claim for $180,000, the plaintiff took an unequivocal step that was inconsistent with the pursuit of the debt of $180,000 under the binding heads of agreement. I am not concluding that there was an election and there are plausible arguments against it, including that the time for a mandatory choice had (and has) not yet arrived and that the plaintiff could still amend its pleading in the District Court to sue to recover the $180,000 as an alternative to the claim for the unpaid rent. The matter was not the subject of full debate. For present purposes, it is sufficient that there is a genuine dispute.

  2. It might also be genuinely contended that the election has come about another way. The plaintiff covenanted not to commence winding up proceedings subject to the payment of the $180,000 by 9 September 2024 (clause 2). By commencing these proceedings, the plaintiff has taken a step that relied upon the non-payment and could only be taken because of that failure. Arguably it is inconsistent with that step to also contend that the $180,000 remains outstanding. That is, it could be argued that the plaintiff could not both commence winding up proceedings relying on the statutory demand of 20 May 2024 because the $180,000 was not paid, and also contend that the $180,000 remains payable. Arguably, by commencing these proceedings, which rely on the statutory demand, the plaintiff elected to forego its right to the $180,000 and chose instead to pursue the rights it had that were consequent upon the non-payment. It is as if the plaintiff had the ability to elect to rescind (not merely terminate) the binding heads of agreement, and did so. By commencing these proceedings (and simultaneously abandoning the proposed lease to the defendant), the plaintiff arguably brought about an end to all obligations under the binding heads of agreement. Once again, there are competing arguments and I come to no concluded views.

  3. Given that there is an unresolved dispute about whether the defendant is indebted to the plaintiff in the amount of $180,000 pursuant to the binding heads of agreement, I cannot be satisfied that the plaintiff has standing as a creditor, by reason of that debt, to apply for the defendant to be wound up in insolvency pursuant to s 459P.

Can the plaintiff rely on the debt of $132,000?

  1. The plaintiff’s written submissions relied exclusively of the alleged debt of $180,000. During the course of oral argument, however, Mr Golledge submitted that if for some reason it is wrong about the debt of $180,000, the defendant remains liable for the initial debt of $132,000 and that it is entitled to pursue the costs order made by the Federal Court on 9 August 2024. In relation to this debt, being the subject of an unsatisfied statutory demand, he contended that the defendant could not submit that the plaintiff was not a creditor, unless it was granted leave under s 459S (which was opposed) and satisfied the Court that there is a genuine dispute about the debt.

  2. As I have indicated above, there is a plausible contention worthy of investigation that the defendant is not indebted to the plaintiff in the sum of $180,000 pursuant to the binding heads of agreement because the plaintiff has elected instead to enforce its rights under the lease dated 29 August 2023 and pursue the costs order. If this is correct, then the debt of $132,000 would stand.

  3. However, I am not prepared to proceed on the basis that the plaintiff is a creditor by reason of the debt of $132,000. The plaintiff could only be a creditor by reason of an existing debt $132,000 if it had elected to forego the alleged debt of $180,000 in favour of the alleged debt of $132,000 and the benefit of the costs order. But the plaintiff contends that it has not made that election and it comes to this Court relying on the debt of $180,000. I do not think that the plaintiff has proper standing to prosecute proceedings on the basis of a debt that it contends in this Court is not a debt that is outstanding at the time of the hearing.

  4. Conceivably, the plaintiff could have made an application to wind up the defendant, relying of the debt of $132,000 (and perhaps the costs order), on the basis that it is a contingent or prospective creditor: see s 459P(1)(b). But it would have had to apply for and obtain leave of the Court to do so, and would have had to satisfy the Court that there is a prima facie case that the defendant is insolvent: see s 459P(2)(a) and s 459P(3). There was no application for leave and so this is not a matter I need to consider any further.

  5. It follows that I do not accept that the plaintiff has standing to bring this application as a creditor of the defendant. It follows that the application should be dismissed.

Is the winding up application an abuse of process?

  1. This is a convenient time to consider the defendant’s contention that the proceedings are an abuse of process, although given my conclusion on the plaintiff’s absence of standing as a creditor it is not strictly necessary to deal with the application.

  2. The defendant relies on the following passage from Guardian Group Australia Pty Ltd v Lu [2005] NSWSC 1299 at [58]:

Generally speaking, it may be accepted that where a creditor has commenced an action at law to recover a debt and simultaneously commences winding-up proceedings in relation to the same debt, the winding-up proceedings are an abuse of process, but this is not an invariable rule. In Wilson Market Research Pty Ltd and the Corporations Law (1996) 39 NSWLR 311, Santow J [at 317] referred first to the judgment of Needham J in Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911, 913 in which his Honour had said that it seemed an abuse of process to claim a sum of money in a common law claim and then to seek to wind the company up by parallel proceedings in Equity because of the failure to pay the same sum. Santow J then referred to what had been said by Master Adams in Mala Pty Ltd v Johnston (1995) 13 ACLC 100 [at 102], which Santow J thought correctly explained that not every case of parallel proceedings was an abuse of process. In Milano v J D Holdings [2001] NSWSC 899, Master Macready, as his Honour then was, referred to these authorities, noting from the judgment of Master Adams in Mala that it was prima facie an abuse of process for a party to institute two proceedings for the one claim – prima facie, because there can be an explanation why two proceedings are issued, and it is a matter for the Court to determine whether the explanation is sufficient.

The defendant contends that the winding up proceeding in this Court offends “the general rule”.

  1. The present case does not offend the general rule. This is not a case where a creditor has commenced an action at law to recover a debt and simultaneously commences winding up proceedings in relation to the same debt. Rather, the defendant commenced winding up proceedings in relation to one debt in September 2024 and later, in December 2024, commenced an action at law to recover a different debt.

  2. The defendant submits that the parties have joined issue in the District Court proceedings on the amount owing under the heads of agreement. This overstates matters. There has been evidence served by the plaintiff in those proceedings to the effect that the parties entered into the heads of agreement and that the defendant “has never paid” the $180,000. That does not mean that the plaintiff is suing for payment of $180,000 or that it is alleged that there is an outstanding debt in that amount. There is no pleaded claim to recover the $180,000 under the heads of agreement.

  3. There is no abuse of process arising because the plaintiff is prosecuting this application to wind up the defendant in relation to the debt of $180,000 and at the same time is suing to recover that debt in the District Court.

  4. There is, however, a problem with the plaintiff prosecuting this application to wind up the defendant in relation to the debt of $180,000 and at the same time prosecuting an action in the District Court to recover a different debt, but one that is an alternative to the debt of $180,000. The plaintiff is taking proceedings in different Courts in respect of different debts even though it cannot recover them both. Mr Golledge accepted that the District Court Proceedings have got some problems and submitted that, if anything, there was an abuse of process in commencing those proceedings.

  5. I do not think that the plaintiff should be permitted to advance in winding up proceedings in this Court on the basis of a debt, while at the same time it is pursuing an action in the District Court and taking steps in the Federal Court that are inconsistent with the recovery of that debt. I do not think I can put those other proceedings to one side because the plaintiff submits that those other proceedings have problems or are wrongheaded. The plaintiff needs to get its house in order.

  6. I consider that it is an abuse of process for the plaintiff to prosecute a winding up application in this Court on the basis of a debt while simultaneously prosecuting proceedings in the District Court and the Federal Court that are predicated on the non-existence of that debt. I do not consider that wrongheadedness is a satisfactory explanation for the pursuit of the parallel but inconsistent proceedings. The District Court proceedings are pending and I cannot ignore them. If the proceedings in this Court were not liable to be dismissed because the plaintiff does not have proper standing as a creditor, I would have stayed the proceedings as an abuse of process.

The defendant’s application for leave under s 459S

  1. Given my conclusions above, it also follows that I do not need to make a determination about the defendant’s application for leave under s 459S. However, it is appropriate that I briefly indicate the conclusion that I would have come to if the application was determined. The application is for leave to oppose the winding up application on the ground that there is a genuine dispute as to the debt that is the subject of the statutory demand.

  2. Section 459S provides:

(1)    In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a)    that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b)    that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2)    The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

  1. The parties agreed that the matters relevant to an application for leave under this section were correctly stated by Black J in In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 at [10] as follows (omitting references to authorities):

The matters relevant to an application for leave under this section are whether there is a serious question to be tried on the ground sought to be raised; the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor’s statutory demand, involving an evaluation of the reasonableness of the debtor’s conduct at the time when the application might have been made; and whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent. The discretion conferred by s 459S of the Corporations Act is to be exercised cautiously and sparingly and with regard to the purpose of Part 5.4 of the Corporations Act to provide for determination of any objections to a creditor’s statutory demand by an application under s 459G of the Corporations Act, rather than at the time of the winding up application.

  1. I would have been satisfied that the defendant has a seriously arguable case that the debt is the subject of a bona fide dispute: see Soundwave Festival Pty Limited v Altered State (WA) Pty Limited (No 1) [2014] FCA 466 at [10]. The basis for that dispute is expressed in the verified defence filed in the District Court on 24 January 2025 and the affidavit of Mr Mu filed in that Court on 4 April 2025. The argument is that there was an agreement that rent did not accrue pending fit out works to be undertaken by the plaintiff.

  2. I would have been satisfied that there was a sufficient explanation as to why that ground was not raised in an application to set aside the statutory demand. The defendant submitted that “despite its wishes and instructions to its lawyers” the application was not filed. There is evidence that the defendant’s solicitors wrote to the plaintiff’s solicitors on 5 June 2024, identifying what was said to be the “genuine dispute” and inviting the plaintiff to withdraw the demand. There is evidence that the solicitors for the defendant lodged the application to set aside the statutory demand and supporting affidavit on 12 June 2024 (being the final day of the statutory period) via the Federal Court’s on-line registry. Those documents were served (unsealed) on 12 June 2024. The Federal Court registry did not accept the documents for filing until the following day, which was after the statutory period expired. After being told of this on 13 June 2024, the defendant wrote to its solicitors expressing its extreme disappointment “especially in circumstances where we have made it clear that the Application should be filed on time to avoid the risk of any adverse outcomes”.

  3. The plaintiff submitted that a failure to file and serve occasioned by an oversight by the defendant’s lawyers is an insufficient explanation. As a general proposition, I consider that is too broadly stated. Every case will depend on its circumstances. The plaintiff relied on the decision of Santow J in Re the Satellite Group Ltd; Consolidated Constructions Pty Ltd v The Satellite Group Ltd (2000) 35 ACSR 565; [2000] NSWSC 984 at [17]-[18]. In that case the defendant submitted that its solicitors were charged with the responsibility of dealing with the statutory demand and they failed in their performance of that task. Santow J held that he did not consider the explanation so deficient an explanation as to disqualify the defendant company at the threshold, but accepted that it lacked cogency and, when weighed with other factors, told against the application for leave under s 459S. His Honour held at [19]:

It lacks cogency, because even believing it, it is not to be assumed that companies can simply ignore a perfectly comprehensible statutory demand requiring action within 21 days on the basis that this has been left to the solicitor to worry about.

I do not think this case supports the broad proposition as stated by the plaintiff.

  1. The plaintiff also relied on the following conclusion by Wigney J in Soundwave Festival which states as follows (at [33]):

Notwithstanding this, I am not satisfied that Mr Knight’s evidence provides an adequate or satisfactory explanation for why no step was taken to set aside the demand. If the kind of inattention, want of care, inactivity and lack of urgency displayed by Mr Knight could provide a satisfactory explanation for a failure to comply with or set aside a statutory demand, the statutory scheme in relation to statutory demands would be significantly undermined.

That was not a case concerning the conduct of a solicitor (Mr Knight was not a solicitor). The passage serves to demonstrate the necessity to examine the facts of each case.

  1. There is some force in the plaintiff’s submission that the defendant has not provided a complete or fulsome explanation as to the reasons for the failure to make the application on time. Mr Mu does not, for example, give evidence of when he gave instructions to the company’s solicitors and whether he chased them as the end of the statutory period approached. Nevertheless, there is sufficient evidence to enable me to conclude that the defendant had impressed upon its solicitors the need to file the application within time and that the solicitors had attempted to do so by lodging the application for filing within the statutory period. On the evidence, the failure was to not allow sufficient time for the Court to accept the application for filing. It cannot be assumed that a document lodged for filing will necessarily be accepted as being filed on that same day. This is not a case where the defendant merely left everything to its solicitors and not one where the solicitors made no real effort to make the application on time. It is a case where the timing was cut too finely.

  1. I would also have been satisfied that the relevant ground is material to proving whether the debtor is solvent. The defendant led evidence from Ms Suelen McCallum, an accountant. Her evidence in chief was that in the event the debt claimed in the statutory demand is accepted as a debt of the defendant, it was her opinion the defendant “remains solvent on the basis that it has the financial support of a related entity”. The financial support is a letter of support from a related entity, Doughkyo Operations Pty Ltd. That was a letter dated 10 December 2024 that, strangely, was addressed to Ms McCallum – not to the defendant. There was a further comfort letter from Doughkyo Operations addressed to the defendant dated 6 May 2025, which Ms McCallum referred to in her report in reply.

  2. Mr Golledge’s cross-examination of Ms McCallum demonstrated that she had not undertaken any substantive work to satisfy herself that Doughkyo Operations had sufficient assets to give the defendant support if it needed it to pay the debt that is the subject of the statutory demand. The financial records of Doughkyo Operations that were in evidence strongly suggest that it had limited ability to provide any substantive financial support to the defendant. The financial support apparently proffered to the defendant by Doughkyo Operations provided no proper comfort to the defendant and should be disregarded in any assessment of the solvency of the defendant. There was no evidence that the defendant otherwise had the ability to meet a liability of $132,000. That being so, if the defendant did owe a current debt of $132,000 to the plaintiff, it is insolvent.

  3. There is an open question about whether it is necessary on an application under s 459S for the defendant to establish it would be solvent if the debt does not exist or it is sufficient that it establish that it might be solvent if the debt is not owed. The former is described as the “the strict approach” of Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37 at [53]-[56] while the latter has been described as the “broader approach” and is often associated with the decision of White J in Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113 at [48]: see Soundwave Festival v Altered State at [36]-[38]; Vangory Holdings at [26]-[33]; Re Kong & Kong Property Investment Pty Ltd [2025] NSWSC 290 at [24]-[30].

  4. It is unnecessary to delve into the two approaches in order to consider whether there is a divergence and, if so, what approach should be followed in this case. That is because the s 459S leave application in this case was (unusually) heard at the same time as the winding up application. For the purposes of the application to wind up the defendant in insolvency, the Court would presume the defendant is insolvent because it failed to comply with a statutory demand: s 459C(2)(a). That would be true even though the debt relied upon by the plaintiff is not the debt that was the subject of the statutory demand: see WAM Active v Keybridge Capital at [136]. If it came to it, it was for the defendant to prove that it is not insolvent. For this purpose, the defendant would be required to establish that it is solvent, and this would have required it to demonstrate that it would be solvent if the claimed debt of $132,000 (or $180,000) did not exist. This, in effect, would involve an application of the so-called strict approach.

  5. The plaintiff contended that the defendant had failed to discharge this onus. It relied on the proposition that in order to discharge the onus, the Court should ordinarily be presented with the “fullest and best” material in support of the defendant’s case: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J, and that unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163 at [16]. It was submitted that what was required was something equivalent to an audit.

  6. The financial information relied on by the defendant in this case was meagre. It relied on special purpose financial statements for the defendant for the year ended 30 June 2024, prepared by Mr Hsien, an external accountant. Very little weight can be placed on that report given its age and, more significantly, given that Mr Hsien relied solely on the director, Mrs Bi, for the information in the report and Mrs Bi has not signed the statements or otherwise supported them.

  7. The plaintiff submitted that the defendant’s evidence indicated that:

  1. the defendant does not have any trading or investment activities, nor any employees and does not own any properties or have any fixed assets;

  2. the defendant’s operating profit since its inception has been “nil”;

  3. since its inception, the defendant’s activity has primarily involved holding leases “on behalf of” a related entity;

  4. in addition to the (former) lease that was the subject of the dispute with the plaintiff, the defendant held two other leases, which have been transferred to related entities; and

  5. the balance sheet does not contain any reference to any liability to the plaintiff.

I accept these submissions.

  1. The defendant relied on its internal accounting statements, namely a balance sheet as at 31 May 2025 and a profit and loss statement for the period from July 2024 to May 2025. The balance sheet shows total current assets of $114,928.41 (mainly comprising a term deposit with the National Australia Bank) and current liabilities of $114,828.41. That is a liability to a related entity. The total shareholder’s equity is $100. The profit and loss statement shows a gross profit of $852.14 (being interest) and net earnings of $0.

  2. Thus, while it may be said that the financial information relied on by the defendant is meagre, it is also apparent that the defendant is a very simple company. It is not a trading company. Putting aside any debt to the plaintiff, its only debt is to a related company and it has sufficient funds in a bank account to pay that debt. The character of the evidence required to establish solvency will depend on the character of the company under scrutiny. In a case such as this one, far less is required compared with a trading company or a company that has other external creditors.

  3. I am satisfied that if there is no debt owed to the plaintiff (be it the $132,000 or the $180,000), then the defendant is solvent. If there is a debt (be it $132,000 or $180,000), the defendant is insolvent.

  4. For these reasons, I would have granted leave to the defendant under s 459S to rely on the ground that the debt of $132,000 is disputed.

  5. The plaintiff accepted that if it got to the point of a grant of leave under s 459S, if leave were granted, I would accept that there is a genuine dispute about the debt, which would have the consequence that the petition to wind the defendant up would fail, because Courts do not wind up companies at the suit of people whose debts are in dispute. This might be an oversimplification having regard to observations in various cases, including Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; [1999] NSWSC 15 at [41]. In Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (receivers and managers appointed) (2011) 244 CLR 1; [2011] HCA 18 at [28], the Court observed as follows:

Under the present statutory scheme, where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption. This may be contrasted with the position which formerly pertained, where the presumption that a company was unable to pay its debts could not arise if the debt the subject of the demand was shown to be the subject of a genuine dispute of substance.

A question might have arisen about whether the defendant at the winding up application, in circumstances where there was a presumption of insolvency, would rebut that presumption merely by establishing that the debt was the subject of a genuine dispute. However, that is all moot because the genuine dispute means that the plaintiff does not have standing in the first place.

The result

  1. The winding up application is based on an alleged debt of $180,000 under the binding heads of agreement. I have concluded that there is a genuine dispute about this debt, with the consequence that the plaintiff does not have standing to bring the application to wind up the defendant on the basis of that debt. The basis for the genuine dispute is that the plaintiff may have made an election to pursue the alleged debt of $132,000 in respect of unpaid rent (as well as a costs order in the Federal Court) instead of the debt for $180,000. The debt of $132,000 was the subject of a statutory demand which was not set aside, and would give rise to a presumption of insolvency. That debt could not be challenged on the basis of matters the defendant could have relied on to challenge the statutory demand but did not do so, except with leave. But it is not a debt that the plaintiff propounds in this Court as an existing debt that it seeks to recover as a creditor. That stands in the way of its application to wind up the defendant.

  2. If I dismiss the plaintiff’s application, it will be free to take whatever steps are open to it to seek to recover either the $180,000 or the $132,000 together with costs from the Federal Court proceedings. It will lose the benefit of the presumption of insolvency arising from the failure of the defendant to comply with the statutory demand (see s 459C). That statutory demand will become stale. The practical effect will be to give to the defendant the opportunity to raise the defences it wishes to raise in respect of the debt of $132,000, if the plaintiff pursues that debt. That strikes me as a just outcome in circumstances where the plaintiff has adopted inconsistent positions.

  3. There is a strong policy evident in the statutory scheme that companies should be wound up when insolvent and should not continue to trade. In this case, the defendant is presumed to be insolvent, but only because it failed to apply to set aside the statutory time one day earlier than it did. I have accepted that there is a genuine dispute about the debt of $180,000 and the alternative debt of $132,000. In those circumstances it is by no means obvious that it is insolvent. Furthermore, the risks of the defendant trading while insolvent are lessened given that it does not have a recent history of trading. There is also a policy in the scheme that winding up applications should be disposed of in a speedy fashion and not on the basis of material that is stale: see s 459R and Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2002) 194 ALR 138; [2002] NSWSC 851 at [9]. In this case, there was an extension of the time period of 6 months for the determination of this application to 31 July 2025. A further extension would be hard to justify. While the Court has power to adjourn the hearing of the winding up application (see s 467(1)), I do not consider that is an appropriate course in this case.

  4. The appropriate order is that the winding up application is dismissed. In those circumstances, the defendant does not require any relief that it seeks by its amended interlocutory process and so it can be dismissed.

  5. The defendant has been successful. Costs would ordinarily follow the event: see UCPR r 42.1. The parties should have an opportunity to address me on costs if they wish to do so.

  6. I make the following orders:

  1. The Originating Process is dismissed.

  2. The Amended Interlocutory Process is dismissed.

  3. The parties are to advise my Associate by 5pm on 4 July 2025 as to whether they wish to be heard as to costs, failing which there will be an order that the plaintiff is to pay the defendant’s costs of both applications.

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Decision last updated: 27 June 2025

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