In the matter of Macarthur Projects Pty Limited

[2021] NSWSC 1563

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Macarthur Projects Pty Limited [2021] NSWSC 1563

Hearing dates:

24 November 2021

Date of orders:

24 November 2021

Decision date:

24 November 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Creditor’s statutory demands set aside. Defendants to pay the costs of the application.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Genuine dispute about existence or amount of debt — Where there exists a dispute as to the character of certain amounts paid — Whether the amounts paid were in the nature of loans — Where the determination of that question would require the court to make a merits decision.

Legislation Cited:

- Corporations Act 2001 (Cth), ss 206D, 459H

Cases Cited:

- Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344

- Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300

- Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60

- Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330

- Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896

- Re Savemore Wholesale Pty Ltd [2021] NSWSC 307

- Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680

- Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; (1997) 147 ALR 444; (1997) 24 ACSR 353; (1997) 15 ACLC 1001; [1997] FCA 681

Category:

Principal judgment

Parties:

Macarthur Projects Pty Ltd (Plaintiff)
Menangle Pty Ltd (First Defendant)
Macquarie Constructions Group Pty Ltd (Second Defendant)
Thomas Cardinal (Third Defendant)

Representation:

Counsel:
P Beazley (Solicitor) (Plaintiff)
A Jordan (Defendants)

Solicitors:
Beazley Lawyers (Plaintiff)
Macquarie Infrastructure Group (Defendants)

File Number(s):

2021/245746

Judgment – ex tempore (Revised 26 November 2021)

Nature of the application

1. By Originating Process filed on 27 August 2021, the Plaintiff, Macarthur Projects Pty Ltd (“Macarthur”) applies to set aside three statutory demands dated 9 August 2021 issued by the First, Second and Third Defendants, Menangle Pty Limited (“MPL”), Macquarie Constructions Group Pty Ltd ("MCG") and Mr Thomas Cardinal, who has also previously been known as Mr Tao Zhu and Mr Peter Zhu. Mr Cardinal has been bankrupt since 11 November 2011 and, it appears, is currently an undischarged bankrupt, although it appears that he may have brought an application to set aside that bankruptcy which has not yet been determined.

2. The first creditor's statutory demand issued by MPL claims the amount of $400,000, identified as a loan to Macarthur on 17 June 2020 in the amount of $400,000. There is no dispute that a payment of that amount was made by MPL to Macarthur on that date, although there is a question whether it had the character of a loan and, if so, when it was repayable. I recognise that the payment is described in a payment description entered in bank records by MPL, as payer, as "loan to Macarthur", but that is, of course, no more than the characterisation that MPL sought to give to the transaction.

3. The creditor's statutory demand issued by MPL is verified by an affidavit of Mr Cardinal, which indicates that he was at relevant times the sole director of MPL, notwithstanding that he was disqualified by his bankruptcy from acting in that role under s 206D of the Corporations Act 2001 (Cth) and that he was the person who, on behalf of MPL, had the dealings with Macarthur that gave rise to the debt. He refers to a conversation which appears to indicate little as to the character of the debt, and then affirms that the total of the amount of the debt is due and payable and that he has a belief that there is no genuine dispute about it.

4. The second creditor's statutory demand issued by MCG to Macarthur claims three loans made on 23 December 2020 in the sum of $50,000, on 23 December 2020 in the sum of $200,000 and on 27 January 2021 in the sum of $150,000. The first of these transactions was recorded in the payment description entered by MCG on bank records as a loan, but I have referred to the nature of such a description above; the second was not described as a loan, but by a more obscure description, referring to a payment "partly Reform or developer", the reference to "Reform" being to the project manager on a development project in Gosford, New South Wales, conducted by another company, The Gosford Pty Ltd (“TGPL”); and the third also refers to a payment to that project manager "for developer". This demand is again verified by an affidavit of Mr Cardinal, which again indicates he was the sole director of MCG at all relevant times, notwithstanding the statutory prohibition on his occupying that position while an undischarged bankrupt, and indicates that he had the dealings for MCG with Macarthur which gave rise to the demand.

5. The third demand was issued by Mr Cardinal personally to Macarthur and refers to an amount of $340,000, described as loans made on 18 April 2019 in the sum of $5,000, on 10 March 2020 in the sum of $100,000, on 6 April 2020 in the sum of $200,000 and on 18 June 2020 in the sum of $35,000. These transactions are again described, in Mr Cardinal's description reflected in bank records, as being loans. The affidavit refers to Mr Cardinal being the creditor and having the dealings with Macarthur that gave rise to the debt, refers to the same conversation to which I referred above, and again claims the amount of the debts is due and payable and refers to his belief that there is no genuine dispute about the existence or the amount of them.

Affidavit evidence

6. Macarthur in turn relies on the affidavit dated 27 August 2021 of Mr Gregory Walker, who is a director of Macarthur, and refers to an agreement dated 18 March 2020, which I recognise is dated after the first two payments by Mr Cardinal of $5,000 and $100,000 respectively. That agreement takes the form of an email from Mr Walker to Mr Cardinal, which appears to be signed by both of the parties, and records that Mr Cardinal personally will "give" to Mr Walker or his nominee a $5 million service fee, as an introduction fee to a new building entity owned by Shinetec, a builder which appears to be associated with Mr Cardinal, in respect of TGPL’s Gosford. That amount is in turn split, in that email, between an amount of $1 million payable on the signing of the letter of appointment by TGPL appointing Shinetec as head contractor for the project and $4 million to be paid over the next ten months in equal monthly instalments, with a further $35,000 per month to be paid for 20 months after the $5 million has been paid, and a $100,000 loan to Mr Walker when the appointment of Shinetec is made (which is recorded as having already taken place) but to be repaid to Mr Cardinal from the first $400,000 payment. The legal status of that arrangement is perhaps uncertain, so far as involves a payment promised by Mr Cardinal to Mr Walker personally in respect of TGPL's entry into a construction contract with Shinetec, apparently to induce the entry into that contract. For present purposes, its relevance is that it provides a possible alternative explanation, on which Mr Beazley, who appears for Macarthur relies, for payments made by Mr Cardinal or other entities associated with him to Mr Walker or entities associated with Mr Walker, either as part of the $100,000 loan to Mr Walker, or the subsequent $5 million described as the introduction fees payable by Mr Cardinal to Mr Walker in respect of TGPL’s contract with Shinetec.

7. Menangle, MCG and Mr Cardinal, in turn rely on Mr Cardinal's affidavit sworn 30 September 2020 which provides a lengthy account of events again indicating that, despite the prohibition under s 206D of the Act, Mr Cardinal was the sole director of MGL and MCG at all relevant times and that he had the dealings with Macarthur that gave rise to the relevant debts. He refers to the background to the parties' dealings in respect of the Gosford development site, and sets out a series of conversations in respect of that site, and the appointment of Shinetec as builder in respect of that site but, notably, does not identify any document which comprises a written record of any loan agreement in respect of any payments made by Mr Cardinal, MPL or MCG to Macarthur. Mr Jordan, who appeared for MPL, MCG and Mr Cardinal in respect of the application, was also unable to identify any such written agreement in submissions, although he referred to the payment descriptions inserted on the relevant payments by the payer, to which I referred above.

8. Macarthur in turn relies on a lengthy affidavit dated 27 October 2021 of Mr Walker in reply which takes issue with much of the evidence of conversations given by Mr Cardinal, and refers to disputed arrangements in respect of the Gosford project, including claims that Shinetec was overpaid in respect of the limited work done on that project, which it is not necessary to address in respect of this application. Mr Walker there referred to a further email dated 27 October 2021 from Mr Cardinal to Mr Walker, which referred to payments of $400,000, $200,000 to Reform and $50,000 to Mr Walker made on 23 December 2020, and a further payment to Reform made on 27 January 2021, which appear together comprise the amount claimed in the creditor's statutory demand issued by MCG to Macarthur. That email is, on its face, consistent either with the possibility of a loan or with payments having been made in accordance with the arrangements set out in the email dated 18 March 2020 to which I referred above. That affidavit also refers to other aspects of the contract in respect of the Gosford project to be constructed by Shinetec for TGPL, including loan and security agreements in respect of that project.

Applicable principles

9. With that background, the application to set aside the relevant demands does not identify the basis on which it is brought, but at least appears to be based on the claim that there is a genuine dispute as to the demands for the purposes of s 459H(1)(a) of the Act, which is the primary basis of Mr Beazley's submission that the demands should be set aside. The relevant principles are, of course, well-established and I have drawn on my summary of them in Re Savemore Wholesale Pty Ltd [2021] NSWSC 307 at [22]ff in the description of them which follows. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; (1997) 24 ACSR 353; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high and, in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J observed that:

“Once the company chose 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 the case apparently available to be advanced against the company seems stronger.”

10. In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [46], the Court of Appeal in turn conducted a comprehensive review of the cases referable to whether a genuine dispute was established, and noted that the evidence required "need not conclusively prove or otherwise be incontrovertible or substantially non-contestable” and that:

“In determining whether there is evidence of a genuine dispute as to the debt...except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application.”

11. The Court of Appeal also noted (at [47]) that the court's role, in such an application, was to determine whether there was "plausible evidence" to establish the existence of a genuine dispute, "not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim".

12. A similar approach has been taken in my judgment in Re Wollongong Coal Limited (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], approved by Barrett AJA in the Court of Appeal in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], and subsequently by the Court of Appeal in Creata (Aust) Pty Ltd v Faull [2017] 125 ACSR 212; [2017] NSWCA 300 and in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60.

Determination

13. It seems to me that the proper understanding of those principles, combined with the reference to the evidence to which I have referred above, establishes a genuine dispute in respect of the debts claimed, of the most basic and simplest kind. There is plainly some evidence that is capable of supporting a characterisation of the payments as debts, or loans, namely the description of them made by the payer in the bank records at the time they were paid. There is other evidence which is capable of supporting a contrary view, including the email dated 18 March 2020 which refers to the arrangement for the payment of amounts personally by Mr Cardinal to Mr Walker, and the later email dated 27 October 2021 is equivocal as to those matters. The affidavit evidence of Mr Walker and Mr Cardinal are in dispute as to most of the relevant conversations, and there is no loan agreement providing any contemporaneous record of the loans, if they were in fact loans rather than payments in accordance with the 18 March email. I recognise that, as Mr Jordan pointed out, two payments were made prior to that email, but it seems to me that little turns upon that, where the extent of dispute as to the arrangements generally, and the factual uncertainty arising from the lack of contemporaneous documentation in respect of payments, gives rise to dispute as to the nature of the transactions generally and not only as to the payments made after the 18 March email.

14. Here, it seems to me that there is a genuine dispute as to the relevant transactions, because they may have been loans; they may or may not have been repayable on demand; they may have been payments made under the arrangement for payments by Mr Cardinal personally to Mr Walker or his nominee, in consideration of, or in order to induce, the appointment of Shinetec as the builder in respect of the Gosford project; and it is impossible for the Court to determine the character of those payments, without a detailed enquiry on the merits. A creditor's statutory demand will be set aside, where there is a dispute that requires a determination of that character, so that that dispute may in turn be determined in a court having a merits jurisdiction to deal with it. It may be that MPL, MCG or Mr Cardinal will ultimately prevail in such a determination, on the merits, but that is not reason that the creditor's statutory demand should be permitted to stand, where the issues are genuinely in dispute, depriving Macarthur of an opportunity to defend those claims on the merits.

Two alternative bases to set aside the demands

15. For completeness, Mr Beazley also developed two alternative bases to set aside the creditor's statutory demands, which it is not necessary to determine where I am comfortably satisfied that a genuine dispute exists in respect of the claims and debts, for the reasons set out above. The first was the "standing" of Mr Cardinal to issue the relevant creditor's statutory demands. That claim was at least arguable, in respect of the creditor's statutory demand issued by Mr Cardinal personally, and arises from the fact that Mr Cardinal has been since 2011, and remains, an undischarged bankrupt. In those circumstances, there is plainly a seriously arguable case that any rights which Mr Cardinal has in respect of the relevant transaction are vested in the trustee in bankruptcy, although there was also a debate, which it is not necessary to resolve, as to any potential application of s 126 of the Bankruptcy Act 1966 (Cth), and the extent to which it preserved dealings by an undischarged bankrupt in respect of after-acquired property, and for whose benefit. Of course, both parties might have difficulty in relying on that section, so far as it requires a transaction to have occurred "in good faith" as well as "for valuable consideration", and the transactions to which I have referred above may or may not be capable of satisfying the good faith requirement. It is not necessary to decide whether that section applies in the relevant circumstances.

16. The argument as to standing in respect of the demands issued by MCG and MPL was more complex, and it turned on the proposition that Mr Cardinal was the ultimate controller of, or shareholder in, those companies, through an intermediate entity. That may not be sufficient to deprive those companies of standing to issue the relevant demands, even if the benefits of any payment made pursuant to the demands, in order to avoid a presumption of insolvency arising, would then be for the benefit of the trustee in bankruptcy, at least, to the extent that Mr Cardinal had the ultimate economic interest in the shares. It is not necessary to determine that question, given that I have found that the debts are genuinely disputed in any case.

17. Mr Beazley raised a third challenge to the demands, presumably under s 459J of the Corporations Act on the basis that there was either a defect in the affidavits supporting the demands, or some other reason to set aside the demands, so far as the verifying affidavits were affirmed by Mr Cardinal. Rule 5.2(b) of the Supreme Court (Corporations) Rules requires that such an affidavit be made by the creditor or by a person with the authority of the creditor or creditors. There was a potential difficulty with any authority provided by MPL and MCG to Mr Cardinal in respect of the recovery of the debts, namely that he was disqualified from acting as a director of those companies or being involved in their management by s 206B of the Act. There was also potentially a wider difficulty, where the matters on which Mr Cardinal relied in order to show his knowledge of the transactions also depended on his contraventions of s 206B of the Act, so far as he claimed to be the sole director of the companies at the relevant time and had the dealings with Macarthur that gave rise to the debt, at the same time as he was disqualified from managing MPL and MCG by s 206B of the Act. It is again not necessary to determine whether that involved noncompliance with the rules, so far as the verifying affidavit was concerned, or gave rise to some other reason to set aside the creditor's statutory demands under s 459J of the Act, given the findings that I have reached above in respect of a genuine dispute.

Orders

18. For these reasons, I am satisfied that orders should be made setting aside the demands, with costs, and I make the following orders:

1. The creditor's statutory demands dated 9 August 2021, issued by each of Menangle Pty Ltd, Macquarie Constructions Group Pty Ltd and Mr Thomas Cardinal to Macarthur Projects Pty Ltd be set aside.

2. The Defendants pay the costs of the application, as assessed or as agreed.

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Decision last updated: 02 December 2021