Moyall Investments Services Pty Ltd v White

[1993] FCA 912

912      9 3

JUDGMENT NO. ........ ........ ., .wmm.m,mm

IN THE FEDERAL COURT OF AUSTRALIA	)
1
VICTORIA DISTRICT REGISTRY	) No VG 3265 of 1993
1
GENERAL DIVISION	1

BETWEEN :  MOYALL INVESTMENTS SERVICES PTY LTD

(Applicant)

AND :	CLYDE PETER WHITE as liauidator of MOYALL PTY LTD [IN LIOUIDATIONL
AND
MOYALL PTY LTD [IN LIOUIDATIONl

(Respondents)

Coram:  Ryan J

Place: Melbourne

Date:

- 8 December 1993

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. That the application be dismissed.

2.    That the applicant pay the costs of the respondents such costs to be taxed in default of agreement.

NOTE:  Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

RECEIVED
10 DEC 1993
FEDERAL COURT ut

AUSTRALIA PRINCIPAL

R , , l , .

IN THE FEDERAL COURT OF AUSTRALIA	) )
VICTORIA DISTRICT REGISTRY	) No VG 3265 of 1993
1
GENERAL DIVISION	)

BETWEEN:  MOYAtL INVESTMENTS SERVICES PTY LTD

(Applicant)

AND:  CLYDE PETER WHITE as liauidator of
MOYALL PTY LTD (IN LIOUIDATIONl
AND
MOYALL PTY LTD (IN LIOUIDATIONl

(Respondents)

Corm:  Ryan J

Place: Melbourne

Date:  8 December 1993

REASONS FOR JUDGMENT

Rvan J: This is an application brought pursuant to s.459G of the Corporations Law for interlocutory relief in which the applicant, Moyall Investment Services Pty Ltd ("MIS"), seeks an order setting aside a statutory demand for payment of debt directed to it. The statutory demand, dated 3 September 1993, was served by Clyde Peter White, as liquidator of Moyall and

Pty Ltd seeks payment of the amount of $70,630.54.

The factual context in which the debt is said to arise is not significantly in dispute. Moyall was, before going into liquidation, one of three companies which together carried on business as providers of accounting and financial services. The other two companies were the applicant and Moyall Financial Services Pty Ltd ("MFS").

MFS conducted business as an agent for insurance companies. MIS, a wholly owned subsidiary of MFS, was a business adviser and also owned and operated a number of H & R Block accounting franchises. Moyall carried on an incorporated accounting practice.

All three companies had common directors, and common shareholders and were administered from the one premises. Moyall provided administrative staff to the other two companies and paid all operating expenses with the exception of outgoings directly related to the H & R Block franchises. Moyall, through its directors and employees, provided accounting services to MIS in relation to the processing and lodgment of tax returns. In return for these services Moyall requested, and was paid, fees, referred to by the parties in these proceedings as management fees. The debt which founds the statutory demand is said by the liquidator to represent outstanding fees due to Moyall. The liquidator has quantified the debt by reference to an entry into the books of account of

Moyall under the heading "Loan Related Companies Unsecured".

The figure of $70,630.54 appearing in that account is also recorded as being owed by MIS to Moyall in a statement of Moyall's affairs dated 2 August 1983 prepared by Mr Robert Boyall as a director of Moyall and provided to M r White.

It is conceded by the applicant that the accounts of Moyall record management fees for the financial year ending 30 June

1992 in the sum of $164,700, and an outstanding debt in the

sum of $70,630.54.

In the present application the applicant contends that the accounts of Moyall do not accurately reflect the amount owed by MIS. Mr Boyall has deposed that:

"Upon a review of the actual servrces rendered by Moyall to MIS for that year [the financial year 1991/92], the estimate and allowance recorded by Moyall was excessive. A reasonable estimate of the commercral value of the services provrded by Moyall by MIS is in fact $86,700. The mere book entries in the Moyall accounts are excessive by a sum of $78,000."

In a supplementary affidavit Mr Boyall has set out how he arrived at his estimate of the commercial value of the services provided by Moyall to MIS. Mr Boyall deposed that the amount payable by MIS ought be reduced by adjusting the allowance for salaries and office expenses based upon his knowledge of the use of staff and resources of Moyall.

In opposition to the application Mr White has deposed as follows :

"20. Having perused the company records of Moyall and the report as

to the affarrs of Moyall submitted by rts directors, I believe

that:

(a)	Moyall had a procedure for calculating and recording the management fees incurred by MIS;
(b)	the procedure referred to in sub-paragraph (a) above comprrsed recording work done on time sheets and the preparation of progress reports which are presently in my possessron;
(c)	the rates used to calculate management fees recorded on the time sheete and the progress reports were the usual rates charged by Moyall for such work done for MIS;
(d)	the management fees incurred by MIS for the year 1991/92 accurately reflect the contents of the time sheets and work in progress reports for that year;
(e)	in January 1993, Moyall wrote off the management fees for

1992/93 in the sum of $117,000 without explanation. This

amount is approximately the same as the amount of management fees incurred for the same period the previous year berng 1 July, 1991to January 1992; and

(f) the books of account of Moyall are a true and correct record of that company's accounts for the year 1991/92."

The time sheets referred to in para 20 of Mr White's affidavit were not in evidence.

The application to set aside the statutory demand is brought pursuant to s.459G of the Corporations Law. That and the following two sections provide:

"459G (1) A company may apply to the Court for an order settrng aside a statutory demand served on the company.

(2) An applrcation may only be made within 21 days after the demand rs so served.

(3) An applrcation rs made m accordance with this sectron only rf, within those 21 days:

(a)	an affidavrt supportrng the application is frled with the Court; and
(b)	a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

459H (1) This section applies where, on an applicatron under section 4590, the Court 1s satisfied of either or both of the following:

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

(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:

Admitted total - Offsetting total:

where:

"Admitted total" means -

(a) the admitted amount of the debt; or

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

as the case requires, to which the demand relates;

"Offsetting total" means:

(a)	rf the Court is satrsfied that the company has only one
offsett~ng c l a ~ m - the amount of that claim; or
(b)	rf the Court 1s satisfied that the company has 2 or more offsetting claims - the total of the amounts of those clarms; or
( C )	otherwise - a nil amount.

( 3 )	If the substantrated amount is less than the statutory mlnimum,
the Court must, by order, set asrde the demand.

(4) If the substantiated amount is at least as great as the

statutory mrnimum, the Court may make an order:

(a)	varying the demand as specrfied in the order; and
(b)	declarrng the demand to have had effect, as so varied, as from when the demand was served on the company.

( 5 ) In this section:

"admitted amount", in relation to a debt, means:

(a)	if the Court is satrsfled that there is a genurne drspute between the company and the respondent about the existence of the debt - a nil amount; or
(b)	rf the Court is satisfred that there rs a genuine dispute between the company and the respondent about the amount of the debt- so much of that amount as the Court is satrsfied is not the subject of such a dispute; or
(c)	otherwrse - the amount of the debt;

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

"respondent" means the person who served the demand on the company.

(6) This sectron has effect subject to section 4595.

4595 (1) on an application under section 4596. the Court may by order set aside the demand if it is satisfied that:

(a)	because of a defect in the demand, substantial injustice wrll be caused unless the demand is set asrde; or
(b)	there is some other reason why the demand should be set aside.

(2) Except as provided rn subsection (l), the Court must not set aside a statutory demand merely because of a defect."

In the present application the applicant assets that a genuine

dispute exists between the applicant and the respondents about

the existence of the debt to which the demand relates. In Mibor Investments Pty Ltd v Commonwealth Bank (unreported Supreme Court Victoria 14 September 1993) Hayne J considered the nature of the exercise required to be undertaken by a court on an application under s.459G. His Honour articulated several matters which he regarded as relevant to the court's consideration:

"First, any applicatron to set aslde a statutory demand must be made very qurckly: it must be made within 21 days. Second, the statute contemplates a summary procedure, the only outcome of whrch will be an order affecting the statutory demand, not any order or judgment declarrng a debt to be owrng or not to be owing or ordering payment of any money sum. Third, the only srgnrficance that the statutory demand has rs that if there is failure to comply wrth it then the company rs deemed to be msolvent. Thus the demand rs no more than a precursor to an applrcatron. For windrng-up m msolvency. Fourth, an applrcation for wrndrng-up in insolvency must be determined within slx months (unless the Court rs satrsfied that specral crrcumstances justrfy an extensron of that time) (s.459R). Fifth, on the hearing of the applrcation to wind up, the company may not oppose the application on grounds that at might have taken in any application to set asrde the demand, unless those grounds are materral to proving that the company is solvent.

These matters, taken in combination, suggest that at least in most cases. rt rs not expected that the Court wrll embark upon any extended rnqurry in order to determine whether there rs a genuine dispute between the partres and certainly wrll not attempt to wergh the merrts of that dispute. All that the legrslation requires is that the Court conclude that there is a dispute and that ~t is a genuine dispute."

I respectfully agree; it is not the role of the Court on

assess its merits. It is sufficient that a genuine dispute be	an application of this kind to adjudicate the dispute nor
identified. However, the applicant bears the onus of establishing that such a dispute exists.
The dispute which the applicant invokes in the present case is said to arise between two companies which, at the relevant time, had a community of interest in that they had common
directorships and shareholdings. There is no suggestion that at the time when the accounts for Moyall were struck there was any influence or lack of knowledge which caused the accounts as between Moyall and MIS to be in error. Indeed, Mr Boyall, who was a director of both Moyall and MIS is a chartered accountant and must have been aware of the significance of the books of account of Moyall and the care which had to be taken to ensure that they accurately reflected the affairs of the company.
Now, after Moyall has been placed in liquidation, the applicant seeks to revisit the books of account in order to establish an error in the entries which had been recorded in relation to MIS. No explanation has been provided as to how the alleged error in the accounts arose; it is merely asserted that upon review there should now be a recalculation. In the present case the question of whether a dispute exists falls to be considered by reference to the circumstances which existed at the time when the accounts were struck. Nothing that has
happened since, other than the opportunity for afterthought prompted no doubt by the appointment of Mr White as
liquidator, was relied on by the applicant as creating a dispute which did not earlier exist. There is no evidence to suggest that had the directors or shareholders turned their minds to the accounts any conflict would have been identified between MIS and Moyall.
It is true that there is no evidence as to how management fees

were t~eated as between Moyall and MIS prior to the 1991/92 financial year. Nor is there evidence as to how MIS dealt with the fees in its books of account. However, as I have observed, the applicant bears the onus in its application under S. 459G and it cannot rely on an absence of evidence from the respondent to make out its case. I also observe that the books of account which are sought to be attacked in these proceedings were prepared by the directors of the applicant. They therefore labour under no disadvantage due to a lack of information or otherwise in seeking to establish an error in the accounts of Moyall which would establish the genuineness of the dispute for which they contend.

I am not satisfied that a genuine dispute exists as between MIS and Moyall and the application must be dismissed with costs.

I certify that this and the preceding seven (7) pages

are a true copy of the

reasons for judgment of his
Honour Mr Justice Ryan

Associate: &-W

Date:

Counsel for the applicants:	Mr A Ryan
Solicitors for the applicants:	David Boyall
Counsel for the respondents:	Mr J Nolan
Solicitors for the respondents:	Lander & Rogers