Re Pegasus Capital Management Pty Ltd

[2011] NSWSC 570

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Pegasus Capital Management Pty Limited ACN 132 512 755 [2011] NSWSC 570
Hearing dates:	14 June 2011
Decision date:	15 June 2011
Jurisdiction:	Equity Division - Corporations List
Before:	Ball J
Decision:	The defendant's interlocutory process filed on 6 June 2011 be dismissed with costs.
Catchwords:	CORPORATIONS - failure to make application to set aside statutory demand - no satisfactory explanation for failure - winding up proceedings - application under s 459S to rely on issues that could have been raised on application to set aside statutory demand - no evidence of relevance of contested amount to solvency - application dismissed
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 DAG International Pty Ltd v DAG International Group Pty Ltd [2005] NSWSC 1036 Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113 Perpetual Nominee Ltd v NA Investments Holdings Pty Ltd [2011] NSWSC 282
Category:	Procedural and other rulings
Parties:	Infinitum Combats DPA Pty Ltd (ACN 143 380 714) (Plaintiff) Pegasus Capital Management Pty Ltd (ACN 132 512 755) (Defendant)
Representation:	E C Muston (Plaintiff) J T Johnson (Defendant) Swaab Attorneys (Plaintiff) Koffels Pty Ltd (Defendant)
File Number(s):	2011/158381

Judgment

1. This is an application by Pegasus Capital Management Pty Ltd, which is the subject of a winding up application brought by Infinitum Combats DPA Pty Ltd, for leave pursuant to s 459S of the Corporations Act 2001 (Cth) (the Act ) to oppose the winding up application on grounds that it could have raised in an application under s 459G of the Act to set aside the statutory demand on which the winding up application is based.

1. The statutory demand was served on 19 April 2011. In it, Infinitum claimed an amount of $69,000, which is said to be due under a loan agreement dated 26 July 2010 between Pegasus and Infinitum.

1. The loan agreement was clearly not drawn up by lawyers. It is expressed to be an "unsecured floating charge over the Debtor Company". The interest rate was said to be "Zero % up to and including 31 August 2010 and thereafter a minimum of 8% per annum". The purpose of the loan was expressed to be for the provision of "temporary finance of working capital requirements in lieu of fees". Mr Sam Novak, the husband of Mrs Nicola Novak, the sole director and shareholder of Pegasus, swore an affidavit in which he gave evidence that he agreed with Mr Richard Storey of Infinitum that the loan was a prepayment of the estimated amount payable by Infinitum to Pegasus for the provision by Pegasus to Infinitum of offices and support staff.

1. Mr Novak also gives evidence in his affidavit that on or about 10 May 2011 he instructed Pegasus's solicitor to file an application under s 459G of the Act to set aside the statutory demand. That application was filed on 11 May 2011 and served on the same day on the solicitors for Infinitum. The following day, Pegasus's solicitor informed Mr Novak that the last day for service of the application was 10 May 2011.

1. Section 459S of the Act 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 the 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. It is accepted that s 459S raises three issues:

(i) whether there is a serious question to be tried on the ground sought now to be raised;

(ii) the sufficiency of any explanation as to why that ground was not raised in an application to set aside the statutory demand (involving an evaluation of the reasonableness of the conduct of the debtor at the time when the application was or might have been made); or

(iii) whether the court is satisfied that the relevant ground is material to proving that the debtor is solvent.

See Perpetual Nominee Ltd v NA Investments Holdings Pty Ltd [2011] NSWSC 282 at [33] per Ward J, referring to Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 at [49] and DAG International Pty Ltd v DAG International Group Pty Ltd [2005] NSWSC 1036 at [5] per Brereton J. See also Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113 at [6] per White J.

1. Mr Muston, who appeared for Infinitum, did not seek to argue that there was not a serious question to be tried in relation to the grounds now sought to be raised - that is, that Pegasus was not liable for the debt claimed by Infinitum because the amount advanced by Infinitum was a prepayment for services that ultimately were provided by Pegasus. However, Mr Muston submitted that no explanation had been given for why Pegasus had served its application to set aside the statutory demand out of time and for that reason, the court, in its discretion, should refuse to make an order under s 459S. Mr Muston also submitted that there was no evidence from which the court could be satisfied that the relevant ground was material to proving that Pegasus is solvent. Consequently, Pegasus had not satisfied the requirements of s 459S(2).

1. I accept both Mr Muston's submissions.

1. The only explanation Pegasus has given for not raising the ground in an application to set aside the statutory demand was that it filed its application to set aside the demand a day late. However, it gives no explanation for how that came about. In particular, Mr Novak does not, for example, suggest that he miscalculated the 21 days or that there was a misunderstanding about the date on which the statutory demand was served. It is for Pegasus to prove that the circumstances warrant making an order under s 459S. The court should not make such an order lightly. As Austin J said in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd at [40], the power granted by s 459S should be used "cautiously and even sparingly given the overall policy of Pt 5.4". In my opinion, Pegasus has not discharged the onus it bears in circumstances where it has given no explanation at all for not making the application to set aside the statutory demand within the prescribed 21 days.

1. As to the question whether the ground is material to proving that Pegasus is solvent, there is a difference of opinion on what is meant by "material" in this context. The narrower view is that "material" means "determinative". Most recently, that interpretation was preferred in this court by Ward J in Perpetual Nominee Ltd v NA Investment Holdings Pty Ltd at [58]ff. The broader view is that "material" requires something less. Most recently, the broader approach was adopted in this court by White J in Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) at [22]ff .

1. It is not necessary for me to express a view on this difference of opinion. Whatever test is adopted, the result is the same. Pegasus has led no evidence at all on the relevance of the contested amount to its solvency. In those circumstances, it has not satisfied the requirement of s 459S.

1. Despite these considerations, Mr Johnson, who appeared for Pegasus, submitted that, in order for Infinitum to have a standing under s 459P to make an application to wind up Pegasus, it must establish that it is a creditor of the company. In Mr Johnson's submission, Infinitum has not done that because it has not established that the $69,000 is owing to it.

1. In my opinion, there is no merit in this argument. Section 459C(2)(a) of the Act provides that the court must presume that a company is insolvent if, during or after the 3 months ending on the day when the application to wind up the company is made, the company failed to comply with a statutory demand. The presumption operates "except so far as the contrary is proved for the purposes of the application": s 459C(3). Clearly, the presumed insolvency arises from the failure to pay the debt the subject of the demand. Section 459H gives a court power to set aside a statutory demand if there is a genuine dispute concerning the debt to which the demand relates or the company has a (genuine) offsetting claim. If no application is made, and subject to the operation of s 459S, the presumption created by s 459C(2)(a) applies. It must follow that the amount that is the subject of the demand is presumed to be owing by the company and the person to whom it is owing is presumed to be a creditor of the company. If it were otherwise, the structure created by Part 5.4, and s 459S in particular, would be pointless, for it would always be open to a company to resist a wind-up application on the basis that that application was brought by a person who was not a creditor, even if that person had served a statutory demand which had not been set aside. That is clearly not what the legislature intended in creating the presumption in s 459C(2) and in including s 459S in the Act.

1. The defendant's interlocutory process filed on 6 June 2011 should be dismissed with costs.

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Decision last updated: 15 June 2011