The Kart Centre Pty Ltd v Bullsbrook Capital Pty Ltd as trustee for the Athena Trust - [2021] WASC 105

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   THE KART CENTRE PTY LTD -v- BULLSBROOK CAPITAL PTY LTD AS TRUSTEE FOR THE ATHENA TRUST [2021] WASC 105
CORAM:   ACTING MASTER STRK
HEARD:   22 JULY 2020
DELIVERED          :   14 APRIL 2021
PUBLISHED           :   14 APRIL 2021
FILE NO/S:   COR 101 of 2019
BETWEEN:   THE KART CENTRE PTY LTD
First Plaintiff
ANDREW NOEL FREEMAN
Second Plaintiff
AND
BULLSBROOK CAPITAL PTY LTD AS TRUSTEE FOR THE ATHENA TRUST
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Genuine dispute - Some other reason to set aside statutory demand - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application granted
Statutory demand set aside

Category: B

Representation:

Counsel:

First Plaintiff	:	P A Martino
Second Plaintiff	:	P A Martino
Defendant	:	C K Pearce

Solicitors:

First Plaintiff	:	P A Martino
Second Plaintiff	:	P A Martino
Defendant	:	Blackwall Legal LLP

Case(s) referred to in decision(s):

Barboutis v The Kart Centre Pty Ltd [2019] WASC 353
Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234
Meales Concrete Pumping Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2015] VSC 594
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1966] NSWSC 199; (1996) ACSR 746
Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467
Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204
Tay Bok Choon v Tahanson Sdn Bhd [1987] 1 WLR 413

ACTING MASTER STRK:

This is an application by Kart Centre Pty Ltd (Company), pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand dated 10 April 2019 was issued by Bullsbrook Capital Pty Ltd ATF the Athena Trust (Bullsbrook), and served on the Company on the same date. The Company's application to set aside the statutory demand was made within 21 days.
For the reasons that follow, I propose to make an order setting aside the statutory demand. In these reasons, I deal with the following matters:
1.the application by the second plaintiff;
2.the materials before the court;
3.the background facts;
4.the issues;
5.whether there is a genuine dispute;
6.whether there is some other reason to set aside the statutory demand; and
7.conclusion and orders.

The application by the second plaintiff

The originating process named Andrew Noel Freeman as the second plaintiff. Mr Freeman is the director of the Company.
The application was filed at a time when there was some controversy as to who were directors of the Company. To the extent that Mr Freeman was not authorised to instruct solicitors to bring the application on behalf of the Company, the originating process included an application by Mr Freeman for leave pursuant to the Corporations Act s 237 to bring the application.
The notice of appearance filed on behalf of Bullsbrook on 9 May 2019 gave notice that Bullsbrook intended to oppose the application to set aside the statutory demand on grounds which included the following:
iii.the solicitors on the record for the First Plaintiff do not represent the First Plaintiff and are not properly engaged by the First Plaintiff and the application is thereby not properly made.
At the hearing of the application, no issue as to authority was agitated on behalf of Bullsbrook. The application by Mr Freeman for leave was not pressed and the application proceeded on the basis that it was pressed by the Company only.[1] For completeness, I note that I have dealt with the application made by the Company, and not by Mr Freeman with leave.
[1] ts 35 (22 July 2020). See also the Company's submissions par 1.

The materials before the court

The Company's application was supported by four affidavits: the affidavit of Mr Freeman, the director of the Company and the second plaintiff, sworn and filed on 1 May 2019; a second affidavit of Mr Freeman sworn and filed on 1 May 2019 (described as the 'further affidavit' of Mr Freeman); a third affidavit of Mr Freeman sworn and filed on 9 June 2020; and the affidavit of Paula Annette Martino, solicitor for the Company, sworn and filed on 7 July 2020.
In Mr Freeman's third affidavit, Mr Freeman referred to another proceeding that had been commenced in this court (being COR 73 of 2019), in which Bullsbrook and Colin John Barboutis applied to wind up the Company. Mr Freeman annexed to his third affidavit six affidavits filed in COR 73 of 2019, together with a number of documents that had been annexed to those affidavits. Mr Freeman also affirmed the statements of fact made by him in his affidavits sworn on 18 April 2019 and 21 May 2019 and filed in COR 73 of 2019, and by reference, sought to incorporate those statements of fact as if deposed to in full by him in an affidavit sworn for the purpose of and filed in this proceeding.
Considerable documentary evidence was filed on behalf of the Company. A significant amount of the affidavit material was not referred to by counsel for the Company in the written or oral submissions made in support of the application.
The Company relied upon submissions filed on 9 June 2020. The submissions filed on behalf of the Company on 21 May 2019 were not pressed. The earlier submissions set out the response of the Company and Mr Freeman to par iii of Bullsbrook's notice of appearance, reproduced at [5] above. As noted above, the issue of authority was not a live one at the hearing of this application.
On behalf of Bullsbrook, the affidavit of Christopher Kingsley Pearce was sworn and filed on 23 June 2020. Submissions were also filed on 23 June 2020.
All five affidavits were read at the hearing. There was no cross‑examination of the deponents. The allegations made in the affidavits filed on behalf of the Company were not sought to be denied through opposing affidavits. The circumstances did not call for the approach in Tay Bok Choon v Tahanson Sdn Bhd [1987] 1 WLR 413 to be applied.
Counsel for the applicant and the respondent asked the court to have regard to and sought to rely upon the factual findings made by Acting Master Whitby in Barboutis v The Kart Centre Pty Ltd [2019] WASC 353 and by the Court of Appeal in the determination of the appeal of the master's decision in Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41.

Background facts

The following summary of the background to the application is not controversial. In the main, the following facts are recorded at [9] of the Court of Appeal's reasons in Barboutis v The Kart Centre Pty Ltd [No 2] and were also deposed to by Mr Freeman in his first affidavit filed in this proceeding.
Mr Freeman and Mr Barboutis formed the Company so as to pursue a business venture involving indoor go kart racing and entertainment.
The Company was incorporated on 1 September 2016.
The initial shareholders of the Company were:
(a)Rilyla Pty Ltd (ACN 127 768 825) as trustee for the Freeman Family trust (Rilyla) (associated with Mr Freeman); and
(b)Bullsbrook (associated with Mr Barboutis).
Each entity held 150 ordinary shares in the Company.
On incorporation the directors of the Company were Mr Barboutis' son, Nicholas Barboutis, and Mr Freeman. (So as to avoid confusion with his father, in these reasons I refer to Nicholas Barboutis by his first name only. No disrespect is intended.) Mr Freeman has remained a director at all times. On 14 December 2016 a change to company details Form 484 was lodged with the Australian Securities & Investments Commission (ASIC). The form recorded that Nicholas had been replaced as a director by Mr Barboutis.
In December 2016 Bullsbrook and Rilyla entered into a Shareholders Agreement. Annexed to the first affidavit of Mr Freeman at 'ANF5' is a copy of the Shareholders Agreement. Among other things, the Shareholders Agreement provided for the board of directors (cl 5), funding (cl 10) and a dispute resolution mechanism (cl 16). Importantly, the Shareholders Agreement provided that its provisions would prevail over any inconsistent articles in the Company's constitution. The shareholders also agreed that the constitution would be amended to remove any inconsistency with the Shareholders Agreement (cl 30).
Mr Barboutis and Mr Freeman caused various amounts to be paid to the Company. However, the proper legal characterisation of these amounts was in dispute. So too there was a dispute between the parties as to which entity or entities contributed money to the Company.
There was a breakdown in the relationship between Mr Barboutis and Mr Freeman. The reasons for that were unimportant to the proper disposition of the application to wind up the Company. (Thoe reasons are also unimportant to the proper disposition of this application.)
On 16 March 2018 Bullsbrook and Rilyla entered into a Share Sale Agreement whereby Rilyla agreed to purchase Bullsbrook's 150 shares in the Company for a purchase price of $227,500. Annexed to the first affidavit of Mr Freeman at 'ANF7' is a copy of Share Sale Agreement.
At least $202,500 of the $227,500 was paid. There was a dispute between the parties as to whether the remaining $25,000 had been paid. There was also a dispute as to whether the Share Sale Agreement had completed. Moreover, Bullsbrook had contended that it validly terminated the Share Sale Agreement on 16 August 2018 (at a time when Bullsbrook was deregistered).
On 26 March 2019 Bullsbrook issued a letter of demand to the Company for $243,835.97, said by Bullsbrook to be the balance of an outstanding loan account due by the Company to Bullsbrook. A copy of the letter of demand was annexed to the first affidavit of Mr Freeman at 'ANF12'. The Company did not pay the amount claimed.
On 5 April 2019 Mr Barboutis and Bullsbrook made an application for orders pursuant to s 459P and s 461(1)(k) of the Corporations Act for the Company to be wound up on the ground of insolvency, or alternatively, on the ground that it was just and equitable to wind up the Company. It was claimed that the directors of the Company were deadlocked in the day to day management of the Company and the Company was unable to pay its debts as and when they fell due. (The proceeding was COR 73 of 2019.)
On 10 April 2019, the statutory demand sought to be set aside in this proceeding was served on the Company. A copy of the statutory demand and the affidavit of Mr Barboutis which accompanied the statutory demand are annexed to the first affidavit of Mr Freeman at 'ANF13'. The debt claimed was the same amount as had been demanded on 26 March 2019, being the amount of $243,835.97. The debt was described in the schedule to the statutory demand as follows:
The balance owed to the Creditor by the Company pursuant to a loan advanced from the Creditor to the Company in or about December 2016.
The originating process to set aside the statutory demand was filed on 1 May 2019 and an appearance filed on behalf of Bullsbrook on 9 May 2019. Following an unsuccessful mediation, the application to set aside the statutory demand was adjourned sine die while the application to wind up the Company in insolvency or on just and equitable grounds was prosecuted.
The application made by Mr Barboutis and Bullsbrook to wind up the Company was dismissed by the master. An appeal of the master's decision was also dismissed. Following the disposition of the appeal, the application to set aside the statutory demand was programmed for hearing.

The findings in the winding up proceeding

The Company seeks to rely on findings made in the winding up proceeding, particularly those summarised below.
In determining the winding up application, when addressing the standing of Mr Barboutis and Bullsbrook, the master found that Mr Barboutis was not a director of the Company,[2] and that Bullsbrook was not a creditor of the Company.[3] These findings, among others, were appealed.
[2] Barboutis v The Kart Centre Pty Ltd [39], [47], [89], [102(a)], [105], [108], [111], as noted in Barboutis v The Kart Centre Pty Ltd[No 2] [20], footnote 14.
[3] Barboutis v The Kart Centre Pty Ltd [61] - [62], [76(a)], [81], [109], as noted in Barboutis v The Kart Centre Pty Ltd[No 2] [20], footnote 15.
The Court of Appeal determined that the master:
(a)was correct to conclude that Mr Barboutis and Bullsbrook had not discharged their onus so far as it was necessary for Mr Barboutis and Bullsbrook to prove that Mr Barboutis was validly appointed as a director;[4] and
(b)should have upheld that Bullsbrook was a creditor of the Company, as the contributions in the form of 'start-up capital' were by way of loan as opposed to an investment of capital.[5]

Repayment terms

[4] Barboutis v The Kart Centre Pty Ltd[No 2] [84].

[5] Barboutis v The Kart Centre Pty Ltd[No 2] [111] for the reasons set out at [86] - [111].

In finding that Bullsbrook was a creditor of the Company, it was necessary for the Court of Appeal to consider the repayment terms of the debt.[6] The Court of Appeal found that there was a bona fide dispute on substantial grounds as to the terms of repayment of Bullsbrook's cash contributions to the Company. It is appropriate to set out in full the reasons of the Court of Appeal in this regard:
[6] Barboutis v The Kart Centre Pty Ltd[No 2] [112].
113 A loan of money is repayable on demand in the absence of agreement to the contrary as to the terms of repayment. When the evidence is considered as a whole this is a case where, in our view, there is a serious question to be tried as to whether Bullsbrook's debt was repayable on demand. When regard is had to the evidence before the court there are other available possibilities which might be found to be the relevant repayment term once the issue is considered more fully at a trial where the evidence is properly presented and interrogated. For example, the loan might only be repayable on reasonable notice. Alternatively, when regard is had to cl 12.7 of the Shareholders Agreement, it might be that - absent agreement between the shareholders - repayment need only occur on a transfer of Bullsbrook's shares (at a time when the share transferee must provide an equivalent loan thereby providing the Company with the means to pay the debt). Accordingly, while, for the reasons already given, the debt itself was not disputed bona fide on substantial grounds, the matters relied on by the respondents do, in our view, give rise to a bona fide dispute on substantial grounds as to the terms of repayment of Bullsbrook's cash contributions to the Company - specifically whether, as implicitly contended for by the appellants, the debt is repayable on demand.
114The following three matters, especially when considered collectively, demonstrate that there is a serious question to be tried as to the terms of repayment of Bullsbrook's loan to the Company in circumstances where roughly equivalent loans were made to the Company by its two shareholders so as to provide for the Company's initial funding requirements:
1.First, Mr Barboutis' and Mr Freeman's common account that the cash contributions were in the nature of 'working capital' or 'start-up capital'. Those descriptions, while consistent with a transaction by way of loan in the absence of any share subscriptions, are inconsistent with the contributions being repayable on demand. That understanding is broadly consistent with the more general tenor of Mr Freeman's affidavit evidence as to the contributions being capital contributions not loans - they were 'not loans' in the sense of being repayable on demand.
2.Second, the cash contributions were applied to the substantial costs involved in fitting-out the Company's premises and the construction of the Company's indoor racing track. The contributions followed a budget for such start-up costs and discussions between the representatives of the two shareholders to contribute funds to provide working or start-up capital to meet those budgeted costs. The nature of the outgoings to which the funding from its shareholders was applied, and the Company's nascent business and lack of other available resources, belies an objective intention that the funding so provided was to be repayable on demand. The Company was not going to be in a position to bring about repayment on demand. The commercial reality of the Company's financial position and its incorporators' business plan is inconsistent with an intention that one of the shareholders could unilaterally require repayment of its loan on demand.
3.Third, the cash contributions were made in the context of cl 12.7 of the Shareholders Agreement. That clause contemplated shareholder loans to the Company being repaid on a shareholder realising its capital investment in the Company, ie on transfer of the outgoing shareholder's shares in the Company to a replacement shareholder. Moreover, as the incoming shareholder was to put the Company in funds to bring about repayment of the loan to the outgoing shareholder, the repayment would not adversely affect the Company's cash flow or solvency. Nor would it require the Company to have to seek external borrowings from a third-party credit provider to effect repayment of the outgoing shareholder.
115The last matter is particularly significant. It does more than manifest an arguable objective intention that the Company was to have an available resource to meet the loans from the shareholders. It is consistent with an objective intention - itself to be expected in a two shareholder quasi-partnership company such as the Company - that the shareholders will contribute and maintain proportionate contributions to the Company's funding requirements. That objective intention is also manifest in cl 10 of the Shareholders Agreement (see in particular cl 10.1 and cl 10.7.1). If shareholder loans were repayable on demand the expectation of equivalency manifested in cl 10 and cl 12.7 of the Shareholders Agreement would become illusory.
116Mention has already been made of the unsatisfactory state of the evidence given the way in which the parties chose to conduct the hearing before the master. There was no cross-examination of Mr Barboutis or Mr Freeman as to the circumstances of the 'start-up' cash contributions. In circumstances where the repayment term is a matter of inference or implication from the evidence - and there are unresolved disputes on the limited available evidence as between Mr Barboutis and Mr Freeman ‑ the position is analogous to that which prevails where factual allegations made on affidavit are credibly denied. The winding-up application must proceed on the basis that the appellants have not established that Bullsbrook's loan to the Company is repayable on demand - and, moreover, that it has not been established that the loan is presently due and payable.
117This conclusion means that, contrary to the finding of the master, Bullsbrook had standing as a creditor to apply to wind-up the Company in insolvency. However, as it was not established that the loan was due and payable, Bullsbrook was a prospective creditor and required leave to make application. [Footnotes omitted.]

No finding as to whether Bullsbrook remained a shareholder

Bullsbrook had also contended that it had standing to bring the application to wind up the Company as a contributory. However, the master stopped short of finding that Bullsbrook remained the holder of shares in the Company. As noted by the Court of Appeal at [21] ‑ [22]:
21.In circumstances where Rilyla (the putative purchaser of shares from Bullsbrook) was not a party to the proceedings the master determined that it was not appropriate for her to determine the issues that arose in relation to the Share Sale Agreement. The master contented herself with a finding that there was a serious question to be tried as to whether or not Bullsbrook held shares in the Company.
22.Accordingly, there was no finding that Bullsbrook was a contributory. The failure to make that finding was not challenged on appeal. There being no finding that Bullsbrook was a member of the Company, and no challenge to the absence of such a finding, the appeal must proceed on the basis that Bullsbrook does not have standing to apply for a winding-up order on the basis that it is a contributory. [Footnotes omitted.]

The issues

The submissions advanced on behalf of the Company in this proceeding give rise to the following issues.
First, whether the court ought to be satisfied that there is a genuine dispute between the Company and Bullsbrook about the existence of a debt to which the demand relates, and if the debt does exist, whether it is due and payable.
Secondly, whether there is some other reason why the statutory demand should be set aside. In this regard, whether the issue of the statutory demand was lacking in good faith or an abuse of process.
There was no discernible contest as between the parties as to the principles to be applied in determining the application. It is on that basis that I deal with each issue in turn below.

Genuine dispute

The first substantive question to be determined is whether the court is satisfied that there is a genuine dispute between the Company and Bullsbrook about the existence or amount of a debt to which the statutory demand relates. In this application, the Company bears the onus of establishing that there is a genuine dispute.
As to the applicable legal principles, I refer to the decision of Martin CJ in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [43] ‑ [46]. For present purposes, I note that the Company must establish a plausible contention which requires investigation. The Company must establish that the disputed issue is bona fide and truly exists in fact, and the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived. As was observed in Createc, 'it is also well established that the only function of the court is to determine whether there is a genuine dispute - the court is not expected to undertake an extended enquiry nor attempt to weigh the merits of the dispute'.[7]

Is there a genuine dispute as to the existence of the debt?

The Company's position

[7] Createc Pty Ltd v Design Signs Pty Ltd [46], citing Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 295.

The Company contends that there is a genuine dispute concerning the existence of the debt because the Company would be paid and/or discharged by Bullsbrook's completion of the Share Sale Agreement.[8] I note that the contention is relied upon by the Company as a basis for relief under s 459H(1)(a) and s 459J(1)(b) of the Corporations Act. I have considered the contention through the lens of s 459H(1)(a). The submissions made on behalf of the Company in this regard are reproduced below.
[8] Company's submissions filed 9 June 2020 par 2(a).
14.There is a genuine dispute as to the existence of the debt on the following basis:-
(a)There is a serious question to be tried as to the terms of the repayment of Bullsbrook's loan by the [Company] in circumstances where equivalent loans were made to the [Company] by its two shareholders. In particular clause 12.7 of the shareholders agreement contemplates that shareholders loans to the company are repaid on a shareholder realising its capital investment in the company, that is, on transfer of the outgoing shares in the company to a replacement shareholder;
(b)There is an arguable objective intention that the [Company] was to have an available resource to meet loans from the shareholders. It is consistent with an objective intention that the shareholders will contribute and maintain proportionate contributions to the [Company's] funding requirements;
(c)Mr Freeman's evidence states that he paid the initial investment capital for the company of $230,000.00. Bullsbrook paid its initial investment capital over a number of months;
(d)An agreement was reached regarding Bullsbrook receiving its capital investment on transfer of its shareholding to Mr Freeman's entity;
(e)Payments under the agreement were made during the period 23 March 2018 to 8 November 2018 inclusive;
(f)The share sale agreement has been performed by Mr Freeman and his related entity Rilya (sic). Bullsbrook has not performed the share sale agreement (by issuing the relevant transfer notice and share transfer form as required by the shareholders agreement and constitution) nor returned any of the purchase price or the go kart trailer and maintains it continues to be a shareholder retaining the 150 ordinary shares in the [Company];
(g)Clause 12.7 of the shareholders agreement provides that unless all the other shareholders agree, no transfer of shares will be effective, unless the conditions stated in clause 12.7 are satisfied. This includes at clause 12.7.3 all loans to the company from the shareholder transferring its shares are repaid in full and replaced by loans from the transferee to the company;
(h)Clause 12.1(b) of the constitution to the [Company] provides that a transfer of shares must be in the form in schedule 1, signed by the transferor and the transferee and approved by the directors.17 Clauses 12.3 and 12.5 state that Bullsbrook remains the shareholder until a transfer is registered that transfer having been properly signed by Bullsbrook and properly witnessed.
15.There is a serious question to be tried as to whether the debt exists given that the completion of the transfer in accordance with the terms of the share sale agreement rests with the signing and delivery of a share transfer by Bullsbrook. [Footnotes omitted.]

Bullsbrook's position

In summary, Bullsbrook's position is that the evidence adduced on behalf of the Company is self‑serving and inconsistent; the Company's arguments about legal construction have changed to suit its own story; and there is no genuine dispute about whether the debt exists (or about whether it is due and payable).[9]
[9] Bullsbrook's submissions par 5.
Further, Bullsbrook contends that a finding of there being a genuine dispute as to the existence of the debt would be inconsistent with the finding of the Court of Appeal in Barboutis v The Kart Centre Pty Ltd [No 2]. The submission was expressed as follows.[10]
[10] Summarised from Bullsbrook's submissions par 6, 9 ‑ 11; ts 22 (22 July 2020).
The Court of Appeal found that a debt exists.
The master did not determine whether the Share Sale Agreement had completed and whether or not Bullsbrook owned shares in the Company. The Court of Appeal noted that finding and did not interfere with it.
That the Court of Appeal still found that there was no doubt the debt existed means that the Company's construction cannot be accepted. The natural corollary of the Court of Appeal's finding is that whether or not the Share Sale Agreement had completed, the debt existed. That is, the completion of the Share Sale Agreement cannot have had the effect of constituting repayment of the debt.
Bullsbrook contends that these matters are determinative of the Company's contention that there is a genuine dispute that the debt exists. That is, in the circumstances, it cannot be said that there is a genuine dispute that the debt does not exist.

Disposition - is there a genuine dispute that the debt exists?

As to whether there is a genuine dispute that the debt exists, I find as follows.
First, the amount claimed and described as the debt in the statutory demand is capable of being a debt for the purposes of a statutory demand.
The term 'debt' is not defined in the Corporations Act, and for the purposes of s 459E of the Corporations Act the term bears its common law meaning.[11] There is no issue as between the parties that the debt claimed in the statutory demand falls within the common law meaning of the term and is capable of being a debt for the purposes of a statutory demand. What is in issue is whether, in the circumstances, there is a genuine dispute as to the present existence of the debt, and if it does exist, whether there is a genuine dispute that it is due and payable.
[11] HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234 [27] ‑ [28], as discussed in Meales Concrete Pumping Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2015] VSC 594 [30] ‑ [40].
Secondly, Bullsbrook is a creditor of the Company. The cash contributions in the form of 'start-up capital' have been found to have been made by way of loan as opposed to an investment of capital.[12]
[12] Barboutis v The Kart Centre Pty Ltd[No 2] [111] for the reasons set out at [86] ‑ [111].
Thirdly, the Share Sale Agreement is silent to the cash contributions made by the shareholders. It contains no provision concerning the status of the loan at completion, whereupon Rilyla is to be the holder of 100% of the shares in the Company. As to the cash contributions, the Company is not a party to the agreement and the agreement does not provide for repayment, extinguishment or otherwise of the loan.
Fourthly, the Shareholder Agreement does not provide for the extinguishment of shareholder loans upon a transfer of shares. Rather, the Shareholders Agreement contemplates repayment of all loans to the Company from the shareholder transferring its shares to be repaid in full and replaced by loans from the transferee to the Company. Repayment and replacement of all loans to the Company from a shareholder transferring its shares is but one condition that must be satisfied for a transfer of shares to be effective.[13]
[13] Clause 12.7 of the Shareholders Agreement, annexed to the first affidavit of Mr Freeman at 'ANF5'.
None of these matters support a finding that there is a genuine dispute as to the existence of the debt.
At first blush, the contention that there is a genuine dispute as to the existence of the debt is difficult to reconcile with the finding of the Court of Appeal that Bullsbrook is a creditor of the Company. However, the submission advanced on behalf of the Company at the hearing was grounded on an implicit acceptance of the Court of Appeal's finding that the cash contributions made by Bullsbrook in the form of 'start-up capital' were by way of loan as opposed to an investment of capital, and therefore Bullsbrook is a creditor of the Company. As noted above, the Company contends that there is a genuine dispute as to whether the debt exists because the Company would be paid and/or discharged by Bullsbrook's completion of the Share Sale Agreement.[14] It does not contend that the terms of the Share Sale Agreement alone achieves the same.
[14] Company's submissions par 2(a).
I understand that at the crux of the Company's submission is the contention that Mr Freeman and Mr Barboutis agreed that by Mr Freeman buying out Mr Barboutis' shares in the Company, Mr Barboutis' capital investment of approximately $250,000 would be repaid, less the value of a trailer.
The evidentiary foundation for the contention is Mr Freeman's first affidavit at par 79 to 89 inclusive, reproduced below:
79.Over a couple of months, Colin and I discussed the terms of me buying him out of the Company, which we did verbally and by exchange of text messages.
80.Colin initially wanted $500,000 in me buying him out, but I refused as it was still a new business that was not yet making money and I could not afford it.
81.I proposed to pay Colin what he had invested being approximately $250,000.
82.On 11 February 2018 Colin and I exchanged text messages regarding that matter.
83.Following that exchange we reached a verbal agreement that in me buying him out, I would repay him his approximate $250,000 capital investment less the value of the Company's go kart trailer which was approximately $23,000 and he would take the Company's go kart trailer.
84.Colin and I met at the same coffee shop in or around 16 March 2018 to sign a share sale agreement Colin had drafted in relation to our agreement that I buy him out.
85. I understood the share sale agreement to restate the terms that Colin and I had already agreed but in a fuller and more precise way, save for Colin adding that he wanted to have access and use to the workshop.
86.Colin presented me with the share sale agreement at the coffee shop which had already been signed by Nicholas.
87. Colin and I agreed to amend the share sale agreement to allow more time to pay the deposit and the balance, which was done by hand and Colin and I initialled.
88.I signed the share sale agreement and took a copy.
89.Attached and marked 'ANF7' is a true copy of the share sale agreement.
At par 113 of Mr Freeman's first affidavit, he deposes to his belief that the alleged debt under the statutory demand does not exist by reason of the following:
(a)The alleged debt involves Colin's investment capital which was not a loan to the Company and is not otherwise owed to Colin (or Bullsbrook Capital);
(b)If Colin's capital contribution was not an investment but a loan, it was settled as part of the share sale agreement.
The primary contention cannot be maintained in light of the findings of the Court of Appeal. (Mr Freeman's first affidavit was sworn prior to the delivery of the decisions of the master and the Court of Appeal concerning the winding up application.) It is only the alternative contention which is now pressed on behalf of the Company.
As noted above, the Share Sale Agreement contains no provision for the repayment or extinguishment of the loan at completion of the Share Sale Agreement. The Company does not contend that it does. Given that Mr Freeman's evidence for the purpose of the winding up application was he and Mr Barboutis' capital contributions were not properly characterised as loans,[15] it is not surprising that Mr Freeman did not refer to Bullsbrook's capital contributions at the time as loans. Mr Freeman however does depose to having entered into a verbal agreement concerning the capital contributions. That is, Mr Freeman's evidence is that he and Mr Barboutis agreed that by Mr Freeman buying out Mr Barboutis' shares in the Company, Mr Barboutis' capital investment of approximately $250,000 would be repaid, less the value of a trailer.[16]
[15] Barboutis v The Kart Centre Pty Ltd [53(b)(viii) and (x)].
[16] The first affidavit of Mr Freeman par 83.
I have weighed the following in the balance. First, Mr Freeman's evidence as to the verbal agreement and the fact that it is not contradicted. It is not sought to be denied through opposing affidavits. Further, there is evidence of screenshots of text messages between Mr Freeman and Mr Barboutis to support the same.[17] Secondly, Mr Freeman has sworn a number of affidavits where he deposes to the verbal agreement.[18] The existence of the alleged agreement was not only raised in response to the statutory demand. Thirdly, I have had regard to the form of Mr Freeman's evidence as to the conversations he had with Mr Barboutis and the agreement he says was reached. In particular, I note that on Mr Freeman’s account of the conversations, the participants did not make clear when they intended to speak in their capacity as directors of Rilyla and Bullsbrook respectively, or when they intended to speak in their capacity as directors of the Company (as they both understood themselves to be). Such casualness of expression is not uncommon and I do not view it to be fatal to the contention pressed by the Company when determining whether there is a plausible contention which requires investigation.
[17] The third affidavit of Mr Freeman, par 7, 'ANF7'.
[18] The affidavit of Mr Freeman sworn 18 April 2019 for the purpose of winding up proceeding par 36, 37, the affidavit being annexure 'ANF2' to the third affidavit of Mr Freeman sworn and filed on 9 June 2020 for the purpose of this application. See also the affidavit of Mr Freeman sworn on 21 May 2019 for the purpose of the winding up proceeding par 107 - 118, the affidavit being annexure 'ANF5' to the third affidavit of Mr Freeman sworn and filed on 9 June 2020 for the purpose of this application.
The subjective intentions and belief of Mr Freeman must be put to one side. Having done so, on Mr Freeman's evidence I find that the Company has done more than merely raise the dispute. On balance, I find that objectively there is a dispute the genuineness of which is capable of being assessed, and I perceive it to be genuine. In considering the evidence before me, I find that the evidence does not support a finding that the dispute is spurious.
In addition to Mr Freeman's evidence, I have had regard to the following.
First, that there has been a dispute between the parties as to whether the Share Sale Agreement had been completed. On the evidence, completion of the Share Sale Agreement has not been acknowledged or accepted by Mr Barboutis or Bullsbrook.[19]
[19] ts 22 (22 July 2020); first affidavit of Mr Freeman par 94, 95 and 104; third affidavit of Mr Freeman par 35; Barboutis v The Kart Centre Pty Ltd [91], [94]; and Barboutis v The Kart Centre Pty Ltd [No 2] [9(8)].
Secondly, there remains a serious question to be tried as to whether or not Bullsbrook continues to hold shares in the Company. These are matters which I discuss in more detail below.
All of these matters together provide a cogent foundation to find that there is a genuine dispute as to the existence of the debt.
I go no further than to find that the genuine dispute exists in fact, and do not seek to resolve it, nor attempt to predict its outcome. At a minimum, there is a plausible contention requiring investigation.
I do not accept the submission made on behalf of Bullsbrook that the findings of the Court of Appeal preclude a finding that there is a genuine dispute as to the existence of the debt.
The Court of Appeal found that the cash contributions made by Bullsbrook were properly characterised as loans as opposed to investments of capital. However, the Court of Appeal also found that it had not been established that Bullsbrook's loan to the Company was repayable on demand - and, moreover, that it had not been established that the loan was due and payable.[20] It did so without determining whether or not Bullsbrook continues to hold shares in the Company.
[20] Barboutis v The Kart Centre Pty Ltd[No 2] [116].
The findings of the Court of Appeal are not inconsistent with the finding now sought by the Company - that there is a genuine dispute as to the existence of the debt by reason of a verbal agreement to the effect that the Company would be paid and/or the loan discharged upon Bullsbrook's completion of the Share Sale Agreement, in circumstances where there is a dispute between the parties that the Share Sale Agreement has been completed and there remains a serious question to be tried as to whether or not Bullsbrook continues to hold shares in the Company.
The master and the Court of Appeal were concerned with an application to wind up the Company. They were tasked with considering and determining the issues raised on that application. There was no full exploration of the conversations concerning the 'start-up capital', and how the parties conducted their affairs.[21] The manner in which the winding up application was prosecuted and defended affected what inferences or implications that properly may be drawn in the determination of that application. It also informs the appropriateness of drawing inferences from reasons for decision, and applying those inferences to the determination of issues that were not before the master or the Court of Appeal.
[21] Barboutis v The Kart Centre Pty Ltd[No 2] [105].
For these reasons, I find that the Company has satisfied the onus of establishing a genuine dispute and that it is appropriate that the statutory demand be set aside. Mr Freeman's evidence identifies a dispute which, when viewed in the whole of the circumstances emerging from the evidence, reveals a plausible answer to the demand requiring investigation, which has been pressed in good faith and not merely constructed in response to the statutory demand.

Is there a genuine dispute that the debt is due and payable?

Where a genuine dispute as to the existence of the debt is established, it follows that there is a genuine dispute that the debt is due and payable. However, I now turn to consider whether there is a genuine dispute that the debt is due and payable on some other basis.

The Company contends that if the debt exists, there is a genuine dispute as to whether it is due and payable. The contention is again relied upon by the Company as a basis for relief under s 459H(1)(a) and s 459J(1)(b) of the Corporations Act. The authorities make clear that a statutory demand that relies on, or includes, a debt that is not yet due for payment may be set aside, although the case law differs as to whether such an order may be made under s 459H or s 459J of the Corporations Act.[22] If appropriately pressed under s 459J, the appropriate provision may be s 459J(1)(a).[23] However, I ahve considered the contention through the lens of s 459H(1)(a).
[22] Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467 [41].
[23] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1966] NSWSC 199; (1996) ACSR 746.
The Company contends that there is a serious question to be tried as to whether the loan provided by Bullsbrook to the Company is repayable on demand, and also whether the loan is presently due and payable. The Company seeks to rely on the findings of the Court of Appeal in the winding up proceeding, particularly the findings at [113] - [116].[24]
[24] Company's submissions par 18, footnote 19.
Bullsbrook contends that the effect of the Court of Appeal's finding is that on the basis of the evidence before the court at that time, there was a question whether the debt was repayable at that time because either:
(a)there may be a reasonable notice requirement; or
(b)the debt may only be repayable upon the sale by Bullsbrook of its shares.[25]
[25] Bullsbrook's submissions par 14.
Bullsbrook submits that the difficulty with that characterisation for the Company now is that:
(a)it has been a considerable period since the demand was served (satisfying any reasonable notice requirement); and
(b)on any reasonable construction of Mr Freeman's evidence, the Company cannot argue that Bullsbrook has not sold its shares.[26]
[26] Bullsbrook's submissions par 15.
On the question as to whether the share sale has been concluded, Bullsbrook submits that Mr Freeman's evidence has changed from time to time, but he has always maintained either that Bullsbrook's sale of shares had completed or that the only thing required for completion was the execution of a transfer.[27]
[27] Bullsbrook's submissions par 16.
At par 18 of the submissions filed on behalf of Bullsbrook, it is submitted that:
On a proper interpretation of the Court of Appeal's findings in respect of the Debt, completion of the Share Sale Agreement is the latest possible date on which the shareholder loan could be due and payable. [Footnote omitted.]

Disposition - is there a genuine dispute that the debt is due and payable?

First, I do not accept the submission made on behalf of Bullbrook at par 18 of the submissions filed (reproduced above), in that I do not accept that the findings of the Court of Appeal go as far as submitted on behalf of Bullsbrook.
At [113], the Court of Appeal found that when the evidence was considered as a whole, this was a case where there was a serious question to be tried as to whether Bullsbrook's debt was repayable on demand.
The Court of Appeal went on to observe that when regard was had to the evidence before the court, there are other available possibilities which might be found to be the relevant repayment term once the issue is considered more fully at trial where the evidence can be properly presented and interrogated. Two options were identified by way of example:
… For example, the loan might only be repayable on reasonable notice. Alternatively, when regard is had to cl 12.7 of the Shareholders Agreement, it might be that - absent agreement between the shareholders - repayment need only occur on a transfer of Bullsbrook's shares (at a time when the share transferee must provide an equivalent loan thereby providing the Company with the means to pay the debt).
They were cast as examples only. The clear finding of the Court of Appeal was that the winding up application had to proceed on the basis that Mr Barboutis and Bullsbrook had not established that Bullsbrook's loan to the Company was repayable on demand - and, moreover, that it had not been established that the loan was presently due and payable.[28]
[28] Barboutis v The Kart Centre Pty Ltd[No 2] [116].
Secondly, if the completion of the Share Sale Agreement is the latest possible date on which the loan could be due and payable, there remains a serious question to be tried as to whether the Share Sale Agreement has completed, and whether Bullsbrook is a shareholder of the Company.
In dispute is whether the full consideration under the Share Sale Agreement has been paid to Bullsbrook by Rilyla. At least $202,500 of the $227,500 was paid. In issue is whether the remaining $25,000 had been paid.[29] There is no evidence that this controversy has been resolved. At the hearing of the application, counsel for Bullsbrook pressed that the status of the Share Sale Agreement was not a matter which informed the determination of the application.[30] No concession was made that the Share Sale Agreement had completed. Having regard to the evidence before me, it is not possible to conclude that there is no plausible contention which requires investigation as to whether the Share Sale Agreement has completed and whether Bullsbrook is a shareholder of the Company.
[29] Barboutis v The Kart Centre Pty Ltd [No 2] [9(8)]; and the third affidavit of Freeman at p 17, referred to at [14], [23] and [24] above.
[30] ts 26 (22 July 2020).
Having regard to all of the circumstances emerging from the evidence, I understand that there is an unresolved dispute between the parties as to whether the Share Sale Agreement has completed. Mr Barboutis had contended in the application to wind up the Company that the Share Sale Agreement was still on foot until 16 August 2018.[31] On the evidence, completion of the Share Sale Agreement has not been acknowledged or accepted by Bullsbrook.
[31] Barboutis v The Kart Centre Pty Ltd [91].
The Share Sale Agreement at par 7.1.2 provides that the Vendor (Bullsbrook) must, among other things, deliver to the Purchaser (Rilyla) a fully executed Share Transfer Form in the form of sch 1 to that agreement. No such form has been provided by Bullsbrook to Rilyla.[32]
[32] The first affidavit of Mr Freeman par 104; the third affidavit of Mr Freeman par 30 - 35.
Mr Freeman caused ASIC on two occasions to be informed of a share transfer by Bullsbrook to Rilyla. On 14 April 2020, Mr Freeman signed and filed a second notice of the share transfer with ASIC.
Mr Pearce deposes to having conducted a search of the ASIC register on 23 June 2020. Annexed to Mr Pearce's affidavit at 'CKP1' is a current and historical extract of the records of the Company. The document records that Rilyla as being the sole shareholder of the Company. Mr Pearce also deposed to having caused a Form 484N (Change to Company Details Changes to (Members) Share Holdings) filed on 14 April 2020 to be extracted from the ASIC register. It record that Bullsbrook is said to have transferred its entire shareholding in the Company to Rilyla on 15 May 2018.[33]
[33] Affidavit of CK Pearce 'CKP2'.
The statements in the ASIC searches are prima facie evidence of a transfer of shareholding in the company by Bullsbrook to Rilyla. However, as noted above, there is evidence to the contrary.[34]
[34] Barboutis v The Kart Centre Pty Ltd [No 2] [9(8)]; and the third affidavit of Freeman at p 17, referred to at [14], [23] and [24] above. See also the matters set out at [85] - [87].
Given Mr Freeman's actions and the assertions he has made over time, Bullsbrook submits as follows.[35]
17.Whilst there has been an ongoing dispute between the parties about the status of the Share Sale Agreement, the only apparent interpretation of Mr Freeman's and the Company's position is either:
(a) that the Share Sale Agreement has completed and the shares have been transferred; or
(b)instead that the only remaining obligation under the Share Sale Agreement is the transfer by Bullsbrook of its shares in the Company.
[35] Bullsbrook’s submissions par 17.
Mr Freeman's belief that Bullsbrook's shares have been sold, and that there had been completion under the Share Sale Agreement is not determinative of the matter.
I find that on the evidence before me there remains a bona fide dispute on substantial grounds as to the terms of repayment of Bullsbrook's cash contributions to the Company.
There is a genuine dispute as to whether the debt is repayable on demand and that it is presently due and payable.

Some other reason to set aside the statutory demand

On behalf of the Company, it is also contended that it was unconscionable, alternatively there was an absence of good faith, alternatively it was an abuse of process on the part of Bullsbrook to issue the statutory demand in circumstances where:[36]
i.Bullsbrook has not completed the share sale agreement by signing and returning a share transfer and issue of a transfer notice (thereby Bullsbrook asserting that it remains a shareholder). Further Bullsbrook has retained monies under the share sale agreement which monies discharged the debt the subject of the Creditor's Statutory Demand (section 459J(1)(b) of the Act); and
ii.Bullsbrook held the belief at the time of serving the creditor's statutory demand that the company could not challenge the creditor's statutory demand as Bullsbrook's director was one of the two directors of the company.
[36] Company's submissions par 2(c)(i) ‑ (ii).
On behalf of the Company, it was also submitted that the statutory demand was issued for the purpose of ultimately securing the business from a liquidator without the need to resolve the underlying issues in the Share Sale Agreement.[37]
[37] Company's submissions par 31 and 32, referring to ts 10 and 11 (23 May 2019) in COR 73 of 2019 found in the third affidavit of Mr Freeman at pages 174 - 175.
I have given careful consideration to the three matters raised. It is well recognised that it is an abuse of process to initiate winding up proceedings to enforce payment of a disputed debt.[38] While I have concluded that there is a genuine dispute as to whether the debt exists and is due and payable, I am not persuaded that the evidence as a whole reveals on the part of Bullsbrook unconscionability, a lack of good faith or an abuse of process. On the evidence, the three matters raised do not support an order being made under s 459J(1)(b) or otherwise.
[38] Createc Pty Ltd v Design Signs Pty Ltd [47], citing Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204.
There remain issues in dispute between the parties. I make the observation that the issues may be more effectively ventilated and more readily determined in a forum where the decision maker has the benefit of the cross‑examination of witnesses.

Conclusion and orders

For these reasons, the application should be granted and an order made setting aside the statutory demand. I will hear the parties as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to Principal Registrar Strk
14 APRIL 2021