Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq)

[2004] NSWSC 527

Reported Decision: (2004) 22 ACLC 955

Supreme Court

CITATION:	Tokich Holdings P/L v Sheraton Constructions (NSW) P/L (In Liq)CGU Workers Compensation (NSW) Ltd v Tokich Holdings P/L; Application of Sheraton Constructions (NSW) P/L (In Liq) [2004] NSWSC 527
HEARING DATE(S):	27/05/04, 02/06/04, 04/06/04
JUDGMENT DATE:	21 June 2004
JUDGMENT OF:	White J
DECISION:	In proceedings No. 2447/04: 1. Set aside the statutory demand dated 22 March 2004 served by the defendant on the plaintiff; 2. the defendant pay the plaintiff's costs. In proceedings No. 6104/03: 1. Refuse the application of Sheraton Constructions (NSW) Pty Limited (In Liquidation) that it be substituted as plaintiff on the Originating Process; 2. Sheraton Constructions (NSW) Pty Limited (In Liquidation) pay the defendant's costs of the Interlocutory Process; 3.dismiss the Originating Process with no further orders as to costs.
CATCHWORDS:	Companies - Winding-up application - Statutory demand for payment - Whether a genuine dispute as to existence of debt - Evidence admissible an issue of genuine dispute - Whether grounds of dispute precluded by supporting affidavit - Application to be substituted as creditor - Company presumed to be insolvent but debt genuinely disputed - Substitution refused.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Joint Stock Companies Act 1856 (UK)
CASES CITED:	Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228 John Holland Construction and Engineering Pty Limited v Kilpatrick Green Pty Limited (1994) 14 ACSR 250 Reale Bros Pty Ltd v Reale [2003] NSWSC 666 SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595 Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 Cary v Gerrish (1801) 4 Esp. 9, 170 E.R. 624 Aubert v Walsh (1812) 4 Taunt. 294, 128 E.R. 342 Welch v Seaborn (1816) 1 Stark 474, 171 E.R. 534 Heydon v Perpetual Executors Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111 Joaquin v Hall [1976] VR 788 Jenkins v Wynen [1992] 1 Qd R 40 Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 Coshott v Sakic (1998) 44 NSWLR 667 Energy Equity Corporation Limited v Sinedie Pty Limited (2001) 166 FLR 179 Timely Response to Statutory Demand: Graywinter Revisited, L Aitken & S Armstrong (2003) 77 ALJ 434 Process Machinery Australia Pty Limited v ACN 057 262 590 Pty Ltd (2002) NSWSC 45 POS Media Online Limited v B Family Pty Limited (2003) 21 ACLC 533 Financial Solutions Australasia Pty Limited v Predella Pty Limited (2002) 26 WAR 306; 167 FLR 106 Callite v Adams [2001] NSWSC 52 ACP Syme Magazines Pty Limited v Tri Automotive Components Pty Limited (1997) 74 FCR 372 Paspalis Hotel Investments Pty Limited v Ambir Pty Limited [2003] NTSC 68 QBS Pty Ltd [1967] Qd R 218 Brinds Ltd v Offshore Oil NL (1985) 60 ALJR 185 Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467 State Bank of NSW v Tela Pty Limited (No. 2) (2002) 188 ALR 702 Braams Group Pty Limited v Miric (2002) 44 ACSR 124 Bibby Financial Services Australia Pty Limited v Woolf Industries Australia Pty Limited [2004] NSWSC 134 In re A Private Company [1935] NZLR 120 Niger Merchants Co. v Capper (1877) 18 Ch D 557 The Rydydefed Colliery Co., Glamorganshire Ltd, Ex parte (1858) 3 De G & J 80; 44 E.R. 1199 Mann v Goldstein [1968] 1 WLR 1091 Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258 CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295 Re Bond Corporation Holdings Ltd (1990) WAR; 1 ACSR 350 Taylor Bryant Pty Ltd v Wright Critical Care Pty Ltd (1995) 15 ACSR 564 Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311 Re Synthetic Oils Pty Ltd; Re Australasian High Technology Ventures Pty Ltd (1989) 8 ACLC 95 Tecma Pty ltd v Solah Blue Metal Pty Ltd (1988) 6 ACLC 1, 080 McPherson, The Law of Liquidation, 3 ed (Professor O'Donovan edition) p 63 Kelvingrove (1993) Pty Ltd v Paratoo Pty Ltd (1998) 16 ACLC 964 Beverage Holdings Pty Ltd v Greater Pacific Investments Pty Ltd (1990) 3 ACSR 743 South Eastern Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465; 14 ACLC 1
PARTIES :	Tokich Holdings Pty Limited v Sheraton Constructions (NSW) Pty Limited (In Liquidation) CGU Workers Compensation (NSW) Limited v Tokich Holdings Pty Limited; Application of Sheraton Constructions (NSW) Pty Limited (In Liquidation)
FILE NUMBER(S):	SC 2447/04; 6104/03
COUNSEL:	Pl: D Ash Def: J Johnson
SOLICITORS:	Pl: David Geddes Def: N/A

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 21 June 2004

2447/04 TOKICH HOLDINGS PTY LIMITED v SHERATON CONSTRUCTIONS (NSW) PTY LIMITED (In Liquidation)

6104/03 CGU WORKERS COMPENSATION (NSW) LIMITED v TOKICH HOLDINGS PTY LIMITED; APPLICATION OF SHERATON CONSTRUCTIONS (NSW) PTY LIMITED (In Liquidation)

JUDGMENT

1 HIS HONOUR: These proceedings were heard together.

2 On 3 December 2003, in proceedings No. 6104/03, CGU Workers Compensation (NSW) Limited (“CGU”) applied under s 459P of the Corporations Act 2001 (Cth) for an order that Tokich Holdings Pty Limited (“Tokich Holdings”) be wound up in insolvency. It was common ground that Tokich Holdings had failed to comply with a statutory demand made on it by CGU which required Tokich Holdings to pay CGU the amount of $17,182.83 within 21 days after service of the demand. The demand was dated 21 October 2003.

3 The originating process was returnable before the Registrar on 10 February 2004. It was stood over until 19 February 2004. On that day Tokich Holdings filed a Notice of Appearance in Court and the proceedings were further stood over until 1 April 2004.

4 On 26 March 2004 Sheraton Constructions (NSW) Pty Limited (In Liquidation) (“Sheraton Constructions”) filed a Notice of Intention to Appear at the hearing of the application to wind up Tokich Holdings claiming to be a creditor for $300,000.00.

5 On the same day the solicitors for Sheraton Constructions sent to Tokich Holdings a letter enclosing a creditor’s statutory demand pursuant to s 459E(2)(e) of the Corporations Act. On 16 April 2004 Tokich Holdings filed an application under s 459G of the Corporations Act claiming an order that the statutory demand be set aside. That application was returnable before the Registrar on 18 May 2004. On that date it was stood over to 22 June 2004 and orders were made for the filing of evidence. Those are the proceedings numbered 2447/04.

6 Proceedings number 6104/03 were stood over from 1 April 2004 to 15 April and then stood over again to 6 May, 20 May and 25 May 2004 before the Registrar. On 20 May orders were made by consent of CGU and Tokich Holdings whereby Mr Robert Tokich undertook to pay $11,386.08 to CGU by 5pm on 24 May 2004. The plaintiff undertook to refund any excess payments made and “to dismiss its petition (sic) (subject to any supporting creditors right to substitute) with no order as to costs, upon due payment.”

7 On 25 May 2004 the Registrar ordered that the originating process be dismissed with no orders as to costs. That order was made in the absence of appearance by Sheraton Constructions. The solicitor who had the conduct of the matter was ill on the day and although counsel had been previously instructed in the matter, he was not available because he was appearing before another judge. Counsel for the defendant (Tokich Holdings) attempted to contact counsel for Sheraton Constructions but without success.

8 On 27 May 2004 Sheraton Constructions applied in proceedings 6104/03 to me as Duty Judge for the following interlocutory relief:

“1. That the orders made on 25 May 2004 be set aside pursuant to Part 40 Rule 9 of the Supreme Court Rules .
2. That the Supporting Creditor be substituted as plaintiff pursuant to section 465B of the Corporations Act 2001.
3. That the originating process be extended for a further 6 months.
4. That the proceedings be adjourned to 21 June 2004.

9 The grounds of the application were that Sheraton Constructions had filed a Notice of Intention to Appear and had appeared on four previous occasions before the Registrar to support a winding up order being made.

10 The policy embodied in s 459R of the Corporations Act is that except in special circumstances winding-up proceedings must be determined within six months after commencement. That period expired on 4 June 2004. When the application came before me on 27 May 2004 I thought that the question of whether Sheraton Constructions could be substituted as a creditor where there was a pending application to set aside its statutory demand was one of some difficulty, and that having regard to s 459R it was desirable to expedite the hearing of Tokich Holdings’ application in proceedings 2447/04 and hear both applications before the six month period expired. Accordingly both matters were listed for hearing before me on 2 June 2004 in the Duty Judge list. As a result of frequent interruptions by other business it was necessary to adjourn the proceedings part-heard until 4 June 2004. The hearing concluded on that day which was the last day within which the winding-up application in proceedings 6104/03 could be determined unless an order for extension were made. For reasons which I gave on that day I vacated the Registrar’s order dismissing the application for winding-up of Tokich Holdings so that I could make an order under subs 459R(2). I ordered that the period for determination of that application be extended up to 21 June 2004.

11 The evidence which was led by each party in proceedings 2447/04 was also relied upon by each party in proceedings 6104/03 and is to be taken to have been also read in those proceedings.

Proceedings 2447/04: The Statutory Demand

12 Paragraph 459E(2) of the Corporations Act 2001 requires that a demand served on a company under that section must “specify the debt and its amount”. In its statutory demand Sheraton Constructions (there described as the “Creditor”) described the debt thus:

“By cheque drawn by the creditor on 27 June 2000 on the Commonwealth Bank of Australia account of the creditor to the company being monies had and received by the Company and repayable to the Creditor”.

The amount of the debt was stated to be $300,000.

13 The affidavit accompanying the statutory demand was sworn by Mr Nicols, the liquidator of Sheraton Constructions. He deposed to having inspected the business records of Sheraton Constructions in relation to Tokich Holdings’ account with Sheraton Constructions. He annexed a copy of a cheque dated 27 June 2000 which was drawn payable to Tokich Holdings Pty Limited or bearer in the amount of $300,000. It was drawn by “SHERATON CONSTRUCTIONS (NSW) PTY LIMITED AFT P T UNIT TRUST ACN 080684339”.

14 Mr Nicols also annexed a copy of Sheraton Constructions’ bank statement showing the debiting of that company’s bank account with the amount of the cheque. He deposed that there was no mention of a loan due to Tokich Holdings Pty Limited in the balance sheet.

15 He continued:

“the debt of $300,000 mentioned in the Statutory Demand is due and payable by the Debtor Company as monies had and received by the Debtor Company”.

16 His affidavit conformed with and went further than the requirements of Companies Rule 5.2 and Form 7.

The Supporting Affidavit under s 459G(3)(a)

17 The affidavit supporting Tokich Holdings’ application to set aside the statutory demand was sworn by Mr Robert Tokich. It was filed within the 21 day period allowed by s 459G. Almost all the substantive parts were objected to. In his affidavit of 16 April, 2004 Mr Tokich deposed:

“8. The defendant was a trustee. To the best of my knowledge information and belief, the beneficiaries were myself, the plaintiff and Mr Ivan Posa, as at that time Mr Posa was also interested in the business of property development. At the relevant times I was a director or the defendant and had authority to deal on its behalf. …
9. Sometime ago, I think around 1998, I spoke with my parents Joso and Maria Tokich to the following effect. They would put up a security, a building owned by them at 54 Hoskins Street, Mitchell in the Australian Capital Territory in exchange for a line of credit for me and the plaintiff for property development. The secured creditor would be the Australian Mortgage Company.
10. That line of credit has been used by me and the plaintiff since that time for that purpose.
11. Sometime I think in late 1998 or in 1999 I spotted a development opportunity for two adjoining blocks of land in Bexley and Kogarah in New South Wales.
12. I entered into negotiations with the potential sellers and eventually the defendant entered into an option to buy.
13. The defendant exercised the option. I cannot now recall specifically the details of the settlement….. To the best of my knowledge, information and belief I gave [the defendant’s then solicitor] the relevant directions and authority to arrange for the line of credit to be drawn on to $300,000 for the purpose of the settlement. …
14. The defendant then developed the blocks of land and sold them for a profit. …
15. [After paying out the project lender], there being enough further profit on the project to get out the $300,000 which had gone in at my direction, Mr Posa and I, who were signatories on the defendant’s account, made out a cheque for $300,000 to the plaintiff. This is the cheque referred to in the Statutory Demand served by the defendant.
16. To the best of my knowledge, information and belief the line of credit with Australian Mortgage is open and currently stands at about $550,000 to $600,000.
17. I refer to the document the defendant’s “trial balance as at 30 June 2000” a copy of which is annexure A.
18. Under the heading “Current Liabilities” there is an item “1.94 Loans-Aust Mortgage $300,000 CR”.
19. To the best of my knowledge, information and belief the defendant did not borrow from or have any direct relationship with Australian Mortgage other than as set out above and as set out in the next paragraph.
20. The defendant paid the interest from time to time due on the line of credit while the project was on foot. It did so by direct debit.”

18 Annexed to the affidavit were unsigned financial statements for Sheraton Constructions as trustee of the P & T Unit Trust for the year ended 30 June 2000, and a trial balance as at 30 June 2000. These documents:

a. did not record Tokich Holdings as a debtor of Sheraton Constructions as at 30 June, 2000, at least not by name and not in the amount of $300,000;

b. recorded “Aust Mortgage” as a creditor of Sheraton Constructions for $300,000;

c. stated that in the 12 months to 30 June 2000 Sheraton Constructions derived a trading profit of $663,186 from sales of land, so that after taking into account a trading loss to 30 June 1999 of $76,675 it had derived accumulated profits of $586,511;

d. described the same amount of accumulated profit as a “deficit in trust funds”, apparently as the result of drawings by the beneficiaries as follows:

Tokich Holdings Pty Ltd	$287,390
Trust Nominated by I Posa	$293,256
Robert Tokich	$5,865
$586,511


e. stated that trust capital was $100, being the “settlement sum”;

f. recorded Sheraton Constructions’ assets (in its capacity as trustee of the P & T Unit Trust) as consisting of cash at bank of $138,568 and receivables from “trade debtors” for “units not settled” of $481,571;

g. recorded its liabilities as consisting of debts owed for legal expenses, “PPS Payable”, a loan from R Tokich and a loan from Australian Mortgage.

19 Counsel for Sheraton Constructions submitted that the hearing was a final hearing and that the evidence objected to was inadmissible. In Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452 at 459 Sundberg J described proceedings under s 459G as being for final and not interlocutory relief. I do not need to decide whether that is so or not. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 296-7 Hayne J, when a judge of the Supreme Court of Victoria, held the contrary to be the case because the proceedings did not finally determine any right.

20 However the proceedings are characterised, the issue is not whether Tokich Holdings owes the debt to which the statutory demand relates. The issue is whether there is a genuine dispute about that.

21 I admitted the evidence to which objection was taken. Evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was a genuine dispute about indebtedness. In Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228 at 230, McLelland J (as his Honour then was), when dealing with the admissibility of hearsay evidence on an application for an interlocutory injunction said:

“that evidence which would be objectionable as hearsay on the issue as to whether an alleged fact is true may, nevertheless, be admitted on the issue (1) whether there is a case for investigation as to whether that alleged fact is true, (2) whether there is a real prospect of that alleged fact being found to be true at a final hearing, or (3) whether there is a serious question to be tried at a final hearing as to whether that alleged fact is true.”

22 Although the mere assertion that a debt is denied will be insufficient, evidence in the form of conclusions as to primary facts which would be inadmissible as proof of the relevant facts either pursuant to the opinion rule in s 76 of the Evidence Act, or under s 135 of the Evidence Act, may be admissible as evidence that there is a dispute as to the existence or amount of the debt, and as to whether that dispute is genuine.

23 In John Holland Construction and Engineering Pty Limited v Kilpatrick Green Pty Limited (1994) 14 ACSR 250 Young J (as his Honour then was) said (at 253):

“There may be cases, and indeed it may be the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.
On the other hand, if proof of a claim was required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case. In Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 787; 12 ACLC 490 I indicated that so long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion. Even if the proposition in Jesseron (No2) goes too far, as Mr Hutley submits, it would seem to me that in a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures, or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of debt. A similar thing can be said about any offsetting claim.”

24 In Reale Bros Pty Ltd v Reale [2003] NSWSC 666 Young CJ in Eq rejected the proposition that there must be evidence on each and every element that the company would need to prove at a trial on the merits of the issue of indebtedness. His Honour referred with approval to SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595 at 600. There Austin J applied the test of whether there was a plausible contention requiring investigation, and admitted evidence which his Honour characterised as being in various respects vague but which indicated, with some supporting documentation, that there may have been confusing and inconsistent contracts between the parties which provided grounds of real doubt as to the enforceability of the contract on which the statutory demand was based.

25 Whether the evidence in the form of a generalised summary is sufficient to establish a genuine dispute is of course a different question from whether the evidence is admissible for that purpose.

The Test under s 459H(1)(a)

26 Tokich Holdings relied for its application to set aside the statutory demand on s 459H(1)(a) of the Corporations Act. That section provides:

“ Section 459H Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is 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;

……………”

27 In Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785, McLelland CJ in Eq said at 787-788;

“It is, however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of consideration as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall (1980) 24 SASR 189 at 194.
But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving such a dispute. In Mibor Investments (at ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law , and to the terms of Div 3:
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
………….
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).”

28 These statements have often been approved, and lay down the approach which I adopt in this case in deciding whether there is a genuine dispute about the debt to which the statutory demand relates.

The Alleged Debt is Genuinely Disputed

29 The evidence of Mr Robert Tokich went beyond mere assertion that the debt claimed by Sheraton Constructions was not due and payable. In addition to reading his affidavit of 16 April 2004 Tokich Holdings tendered documents produced on subpoena by Australian Mortgage Administration Limited. A statement dated 21 May 2004 described a loan to Mr and Mrs J and M Tokich of $300,000. The loan was drawn down on 16 February 1999 and was discharged on 19 April 2001. This loan was made by Perpetual Trustees Victoria Limited as trustee of the Colonial Mutual Bricks and Mortar Fund to Joso Tokich and Maria Tokich. These documents corroborated the evidence of Mr Robert Tokich that his parents put up the security for a line of credit. It appears that his parents were also the borrowers. The “Australian Mortgage Company” appears to have arranged the loan. Mr Tokich deposes in paragraph 13 of his affidavit that he gave directions for the line of credit to be drawn on to $300,000 for the purpose of Sheraton Constructions settling its acquisition of the block of land.

30 The liquidator of Sheraton Constructions filed an affidavit on 1 June 2004. He annexed a copy of the cheque butt for the cheque of $300,000 drawn by Sheraton Constructions in favour of Tokich Holdings. The cheque butt, which was filled out by Mr Robert Tokich, described the payment as “loan”. Notwithstanding this entry, in its statutory demand Sheraton Constructions did not describe the debt as being money lent. In his affidavit in reply, Mr Robert Tokich swore that when he filled out the cheque butt he intended to record that the payment to Tokich Holdings was repayment of $300,000 that it had given as part of the purchase price.

31 The liquidator also produced the general ledger of Sheraton Constructions in which as at 30 June 2000 the amount of $300,000 was described as “drawings” being “draw down of profit”. The trial balance did not include a loan owed to J & M Tokich.

32 Sheraton Constructions tendered a statement of affairs of that company which had been verified by Mr Robert Tokich. In Schedule B, under the heading “Sundry Debtors (Including Loan Debtors)”, Mr Tokich had filled in three amounts totalling $910,000 including an amount of $290,000 referable to Tokich Holdings. However it is plain from the first and second pages of the statement of affairs that this was intended to be a particularisation of unsecured creditors of Sheraton Constructions, not its debtors. I do not place any reliance upon the statement of affairs.

33 On 8 October 2003 the liquidator asked Mr Robert Tokich to provide details of the consideration which Sheraton Constructions received from a number of payments which were listed in a schedule, to the letter. There were thirty such payments. The largest was described as “Tokich Holdings Loan” being the payment of $300,000 on 27 June 2000. There was no reply to that letter.

34 The liquidator did not produce any documents recording the borrowing by Sheraton Constructions of $300,000 or any other amount from “Australian Mortgage”. Australian Mortgage Administration Ltd was subpoenaed to produce documents. Documents were tendered as a result of that subpoena. No document recording any loan from that company, or any loan arranged by that company, to Sheraton Constructions was tendered. Nor was there produced any document which recorded the terms of any loan to Tokich Holdings. There was no evidence that after 30 June 2000 Sheraton Constructions discharged the debt of $300,000 to Permanent Trustees Victoria Limited arranged by Australian Mortgage Administration Limited.

35 The position is confused. The payment by cheque drawn by Sheraton Constructions to Tokich Holdings or bearer could be characterised in a number of ways.

36 First, the payment might be a loan to Tokich Holdings. This is supported by the cheque butt which was filled in by Mr Robert Tokich although he denies that the cheque butt accurately expresses his intention. If the payment were a loan there is no evidence of the terms upon which the loan was made. The balance sheet of Sheraton Constructions as at 30 June 2000 does not record a loan to Tokich Holdings as an asset of the company. It does record that Sheraton Constructions is indebted to “Aust Mortgage” in the amount of $300,000. However, for the reasons I have given there is good reason to doubt that the balance sheet is accurate in that respect. No records of Tokich Holdings were produced in response to a notice to produce to that company for any records of any financial dealings with Sheraton Constructions over the relevant period.

37 The second possible way of characterising the payment is as moneys had and received by Tokich Holdings to the use of Sheraton Constructions. This is how the payment was described in the statutory demand. The facts stated in the affidavit supporting the statutory demand went no further than to evidence the payment. The onus of establishing that the moneys were received by Tokich Holdings to the use of Sheraton Constructions is not discharged by the mere proof of payment. (Cary v Gerrish (1801) 4 Esp. 9, 170 E.R. 624; Aubert v Walsh (1812) 4 Taunt. 294, 128 E.R. 342; Welch v Seaborn (1816) 1 Stark 474, 171 E.R. 534; Heydon v Perpetual Executors Trustees and Agency Co (WA) Ltd (1930) 45 CLR 111 at 113; Joaquin v Hall [1976] VR 788; Jenkins v Wynen [1992] 1 Qd R 40 at 43-44; Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 at 660; Coshott v Sakic (1998) 44 NSWLR 667 at 671-672). In the absence of any other evidence the implication would be that the payment was in repayment of an existing indebtedness of Sheraton Constructions (Welch v Seaborn (1816) 1 Stark 474, 171 ER 534).

38 Whilst not abandoning the claim that Tokich Holdings was liable to Sheraton Constructions for $300,000 as money had and received, in his final submissions counsel for Sheraton Constructions relied primarily on the ground that the payment was a loan from Sheraton Constructions to Tokich Holdings as evidenced by the cheque butt in which it was so described by Mr Tokich.

39 I am satisfied that there is a genuine dispute as to whether Tokich Holdings is indebted to Sheraton Constructions either for money lent or for money had and received by it to Sheraton Construction’s use. It is therefore not necessary to decide whether, if I had been satisfied that Tokich Holdings was indebted to Sheraton Constructions beyond genuine dispute for money lent, the statutory demand “related to” that debt, even though the debt was not so described in the demand. I incline to the view that the demand “relates to” an alleged debt arising from the payment by Sheraton Constructions to Tokich Holdings. It is not necessary for the statutory demand to set out all the facts which would give rise to a cause of action for recovery of the debt, such as the existence of an express or implied promise to repay. However it is unnecessary to decide whether the demand “relates to” a debt for money lent. I should note that no submission was made that if Tokich Holdings was indebted to Sheraton Constructions for money lent, the statutory demand was invalid as it did not specify that debt as required by s 459E(2).

40 Another possible way of characterising the transaction based on Mr Tokich’s evidence and the supporting documents from Australian Mortgage Administration Ltd is that Mr Joso and Mrs Maria Tokich lent the money which they had borrowed from Perpetual Trustees Victoria Ltd to Sheraton Constructions at the request of Mr Robert Tokich, or that Sheraton Constructions was liable to Mr & Mrs Tokich for $300,000 as money had and received by it for their use, and that that debt was discharged by the payment of $300,000 to Tokich Holdings. The material in Mr Robert Tokich’s first affidavit together with the documents in exhibit C establish a reasonable possibility that Sheraton Constructions was indebted to Mr & Mrs Tokich for the $300,000 which Mr Robert Tokich says was advanced to the company from moneys obtained from “Australian Mortgage”. Such a debt could be repaid by a payment to Tokich Holdings if made on the direction of Mr & Mrs Tokich, or on the direction of Mr Robert Tokich if he were acting on their behalf.

41 In paragraph 12 of Mr Robert Tokich’s affidavit of 2 June 2004 he swore that when he filled out the cheque butt he intended to record that the payment to Tokich Holdings was repayment of $300,000 that it had given as part of the purchase price. This raises another possibility that the moneys borrowed by Mr & Mrs Tokich were lent by them to Tokich Holdings, which in turn lent the moneys to Sheraton Constructions, and that loan was repaid by Sheraton Constructions on 27 June 2000.

42 The evidence is in many respects unsatisfactory. There is a reasonable possibility that Sheraton Constructions borrowed $300,000 from either Mr & Mrs Tokich or Tokich Holdings. If it was indebted to Mr & Mrs Tokich in respect of $300,000 received from them, it must be at least as probable that the payment of $300,000 was made to discharge that debt as it was to create a cross-debt of $300,000 owed by Tokich Holdings to Sheraton Constructions.

43 The matter is further complicated by Sheraton Constructions having acted as a trading trustee and by the accounts created as at 30 June 2000. The financial statements and trial balances as at 30 June 2000 show that in the twelve months to 30 June 2000 the company made a trading profit of $663,186 arising from the sales of the land. After taking into account a trading loss to 30 June 1999 of $76,675 there were accumulated profits as at 30 June 2000 of $586,511. The trial balance purportedly records that that amount of profits had been drawn by three beneficiaries being Tokich Holdings Pty Limited, a trust nominated by I Posa and Mr Robert Tokich. The amount of drawings for Tokich Holdings Pty Limited was $287,390.

44 Mr Nicols the liquidator of Sheraton Constructions swore that he had not been provided with any minute with respect to a resolution concerning distribution of trust moneys, nor a trust deed, nor books and financial records which would show that a distribution was made out of the profits of the trust. He swore that he was unable to verify the statements in the accounts that a share of profits of $287,390 was paid to Tokich Holdings from any source financial records. There is no primary record of any allocation of units to Tokich Holdings. Although the evidence contained in the supporting affidavit of Mr Tokich sworn on 16 April 2004 together with its annexures raises the possibility that the payment of 27 June 2000 to Tokich Holdings was a distribution of profit at least as to $287,390, the evidence of such a distribution is scant. There is every reason to doubt the reliability of the financial statements of Sheraton Constructions as at 30 June 2000.

45 I should add for completeness that the liquidator of Sheraton Constructions contended that the trial balance of the defendant showed a deficit of trust funds at $586,511. It was submitted that this was inconsistent with any distribution being made from profits, because there were none. However when all of the entries in the trial balance are considered it seems to me that the reference to a “deficit in trust funds” is really a reference to a purported distribution of profits. Prior to the alleged distribution the company had sufficient assets to make such a distribution without going into deficit. However in the absence of any source financial records it is not clear how the profits of the venture were dealt with.

46 Notwithstanding the entry made on the cheque butt by Mr Tokich, I am satisfied that Tokich Holdings has a plausible contention requiring investigation that it is not indebted to Sheraton Constructions in respect of the payment of $300,000 made on 27 June 2000. It is not appropriate that I attempt to identify the likely result of Sheraton Constructions’ claim or the likely result of any defence. It is not appropriate to decide whether Mr Tokich’s sworn evidence about his intentions in filling out the cheque butt should be given credit. To hold that there is no genuine dispute that the payment was by way of loan to Tokich Holdings would be to reject Mr Tokich’s explanation as to his intention in completing the cheque butt. It is generally not appropriate on an application under s 459G to embark upon an enquiry as to the credit of a witness.

47 Counsel for Sheraton Constructions submitted that as Mr Tokich was at all relevant times a director of both companies, he was required by s 286 of the Corporations Act 2001 to ensure that the companies kept written financial records that correctly recorded and explained their transactions and financial position and performance and which would enable true and fair financial statements to be prepared and audited. It is true that each of the companies was under the obligation to keep such financial records and that I could infer that Mr Tokich was required in the exercise of his duties as a director to ensure that the companies did so. Sheraton Constructions did not keep proper records. But it does not follow that Tokich Holdings is precluded from disputing the existence of the debt, or that the absence of proper records indicates that the dispute about the debt is not genuine.

48 Counsel for the defendant also submitted that Mr Tokich failed to respond to a specific query raised by the liquidator of Sheraton Constructions as to what was the consideration for the payment of $300,000. The request for that explanation was made on 8 October 2003 as part of a request for a wide range of information relating to the affairs of Sheraton Constructions. The liquidator had received no reply to his letter. I do not infer from Mr Tokich’s failure to reply to the letter that the payment was by way of loan or was money received by Tokich Holdings to Sheraton Constructions use.

49 For these reasons I am satisfied that there is a genuine dispute between Tokich Holdings and Sheraton Constructions about the existence of the debt to which the latter’s demand relates.

Grounds Identified in the Supporting Affidavit

50 It was not submitted for Sheraton Constructions that the affidavit of Mr Robert Tokich of 16 April 2004 did not satisfy the minimum requirements of an affidavit “supporting the application” referred to in Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452. However counsel for Sheraton Constructions did submit that the only ground identified in the affidavit as giving rise to a genuine dispute was that the payment of $300,000 was the repayment of a loan of $300,000 that Tokich Holdings had made to Sheraton Constructions. He submitted that Tokich Holdings was precluded from raising any other ground as a basis for asserting a genuine dispute as to the debt.

51 It is established that an applicant under s 459G of the Corporations Act may not rely on grounds for disputing the debt to which the statutory demand relates, if these grounds are not raised in the supporting affidavit or affidavits filed within the 21 day limit. (Energy Equity Corporation Limited v Sinedie Pty Limited (2001) 166 FLR 179 at 185). The High Court refused special leave to appeal from this decision. (See casenote “Timely Response to Statutory Demand: Graywinter Revisited”, by L. Aitken and S Armstrong, (2003) 77 ALJ 434).

52 The precision with which the ground of dispute must be identified in the supporting affidavit has been addressed in a number of cases.

53 In Process Machinery Australia Pty Limited v ACN 057 262 590 Pty Ltd (2002) NSWSC 45 at [21]-[22] Barrett J, after reviewing the authorities, said:

“[21] It is thus reasonably clear that the relevant concept of “raising” or “identifying” a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year’s interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest – even if it merely said, “The debt does not accord with the annexed contract”.

[22] The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiably with one or more of the grounds made available by s459H and s459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.”

54 The authorities were again reviewed by Austin J in POS Media Online Limited v B Family Pty Limited (2003) 21 ACLC 533 where his Honour concluded in respect of the passage from Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd which I have quoted (at 541):

“With respect, these observations are a logical application of the principle enunciated in Energy Equity . However, they might arguably take Sundberg J’s observations in Graywinter further than the Financial Solutions case would now take them, and be inconsistent with the decision in Callite . If it was unnecessary for the supporting affidavit in Callite to do anything more than annex the solicitor’s invoices, on the face of which there were non-compliances with the Legal Profession Act , why would it be necessary for the supporting affidavit in Barrett J’s hypothetical example to do anything more than annex the loan agreement showing a different rate of interest from the one claimed?”

55 His Honour’s reference to the “Financial Solutions Case” was to Financial Solutions Australasia Pty Limited v Predella Pty Limited (2002) 26 WAR 306; 167 FLR 106. The reference to Callite was to the decision of Santow J in Callite v Adams [2001] NSWSC 52.

56 Although in Process Machinery Barrett J referred to a need for verbal delineation of the ground of dispute, his Honour went on to say that what was necessary was that “the application and affidavit filed and served within the 21 day period must fairly alert the claimants to the nature of the case the company will seek to make in resisting the statutory demand”. It will be sufficient if the area of controversy is clearly delineated by necessary inference so that it is identifiable as one or more of the grounds made available by s 459H and s 459J.

57 In the present case I am of the view that the supporting affidavit did adequately identify the grounds of dispute as being that the payment of $300,000 to Tokich Holdings was either a repayment of existing indebtedness of that company, or a distribution to a beneficiary. The supporting affidavit did not confine the ground of dispute to the payment being a repayment of a loan made by Tokich Holdings. The liquidator of Sheraton Constructions responded in his affidavit to those claims.

58 For these reasons, in proceedings number 2447/04 I will order that the statutory demand be set aside.

Proceedings 6104/03: Application to be substituted as creditor

59 There was no dispute that I had power to set aside the Registrar’s order dismissing the winding-up application under Pt 40 r 9. The circumstances in which that order was made in the absence of Sheraton Constructions were sufficiently explained. The parties, correctly in my view, dealt with the application of Sheraton Constructions to be substituted as creditor on its merits.

60 Counsel for Sheraton Constructions submitted that even if I were to find that his client’s debt was genuinely disputed, nonetheless his client should be substituted as plaintiff pursuant to s 465B. He relied on the Federal Court decision of Spender J in ACP Syme Magazines Pty Limited v Tri Automotive Components Pty Limited (1997) 74 FCR 372. This submission was not developed. Counsel for Tokich Holdings was content to rely on the judgment of Ryan J in South Eastern Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465; 14 ACLC 1,328.

61 In ACP Syme Magazines, as in the present case, the company had failed to satisfy a statutory demand of a creditor within the period of 21 days and had not applied to set aside the statutory demand. There was therefore a presumption of insolvency. There was nothing in the evidence to rebut the presumption of insolvency. The creditor applied under ss 459A and 459P for an order that the company be wound up in insolvency. After two adjournments that creditor was excused from further attendance. Presumably its debt was paid or compromised. (See at 376). The applicant, ACP Syme Magazines, applied to be substituted as the applicant for winding up. The company opposed the application on the ground that no money was owing by it to ACP Syme Magazines. Spender J held that there was a bona fide dispute as to the existence of the debt claimed by ACP Syme Magazines (at 380). His Honour did not attempt to resolve that dispute. Rather he found that the company was not only presumed to be insolvent but on the evidence before him was actually insolvent and ordered its winding up. Spender J recorded the submission for the respondent company that a substituted applicant has no authority to continue with the application unless it is a creditor and the Court cannot order the winding up of the company unless it is satisfied that the substituted applicant is a creditor. The respondent company relied on s 459P of the Corporations Law. That section provides:

“459P WHO MAY APPLY FOR ORDER UNDER SECTION 459A
(1) [Applications of right] Any one or more of the following may apply to the Court for a company to be wound up in insolvency:
(a) the company;
(b) a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor);
(c) a contributory;
(d) a director;
(e) a liquidator or provisional liquidator of the company;
(f) ASIC;
(g) a prescribed agency.

62 Section 465B provides:

“465B SUBSTITUTION OF APPLICANTS
465B(1) [Substitution of person who could have applied] The Court may by order substitute, as applicant or applicants in an application under section 459P, 462 or 464 for a company to be wound up, a person or persons who might otherwise have so applied for the company to be wound up.
465B(2) [Grounds for substitution] The Court may only make an order if the Court thinks it appropriate to do so:
(a) because the application is not being proceeded with diligently enough; or
(b) for some other reason.
465B(3) [Substituted applicant may be original applicant] The substituted applicant may be, or the substituted applicants may be or include, the person who was the applicant, or any of the persons who were the applicants, before the substitution.
465B(4) [Substituted applicant to proceed as original applicant] After an order is made, the application may proceed as if the substituted applicant or applicants had been the original applicant or applicants.

63 Spender J held (at 376) that:

“This submission, in my opinion, involves a misunderstanding of the nature of a winding-up application, and the submission is inconsistent with what in my view is the better view of the law as reflected by the authorities.”

Later his Honour said:

“The fact that it is not necessary on a winding-up application to decide whether the applicant or substituted applicant is in truth a creditor, indicates in my opinion that, if on an application for winding-up there is a bona fide dispute as to the existence of the debt claimed by applicant, (or in this case the substituted applicant), that is not determinative of the matter. There is still a discretion in the Court to order that the company be wound up when the evidence establishes that the company is insolvent but notwithstanding the finding that there is a bona fide dispute as to that debt.” (at 378).

64 This decision was referred to with approval, albeit obiter, by Martin CJ in the Supreme Court of the Northern Territory in Paspalis Hotel Investments Pty Limited v Ambir Pty Limited [2003] NTSC 68. However, with respect, I do not think it is correct. It is also distinguishable.

65 The starting point is s 465B itself. The only persons who may be substituted as applicants are those who might themselves have applied for an order that the company be wound up.

66 Section 459P does not provide that any person, or any person claiming to be a creditor, may apply to the Court for a company to be wound up in insolvency. It provides that a creditor (including a secured, contingent or prospective creditor) may make that application.

67 As a matter of power as distinct from discretion, the Court may order a company to be wound up in insolvency where the creditor’s debt is disputed if the Court determines that the applicant has standing to bring the application. The Court has the power to determine the disputed question and if it determines that the applicant is a creditor it may make an order for winding up. (Re QBS Pty Ltd [1967] Qd R 218 per Gibbs J at 225; Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455; Brinds Ltd v Offshore Oil NL (1985) 60 ALJR 185 at 188).

68 As a matter of discretion, where the debt and hence the applicant’s standing is disputed, the Court will usually not entertain the application for winding up.

69 If the applicant is a person who has served a statutory demand which is unsatisfied after 21 days and no application is made under s 459G to set aside the demand, the company cannot dispute the applicant’s standing as a creditor. (Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467; State Bank of NSW v Tela Pty Limited (No. 2) (2002) 188 ALR 702; Braams Group Pty Limited v Miric (2002) 44 ACSR 124; Bibby Financial Services Australia Pty Limited v Woolf Industries Australia Pty Limited [2004] NSWSC 134 at [19]-[24].

70 Some authorities have held or assumed that where the company was insolvent, it could be wound up on the application of a person claiming to be a creditor whose debt was disputed without that dispute being resolved. (In re A Private Company [1935] NZLR 120; Niger Merchants Co. v Capper (1877) 18 Ch D 557; Tecma Pty Ltd v Solah Blue Metal Pty Ltd (1988) 6 ACLC 1,080; Re Synthetic Oils Pty Ltd; Re Australasian High Technology Ventures Pty Ltd (1984) 8 ACLC 95). However that was not the general practice. Usually the petition was dismissed if the debt was disputed on substantial grounds and there was no reason to believe the debt, if established, would not be paid. If there was doubt whether the disputed debt, if established, would be paid, the petition was usually stood over until the debt was established by action. (Re QBS Pty Ltd at 226.)

71 There is some authority that a “creditor” in this context was a person who claims to be a creditor. (Re A Private Company at 127 citing Ex parteThe Rydydefed Colliery Co., Glamorganshire Ltd (1858) 3 De G & J 80 at 84; 44 E.R. 1199 at 1201). However the decision in Ex parte The Rydydefed Colliery Co. was to stand over the petition until it was established at law whether the petitioner was a creditor or not. When Turner LJ said that a “creditor” in s 68 of the Joint Stock Companies Act 1856 (UK) meant a person who claimed to be a creditor, his Lordship was contrasting the plaintiff with a creditor whose debt is admitted. The case provides no support for the view that an insolvent company could be wound up on the petition of a creditor whose debt was disputed without that dispute being resolved.

72 The preponderance of authority is that a company may not be wound up on the application of a person claiming to be a creditor whose debt is disputed unless that dispute is resolved. Otherwise the applicant will not establish its standing to apply for the company’s winding up. Because the winding up jurisdiction should not be used to resolve disputed questions of debt, it may be an abuse of process for an alleged creditor, whose debt is disputed, to apply to wind up the company. (Mann v Goldstein [1968] 1 WLR 1091 at 1098-1099; Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258 at 265; CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295 at 302-303; Re Bond Corporation Holdings Ltd (1990) 1 WAR 465 at 471; 1 ACSR 350 at 355; Taylor Bryant Pty Ltd v Wright Critical Care Pty Ltd (1995) 15 ACSR 564 at 569; Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311 at 320). The authorities were reviewed by Cohen J in CVC Investments Pty Ltd v P & T Aviation Pty Ltd and by Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd. In CVC Investments Pty Ltd v P & T Aviation Pty Ltd Cohen J said (at 302):

“The authorities seem almost unanimously to agree that where a claimed debt is bona fide disputed on substantial grounds and there is no basis for regarding the claimant as a contingent or prospective creditor then that claimant has no standing to bring proceedings to wind up the company, and if he does so the bringing of those proceedings is an abuse of process. The fact that there is a ground for winding up in existence does not give that claimant any greater standing. There are a number of grounds under s 364 upon which the court may make an order for the winding up of a company. The most common one relied upon is that the company is unable to pay its debts. Nevertheless the Code gives only a limited number of persons a right to have the company wound up on that or any other ground. It is an abuse of process if a person in bringing proceedings assumes a standing which it does not have and seeks orders to which it is not entitled.”

73 In this case there is no question of the debt claimed by Sheraton Constructions being a contingent or prospective debt.

74 It does not appear that in ACP Syme Magazines Pty Ltd v Tri Automotive Components Pty Ltd Spender J was referred to these authorities. His Honour relied principally upon the decision of Master White in Re Synthetic Oils Pty Ltd; Re Australasian High Technology Ventures Pty Ltd (1989) 8 ACLC 95 and of Young J (as his Honour then was) in Tecma Pty Ltd v Solah Blue Metal Pty Ltd (1988) 6 ACLC 1,080. However Tecma was not followed by Cohen J in CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295 at 302 or by Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd.

75 In ACP Syme Magazines and in Tecma the Courts cited with approval the following passage from McPherson, The Law of Company Liquidation, 3 ed (Professor O’Donovan edition) at p 63:

“There is a broad general principle that a winding-up order will not, as a matter of discretion, be made on a debt which is bona fide disputed, provided that the dispute is based on some substantial ground. No doubt one reason for this rule is that an applicant whose debt is disputed may lack the qualification necessary to file an application for a winding-up order; he is not a creditor if it turns out that the company was justified in refusing to pay. But the principal reason is that a winding-up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt which would certainly be discharged as soon as the company’s liability was clearly shown to exist. It follows that the principle has no application where the company is proved to be insolvent, and a fortiori where it is the amount merely, and not the existence, of the debt which is disputed.”

76 The concluding sentence in the passage quoted is not repeated in the 4th Edition. The concluding sentence is a ground for not applying to an insolvent company what was said to be the principal reason for not making a winding up order where the debt is disputed. It is not a reason for winding up an insolvent company on the application of a person who claims to be a creditor, but who lacks the qualification to apply for the order.

77 In Community Development Pty Ltd v Engwirda Construction Co [1968] Qd R 541 Lucas J refused an injunction to restrain the advertisement of a petition to wind-up the plaintiff company, which his Honour found was insolvent. His Honour held that the basis of the jurisdiction to restrain the presentation or prosecution of a winding up petition is the irreparable damage which that might cause to a solvent company by the actions of a person whose debt was genuinely disputed. (at 546-7). His Honour found the company was insolvent and therefore refused the injunction sought. His Honour expressed the view that the petitioner was probably a contingent or prospective creditor, but did not decide that question. The case does not support the proposition that the Court can wind-up a company without the question of the applicant’s locus standi being resolved. Lucas J said (at 547) that that would be a matter for consideration upon the hearing of the petition. So it was. In due course the company was ordered to be wound up. The appeal from that order was ultimately taken to the High Court which affirmed the petitioner’s status as a contingent creditor. (Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455). The High Court appeal would have been otiose if insolvency of the company were a sufficient ground of the winding-up order, irrespective of the applicant’s standing.

78 However desirable it might be for the Court to wind up a company which is insolvent and whose continued trading might adversely affect the public with whom it deals, the Court has no power to order its winding up if the applicant for winding up has no standing to bring the application. To refuse a winding up order where a company is insolvent on the application of a person without standing is not to favour the company over the public interest. (Compare McPherson, The Law of Company Liquidation, 4 ed p 98). It is rather to recognise the jurisdictional limits upon the power to order the winding up a company.

79 There is authority that any dispute about whether a substituted applicant has standing should be decided on the hearing of the application for substitution; not on the hearing of the application for a winding up order. Kelvingrove (1993) Pty Ltd v Paratoo Pty Ltd (1998) 16 ACLC 964.

80 In Beverage Holdings Pty Ltd v Greater Pacific Investments Pty Ltd (1990) 3 ACSR 743 Kennedy J (with whom Ipp J agreed) in the Full Court of the Supreme Court of Western Australia accepted that if the debt claimed by the person claiming to be substituted as petitioning creditor was bona fide disputed on substantial grounds, the substitution should not be made (at 749, 754). I should not substitute Sheraton Constructions as the applicant creditor with the view to its standing being decided on the hearing of the winding-up application.

81 For these reasons I could not make an order under s 465B that Sheraton Construction be substituted as applicant under s 459P, unless I were first to determine the issue of whether it is a creditor of Tokich Holdings. The only circumstances which might incline me to decide that question, if the evidence permitted of its decision, are the presumption that the company is insolvent which arises from its failure to satisfy the demand of CGU, and the unsatisfactory state of the financial records of Sheraton Construction which I can infer is attributable at least in part to the omissions of Mr Robert Tokich.

82 In my view I should apply the usual principle that the Court in exercising its jurisdiction under Chapter 5.4 is not the proper forum for resolving disputed debts. There is no evidence of insolvency except the presumption which arises from the non-compliance with CGU’s statutory demand. There is no evidence of the existence of any unsatisfied creditor, other than the possible debt owed to Sheraton Constructions. Although the case is not on all fours with South Eastern Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465; 14 ACLC 1,328, I agree with Ryan J in that case that the application for substitution involves the weighing up of competing policies. On the one hand an insolvent company should not be permitted to continue to trade. On the other, the winding up jurisdiction should not be used as the forum for resolving genuinely disputed debts. In this case, unlike ACP Syme Magazines, there is no evidence of actual insolvency. I do not consider the unsatisfactory financial records of Sheraton Constructions to be a sufficient reason for deciding the disputed debt. The absence of proper records makes the dispute more difficult to resolve and is a factor against the resolution of the question.

83 In any event, I do not think the evidence permits of an answer to the question of whether Sheraton Constructions is a creditor of Tokich Holdings. There was no cross-examination of Mr Robert Tokich, and the parties appear to have accepted that the only issue about indebtedness was whether there was a genuine dispute about the claimed debt.

84 Accordingly I will not decide the question of whether Sheraton Constructions is a creditor of Tokich Holdings.

85 For these reasons I refuse Sheraton Constructions’ application to be substituted as plaintiff pursuant to s 465B of the Corporations Act.

86 I make the following orders:

In proceedings No. 2447/04:

1. Set aside the statutory demand dated 22 March 2004 served by the defendant on the plaintiff;

2. the defendant pay the plaintiff’s costs.

In proceedings No. 6104/03:

1. Refuse the application of Sheraton Constructions (NSW) Pty Limited (In Liquidation) that it be substituted as plaintiff on the Originating Process;

2. Sheraton Constructions (NSW) Pty Limited (In Liquidation) pay the defendant’s costs of the Interlocutory Process;

3. dismiss the Originating Process with no further orders as to costs.

In each case the exhibits may be returned after 28 days if no notice of appeal or application for leave to appeal is filed.

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Last Modified: 06/25/2004