Wild Juice Pty Ltd v GW and R Mould Pty Ltd
[2016] VSC 454
•5 August 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2015 06288
IN THE MATTER of WILD JUICE PTY LTD (ACN 084 725 539)
BETWEEN:
| WILD JUICE PTY LTD (ACN 084 725 539) | Plaintiff |
| v | |
| GW & R MOULD PTY LIMITED (ACN 004 606 686) | Defendant |
---
JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 3, 10 May 2016, 16 June 2016 |
DATE OF JUDGMENT: | 5 August 2016 |
CASE MAY BE CITED AS: | Wild Juice Pty Ltd v GW & R Mould Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 454 |
---
CORPORATIONS – Application to set aside a statutory demand by reason of alleged genuine dispute pursuant to s 459G and ‘for some other reason’ pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) – Related companies carried on farming business which conducted running account between them whereby one company paid expenses on behalf of the other which were brought to account in the annual financial statements of the two companies – Structure set up for tax minimisation purposes, asset protection and management of cash flow – Plaintiff contended that entries in accounts were only book entries and were not intended to reflect creation of a real liability – Amount demanded appeared as current liability in draft accounts for company – Accounts for previous years signed by director of both companies identified the liability as a current liability in plaintiff’s financial records and in current assets in defendants financial statements – Finding that no genuine dispute as to debt demanded nor was there ‘some other reason’ why the demand should be set aside.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms V Plain | Rankin & Co |
| For the Defendant | Mr D Harrison | Sam J Carbone |
HIS HONOUR:
On 11 December 2015, the plaintiff (‘Wild Juice’) made application by originating process pursuant to ss 459G and 459J(1)(b) of the Corporations Act 2001 (Cth) (‘the Act’) to set aside a statutory demand dated 4 November 2015 that had been served on it by the defendant, GW & R Mould Pty Ltd (‘GW & R Mould’). The demand was served on the sole director of the company Benjamin Mould (‘Mr Mould’). The demand was accompanied by an affidavit of Susan Joy Hicks sworn 4 November 2015.
The schedule to the demand describes the debt as follows:
Moneys loaned by the creditor to the company and which remain outstanding as at the date of demand – $953,868.[1]
[1]Exhibit SJC-1 to the affidavit of service sworn by Mr Carbone on 19 April 2016.
At the trial of this proceeding on 3 May 2016, Wild Juice relied on the following affidavits:
(a) Benjamin Mark Mould affirmed 11 December 2015 (‘Mould affidavit’);
(b) Georgia Claire Rutecki sworn 15 January 2016;
(c) Benjamin Mark Mould affirmed 12 April 2016 (‘second Mould affidavit’);
(d) Georgia Claire Rutecki sworn 13 April 2016;
(e) Georgia Claire Rutecki sworn 14 April 2016.
At that hearing, GW & R Mould relied on the affidavits of:
(a) Susan Joy Hicks sworn 22 March 2016 (‘Hicks affidavit’);
(b) Sam Joseph Carbone sworn 22 March 2016;
When this matter came before me for directions on 27 January 2016 it was indicated that there was an issue as to whether Wild Juice’s application had been served within the time prescribed by the Act.
GW & R Mould ultimately accepted that Wild Juice’s application and supporting affidavit were served within the 21 days prescribed by s 459G, which meant that the relevance of Ms Rutecki’s affidavits of 13 April 2016 and 14 April 2016 and a good part of Mr Carbone’s affidavit of 22 March 2016 fell away.
The trial of the proceeding was held on 3 May 2016. At the conclusion of the hearing, I reserved my decision.
The Application by GW & R Mould to Reopen its Case
On 6 May 2016, my associate was contacted by counsel for GW & R Mould, Mr Harrison, by email, copied to counsel for Wild Juice, Ms Plain. Mr Harrison stated that GW & R Mould wished to reopen the case because its director, Ms Hicks, upon conducting further searches, immediately following the hearing on 3 May 2016, had discovered further evidence which it wished to present.
I convened a directions hearing in regard to that application on 10 May 2016. In order that the matter could be dealt with expeditiously, I made orders for the parties to file and serve affidavits and submissions both in relation to the application to reopen the case and to the substantive application, that is, the application to set aside the demand, in the event I determined to grant leave for the case to be reopened.
On 16 June 2016 I heard the application by GW & R Mould to reopen its case and determined that it should be permitted to do so. I gave short oral reasons on that day and indicated I would give more elaborate written reasons at a later time. These are the subject of a separate ruling that I delivered today.
As a result of my determination to allow the case to be reopened, GW & R Mould sought to rely on a further affidavit of Ms Hicks sworn 15 May 2016. The two affidavits of Mr Carbone sworn 9 May 2016 and 15 May 2016 were only relevant to the application to reopen the matter.
In response, Wild Juice relied on a further affidavit of Mr Mould and Michelle Wheeler, both sworn 30 May 2016, and Georgia Claire Rutecki sworn 9 May 2016. These affidavits were purportedly directed to issues in the substantive application and are discussed below.
I now turn to consider the application to set aside the demand which includes the evidence put on by the parties consequent of my ruling to allow this matter to be reopened.
Legal Principles
Sections 459G and 459H of the Act provide as follows:
459G Company may apply
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
459H 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;
(b) that the company has an offsetting claim.
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total — Offsetting total
where:
“admitted total” means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
“offsetting total” means:
(a) if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b) if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c) otherwise—a nil amount.
(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5) In this section:
“admitted amount”, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise—the amount of the debt.
“offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
“respondent” means the person who served the demand on the company.
(6) This section has effect subject to section 459J.[2]
[2]Section 459J provides additional grounds for setting aside a statutory demand which are not presently relevant.
Section 459J of the Act states as follows:
Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
What must an applicant establish pursuant to s 459H of the Corporations Act?
In the recent decision of the Victorian Court of Appeal of Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq),[3] the principles to be applied in these types of applications were collected. The Court of Appeal stated at [46]–[51]:
The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a “plausible contention requiring investigation” of the existence of either a dispute as to the debt or an offsetting claim. It is therefore 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. Further, the determination of the “ultimate question” of the existence of the debt at a substantive hearing should not be compromised.
The court is required to determine whether the dispute or offsetting claim is “genuine”. It has been said that the criterion of a “genuine” dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
[citations omitted]
[3][2015] VSCA 330 (Kyrou, Ferguson and Kaye JJA) (‘Malec Holdings’).
Wild Juice’s Evidence in Support of the Application
In his affidavit of 11 December 2015, Mr Mould deposes that he is the sole director of Wild Juice. His sister, Susan Hicks, is the sole director of GW & R Mould. Mr Mould was a director of GW & R Mould until 7 August 2014. Wild Juice and GW & R Mould were established to operate a number of properties (‘the farms’) including a cherry and apple orchard known as Devon Downs at Coldstream in Victoria. Mr Mould has worked on the farms since finishing high school.
GW & R Mould owned the assets of the farms including the real property while Wild Juice was responsible for conducting the farming operations.
Mr Mould contends that there is a genuine dispute in respect of the debt claimed in the demand. The ground on which he relies upon is that:
There is no loan agreement between [Wild Juice] and [GW & R Mould] and [Wild Juice] has never received loan monies from [GW & R Mould].[4]
It is important to observe that this is the only dispute raised in Mr Mould’s initial affidavit and it is the dispute to which Wild Juice is therefore confined to in its application to set aside the demand.[5] There is no other alleged dispute (and no offsetting claim) outlined or raised in the initial affidavit.
[4]Affidavit of Benjamin Mark Mould affirmed 11 December 2016, paragraph 7.
[5]See Graywinter Properties Pty Ltd v Gas & Fuel Corporation SuperannuationFund (1996) 70 FCR 452.
Mr Mould states in regard to Ms Hicks’ affidavit, which accompanied the statutory demand in which Ms Hicks deposes that she has inspected the financial statements and balance sheets of both the creditor and of the debtor company, that she is not a director or shareholder of Wild Juice and, as such, does not have access to the financial records of that company. Wild Juice’s balance sheet for the 2013 financial year is yet to be prepared.
Mr Mould’s and Ms Hicks’ mother, Raie Mould, died on 8 November 2014. Mrs Mould was also involved in the farms and, shortly before her death, Ms Hicks became a director of GW & R Mould. Approximately nine days prior to Mrs Mould’s death she changed her will whereby she left all of her estate including the farms to Ms Hicks. In Mrs Mould’s previous will she had left the farms to him.
On 29 January 2015, Mr Mould was sentenced to 14 months imprisonment for cultivation of marijuana in a commercial quantity. His sentence was scheduled to finish on 29 March 2016. While he was serving this sentence, the statutory demand was served on him as the sole director of Wild Juice.
He says that as a result of his circumstances and the change to his mother’s will several days prior to her death, he instructed lawyers to issue proceedings in this court to contest the validity of his mother’s will (‘the estate proceedings’). He asserts that Ms Hicks has caused GW & R Mould to serve the statutory demand on Wild Juice solely as a response to the estate proceedings.
GW & R Mould’s Evidence in Opposition to the Application
In her affidavit of 22 March 2016, Ms Hicks deposes that she is the sole director and secretary of GW & R Mould. Her mother died on 8 November 2014, leaving a will executed on 30 October 2014. Together with a solicitor, Ms Sabina Wakefield, Ms Hicks is the co-executrix of the will.
Ms Hicks states that at the date of her mother’s death, her mother was the sole shareholder of GW & R Mould. From July 1994 until 7 August 2014 Mr Mould was a co-director with their mother. Ms Hicks was appointed to act as a co-director with her mother on 24 October 2014.
Ms Hicks states that after her mother’s death, she reviewed GW & R Mould’s books and accounts. She received the draft balance sheet for GW & R Mould for the year ended 30 June 2013 from Mr David Lee, an accountant. That draft balance sheet identifies a current asset under the heading ‘Cash Accounts’ – ‘Wild Juice account’ and notes the amount as $953,868. The draft accounts note the amount for that item for the preceding year as being $915,638.
Ms Hicks was not a director of GW & R Mould at the time the transactions which gave rise to the alleged liabilities took place.
She states that financial statements for GW & R Mould for the financial years 2014 and 2015 cannot be prepared without certain records and information which she says are either in the possession or under the control of Mr Mould. She states that Mr Mould has refused to provide her with GW & R Mould’s financial records and information.
Ms Hicks has also located the draft financial statements for Wild Juice for the year ended 30 June 2013. The balance sheet of Wild Juice has a corresponding entry under the heading ‘current liabilities’ as ‘GW & R Mould current account’ of $953,868. The amount for that item for the preceding year is stated to be $915,638. She states that she has undertaken searches of GW & R Mould’s bank accounts and financial records, and as a result of those searches, believes that no part of the amount of $953,868 has been repaid to GW & R Mould.
Ms Hicks says that despite undertaking searches, she has not been able to locate any further financial statements for GW & R Mould. It will be seen that in the reasons that I have delivered in relation to the application to re-open by GW & R Mould that this evidence is overtaken by the affidavits filed on behalf of GW & R Mould in that application,` in particular Ms Hick’s affidavit of 15 May 2016.
In his affidavit, Mr Carbone, who is the solicitor for GW & R Mould, states that on 4 February 2016 he telephoned Mr Lee, the accountant who prepared the draft balance sheet referred to. He identified himself and asked Mr Lee who instructed him in relation to the preparation of the financial statements for GW & R Mould and Wild Juice. His response was ‘there was only Ben’ (a reference to Mr Mould).[6] Mr Carbone asked Mr Lee if he was prepared to swear an affidavit deposing as to what he told him. Mr Lee stated that he no longer wished to be involved with the clients and would not do so.
[6]Affidavit of Sam Joseph Carbone sworn 22 March 2016, paragraph 4.
Ms Hicks’ Affidavit of 15 May 2016
As will be seen from the reasons I delivered in respect of the application to reopen the case, GW & R Mould’s purpose in applying to reopen the matter was to enable it to introduce evidence consisting of signed copies of the financial reports for Wild Juice and GW & R Mould for the years 2008 to 2012.
In her affidavit of 15 May 2016, Ms Hicks, after dealing with matters relevant to the application to reopen the case, exhibits[7] those financial reports.
[7]Exhibit SJH-5.
Mr Mould has signed each of the financial statements of Wild Juice for the years 2008 to 2012. The financial statements of GW & R Mould are signed by both Mr Mould and his late mother Raie Mould as directors of those companies. The balance sheets of Wild Juice disclose the following entries for each of those years under the heading ‘Current Liabilities’[8]:
[8]Defendant’s outline of submissions as to reopening its case dated 9 May 2016, paragraph 4.
Year Entry Amount 2007 GW & Mould current account $748,631 2008 GW & Mould current account $1,301,411 2009 GW & Mould current account $1,370,144 2010 GW & Mould current account $415,416 2011 GW & Mould current account $38,066 2012 GW & Mould current account $915,638
The balance sheets of GW & R Mould disclose the following entries for each of those years under the heading ‘Current Assets’[9]:
[9]Ibid, paragraph 5.
Year Entry Amount 2007 Wild Juice account $748,631 2008 Wild Juice account $1,301,411 2009 Advance – Wild Juice P/L $1,370,144 2010 Advance – Wild Juice P/L $415,416 2011 Wild Juice account $38,066 2012 Wild Juice account $915,638
The entries in the Wild Juice accounts under Current Liabilities mirror those contained in the GW & R Mould accounts under Current Assets. There are no signed accounts put into evidence for the years 2013, 2014, 2015. They are apparently yet to be prepared.
Mr Harrison submitted on behalf of GW & R Mould that the 2013 draft balance sheets constitute an admission by Wild Juice against its interests and they are sufficient to satisfy the Court of Wild Juice’s indebtedness. I do not accept that submission. They have not been adopted by Mr Mould as the director of Wild Juice. They are nonetheless, in my opinion, part of the books and records of both companies and were prepared by their former accountant, Mr Lee. At the hearing on 16 June 2016, Mr Harrison conceded that the reason Ms Hicks was asked to search for further documents was as a result of the exchange that I had with him in the course of the hearing on 3 May 2016, in which I raised the significance of the fact that the 2013 accounts for the companies were in draft form and not signed.
Mr Harrison also submitted that the financial statements for the previous years, which are signed by Mr Mould as a director of both companies, overcome any concern about the 2013 balance sheet in its unsigned form. I do not agree with that submission. I think the better view is that, at its height, the signed accounts of the companies for the earlier years are evidence that the two companies had, over several years, operated a running account in which there were transactions debited and credited to each company’s accounts which were then brought to account at the end of each financial year. This is accepted to be the case by Mr Mould in his affidavit of 30 May 2016 which is discussed below.[10]
[10]Affidavit of Benjamin Mark Mould affirmed 30 May 2016, paragraphs 9–13.
It will be seen that the balance of the current accounts varies widely from year to year. In the 2011 year, the liability of Wild Juice to GW & R Mould was only $38,066, in the following year it had escalated to $915,638. I do not consider that the previous years’ accounts conclusively establish Wild Juice’s liability for the 2013 year in the figure mentioned in the draft accounts as Mr Harrison contends. However, the new evidence does establish that in those previous years Wild Juice has acknowledged current liabilities for GW & R Mould in the amounts which appear in the respective accounts for the companies, and the nature of those liabilities arises from advances to Wild Juice by GW & R Mould to meet trading debts.
Wild Juice’s Affidavits in Reply
In his affidavit of 12 April 2016, Mr Mould states that in about March 2015 he instructed solicitors to commence the estate proceedings. He states that notwithstanding the dispute over his mother’s estate, GW & R Mould sold the Devon Downs farming property without his knowledge. He deposes that Wild Juice and GW & R Mould were a partnership that operated jointly and were the entities through which the farms operated. GW & R Mould owned the assets of the farms and Wild Juice was the trading entity through which the farms operated. He worked on the farm with his parents and Ms Hicks was not involved. After his father died, he worked on the farms with his mother. He states that the reason one entity owned the assets and the other entity conducted the trading was to ‘protect the assets of the business in the event of a bad debt’.
As to the basis for the alleged genuine dispute asserted in his first affidavit, that there was never a loan to Wild Juice by GW & R Mould, Mr Mould states that because of the extent of Wild Juice’s capital losses, about four years ago GW & R Mould also began conducting trading activities by buying and selling produce. The reason for this was that Wild Juice was slow in paying various trade debts which were all ultimately paid. He deposes that because GW & R Mould was making taxable income from in or about 2011, it was decided that Wild Juice would invoice GW & R Mould for management fees to the value of GW & R Mould’s profit. The extent of the losses in Wild Juice reduced the tax payable on the income it received from GW&R Mould for management fees.
Mr Mould’s explanation as to why the balance sheets for both companies show Wild Juice owing GW & R Mould the amount of $953,868 is that it was ‘created as a book entry for tax purposes only, as a means of enabling the [Wild Juice] to transfer money to [GW & R Mould] to enable it to pay for trading purposes’. He states that he was advised by the companies’ accountant, Mr Lee, that this was an appropriate business structure for the companies’ tax purposes because it was a family farming business and the businesses were always run jointly. He asserts there was never any actual loan between Wild Juice and GW & R Mould and ‘the amounts in the balance sheets are book entries only’.
Mr Mould states that all the books and records for the farm business were maintained at the offices of the business, which are on the same property as his late mother’s house situated at Wandin in Victoria, or at Mr Lee’s offices. The factory for the farms is also located at the Wandin property.
He states that his sister has access to all the books and records of GW & R Mould. She has never asked him for GW & R Mould’s financial records nor has he ever stated to her that he would not provide financial information.
As to Mr Carbone’s affidavit, in particular the conversation with Mr Lee, he states that he telephoned Mr Lee and said to him:
My sister’s saying that the book entry was loan (sic) but I thought that it was only established to enable money to be paid back to [GW & R Mould] for the management fees payable to the plaintiff, can you explain it for me?[11]
Mr Lee responded:
Ben I really don’t want to get involved as I don’t act for your family business anymore, talk to your new accountant Michelle Wheeler (of Michelle Wheeler & Associates) she’ll explain how it all works it is all in the books.[12]
[11]Affidavit of Benjamin Mark Mould affirmed 12 April 2016, paragraph 13.
[12]Ibid.
In his affidavit of 30 May 2016, which was filed in response to Ms Hicks’ affidavit of 15 May 2016 in which the additional evidence was exhibited, Mr Mould states that the farm business from which the alleged indebtedness arose was owned and operated by four entities, being Wild Juice, GW & R Mould, Wild About Fruit Company Pty Ltd, and Devon Downs Pty Ltd. Devon Downs Pty Ltd is trustee for the Devon on Yarra Unit Trust and GW & R Mould is the beneficial owner of all of the units in that trust.
Mr Mould states that he and his mother ran the farms together at the various properties, of which there were five, at Wandin North and Coldstream. He states that Mr Lee was the family accountant for 15 years prior to the dispute arising between Mr Mould and Ms Hicks.
As to the signed financial statements which are exhibited to Mr Carbone and Ms Hicks’ affidavits, Mr Mould states that he and his mother signed those documents in the presence of Mr Lee each year at the Hunter Road property at Wandin North, the location of one of the farm properties.
Mr Mould states that Mr Lee has provided his current accountant, Ms Michelle Wheeler, with copies of Wild Juice’s general ledger for the years 2010, 2011 and 2012 financial years in relation to the transactions that make up GW & R Mould’s current account and the current liability of Wild Juice.[13] The general ledgers for Wild Juice show the operation of a running account whereby various payments are debited and credited to the opening balance for each year in a final end of year balance. A management fee would be charged in the way described.
[13]Exhibit ‘BM-15’ to Mr Mould’s affidavit of 30 May 2016.
Mr Mould states that because he and his mother jointly ran the farm, Wild Juice often paid for both parties’ rates, utilities, insurances, bills and other expenses. In the financial year ending 30 June 2011, Wild Juice also paid the staff wages for both companies.
Significantly, in the present context, Mr Mould states that in the 2012 financial year, Wild Juice did not trade a great deal and those types of payments were debited to Wild Juice’s current liabilities. If GW & R Mould made payments to Wild Juice or on Wild Juice’s behalf, these amounts were added to the current liability of Wild Juice. Mr Mould states that this was the manner in which he and his mother managed the cash flow. This explains why the books record the current liability of Wild Juice as having escalated markedly in 2012 from $38,066 in the previous year to $915,638 as at 30 June 2012.
Mr Mould states that the current liability changed each year, depending on what transactions took place. In the 30 June 2012 financial year, Wild Juice refinanced several loans, with Banksia and ANZ. It was the practice of he and his mother for loans to be taken out in the name of Wild Juice and for GW & R Mould to guarantee the loans because that company held the assets. The loan moneys from ANZ and Banksia were applied to fund the operation of the farm business. He states that in order to fund the cherry and apple orchard development in the names of GW & R Mould and Devon on Yarra Pty Ltd, Wild Juice took out loans in its name and GW & R Mould paid the interest payments directly and those transactions were recorded as a current liability in Wild Juice’s books.
The fixed assets, being the cherry and apple orchards, were held on properties owned by GW & R Mould, Devon on Yarra and his mother, but described as current assets of Wild Juice. Mr Mould states that in each year, to reduce the current liability amount, he and his mother applied the management fee paid by GW & R Mould to Wild Juice to the current liability amount.
He states that his mother never called up the current liability. For his part, Mr Mould never called up the money that Wild Juice spent on developing the orchards, paying for bills and staff and the like, because the business was operated as a partnership.
Mr Mould states he was told by Mr Lee that this was efficient for taxation purposes because the entities operated the same business and that many farming businesses operated this way. Mr Mould says the current liability for the financial years 2013, 2014, 2015 and 2016 cannot be determined until the financial statements for both companies are prepared. The management fees for those relevant years will also have to be calculated and applied against the current liability in accordance with the previous practice.
Mr Mould states that despite his requests, Ms Hicks has denied him access to the books and records which are located at Hunter Road. He states that he has not had access to Hunter Road since he was released from jail in late March 2016. Ms Hicks, as the shareholder and director of GW & R Mould, has always had access to Hunter Road. Mr Mould states that it is not possible to substantiate the amounts in the current liability entries for the 2013, 2014 and 2015 financial years without access to the source documents.
In the estate proceedings, Mr Mould says his solicitors wrote to Mr Carbone who was also acting for Ms Hicks in the estate proceeding, and Ms Wakefield, requesting access to Hunter Road, but this was denied. He states that his solicitor has again requested such access in an email of 12 May 2016, but is informed by his solicitor that no response has been received to that request. He states that he has engaged Ms Wheeler to prepare the 2014 financial statements for Wild Juice but this cannot be done without access to documentation held at Hunter Road.
Mr Mould also contends that Wild Juice has fixed assets consisting of the cherry and apple orchard development costs, and improvements to the value of $2,920,301 which are located on the properties owned by GW & R Mould and Devon on Yarra. GW & R Mould also has the industrial apple juicing plant at Hunter Road. Mr Mould states this plant was produced and developed utilising Wild Juice’s diffusion extraction intellectual property valued at $500,000 which was created for the sole purpose of constructing the juicer at Hunter Road.
Wild Juice has incurred the liability for the third party loans that were taken out in its name and which are described in the current liability accounts, but GW & R Mould has received the benefit of the use of the loan funds in the form of the orchards developed on its properties, for which Wild Juice has received no benefit. Mr Mould seeks to fashion this into an offsetting claim against GW & R Mould.
I consider that as the offsetting claim of the character described was not ‘raised’ in the initial 21 day affidavit filed in support of this application, it is now not available to Wild Juice in this application.
In her affidavit, Michelle Wheeler, a chartered accountant, states that in September 2015, Mr Mould engaged her firm to finalise and prepare the financial statements for Wild Juice, among other entities, for the financial years ending 30 June 2014 and 30 June 2015. She wrote to Mr Lee on 5 October 2015 in response to her engagement, and on 9 October 2015 Mr Lee responded. In that letter Mr Lee stated, among other things:
You may also be aware that the director of GW & R Mould Pty Ltd have (sic) requested to continue with the arrangement of utilising tax losses by use of a management charge for services between Wild Juice Pty Ltd and GW & R Mould Pty Ltd for the fiscal years 30 June 2013, 30 June 2014 and 30 June 2015.[14]
[14]Affidavit of Michelle Wheeler sworn 30 May 2016, paragraph 4.
On 7 December 2015, Ms Wheeler wrote to Mr Lee requesting further information which she required to prepare the 2014 accounts. She states that although she has received some financial information from Mr Lee, she is yet to receive other documentation which she requires to properly prepare the 2014 financial statements. Those documents include a summary of calculations in respect of management fees charged by GW & R Mould to Wild Juice for the 2014 and 2015 years, and documentation in relation to amounts shown on the 2012 balance sheet supporting the liabilities which she describes as loan contracts or agreements shown in that balance sheet, noting a liability of Wild Juice to GW & R Mould for $915,637. She also requested other documentation which I do not consider to be relevant to the resolution of this application.
In her affidavit of 9 May 2016, Ms Rutecki states that on 9 May 2015 she received from Ms Bibi Amidzic, who is the solicitor for Mr Mould in the estate proceedings, tax invoices from QR Accounting Service to Ms Hicks dated 6 March 2015. Ms Rutecki states that Ms Amidzic informed her that these documents were provided to her by Ms Wakefield. They are all directed to GW & R Mould. The narratives to each invoice describe accounting work done on behalf of that company. In the narrative for invoice No. 00015714 of 7 July 2015 (at which date Mr Mould was in prison), there is a reference ‘Prepare letters/correspondence for Ben Mould’s Power of Attorney, Tony Forbes requesting permission to use management fees to reduce tax liabilities of GWR Mould Pty Ltd through Wild Juices Pty Ltd intercompany transaction.’ Invoice No 15197 of 6 March 2015 includes the following narrative:
Meeting with your nominated accountant Greg McClusky of GJM Associated Pty Ltd to review last 5 years of Financial Statements, Income Tax Returns and Corporate affairs files for the following entities:
- GW & R Mould Pty Ltd
- Wild Juice Pty Ltd
- Devon on Yarra Pty Ltd as trustee for Devon on Yarra Unit Trust
Answered all Greg McClusky’s questions at our premises for a two and half (sic) hour meeting.[15]
[15]Exhibit GR-1 of the Affidavit of Georgia Claire Rutecki sworn 9 May 2016.
Ms Plain submitted the narratives in the tax invoices show that Ms Hicks knew how inextricably linked the relationship with these companies were. She contended that it can be inferred that Ms Hicks knew the indebtedness of Wild Juice, which is the subject of the statutory demand, is not owed by Wild Juice to GW & R Mould. I do not consider that submission to be sustainable. It is clear the finances of the two companies are closely linked and indeed Mr Mould’s own evidence explains the structure put in place which gave rise to the current liabilities on Wild Juice’s books.
It is important in the context of resolving the issue of the existence of a genuine dispute to emphasise at this point that Mr Mould does not contend in his evidence that the balance said to be owing by Wild Juice in the draft accounts of the companies is not correct, rather, he contends that such amounts making up the balance are book entries only and do not reflect the reality of the financial relationship between them. It seems clear from Mr Mould’s description of the transactions between the companies, as documented in the accounts of both companies for the previous several years (which were signed on behalf of both companies by Mr Mould), that GW & R Mould paid amounts to third parties on Wild Juice’s behalf which were then debited to Wild Juice’s current account. I note that in particular, for the financial year ending 30 June 2012, when Wild Juice apparently conducted little trading and earned virtually no income at all, GW& R Mould paid very significant amounts to third parties on Wild Juice’s account. As I have said, the current account deficit increased from $38,006 for the previous year to $915,638 for 30 June 2012. Mr Mould’s evidence is that such regime was implemented for reasons of tax minimisation, management of cash flow and asset protection.
Wild Juice submits it meets the threshold for establishing the existence of a genuine dispute by reason of the following matters:
(a) there is a serious question to be tried in respect of the existence of the alleged debt based on the fact that there was no written or relevant agreement between the parties and GW & R Mould has not advanced the sum claimed to Wild Juice and that this is not challenged by GW & R Mould’s evidence;
(b) the companies were established for the ownership, use and trade of a cherry and apple farm with GW & R Mould owning the assets of the farm and Wild Juice conducting the trading activities. It was structured in this way to protect assets in the event of a bad debt. It is contended the sum claimed is no more than a book entry created for tax purposes due to the parties joint operation of the farming business and this is not contradicted by GW & R Mould’s evidence;
(c) the relationship between Ms Hicks and Mr Mould is acrimonious, perhaps having its basis in the circumstances of their mother change her will shortly before her death. It is contended that the service of the demand is a reaction to the issue by Mr Mould of the estate proceedings.[16]
[16]Plaintiff’s outline of submissions dated 15 April 2016, paragraph 12.
As to the ground under s 459J(1)(b) of the Act, it is submitted by Wild Juice that the service of the demand on Mr Mould at the direction of Ms Hicks, is conduct which may be described as unconscionable or an abuse of process by reason that:
(a) Ms Hicks knew that at the time of service of the demand, Mr Mould, the sole director of the company, was incarcerated at Beechworth Corrections Centre and therefore faced difficulty taking steps to deal with the statutory demand in good time;
(b) Ms Hicks has not adduced any evidence of any enquiry she made of Mr Mould while he was incarcerated in an attempt to ascertain the nature of entries in the balance sheets prior to issuing the demand;
(c) the demand was served after Mr Mould issued the estate proceedings contesting the validity of his late mother’s will; and
(d) when considered in their totality, the inference may be drawn that the purpose for which the demand was served was improper.[17]
[17]Ibid, paragraph 13.
GW & R Mould contends that the first Mould affidavit does not pass the minimal requirements for an affidavit to ‘support’ the application. Counsel for GW & R Mould, Mr Harrison, referred to a passage in the decision of the Court of Appeal in Malec Holdings[18] in which the Court of Appeal in turn referred to Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund.[19] In that decision, Sundberg J described the minimum requirements of a supporting affidavit as follows:
(a)the affidavit must state material facts which show that there is a genuine dispute;
(b)the affidavit may read like a pleading and need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute; and
(c)neither a mere assertion that there is a genuine dispute nor a bare claim that the debt is disputed is sufficient.[20]
[18][2015] VSCA 330.
[19](1996) 70 FCR 452.
[20]Ibid at [25]–[28].
Sundberg J went on to hold that where the supporting affidavit did not meet the minimum requirements, the absence of jurisdiction could not be overcome by the filing of a supplementary affidavit after the expiration of the 21 day period.[21] However, where the supporting affidavit met the minimum requirements, the material relied upon in that affidavit could be supplemented by affidavits filed after that period. This was because, while the supporting affidavit did not have to deploy all the evidence on the hearing, only admissible evidence could be relied upon.
[21]Ibid at [9] and [30].
GW & R Mould contends that the only relevant passage of Mr Mould’s first affidavit which could be said to raise a dispute states as follows:
There is no loan agreement between the plaintiff and the defendant and the plaintiff has never received loan moneys from the defendants.[22]
[22]Affidavit of Benjamin Mark Mould affirmed 11 December 2016, paragraph 7.
It was contended by Mr Harrison that the statements that there was ‘no loan agreement’ between the parties and that Wild Juice ‘never received’ a loan from GW & R Mould does not rise above the level of mere assertion or a bare claim within the meaning of those expressions in Graywinter and that the balance of the affidavit does not depose to material facts that show the existence of a genuine dispute. It was also submitted that the claims of Mr Mould, in his later affidavits, are significantly outside the bounds and scope of what is alleged in the first affidavit. They depose to allegations of book entries and explanations of transactions. This includes alleged invoicing from Wild Juice to GW & R Mould, but the Graywinter principles prevent the plaintiff from relying on those matters.
I do not agree with that submission. I consider that the basis for the broad contention, that Wild Juice has never received loan moneys from GW & R Mould, , which is developed in the later affidavits of Mr Mould, is that the transactions were not, in reality, loans.
It is contended that the assertion in the first Mould affidavit that no debt is owed is a ‘merely spurious claim, bluster or assertion’ and ‘merely fanciful’ and that even if the later affidavits of Mr Mould are admissible as part of Wild Juice’s claims, it still does not disclose facts which give rise to a genuine dispute.
In his second affidavit, Mr Mould states that the amount demanded ‘was created as a book entry for tax purposes only as a means of enabling Wild Juice to transfer money to GW & R Mould to enable it to pay for trading purposes.’
In paragraph 8 of his affidavit Mr Mould states:
There was never any actual loan between the plaintiff and the defendant. The amounts in the balance sheet are book entries only.
Mr Harrison submitted that Mr Mould’s evidence that Wild Juice undertook ‘book entries’, the result of which was that income was shifted from Wild Juice to GW & R Mould, enabled Wild Juice to have a real and substantial tax benefit and it does not lie in the mouth of Wild Juice to now claim that the liability is only a balance sheet or book entry.
In VL Finance Pty Ltd v Legudi,[23] Nettle J considered the issue of whether journal entries in the financial statements of companies could constitute evidence of the existence of those types of liabilities. In VL Finance, no formal loan agreements were ever brought into existence and the only documentary evidence of the transactions were the journal entries in the annual general ledger and financial statements of the companies. The only documentary record of the terms of the loans were liabilities of family members to the company that were recorded in one of the companies’ financial statements as current assets. In VL Finance, the defendants asserted that the entries were ‘just book entries;’ conceived by the directors of the company and there could not have been any loans in reality because none of the family members received any cash in their hands. At paragraph [30] Nettle J observed:
[23][2003] VSC 57.
In the circumstances I think it suffices to say of the book entries point that, in the absence of any suggestion of sham, there is no reason why loans agreed to be made by a family company to members of the family cannot be created orally or by conduct and sufficiently evidenced by book entry, and that it is enough to dispose of the consequences of the lack of cash in hand contention to observe that it has been the law since Spargo’s case that obligations may effectually be set off one against another, leaving a net balance due, without any money changing hands.
And at [62]:
... it has been held in both England and Australia that a company’s balance sheet may constitute an acknowledgment of the company’s indebtedness to the creditors shown in the balance sheet (because it must be taken that the balance sheet is prepared for use by creditors).
[citations omitted]
I reject Ms Plain’s submission that by reason of the absence of a written agreement, a triable issue arises. As Nettle J observes, book entries can evidence advances made between parties and brought to account at the end of each financial year. The affairs of the companies were conducted in that way to achieve tax minimisation, asset protection and to manage cash flow, but the result is the creation of a real financial liability on Wild Juice’s part.
Mr Mould’s description of how the entries in the respective books of account arose are reminiscent of transactions of the nature described by Nettle J in VL Finance. The reasoning applies in my view, where a company advances moneys to third parties to discharge liabilities of another member of that corporate group to pay for expenses in regard to trading activities and in the course of doing so, set off obligations one against another, leaving a net balance due without any money changing hands.
It is therefore no answer to say such entries are only book entries. Mr Mould states that in the 30 June 2011 financial year, Wild Juice paid the staff wages for both companies, but in the 2012 financial year it did not trade a great deal and those types of payments were debited to Wild Juice’s current liabilities. He states that if GW & R Mould made payments to Wild Juice or on Wild Juice’s behalf, those amounts were added to the current liability of Wild Juice and that it was, he says, the way that he and his mother managed the cash flow of the farming operations.
Significantly, I note that Mr Mould does not mount a case on the basis that the amount of the liability for 30 June 2013 is other than the amount stated in the draft accounts, rather it is that the financial statements do not record real financial transactions.
In her submissions of 9 May 2016, Ms Plain referred to the decision of the High Court in Stage Club Ltd v Millers Hotels Pty Ltd[24] where the High Court held that the balance sheets signed by the directors of the companies amounted to an acknowledgment in writing of the debt owed by the company to the creditor.
[24](1981) 150 CLR 535.
It is said by Ms Plain that this case is distinguishable because the balance sheets in this case do not describe GW & R Mould as a creditor and there is no evidence of GW & R Mould ever advancing loan monies to the plaintiff. I do not agree with that submission and refer to the passages of VL Finance extracted above. The amounts owing from year to year are described in Wild Juice’s books as current liabilities and in GW & R Mould’s books as current assets. Mr Mould himself describes the manner in which the financial side of the farming operations was conducted, whereby one or other of the companies would pay the other’s bills and this would be adjusted in the accounts. Mr Mould himself has signed the accounts of both companies for the proceeding several years reflecting this arrangement.
In the decision of the English Court of Appeal in Jones v Belgrave Properties Limited,[25] the plaintiff sought to rely on signed balance sheets as evidence of the defendant company’s acknowledgement of its indebtedness to it. In that case, the plaintiff was described as a sundry creditor in the balance sheets for the sum that he had advanced to the defendant company. I do not consider the characterisation of a current liability on Wild Juice’s part can be explained away by anything other than a state of indebtedness to GW & R Mould. I do not regard it as significant that it was not described specifically as a loan; it is certainly indebtedness.
[25][1949] 2 KB 700.
The thrust of Wild Juice’s application under s 459J(1)(b) was based on the circumstances of the service of the demand while he was incarcerated. Because GW & R Mould concede that the application has been made within time, that issue has fallen away leaving the existence of the estate proceedings as the foundation for any such application for abuse of process or ‘some other reason’ why the demand should be set aside. There is obviously considerable animosity between Mr Mould and his sister. However, I do not consider that the evidence before me establishes an abuse of process as such. The estate proceedings and these proceedings are in a sense related but I do not consider that the application for abuse of process is made out and I would not set aside the demand on that basis.
Accordingly, I consider that Wild Juice has not established the existence of the dispute which it raises in Mr Mould’s affidavit of 11 December 2015, i.e. that there was no loan agreement between the companies and that Wild Juice never received a loan, nor has it established that there is ‘some other reason’ why the demand should be set aside.
The proceeding is dismissed. I will hear the parties on the question of costs, including what order should be made consequent on my determination to allow GW & R Mould to re-open the matter on 16 June 2016.
---
2
0