In the matter of Integrated Growth Solutions Pty Ltd

1. [1]

   GLEESON JA: The plaintiff, Integrated Growth Solutions Pty Ltd (IGS), makes an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand for payment dated 16 August 2016 served by the defendant, Total Hoarding Supplies Pty Ltd (in liq) (Total).

2. [2]

   The debt to which the statutory demand relates is described as “loan advance by the creditor to Integrated Growth Solutions Pty Ltd” in an amount of $449,661.80.

3. [3]

   The affidavit accompanying the statutory demand was sworn by Mr Neil Cussen, who was appointed liquidator of Total when that company was placed into liquidation on 28 January 2014. Mr Cussen deposed to his belief that there is no genuine dispute about the existence or amount of the debt.

Grounds of application

1. [4]

   IGS seeks to set aside the statutory demand on the grounds that there is a genuine dispute about the existence of the debt claimed in the demand (s 459H(1)(a)) or that it is an abuse of process for Total to issue the demand and accordingly there is some other reason for the demand to be set aside (s 459J(1)(b)).

Background

1. [5]

   In support of the application, IGS relied upon affidavits sworn by Ms Grace Kunz, a director of IGS, her husband, Mr Andre Kunz, who, at all relevant times, was the director and managing director of Total, and Ms Maree Garrett, who was the accountant for Total, up until its liquidation, and also the accountant for IGS and the Kunz family.

2. [6]

   In brief overview, IGS accepted that, as at 30 June 2012, the balance sheet of IGS recorded a non-current liability to Total in an amount of $449,661.80 described as “loans-related companies – unsecured”. IGS contended that, as at 30 June 2012, Total owed IGS an amount of $532,220, being part of the trade debtors of IGS of $1,062,219.98 described in note 2 of the financial statements of IGS for the year ended 30 June 2012. Ms Kunz annexed to her affidavit a copy of what she said was the debtors’ ledger of IGS as at 30 June 2012. That document recorded a breakdown of trade debtors of IGS, as at 30 June 2012, comprising Sybab Pty Ltd in an amount of $529,999.98 and Total in an amount of $532,220, for a total of $1,062,219.98, being the figure referred to in note 2 to the financial statements.

3. [7]

   IGS contended that in or about June 2012, an agreement was reached between Ms Kunz on behalf of IGS and Mr Kunz on behalf of Total for the two debts to be set off against each other. In support of the alleged agreement to set off the two debts, IGS pointed to a number of matters.

4. [8]

   First, the minutes of a meeting of the directors of Total signed by Mr Kunz and dated 20 June 2012 recorded the following resolution and instructions to Total’s accountant:

5. [9]

   Second, there is affidavit evidence from Mr Kunz and Ms Kunz of their conversations with each other and respectively with Ms Garrett, the accountant in June 2012 on the topic of set off of debts. It is unnecessary to set out the detail.

6. [10]

   Third, a handwritten note dated 17 June 2012 of the instructions given by Ms Kunz to Ms Garrett in the following terms:

7. [11]

   Fourth, the affidavit evidence of Ms Garrett confirms that she had conversations with Mr Kunz and Ms Kunz respectively in June 2012 regarding the set off of debts, and that that she received the handwritten instruction from Ms Kunz sometime in June 2012. Ms Garrett said that “some time thereafter I posted entries to the accounts of both of the companies and updated the books and records for the necessary journal entries”.

8. [12]

   Ms Garrett annexed a copy of the 2013 financial statements for Total which she said she prepared after updating the books and records of the companies with the relevant the journal entries she needed to post to affect the setoff of the debts. The balance sheet for Total as at June 2013 annexed to Ms Garrett’s affidavit does not record the debt owing by IGS to Total, nor any liability owing by Total to IGS.

9. [13]

   Fifth, consistently with the alleged set off agreement in June 2012, IGS pointed to the financial statements for IGS for the year ended 30 June 2013. Note 3 under the heading “Trade and Other Receivables” recorded trade debtors as nil compared with the earlier figure of $1,062,219.98 for the 2012 year. Note 6 under the heading “Trade and Other Payables” recorded the loan from IGS as nil compared to the amount of the debt owed of $449,661.80 for the 2012 year.

10. [14]

    In addition, IGS pointed to an extract of the general ledger for Total for the period 1 June 2013 to 30 June 2013 which recorded general journal entries on 30 June 2013 described as “2013 Year End”. The effect of the credit entry in an amount of $449,681.80 was to reduce the “Beginning balance” of $449,681.80 in respect of the loan owing by IGS to Total to nil. It would seem from this general journal entry (which was posted to the general ledger of Total), that the accountant, Ms Garrett, affected the relevant book entries on or about 30 June 2013.

11. [15]

    Counsel for Total referred to two accounting records of Total which, it was submitted, were inconsistent with a setoff of debts having been affected in the books of both companies.

12. [16]

    The first was a balance sheet of Total as at June 2013 (Exhibit A) which showed a debt of $449,661.80 still owing by IGS to Total. This debt was somewhat inappropriately included as a negative item under the heading “Current Liabilities”. The parties agreed that this item was to be understood as an asset of Total. The same balance sheet recorded trade creditors of $554,522.30. Counsel for IGS emphasised that Exhibit A bore a print date of 16 March 2017, and was inconsistent with the balance sheet for Total as at June 2013 annexed to Ms Garrett’s affidavit, which bore an earlier print date of 27 September 2016.

13. [17]

    The evidence before the Court does not assist in explaining the differences between these two documents. On their face, the balance sheet annexed to Ms Garrett’s affidavit is in the form of a traditional balance sheet showing assets and liabilities and total equity. The balance sheet in Exhibit A (comprising two pages) appears to be an incomplete document; it does not include a figure for all liabilities, nor total equity. One possibility is that Exhibit A records the position prior to Ms Garrett having made the “2013 Year End” entries in the general journal, which were then posted to the general ledger of Total. It is not necessary to express any concluded view on this document. At its highest, it raises a doubt as to the time at which the entries were made in the accounts of Total by the accountant to give effect to the set-off. It does not detract from the plausibility of the alleged set off agreement between IGS and Total in June 2012.

14. [18]

    The second document to which Total referred was an extract of the MYOB file of Total annexed to Mr Kunz’s affidavit. He said that he kept a copy of Total’s MYOB file. The document appears to be an extract from the general ledger account for “Trade Creditors”. The “Beginning balance” for an unidentified date sometime before 31 October 2012, is shown as $660,221.80 credit. There then appear a number of entries, none of which seem to relate to IGS, except possibly for the last entry, which is a general journal debit entry dated 30 June 2013 for $532,220 described as “2013 Year End”.

15. [19]

    Total submitted that this document cast doubt upon the assertion by IGS that the figure of $532,220 referred to in the general ledger of Total as trade creditors was an amount in any way related to a debt owing to IGS. There is some force in that submission. However it is not a complete answer to IGS’s contention that Total owed IGS $532,220. The transactions giving rise to the “Beginning balance” for trade creditors were not the subject of evidence. IGS also submitted that the last entry on this document was consistent with its contention that the setoff which had been agreed in about June 2012 was affected by the accountant, Ms Garrett, it seems, on or about 30 June 2013. That contention is not implausible and is worthy of investigation.

Decision

1. [20]

   The approach which the Court should take to the assessment of a genuine dispute or offsetting claim is well-established. It is unnecessary to refer to the many authorities. A useful summary of the relevant principles by Black J by reference to the decided cases in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], appears in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [8] (Barrett AJA, McColl and Meagher JJA agreeing):

2. [21]

   In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] 85 NSWLR 601; [2013] NSWCA 344 at [30]-[31] and [39]-[55], a case concerning the allied ground of offsetting claim under s 459H(1)(b), the Court of Appeal made several important points about the forensic approach to be adopted in s 459G proceedings. These were summarised in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [9], as follows:

3. [22]

   The Court of Appeal also emphasised two further matters in Ligon 158 Pty Ltd v Huber. One is the restraint that a court should exercise in considering the ultimate question of the indebtedness of a company served with a statutory demand, referring at [9] to the remarks of Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [3] - [4]. Importantly, in Spacorp at [3], it was observed:

4. [23]

   The other matter is the summary nature of the issue before the Court on a s 459G application, which the Court explained in Ligon 158 Pty Ltd v Huber at [10] as follows:

5. [24]

   Similar statements of principle appear in the decision of the Court of Appeal in Victoria in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd [2015] VSCA 330 at [47]-[48]. It is sufficient to set out the following (footnotes omitted):

6. [25]

   Counsel for Total fairly accepted that there is a plausible contention that IGS and Total agreed in about June 2012 to set off debts respectively owed to the other. In this regard, it is well established that set off by agreement does not depend on any statutory foundation and is in law equivalent to actual payment on each side. In Federal Commissioner of Taxation v Steeves Agnew and Co (Victoria) Pty Ltd (1951) 82 CLR 408 at 420-421 Dixon J referred with approval to the following statement by Mellish LJ in Spargo’s Case (1873) LR 8 Ch 407 at 414:

7. [26]

   Nonetheless, counsel for Total submitted that there was no direct evidence that Total owed an amount of $532,220 to IGS as at 30 June 2012, which IGS relied upon as one of the debts the subject of the alleged set-off agreement. Total emphasised that the affidavit evidence of Mr Kunz and Ms Kunz did not descend to the detail of what underlying transactions gave rise to the alleged debt owing by Total to IGS, nor produce invoices supporting the amount claimed to have been owed by Total to IGS. So much can be accepted. But as Britten-Norman and Malec Holdings v Scotts Agencies make clear (see [21] and [24] above), the evidence relied upon as showing a genuine dispute need not conclusively prove the claim or otherwise be incontrovertible or substantially incontrovertible.

8. [27]

   Here, there is evidence of entries in the accounts of both companies as at 30 June 2012 which support the contention by IGS that Total owed IGS an amount of $532,220. There is evidence that the directors of both companies agreed in about June 2012 to set-off the debts respectively owed to the other company. There is also evidence that such entries were made in the records of both companies by no later than about 30 June 2013.

9. [28]

   There is a plausible contention worthy of investigation that the debt admitted to be owing by IGS to Total as at 30 June 2012 was discharged by the set off agreement between the two companies made in or about June 2012. The contention by IGS that a debt of $532,220 was owed by Total to IGS as at 30 June 2012 is not a mere assertion of fact unsupported by evidence. The contention is not so devoid of substance that no further investigation is warranted.

10. [29]

    Accordingly, I am satisfied that there is a genuine dispute concerning the existence of the debt the subject of the statutory demand.

11. [30]

    That conclusion makes it unnecessary to deal with the abuse of process ground.

Costs

1. [31]

   As to costs, subject to the following matter there is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

2. [32]

   IGS went further however and submitted that the Court should make an order for costs against the liquidator personally. IGS submitted that a liquidator, administrator or trustee in bankruptcy who acts unreasonably in defending litigation may be made personally liable for costs. That can be accepted: Re Condor Blanco Mines Ltd (No 2) [2016] NSWSC 1304 at [7] (Barrett AJA) referring to Silvia v Brodyn 25 ACLC 385; [2007] NSWCA 55 at [32], where Hodgson JA referred to the ordinary rule or practice stated in Re Beddoe [1893] 1 Ch 547; and Mead v Watson; Re Network Welding Pty Limited (in liq) (No 2) [2001] NSWSC 809.

3. [33]

   IGS submitted that the liquidator had acted unreasonably in issuing the statutory demand on behalf of Total in circumstances where an earlier statutory demand dated 17 March 2015 in respect of the same alleged debt had been served by the liquidator and subsequently withdrawn when disputed by IGS on the same grounds as relied upon in these proceedings.

4. [34]

   The submission by IGS ignored one important matter. Following the service of the first statutory demand the liquidator conducted examinations of various persons, including Ms Kunz under s 597 of the Corporations Act. It may be inferred from the liquidator’s written submissions and his unsuccessful attempt to tender statements of Ms Kunz recorded in those transcripts that the liquidator considered it was appropriate to serve a second statutory demand because some of those statements were inconsistent with affidavits earlier sworn by Ms Kunz. It is not necessary to explain the basis for the rejection of the tender of those statements as the parties indicated they did not require reasons for that ruling. The mistaken view by the liquidator, it may be inferred on legal advice, that he could tender the statements of Ms Kunz made at the s 597 examination against IGS on the present application, does not, in my view, demonstrate that he acted unreasonably in defending the proceedings.

5. [35]

   There is a separate issue foreshadowed by IGS in its written submissions as to whether an order for costs should be made on an indemnity basis having regard to a settlement offer said to have been made on 25 January 2017. The parties should be given an opportunity to make submissions on that question if they cannot reach agreement. The orders I will make will accommodate that potential issue.

Orders

1. [36]

   I make the following orders:

   1. (1)

      Order that the statutory demand dated 16 August 2016 served by the plaintiff on the defendant be set aside.

   2. (2)

      Order that the defendant pay the plaintiff’s costs of the proceedings.

   3. (3)

      If any party seeks a different order as to costs, grant leave to approach the Associate to Gleeson JA within 7 days to fix a time and date for an oral hearing of any application to vary the costs order.