In the matter of Nanevski Developments Pty Limited (No 2)

HER HONOUR: This is an application to set aside a statutory demand on four grounds, although it is only necessary for me to determine one as it has the result that the demand must be set aside. That ground, however, was only notified by the plaintiff a week before the hearing, being almost three months after the plaintiff commenced the proceedings. I gave leave to the plaintiff to amend its Originating Process to add this ground: In the matter of Nanevski Developments Pty Limited [2019] NSWSC 1204 (Nanevski No 1), and also made directions to enable the defendant to provide supplementary submissions in respect of it. In the result, although this late-raised ground has the consequence that the statutory demand is set aside, the costs orders which I propose to make reflect the practical reality that raising such matters ‘late in the day’ often mean that the parties’ efforts to prepare to contest a matter on earlier notified grounds are wasted.

The ground lately raised is simply this: the affidavit verifying the statutory demand was sworn two days before the demand was issued. Section 459E(3) of the Corporations Act 2001 (Cth) provides:

The definition of “rules” in section 9 of the Act includes “rules of the Supreme Court of a State…”. In this case, the rule referred to in section 459E(3)(b) which must be complied with is rule 5.2 of the Supreme Court (Corporations) Rules 1999 (NSW), which requires that the affidavit “be in accordance with Form 7 and state the matters mentioned in that Form”. Form 7 requires the deponent to swear or affirm that the debt in the statutory demand “is due and payable by the debtor company”.

Correspondingly, section 459E(2) of the Corporations Act requires that the statutory demand be in the prescribed form, being Form 509H of Schedule 2: regulation 1.0.03 and Schedule 1 of the Corporations Regulations 2001. Form 509H requires a creditor’s statutory demand to include the following statements:

It will be immediately noted that section 459E(3) does not require that the affidavit verifying the debt be sworn on the date on which the demand is signed, but the word “is” suggests that the deponent must swear or affirm that the debt described in the demand is due and payable on the day that the affidavit is sworn. As a matter of logic, this requires the affidavit to be sworn contemporaneously with or after the date of the demand: In the matter of Unity Resources Group Australia Pty Ltd [2015] NSWSC 1174 per Brereton J at [5].

Section 459J of the Corporations Act provides:

Although, where the verifying affidavit is sworn before the date of the statutory demand, there is no defect in the demand itself, there is abundant authority that the demand will be set aside “for some other reason”, including Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35; [2002] WASCA 196 (Templeman J, with whom Steytler and Miller JJ agreed); In the matter of Gemaveld Pty Limited [2012] NSWSC 582 per Black J. In this event, it is not necessary for the plaintiff to prove that substantial injustice will be caused unless the demand is set aside, as it would be required to do under section 459J(1)(a). The ‘plethora’ of cases in support of this proposition (described as such by Randall AsJ in Stellar Projects (Vic) Pty Ltd v Cambridge Plumbing Pty Ltd (2017) 324 FLR 279; [2017] VSC 532 at [24]) was recently summarised by Wigney J in Wollongong Coal Limited v Gujarat NRE India Pty Limited (2015) 104 ACSR 425; [2015] FCA 221 at [83]–[84]:

As Black J explained in Gemaveld at [14]:

In this case, the affidavit accompanying the demand was sworn on 27 March 2019, two days before the demand. In the same circumstances in Wildtown, Templeman J stated: “an affidavit executed two days before a statutory demand cannot verify that demand”. Although such a defect may be cured by an updating affidavit verifying that the debt referred to in the demand remains due and payable, such an affidavit must be served with the demand or within a reasonable time before the expiration of the 21 days available to a debtor to apply to set aside the demand: Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd (2005) 190 FLR 466; [2005] ACTSC 39 at [52]; Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2007] 2 Qd R 199; [2006] QSC 247 at [21]; In the matter of Complete Investing Services Pty Limited (in liq) [2018] NSWSC 1003 at [46] (Gleeson JA). In these proceedings, commenced on 17 April 2019, a director of the creditor did swear an affidavit on 16 May 2019 deposing inter alia that the debt in the demand remained outstanding, but this was a month after proceedings to set aside the statutory demand had been commenced.

Whilst the defendant does not suggest that the cases to which I have referred are wrong, it was submitted that there is a conflict of authority, such that the defendant may persuade this Court that the facts of this case justify the exercise of its discretion not to set aside the statutory demand. The defendant cited Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed., LexisNexis Butterworths, 2012) at [7.52] (footnotes omitted):

However, the decision of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 43 NSWLR 717; (1998) 28 ACSR 175, on whose reasoning the decision of McDermott Projects Pty Ltd v Chadwell Pty Ltd [2002] 2 Qd R 363; [2001] QSC 322 also relies, was distinguished in Wildtown because it was an application to wind up a company for failure to comply with a demand, not an application to set the demand aside. In Wildtown per Templeman J at [55]:

Similarly, in Unity Resources, Brereton J reviewed the dissonance between Wildtown Holdings, Dolvelle and McDermott Projects and drew the same distinction at [8]:

Aside from Dolvelle and McDermott Projects, Mr Assaf cites the decision of Senior Master Mahony in Dornay Nominees Pty Ltd v Blackbutt Nominees Pty Ltd (2001) 36 ACSR 749; [2001] VSC 20, which pre-dates Wildtown; and Ambir Pty Ltd v Perfect Touch Painting Services Pty Ltd [2003] NTSC 21, which post-dates Wildtown but does not refer to it, instead relying on the reasoning in Dolvelle once again.

The plaintiff submitted that Wildtown Holdings had been followed in numerous cases to hold that an accompanying affidavit sworn a day or more before the date of the demand is a “fatal flaw” or “necessarily fatal”: Chadmar Enterprises at [54]–[56] (Higgins CJ); Wollongong Coal v Gujarat at [98] (Wigney J): “no sound reason to conclude that Wildtown is wrong, let alone plainly wrong”; Ri-Co Holdings (Australia) Pty Ltd v Allied Sandblasters Pty Ltd [2010] 1 Qd R 293; [2009] QSC 122 at [23] (Wilson J): “I respectfully concur in and adopt the analysis in Wildtown …”; R2M Pty Limited v Gourlay [2011] FCA 168 at [34]–[36] (Buchanan J): “The statutory demand was, applying Wildtown, fatally flawed …”; Stellar Projects (at [24] (Randall AsJ): “…I cannot conclude that Wildtown is wrong, let alone plainly wrong. Accordingly, I should not depart from Wildtown.” I respectfully agree. It seems to me that the number of decisions applying Wildtown since the 2nd edition of Mr Assaf’s book was published in 2012 strengthens the conclusion that Wildtown now represents the correct position, and any decisions at first instance which are contrary to it were wrongly decided.

Even accepting Wildtown to be correct, the defendant submits that there remains a discretion to refuse relief under section 459J(1)(b) of the Act despite the defect in the affidavit, relying on section 459J(2) and the interpretation of the section in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 458; (1997) 24 ACSR 353 at 358–9:

The defendant also relied on Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; [2005] NSWCA 24 as considered by Barrett JA, with whom Beazley P and Gleeson JA agreed, in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, relying on [24], but the previous paragraph also warrants reproduction:

More recently, in Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 111 ACSR 607; [2016] NSWSC 251, Black J summarised the principles relevant to section 459J(1)(b) of the Act, at [84] (citations omitted):

The defendant submits that there is no “subversion of the statutory scheme”, no unconscionability and no abuse of process, and, relying on the language of Young CJ in Eq in Meehan v Glazier Holdings, nor is there a “gross defect” or “gross offence to the statutory scheme”. The demand was clear despite the defect and enabled the plaintiff to identify the particulars of the debt owed. With respect, this submission fails to appreciate that the authorities from Wildtown onwards provide a reason why this particular defect, without more, is sufficient to set aside a demand “for some other reason”. That the affidavit in support identifies a debt which is due and payable at the date of the demand is central to the statutory scheme. To do this, the affidavit cannot pre-date the demand.

The plaintiff submitted that the mandatory requirement of section 459E(3) Corporations Act is an important safeguard in the operation of the statutory scheme of proving insolvency to support an order winding up a company. This is the reason that “justifies if not compels” the setting aside of the demand: Wollongong Coal v Gujarat [83]. Likewise in Unity Resources, Brereton J set aside a statutory demand where the affidavit was sworn one day before the demand. His Honour noted that the failure to accompany the demand with an affidavit that complied with the requirements of s 459E(3) had “typically, if not invariably” resulted in demands being set aside, stating at [11]:

Further, I note his Honour’s explanation at [15]:

The defendant’s submission, in essence, is that the Court should consider matters of substantial injustice even though the defect falls within section 459J(1)(b). What the statute requires, however, is that there be “some other reason”. Wildtown indicates that there is, here, “some other reason”.

For these reasons, it follows that the statutory demand must be set aside. The usual order for costs would be that the defendant pay the plaintiff’s costs of the proceedings. In Nanevski No 1, when granting leave to the plaintiff to amend its Originating Process to add the ground on which the plaintiff has succeeded, I ordered the plaintiff to pay any costs thrown away by the defendant by reason of the amendment. The bulk of the evidence prepared by both parties went to the other grounds relied upon by the plaintiff to set aside the statutory demand, in particular, whether there was a genuine dispute as to the existence of the debt or an offsetting claim. By reason of what Wigney J described in Wollongong Coal v Gujarat as “a highly technical point” but “nevertheless a good point” (at [82]), it has not been necessary to canvas that evidence.

Having regard to the difficulties in assessing costs thrown away by reason of an amendment, it seems to me to be a fair result in respect of costs overall to vacate the costs order which I made in Nanevski No 1 and instead make an order that there be no order for costs in respect of these proceedings. However, the defendant is entitled to be heard if it wishes to retain the existing costs order made in its favour, although, if it does, a different costs order would need to be made in respect of the proceedings as a whole than what I presently have in mind.

In these circumstances I make the following orders: