This case deals with a situation where a company’s application to set aside a statutory demand was dismissed by consent because it was brought out of time, and the company then sought leave under s459S to oppose a winding up application on grounds that could have been relied upon in the application to set aside the demand.
Ewen Stewart & Associates Pty Ltd (ESA) served a statutory demand on Blue Mountains Virtual Air Helitours Pty Ltd (BMVAH). The demand related to amounts paid to BMVAH that ESA described as loan payments. BMVAH claimed that these were subscriptions for the issue of shares.
BMVAH filed an application under s459G of the Corporations Act 2001 to set aside the statutory demand on the ground that it disputed the debt, but was a day late in filing the application as it had mistakenly thought that the demand had been served later than it had been. It was clear from a letter sent by BMVAH to ESA’s solicitors that BMVAH was mistaken as to the date of service, but ESA’s solicitors did not point out the error.
BMVAH consented to orders dismissing the application.
ESA then filed an application to wind up BMVAH, relying on BMVAH's failure to comply with the statutory demand. In response, BMVAH filed an application under s459S for leave to dispute ESA’s debt in the winding up proceedings.
Section 459S provides that a company cannot, without the leave of the Court, oppose an application for its winding up on a ground that the company could have relied on, but did not rely on, in an application to set aside a statutory demand. Under s459S(2), the Court cannot grant leave unless it is satisfied that the ground relied on by the company is material to proving that the company is solvent.
ESA contended that BMVAH should only be entitled to a grant of leave under s459S if it was able to prove that it was solvent if ESA’s claimed debt was excluded, and also prove or admit that it was insolvent if the debt was included. The evidence as to BMVAH’s financial position and solvency was unclear.
The Court granted leave, and in so doing found that:
It seems that the Court’s decision to grant leave turned on the fact that there was a good case for the debt being genuinely disputed, and, to some extent, on the basis that the solicitors for ESA should have pointed out the error made by BMVAH as to the date of service of the statutory demand.
It is also important to note that the Court found that it is enough to show materiality, for the purpose of s459S(2) if the company might be found to be solvent if the disputed debt did not exist.
The decision provides some useful guidance as to the circumstances under which leave is granted under s459S.
For further information please contact partner Alison Robertson on (08) 9288 6872 / firstname.lastname@example.org or special counsel Tim Coyle on (08) 9288 6761/ email@example.com