Crema v Land Mark Property Developments [2006] VSC 338
In the Supreme Court of Victoria, Dodds-Streeton J dismissed an appeal from a Master's order winding up a company in insolvency, holding that a company which has not applied to set aside a statutory demand needs leave to oppose the winding up on the ground that the specified debt is not due and payable, and cannot avoid that requirement by contending that the demand is a nullity [113], [115], [173].
What the court decided
Crema, a building company, applied to wind up Land Mark in insolvency on the basis of its non-compliance with a statutory demand [2]. The application under the Corporations Act 2001 relied on a demand dated 10 April 2006 claiming $870,113.91 [8]. Land Mark neither complied with the demand nor applied to set it aside within the period prescribed by section 459G(2) [14]. Master Efthim ordered on 2 August 2006 that the company be wound up, and Land Mark and its director appealed [1].
The appellants argued that the demand was a nullity, so that section 459S did not apply and they could raise any argument available on an application to set it aside [85]. Senior counsel did not dispute that those arguments could have been raised in such an application [88]. The appellants did not rely on section 467A, so her Honour found it unnecessary to consider its construction [98].
Her Honour noted that Finkelstein J in NT Resorts recognised merely that it was "arguable" that a demand specifying only a debt not due and payable is not a statutory demand at all [111]. He had also considered that a company alleging that the specified debt was not due and payable can and should apply to set the demand aside [112]. NT Resorts therefore did not support the appellants' argument [111], [112], [113].
Her Honour held that, whatever the status of a demand once such an allegation is proved, an allegation that the specified debt is not due and owing is a ground which may be relied on in an application to set the demand aside, and section 459S applies if no application is made [115]. Leave would have to be granted on proper material, and the allegation proved, before any argument based on the demand's status could be made [115]. The appellants did not seek leave, and leave could not be granted because their complaints did not appear material to proving solvency [117].
For completeness, her Honour briefly considered the appellants' nullity submissions [118]. The appellants conceded that, although they disputed the debt, they were unable to prove their contentions [120]. The requirement that the demand be signed by or on behalf of the creditor was satisfied, because Crema's solicitor, who had its actual authority, signed it [128]. Assuming the notes to the prescribed form applied, her Honour was not persuaded that the signature failed to comply [129]. Note 1 to the form does not expressly or implicitly prohibit a solicitor signing in the firm or business name [130]. Alternatively, any non-compliance would have been no more than a defect that would not have caused substantial injustice or made the demand a nullity [133]. The failure to attach or explain the invoices would not, even if established, be a fundamental flaw [136]. Her Honour concluded that the demand was not a nullity, and that all the alleged deficiencies could and should have been raised in an application to set it aside [137].
As the demand was not a nullity and was neither complied with nor set aside, Land Mark was presumed insolvent under section 459C [138]. Her Honour found that the financiers' Notice to Pay was valid, because non-compliance with the demand was an event of default [151]. At least $56 million was due and payable to the financiers, and Land Mark had no binding or firm offer of refinancing [165]. Unless the loans could be refinanced within a relatively short time, Land Mark would be unable to pay its debts irrespective of the demand debt [152]. Her Honour held that the presumption of insolvency had not been rebutted and that the company was insolvent [166].
Her Honour declined to adjourn the application to allow refinancing, noting that the secured creditors supported a winding up and the financiers could complete the project [172]. Her Honour concluded that the appeal from the Master's order should be dismissed [173].
Why it matters
A company that says a statutory demand claims a debt not yet due should apply to set the demand aside in time; recasting the complaint as nullity at the winding up hearing will not avoid section 459S. Her Honour's reasons, given for completeness, also indicate that a solicitor with the creditor's actual authority may sign a demand in the firm or business name [128], [130].
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.