FEDERAL COURT OF AUSTRALIA

Tony Innaimo Transport Pty Ltd v Skyroad Logistics Pty Ltd [2018] FCA 1134

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted pursuant to s 459S(1)(b) of the Corporations Act 2001 (Cth) to the defendant to oppose the plaintiff’s winding-up application on the ground that the defendant disputes the debt in the statutory demand attached to the originating process.

2.    Costs of the application for leave be costs in the cause.

3.    The parties should seek to agree orders for the future conduct of the proceedings. If they are unable to do so they have liberty to apply on the giving of 72 hours’ notice and the Court will schedule a case management hearing.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GRIFFITHS J:

Introduction

1    The defendant (Skyroad Logistics) seeks leave under s 459S of the Corporations Act 2001 (Cth) (the Act) to oppose a winding up application on the ground that it disputes the debt asserted by the plaintiff (TIT) in a statutory demand which was served on the defendant on 23 February 2018. Skyroad Logistics did not seek to have the statutory demand set aside under s 459G of the Act within the specified time. The parties agreed that the interlocutory application under s 459S should be heard and determined as a preliminary question in advance of the hearing of the winding up application under ss 459A and 459P of the Act.

Summary of legal principles

2    Section 459S is in the following terms:

459S    Company may not oppose application on certain grounds

(1)    In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a)    that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b)    that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2)    The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

3    The first thing to note about this provision is that it raises a threshold issue for determination, namely whether the dispute about the statutory demand debt is material to proving that Skyroad Logistics is solvent. It is only if that issue is resolved in favour of Skyroad Logistics, that it becomes necessary to consider whether leave should be granted by reference to matters such as :

(a)    Skyroad Logistics’s basis for disputing the statutory demand debt; and

(b)    the reasonableness of Skyroad Logistics’s explanation for not having raised the issue of disputed debt in an application to have the statutory demand set aside.

4    There is a helpful discussion of relevant principles in cases such as Switz Pty Ltd v Glowbind Pty Ltd (2000) 155 FLR 282; Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 (Grant Thornton); In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 (Vangory Holdings); Soundwave Festival Pty Ltd v Altered State (W.A.) Pty Ltd [2014] FCA 466 (Soundwave) and Gillion Pty Limited (Trustee) v Wet Fix Holdings Pty Ltd [2016] FCA 1424. Some of the principles may be summarised as follows:

(a)    the discretion conferred by s 459S is to be exercised cautiously and sparingly and with regard to the purpose of Pt 5.4, which is to provide for determination of objections to a statutory demand by an application made timeously under s 459G, rather than at the time of the winding up application;

(b)    nevertheless it is to be acknowledged that s 459S is the only “safety net” against the potential harsh operation of Pt 5.4;

(c)    a company seeking leave under s 459S must show that the debt in respect of which it is seeking leave is pivotal to the question of solvency in the sense that it must demonstrate that if the debt exists then the company will be insolvent and, if the debt does not exist, the company will be solvent (see further below);

(d)    as to the degree of proof on the issue of materiality, it is unlikely that the requirement can be satisfied by mere assertions of solvency or as to what might happen in the future; rather, the Court must be satisfied on the evidence placed before it that the dispute as to the debt is material to the company’s solvency; and

(e)    another issue for consideration is whether there is a serious question to be tried on the ground sought now to be raised (see Vangory Holdings at [10] per Black J).

5    The requirement of materiality in s 459S(2) has been the subject of analysis in various cases. The parties were agreed that there is a narrow view of this requirement, which is to the effect that, for a debt to be material, it must be the difference between solvency and insolvency, such that proof is required that if the disputed debt exists then the company will be insolvent and if the debt does not exist then the company will be solvent. The broad view is that the disputed debt need not be determinative of the company’s solvency and that materiality is established where there is evidence that the company would undoubtedly be insolvent if the debt was owed, as well as evidence that it might be solvent if the debt is not owed. In Grant Thornton at [19], Perram J gave reasons why he favoured and adopted the narrow view. The narrow view has subsequently been applied by single judges of this Court (for example, by Greenwood J in Spencer v Neo Rock Pty Ltd ACN 110 874 283 (In Liquidation) [2009] FCA 845). The broad view has been adopted by single judges of the Supreme Court of New South Wales (see, for example, Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161).

6    It is desirable to set out some relevant remarks in Soundwave by Wigney J concerning the different views:

36.    There appears to be a dispute in the authorities concerning s 459S(2) about the appropriate test to be applied in determining whether the relevant ground (the dispute concerning the debt) is relevant to the solvency of the company seeking to oppose the winding up application. On the one hand, there are various authorities which are said to adopt a strict or narrow approach: HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638; (2002) 44 ACSR 169 at [53]; Grant Thornton Services (NSW) Pty Limited v St. George Wholesale Distributors Pty Limited [2008] FCA 1777 at [19] (Grant Thornton); Deputy Commissioner of Taxation v Neo Rock Pty Limited [2009] FCA 129 at [9]; Perpetual Nominee Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282. This approach is said to require an applicant for leave under s 459S to prove that for a dispute concerning the debt to be material, it must be “the difference between solvency and insolvency”, or “pivotal”, “crucial” or “determinative” of solvency. That would require proof that if the disputed debt exists then the company will be insolvent, and that if the debt does not exist then the company will be solvent.

37.    On the other hand, there are authorities that are said to favour a broad or less strict approach: Radiancy (Sales) Pty Limited v Bimat Pty Limited [2007] NSWSC 962; (2007) 25 ACLC 1216 at [64]; Ewen Stewart at [31]-[48]. This approach is said to be that the disputed debt need not be determinative of the company’s solvency. Rather, materiality will be established if there is evidence that the company would undoubtedly be insolvent if the debt was owed, as well as evidence that it “might be” solvent if the debt is not owed. In Ewen Stewart, White J put the test in the following terms (at [48]);

In short, the existence or non-existence of the plaintiff’s debt is not material to proving that the company is solvent where the company claims it is solvent, even if it owes the debt. It does not follow that all questions of a company’s solvency are to be advanced to the stage at which leave is sought under s 459S, so that a company must then establish by the fullest and best evidence that it is solvent if it does not owe the disputed debt. A finding of the existence or non-existence of the debt will be pivotal to a decision on solvency at the s 459S stage, if the company might be found to be solvent if the debt does not exist. That would establish materiality for the purposes of s 459S(2).

…

40.    The additional observation that I would make is that, in my view, at the s 459S stage, the company that is seeking leave must adduce sufficient evidence concerning solvency to satisfy the Court that the existence or otherwise of the debt will be material to the conclusion as to the company’s solvency – that is, that the existence or otherwise of the debt is relevant to, or has the capacity to influence, or have an effect on, that conclusion. If, at the s 459S stage, the company contends and intends to prove that it is solvent if it does not owe the disputed debt, it must lead evidence of its financial position which, if accepted, is capable of satisfying the Court of that fact. It is doubtful that the Court could be so satisfied on the basis of mere assertion. Nor should the Court be required to speculate about what evidence of solvency might be led at the final hearing of the winding up application.

7    TIT urged the Court to apply the narrow view unless satisfied that Perram J was clearly wrong in Grant Thornton. I propose to adopt that course because I am not satisfied that Perram J was clearly wrong.

The evidence

8    Both parties are in the transport industry. They have had a business relationship from around August 2016. On 1 November 2016 they entered into a Shareholders Deed of Agreement. Their business relationship involved TIT being, in effect, a subcontractor to Skyroad Logistics. Skyroad Logistics had contracts with third parties (including DHL and Singapore Airlines) to transport goods. Skyroad Logistics outsourced some of this work to TIT. The DHL goods were moved between Melbourne and Sydney, the Singapore Airlines goods were moved from Coolangatta to Sydney and TIT also did local deliveries for Skyroad Logistics, transporting goods dropped off at TIT’s Sydney depot by Skyroad Logistics.

9    TIT issued invoices to Skyroad Logistics and, between September 2016 and December 2017, many, but not all, those invoices were paid by Skyroad Logistics. The relationship then soured and the parties were negotiating the end of that arrangement in early 2018.

10    On 23 February 2018, TIT served a statutory demand on Skyroad Logistics in the amount of $448,385.43, being the total of outstanding tax invoices which were attached to the statutory demand. Skyroad Logistics had 21 days after the statutory demand was served to seek to have it set aside under s 459G of the Act.

11    There was an exchange of correspondence between the parties concerning some of the tax invoices annexed to the statutory demand. There is some evidence which indicates that from about May 2017 Skyroad Logistics had queried TIT’s methodology and invoice practices. As will shortly emerge, TIT denies that Skyroad Logistics raised any dispute prior to 23 February 2018. As part of the business arrangement, TIT was allowed access to Skyroad Logistics’s accounting system to enter invoices but a dispute arose when Skyroad Logistics learned that TIT was submitting and approving its own invoices.

12    Skyroad Logistics undertook an internal audit of the invoices annexed to the statutory demand. That audit showed that of the total debt:

(a)    $254,089.24 was disputed by Skyroad Logistics as involving overcharging; and

(b)    $194,296.19 was agreed.

13    The statutory demand was served when the parties were negotiating the terms of terminating their previous business relationship.

14    A particular feature of this case is that Skyroad Logistics does not dispute the entire amount of the debt which is the subject of the statutory demand. The amount which is disputed is approximately $250,000. It is important to bear this figure in mind in determining whether Skyroad Logistics has established the threshold requirement of materiality for the purposes of its application under s 459S.

15    The circumstances surrounding Skyroad Logistics’s failure to file an application to have the statutory demand set aside may be summarised as follows:

    as noted above, the statutory demand was served on Skyroad Logistics on 23 February 2018;

    on 1 March 2018, Skyroad Logistics’s solicitors wrote to TIT’s solicitors with a view to trying to resolve the disputed debt and to avoid unnecessary legal proceedings;

    on 7 March 2018, Skyroad Logistics’s solicitors sent a letter to TIT’s solicitors in which the dispute was particularised;

    on 8 March 2018, Skyroad Logistics’s solicitors wrote to TIT’s solicitor providing further particulars of the disputed debt;

    on 13 March 2018, TIT’s solicitors wrote to Skyroad Logistics’s solicitors denying that there was a genuine dispute in relation to the debt and claimed that no dispute had been raised by Skyroad Logistics prior to 23 February 2018;

    Skyroad Logistics’s solicitors attempted to email unsealed copies of the application to have the statutory demand set aside and the two supporting affidavits to TIT’s Queensland agents at approximately 5:18 pm on 16 March 2018 but the attempt was unsuccessful because of the bulk of the documents. The agents were advised that copies would be served personally on the morning of Monday, 19 March 2018;

    a solicitor acting for Skyroad Logistics (Ms Natalie Tuson) swore two affidavits in which she outlined the steps surrounding the preparation of the legal documentation to have the statutory demand set aside and her office’s attempts to file that material electronically on 16 March 2018. Her evidence relating to the preparation of the documentation starts at 3:30 pm on that day, when Mr Anthony Clark from Skyroad Logistics came to her office to execute his affidavit (which was 308 pages in length). Ms Tuson deposed that at approximately 3:55 pm, after various amendments had been made to Mr Clark’s affidavit and he was reviewing it for execution, she executed her affidavit dated 16 March 2018, as well as the application itself bearing the same date. She deposed that a paralegal commenced scanning the relevant documents and commenced the online lodgement of the application on the Court’s eLodgment website at approximately 3:55 pm but because of the bulk of the documents the process took longer than expected. It was not until 4:40 pm on 16 March 2018 that all the documents were uploaded to the Court’s website (i.e. ten minutes late). Ms Tuson was not required for cross-examination;

    on 19 March 2018, Skyroad Logistics’s solicitors were told that the Federal Court Registry would not process the application and supporting affidavits because the last date for filing was 16 March 2018 and, pursuant to r 2.25(3)(a) of the Federal Court Rules 2011 (Cth) (2011 FCRs), a document which is electronically filed must be received by 4:30 pm otherwise it is deemed to be filed on the next business day; and

    On 23 March 2018, Ms Tuson emailed the Registry and withdrew the application.

16    Both parties filed lay and expert evidence. Skyroad Logistics relied on an expert report dated 24 April 2018 by Peter Dinoris from Artemis Insolvency. In brief, Mr Dinoris said:

(a)    Skyroad Logistics had sufficient cash to pay the agreed amount of $194,296.19 as at 24 April 2018;

(b)    Skyroad Logistics had insufficient means to pay the balance of the alleged debt of $488,385.43 (being the agreed amount referred to above and the disputed debt of $254,089.24) as at 24 April 2018; and

(c)    in his opinion, Skyroad Logistics was solvent as at or around 24 April 2018 but for the disputed debt of $254,089.24.

17    Mr Dinoris’s evidence, if accepted, would establish materiality because his evidence is to the effect that, absent the disputed debt of approximately $250,000, Skyroad Logistics was solvent but that if the disputed debt is taken into account, Skyroad Logistics was insolvent.

18    In support of his views concerning the solvency of Skyroad Logistics, Mr Dinoris addressed various “insolvency indicators” as established in previous caselaw. He said at page 5 of his report that the following matters were of particular relevance:

(a)    Skyroad Logistics had sufficient cash on hand (i.e. $232,844.00) to pay the agreed amount of $194,296.16 (sic);

(b)    Skyroad Logistics has a surplus of current assets over current liabilities and the net asset position of the company has improved from 30 June 2017 to 31 March 2018; and

(c)    Skyroad Logistics’s profit and loss reports indicate that it was profitable over the nine month period ended 31 March 2018 and was forecast to generate positive cash flows in the last three months of the financial year 2017-2018.

19    Mr Dinoris has worked in insolvency matters for more than 20 years. He is a registered liquidator and a member of the Institute of Chartered Accountants in Australia and New Zealand. He is the managing director of the Insolvency and Reconstruction Division of Artemis Insolvency and has held that position since November 2016. Mr Dinoris was not required for cross-examination.

20    Anthony Clark, who is a director of Skyroad Logistics, affirmed two affidavits in which he described the business relationship between the parties and various disagreements regarding TIT’s charges and invoices. This evidence included an email dated 14 October 2017 which was sent to TIT by another director of Skyroad Logistics requesting that TIT personnel refrain from approving its own invoices and that they should submit them as draft bills for Skyroad Logistics to approve. Mr Clark said that around 25 February 2018 he undertook a full reconciliation of all the invoices submitted by TIT and produced a Reconciliation Spreadsheet which was sent to TIT’s lawyers on 8 March 2018. Mr Clark gave lengthy evidence regarding the history of the parties’ business relationship and why he believed that there is a genuine dispute about the existence and amount of the alleged debt, which included claims that Skyroad Logistics had overpaid TIT’s invoices and TIT had unpaid invoices owing to Skyroad Logistics, including a claim for damage to one of Skyroad Logistics’s trucks allegedly caused by a TIT driver. Mr Clark was not required for cross-examination.

21    TIT relied upon an expert report dated 23 May 2018 by Ezio Senatore. The report was written in response to that of Mr Dinoris. Mr Senatore concluded that, in his view, Skyroad Logistics is insolvent if it were to pay the demanded amount of $448,385.43 and “likely to be insolvent” if it were to pay the amount of $194,296.29. Mr Senatore noted that he had not sighted any cash flow forecast for Skyroad Logistics and he said that this was a deficiency in Skyroad Logistics’s financial information system. He concluded that the closing monthly cash at bank for March 2018 was $178,573. He said that if this money was used to pay the alleged debt of $194,296, $16,000 would still be required to be funded from either recovery of accounts receivables or financial support obtained from third parties.

22    With reference to Skyroad Logistics’s balance sheet, Mr Senatore said that it disclosed that Skyroad Logistics’s material asset is its accounts receivable but:

(a)    approximately 80% of Skyroad Logistics’s receivables are either current or 30 days overdue and no provision had been made for doubtful or bad debts;

(b)    of its aged receivables of approximately $900,000, $212,840 is a current alleged receivable in respect of TIT. But that figure relates to asserted overpayments by Skyroad Logistics to TIT and is the subject of the invoices it has issued, which invoices TIT says are both contested and questionable.

23    Mr Senatore drew the following inferences from Skyroad Logistics’s balance sheet:

    the only asset of significance is Skyroad Logistics’s cash at bank and accounts receivable;

    there is no provision for doubtful debts;

    there is no up to date ATO information;

    Skyroad Logistics has a net asset deficiency and has been in this position from the date of its incorporation;

    Skyroad Logistics is reliant on continued support from Skyroad Investments Pty Limited (Skyroad Investments).

24    With reference to Skyroad Logistics’s profit and loss report for the nine months to March 2018, Mr Senatore said that some of the financial information presented was misleading and he concluded that, on the face of matters, Skyroad Logistics is currently unprofitable, which meant that its net asset deficiency would increase.

25    Mr Senatore has over 30 years’ experience as an insolvency practitioner and reconstruction expert. He too is a registered liquidator and a member of the Institute of Chartered Accountants in Australia and New Zealand.

26    Mr Senatore was cross-examined by Skyroad Logistics. It was put to him that the rounded payments in Skyroad Logistics’s cash flow in respect of the ATO and Caltex were not appropriate indicia of insolvency in circumstances where the former involved payments made under a payment plan with the ATO and the latter probably reflected a float or credit limit. Mr Senatore resisted the first part of that proposition on the basis that even if Skyroad Logistics was making monthly payments of $12,000 to the ATO the underlying debt to the ATO still existed. I did not find his explanation of this distinction to be persuasive.

27    Under cross-examination, Mr Senatore acknowledged that the amount of a company’s debt is a very material consideration in assessing its solvency.

The parties’ submissions summarised

28    Skyroad Logistics submitted that its claim that there is a genuine dispute in relation to part of the debt is supported by the fact that it raised with TIT the appropriateness of TIT’s invoicing practices almost a year before the statutory demand was served. It also emphasised that it accepted some liability but disputed a significant part of the alleged debt. It submitted that it was also relevant to take into account its conduct in adjusting some of the invoices as a result of the reconciliation it conducted, which indicated that it was not “over-reaching”. It added that when its attempts to resolve the dispute failed it sought to file an application to have the statutory demand set aside but that it lost the opportunity to pursue this process either because of technological reasons or “oversight”.

29    In brief, Skyroad Logistics submitted that:

(a)    if the entire debt is taken into account, it is insolvent;

(b)    if the admitted part of the debt is taken into account, it is solvent;

(c)    the genesis of the dispute about the entire debt long pre-dates the statutory demand; and

(d)    through its solicitors Skyroad Logistics attempted to resolve the dispute and through no fault of its own its application to have the statutory demand set aside was not filed within time.

30    Mr Trewavas, who appeared for Skyroad Logistics, submitted in oral address that the essential issue for determination by the Court is whether the disputed amount is material to the issue of Skyroad Logistics’s solvency. He emphasised that the Court was not required to determine the issue of Skyroad Logistics’s solvency having regard to the nature of this proceeding; rather, the focus is primarily on the issue of materiality. Mr Trewavas said that it was sufficient that Mr Senatore agreed under cross-examination that the amount of debt owed is material to solvency.

31    TIT urged the Court to prefer Mr Senatore’s evidence to that of Mr Dinoris. In its written submissions it claimed that Mr Senatore was of the opinion that Skyroad Logistics is insolvent if either the agreed amount or the demanded amount is owing. Mr Hartley, who appeared for TIT, acknowledged in oral address that this overstated the matter because Mr Senatore was of the opinion that it is likely that Skyroad Logistics is insolvent in respect of the agreed amount. Mr Hartley said that this was sufficient for his client’s case that Skyroad Logistics failed to establish materiality.

32    In support of its submission that Mr Senatore’s opinion should be preferred, TIT said that Mr Dinoris took into account allegedly unsatisfactory aspects of Skyroad Logistics’s claim that there had been overpayments in the case of 287 invoices in the amount of $154,584.82. It submitted that there was evidence that Skyroad Logistics would trade at a loss for the financial year ending 30 June 2018 and was currently unprofitable.

33    TIT urged the Court to prefer Mr Senatore’s opinion because:

(a)    Skyroad Logistics had continuing losses;

(b)    it is on a payment plan with the ATO in respect of overdue Commonwealth taxes;

(c)    there is no evidence that Skyroad Logistics has access to alternative funds;

(d)    Mr Dinoris’s finding that there were no special arrangements with selected creditors overlooks Skyroad Logistics’s payment plan with the ATO; and

(e)    Mr Dinoris did not address the fact that there were payments outside trade terms notwithstanding that even the agreed amount had not been paid.

34    TIT submitted that if the narrow view of materiality was taken and Mr Senatore’s evidence preferred, the s 495S application had to be refused. TIT accepted, however, that the evidence disclosed a serious question as to whether the debt claimed in the statutory demand was not due and owing.

35    TIT challenged Skyroad Logistics’s explanation for not having filed within time an application to have the statutory demand set aside. In particular, it submitted that the evidence did not support Skyroad Logistics’s claim that the process was thwarted by technology. TIT submitted that the explanation advanced by Skyroad Logistics in its solicitor’s affidavits left unaddressed what steps were taken to prepare the relevant legal documentation before 3:30 pm on 16 March 2018. It submitted that an inference could be drawn from Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) that no evidence could be given to assist Skyroad Logistics. It submitted that the Court should find that it was only on the last day of the 21 day period that action was taken by Skyroad Logistics’s solicitors to prepare legal documentation to have the statutory demand set aside.

36    TIT relied on Mr Michael Hogan’s evidence in support of its submission that the dispute between the parties has not been in existence for the lengthy time claimed by Skyroad Logistics. TIT described the dispute as one “of recent invention and is not genuine”. Mr Hogan is TIT’s Business Manager. Mr Hogan responded to Skyroad Logistics’s claims and the evidence of Mr Clark that:

(a)    there was overcharging in TIT’s invoices; and

(b)    because Skyroad Logistics had already paid some invoices which contained overcharging, this constituted overpayment by Skyroad Logistics.

37    Mr Hogan queried the 287 invoices identified by Skyroad Logistics as evidencing overpayments in circumstances where Mr Hogan said:

(a)    there are unexplained differences in the amounts of the alleged overpayments;

(b)    Skyroad Logistics has made no formal demand nor articulated a legal basis in support of its demand for payment of the 287 invoices; and

(c)    he was unware of any proper foundation for the 287 invoices.

38    Mr Hogan was not required for cross-examination.

Consideration and determination

39    The threshold issue is whether Skyroad Logistics has established materiality. In considering this matter I apply the narrow view as outlined above.

40    If Mr Dinoris’s evidence is accepted, the materiality requirement is satisfied. As noted above, TIT urged the Court to prefer Mr Senatore’s evidence. Mr Senatore’s analysis resulted in him concluding that Skyroad Logistics is insolvent if it were to pay the demanded amount of $448,385.43 and that it was “likely” to be insolvent if it were to pay the alleged amount of $194,296.29 (see page 17 of his Report). Mr Senatore explained that this qualification in respect of payment of the alleged amount depended upon whether or not Skyroad Logistics continued to receive funding from Skyroad Investments and its shareholders, as Mr Senatore makes clear at p 4 of his Report. In re-examination Mr Senatore explained why he considered the financial position of Skyroad Investments to be “pretty fragile”. He said that its net asset position was only $30,000 if Skyroad Logistics was excluded from that calculation. He said that Skyroad Investments had limited cash at bank and that, in these circumstances, if it were to inject money into Skyroad Logistics it itself would need an injection of capital.

41    It should be noted that, under schedule 3, clause 1.10.1 of the Shareholders Deed of Agreement dated 1 November 2016, the capital and loans made to Skyroad Investments are to continue via loans and transfers to Skyroad Logistics and that this provides the funding of cashflows for Skyroad Logistics.

42    Skyroad Logistics has the burden of satisfying the Court that the materiality requirement is satisfied. This issue largely turns on whether or not the Court accepts Mr Dinoris’s evidence in circumstances where he was not required for cross-examination and TIT was content to rely upon Mr Senatore’s criticisms of aspects of Mr Dinoris’s report. Mr Dinoris’s report is based on unaudited financial information. The same may be said, of course, with respect to Mr Senatore’s report. It is important to bear in mind, however, that the Court is dealing with an application for leave under s 459S and not an application under s 459P that Skyroad Logistics be wound up. In the latter case, it is established that, because of the presumption of insolvency (see s 459C(2)(a)), to discharge its onus of proving solvency the Court should ordinarily be presented with the “fullest and best” evidence of the company’s financial position (see Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609 at 617 per Hayne J). Moreover, in that context, it has been said that unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency, nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants (see Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 at [44] per Weinberg J).

43    Having regard to the interlocutory nature of a s 459S application and the stage of the process when it is made, I doubt that the evidentiary requirements are as strict or demanding as those which apply to a s 459P application. Appropriate evidence has to be adduced by the applicant seeking leave which is sufficient to establish the materiality requirement, as well as other relevant matters under s 459S. Given the wide range of circumstances in which leave is sought under s 459S it is undesirable to be prescriptive about what evidence will be sufficient to satisfy the Court that the statutory requirements are met.

44    I find that Skyroad Logistics has adduced sufficient evidence, primarily in the form of Mr Dinoris’s expert report, for the Court to be comfortably satisfied that the materiality requirement has been met. In particular, I accept Mr Dinoris’s evidence that Skyroad Logistics has sufficient cash on hand (approximately $230,000) to pay the agreed amount of $194,296.19 and remain solvent, having regard to the surplus of current assets over current liabilities and the net asset position of Skyroad Logistics having improved in the nine months concluding 31 March 2018. I also accept Mr Dinoris’s evidence concerning Skyroad Logistics’s profitability and its forecast to generate positive cashflows in the period 1 April 2018 to 30 June 2018.

45    As noted above, Mr Senatore opined that if the agreed amount of $194,296 was paid, this would reduce Skyroad Logistics’s cash at bank to zero and $16,000 would have to be funded from either recovery of account receivables or a financial injection. I find that $16,000 is a relatively modest sum and it is reasonable to assume that, in accordance with clause 1.10.1 of schedule 3 of the Shareholders Deed of Agreement, such an amount would be injected by Skyroad Investments in circumstances where, as Mr Senatore himself acknowledged, that company had funds available to it of $30,000.

46    Having regard to these matters, which focus directly on the issue of materiality by reference to the amount of the debt which is disputed, I do not consider it necessary at this stage of the proceeding to consider and determine the validity of Mr Senatore’s various criticisms of other aspects of Mr Dinoris’s evidence. It is also appropriate to note that TIT made a considered decision not to call Mr Dinoris for cross-examination.

47    As to the other relevant requirements, as noted above, TIT conceded that, despite all the denials and counter-claims made by its witnesses (including Mr Hogan) in respect of Skyroad Logistics’s case and evidence, there is a serious question to be tried on the ground raised by Skyroad Logistics to the effect that the debt the subject of the statutory demand is not due and owing.

48    That leaves for determination whether any of Skyroad Logistics’s conduct or that of its legal advisors, should preclude it from obtaining leave. This directs attention to the adequacy of the explanation why Skyroad Logistics did not raise the issue of the disputed debt in a timely application to set aside the statutory demand.

49    This is not a case where no steps were taken to have the statutory demand set aside. It is clear that the parties were in discussion over several weeks both before and after service of the statutory demand with a view to resolving their various differences. Those differences related not only to the alleged debts from one to another, but also terminating their broader business relationship.

50    The apparently belated steps taken by Skyroad Logistics and/or its lawyers to finalise the legal documentation challenging the statutory demand has to be assessed in the context of the parties’ attempts to resolve their differences commercially and not by legal processes. On 25 January 2018, TIT lawyers indicated to Skyroad Logistics that their client was “keen to ensure an amicable separation”. The parties continued to hold discussions with a view to resolving their differences. The statutory demand was served on 23 February 2018. On 1 March 2018, Skyroad Logistics’s lawyers suggested a meeting between the parties so as to avoid what they described as unnecessary and expensive legal proceedings. It was reasonable for Skyroad Logistics to continue to believe that there were some prospects of resolving the matters in dispute when TIT’s lawyers wrote to them on 5 March 2018 and indicated that the TIT directors were willing to participate in a telephone conference with Skyroad Logistics “to discuss payment of the debt”. In the meantime, Skyroad Logistics was conducting the internal audit which informed a large part of the letter dated 7 March 2018 in which Skyroad Logistics’s offsetting and counterclaims were set out. That letter explained why Skyroad Logistics considered that the true debt was $349,162.11 which, when offset by other identified items, reduced the amount to $190,021.66. The letter contained an offer to settle the dispute, which offer remained open until 13 March 2018. It was not until a week later, on 13 March 2018, that TIT responded saying that TIT denied Skyroad Logistics’s assertion that there was a genuine dispute and it pressed for payment of the full amount.

51    In circumstances where the parties were involved in ongoing discussions about possibly resolving their dispute until receipt of that 13 March 2018 letter, Skyroad Logistics should not be criticised for delaying the preparation of legal documentation to have the statutory demand set aside. It is true that the evidence does not disclose when those steps were first taken but, having regard to the chronology, it is likely that it was not until receipt of TIT’s lawyer’s letter dated 13 March 2018. It may be inferred, however, given the bulk of Mr Clark’s draft affidavit in support (308 pages), that some preparatory work must have been done before 3:30 pm on 16 March 2018, when Mr Clark came to Ms Tuson’s office to execute his affidavit. That work also included the drafting of the application and affidavit in support by Ms Tuson, copies of which documents were available at 3:30 pm and must have been prepared beforehand. It is also evident from Mr Tuson’s evidence, which I accept, that the process of lodging the application and supporting affidavits online commenced at approximately 3:55 pm on 16 March 2018, but was not completed until 4:40 pm because of the time taken to transfer the bulky documentation electronically to the Court Registry.

52    I reject TIT’s submission that, in accordance with Jones v Dunkel, an adverse inference should be drawn from the fact that Ms Tuson did not describe what steps, if any, had been taken prior to 3:30 pm on 16 March 2018 to prepare the relevant legal documentation and that the Court should find that any such evidence would not assist Skyroad Logistics. As Heydon J observed in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 at [232], the principle in Jones v Dunkel has two aspects. The first is that the trier of fact may infer from the unexplained failure of a party to call a witness whom that party would be expected to call, that the evidence of the absent witness would not assist that party’s case. The second aspect is that the trier of fact may draw an inference unfavourable to that party with greater confidence, but Jones v Dunkel does not enable the trier of fact to infer that the evidence of the absent witness would have been positively adverse to that party. TIT also relied upon Handley JA’s well-known judgment in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418, which extended the Jones v Dunkel principle to a case where a party calls a witness but fails to examine that witness in chief on some relevant topic, with the consequence that an inference can be drawn that such evidence would not have assisted the party’s case.

53    I do not accept that these principles apply to the circumstances here. The only proper inference reasonably to be drawn from the evidence before the Court is that Skyroad Logistics’s solicitors had commenced preparation of the necessary legal documentation before 3:30 pm on 16 March 2018, given the bulk of the documentation which existed as at 3:30 pm. It is true that it is left unclear precisely when work began on preparing that documentation. But I do not consider that this consideration attracts much weight in circumstances where I am prepared to accept at this interlocutory stage that Skyroad Logistics genuinely believed that a large amount of the debt was disputed and it sought to negotiate a commercial resolution to the issues in dispute between the parties relating not only to the demanded amount but also to Skyroad Logistics’s claimed offsets and the termination of the parties’ broad business relationship. Prior to receipt of TIT’s lawyers’ letter dated 13 March 2018, I consider that it was reasonable for Skyroad Logistics to believe that there was some prospect that the dispute could be resolved commercially and without litigation.

54    Having regard to all these matters, I do not accept TIT’s submission that the conduct of Skyroad Logistics or its solicitors warrants leave being withheld. Nor do I consider that there is any other discretionary reason why leave should not be granted.

Conclusion

55    For these reasons, Skyroad Logistics should have leave pursuant to s 459S of the Act to oppose TIT’s winding up application on the ground that it disputes the debt claimed in the statutory demand. The parties should seek to agree orders for the future conduct of the proceeding. If they are unable to agree such orders, I will schedule a case management hearing.

Associate:

Dated:    3 August 2018