FEDERAL COURT OF AUSTRALIA

Zyber Holdings Limited v Bakos, in the matter of Zyber Holdings Limited [2020] FCA 387

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 459H(3) of the Corporations Act 2001 (Cth), the statutory demand dated 4 September 2019 (ACN 141 090 947) in the sum of $10,050.84 directed to Zyber Holdings Limited be set aside.

2.    The defendant pay the plaintiff’s costs of the application to set aside the statutory demand.

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

REASONS FOR JUDGMENT

GLEESON J:

1    By originating process filed 27 September 2019 the plaintiff, Zyber Holdings Limited (Zyber), applies to set aside a creditor’s statutory demand dated 4 September 2019 (statutory demand) served by the defendant (Ms Bakos) on about 10 September 2019.

2    The statutory demand identifies a debt of $10,050.84 described as “company secretary and related services”.

3    The demand refers to two tax invoices:

(1)    No. 42 dated 1 February 2019 for company secretarial services carried out in January 2019 and for provision of a teleconference facility on 24 December 2019 in the total amount of $5,050.84; and

(2)    No. 43 dated 4 March 2019 for work company secretarial services carried out in February 2019 in the amount of $5,000.00.

Background facts

4    Zyber is a public company. Its primary business is in software development. George Hatzipapas has been a director of the company since 21 February 2018. Paresh Rasam and John O’Connor were also directors of the company from 30 November 2018 to 12 March 2019.

5    On or around 30 October 2018 Ms Bakos was engaged as Zyber’s company secretary, commencing 1 November 2018.

6    By letter dated 29 October 2018, Ms Bakos sought acceptance of an arrangement by which she would act as Zyber’s company secretary on a “month by month arrangement”. The letter did not provide any detail as to the scope of the role, or the particular tasks that Ms Bakos would do. As to remuneration, the letter stated: “The fees associated with fulfilling this position will be $5,000 per month plus GST. This fee will cover all superannuation obligations.”

7    The letter has been signed by Mr Hatzipapas.

8    On about 8 March 2019, Zyber held a board meeting. Zyber did not contest Ms Bakos’ evidence that the meeting was held to discuss the termination of a transaction referred to as the “Equal Transaction”. At the conclusion of the meeting, Ms Bakos tendered her resignation. According to Ms Bakos, Mr Hatzipapas said: “Thank you for your services. I will pay all of your outstanding invoices within a week.”

9    In cross-examination, Mr Hatzipapas did not dispute that he may have thanked Ms Bakos, although he said that he did not recall. He was not asked whether he had said that he would pay outstanding invoices within one week, or which invoices were outstanding.

10    Henry Kinstlinger was appointed as company secretary on 12 March 2019.

11    Zyber did not raise any dispute about Ms Bakos’s invoices prior to service of the statutory demand. Zyber contends that it only received the invoices with the demand, however, the evidence is to the contrary.

12    Ms Bakos’ evidence included an email sent to Mr Hatzipapas on 12 March 2019 which appears to have attached both her resignation and final accounts. The email states: “As discussed, these accounts will be paid on Monday 18 March 2019.” The 12 March 2019 email was also sent to Mr Kinstlinger. The evidence did not identify a discussion about payment on 18 March 2019.

13    Further, on 16 April 2019, Ms Bakos sent Mr Hatzipapas an email stating: “Can you please advise when you will be paying my outstanding fees or if there is an issue with making payment.”

14    The 16 April 2019 email was sent to two addresses identified as “George Papas” and “George”.

15    On 29 April 2019, Ms Bakos sent a third email to Mr Hatzipapas, which included the following:

George – I still have not received payment for my outstanding fees relating to January and February this year. Could you please advise why there is a hold up in my payment? The payment of these invoices are well outside payment terms.

16    By email sent on 4 June 2019, Mr Hogg, Ms Bakos’ lawyer, sent a letter of demand to Zyber, seeking payment of the sum of $10,050.84. The letter attached the two invoices. This email was also sent to Mr Kinstlinger.

17    There was also evidence that Mr Hatzipapas used the email address to which the four emails referred to above were sent. The evidence included emails sent by Mr Hatzipapas from the relevant address on 30 October 2018, 8 February 2019, 11 February 2019, 4 March 2019, 6 March 2019 and 10 October 2019 (two emails).

18    Mr Hatzipapas gave evidence that the email address used for these emails was unreliable and said that he had told Ms Bakos to use a different one. However, he did not give evidence to the effect that he had searched his emails to verify that he had not received the tax invoices.

19    Either way, the fact remains that the emails were sent to Mr Klistinger. There was no evidence that Mr Klistinger did not receive the 12 March and 4 June 2019 emails.

20    In September 2019, Ms Bakos issued the statutory demand.

Grounds to set aside demand

21    Zyber contends that the statutory demand should be set aside because there is a genuine dispute as to Zyber’s obligation to pay $10,054.84 as a result of:

(a)    Ms Bakos not providing the services with due care and skill; and

(b)    Ms Bakos not providing some of the services at all.

22    Zyber did not press its contention that it has an offsetting claim.

Legal framework: S 459H

23    Section 459H of the Corporations Act 2001 (Cth) (Act) provides for a statutory demand to be set aside or varied where the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which the demand relates.

24    That test has been variously formulated as requiring that the dispute is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation” and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: In the matter of UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [6].

25    In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464, the Full Court held that a “genuine dispute” must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived.

26    In CGI Information Systems v APRA Consulting Pty Ltd [2003] NSWSC 728 at [16], Barrett J explained:

[T]he task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that on rational grounds indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

27    In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70 at [71], Dodds-Streeton JA observed that a company which seeks to establish a genuine dispute (or offsetting claim):

... is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. ... [I]t is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.

28    In Re Country Spring Water Co Pty Ltd [2013] NSWSC 1660 at [18], Black J observed that a genuine dispute would not arise in respect of the payment of the purchase price due under a sale contract unless some legal basis were articulated on which the alleged matters “invalidated any obligation of the purchaser to pay the balance due under the contract”.

Evidence as to existence of genuine dispute

Receipt of invoices by Zyber

29    As set out above, I reject Zyber’s contention that Ms Bakos’ tax invoices were not brought to its attention until the statutory demand was issued.

30    The fact that Zyber did not dispute the tax invoices prior to the issue of the statutory demand, having received them at least through Mr Kinstlinger on two occasions, is a matter suggesting the absence of a genuine dispute about the invoices.

31    Another matter tending to suggest the absence of a genuine dispute is Ms Bakos’ unchallenged evidence that Mr Hatizpapas undertook to pay her outstanding invoices promptly.

Scope of Ms Bakos’ retainer

32    There is an issue between Zyber and Ms Bakos as to the scope of her retainer. On the available evidence, Ms Bakos’ responsibilities were not defined with precision. There is also an issue as to whether Ms Bakos reported to the Board of Zyber or to Mr Hatzipapas.

33    According to Mr Hatzipapas, Ms Bakos’s responsibilities included a long list of activities. There is no evidence that this list was agreed with Ms Bakos but, on the other hand, it was not suggested to Mr Hatzipapas that his evidence concerning Ms Bakos’ role and responsibilities was incorrect or false.

34    In response to Mr Hatzipapas’ evidence, Ms Bakos said that his list is “an extensive reference to duties that may be performed by a Company Secretary”. She also says:

Given the small size of the Applicant as a publicly listed company, and particularly given that I was not employed on a full time basis and was paid only $5,000 per month, the Company Secretary role did not warrant the extent of duties listed…

Services not provided with reasonable care and skill or at all

35    Mr Hatzipapas gave affidavit evidence of numerous issues concerning Ms Bakos’s performance including that she failed to do adequately or at all the following things:

(1)    Communicate with the ASX;

(2)    Take adequate and comprehensive minutes of board meetings;

(3)    Arrange for documents to be tabled and circulated to board members prior to board meetings;

(4)    Delay in contacting and complying with ASX's requests and requirements;

(5)    Maintain Zyber's register and updating it as required;

(6)    Assist in drafting company announcements;

(7)    Communicate with the Chairman in a timely manner.

(8)    Address matters raised by members and report to the board those matters including responding to them;

36    Mr Hatzipapas also complained that Ms Bakos:

(1)    Did not provide assistance with respect to the preparation of quarterly financial reports;

(2)    Engaged third parties without Zyber's knowledge or consent to undertake works that she was obliged to carry out.

37    In response, Ms Bakos’ evidence was that “all works required to be performed by me in my role were performed to a proper standard, including those set out in [the list referred to above]”. However, Ms Bakos said that she was not contracted to perform services of a company accountant and board performance reviews had not fallen due during her tenure. Ms Bakos also deposed that “[i]nsofar as the works were directly my responsibility, I ensured that [Zyber] complied with all necessary and appropriate corporate governance requirements”.

38    As to the complaints referred to in [36] above, Ms Bakos refuted them on the basis that the quarterly reports were lodged by the due dates and that work undertaken by Douglas and Harrison was approved by Mr Hatzipapas and did not fall within the scope of the role of company secretary.

39    There is no evidence of any written complaint from Zyber to Ms Bakos about her performance.

40    Ms Bakos stated that she received no complaint from Zyber, Mr Hatzipapas or the board that the services she was providing were in any way deficient or that any of them individually or together had any concerns with her services. As to the complaints set out in [35] above, Ms Bakos stated “I did not receive any notice from [Zyber], Mr Hatzipapas or the Board that they were concerned with my performance.”

41    Ms Bakos relied on evidence from Prasanth Rasam, a director of Zyber during the period of Ms Bakos’ engagement by Zyber. Mr Rasam’s evidence was that he was familiar with the services provided by company secretaries, including the services that were performed by Ms Bakos for Zyber.

42     Mr Rasam’s evidence was that no concerns or issues were raised by or with him about Ms Bakos’ services. Mr Rasam gave evidence that Ms Bakos performed her services to an exceptional standard; and she performed all of the services that were required to be performed by her.

43    Ms Bakos also relied on evidence from Mr O’Connor, the other director of Zyber during the period of her engagement. His evidence was relevantly to the same effect as the evidence of Mr Rasam.

44    However, Mr Hatzipapas gave the following evidence:

19.    [Ms Bakos] was placed on performance management by [Zyber] to deal with the various issues arising for failing to meet deadlines on corporate governance matters, substandard work performance and failure to communicate matters in a timely manner (“Performance Issues”).

20.    Performance Issues were verbally communicated to [Ms Bakos] in December 2018 and by early March 2019. One of the main issues was that [Ms Bakos] was consulting Anoush [Manzoori] with board matters without prior approval of myself.

…

22.    Had [Ms Bakos] not tendered her resignation, [Zyber] would have terminated [Ms Bakos’s] agreement in March 2019.

45    Mr Hatzipapas was cross-examined by telephone. He was fairly emotional and some of his evidence tended to be verbose. However, I did not form a view that I should reject his evidence because, for example, he was telling any deliberate untruth. There are direct conflicts between the evidence of Mr Hatzipapas and Ms Bakos. On the current evidence, I cannot conclude, except with the following qualification, that either person’s evidence ought to be rejected.

46    The qualification is that, on the available evidence, I do not accept that Ms Bakos was “placed on performance management” in any conventional sense. Mr Hatzipapas’ oral evidence on this point was confused and neither his affidavit nor his oral evidence identified any clear regime of performance management. In particular, there was no documentation of any “performance issues”, whether in the nature of complaints to Ms Bakos or a record of expectations set that would support the existence of some performance management process.

47    As to whether Mr Hatzipapas complained about Ms Bakos’ performance, the evidence points both ways.

48    It is clear that Ms Bakos held the position of Zyber’s company secretary during January 2019 and February 2019. However, her engagement was not simply to hold the position of secretary: it was “to act as Company Secretary”. On the evidence, the scope of that role was not precisely defined. Consequently, it is not clear what Ms Bakos was required to do for her remuneration of $5,000 per month. Nor does the evidence identify what Ms Bakos would claim to have done to justify her remuneration for the months of January and February 2019.

49    Even assuming that substantial performance of Ms Bakos’ obligations under her contract with Zyber would be sufficient to entitle her to payment of the contract price, Mr Hatzipapas’ evidence raises a real and not spurious issue as to whether Ms Bakos’ performance amounted to substantial performance. I am not persuaded that the absence of documentary evidence challenging Ms Bakos’ performance warrants a conclusion that Zyber’s complaints are so devoid of substance that no further investigation is warranted.

50    Further, although the evidence is that Mr O’Connor and Mr Rasam had no complaint about Ms Bakos’ services and heard no complaint from Mr Hatzipapas, I am not satisfied that this evidence weighs strongly against the existence of a genuine dispute. Rather, it raises issues of fact concerning the merits of the dispute.

Graywinter

51    Finally, Ms Bakos submitted that Mr Hatzipapas's affidavit in support of Zyber’s application (his affidavit sworn 27 September 2019) merely asserts the existence of a dispute without setting out the material facts demonstrating the existence of a genuine dispute and therefore does not meet the minimum requirements for an affidavit in support of the application: Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459.

52    The relevant requirement, set out in s 459G(3)(a), is that an affidavit “supporting the application” must be filed within the time for applying for the order setting aside the statutory demand.

53    Mr Hatzipapas’ first affidavit expressly raised the ground on which Zyber relied to set aside the statutory demand, by stating that the services allegedly carried out were not carried out in accordance with Ms Bakos’ engagement and she did not fulfil her duties. I am satisfied that it was sufficient to satisfy s 459G(3)(a): see Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 297 ALR 372 at [29]-[32] and [40]. Accordingly, I reject Ms Bakos’ submission on this point.

Conclusion

54    Zyber has demonstrated that there is a genuine dispute about the existence or the amount of the debt to which the statutory demand relates for the purpose of s459H(1)(a) of the Act.

55    There is no amount which is the “substantiated amount of the demand” within the meaning of s 459H(2).

56    Accordingly, the Court must set aside the statutory demand. Costs should follow the event.

Associate:

Dated:    23 March 2020