An unquestionable solvency allegation is not a defence to an expired statutory demand

No matter the size, reputation or ‘unquestionable solvency’ of a company, they still have to comply with a statutory demand (SD) – that is the message from the Victorian Supreme Court last week.

The case is A G Coombs v M & V Consultants [2018] VSC 468.

A G Coombs, a very large private company, has turnover of some $250m/yr, 650+ staff and around $15m in equity.

Yet despite disputing the SD, their lawyers failed to serve the setting aside application within the prescribed 21 day period.

This meant that the liquidator had grounds to commence wind-up proceedings, with the benefit of the presumption that AGC is insolvent.

This put AGC in a spot of bother, which would cause “irreparable damage.”

Key points raised by Counsel for AGC:

  1. an application to wind-up a company in the face of ‘unquestionable solvency’ constitutes an abuse of process and that it may be inferred that the defendant has an ulterior motive**
  2. Courts may still rely upon the second branch of Fortuna Holdings [1978] VicRp 9, 93 – in that Courts should restrain proceedings where there is a more suitable alternative means of resolving the disputed claim

** the ulterior motive was said to be because a SD must be for the predominant purpose of winding-up, yet the wind-up is doomed to fail because the company is obviously solvent.

Court held:

  1. Unquestionable solvency does not prove an abuse of process. It is for AGC to prove its solvency, using the “fullest and best evidence” in the s 459P application
  2. The second branch is no longer open to Courts following ASIC v Lanepoint [2011] HCA 18, despite some other Courts since then ruling the other way
  3. There is a limited scope to set aside on the basis of an abuse of process – but must be an egregious conduct or motive (David Grant v Westpac [1995] HCA 43 & others)

Moral of the story: no matter how big you are, you still must comply with the strict requirements of SD’s.

Should unquestionable solvency be a bar to SD’s?

#SVVoidables

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