The Product People Pty Ltd (TPP) was the manufacturer of various products. The Product People (International) Pty Ltd (TPPI) was a separate company that was licensed to market and sell those products throughout Australia and New Zealand. Box Seat Company Pty Ltd (Box Seat) generated business and managed clients in relation to those products for that region.
Box Seat went into liquidation and, at that time, the company secretary of Box Seat provided its liquidators a Balance Sheet for the 2010 financial year (2010 Balance Sheet) as proof of a debt that TPPI owed Box Seat. A statutory demand was subsequently issued to TPPI in respect of that debt.
TPPI applied under s459G(1) of the Corporations Act to have the statutory demand set aside on the basis that there was a genuine dispute as to the existence of the debt. TPPI argued that there was a typographical error in the 2010 Balance Sheet which Box Seat had provided to the liquidators. This error meant that the correct debtor company was in fact TPP, not TPPI.
Genuine dispute as to the existence or amount of a debt
In determining when a statutory demand could be set aside, the Court noted s 459H(1) of the Corporations Act, which requires the Court to be satisfied that there is a genuine dispute as to the existence or amount of a debt to which the demand relates.
To establish a “genuine dispute”, the Court noted that there must be a “plausible contention requiring investigation”. This requirement raises the same sort of considerations as the “serious question to be tried” requirement relevant to interlocutory injunctions. However, the Court is not required to determine the merits of, or to resolve, the dispute.
Presumption in s 1305 – company books
In considering whether there was a genuine dispute, the Court had regard to the operation of the presumption in s 1305 of the Corporations Act. That is, company books which are admitted as evidence in proceedings are to be taken as prima facie evidence of any matter recorded in the book.
The Court noted that the intention behind s 1305 was to expedite legal proceedings. When books are admitted as evidence, the presumption dispenses with the need to call witnesses to prove facts which are not in dispute. In this case, however, the presumption was rebutted. The 2010 Balance Sheet did not relate to the most recent financial year and it had not been audited.
Furthermore, the company secretary of Box Seat, who was responsible for maintaining the company’s records, admitted that the typographical error that formed the basis of TPPI’s argument to set aside the statutory demand had occurred. This challenged the credibility of the Balance Sheet and placed weight on a challenge to the entry of the debt which was the subject of the statutory demand. On this basis, the Court concluded that there was a genuine dispute as to the existence of the debt and made an order to set aside the statutory demand.
This decision provides an important lesson for companies and liquidators to ensure that company books that are being relied upon need to be correct, recent and audited. Failure to do so may be enough to rebut the presumption in s 1305 of the Corporations Act and consequently result in a statutory demand being set aside.
Company secretaries should also be aware that they may be held responsible for maintaining accounting records of the company and must ensure that they are reflecting the correct debt which is the subject of a statutory demand.