Brisbane | 1 June 2017
We are pleased to announce the appointment of Chad Gear as commercial litigation Partner.
Chad brings with him over a decade of litigation experience having acted in many complex and high profile commercial disputes.
Partner Scott Taylor said: ‘I would like to heartily congratulate Chad on his appointment. Chad has an enviable reputation in litigation among his peers. We are excited to expand upon our traditional practice areas of reconstruction and insolvency to commercial litigation through Chad’s appointment. This expansion enables us to deliver exceptional service to an expanding client base throughout Australia. We are elated to have Chad join the firm and look forward to servicing clientele beyond the scope previously offered.’
Taylor David’s practice areas now extend to litigation and dispute resolution within the following areas:
Chad may be contacted at:
t: +61 7 322 71 616
For more on Chad, please visit his bio by clicking here.
Scott D. Taylor
Debt recovery series: Debt recovery should be a fast and inexpensive process. For many businesses that are owed debts, issuing a “statutory demand” will often be the first avenue which is explored for the purpose of recovery. In this article, I explore in brief the basics of a statutory demand, and whether it can be used as a debt recovery tool.
Creditor’s statutory demands; debt collection tool?
Creditor’s statutory demands (commonly referred to as Statutory Demands or Stat Demands) are written demands pursuant to section 459E of the Corporations Act 2001 (the Act), in which a creditor makes demand for payment of a debt within 21 days. If the debtor does not pay the debt or otherwise comply with the Statutory Demand, the recipient will be deemed insolvent, and the party who issued the Statutory Demand can rely upon this presumption in applying to the Court to have the debtor wound up in insolvency.
In certain circumstances a Statutory Demand can be issued without first obtaining a judgment. As such, they are often liable for use as a debt collection tool (dealt with in more detail below).
If you have received a Statutory Demand, we recommend that you seek legal advice immediately.
How do they work?
A person who is owed a debt which is due and payable, and which is at least the statutory minimum (ie. $2,000 or more) may serve a Statutory Demand on a debtor company. Schedule 2 of the Corporations Regulations 2001 provides the prescribed form. Because a defect in a Statutory Demand can provide grounds for having a Statutory Demand set aside, we recommend that legal assistance be obtained to issue a Statutory Demand.
A debtor who is served with a valid Statutory Demand must either:
If the debtor company fails, within 21 days of receiving a Statutory Demand, to comply with the demand (as set out above), the debtor company will be presumed to be “insolvent”. This means that the creditor can apply to the Court for an order that the debtor be wound up in insolvency (ie. placed into liquidation).
The presumption of insolvency which arises when a debtor fails to comply with a Statutory Demand can be rebutted by evidence that the company is solvent. However, this can be a costly and difficult exercise.
Why issue a Statutory Demand?
The main reason a creditor may choose to issue a Statutory Demand is because it can be an inexpensive process to recover a debt quickly (compared with the usual Court process).
Practically speaking, a creditor who issues a Statutory Demand will quickly ascertain (ie. within 21 days) whether a debtor can pay a debt, or whether the debtor is content for a presumption of insolvency to arise. In the latter circumstances, the logical conclusion is that the debtor may face an application to be wound up in insolvency.
However, the purpose of the Part 5.4 of the Act is to:
As such, the purpose of a Statutory Demand is to facilitate proof of insolvency to assisting in a winding up application.
Debt collection tool?
It is a settled position at law that that a Statutory Demand is not merely a debt collection device. In this regard, the Court has explicitly held that “the statutory demand is not provided by the law as a mechanism for the recovery of debt.”
As such, issuing a Statutory Demand will be an abuse of process if the purpose of the party issuing the demand is not to pursue the Statutory Demand to wind up the debtor company on the ground of insolvency, but rather is to use the process as a means:
The Courts have long held that when a company is solvent, the appropriate course is to commence Court proceedings for recovery of the debt, on the basis that to pursue winding up proceedings may be an abuse of process of the Court.
However, Statutory Demands are undoubtedly a fast and inexpensive means of testing the bona fides of a debtor who disputes payment, and recovering payment. While there is some judicial comment to the effect that service of a Statutory Demand may appropriately be used to assist in testing whether a dispute is genuine, the overwhelming view is that Statutory Demands do not provide a means to avoid commencement of proceedings for recovery of a disputed debt, by the application of commercial pressure.
While Statutory Demands may provide an inexpensive and effective debt recovery tool, care must be taken not to use such a tool merely as a debt collection device, or for an improper purpose. As such, they may be liable to be set aside.
If you wish to explore issuing a Statutory Demand, or have been served with a Statutory Demand, contact Chad Gear on (07) 3229 9800, or by email at email@example.com.
While attempts have been made to ensure the currency of information contained in this publication, it is not guaranteed. This publication is intended to provide only general information on matters of interest. It is not intended to be comprehensive and does not constitute and must not be relied upon as legal advice. You should seek legal or other professional advice which is specific to your circumstances.
 Section 9 of the Act.
 Section 459F of the Act.
 The debt which is “presently due” must be secured. In Forsayth NL v Juno Securities Ltd (1991) 4 WAR 376, the Court held that a bank guarantee conditional upon the creditor establishing the existence of the debt by obtaining a judgment could not result in the debt being “secured” for the purposes of the section.
 “Compounding a debt” means entering into an arrangement for payment of the debt or a different amount; Commonwealth Bank of Australia v Parform Pty Ltd (1995) 13 ACLC 1309 per Sundberg J at 1311. In Kema Plastics Pty Ltd v Mulford Plastics Pty Ltd (1981) 5 ACLR 607, an alleged arrangement to pay by instalment was held to be “compounding” for the sum due.
 Section 459F of the Act; the recipient of the demand need only secure or compound for the debt to the “reasonable satisfaction” of the creditor. Reasonableness is an objective test, to be determined by the Court and not the creditor, having regard to all the circumstances of the case: Commonwealth Bank of Australia v Parform Pty Ltd (1995) 13 ACLC 1309 per Sundberg J at 1311. In this regard, it is more insightful to ascertain what is reasonable, by the Court’s analysis as to whether a creditor has acted “unreasonably”. For example, when a cheque was tendered without explanation, and without payment of legal costs: Owners — Strata Plan No 17572 v Nomak Holdings Pty Ltd  NSWSC 1412. See also Forsayth NL v Juno Securities Ltd (1991) 4 WAR 376 and Kema Plastics Pty Ltd v Mulford Plastics Pty Ltd (1981) 5 ACLR 607. A history of failure to meet commitments may provide grounds for a reasonable refusal of an offer: K C Parksafe (Vic) Pty Ltd v Dallbrook Pty Ltd (1998) 87 FCR 509.
 Section 459G of the Act.
 Section 459C of the Act.
 Section 459P of the Act.
 Scolaro’s Concrete Construction Pty Ltd v Schiavello Commercial Interiors ( Vic) Pty Ltd (1996) 62 FCR 319 per Sheppard J.
 Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602, per Martin CJ, cited with approval in Lifese Pty Limited v Lee Crane Hire Pty Limited  FCA 302.
 Re QBS Pty Ltd  Qd R 218 at 224 per Gibbs J; Re Bond Corp Holdings Ltd (1990) 1 WAR 465; Re Badja Pty Ltd  QSC 441 (99/1143); Poonon Pty Ltd v DCT  NSWSC 1121 Per Austin J at ; Muller and McIntosh (as joint and several liquidators of Arafura Equities P/L (in liq)) v Academic Systems P/L  QCA 218.
 Equipped Constructions Pty Ltd v Form Architects Pty Ltd  NSWSC 500 at .
 Williams v Spautz (1992) 174 CLR 509; 107 ALR 635;  HCA 34; David Grant & CoPty Ltd v Westpac Banking Corp (1995) 184 CLR 265; 131 ALR 353; 18 ACSR 225;  HCA 43.
 Niger Merchants Co v Capper (1877) 18 Ch D 557.
 Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72.
 Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 at 2 per Martin CJ, with whom Owen and Miller JJA agreed.
Brisbane | 3 February 2017
Mr Tinkler is pleased with the decision of the Federal Court delivered earlier today and is looking forward to spending time with his children.
He will return to Australia by 8 April 2017.
Mr Tinkler otherwise requests that the media respect his family’s privacy.
- Scott D. Taylor
The full decision may be accessed here.
Taylor David is proud to be a sponsor of the 2nd annual Brisbane Charity luncheon this year in support of HELP Enterprises.
HELP Enterprises is a local charity supporting people with disabilities by providing a broad range of services including employment opportunities; training; respite accommodation; and family support. Funds raised from this year’s luncheon will go directly in to developing housing projects in Mitchelton to accommodate up to 20 residents who live with disabilities.
It is not too late to secure your ticket.
Details of the lunch are:
Date: Friday, 26 August 2016
Time: 12noon to 4.00pm
Venue: Pullman Hotel Brisbane
Cost: $200 per ticket
To register, please go to: http://brisbane.idsupportevents.com.au/
We are proud to announce Dane Grauf has been promoted to Senior Associate after 5 years with Taylor David.
Dane has extensive experience providing advice on corporate turnarounds; complex insolvency law; and distressed debt buyouts and equity swaps.
Partner Scott Taylor said of the promotion: ‘The leadership, technical and commercial expertise developed by Dane during his time with the firm has been exceptional. His promotion is in recognition of continued excellence and client satisfaction.’
Global energy markets have been suffering for some time leading to large restructures and insolvencies. According to Swift Worldwide Resources, about 233,000 jobs worldwide had disappeared from the sector since the collapse of crude prices in the latter part of 2014.
In a recent report, Deloitte stated it did not anticipate smooth sailing in the near future suggesting the shift in demand from North America and Western Europe to Asia Pacific and Middle East would change the traditional dynamics.
Taylor David has significant experience acting for private and listed distressed resources and industrials sector companies, for debt restructure and refinance deals in excess of US$200 million.
“It is important to be pro-active rather than reactive in turbulent financial times,” Taylor David partner Scott Taylor said.
“All of our services are designed to remove the stress associated with financial decline and focus on turnaround where possible,” he said.
“ Ranging from negotiating with small trade creditors and the Australian Tax Office to global financial institutions, we can assist to find a solution or at the very least, provide guidance to mitigate loss.”
A number of Taylor David’s clients are insolvency practitioners (that is liquidators and voluntary administrators) inclusive of accounting firms within the global top four.
Acting on behalf of insolvency practitioners to pursue directors and transactions in an insolvency context places Taylor David in a unique position to provide practical forecasts on what a director or company may expect should external administration be necessary.
Mr Taylor said a variety of options were available to assist the turnaround process.
“Our focus is on reviewing, restructuring, refocusing and refinancing where possible.
“There are a number of methods through which a turnaround can take effect, however each is subjective to the individual company.”
Taylor David offers confidential, obligation free meetings to discuss viable options.
Rexel Electrical Supplies Pty Ltd v Morton (as liquidator of South East Queensland Machinery Manufacturing and Distribution (Mining No. 1) (in liq)  QCA 235
In brief: An Appeal from a decision of the District Court of Queensland largely based upon evidentiary grounds concerning an unfair preference action, inclusive of: the good faith defence; the running account defence; the liquidators reliance upon books and records to determine solvency.
Taylor David represented the successful Respondent Liquidator in this Appeal.
Despite what many within the insolvency industry have viewed with controversy, the set-off applied in the original District Court decision was not raised or addressed by the Court of Appeal. It appears that is is only a matter of time before a superior court reconsiders the application of set-off to an unfair preference claim under section 553C of the Corporations Act 2001.
Grounds of Appeal
The grounds of appeal were broadly based upon claims the learned Trial Judge erred in:
All points of appeal failed largely for the following reasons:
The appeal was dismissed with costs.
The original decision of the District Court remains unchanged, namely:
Author: Scott D. Taylor
For a copy of the full judgement, please click here.
In brief: A Federal Court of Australia decision addressing deemed service; default judgment in circumstances where the Respondents failed to file a notice of address for service; and the Court’s power to award default judgment in the form of a liquidated debt in circumstances where declaratory relief is sought.
Taylor David represented the successful Applicant Receivers in this matter.
Case summary by James Waterman.
For a copy of the full judgment, please click here.
Practice and procedure:
Deemed service - r10.23
The Applicants applied under r10.23 of the Rules for deemed service of the originating application material on the First Respondent. The evidence before His Honour was as follows:
Evidence as to circumstances where it is not practical to serve the document personally:
Evidence as to the documents being brought to the attention of the First Respondent:
His Honour accepted the Applicants’ evidence and found that the originating application material was taken to have been served on the First Respondent.
Default judgment - r5.23(3)
The Applicants' claim was brought by way of originating application. The claim sought declaratory relief and interest. The facts in support of the originating application were disclosed in the affidavit of Mr Ross (see paragraph 25 of the Judgment).
His Honour held that based on the evidence from Mr Ross, the Applicants had established their claim for payment of the sum of $89,406.73. His Honour noted that while it was expressed as declaratory relief paragraph two (2) of the relief sought essentially constitutes a claim for “a debt or liquidated damages” within in the terms of r5.23(2)(b) of the Rules. Further His Honour considered that the words “or any other order” in r5.23(2)(d) of the Rules are broad enough to cover the relief sought, including declaratory relief and an order for payment of the sum of $89,406.73.
His Honour ordered default judgment for the Applicants against the First and Second Respondents under r5.23(2) of the Rules in the sum of $103,247.46 made up as follows:
· $89,406.73 for the claim.
· $5,88.53 for interest.
· $8,252.20 for costs.
In brief: A District Court of Queensland decision addressing defences to an unfair preference action, inclusive of: good faith; set-off; and running account. The Liquidator’s opinion that the company was insolvent in reliance upon records that failed to comply with s 286 of the Act is also considered.
Case summary by Scott D. Taylor.
For a copy of the full judgment, please click here.
Implications for Liquidators and Defendants to unfair preference actions:
South East Queensland Machinery Manufacturing and Distribution (Mining) Number 1 Pty Ltd (In Liquidation), previously named Aran Management Pty Ltd (‘Aran Management’), was one of eight within a group of companies that manufactured and supplied complex mining fill plants.
Rexel Electrical Supplies Pty Ltd trading as Inaco Automation Controls (‘Inaco’) supplied electrical components to Aran Management that were used in the manufacture of the mining fill plants.
Aran Management sought to recover $197,469.16 as unfair preferences under s 588FA of the Corporations Act 2001 (the ‘Act’).
Inaco relies on three defences to resist the claim:
(a) Good faith under s 588FG;
(b) Running account so as to trigger the operation of 588FA(3); and
(c) Set off pursuant to s 553C.
Further, Inaco did not admit that:
At trial, Inaco objected to the admission of various documents of Aran Management on the basis:
Inaco disputed the accuracy and authenticity of the documents, and the Liquidator’s conclusions drawn from the documents based on the Liquidator’s conclusion that Aran Management had failed to keep financial records in accordance with s 286 of the Act.
Solvency – Liquidators Opinion
His Honour accepted the Liquidators opinion that Aran Management was balance sheet insolvent from 14 February 2012 and cash flow insolvent from at least 1 March 2012 up until the appointment of the Liquidator on 14 August 2012.
The Liquidator’s conclusions based upon the books and records made available to him that the company was insolvent were accepted, notwithstanding that the books and records necessarily represent records sufficient to satisfy s 286 of the Act.
His Honour stated further that:
Running Account – 588FA(3)
In determining no running account defence existed, His Honour accepted that Aran Management had satisfied the onus of establishing that the payments were not an integral part of a continuing business relationship, but rather, a series of payments designed to reduce the pre-existing indebtedness.
His Honour held that Inaco’s focus was on reducing Aran Managements indebtedness to it:
Good Faith – s 588FG
His Honour held that Inaco failed to make out its defence of ‘good faith’ and referenced the following sequence of events:
Set-off – s 553C
His Honour accepted Inaco’s submissions in part, insofar as $64,658.15 of the $92,323.28 claimed was a set-off.
The plain language of s 553C was followed.
Section 553C can apply to unfair preference actions.
The decision of the NSW Court of Appeal in Buzzle Operations Pty Ltd (in liq) v Apple Computers Australia(involving the set-off of an uncommercial transaction rather than an unfair preference) was followed, as was the reasoning adopted by Mansfield J in Re Parker.
For the same reasons rejecting Inaco’s ‘good faith’ argument, His Honour found that in relation to all but the 31 January invoice, Inaco had actual notice of acts that would have indicated to a reasonable person in Inaco’s position the fact that Aran Management was unable to pay.
Taylor David successfully recovered legal costs of the entire action on an indemnity basis on behalf of the Mr Morton as liquidator. See: Morton & Anor v Rexel Electrical Supplies Pty Ltd (No 2)  QDC 6.
As of July 2012, the Australian Taxation Office (“ATO”) made important changes to the Director Penalty Notice (“DPN”) regime which has no doubt increased the liability of Companies and personal exposure of their directors. The changes were introduced to ensure that Companies are complying with the reporting and remittance of their PAYG and superannuation obligations.
In the past 12 months, we have noticed an increase in activity by the ATO, resulting in firmer action against Directors’. A director typically receives a notice for a Company’s debt under the ATO’s firmer action approach (called a firmer action notice) when the Company:
To avoid receiving a notice of firmer action, directors should make enquiries to the ATO as to whether there are any returns that haven’t been lodged, BAS’s, Superannuation Guarantee Charges, or PAYG liability.
As the new DPN regime applies retrospectively towards PAYG withholding, even if the director has placed the company into voluntary administration or Liquidation, the director may still receive a firmer action notice from the ATO. Director penalties are discretionally enforced by the ATO. A firmer action notice may escalate the threat to enforce the DPN provisions.
In this instance, the director should consult their legal advisor with respect to contacting the ATO with a view to proposing a repayment arrangement. The ATO has the power to proceed with actioning the DPN and commencing Bankruptcy proceedings.
What to do
Your clients should ensure that they lodge any outstanding BAS and PAYG returns as soon as possible. If a BAS return is lodged but PAYG is not paid, the ATO is within its’ rights to issue a DPN. The notice period is 21 days and at the end of the period if the debt is not paid, personal liability can attach to the director.
The director can avoid personal liability if the Company is placed into either Voluntary Administration or Liquidation prior to the expiration of the DPN (i.e. 21 days).
If unpaid PAYG is not reported within 3 months of the due date, the Director will automatically be personally liable for any unpaid amounts, even if the company is placed into external administration after this date.
It is evident that the ATO is able to override the “corporate veil” and apply personal liability to the company director should the above lodgements not be met.
The importance of communicating with the ATO and keeping them “in the loop” with the progress of ATO liabilities is paramount. Where it was the case Directors could hide behind the corporate veil to minimise their personal liability, the ATO is clearly looking at pursuing Directors’ in a personal capacity to assist in recovering tax liabilities owed by Companies.
It is imperative that your client be aware of their Companies financial position at all times including liabilities to the ATO and lodgments.
The ATO is under increasing pressure to recover outstanding tax liabilities and it is our view that this will be a focus for them in the coming quarters.
Should your client require any further advice with respect to the DPN regime or changes to same, please feel free to contact this office.