Case: Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661
Outcome: considered
to the stricture present in relation to the granting of leave, found in s 459S(2) of the Act, there is some difference of judicial opinion evident on the authorities as to the meaning and effect of the word "material" which appears in that subsection. A convenient summary of the authorities, and the differences of views, is to be found in Grant Thornton Services (NSW) Pty Limited v St. George Wholesale Distributors Pty Limited [2008] FCA 1777 (hereafter Grant Thornton ), where at paras 19 - 22, Perram J, states: However, it seems to me that I should accept that the authorities show that "material" means that an applicant, under s 459S , must show that the debt in respect of which it is seeking leave is pivotal to the question of solvency. That is, the defendant must demonstrate that if the debt exists then the company will be insolvent and if the debt does not exist, then the company will be solvent. In my opinion, that is the better reading of the reasons of Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 at 674 [56]. I accept that, at first blush, paragraph [53] can be read the other way, however, for two reasons I do not think that passage should be so interpreted. First, it is apparent, for the reasons given by the Chief Justice in that judgment at 673-674 [47]-[51] that the evident statutory intention which underpins s 459S is very much directed to diminishing, rather than expanding, the circumstances in which debts are to be debated. Put another way, as the Chief Justice demonstrated in that case, the previous situation which obtained prior to the introduction of the predecessor to s 459S , where it was common, frequent and unwelcome for debates about debts to take place at the time of the winding up petition, was to be expunged by that provision. It is consistent with that interpretation, or that understanding, of the intention underpinning 459S to interpret materiality in a way which is circumscribed. Secondly, the learned Chief Justice indicated at 671 [36] that he did not propose to follow the decision of the Full Court of the Supreme Court of Western Australia in Bayview Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd (unreported, Supreme Court of Western Australia, Ipp, Wallwork and Steytler JJ, 19 October 1998). The Full Court had there adopted a somewhat liberal approach to materiality. It seems to me that a fair reading of the reasons of the Chief Justice is that the proper approach to materiality is the narrow one. For completeness, it should be noted that in my opinion two justices of this Court have approached the matter on the more narrow view and have certainly thought themselves to be implementing the position in Switz: see HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 at 184 [53] per French J; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 at [43] - [45] per Besanko J. That would be sufficient for me to feel obliged to approach the matter on the same basis. Mr Davidson drew my attention to a decision of White J in Radiancy (Sales) Pty Ltd v Bimat Pty Ltd [2007] NSWSC 962 ; (2007) 25 ACLC 1216 where at 1226 [64] his Honour said this: The question is not whether the debt demanded by Radiancy (Sales) is determinative of Bimat's insolvency. The question is whether it is material to proving the company is solvent. If the debt is owed, the company is undoubtedly insolvent. If it is not owed, the company may be solvent if Mr Colosimo's evidence as to the payment of creditors is accepted. Accordingly, s 459S(2) is satisfied in relation to the grounds that Radiancy (Sales) is not a creditor, or that the alleged debt is genuinely disputed. Reflecting upon the evident intent of s 459S(2) , the reasons for judgment of Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 (hereafter Switz's case), and those of Perram J in Grant Thornton and the other authorities to which his Honour refers in the passage quoted, it seems to me that I, too, ought, with all respect to those who may have a different view, to adopt the more narrow view of materiality. Section 459S is in the nature of a safety net. That is not to say in any way, though, that it is a substitute for, or an invitation for agitation in respect of a debt which ought to have been the subject of an application for the setting aside of a statutory demand.