Newstart Homes Australia Pty Ltd v Kodiak Concrete Pty Ltd [2024] QSC 129

David Pearce  |  Allie Flack  | Connor Wright

Key takeout

• The statutory demand procedure permits a creditor to whom a debt is owing, due and payable achieve the benefit of a presumption of insolvency for the purpose of pursuing winding up proceedings. 

• Issuing a statutory demand in circumstances where it has not been established that a debt is owed or that a debt is due and payable is a misuse of the statutory demand process. 

• Issuing a statutory demand against a subcontractor, where a debt is not owed, but for the ulterior purpose of applying pressure to recover payment of a claim for damages will be an abuse of process.

Facts

In April 2023, Kodiak Concrete Pty Ltd (Kodiak) entered into a subcontract with Newstart Homes Australia Pty Ltd (Newstart) to complete concreting work. The concreting works involved the construction of concrete footings which combined concrete piers and screw piers.

In May 2023, before Kodiak commenced any work, engineers engaged by Newstart inspected the piers and footings at the site. The engineers gave Kodiak approval to proceed with the concreting work but noted that one missing screw pier needed to be installed. After Kodiak completed the concrete work, Newstart wrote to Kodiak alleging that it had not installed any of the screws. Kodiak responded by asserting that the work undertaken by Kodiak at the site had been approved by the engineers and completed in accordance with the design plans prepared by Newstart’s engineers.

In June 2023, Newstart sent to Kodiak a draft deed of settlement concerning the alleged defective works. Kodiak did not sign that deed of settlement. Newstart then provided a direction under the subcontract for Kodiak to rectify the work Newstart claimed to be defective.

In July 2024, Kodiak advised Newstart that Kodiak was waiting on a response from its insurer and had been advised that it should not enter into any agreement with Newstart until it was made aware of the position taken by its insurer.

In August 2023, Newstart’s solicitors sent a letter to Kodiak which restated Newstart’s claim that Kodiak’s work was defective and did not accord with the requirements of the subcontract.

In September 2023, Newstart served a statutory demand on Kodiak. The statutory demand stated that Kodiak owed $177,643 as a debt due and payable to Newstart. That figure was the total of various invoices issued to Newstart for materials and labour related to the site.

In October 2023, Kodiak sent Newstart a letter disputing the claim for rectification costs. However, the Kodiak’s director did not cause Kodiak to apply to set aside the statutory demand, as the director was unfamiliar with the statutory demand process and acted in reliance on incorrect advice provided by his insurance broker. Kodiak also did not comply with the statutory demand within the required timeframe. Under the Corporations Act 2001 (Cth), this meant that the court had to presume that Kodiak was insolvent, unless Kodiak could prove otherwise.

In November 2023, Newstart filed a winding up application.

Kodiak opposed the winding up application on two bases. First, Kodiak submitted that the application was an abuse of process as Newstart had knowingly used the statutory demand process to apply pressure to recover payment of a claim for damages as a debt. Second, Kodiak submitted that the evidence it relied upon rebutted the presumption of insolvency.

Decision  

Cooper J held that the application to wind up Kodiak due to its failure to comply with the statutory demand was an abuse of process. His Honour outlined two reasons for his decision.

First, Newstart was not entitled to obtain the benefit of a presumption of insolvency for the purposes of pursuing winding up proceedings as the debt claimed in the statutory demand was not then due and payable. The debt was not due and payable because the debt could not be ascertained until Newstart had established in a proceeding for breach of the subcontract that Kodiak’s work was defective and the amount of reasonable costs incurred by Newstart in rectifying that defective work.

Second, Newstart was aware at the time it issued the statutory demand that the $177,643 was not due and payable because it was aware of the need for it to bring proceedings for breach of the subcontract to establish the amount which might be due and payable.

Cooper J also held that Kodiak was solvent for three reasons.

1. Kodiak traded profitably in the 2022 and 2023 financial years and it continued to trade profitably in the 2024 financial year up to the date of the hearing of the winding up application.
   
2. No creditor other than Newstart had made any demand on Kodiak for repayment of a debt owed by the company, issued any notice of default to Kodiak or taken any enforcement action against Kodiak in respect of any outstanding debt.
   
3. Based on its financial records and cash flow forecasts, Kodiak established that it would be able to pay its debts as and when they fell due.