There may be circumstances where a petitioning creditor in a winding up application reaches a resolution with the company and no longer wishes to proceed with the winding up application – another creditor, who is also owed a debt by the company, may have an interest in the winding application, and can appear as a supporting creditor with the intention of being substituted as the plaintiff and ultimately pursuing the winding up application.  The supporting creditor must demonstrate that it has the requisite standing to continue the winding up application under section 459P of the Corporations Act 2001 ((Cth) (the Act).

In the recent case of Re Brooklyn Park & Co Pty Ltd [2026] VSC (Associate Justice Gobbo), a supporting creditor of Brooklyn Park & Co Pty Ltd (Brooklyn Park), Ottley Capital, made an application to be substituted as the plaintiff in the winding up application.  The application was refused and demonstrates some key factors that must be demonstrated when a creditor seeks to be substituted in winding up application:

1. The relevant facts were as follows:

• Brooklyn Park owed debts to various creditors;
• On 27 August 2024, the winding up application was issued by L Mackenzie Trading Pty Ltd;
• There were four other creditors who supported the winding up application (and some of which had made an application to be substituted) but Brooklyn Park was able to achieve a resolution which each of them;
• There were several adjournments of the winding up application in order for Brooklyn Park to resolve its disputes with some creditors and to enable a supporting creditor to make an application for substitution as plaintiff;
• An application was made by Brooklyn Park to set aside a Creditor’s Statutory Demand which had been issued by Agrifunder Pty Ltd, a supporting creditor in the winding up application, and this proceeding was resolved between those parties;
• On 7 February 2025, Ottley Capital filed a Notice of Appearance as supporting creditor for a debt of almost $6.7million and on 8 May 2025, it filed an Interlocutory Process together with its supporting affidavits to be substituted as the plaintiff;
• On 3 June 2025, an extension of the period for debromination of the winding up application was made under section 459R of the Act;

2. At the hearing on 1 October 2025, there were several preliminary matters which Her Honour was required to deal with including objections to evidence, requests to cross- examine and late filing of evidence by Ottley Capital:

a. As to the objections which were raised to some of the affidavits filed on behalf of Brooklyn Park, Her Honour expressed that it was entirely unsatisfactory that voluminous objections were raised in respect of an application listed for a one day hearing. A total of 15 minutes was allocated to objections to evidence and only some objections were accepted;

b. Brooklyn Park made application to cross-examine the director of Ottley Park, Mr Glynn, but Her Honour determined that the objections that were raised were more appropriately addressed in submissions and refused the application to cross-examine Mr Glynn. Her Honour relied on the Court of Appeal’s decision in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd where it was held that cross-examination in a statutory demand proceeding is rarely allowed.  The same tests arise where a genuine dispute or offsetting claim are raised in response to an application for substitution and where an assessment has to be made whether there is a genuine dispute or offsetting claim; and

c. Ottley Capital sought to tender two documents at the hearing and which were both created the day before – those documents were an account transaction history table and an account sale table. Her Honour indicated that the late provision of those documents was unsatisfactory, particularly because Brooklyn Park had raised objection weeks earlier to the evidence of Mr Glynn in respect of the calculation of the quantum of the purported debt.  The documents were required to be tendered through sworn evidence and Ottley Capital was warned that the evidence was not to expand on the evidence already filed – despite this warning, Ottley Capital went beyond evidence as to how the documents were created.  Therefore, several paragraphs of that affidavit were struck out;

3. As to the substantive principles relevant to the application for substitution:

a. The first question to be answered, under section 465B of the Act, is whether Ottley Capital was a creditor at the time the plaintiff filed the winding up application;

b. The authorities are clear that as a matter of discretion, where the debt is genuinely disputed, the Court will usually not entertain the application for substitution. If the debt is genuinely disputed, then the applicant may not be a creditor, at least until that dispute is resolved. The appropriate juncture to determine disputed debts is on an application to set aside a statutory demand and not in the context of a winding up application;

c. Whilst the Court will not embark upon any extended enquiry and it will not attempt to weigh or assess the merits of the dispute, it does not preclude the Court from investigating the factual basis of a claim;

d. Her Honour conducted an extensive analysis of a range of case law in respect of genuine disputes and offsetting claims and principles which have been derived from some of those cases which were relevant to a substitution application;

e. Brooklyn Park had adduced evidence disputing parts of the debt on four grounds:

i. it was not in default of its contractual arrangements with Ottley Capital;

ii. it did not owe any debt to Ottley Capital, based on cattle that had already been sold;

iii. there were gaps in the evidence of Ottley Capital and a forensic accountant would need to review documents and assess any true balance of the debt;

iv. it had an offsetting claim for almost $5.9 million;

f. Her Honour was satisfied that it would not be appropriate to determine the construction of the relevant agreements and where default notices were lawfully issued. It is widely accepted that to do so is usually inappropriate.  Therefore, Brooklyn Park was able to demonstrate that there is a genuine dispute which warranted further investigation;

g. There was evidence about an offsetting claim of Brooklyn Park and the Court must undertake a calculation of the undisputed portion of the debt and any undisputed portion which remains unpaid may form the basis for the presumption of insolvency under section 459C of the Act. However, Her Honour was concerned that on the evidence presented by each of the parties, she was not able to safely perform the task in respect of the offsetting claim and reach a conclusion on whether there was part of the debt which may be undisputed. This meant that there was an issue which was still to be determined about whether there was still a debt exceeding the statutory threshold which would entitle Ottley Capital to be substituted;

h. Her Honour was not satisfied that Ottley Capital’s evidence was in a satisfactory state to enable substitution and its claims should be litigated in court proceedings;

i. Brooklyn Park had demonstrated that it had a genuine offsetting claim which could be quantified;

j. Accordingly, given that the debt is genuinely disputed, Ottley Capital as supporting creditor does not have standing to prosecute the winding up application under section 459P of the Act;

k. Her Honour also requested that counsel confer as to the appropriate orders and that costs should follow the event because there was voluminous evidence (and numerous rounds of evidence) and objections and Court time directed to disputes on a range of issues – this was unfortunate. Her Honour raised the critical point that has been raised by other Judges recently in respect of applications to set aside Statutory Demand where

“parties are reminded that they have an obligation to cooperate, narrow the issues in dispute, ensure that costs are reasonable and proportionate and to ensure that the overarching obligations of Civil Procedure Act 2010 (Vic) are met. “Importantly, “…this is especially the case in applications such as this, where the Court is concerned with the determination of issues on a summary basis and the proceeding is not to be used as a vehicle for the ventilation of contested factual issues requiring a full hearing on the merits”.

Accordingly, it is important that creditors who are seeking to pursue recovery of debts from companies are not utilising the winding up procedure as a debt collection mechanism – the creditor must ensure that all steps have been undertaken to satisfy the Court that it is a creditor who is capable of being substituted as the plaintiff in a winding up application.  Where the creditor has not taken steps by issuing a Creditor’s Statutory Demand upon the company, the creditor must prove that it is a creditor before the Court will even consider the application for substitution.

Catherine Pulverman and her team have considerable experience in this area by acting for (a) the plaintiff creditor in winding up applications; (b) creditors who seek to be substituted as plaintiff in winding up applications; and (c) defendant companies in opposing winding up applications.  There are critical issues to address in relation to the evidence which must be filed in respect of each different party and what must be established in order to satisfy the relevant threshold for a creditor who seeks to be substituted as plaintiff in winding up applications – such creditors must have the requisite standing to apply for the winding up of the company under section 459P of the Act.