E&P Investments Limited v Keybridge Capital Limited: difficulties in clearing the “low bar” to offset a statutory demand
In E&P Investments Limited v Keybridge Capital Limited [2026] VSCA 5, the Victorian Court of Appeal allowed an appeal overturning a decision to set aside a statutory demand.
The central issue in this case was whether Keybridge Capital Limited (Keybridge) had demonstrated that the offsetting claim it had alleged under s 459H(1)(b) of the Corporations Act 2001 (Cth) (the Act), was sufficiently plausible to justify setting aside the statutory demand of E&P Investments Limited (E&P) under the Act.
The Court ultimately held that this offsetting claim was not sufficiently plausible.
Background
E&P served a statutory demand on Keybridge on 9 May 2024 for $253,151.87, being a judgment debt representing costs ordered against Keybridge in earlier New South Wales proceedings.
Keybridge subsequently applied to set aside the statutory demand under sections 459G and 459J of the Act.
In doing so, it alleged an offsetting claim arising from E&P’s decision to convert Keybridge’s priority units into ordinary units, instead of redeeming them or winding up the fund. Keybridge claimed that because of the conversion, it received ordinary units valued at approximately $1.433 million instead of having its priority units redeemed for about $2.797 million.
As such, it sought loss and damage for the difference of $1.364 million as an offsetting claim.
To substantiate its claim, Keybridge relied on evidence that included several market announcements made by E&P.
In March 2022, E&P had announced that sale proceeds were expected to be used to retire the priority units at their $100 face value.
However, in November 2022, E&P announced that all priority units would instead be converted into ordinary units at the first available opportunity in January 2023, in accordance with the terms of the relevant product disclosure statement.
This second announcement stated that, based on the then trading price, holders would receive the maximum conversion number of 205 ordinary units per CPU, and on 3 January 2023, that conversion occurred.
At first instance, Associate Justice Efthim accepted that Keybridge had established an offsetting claim capable of being quantified in money terms and set aside the statutory demand.
His Honour considered that the affidavit evidence and the legislative framework identified by Keybridge were enough to take the claim beyond being a “mere assertion”, noting the low threshold required to establish an offsetting claim under section 459H of the Act.
Key issue
The “central issue” on appeal was whether the material relied upon by Keybridge was sufficient to establish a genuine and plausible offsetting claim based on an alleged contravention of section 601FC(1)(d), namely, that E&P failed to treat members of different classes fairly when it converted the priority units into ordinary units.
A related issue was whether E&P needed to adduce evidence addressing the alleged breach in order to negate the claimed offsetting claim.
Court findings
The Court accepted that the threshold for an offsetting claim under section 459H is low.
A claim does not need to be fully proven, but it must have sufficient objective existence and prima facie plausibility to distinguish it from “bluster” or “mere assertion”, and enough factual particularity to show it is not fanciful or futile.
However, the Court held that Keybridge’s evidence did not meet even that low threshold.
The Court deemed the fact that Keybridge suffered a loss on its investment was not, of itself, sufficient to show that E&P had failed to treat priority unit holders fairly as compared with ordinary unit holders.
The Court emphasised that investment losses are an ordinary incident of investment, and the size of a loss does not itself establish unfairness or demonstrate that one class of members was favoured at the expense of another.
The Court also noted the lack of evidence from Keybridge of the scheme constitution and the relevant product disclosure statement. The Court considered both documents to be potentially critical as the constitution could bear directly on whether the impugned conduct was authorised, and the product disclosure statement would identify the rights attaching to the priority units and whether conversion into ordinary units was contemplated.
In the absence of contrary evidence, the Court considered it open to infer that the conversion was consistent with the constitution and product disclosure scheme, and that priority unit holders had always been on notice that conversion was a possible outcome.
Apart from evidence of the loss allegedly suffered by Keybridge and other priority unit holders, the court saw no evidence demonstrating unfair differential treatment between the two classes, in effect, rendering the asserted offsetting claim as no more than a “mere assertion”.
Having reached that conclusion, the Court found it unnecessary to determine the second issue in depth. However, it indicated that it rejected the proposition that E&P was required to adduce affidavit evidence or otherwise “address whether there was a duty which may have been breached”. The onus remained on Keybridge to show a plausible offsetting claim, and it had failed to do so.
Key takeaways
In making an application to set aside a statutory demand under s 459H, the threshold for an offsetting claim is low, but still requires more than a bare allegation of wrongdoing and/or loss and must be clearly supported with evidence.
Evidence that an investor has suffered a substantial loss will not, without more, establish unfair treatment between different classes of scheme members under section 601FC(1)(d) of the Corporations Act.
Where a dispute turns on rights under investment or scheme documents, those documents matter. If the constitution, terms, or disclosure documents support the steps taken, that will make it much harder to argue there was unfair treatment.
A party seeking to rely on an offsetting claim bears the onus of putting forward material showing that the claim is objectively plausible; the respondent is not required to fill evidentiary gaps in the claim.
Please contact Alicia Hill if you would like to discuss this article of statutory demands in further detail.
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E:ahill@sladen.com.au
This article was prepared with the assistance of Ben Ponte, Law Clerk.
