ACP Syme Magazines Pty Ltd v Tri Automotive Components Pty Ltd
[1997] FCA 362
•24 APRIL 1997
CATCHWORDS
WINDING UP - Part 5.4 of the Corporations Law - application for winding-up on basis of failure to comply with statutory demand - presumption of insolvency unrebutted - whether genuine dispute as to existence of debt of substituted applicant - circumstances where discretion to make winding-up order exercised, despite existence of genuine dispute as to the debt - evidence establishing insolvency
Corporations Law ss 459A, 459C, 459F, 459H, 459P, 459S and 465B
David Grant and Company Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265
Re Synthetic Oils Pty Ltd (1989) 8 ACLC 95
ACP SYME MAGAZINES PTY LIMITED (ACN 064 335 619) v TRI AUTOMOTIVE COMPONENTS PTY LIMITED (ACN 054 155 690)
No VG 3349 of 1996
SPENDER J
MELBOURNE
24 APRIL 1997
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 3349 of 1996
GENERAL DIVISION
BETWEEN:ACP SYME MAGAZINES PTY LIMITED
(ACN 064 335 619)
Applicant
AND:TRI AUTOMOTIVE COMPONENTS PTY LIMITED
(ACN 054 155 690)
Respondent
CORAM: Spender J
PLACE: Melbourne
DATE: 24 April 1997
MINUTES OF ORDER
TRI Automotive Components Pty Limited be wound up by the court under the provisions of the Corporations Law;
Paul Paterson and Robert Michael Scales, care of Ernst & Young, 120 Collins Street, Melbourne, each an official liquidator, be appointed as liquidators of the company;
The substituted applicant's costs and the supporting creditors’ costs (in each case including reserved costs) be taxed and reimbursed out of the property of the company in accordance with s 466(2) of the Corporations Law.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 3349 of 1996
GENERAL DIVISION
BETWEEN: ACP SYME MAGAZINES PTY LIMITED
(ACN 064 335 619)
Applicant
AND: TRI AUTOMOTIVE COMPONENTS PTY LIMITED
(ACN 054 155 690)
Respondent
CORAM: Spender J
PLACE: Melbourne
DATE: 24 April 1997
REASONS FOR JUDGMENT
I indicate at the outset that I am satisfied that there is a genuine dispute as to the existence of the debt claimed by the substituted creditor but that on the totality of the evidence before me, I will make a winding-up order against the respondent.
This is a contested application by ACP Syme Magazines Pty Limited, (‘ACP’), as substituted creditor, seeking the winding-up in an insolvency of TRI Automotive Components Pty Limited, (‘TRI Automotive’), pursuant to s 459A and 459P of the Corporations Law, (‘the Law’). These sections are found in Part 5.4 of the Corporations Law, which Part is headed “Winding up in Insolvency”.
Section 459A provides:
“ On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency.“
Section 459P provides:
“ (1) Any one or more of the following may apply to the Court for a company to be wound up in insolvency:
(a)the company;
(b)a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor);
(c)a contributory;
(d)a director;
(e)a liquidator or provisional liquidator of the company;
(f)the Commission;
(g)a prescribed agency.
(2) An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court:
(a)a person who is a creditor only because of a contingent or prospective debt;
(b)a contributory;
(c)a director;
(d)the Commission.
(3) The Court may give leave if satisfied that there is a prima facie case that the company is insolvent, but not otherwise.
(4) The Court may give leave subject to conditions.
(5) Except as permitted by this section, a person cannot apply for a company to be wound up in insolvency.”
The application for winding-up is supported by FAI Workers' Compensation (Vic) Pty Ltd (‘FAI’), who was the original applicant for the winding-up in insolvency of TRI Automotive. FAI posted a statutory demand dated 7 June 1996 to TRI Automotive alleging a debt of $4410.81. No application was made pursuant to s 459G of the Law by TRI Automotive to set aside that demand. The time for compliance with the demand was therefore 21 days after service of the demand: (s 459F(2)(b)).
TRI Automotive failed to comply with the demand: (s 459F(1)). On 10 July 1996, an application was filed by FAI for an order that TRI Automotive be wound up.
In the light of that history, the provisions of s 459C of the Law are central to the present application. Section 459C relevantly provides:
“ (1) This section has effect for the purposes of:
(a)an application under section 260, 459P; 462 or 464; or
(b)an application for leave to make an application under section 459P.
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a)the company failed (as defined by section 459F to comply with a statutory demand; or [emphasis added]
...
(3) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.”
After two adjournments, the Court made orders on 8 October 1996 as follows:
(1) the applicant, being FAI, was excused from further attendance;
(2) any application by the supporting creditor, [who was then the present substituted creditor], for substitution to be filed and served together with any affidavits on which the supporting creditor relied by 21 October 1996.
The application was adjourned until 12 November 1996. On 12 November Registrar Agnew made the following orders, inter alia:
“1. ACP Syme Magazines Pty Ltd be substituted as applicant.
2. The substituted applicant amend the application accordingly.
3.The substituted applicant serve a copy of the amended application on the respondent by 18 November 1996.
4.The respondent have leave to file and serve any affidavit in opposition to the amended application by 9 December 1996.
5.The substituted applicant file and serve any affidavit in reply by 17 December 1996.”
Also on that day TRI Automotive filed its notice of intention to oppose the application. That document is in these terms:
“1. The Company intends to appear at the hearing of the winding up application and to oppose that application. The grounds of opposition to the application are:-
(I) No amount is owing from the company to the Substituted Applicant.
(ii) The amount claimed as owing from the company to the Substituted Applicant in the Affidavit of Shane Matthew Aughterson sworn 25 October 1996 and filed and served in support of the Notice of Motion (‘Aughterson’s Affidavit’) is not owing from the company.
(iii) There is a genuine dispute about the existence of the debts referred to in paragraph 2 of Aughterson’s Affidavit.
2.The address for service of the person appearing is c/- Macpherson & Kelley Solicitors, 229 Thomas Street, Dandenong, Victoria 3175.”
It is significant to note that insolvency was not alleged as a ground of opposition in that notice of intention to oppose the making of the winding-up order. The new regime dealing with statutory demands has the effect of highlighting that the question of solvency is the central question in a winding-up application.
The question of whether there is a genuine dispute as to the debt is principally to be canvassed in applications to set aside a statutory demand. Section 459S provides:
“ (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.”
Section 459S of the Law emphasises that on a winding-up application the central question for the Court is whether the company should be wound up as insolvent. In David Grant and Company Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265, Gummow J noted, at 279:
“ No doubt, in some circumstances the new Part 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It may also transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term as explained in William v Spautz (1992) 174 CLR 509 at 518-522, 532-537. However, in an appropriate case injunctive relief may then be available to the company in a Court having general equity jurisdiction;...Re J & E Holdings Pty Limited (1995) 36 NSWLR 541 at 547-548.”
The other four judges in that case, Brennan CJ, Dawson J, Gaudron and McHugh JJ agreed with the judgement of Gummow J. See also Elite Motor Campers Australia v Leisureport Pty Limited (1996) 22 ACSR 235.
On 27 December 1996, the court, pursuant to s 459R of the Law, ordered that the period in which the application must be determined would be extended by six months until 10 July 1997.
A preliminary point was raised by ACP. It was submitted that before the directions hearing on 20 August 1996, TRI Automotive had failed to comply with the provisions of the Federal Court Rules O 71 r 37(11), in that it had failed to file and serve a notice of appearance in accordance with form 79 specifying the grounds of opposition and an affidavit verifying those grounds in accordance with form 93A. In those circumstances, it was submitted that, in the absence of leave of the court, TRI Automotive is precluded from opposing the petition pursuant to the provisions of s 465C of the Corporations Law.
To this submission, TRI Automotive contended that s 465C of the Law did not apply to winding-up applications by a substituted applicant, notwithstanding the provisions of s 465B(4) of the Law. It was noted that no references made in the section to applications by substituted applicants and that until a creditor has been substituted by the court and has filed affidavit material deposing to the alleged indebtedness of the respondent to it, the respondent would not be in a position to file and serve on the substituted applicant, a notice of the grounds in which it opposes the substituted applicant's application.
Accordingly, it was submitted on behalf of TRI Automotive that it did not need the leave of the Court to oppose the substituted application. Alternatively, it was said that if leave was necessary, the justice of the situation would require that it be granted. The notice of intention by TRI Automotive to oppose the making of a winding-up order which contained the grounds of opposition was filed on the same day as the court order pursuant to s 465B, that ACP be substituted as applicant. I therefore ordered that, if leave be necessary, (which in the circumstances I doubt was necessary), TRI Automotive should be granted leave to oppose the application.
On this aspect of the matter, in my view s 459S does not assist ACP.
The failure to comply with the statutory demand requires the court to presume insolvency. The grounds of opposition to the application for a winding-up order are not grounds that the company could have relied on to set aside the statutory demand but did not. The existence and amount of the debt the subject of the statutory demand, have never been in contention.
In fact, by its subsequent payment of the amount of the statutory demand to FAI, it seems to me that TRI Automotive has acknowledged the existence of the debt at the time of FAI's application.
The principal submission on behalf of TRI Automotive in resisting the application for a winding-up order is as follows. Before a court can make a winding-up order, it must be satisfied that the alleged debt is in fact owed by the respondent company to the applicant. In other words, it must be satisfied that the applicant is a creditor of the respondent. If the court is not so satisfied, it is the respondent’s submission that the court must dismiss the application.
It was further submitted that the substituted applicant has no authority to continue with the application unless it is a creditor. Reliance is placed on the terms of s 459P of the Law earlier set out. This submission, in my opinion, involves a misunderstanding of the nature of a winding-up application, and the submission is inconsistent with what in my view is the better view of the law as reflected by the authorities.
It is not true to say that this winding-up application is based upon a failure to comply with the statutory demand. The failure to comply with the statutory demand gives rise to a presumption of insolvency. An application to wind up a company in insolvency is on the ground that it is insolvent. Failure to comply with a statutory demand has evidentiary consequences, or may have evidentiary consequences, on the central question on a winding-up application.
It seems to me to be the case that, notwithstanding there might be a genuine dispute as to the debt which either an applicant or a substituted applicant asserts against the company whose winding up is being sought, the court still retains a discretion pursuant to the Law to make a winding-up order. The existence of the debt owed by a respondent to an applicant on a winding-up application is a basis upon which a statutory demand by an applicant to a respondent might have been set aside.
Section 459H(1) provides:
“ This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.”
True it is that Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 AT 293:
“...it has long been held that as a matter of discretion, a winding-up order will not be made on a debt which is bona fide disputed, provided that the dispute is based on some substantial grounds. (See e.g. The Brighton Club and Norfolk Hotel Co (Ltd) (1865) 35 Beav. 204, 205; (55 E.R. 873); Re The Imperial Silver Quarries Co Ltd (1868) 16 WR 1220, 1221; Re King’s Cross Industrial Dwellings Co (1870) LR 11 Eq 149 at 151; Re The Imperial Hydropathic Hotel Co, Blackpool, Ltd (1882) 49 LT 147; Re Great Britain Mutual Life Assurance Society (1880) 16 ChD 246, at 253; Re K L Tractors Ltd [1954] VLR 505, 509; McPherson, The Law of Company Liquidation (3rd Ed, p. 63).) The existence of this general discretion stood apart from the questions presented under previous provisions relating to statutory demands about whether there had been a "neglect" to pay the debt demanded when the debt was disputed (as to which see Re London and Paris Banking Corpn (1874) LR 19 Eq 444 at 446; Re Convere Pty Ltd [1976] VR 345; Fortuna Holdings Pty Ltd & Ors v Deputy Commissioner of Taxation of the Commonwealth of Australia 76 ATC 4312; [1978] VR 83; McPherson op cit 52-53).”
His Honour said at 294:
“ ...it is to be noted that an application to set aside a statutory demand ‘may only be made within 21 days after the demand’ is served (s 459G(2)) and insofar as an application for a company to be wound up and insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without leave, oppose the application on a ground that the company could have relied on for the purposes of an application by it for the demand to be set aside but upon which it did not so rely (s 459S(1)). The Court is directed not to grant such leave unless it is satisfied that the ground is material to proving that the company is solvent (s 459S(2)).”
Importantly for my purposes, speaking of the rule that a winding-up order would not, as a matter of discretion, be made by the court on a debt which was bona fide disputed, his Honour noted at 294:
“ That rule was sometimes said to be grounded in part upon the fact that the applicant for winding-up may not be qualified to file an application for a winding-up order: the applicant may not be a creditor if the company were justified in refusing to pay. It may be doubted that that consideration is of great force (or for that matter was of great force under the old law). (Cf Re Bond Corporation Holdings Limited (1990) 8 ACLC 153; (1990) 1 ACSR 350.)”
Mibor Investments (supra) was a case of an application to set aside a statutory demand. It was not a winding-up application.
In Re QBS Pty Limited [1967] QdR 218, Gibbs J said at 224:
“ There is a clear rule that a winding up order will not be made on a debt which is bona fide disputed by the company. “That rule is referred to in Buckley on the Companies Acts, 13th ed, at p. 451, where it is said: ‘A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company’. Then it goes on to say: ‘But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order’: and further on: ‘Great damage may obviously be done to a solvent company by a winding up petition presented by an unreasonable creditor, whose debt the company are able and willing to pay if established, but to whom they bona fide believe they are not indebted’.” (In re Tweeds Garages Ltd [1962] 1 Ch 406, at pp 411-412, and see the cases cited in Halsbury’s Laws of England, 3rd ed, vol. 6 at p 538; In re K L Tractors Ltd [1954] VLR 505, at p 512 and Thiess Peabody Mitsui Coal Pty Ltd v A E Goodwin Ltd [1966] QdR 1). It has been held that this rule does not apply if the company is insolvent (In re A Private Company [1935] NZLR 120)...”
The fact that it is sufficient to decide if there is a bona fide dispute and that it is not necessary on a winding-up application to decide whether the applicant or substituted applicant is in truth a creditor, indicates in my opinion that, if on an application for winding up there is a bona fide dispute as to the existence of the debt claimed by the applicant, (or in this case the substituted applicant), that is not determinative of the matter. There is still a discretion in the court to order that a company be wound up where the evidence establishes that the company is insolvent notwithstanding the finding that there is a bona fide dispute as to that debt.
The central question in this case was considered by Master White in Re Synthetic Oils Pty Ltd (1989) 8 ACLC 95. In that case, it was submitted on behalf of the petitioner for winding up that:
“ ..even if there were, [a bona fide dispute on substantial grounds] the evidence shows that the companies are insolvent so that the appropriate order is that they be wound up.”
Master White noted at 96:
“ Reliance was placed, for the latter submission, on the decision in Tecma Pty Ltd v Solah Blue Metal Pty Ltd (1988) 6 ACLC 1,080 where Young J cited with approval a passage contained in Professor O’Donovan's third edition of McPherson on Company Liquidation at page 63, where the learned author says:
‘There is a broad general principle that a winding-up order will not, as a matter of discretion, be made on a debt which is bona fide disputed, provided that the dispute is based on some substantial ground. No doubt one reason for this rule is that an applicant whose debt is disputed may lack the qualification necessary to file an application for a winding-up order; he is not a creditor if it turns out that the company was justified in refusing to pay. But the principal reason is that a winding-up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt which would certainly be discharged as soon as the company’s liability was clearly shown to exist. It follows that the principle has no application where the company is proved to be insolvent, and a fortiori where it is the amount merely, and not the existence, of the debt which is disputed.’’
Master White noted:
“ Tecma (supra) is a case in one of the two conflicting lines of decisions as to whether, where the company is shown to be insolvent, the fact that the debt is disputed is irrelevant. This is the view taken in Niger Merchants Co v Capper (1877) 18 Ch.D 557 at p. 559; Re a Private Co [1935] NZLR 120; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd (1983) 1 ACLC 1263; Re Tweeds Garages Ltd [1962] Ch 406; Re Steel Wing Co Ltd [1921] 1 Ch 349; Re Gem Exports Pty Ltd (1984) 2 ACLC 229; Community Development Pty Ltd v Engwirda Construction Co [1968] Qd R 541.
The other line of cases maintain that a bona fide dispute on substantial grounds prevents the petitioner from enjoying the status of "creditor", so that the petition should be dismissed, or perhaps, stayed, whether or not the company is insolvent - see, for example, Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 259; Re Glenbawn Park Pty Ltd (1977) ACLR 288; Re QBS Pty Ltd [1967] QdR 218; Mann & Anor v Goldstein (1968) 1 WLR 1,091 at p 1,098; Re Lympne Investments Ltd [1972] 1 WLR 523 at 527; and Frank Hermens (Wholesale) Pty Ltd v Palma Pty Ltd (1985) 3 ACLC 835 in which Needham J held that whether or not injunctions are only to be given to solvent companies remains an open question.
Master White continued:
“ In my opinion, the matter is one for the discretion of the Court. Where there is a bona fide dispute on substantial grounds, that discretion will usually (but not, in my view, necessarily) be exercised in favour of dismissing the petition or, sometimes, of staying the petition to enable the dispute to be resolved in the proper forum. However, in my opinion, the Court retains the discretion to order the winding up of an insolvent company even where there is a bona fide dispute on substantial grounds as to the petitioner’s debt.”
In Brinds Ltd v Offshore Oil No Liability (1985) 4 ACLC 227 Lord Brighton in giving a judgment of the Privy Council said at 231:
“ It is a matter for the discretion of the Judge whether a winding-up order should be made on a disputed debt and it is also a matter of discretion whether he decides the substantive question of debt or no debt.”
Their Lordships agreed with the observations of Gibbs J in In Re QBS Pty Ltd [1967] QdR 218 at 225. His Lordship sets out expressly the passages to which I have earlier referred. The Privy Council also noted that the same line of reasoning was adopted by the Privy Council in an appeal from New Zealand in Bateman Television Limited v Coleridge Finance Co Limited (1971) NZLR 929 at 932.
Also useful in this context is the older case of Strata Welding Alloys Pty Limited v Henrik Pty Limited [1980] 5 ACLR 442, where his Honour Mr Justice Needham said at 447:
“ Undoubtedly, a court hearing a petition to wind up a company is entitled to determine in the first place whether the petitioner is a creditor of the respondent and it would be entitled to do that even if the facts and the law applicable to them were complex. However, it is well established that the court is not to be put in the position, when hearing a petition to wind up by a person claiming to be a creditor or in dealing with applications for injunctions against either advertisement or presentation of a petition of having to determine what is in essence a common law proceeding.”
I accept that the onus of establishing that a respondent on a winding-up application has a bona fide dispute on substantial grounds is on the respondent. In Re Convere Pty Ltd [1976] VR 345 at 350, Kaye J said:
“ But to constitute a relevant consideration the debt must be disputed on a substantial ground and it is for the company to show that the dispute is based on a substantial ground: Re KL Tractors Limited [1954] VLR at 509; Mann v Goldstein [1968] 1 WLR 1091 at p. 1096 and Re LHF Wools Limited [1970] Ch 27, per Harman, LJ at 36.”
If it was simply a question of the bona fides of a dispute, I accept that there would be a number of considerations that are relevant. Clearly, in considering whether a dispute is bona fide, evidence of the insolvency of the respondent is a relevant consideration: Beverage Holdings Pty Limited v Greater Pacific Investment Pty Limited (1990) 3 ACSR 743.
If a respondent claiming to have a dispute had previously requested time to pay, that request is, in my opinion, telling evidence against the genuineness of the later claim disputing the existence of the debt. In Delaine Pty Limited v Quarto Publishing PLC (1990) 8 ACLC 1026, Young J in the Supreme Court of New South Wales said, at 1027:
“ ...where the circumstances suggest that the company is insolvent and the defendant is a creditor, the company will have a very difficult task in persuading a Court that an injunction should be granted.
It should be noted that similar tightening of the reins has occurred in England. (See Re Taylor’s Industrial Flooring Ltd (1990) BCLC 216. This case will need to be considered in the light of [a number of cases], affirmed by the High Court, in L&D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACLR 180.
It is clear, in any event, that there must be a substantial dispute before the Court will come to the conclusion that it should grant an injunction. If the company requests time to pay, it is very difficult for a company to suddenly assert that a debt is disputed without such statement of dispute being regarded with acute suspicion: Wallace & Young on Company Law at p. 640.”
I am satisfied that there is a bona fide dispute as to the existence of the debt claimed by ACP. I am of the opinion, for the reasons that I have given, that that conclusion does not require the dismissal of the application or that, though frequently or perhaps even generally, that would be the result. In my view the presumption of insolvency arising from the failure to comply with the statutory demand by FAI remains unrebutted on the totality of the evidence before me.
In those circumstances it seems to me that I should order the winding up of TRI Automotive.
My reasons for concluding that there is a bona fide dispute can be expressed very shortly.
The substituted applicant says that advertisements in four magazines published by it relating to turbo charges were placed by the respondent. The advertisements appeared during the period September 1995 to May 1996. It is not in dispute that TRI Imports, a company having the same registered office as TRI Automotive, had an account with ACP, and that prior to August 1995 TRI Imports had placed advertisements with and paid for those placed advertisements with ACP.
The invoices for the turbo charger advertisements during the period I have mentioned were rendered to TRI Imports. The invoices refer to that company's numbered account and nominate it as the advertiser. A total of five cheques, being in part payment of those invoiced accounts, were drawn on the account of TRI Imports. Three of those cheques were dishonoured, and the dishonoured amounts were included in later invoices addressed to TRI Imports. The substituted applicant, by writ issued 13 May 1996, commenced proceedings against TRI Imports in the County Court of Victoria for the sum of $31,576.00; that is, the same amount as it claims is owed by TRI Automotive to it.
The County Court proceedings were settled on about 1 August 1996 on the basis that the substituted applicant's claim would be discontinued and each party would bear its own costs. After the County Court proceedings had been settled, TRI Automotive received from ACP an invoice/statement, dated September 1996, for the same amount as had been claimed by ACP in the County Court proceedings, ($31,576.00). That invoice is in fact identical in every respect with the April 1996 invoice directed to TRI Imports, save for the reference to the name in the account and to the person nominated as advertiser in the account.
The substituted applicant says that the invoicing, the payment and the institution of proceedings against TRI Imports were all a series of errors by the applicant. The advertising for the turbo chargers had, it is said, been placed by TRI Automotive. TRI Automotive owed the sum of $31,567.00 to the applicant in respect of that advertising.
The later claim is said to be supported by a number of considerations including first, a business card from Mr John Honan indicating that he is employed by TRI Automotive. It was Mr Honan who had dealings in connection with the turbo charger advertising. Secondly, there is a conversation alleged to have taken place between the salesman of ACP and a Patricia Roche, an employee of TRI Automotive. Mrs Roche was not called in these proceedings and the explanation for her absence was unsatisfactory. The third consideration concerns a facsimile on the letterhead of TRI Automotive dated 23 April 1997 in respect of the amount owed for the turbo charger advertising. That document has, however, in the top left hand corner, an indication that it was from TRI Imports.
To give effect to this later version of the circumstances in which the debt came about, the invoice to which reference has been made of September 1996 was raised.
For TRI Automotive it was said that, first, the debt has been disputed by sworn testimony, it being claimed that the advertising was made by TRI Imports and the debts were TRI Imports. Reliance was of course placed on the invoices and on the cheques and on the institution of proceedings against TRI Imports.
In the evidentiary circumstances before me, I find that there is a bona fide dispute as to whether the identity of the debtor is TRI Imports or TRI Automotive.
Notwithstanding that finding, for the reasons which I have earlier indicated, the court's discretion to order a winding up can be exercised. My conclusion in that regard has been earlier set out and the authorities which underpin it have been set out.
My understanding of the fundamental policy of Part 5.4 of the Law is that, where there is a company that is insolvent in the “cash-flow” sense, that company should, as a matter of general application, apart from any special circumstances to the contrary, be wound up in the interests of the creditors and in the interests of equity between creditors.
My conclusion that the presumption of insolvency created by non-compliance with the statutory demand has not been rebutted flows from a number of circumstances.
First, on the material before me, there was no attempt to establish solvency on the part of TRI Automotive. While there was a bold single line assertion of solvency contained in an affidavit filed after submissions had been concluded in the winding-up proceedings, (which affidavit was not in response to the affidavit in respect of which it was meant to be in response), that claim of solvency was struck out. At no time in the proceedings, other than this one sentence in the affidavit of Mr Honan, was there any attempt to prove that in fact TRI Automotive was solvent.
Next, the 1995 company return of TRI Automotive in evidence indicates that there is an excess of liabilities over assets, albeit by a small amount. It shows that trade creditors total $208,000.00. However, I note that in an income tax return for 1995, the trade debtors are shown as $327,845.00, while trade creditors are shown as $308,241.00. The income tax return indicates the assets of TRI Automotive total $631,995.00 and total liabilities total $649,070.00.
It is, of course, to be borne in mind that the question of insolvency is not to be answered by having regard to balance sheet considerations. The question of insolvency must focus on cash flow, rather than on any question of whether, divorced from any time frame, assets exceed liabilities.
Importantly for my conclusion, no information concerning the current position of the company has been placed before the court. There is no balance sheet, no profit and loss accounts, no income tax returns, and no information of any sort for the year ending June 1996 or for any subsequent period.
TRI-Automotive in fact suffered a Magistrates' Court judgment, for a very small amount, at the hands of FAI in 1993, and that matter was only paid out as a result of the settlement effected by FAI on 8 August 1996.
FAI again suffered a judgment in the Magistrates' Court in 1994 at the hands of FAI for the sum of $4400.81.00, which was the amount the subject of the statutory demand. Independently of the question of the statutory provisions concerning non-compliance with the statutory demand as a matter of evidence, the fact is that TRI Automotive was not able to pay the relatively small amount of $4401.81 until that was incorporated as part of the settlement agreed on 8 August 1996. Moreover, the terms of the settlement (which were structured on an instalment payment basis), suggests that TRI Automotive did not have the capacity to pay pre-existing debts otherwise than by instalments.
As part of that settlement, TRI Automotive agreed to pay FAI eight weekly amounts of $200.00 by way of costs. TRI Automotive failed to pay any one of those amounts, so that, not only did it negotiate time to pay, (from which I infer that it did not have the capacity for immediate payment), but it failed to make those payments by instalments as it had promised.
Finally, amongst the reasons that I expressly mention, is the fact that TRI Automotive has, for some time, been indebted for the amounts for workers’ compensation premiums for 1996/1997 to FAI.
While the precise amount of the debt owed to FAI might be a matter of some dispute, it is beyond argument that it owes in respect of workers’ compensation premiums for 1996/97 the sum of $2500, and the further sum of $2000, being for non-payment of the instalments agreed to be paid as part of the settlement of 6 August 1996.
It may be that if there had been no supporting creditor or information concerning the extent of the nature of the insolvency of TRI Automotive, I would not, in the exercise of the discretion, have made a winding-up order. But on the totality of the evidence before me here, the company not only is presumed to be insolvent, but on the evidence before me is insolvent. There can be no argument that TRI Automotive owes and has owed for some time more than the statutory minimum amount to FAI. The fact that the debt the subject of the statutory demand by FAI (which preceded its application to wind up TRI Automotive) has been paid, would not prevent FAI from being substituted as applicant: Deputy Federal Commissioner of Taxation v Sun Heating Pty Ltd (1983) 1 ACLC 1,141 at 1,142.
Having regard to what I see as the fundamental policy behind Part 5.4 of the Law, on the totality of the evidence before me, I will exercise my discretion and order a winding-up of TRI Automotive.
The orders that I make are that:
TRI Automotive Components Pty Limited be wound up by the court under the provisions of the Corporations Law;
Paul Paterson and Robert Michael Scales, care of Ernst & Young, 120 Collins Street, Melbourne, each an official liquidator, be appointed as liquidators of the company;
The substituted applicant's costs and the supporting creditors’ costs (in each case including reserved costs) be taxed and reimbursed out of the property of the company in accordance with s 466(2) of the Corporations Law.
I certify that this and the preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 24 April 1997
Counsel for the substituted
applicant: Mr A Ellis
instructed by : Lakes Solicitors
Counsel for the respondent : Mr K Baker
instructed by : Macpherson & Kelley
Counsel for the supporting
creditor, FAI Workers
Compensation (Vic) Pty Ltd : Miss S Horovitz
instructed by : Davies Moloney
Date of hearing : 22 April 1997
8
0