Aerial Capital Group Ltd, in the matter of M. M. International (Australia) Pty Ltd v M. M. International (Australia) Pty Ltd
[2017] FCA 1607
•20 December 2017
FEDERAL COURT OF AUSTRALIA
Aerial Capital Group Ltd, in the matter of M. M. International (Australia) Pty Ltd v M. M. International (Australia) Pty Ltd [2017] FCA 1607
File number: ACD 28 of 2017 Judge: FARRELL J Date of judgment: 20 December 2017 Catchwords: CORPORATIONS – application to wind up company in insolvency – failure to comply with statutory demand – presumption of insolvency – whether presumption of insolvency rebutted – inadequate evidence to rebut presumption of insolvency – application granted Legislation: Corporations Act 2001 (Cth) ss 459A, 459C, 459R, 466 Cases cited: Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; NSWCA 163
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; NSWCA 305
M M International (Australia) Pty Ltd v Aerial Consolidated Transport Ltd [2017] ACTSC 374
Date of hearing: 18 December 2017 Registry: Australian Capital Territory Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 33 Counsel for the Plaintiff: Mr K A Pattenden Solicitor for the Plaintiff: Griffin Legal Solicitor for the Defendant: Mr J O’Keefe ORDERS
ACD 28 of 2017 IN THE MATTER OF M. M. INTERNATIONAL (AUSTRALIA) PTY LTD (ACN 116 825 248) BETWEEN: AERIAL CAPITAL GROUP LTD (ACN 116 825 248)
PlaintiffAND: M. M. INTERNATIONAL (AUSTRALIA) PTY LTD (ACN 088 104 170)
Defendant
JUDGE:
FARRELL J
DATE OF ORDER:
20 DECEMBER 2017
THE COURT ORDERS THAT:
1.The defendant, M.M. International (Australia) Pty Ltd (ACN 088 104 170), be wound up in insolvency.
2.Ezio Senatore of Deloitte is appointed as liquidator of the defendant.
3.The plaintiff’s costs of these proceedings be as agreed or taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FARRELL J:
On 5 May 2017, Aerial Capital Group Ltd filed an application under s 459P of the Corporations Act 2001 (Cth) seeking orders that M.M. International (Australia) Pty Ltd (the Company) be wound up on grounds of insolvency under s 459Q, being the failure of the Company to comply with a statutory demand. The Company runs a taxi business and Aerial provides network services for which it charges fees.
The directors of the Company are Mohammad Hussain and his wife, Bazlun Bilkis.
The statutory demand was dated 12 January 2017 and signed by Peter John McGrath of Griffin Legal, solicitor for Aerial. The statutory demand claimed an amount of $56,234.55, being the amount of a fixed costs order made on 30 November 2016 by Magistrate Morrison of the Australian Capital Territory’s Magistrates Court and entered on 1 December 2016 (fixed costs order). A copy of the fixed costs order accompanied the statutory demand. The statutory demand expired on 8 February 2017.
On 1 November 2017, Magistrate Theakston made orders staying the fixed costs order until 4 pm on 11 December 2017. The significance of 11 December 2017 is that the Supreme Court of the Australian Capital Territory had listed for hearing on that day an application made by the Company for leave to appeal out of time orders made by Magistrate Morrison on 17 August 2016. On 17 August 2016, Magistrate Morrison made orders for summary judgment with costs as agreed or assessed against the Company in proceedings the Company commenced against Aerial (and others) on 21 September 2014. In those proceedings the Company claimed that Aerial had inappropriately deducted network fees of $19,349.11 in respect of a taxi owned by the Company which had been stolen and destroyed in 2013. On 30 November 2016, Magistrate Morrison revoked the costs order made by him on 17 August 2016 and in lieu of it made the fixed costs order.
The application for leave to appeal out of time was dismissed on 11 December 2017: see M M International (Australia) Pty Ltd v Aerial Consolidated Transport Ltd [2017] ACTSC 374. Relevantly to this application, at [19], Elkaim J noted that on 13 April 2017, Burns J ordered the Company to pay security for costs in the leave application of $12,000 and that amount had been paid, and at [20], that there was no live application challenging the fixed costs order.
Pursuant to orders which I made under s 459R(2) of the Corporations Act, the time by which the application for winding up must be determined was extended first to 5 pm on 10 November 2017, and subsequently to 5 pm on 20 December 2017. Those orders were made respectively on 31 October 2017 (following a hearing on 25 October 2017, when the Company was first legally represented in these proceedings) and 8 November 2017 (the date set down for hearing the winding up application, which was adjourned following the grant of the stay of the fixed costs order).
EVIDENCE RELIED ON BY AERIAL AND PRESUMPTION OF INSOLVENCY
Aerial relied on the affidavits of Phillip Gregory Skipper sworn on 4 May and 18 December 2017, Samuel James Lynch affirmed on 1 June and 16 June 2017, and Jill Lynette Brajkovich affirmed on 14 June 2017 which relate to the formal matters required to be proved upon an application of this kind, including that the amount claimed in the statutory demand remains unpaid. The Company has not drawn any defect in that evidence to my attention. No application was made by the Company to set aside the statutory demand. In those circumstances, the Company must be presumed to be insolvent under s 459C(2)(a) of the Corporations Act. The Company claims that it is not insolvent and bears the onus of proving it.
Ezio Senatore of Deloitte’s office in the Australian Capital Territory has consented to appointment as the Company’s liquidator. He has provided evidence as to the hourly rates charged by Deloitte for such work.
Aerial also relied on affidavits of Joshua Daniel Favaloro affirmed on 18 August, 13 October (of which there were two), 18 October and 14 December 2017. Most of those affidavits deal with the litigation between the parties. In Mr Favaloro’s latest affidavit he deposes to the fact that on 14 December 2017 a search of the ACT Government Check Registration Details disclosed that:
(1)TX 904 is currently unregistered. The registration expired on 20 August 2017;
(2)TX 907 is currently unregistered. The registration expired on 26 November 2017; and
(3)TX 911 is currently registered with an expiry date of 2 January 2018.
In cross examination, Ms Bilkis conceded that TX 904 and TX 907 cannot be re-registered as taxis because of their age.
Mr Favaloro also deposed that on 7 December 2017, he ordered valuation certificates through Automotive Data Service Pty Ltd trading as Redbook. Those valuations indicated that cars of a kind registered as TX 904, TX 907 and TX 911 with over 500,000 km each in poor condition would realise amounts ranging between $6,750 - $4,700, $6,800 - $4,100 and $9,250 - $7,100 respectively depending on whether they were sold by private treaty or trade-in. As new, they would realise higher amounts, however, the assertion that the taxis are in poor condition was not challenged.
EVIDENCE RELIED ON BY THE COMPANY
The Company relies on an affidavit affirmed by Robert James Austin on 30 November 2017 and its five attachments. In attachment “RA2” Mr Austin says that he has been a Certified Practising Accountant since 1974, a registered tax agent since 1978 and a self-managed superannuation fund auditor since 2016. He has been a self-employed public accountant since 1978.
The other attachments to Mr Austin’s affidavit are also attachments to an affidavit affirmed by Ms Bilkis on 6 November 2017 which was also read in these proceedings. Both Mr Austin and Ms Bilkis gave oral evidence in relation to aspects of the attachments.
Attachment “RA1” is a document which Mr Austin describes as “report of R J Austin dated 6 November 2017”. The document states (as written):
RE: M.M. International (Australia) Pty Ltd)
No: ACD28/2017
I have been requested by the Directors of M.M. International (Australia) Pty Ltd to provide the following information.
Current Assets as at 6 November 2017
Bank Accounts
St George Bank
Balance as at 06/11/2017 was $23,933.21. There is an undrawn overdraft facility of $8,500 for this Account.
Commonwealth Bank
Balance as at 6/11/2017 was $15,845.62. There is an undrawn overdraft facility of $500.00 for this account.
Current Liabilities as at 6 November 2017
There are no outstanding Creditors as at 06/11/2017
Taxation
The 2017 Company Tax Return has been lodged and there is no tax payable.
Non Current Assets
The Company owns 3 Taxis which are all unemcumbered. Their estimated values are:-
TX 904 $40,000.00
TX 907 $15,000.00
TX 911 $55,000.00
$110,000.00
Additional Funds
The Company has access to additional funds, if required, from the Directors, family and from overseas affiliated entities.
On the basis of the above information, it would appear that the Company is able to meet it’s financial obligations, as and when they fall due.
The above information has been supplied by the Directors and supporting Bank Statements and no form of Audit has been conducted by me.
In cross examination, Mr Austin confirmed that he relied on statements made to him by the Company’s directors in formulating the “report” and he did not refer to source documents other than the “Bank Statements” which are attached as “RA3” and “RA4”, which he obtained from the directors. He relied on the directors for the valuation of the taxi plates and did not know that both TX 904 and TX 907 are now deregistered because they are too old to operate as taxis. He made no reference to the fixed costs order because he understood that it was stayed at the time he wrote the document and did not consider it necessary to include it as a contingent liability. In response to a question from the bench as to the taxi TX 457 which is not referred to in his “report” but is referred to in “RA4”. Mr Austin said that this taxi is leased by the Company.
Attachment “RA3” is a document headed “DDA Transaction History” which has a “Date/Time” of “06/11/2017 11:03” which bears a St George Bank stamp (which appears to be from the Manuka branch) dated “- 9 NOV 2017”. It shows a “Current Balance” of “23,933.21” and an “Available Balance” of “17,273.01”. All transactions listed have a date of 6 November 2017. The starting balance is “5,566.79-”, there are seven “ATM” deposits for amounts between “750” and “4,000” and a cheque deposit for “14,000”.
Attachment “RA4” is a document on what appears to be paper issued by the Commonwealth Bank of Australia, headed “List of Transactions” for “M M International PL”. It is a single page identified as “1 of 5” for the period beginning on “6NOV17” and ending on “01OCT2017”. The transactions are in reverse chronological order. The earliest transaction is on 2 November 2017 with a “Transfer from MOHAMMED HUSSAIN CommBank app” for “2,000” leading to a “Balance” of “3,785”. There are “direct credits” from “Aerial” in respect of taxis “TX 907” also on 2 November 2017 and in respect of TX 457 and TX 907 on 3 November 2017 for amounts between “22.90” and “259.20”. There are “ATM” deposits for “4,000” and “2,500” and a “Transfer from HASIN HUSSAIN Commbank app” for “10,000” between 3 and 6 November 2017. There are three cashed cheque debits and an “ATM” withdrawal. The cumulative balance as at 6 November 2017 is $15,845.62. Ms Bilkis says that “Hasin Hussain” is her son.
Attachment “RA5” is a document headed “Company tax return” for the period 1 July 2016 to 30 June 2017. It reveals that the Company claimed that its gross income was $518,342 with total expenses of $466,882 and total profit of $51,460 with a deduction of $4,100 for depreciation and no tax was payable because of available tax losses.
The Company updated this evidence by tendering:
(1)Defendant’s exhibit 1. It is a document marked “1 of 1” and otherwise in the same form as “RA4”. It comprises a list of transactions beginning on “13DEC2017” and ending on “01DEC2017”. It indicates that as at 1 December 2017, the “Balance” was “22.75”. Credits to the account were made by Aerial in relation to TX 907 and TX 457 for amounts between “15.25” and “1,277.21”. Transfers were made on 3 and 13 December 2017 from “HASIN HUSSAIN CommBank app” for amounts of “15,000” and “5,000” respectively. The “Balance” as at 13 December 2017 was “21,078.81”.
(2)Defendant’s exhibit 3. It is a document in the same form as “RA3” comprising a “DDA Transaction History” with a stamp with “St. George Bank” written on it bearing the date “15 DEC 2017”. As at 11 December 2017, the account was in debit to the amount of “3,732.43” and remained in debit until 13 December 2017. On 14 December 2017, there is an item marked “Cash Deposit” for “20,000.00”, a miscellaneous credit of “926.40”. A further cheque deposit was made on 15 December 2017 for “5,786.00”. The “Current Balance” as at that date was said to be $22,957.74 and the “Available Balance” is $25,671.74.
For convenience, I will refer to “RA3” and “RA4” as the “November bank records” and defendant’s exhibits 1 and 3 as the “December bank records” and to them generically as the “bank records”.
The Company also tendered defendant’s exhibit 2 which is an “Assessors Report Motor Repair” for TX 907. The assessment was carried out on 13 November 2013. The stated market value for the vehicle was $12,350 with a “PAV” of $21,899. The legal representative for the Company suggested that “PAV” means “pre-accident value” but was not otherwise able to assist the Court as to the meaning of that term.
CONSIDERATION
The Company’s legal representative submitted that the Company had discharged its onus of rebutting the presumption under s 459C(2)(a) because:
(1)Mr Austin’s evidence that the Company is solvent and that it has the support of the directors, members of their family and associated companies “if required” is unchallenged.
(2)The Company is in a position to pay the fixed cost award having regard to the balances disclosed in defendant’s exhibits 1 and 3 and its other assets.
(3)The order for costs made by the Supreme Court of the Australian Capital Territory on 11 December 2017 is unquantified and the Company has yet to decide whether it will seek leave to appeal the fixed costs order and the decision made on 11 December 2017 to refuse leave to appeal the orders made by Magistrate Morrison on 17 August 2017.
A court is not bound to accept an expert’s evidence (even uncontradicted evidence), especially where it relates to ultimate issues: see Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; NSWCA 305.
I accept that Mr Austin is qualified to give evidence as to accounting matters and that he prepared the tax return which is “RA5” and relied on it to say that the Company was not liable to pay tax on the net income it had for the 2016-2017 financial year. He might, in appropriate circumstances, be in a position to form a view of the solvency of the Company although that is an ultimate issue on which the Court must form its own view. I accept that Mr Austin is a truthful witness. He was frank in admitting the limits of the work he did. He relied on things he was told by the directors of the Company without audit. He had access only to the November bank records to understand the Company’s cash position as at a single day. He frankly admitted that he did not know that TX 904 and TX 907 were unregistered.
With the greatest of respect, I accord Mr Austin’s opinion scant weight. Save for the November bank records, he has not acquired and applied his mind independently to the materials on the basis of which he might form an opinion; he has relied on the directors entirely. His report takes no account of the fixed costs order or any of the other costs orders made against the Company in these proceedings nor does it overtly take account of the terms on which TX 457 is leased. Even though a stay of the fixed costs order was in operation on 6 November 2017, the liability was suspended rather than eliminated and that liability is no longer contingent since the stay has terminated. Since Mr Austin’s report, the Supreme Court of the Australian Capital Territory has made a costs order against the Company; it is true that these costs will be covered in whole or in part by the security for costs of $12,000 which was paid pursuant to Burns J’s order. The directors’ valuations appear to be excessive in light of defendant’s exhibit 2 which assessed the market value of TX 907 four years ago as being approximately $12,000. While I accept that the Redbook valuations are not the result of inspection of the vehicles, it is a commonly accepted guide to market value and that guidance must throw considerable doubt on the directors’ valuation. The opinion was given in relation to a single day and it relies entirely on the directors’ word that they, their family and associated companies will support the Company “if required”, a term which is not explained.
As submitted by Aerial, in order to discharge the onus which the Company bears to prove its solvency, the Court should be provided with the “fullest and best” evidence of the financial position of the Company: Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; NSWCA 163. Mr Austin’s evidence does not fall into that category.
There was no sworn evidence presented at the hearing as to the Company’s current liabilities and Mr Austin’s evidence does not take account of known current and contingent liabilities for costs. As two of the owned taxis may no longer operate as such, the income earned by the Company in the 2016-2017 year is no longer a guide to its capacity to earn income in the future and no evidence has been tendered on that issue. Accepting the Redbook valuations as a guide, and that the taxis are in “poor” condition (which was not challenged), the aggregate value of the Company’s assets (apart from any balance in the bank accounts from time to time) appears to be in the order of $22,800. It is not clear that it was the Company which paid the security for costs into the Supreme Court; that sum is not referred to in Mr Austin’s report. However, even if it was the Company, it will only be the balance remaining after satisfying Elkaim J’s order that the Company pay Aerial’s costs that would be returned to the Company such that it might be taken into account as an asset. The Company will therefore rely on the support of others to meet the fixed costs order and the other costs orders when they are agreed or assessed.
The deposits to the bank accounts appear to be designed to give a “snapshot” of the Company having liquid assets of approximately the value of the fixed costs order as at the date of the hearing of the winding up application to make out that the Company is solvent as at that date. However, neither Mr Austin nor the Court is in a position to know what “if required” means in relation to the willingness of the directors, their family and associated companies to supply additional funds to the Company. That phrase has not been explained by direct evidence from any of the directors, their family members or the associated companies.
It is true that a company which is solvent having regard to its own resources could choose not to pay costs orders, leaving the creditor to other remedies. However, if a company is solvent only because of the support of others, the company’s solvency relies on the willingness and capacity of those others to pay that creditor. If those others are unwilling to pay that creditor, the company would be insolvent because its directors can have no reasonable expectation that the company is able to pay those debts as they fall due. There is no direct evidence of the willingness or financial capacity of the directors, their family or associated entities; the only evidence is indirect, through Mr Austin. There is no evidence of the terms on which they have provided support (so far as it can be inferred from the bank records); for instance, it is not clear whether the deposits are loans that are not repayable in the event of insolvency or gifts or paid to meet some liability to the Company. While Ms Bilkis gave evidence in cross examination that the cash deposit of $20,000 made to the St. George account on 14 December 2017 was from an associated company which did not expect repayment, there is no evidence concerning other deposits.
As to the bank records, each is a single sheet of paper relating to a brief period of transactions. “RA3” deals with transactions in the St. George account on only one day, 6 November 2017. “RA4” is one of five pages which comprised the Commonwealth Bank of Australia’s record obtained by the Company. While the Company might have provided evidence of the transactions in the account from 1 October to 6 November 2017, the Company chose instead to provide evidence with respect to only the period from 2 to 6 November 2017 when deposits were made. The December bank records suffer from essentially the same defects. There is no explanation why moneys which had been deposited before 6 November 2017 had been dissipated to the extent that they appear to have been as disclosed in the December bank records. The Commonwealth Bank account had $22.75 in it as at 1 December 2017 and the St. George Bank account had a debit balance of $3,732.43 as at 11 December 2017. The Court does not know if the accounts were dissipated in meeting trading liabilities or whether amounts deposited on 6 November 2017 were simply repaid.
I conclude that the evidence tendered by the Company is inadequate to establish that it is solvent.
For completeness, I do not consider that there would be realistic prospects of success of an appeal of the decision of Elkaim J in relation to the orders made by Magistrate Morrison on 17 August 2016; his decision that it was in the interests of justice that the proceedings come to an end is one that was open to him for the reasons that he gave. The fixed costs order was made in lieu of the costs order made on 17 August 2016 and at an adjourned hearing (as requested by the Company) at which the Company did not appear: see [20] of Elkaim J’s reasons. The fixed costs order has not been appealed and an application now made would be out of time by almost eleven months. It is for an amount which is not obviously excessive having regard to the litigation history against which it was made and leave has been refused to appeal the costs order which the fixed costs order replaced. Any appeal of the fixed costs order therefore also has little prospect of success.
DISPOSITION
I will order that the Company be wound up in insolvency and that Ezio Senatore of Deloitte be appointed as the liquidator of the Company.
I will hear the parties on the question of costs.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate:
Dated: 22 December 2017
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