Ataxtin Pty Ltd v Gordon Pacific Developments Pty Ltd
[1991] FCA 325
•18 JUNE 1991
Re: ATAXTIN PTY LTD
And: GORDON PACIFIC DEVELOPMENTS PTY LTD
No. V G3013 of 1991
FED No. 325
Corporations
5 ACSR 10
29 FCR 564/102 ALR 245
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Heerey J.(1)
CATCHWORDS
Corporations - winding up - whether application for adjournment should be granted pending appeal against judgment giving rise to judgment debt.
Corporations - winding up - s.460(2)(a) Corporations Law - statutory demand - whether overstatement of debt in statutory demand invalidates demand - distinction between statutory presumption of insolvency and positive evidence of insolvency - s.460(2)(b) Corporations Law - proof of return of execution unsatisfied.
Corporations Law ss.460(1) and (2)
Re Amalgamated Properties of Rhodesia (1913) Ltd (1917) 2 Ch 115
Arafura Finance Corporation Pty Ltd v Kooba Pty Ltd (1988) 12 ACLR 300
In re Brighton Club and Norfolk Hotel Co Ltd (1865) 35 Beav 204
Cardiff Preserved Coal and Coke Company v Norton (1867) LR 2 Ch App Cas 405
Chamberlain v Deputy Commissioner of Taxation (1988) 62 ALJR 324
Re Convere Pty Ltd (1976) VR 345
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297
Re Fabo Pty Ltd (1989) VR 432
Re First Fifteen Holdings Ltd (1988) 4 NZCLC 96-190
Re Gem Exports Pty Ltd and Ors (1984) 8 ACLR 755
General Welding and Construction Co (Qld) Pty Ltd v International
Rigging (Aust) Pty Ltd (1984) 2 ACLC 56
Re Inter-Builders Development Pty Ltd (1991) 9 ACLC 3114
Re Mosbert Finance (Australia) Pty Ltd (1976) 2 ACLR 5
Re Pardoo Nominees Pty Ltd (1987) 11 ACLR 573
Re Perusahaan Jenwatt Sdn Bhd (1990) 8 ACLC 3088
Processed Sand Pty Ltd v Thiess Contractors Pty Ltd (1983) 1 NSWLR 384
Re Roma Industries Pty Ltd (1976) 1 ACLR 296
L Shaddock and Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225
Southern Steel Supplies Pty Ltd v Utility Brute Trailers Pty Ltd (1984) 2 ACLC 486
Syd Mannix Pty Ltd v Leserv Constructions Pty Ltd (1971) 1 NSWLR 788; (1972) 4 ALJR 548
Re Tweeds Garages Ltd (1962) Ch 406
Young v Tibbits (1912) 14 CLR 114
Weidemann v Walpole (1891) 2 QB 534
Wichita Pty Ltd v Elders IXL Limited (1990) 8 ACLC 704
Wyler and the Ibo and Nyassa Corporation v Lewis and Marks (unreported)
HEARING
MELBOURNE
#DATE 18:6:1991
Solicitors for the Respondent: Mallesons Stephen Jaques
Mr G.G. McArthur
Solicitors for the Applicant: Minter Ellison
Counsel for the Respondent: Mr A.C. Archibald QC with
Mr J.F. Styring
Counsel for the Applicant: Mr J.G. Larkins QC
JUDGE1
This is a contested application for the adjournment of an application to wind up the respondent Gordon Developments Pty Ltd ("the company"). But questions as to the merits of the winding up application itself were canvassed to a substantial degree since the parties accepted that the prospects of successful opposition to the substantive application bore on the question whether that application should be adjourned. In essence the issues raised in argument were:
Since the debt of the applicant Ataxtin Pty Ltd ("Ataxtin") arises
under a judgment of the Supreme Court of Victoria, should the winding
up application be adjourned pending the determination of an appeal to
the Full Court against that judgment?
Is the winding up application in any case liable to be dismissed
because the demand served by Ataxtin on the company under s.460(2)(a)
of the Corporations Law was for an amount admittedly in excess of
that due?
Can it be established otherwise that the company is unable to
pay its debts either by:
(a) unsatisfied return of execution (s.460(2)(b))?
(b) general proof of its insolvency (s.460(2)(c))?
Corporations Law Provisions
S.460 (1) (Company unable to pay debts) The Court may order the
winding up of a company that is unable to pay its debts.
(2) (Deemed insolvency) For the purposes of an application that is made in relation to a company on the ground provided for by subsection (1), the company shall be deemed to be unable to pay its debts if:
(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $1,000 then due has served on the company a demand, signed by or on behalf of the creditor, requiring the company to pay the sum to due and the company has, for 3 weeks after the service of the demand, failed to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) the Court, after taking into account any contingent and prospective liabilities of the company, is satisfied that the company is unable to pay its debts.
The Judgment and the Appeal
On 11 October 1990, after a contested hearing in the Supreme Court, Nathan J. gave judgment for Ataxtin against the company for the sum of $475,000 together with interest at 18% from 12 March 1990 until payment and costs. Ataxtin's claim arose under a contract for the sale of a development site. The issue in the trial was whether a condition precedent as to the obtaining of planning consent had been satisfied.
On 25 October the company instituted an appeal to the Full Court of the Supreme Court against that decision. Ataxtin accepts that this appeal is not an abuse of process. Counsel before me were not able to give any indication as to when the appeal would be heard and determined by the Full Court. An appeal book has been delivered to the Listing Master but he has not yet entered the appeal in the list of appeals for hearing.
On 2 November the Full Court of the Supreme Court dismissed an application by the company for a stay of execution of judgment. Under r.64.18 of the Supreme Court Rules an appeal does not operate as a stay of execution except so far as the Full Court or a judge otherwise orders.
Counsel for the company argued that I should adjourn the winding up application until the hearing and determination of the appeal or further order. It was said that no prejudice would be suffered by Ataxtin if this course were followed. An undertaking was proffered that in the meantime the assets of the company would not be disposed of without leave.
In Re Amalgamated Properties of Rhodesia (1913) Ltd (1917) 2 Ch 115 the petitioning creditor had been the successful defendant in "extremely heavy litigation" brought by the company and had served a demand under a statutory provision equivalent to s.460(2)(a) in respect of the taxed costs awarded in its favour. The company appealed against the judgment but made no application to the trial judge (Eve J.) or to the Court of Appeal for a stay of execution. The winding up petition came on for hearing before Sargant J. His Lordship rejected an argument that the petition should be dismissed because "some difficulties (would) be experienced by the respondents to the petition in prosecuting their appeal". His Lordship pointed out (at p 122) that it was:
"...common practice for companies in liquidation to pursue litigation, either by way of appeal or otherwise. The Court having the conduct of the winding up can look into the subject-matter of the appeal or other proceedings, and I am not sure that there are not sometimes advantages in having the assistance of the Court in considering the proper steps to be taken."
Sargant J. then considered the company's alternative argument for an adjournment. His Lordship followed an unreported decision of the Court of Appeal Wyler and the Ibo and Nyassa Corporation v Lewis and Marks where the petitioning creditor had been awarded costs by the Court of Appeal after a successful appeal against a judgment in favour of the company. The company then commenced an appeal to the House of Lords and while that appeal was pending the petitioning creditor presented a winding up petition based on the costs order. Neville J. thought that the petition should not be dismissed but should be stood over. The Court of Appeal, according to Sargant J. in Rhodesia (at p 123):
"....apparently took the view that the petitioners were entitled to their order ex debito justitiae and accordingly made a winding up order."
His Lordship considered that he should follow Wyler. He said (at p 123):
"In my judgment, therefore, the petitioners are entitled as a matter of right to a winding up order, and, if I were not to make it, I should practically be doing what Eve J. or the Court of Appeal ought to have been asked to do, if the respondents so desired - namely, to stay execution on the judgment pending the appeal.
However, there was an indication that the company might be able to provide security for the petitioning creditors' debt and Sargant J. made a winding up order, but directed that the order lie in the office until the end of the following week with a direction that if in the meantime the company could give security for the payment of the judgment debt the order would not be given out and the petition would be dismissed.
The company appealed and the appeal was heard three days later (i.e. before the expiration of the time in which the order was to lie in the office). An alternative provision for security was proposed and apparently accepted by the petitioning creditor. Swinfen Eady L.J. (with whom Bankes and Warrington L.J.J. concurred) said (at p 124):
"So far as the case has been heard - it has not been fully heard because of the arrangement arrived at - I see no ground for differing from the judgment which Sargant J. pronounced."
Thus Wyler and Rhodesia were both cases where the existence of an appeal by the company against the judgment founding the petitioning creditor's debt was not regarded as a sufficient ground for adjourning a winding up petition. An adjournment (or the equivalent thereof) was only granted in Rhodesia because arrangements satisfactory to the petitioning creditor were made to secure that debt. In neither case was it suggested that the appeal was an abuse of process.
In Re Roma Industries Pty Ltd (1976) 1 ACLR 296 a taxation assessment was issued against a company and the Commissioner of Taxation served a demand under the then equivalent of s.460(2)(a) and sought an order for the winding up of the company. The company had appealed in respect of the assessment to a Board of Review but the appeals had not come on for hearing. Bowen C.J. in Eq. held that he should make a winding up order, save only for a short adjournment of 14 days to give the parties opportunity to reach agreement. His Honour (at p 299) noted that the provisions of s.201 will generally lead the court to refuse a stay. His Honour continued:
"Furthermore, where a taxpayer has been sued to judgment by the Commissioner, and has lodged an appeal, there being no stay of execution granted, the Commissioner will generally be entitled to a winding up order notwithstanding the appeal has been lodged and has not been heard (Re Amalgamated Properties of Rhodesia (1913) Ltd
(1917) 2 Ch 115; Federal Commissioner of Taxation v Trautwine (No. 1) 56 CLR 211)."
Section 201 of the Income Tax Assessment Act 1936 provides:
The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending."
Counsel for Ataxtin argued, correctly in my view, that for present purposes this provision has an effect comparable to the Supreme Court Rule already referred to.
Although of course this is a discretionary matter, I think I should take the same course as did the courts in Wyler, Rhodesia and Roma Industries. There is in the present case no equivalent of giving of security for the petitioning creditor's debt, only an undertaking not to dispose of the assets of the company, which is quite a different thing. Moreover in one important respect this is a stronger case because a stay of execution has been refused by the Supreme Court. Also, the adjournment sought is for an indefinite period which is likely to be reasonably substantial. In the meantime, for the reasons mentioned hereafter, the company's position will deteriorate.
Reference was made to Re Mosbert Finance (Australia) Pty Ltd (1976) 2 ACLR 5 where Jackson C.J. did adjourn a winding up petition pending an appeal. However in that case the trial judge had granted a stay. Neither Rhodesia nor Roma Industries were referred to.
Excessive Amount in Statutory DemandOn 6 March 1991 Ataxtin served on the company a demand under s.460(2)(a). It was in the following terms:
DEMAND PURSUANT TO SECTION 460(2)(A) of the Corporations Law
TO: Gordon Pacific Developments Pty Ltd Level 6
Gordon Pacific Centre
64 Marine Parade
SOUTHPORT QLD 4215
TAKE NOTICE that ATAXTIN PTY LTD ACN. 005 455 372 of 50 Clayton Road, Clayton North (hereinafter called "the Creditor") HEREBY DEMANDS from GORDON PACIFIC DEVELOPMENTS PTY LTD (hereinafter called "the Company") payment to it of the sum of $552,484.22 comprised of judgment of $475,000.00 together with interest at 18% form 12 March 1990 up to and including today in the sum of $77,771.00 being 332 days at a daily rate of $234.25 being the amount due to the Creditor pursuant to the Order made by the Honourable Mr Justice Nathan of the Supreme Court of Victoria at Melbourne on 11 October 1990, less $286.78 received by the creditor from the Sheriffs' Office of Victoria in relation to warrant no. SW00-062051-2.
This Notice is given pursuant to Section 460(2)(a) of the Corporations Law and the Company's attention is drawn to that provision of the Law whereby on failure to pay a Creditor a sum due or to secure or to compound to a Creditor for a sum due within three (3) weeks after service of a Demand for Payment of the debt exceeding $1,000.00 a debtor Company will be deemed unable to pay its debts and may be wound up by the Court on that account.
FURTHER TAKE NOTICE that if this Demand is not complied with within a period three (3) weeks after service hereof, the Creditor may present an application to the Court seeking an Order that the Company be wound up.
This Demand may be complied with by paying the amount claimed in this Demand to the Creditor's Solicitor and agent Minter Ellison of 40 Market Street, Melbourne.
DATED the 7th day of February 1991.
........ ....(Signed)........ .....
Signed for an on behalf of the Creditor by Gregory John Reinhardt of 40 Market Street, Melbourne, Solicitor as lawfully authorised agent for the purpose of Section 460 of the Corporations Law.
It is common ground that as at the date of the demand the sum of $552,484.22 was in excess of the amount then owing to the extent of $4.53 by reason of the following matters:
(a) The daily rate of $234.25 should in fact have been $234.24657.
Over the period of 332 days the difference amounts to $1.14.
(b) The sum of $286.78 received by Ataxtin from the Sheriff's Office on
14 January 1991 consequent upon the execution of a warrant at the company's office was not deducted from the amount claimed as at that date but as at 7 February with the result that interest on $286.75 for 23 days, ie. $3.39, was not in fact due.
By the time the demand was in fact served (6 May 1991) another month's interest amounting to $6,552 had fallen due, but it was accepted by counsel that the matter had to be considered as at the date of the demand itself.
Although provisions in substantially the same terms as s.460(2)(a) have existed in Commonwealth countries for 130 years or more, there is a surprising conflict of authority on the question whether the statutory demand is invalid if it claims an amount in excess of that due by the company. In Cardiff Preserved Coal and Coke Company v Norton (1867) LR 2 Ch App Cas 405 it was held that such a demand was valid. That view was followed for many years and adopted by the leading texts on company law. However in the 1980s a divergence emerged in Australian courts. The present position is that courts in Victoria (Re Fabo Pty Ltd (1989) VR 432, Re Convere Pty Ltd (1976) VR 345), South Australia (Re Gem Exports Pty Ltd and Ors (1984) 8 ACLR 755), Tasmania (Re Pardoo Nominees Pty Ltd (1987) 11 ACLR 573) and the Northern Territory (Arafura Finance Corporation Pty Ltd v Kooba Pty Ltd (1988) 12 ACLR 300) have followed the Cardiff approach. However courts in New South Wales (Processed Sand Pty Ltd v Thiess Contractors Pty Ltd (1983) 1 NSWLR 384) and Queensland (General Welding and Construction Co (Qld) Pty Ltd v International Rigging (Aust) Pty Ltd (1984) 2 ACLC 56) have held that an excess claim makes the demand invalid.
It is probably just coincidence that this divergence follows the same line as that which divides Australia between different football codes, although it has to be noted that New Zealand has followed the New South Wales and Queensland line - and, what is more, in a case called Re First Fifteen Holdings Ltd (1988) 4 NZCLC 96-190. Further afield the division continues. In Singapore it has been held that an excess claim does not create in validity: Re Inter-Builders Development Pty Ltd (1991) 9 ACLC 3114; whereas in Malaysia the opposite conclusion has been reached: Re Perusahaan Jenwatt Sdn Bhd (1990) 8 ACLC 3088.
Fabo is the only case in which the point has been considered at appellate level. In Wichita Pty Ltd v Elders IXL Limited (1990) 8 ACLC 704 the New South Wales Court of Appeal held that a demand for less than the amount due was valid. The Court of Appeal found it unnecessary to decide on the correctness of Processed Sand and declined to do so. Gleeson C.J. noted (at p 705) that the case had been followed on a number of occasions by judges at first instance in the Supreme Court of New South Wales and at least two of those judges, McLelland and Needham JJ., had expressed agreement with it.
Counsel for Ataxtin urged that I should follow Fabo because the company could have equally been wound up in the Supreme Court of Victoria where of course a single judge would be bound by the decision of the Full Court and, since the company's business was in Victoria, it was undesirable to have discordant interpretations depending upon the chance selection of the Federal Court as against the Supreme Court. However, I think I cannot ignore the fact that, since the opposing view is well established in other parts of Australia, and especially in New South Wales, it would just as capricious to decide the point on the happenstance that the Federal Court is hearing this case in Victoria.
Since this is an exercise in statutory construction it is well to commence bearing in mind the words of Gibbs C.J. in Cooper Bookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at p 304:
"It is an elementary and fundamental principle that the object of the court, in interpreting a statute, "is to see what is the intention expressed by the words used": River Wear Commissioners v Adamson (1877) 2 App Cas 743 at p 763. It is only by considering the meaning of the words used by the legislature that the court can ascertain its intention. And it is not unduly pedantic to begin with the assumption that words mean what they say: cf. Cody v J.H. Nelson Pty Ltd (1947) 74 CLR 629 at p 648."
Approaching s.460(2)(a) afresh, it seems to me that its ordinary and natural meaning is that the company has to be "indebted in a sum exceeding $1,000 then due" and that the demand, non-compliance with which triggers the statutory deeming of inability to pay debts, has to be one which requires the company "to pay the sum so due", that is to say, the actual sum which is due.
Leaving aside for the moment the inconvenient results which are said to flow from the Processed Sand approach, it is worth noting that none of the cases in support of the Cardiff view, other than Cardiff itself, attempt any construction of the actual language of the statute which fits that view. In Cardiff the relevant provision was s.68(1) of the Joint Stock Companies Act 1856 which provided:
"LXVIII. A Company shall be deemed to be unable to pay its Debts,
(1) Whenever a Creditor to whom the Company is indebted in a Sum exceeding Fifty Pounds then due has served on the Company, by leaving the same at their registered Office, a Demand under his Hand requiring the Company to pay the Sum so due, and the Company have for the Space of Three Weeks succeeding the Service of such Demand neglected to pay such Sum, or to secure or compound for the same to the Satisfaction of the Creditor:"
Lord Chelmsford L.C. said (at p 410):
"But the liability of a company to be wound up under these provisions arises when a creditor, to whom the company is indebted above 50 pounds, serves a demand requiring the company to pay the sum so due, and the company for a certain time neglect to pay such sum. In this case there was a debt of more than 50 pounds due to Mr Hill. He made, it is true, a demand upon the company for payment of more than was due, but of course the amount due was known to the company, and was included in the demand, and the company neglected to pay "such sum," which means not the sum demanded, but the sum due, which they might have paid, and so have prevented the order being made. The construction contended for would make every winding-up order bad where the creditor had demanded the smallest sum above what was actually due to him."
With respect, it is difficult to see how the evidentiary fact that in the particular case "the amount due was known to the company" can affect the construction of the statute. The conclusion that "such sum" (in the present legislation "the sum") means "not the sum demanded, but the sum due" makes the specification in the demand of a particular sum an empty formality. On this view, it does not matter what sum is mentioned, as long as there is a failure after three weeks to pay the amount which is in fact due.
The legislature might have specified that all a creditor had to do was give notice to the company that it was indebted to him in a sum exceeding $1,000. The demand would be sufficient if it said simply "You, the company, are indebted to me, the creditor, in a sum exceeding $1,000". But that has not been done, and for good reason one might think. It is important that the company be given the opportunity to conclude whether a particular sum alleged to be owing is in truth owing to the creditor making the demand so that, if that debt is admitted, it can be paid, secured or compounded and the risk of a winding up application avoided.
After all, the procedure under consideration, in contrast to the issue of a bankruptcy notice against an individual, does not require any prior judgment of a court as a foundation. (It is purely chance that there has in fact been a judgment in the present case.) Thus an important protection for the alleged debtor is not present and the creditor is given a statutory right to take a unilateral step by making a demand, non-compliance with which can have important, indeed terminal, consequences for the company. It does not seem to me unreasonable in these circumstances to conclude that the intention of Parliament was that the creditor at least should demand the correct amount.
It is said in support of the Cardiff approach that one should avoid a technical construction of the law which would produce the absurd result that a company undoubtedly insolvent and admittedly owing a large amount to a creditor would escape winding up because of some tiny miscalculation, something which would be quite likely to happen where there are complex running accounts, interest calculations and the like. The present case is said to be a good example where, the excess is $4.53 in $552,484.22. Similarly in Fabo the excess was $19.60 in $131,469.82.
However, what happens if the demand, again perhaps due to some technical or typographical error, is 10 times or 100 times more than the amount of the debt actually due? Proponents of the Cardiff view would presumably accept that such a demand was invalid. But I do not see how the statutory mechanism can operate so that the company is deemed to be unable to pay its debts if the demand is only a little bit out, but that at some indeterminate point the excess becomes so much that the statute ceases to operate.
I think also the suggested inconvenience and injustice may be more apparent than real.
Section 460(2) does not create separate grounds for winding up. It provides a mode of proof available in aid of an application seeking a winding up on the ground specified in s.460(1), viz that the company is unable to pay its debts. The company will not be wound up, even if it fails to heed a valid notice, if it establishes by independent evidence that it is solvent: Fabo (at p 436). It may be that s.460(2)(c) must be considered differently because it merely states in expanded form the same requirement that s.460(1) itself imposes. However, as far as s.460(2)(a) and (b) are concerned, proof of the relevant event does not establish an irrebutable presumption that the company is unable to pay its debts.
Conversely, the statutory demand may be invalid but inability to pay debts established by other means: Syd Mannix Pty Ltd v Leserv Constructions Pty Ltd (1971) 1 NSWLR 788; (1972) 46 ALJR 548. The applicant creditor is thrown back on the common law rules of evidence and proof. One of the matters that may be relied on is the inference to be drawn in the circumstances of the case from the company's response to a purported statutory demand, albeit one that does not comply with the terms of the statute. Given appropriate circumstances, a failure to respond to an assertion in a commercial setting may amount to an admission of the truth of that assertion: Weidemann v Walpole (1891) 2 QB 534 at pp 537-8; Young v Tibbits (1912) 14 CLR 114 at p 122; L. Shaddock and Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 at p 230. Assume a company is served with a notice like the one in the present case demanding a debt due of $1 million. There is no response to the demand but on the return of the winding up application the company asserts, and the applicant creditor admits, that only $999,999 is due. With no further evidence, the natural inference to be drawn is that the company did not pay the amount admittedly due because it was unable to do so. The conclusion will ordinarily follow that the company is unable to pay its debts: Re Tweeds Garages Ltd (1962) Ch 406 at p 410. Syd Mannix is directly in point. The statutory demand was held to be inoperative because 21 days had not elapsed by the time the petition was presented. There had been an earlier demand which was also defective but non-compliance with it was held to afford evidence of insolvency. Jacobs J.A. (with whom Holmes and Moffit J.A. agreed) said (at p 790-1):
"In the present case the evidence did not rest at a mere non-compliance with a notice which did not expire until nineteen days after the presentation of the petition. There was other evidence which showed an inability to pay debts at the time of the presentation of the petition. First there was an earlier notice which purported to be given under s.222(2)(a). This particular notice was regarded at the time as not being in the required statutory form. Whether or not it fulfilled the requirements of the statute, it was a demand for payment of principal and interest owing to the company by reason of the loan made on 4th October, 1966, and there could be no doubt whatsoever as to the matter to which it was referring. Therefore there was a clear demand for payment on 16th June, 1970, and no compliance in any way with that demand.
An appeal to the High Court was dismissed: (1972) 46 ALJR 548. See also Southern Steel Supplies Pty Ltd v Utility Brute Trailers Pty Ltd (1984) 2 ACLC 486 at p 687.
I respectfully agree with the comment in McPherson's Law of Company Liquidation (3rd Edition by Professor J O'Donovan) at p 49 n.81 that Cardiff and the cases which have followed it have failed to distinguish between the statutory presumption of insolvency and insolvency established by positive evidence.
In the present case there is substantial other evidence of insolvency, to which I shall shortly refer. However the non-compliance with the demand is itself evidence of insolvency. A solvent company faced with a demand for an amount in excess of half a million dollars, being a demand on its face invoking the statutory consequence of liability for winding up in the event of non-compliance, would in the ordinary course not neglect to make any payment at all because the amount claimed was five dollars in excess of that due. The inference to be drawn is that the company did not pay any amount because it was unable to do so.
This is not a case of a disputed debt (cf. In re Brighton Club and Norfolk Hotel Co Ltd (1865) 35 Beav 204) because Ataxtin's debt has merged in the judgment: Chamberlain v Deputy Commissioner of Taxation (1988) 62 ALJR 324. There is no dispute as to the existence of the judgment.
Unsatisfied Return of Execution - s.460(2)(b)Ataxtin issued warrant number SW-0-062051-2 on 3 December 1990. On 14 January 1991 it received $286.78 from the Sheriff's Office of Victoria in relation to that warrant. In an affidavit sworn on behalf of Ataxtin it was deposed that this amount consisted of "funds seized by the Sheriff from the respondent's office at 106-112 Hardware Street, Melbourne. This is the only amount received by Ataxtin to date in relation to Ataxtin's warrant of seizure and sale." With that payment Ataxtin received a document in the following terms:
The Sheriff's Office of Victoria
Advice to Payee When making enquiries, please quote your creditor and warrant numbers to accountant. Minter Ellison Page 1 of 1 40 Market Street
MELBOURNE 3000
Cheque No. 146678 Creditor No. MO617 Date 10/01/91 Date Warrant No. Case Reference Amount 27/12/90 SW-0-062051-2 C GJR 837271 EJB 341.78 09/01/91 SW-0-062051-2 Locksmiths Fee -55.00 Total $ 286.78 (Date stamped 14 Jan 1991)
Counsel for the company argued that the requirement of s.460(2)(b) was not made out because the execution in turn depended on the judgment which is under appeal. For the reasons already mentioned I think the judgment has to be given effect to. He also said that in any case it was not possible to conclude from the evidence that there had been a return of execution unsatisfied. However, in my view the undisputed evidence was that a warrant was issued and that only the sum of $286.78, which was an amount less than the judgment debt, was received from the Sheriff. It may be the document set out above in itself is no more than an advice to payee, and there was, or should have been, some other more formal document which constituted the Sheriff's return of the warrant. However the essential matter required to be proved by s.460(2)(b) is not a particular document but an event. On the evidence I think I can properly draw the inference that execution was issued on the judgment and was returned unsatisfied in part.
Inability to Pay Debts - s.460(2)(c)The company relied on an affidavit sworn by Mr Michael John Gordon who is one of its directors and also the Executive Director of Gordon Pacific Limited, a listed company which controls a group of which the company is a member. That affidavit gives a full and frank disclosure of the financial position of the company and its group. Counsel for Ataxtin however submitted that this affidavit provides quite compelling evidence, independently of any matters proved under s.460(2)(a) or (b), that the company is unable to pay its debts. I agree.
The affidavit exhibited a balance sheet of the company as at 31 March 1991 which showed a deficiency of liabilities over assets of $6.7 million. Current liabilities were $15.2 million made up as follows:
$000
Other Secured Loans - Elders Finance (Queen Street) 12,841 Trade Creditors - 172 Lease liabilities - 488 Income tax arrears - 1715
Total 15,216
The affidavit disclosed that the principal asset of the company was a building at 254 Queen Street, Melbourne which it had constructed with finance from Elders Finance Group Limited. Elders have not been repaid and the company did not, at current market value, expect to make any profit upon realisation of the building. Interest continues to accrue on the borrowing from Elders, which had agreed with the company that the sum borrowed would be paid upon realisation and that interest would be reduced to 16% pa of which 13% would be paid monthly in arrears and 3% by monthly capitalisation. So, in other words, quite apart from Ataxtin's debt, it seems that the company is unable to pay its debt to Elders or even the interest accruing thereon. The position appears to be the same in relation to income tax liability.
Matters are only going to get worse. The company has been unable to lease any part of the Queen Street building and "does not confidently expect to realise (it) within the next twelve months".
A 12 months cash forecast as at 3 May 1991 was exhibited to the affidavit. This shows receipts from a property in Park Lane and some other source (not the Queen Street building) totalling $311,000 over the period and a borrowing from another company in the Group, Gordon Pacific Finance Pty Ltd, of $197,000 which was to become available in April 1991. On the debit side there will be interest over the period totalling $1.8 million and other outgoings $2.5 million. The net result is that at the moment, with the injection of finds via Gordon Pacific Finance Pty Ltd, the cash balance is nil, but the position will steadily worsen until April 1992 when there will be a deficit of $3.9 million. I should add that this is without taking into account Ataxtin's judgment.
PrejudiceCounsel for the company argues that a winding up order would prejudice the company because it would constitute an event of default under a negative pledge agreement for the group as a whole and thereby prejudice the possible refinancing of the group. I think the answer is that, as counsel for Ataxtin said, the filing of the application has already established an event of default, quite apart from others such as the levying of execution. More importantly, the cashflow projection shows that on the company's own predictions a serious deterioration of its position will occur and therefore Ataxtin will suffer prejudice if it is not permitted to exercise its rights to a winding up order now.
ConclusionThe application for an adjournment of the winding up application is therefore dismissed with costs, including reserved costs (if any). Although, as I have said, arguments which went to the merits of the winding up application itself were canvassed in depth, it was necessary to reserve my decision on the adjournment application. It would therefore not be appropriate for me to make a winding up order immediately, but I can indicate that, in fairness to Ataxtin, which has succeeded in opposing the adjournment application, the substantive application should be heard at an early date. I will hear Counsel's submissions as to this.
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