Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd

[2010] HCATrans 276

[2010] HCATrans 276

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P27 of 2010

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Applicant

and

LANEPOINT ENTERPRISES PTY LTD (ACN 110 693 251) (RECEIVERS AND MANAGERS APPOINTED)

Respondent

Application for special leave to appeal

GUMMOW J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON THURSDAY, 21 OCTOBER 2010, AT 11.44 AM

Copyright in the High Court of Australia

MR P.D. CRUTCHFIELD, SC:   If the Court pleases, I appear with MR O. BIGOS for the applicant.  (instructed by Australian Securities & Investments Commission)

MR M.M. MONY DE KERLOY:   If the Court pleases, I appear for the respondent.  (instructed by Mony De Kerloy)

GUMMOW J:   We will hear from you first.

MR MONY DE KERLOY:   Your Honour, I wish to make four brief points.  Firstly, this is not a proper vehicle for any special leave.  No general rule at all has been set.  The matter turns very much on its own facts, and there was an injustice before the original judge, which was corrected on appeal.  The case seems to turn on the basis that because of the presence of 459C(2) in the Corporations Act, that that requires some sort of different treatment of presumptions and the way to deal with companies in insolvency than the statutory demand procedure.  That is not the position.  In this case the underlying facts were simply these. 

GUMMOW J:   We know what they were.

MR MONY DE KERLOY:   All that happened was the judge applied a situation where he made a decision based on Ocean City that he should deal with a disputed debt.  He did so in the absence of the parties to that debt.  He did so in the absence of all of the evidence to that debt and he then, in effect, sought to reverse the onus of proof when it came to actually determining whether that debt was due or not due.  In that situation it was quite right for the Full Court to overturn his exercise of discretion on Ocean City.  It is for that reason that this cannot possibly be a correct vehicle, no matter what my learned friends say, to come before the High Court because the simple position is an injustice did occur.  What has happened here is, in effect, before Justice Gilmour in the original court, in the Federal Court, he actually made a finding that a debt was due, when in fact summary judgment could not have been made in the Local Court for that debt.  The Full Court pointed out, of course, that statutory demand could have been resisted.  I go one step further and say ‑ ‑ ‑

GUMMOW J:   This is the majority of the Full Court, is it?

MR MONY DE KERLOY:   Yes, it was a majority decision.  I go one step further and would put to you that summary judgment could not have been made on that debt.  It was not an appropriate case to be seeking to determine a genuine dispute.  In simple terms, those are my submissions.

GUMMOW J:   Thank you.  Yes, Mr Crutchfield.

MR CRUTCHFIELD:   If the Court pleases.  In our submission, this matter involves an important issue concerning the efficient operation of Part 5.4 of the Corporations Act, a scheme of provision ‑ ‑ ‑

GUMMOW J:   There is much reference to the Ocean City Case.  What do you say is the relevance of that?

MR CRUTCHFIELD:   I have to say to your Honours that it is probably of marginal relevance, and I say that because of the introduction of the presumptions and, of course, Ocean City is pre-1993 - because of the introduction of the presumptions, it is clear that where you have a presumptively insolvent company, the onus is upon the company to prove its solvency and call all the evidence that it can muster to support that proposition at the final hearing of the application, and where Ocean City touches on that is, of course, the court retained a discretion in an appropriate case where a company otherwise is going to be wound up, where there is a disputed debt, to say “I am not going to, for some particular reason, to determine that disputed debt on the facts of this case.”  So there is some residual room for the operation of Ocean City, but we certainly do not say the Ocean City point is at the heart of this principle.  The important principle here is that you have the emasculation of the presumptions.  You have the presumptions operating twice, you have the receiver appointed ‑ ‑ ‑

GUMMOW J:   In the Ocean City situation, the creditor is usually the petitioner.

MR CRUTCHFIELD:   Exactly, and the other ‑ ‑ ‑

GUMMOW J:   You are in a distinct position.

MR CRUTCHFIELD:   Exactly, and of course the presumptions operate when a statutory demand is unsatisfied, but as your Honour Justice Gummow points out, we are not in that field, and 459S, of course, operates where you have the statutory demand situation.  We are outside that area of discourse.  If the majority is right here, the upshot seems to be, the ratio of the decision below is that every time a presumptively insolvent company can point to a materially disputed debt, someone can point to these reasons and say therefore, the court should not proceed to determine that disputed debt and that, we submit, materially interferes with the operation of these provisions and is clearly, we submit, a matter of public interest, given the number of winding-up applications that are conducted around the country as to how these provisions operate.

We say it is wrong - with respect, the majority were wrong to say that part of the discretionary element involved in determining a disputed debt was whether or not all of the parties to that dispute, in relation to that debt, were before the Court.  If that is the case as well, it is hard to see how that sits with provisions like 459R, that winding‑up applications have to be determined within six months, for example, and again it overlooks the fact that the legislation has made a deliberate choice that if you have a receiver appointed, you are presumed to be insolvent and you had better do something about it at the final hearing to displace that presumption and call all of the evidence that can be called.  On that, as his Honour Justice Gilmour pointed out at paragraph 28 on page 8 of the application book, his Honour said:

A great deal of evidence was adduced –

on this question, this disputed debt:

detailed cross-examination of, amongst others, Mr Carey, Ms Karen Carey and Mr Gregory Nairn -

Then his Honour says, and this does not seem to be cavilled with -

No suggestion was made that there was other relevant evidence available going to the resolution of this question.

So we submit that this decision does emasculate the presumptions and it means that where you have a presumptively insolvent company, on the facts of this case then the regulator wants to appoint a liquidator quickly to either investigate the affairs of the company or because there is a public interest in insolvent companies not being in the marketplace any more, and it is not just of course the regulator, creditors are entitled to rely on these presumptions.  The company can turn up at the final hearing and say “You cannot use this, this is not the appropriate forum for winding us up because we can point to it in our books and records to a material debt.” 

It also sits very oddly with 459S, as your Honours know, the statutory demand provision, the provision that says that if you want to rely on a matter that you could have relied on at the statutory demand stage at the final hearing, you need leave.  Generally speaking, and as the New South Wales Court of Appeal has said in the Glowbind decision, to get leave, you need to show that that debt would have made the difference between solvency and insolvency.  On the reasoning of this case, outside of the statutory demand procedure, you are not necessarily in that area.  You only just need to point to a material disputed debt.

The other reason this case warrants a grant of special leave is it raises issues about what “solvency” means post-1993, 95A.  That is not a matter that the High Court has considered.  Of course it has back in the 1960s in cases like Sandell v Porter, but we would submit that even if they established at the trial that the debt was only 2 million, and not six, this company was still unable to pay its debts and was insolvent.  It did not have a business plan.  Justice Gilmour said there was no cash flow statement produced.  The receiver was still in office.  There were income tax debts owed.  There was $495,000 owed to a related entity, and as your Honours know, the Court needs to be satisfied that those debts could be paid before the company is put back out in the marketplace and deals with creditors again, and for all of those reasons, we submit this is an appropriate case for leave.

CRENNAN J:   May I just raise something with you, and it arises at application book 43, paragraph 59 of the reasons.  There is a reference there to:

The exercise of the discretion is also to be informed by the legislative policy manifest by the reforms ‑ ‑ ‑

MR CRUTCHFIELD:   Yes.

CRENNAN J:   I just wanted to ask you whether there was a tying together, or any explication of the legislative policy asserted there.

MR CRUTCHFIELD:   Yes.  We say that statement is wrong, and we said that in our written submissions as well, but I think there has been a conflating, with respect, of two concepts.  What the majority, I think, had in mind there was that where you have a disputed debt in respect of a creditor serving a statutory demand, that is resolved outside of the winding‑up process pursuant to the statutory demand procedure, but that is not this - we are not in ‑ ‑ ‑

CRENNAN J:   That may be what was ‑ ‑ ‑

MR CRUTCHFIELD:   I think that must be what they - because on the face of it, it is clearly, we submit, wrong.

CRENNAN J:   If you look at Part 5.4, it is hard to see what would be spoken about in that context.

MR CRUTCHFIELD:   Exactly, and that language certainly, we submit, cannot apply when you are dealing with presumptions other than the statutory demand situation.  The statutory demand situation, you resolve those disputes within the 21 days, and your Honour Justice Gummow wrote the judgment on that in David Grant about the significance and importance of the speedy outcome.  But outside of the statutory demand procedure, we go so far as to say that in the ordinary case, it would be an exceptional case

where the court will not resolve the question of disputed debts where you have a presumptively insolvent company by reason, for example, of the appointment of a receiver.  Our friends say, the winding‑up application is not the trial of the proceeding.  We say the intention of these provisions is that it is the trial of the proceeding.  That is the company’s chance to make out that it is solvent, and it makes a forensic decision about what evidence to call.  If the Court pleases.

GUMMOW J:   Thank you.  Is there anything you want to say, that you should have perhaps said in opening?

MR MONY DE KERLOY:   Only to take you through the three steps that need to be taken when you get before a court in this situation.  The company who has to take on the presumption of insolvency against it in a receivership situation has to put on credible evidence, and we know what the law says about that credible evidence.  It has to be credible, and I do not want to get into the cases about that.  But it has to prove either one of two things, either that it is indeed solvent, or that it has a genuine dispute about a debt, which in this particular case was very, very relevant, because the entire solvency of the company turned on that disputed debt.  That was found by Justice Gilmour.

So it does become a difficult situation to determine how much forensic evidence has to be given as to whether you put everything on to determine the debt, or whether you put on sufficient information to come to a decision on a genuine dispute.  In this case, what appears to have happened is Justice Gilmour made a decision that there was a genuine dispute because he then went on to determine the genuine dispute.

My learned friend says, and your Honour did ask the question, is Ocean City relevant.  It is actually at the heart of this case, because what Justice Gilmour then said is Ocean City says that if in an appropriate case, is the evidence before you, there are the parties before you, and so on – the matters pointed by the Full Court – you can then yourself go on to determine the debt.  But you cannot do that when you do not have the putative creditor before you.  You cannot do that when you have allegations against directors for impropriety.  It does not become commonsensical to actually try and resolve a dispute.

CRENNAN J:   What can you do if the total indebtedness exceeds the assets?

MR MONY DE KERLOY:   No, but it did not in this case.  The difficulty was if the debt was $2 million dollars, then the company was perfectly solvent because it had $5.7 million.  If the debt was $6.5 million, and that was the dispute, the company was insolvent.  That was the situation.  It was

only turned on whether - it was that debt which turned whether the company was solvent or insolvent.  What the normal position is, in the case of statutory demand situations, the court either can adjourn the case so that the debt can be resolved in the proper forum, or it can dismiss the winding‑up application until the debt is resolved, or it can itself go and determine the debt. 

One of the difficulties also that the Full Court pointed out that you have to beware of in this case, was that the only way some of the way home – that is, to prove that the debt was not what it was – was to show that improprieties had occurred in loan transactions by directors.  But that could only be brought by a liquidator under the Corporations Act.  It could not actually be brought by ASIC. 

So what has happened here, the judge has simply determined a matter where there were no parties before it, no invoices before it, none of the putative creditors…..witnesses, and one final thing – he actually thought the presumption of insolvency meant that the onus of proving the debt was not owed was on the company.  Under no circumstances could that possibly be correct, and if you actually follow that through to its logical conclusion, what it actually means is that unless you have the creditor before you, how can you ever in a winding‑up situation determine the debt.  Those are my submissions, thank you.

GUMMOW J:   There will be a grant of special leave in this matter.  Will it be a one‑day case?

MR CRUTCHFIELD:   Yes, at the most, maybe half a day.

GUMMOW J:   Well, they are important questions.  The parties should be ready to receive a listing at least early in the new year.

MR CRUTCHFIELD:   If the Court pleases.

GUMMOW J:   We will take a short adjournment.

AT 12.00 PM THE MATTER WAS CONCLUDED