Austruct Group Pty Ltd v Bluenergy Engineering (Australia) Pty Ltd [No 2] - [2017] WASC 175

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: AUSTRUCT GROUP PTY LTD -v- BLUENERGY ENGINEERING (AUSTRALIA) PTY LTD [No 2] [2017] WASC 175

CORAM: ACTING MASTER STRK

HEARD: 28 MARCH 2017

DELIVERED : 27 JUNE 2017

FILE NO/S: COR 101 of 2016

BETWEEN: AUSTRUCT GROUP PTY LTD
Plaintiff
AND
BLUENERGY ENGINEERING (AUSTRALIA) PTY LTD
Defendant

Catchwords:

Corporations law - Application for company to be wound up in insolvency under s 459P of the Corporations Act 2001 (Cth) - Statutory demand - Abuse of process

Legislation:

Corporations Act 2001 (Cth), s 459P
Corporate Law Reform Act 1992 (Cth)

Result:

Defendant to be wound up

Category: B

Representation:

Counsel:

Plaintiff: Mr C C K Ko
Defendant: Mr P Laffery

Solicitors:

Plaintiff: Trinix Lawyers
Defendant: Kings Park Corporate Lawyers

Case(s) referred to in judgment(s):

Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd [2000] WASC 20
Austruct Group Pty Ltd v Bluenergy Engineering (Australia) Pty Ltd [2017] WASC 10
BHP Steel (JLA) Pty Ltd v Eagle Steel Holdings Pty Ltd [1999] WASC 187
Commissioner of Taxation (Cth) v Simonato Holdings Pty Ltd (1997) 15 ACLC 477
Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295
David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265
House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527
Kwik Transport & Crane Hire Pty Ltd as Trustee for the T&T Unit Trust v Rosales Pty Ltd as the Trustee for the Jones Family Trust [2016] WASC 277
Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287
TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509

ACTING MASTER STRK: On 16 May 2016, the plaintiff (Austruct) applied for orders to wind up the defendant (Bluenergy). The winding up application relies on a creditor's statutory demand for payment of a debt dated 23 March 2016 (the Demand), which describes the debt as follows:
Description of the debt: The total amount outstanding under the invoices outlined in the attached schedule relating to services supplied by the creditor for or on behalf of the company.
The amount of debt is $47,025 and the schedule attached to the Demand records as follows:

Invoice Date Invoice Number Amount Outstanding

21/12/2015 00003391 $13,750.00

21/12/2015 00003392 $13,887.50

28/01/2016 00003417 $19,387.50

TOTAL $47,025.00

No application was made by Bluenergy to set aside the Demand within 21 days of its service on Bluenergy under s 459G of the Corporations Act 2001 (Cth). Bluenergy also did not comply with the Demand by paying or securing or compounding the debt the subject of the Demand (the Debt) to Austruct's reasonable satisfaction within that period or at all.
On 22 June 2016, Bluenergy filed an application for leave pursuant to s 459S of the Corporations Act to rely on the existence of a genuine dispute between Bluenergy and Austruct which it could have relied upon if it had applied to set aside the Demand (the s 459S Application).
Bluenergy sought that the s 459S Application be determined separately and prior to the hearing of Austruct's application to wind up Bluenergy. The s 459S Application failed and leave was not granted to Bluenergy to rely on the existence of a genuine dispute between Bluenergy and Austruct which it could have relied upon if it had applied to set aside the Demand.[1]
[1] Austruct Group Pty Ltd v Bluenergy Engineering (Australia) Pty Ltd [2017] WASC 10.
In determining the s 459S Application, I did not deal with nor did I comment on whether s 459S precludes the advancing by Bluenergy of the contention that the course of conduct engaged in by Austruct is an abuse of process.[2]
[2] Austruct Group Pty Ltd v Bluenergy Engineering (Australia) Pty Ltd [41].

Overview - Austruct's position

Austruct asserts that as Bluenergy was not granted leave under s 459S of the Corporations Act, it can only dispute the winding up application on the ground that it is solvent. Having failed to secure leave under s 459S, Austruct maintains that Bluenergy cannot now rely on grounds to assert an abuse of process that it could have relied upon to set aside the statutory demand.
As to the question of solvency, Austruct says that as Bluenergy is presumed to be insolvent by operation of s 459C(2) and (3) of the Corporations Act, it bears the onus to prove that it is solvent, and it has failed to do so.
Austruct relies on a number of affidavits filed in the proceedings in support of its winding up application: affidavit of Garry Roy Walker, a director of Austruct, sworn 16 May 2016; a second affidavit of Garry Roy Walker sworn 22 September 2016; an affidavit of service of Kerry Gina Fontana sworn 23 June 2016; a second affidavit of service of Kerry Gina Fontana sworn 22 September 2016; affidavit of Darren Leslie Bushell Harrop, Austruct's accountant, sworn 22 September 2016; and affidavit of Andrea Marie Symons, solicitor for Austruct, sworn 22 September 2016.[3]
[3] Some of the affidavits were also relied upon in opposition to the s 459S Application.

Overview - Bluenergy's position

Bluenergy asserts that there is a serious question to be tried as to whether the debt pressed in the Demand relates to Bluenergy and thus the court cannot be satisfied that Austruct is a creditor of Bluenergy; the court has no power to wind up Bluenergy on an application by a party which is not a creditor; and in all of the circumstances, the winding up application is an abuse of process. Bluenergy further asserts that it has established a prima facie case of solvency which is unchallenged by Austruct.
Bluenergy relies on a number of affidavits in opposition to the winding up application: the affidavit of Mr Rodney Charles Carter, a director of Bluenergy, sworn on 22 June 2016; the affidavit of Mr Maurice Edward McKinnon, accountant at Horizon Accounting, Bluenergy's accountant, sworn 28 June 2016; the second affidavit of Mr Maurice Edward McKinnon, sworn 30 August 2016; the affidavit of Mr Donnie James Patterson, the Business Manager for Bluenergy, sworn 30 August 2016.[4]
[4] Some of the affidavits were also relied upon in opposition to the s 459S Application. Other affidavits have been filed in the proceedings on behalf of Bluenergy which concern procedural matters, particularly the timing of filing of substantive affidavits.

Abuse of process

In CVC Investments Pty Ltd v P & T Aviation Pty Ltd,[5] Cohen J reflected on the various authorities, and found as follows.
The authorities seem almost unanimously to agree that where a claimed debt is bona fide disputed on substantial grounds and there is no basis for regarding the claimant as a contingent or prospective creditor then that claimant has no standing to bring proceedings to wind up the company, and if he does so the bringing of those proceedings is an abuse of process. The fact that there is a ground for winding up in existence does not give that claimant any greater standing. There are a number of grounds under s 364 upon which the court may make an order for the winding up of a company. The most common one relied upon is that the company is unable to pay its debts. Nevertheless the Code gives only a limited number of persons a right to have the company wound up on that or any other ground. It is an abuse of process if a person in bringing proceedings assumes a standing which it does not have and seeks orders to which it is not entitled.[6]
[5] CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295.
[6] CVC Investments Pty Ltd v P & T Aviation Pty Ltd (302E).
His Honour Justice Cohen's analysis accurately reflected the position prior to the enactment of the Corporate Law Reform Act1992 (Cth). However, the position changed with the enactment of pt 5.4 of the Corporate Law Reform Act (now pt 5.4 of the Corporations Act), which was enacted so as to provide a 'complete code' whereby a company who sought to contest a creditor's standing must do so by seeking to have the demand set aside or secure leave under s 459S.[7]
[7] Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287, 288; House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527, 529.
As found by Brownie J in House of Tan Pty Ltd v Beachiris Pty Ltd,[8] while superior courts have a general jurisdiction or power to stay proceedings that are an abuse of process, the effect of the enactment of pt 5.4 is to effectively limit the exercise of that jurisdiction in the class of cases to which pt 5.4 applies. His Honour noted that it will still exist, and no doubt will still be exercised, without the need to apply for leave, in some cases, although they will be few in number.[9]
[8] House of Tan Pty Ltd v Beachiris Pty Ltd (529 ‑ 530); see also Pacific Communication Rentals Pty Ltd v Walker (289).
[9] House of Tan Pty Ltd v Beachiris Pty Ltd (530).
As to the circumstances which might enliven the jurisdiction, in the context of an appeal from the decision of the master setting aside a statutory demand, Martin CJ in Createc Pty Ltd v Design Signs Pty Ltd[10] (adopting the criterion from Williams v Spautz,[11] suggested by Gummow J in David Grant & Co Pty Ltd,[12]) found that:
[T]here will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt.
[10] Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [50].
[11] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509.
[12] David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265.
Further, as stated by Barrett J in TS Recoveries Pty Ltd v Sea‑Slip Marinas (Aust) Pty Ltd:[13]
Abuse of process is concerned predominantly with propriety of purpose. The issue must be judged according to the legitimate objectives of the particular process. A challenge under s 459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand, whereas an abuse of process allegation in relation to the pressing of winding up proceedings would pay attention to the objectives for which the winding up proceedings are properly pursued.
It seems to me that, even apart from the different timing factors I have mentioned, the two purposes do not coincide. A creditor serving a statutory demand aims, first and foremost, to obtain payment of the creditor's debt. The word 'demand' means what it says: the creditor is demanding payment of what is due. The creditor may have a second or subsidiary purpose, which is to obtain the benefit of a presumption of insolvency if the primary purpose of eliciting payment is not achieved and no successful application to have the demand set aside is made. But the principal purpose is to obtain payment.
A winding up application is designed to serve a different purpose, at least where it is pursued in the present circumstances where a presumption of insolvency has arisen, and the defendant company, while conceding insolvency, consciously and deliberately chooses to defend. In those circumstances, proper pursuit of winding up proceedings entails the purpose of securing the imposition of a scheme of insolvent administration aimed at ending the company's activities, seeing assets marshalled and the claims of creditors ascertained and culminating in payment to creditors of whatever is available from the insolvent estate. The logical and expected outcome will be the imposition of that regime (for the benefit of all creditors), not payment of the plaintiff's debt.

Determination

[13] TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074 [17] ‑ [19].

Having carefully considered the affidavits and submissions filed in these proceedings, I find that the grounds on which Bluenergy relies to assert that there is an abuse of process are grounds which Bluenergy could have relied upon to apply to set aside the statutory demand. Having failed to secure leave under s 459S of the Corporations Act, I find that those grounds may not be relied upon as grounds to oppose the application to wind up Bluenergy.
Having regard to the objectives for which winding up proceedings are properly pursued, I also find that there is no evidence to enliven the jurisdiction to dismiss the application to wind up Bluenergy as an abuse of process. It is Austruct's position that Bluenergy is unable to pay its debts, and thus it is just and equitable that Bluenergy be wound up.[14]
[14] Affidavit of Garry Roy Walker filed 16 May 2016 [9] ‑ [10].

Solvency

Bluenergy is presumed to be insolvent pursuant to s 459C(2) and (3) of the Corporations Act, and bears the onus of proving its solvency. Bluenergy maintains that it is solvent. Austruct says that Bluenergy has failed to prove that it is solvent.
Bluenergy relies upon the following to establish its solvency:
(a)its financial statements for the year ended 30 June 2016;[15]
(b)financial assistance available to it from Esplanade Holdings Pty Ltd (Esplanade);[16]
(c)the ability of Mr Carter to provide direct financial assistance to Bluenergy as and when it is required.[17]

Evidence relied upon by Bluenergy

[15] Affidavit of Maurice Edward McKinnon sworn 30 August 2016, and the affidavit of Rodney Carter sworn 31 August 2016.

[16] Affidavit of Rodney Carter sworn 31 August 2016 [7].

[17] Affidavit of Rodney Carter sworn 22 June 2016 [38].

Several affidavits were filed on behalf of Bluenergy in relation to its solvency.
On 22 June 2016, Mr Carter deposed to Bluenergy holding the following assets as at that date: about $137,000 cash at bank; $118,620 being a GST reimbursement; a contract for services provided by Bluenergy in relation to a project described as the Long Project; and work in progress relating to various contracts between Bluenergy and third parties of approximately $50,000.[18] At that time, Mr Carter sought additional time to gather and file evidence of Bluenergy's financial position.
[18] Affidavit of Rodney Carter sworn 22 June 2016 [39].
In early August 2016, it was suggested that Mr Barry Levin of Charter Financial Services would provide an independent opinion on solvency.[19] Despite leave being sought to file such an opinion, no opinion was filed.
[19] Affidavit of Claudio Armeli‑Cartillazzone sworn 1 August 2016 [15].
By an affidavit sworn by Mr McKinnon on 30 August 2016, a copy of the 2015/2016 financial statements for Bluenergy were put before the court. In that affidavit, Mr McKinnon deposed to being a certified practicing accountant since 1999; to being the principal at Horizon Accounting since 2003; and that he prepared the 2015/2016 financial statements for Bluenergy. Mr McKinnon says that from his review of the financial statements, Bluenergy is solvent and able to meet its debts as and when they fall due.
On 31 August 2016, a further affidavit sworn by Mr Carter was filed, to which was annexed an opinion as to solvency provided by Mr Russell Black of Goldfinch Partners. Mr Black's opinion attached the financial statements of Bluenergy for the year ended 30 June 2016. The succinct opinion was in the following terms:
31 August 2016
To Whom it may concern
RE: BLUENERGY ENGINEERING (AUSTRALIA) PTY LTD ACN 609 703 022
We confirm that we have examined the attached financial accounts of the company for the period to 30^th June 2016 and supporting evidence of assets and liabilities including the closing bank statement as at that date.
It is our opinion that the Company is and always has been solvent hence able to meet debts as and when due.
Yours sincerely
[signature]
Russell A Black
Accountant
The further affidavit of Mr Carter was filed in advance of the hearing on 28 September 2016. On that date Bluenergy sought that the application under s 459S be determined separately and prior to the hearing of Austruct's application to wind up Bluenergy. At the commencement of the hearing, counsel explained that there was some confusion as to whether the matter had been programmed so that both the s 459S Application and the application to wind up Bluenergy were to be heard on 28 September 2016. After hearing argument from counsel, I determined that it was appropriate to hear and determine the s 459S Application. After the s 459S Application was determined, programing directions were made for the hearing of the winding up application.
On 25 January 2017, I made programming directions that Bluenergy file and serve affidavits in opposition to Austruct's winding up application on or before 15 February 2017; that Austruct file and serve any affidavits in response and any submissions on or before 8 March 2017; that Bluenergy file and serve any submissions on or before 15 March 2017; and that the application be listed for a special appointment on 28 March 2017.
At the hearing on 25 January 2017, Mr Lafferty appeared on behalf of Bluenergy and opposed the programming of further affidavit material and written submissions. He informed the court that according to his instructions, there was no need to file and serve any further affidavit material or written submissions; that the application could now proceed and should be heard on the material then before the court. After I indicated that I would make programming orders, Mr Lafferty requested an additional week (from 8 to 15 February) for Bluenergy to file and serve affidavits in opposition to Austruct's winding up application.
At the conclusion of the hearing on 25 January 2017, I informed parties of my expectation that the timetable would be adhered to and if additional time was required, that an application would need to be made to vary the programming orders.[20]
[20] Having regard to the comments made by Master Sanderson in Kwik Transport & Crane Hire Pty Ltd as Trustee for the T&T Unit Trust v Rosales Pty Ltd as the Trustee for the Jones Family Trust [2016] WASC 277.
Without making an application to vary the programming orders, on 27 March 2017, an affidavit was filed on behalf of Bluenergy. It was sworn on the same day by Mr Claudio Armeli‑Cartillazzone and annexed a copy of an Independent Auditor's Review Report dated 24 March 2017, prepared by Mr Robert Higgs CPA of BMR Accounting & Taxation Services.
At the hearing of the winding up application on 28 March 2017, after hearing from counsel, taking into account the position adopted by Bluenergy on 25 January 2017, the fact that no explanation was proffered for delay, and the potential for prejudice to Austruct, I refused Bluenergy leave to rely on the affidavit of Mr Armeli‑Cartillazzone.
In the submissions for hearing filed on behalf of Bluenergy on 15 March 2017, the question of solvency was succinctly dealt with as follows.[21]
[21] Defendants submissions, 15 March 2017 [17] ‑ [20].
The Defendant submits that it is solvent.
The Plaintiff has not adduced any evidence in response to the Defendant's evidence that it is solvent, contained in its 30 June 2016 Financial Statements; see affidavits of Maurice McKinnon and Rodney Carter sworn 30 and 31 August 2016 respectively.
The Defendant has provided copies of its financial documents. The Plaintiff has not adduced any evidence that the financial documents are not a true reflection of the Plaintiff's financial position and its solvency.
The onus on the Defendant to establish solvency does not require:
(a)the company to adduce audited accounts; nor
(b)does it require such audited evidence is produced where the available evidence before the Court clearly discloses that the company is solvent.
see DCT v De Simone Consulting Pty Ltd [2007] FCA 548.

Determination

There are four applicable principles when the question of solvency is to be considered. They are as follows:[22]
(1)Section 95A(1) of the Corporations Law states a 'cashflow test' rather than a 'balance sheet test' of solvency. It follows that the mere fact that the company's assets exceed its liabilities does not establish solvency.
(2)The adoption of a cashflow test does not mean the extent of the company's assets are irrelevant to the inquiry.
(3)The resources of the company requiring consideration include the credit resources in the sense of terms of credit available to it.
(4)The question of solvency must be assessed at the date of hearing. This does not mean that future events are to be ignored.
[22] BHP Steel (JLA) Pty Ltd v Eagle Steel Holdings Pty Ltd [1999] WASC 187 [13] (Sanderson M).
In order to discharge the onus of solvency, the court should ordinarily be presented with the 'fullest and best' evidence of the financial position of the defendant.[23] In all of the circumstances before me, I find that the company's financial statements for the year ended 30 June 2016 cannot be said to be the 'fullest and best' evidence of Bluenergy's solvency for the following reasons.
[23] Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075, 1081 (Hayne J).
Bluenergy was afforded (despite protest on 25 January 2017) the opportunity to put further evidence of its solvency before the court. It elected not to put before the court its updated accounts so as to inform the court of the financial position of the company after 30 June 2016.[24] Other than the offers by Esplanade and Mr Carter to provide financial assistance, there was no evidence before the court as to the financial position of Bluenergy after 30 June 2016.
[24] The evidence filed on 27 March 2017 and sought to be relied upon by Bluenergy did not purport to update the court as to the current financial position of Bluenergy; rather to put the audited financial statements of the year ending 30 June 2016 before the court.
As to Bluenergy's financial position at 30 June 2016, I also note that the financial statements before the court were not audited accounts. While audited accounts are not always required, they are preferable to opinions arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared.[25] Further, discrepancies in the financial statements before the court were identified by Austruct but were not addressed, and Mr Black's opinion (reproduced above), did not advance Bluenergy's position.
[25] Commissioner of Taxation (Cth) v Simonato Holdings Pty Ltd (1997) 15 ACLC 477 (Mansfield J); Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459.
Bluenergy also relies upon the financial assistance available to it from Esplanade and Mr Carter to establish solvency. In his affidavits, Mr Carter explains that Esplanade is the sole shareholder of Bluenergy; Mr Carter is sole director of Bluenergy and is the executive Chairman of Esplanade; Esplanade is able to provide direct financial assistance to Bluenergy as and when required; and any funds advanced to Bluenergy by Esplanade will be converted to equity in Bluenergy in lieu of repayment.[26] Mr Carter also deposes to having the ability to provide direct financial assistance to Bluenergy as and when it is required.[27]
[26] Affidavit of Rodney Carter sworn 22 June 2016 [36] ‑ [37]; affidavit of Rodney Carter sworn 31 August 2016 [5].
[27] Affidavit of Rodney Carter sworn 22 June 2016 [38].
In determining the question of solvency of Bluenergy, the resources of the company requiring consideration include the credit resources in the sense of terms of credit available to it.[28]
[28] Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd [2000] WASC 20 [16].
However, as found by Master Sanderson in Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd, any cash that may be available from a third party cannot be described as 'the debtor's own money'.[29] The position might well be different if the evidence indicates that there is an agreement whereby funds are promised to be advanced.[30]
[29] Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd [20].
[30] Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd [21].
In this case, there was no such agreement. Any cash that may be available from Esplanade and Mr Carter cannot be described as Bluenergy's own money. Further, there is no evidence before me as to the financial position of Esplanade or Mr Carter (as at the date of hearing or otherwise). I therefore find that no weight can be given to the assertion that if required, Bluenergy has the ability to borrow funds from Esplanade as and when required to meet any current or future liabilities; or to secure financial assistance from Mr Carter.

Determination

For the reasons set out above, I find that there is no evidence to enliven the jurisdiction to dismiss the application to wind up Bluenergy as an abuse of process.
Further, there is a presumption of insolvency and the onus is on Bluenergy to overcome that presumption. On the evidence available, Bluenergy has failed to discharge the onus. I am therefore satisfied, in all of the circumstances, that the presumption of insolvency prevails and that it is appropriate to order the winding up. I will hear from the parties as to the form of order and as to costs.

Invoice Date	Invoice Number	Amount Outstanding
21/12/2015	00003391	$13,750.00
21/12/2015	00003392	$13,887.50
28/01/2016	00003417	$19,387.50
TOTAL	$47,025.00