BHP Steel (JLA) Pty Ltd v Eagle Steel Holdings Pty Ltd
[1999] WASC 187
BHP STEEL (JLA) PTY LTD -v- EAGLE STEEL HOLDINGS PTY LTD [1999] WASC 187
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 187 | |
| Case No: | COR:229/1999 | 22 SEPTEMBER 1999 | |
| Coram: | MASTER SANDERSON | 30/09/99 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Respondent wound up | ||
| PDF Version |
| Parties: | BHP STEEL (JLA) PTY LTD (ACN 000 011 058) EAGLE STEEL HOLDINGS PTY LTD (ACN 082 204 831) |
Catchwords: | Corporations law Application to wind up based on failure to comply with statutory demand Respondent attempting to prove solvency Evidence available and principles to be applied |
Legislation: | Corporations Law, s 459P, s 459S |
Case References: | Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998 Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467 Gradfan Pty Ltd (In Liq) v Miling Nominees Pty Ltd (1996) 14 ACLC 652 Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238 Benalto Holdings Pty Ltd v Eastras Pty Ltd (1995) 13 ACLC 601 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
AND
EAGLE STEEL HOLDINGS PTY LTD (ACN 082 204 831)
Respondent
Catchwords:
Corporations law - Application to wind up based on failure to comply with statutory demand - Respondent attempting to prove solvency - Evidence available and principles to be applied
Legislation:
Corporations Law, s 459P, s 459S
Result:
Respondent wound up
(Page 2)
Representation:
Counsel:
Applicant : Mr A R Heaver
Respondent : Mr D O D Price
Solicitors:
Applicant : Clayton Utz
Respondent : D O D Price & Associates
Case(s) referred to in judgment(s):
Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998
Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467
Gradfan Pty Ltd (In Liq) v Miling Nominees Pty Ltd (1996) 14 ACLC 652
Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238
Case(s) also cited:
Benalto Holdings Pty Ltd v Eastras Pty Ltd (1995) 13 ACLC 601
(Page 3)
1 MASTER SANDERSON: This is the return of an application to wind up the respondent. The application is brought under s 459P of the Corporations Law. The applicant claims the respondent is insolvent, this claim being based on the presumption of insolvency which arises under s 459C(2), consequent upon the respondent's failure to comply with the statutory demand dated 15 April 1999. The respondent appeared by counsel at the hearing of the application and argued that it was solvent. In support of this contention the respondent sought to rely on two affidavits. The first was an affidavit of Robert Ernest Verrills, the second was an affidavit of Robert Teoh. Both were sworn 15 September 1999. Counsel for the applicant objected to both affidavits. He submitted each contained evidence to the effect that there was a genuine dispute as to the existence of the debt on which the statutory demand was based. It was submitted that leave of the court under s 459S of the Corporations Law was required before such evidence could be led. Counsel for the respondent conceded that leave was required under s 459S and, during the course of his submissions, made an oral application for such leave.
2 Section 459S of the Corporations Law is in the following terms:
"(1) Insofar as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the court oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent."
3 The legislative intention behind this section is reasonably clear. If a party who is served with a statutory demand genuinely disputes the debt upon which the demand is based, then it ought apply to have the demand set aside under s 459G of the Corporations Law. If no application is made to set aside the statutory demand, or, if an application is made and is unsuccessful, then a presumption of insolvency arises under s 459C(2). On the hearing of a winding up application it is open to the company to establish that it is, in fact, solvent. The onus of establishing solvency rests on the company and it is for the company to overcome the effect of the
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- presumption which has arisen consequent upon its failure to set aside the statutory demand.
4 A company which is attempting to establish that it is solvent may wish to produce evidence that the debt on which the demand is based is genuinely disputed and therefore ought not be taken into account in assessing solvency. But it cannot lead evidence that there is a genuine dispute as to the debt unless leave to do so is obtained under s 459S. The question then is, in what circumstances is such evidence to be permitted? In Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238 I considered when it would be appropriate to allow such evidence. I put the position as follows (at 1241):
"In effect, if by ignoring the debt upon which the statutory demand is based, the company might be found to be solvent, then and only then, the existence of a bona fide dispute would be a relevant consideration. … In circumstances where existence of the debt on which the statutory demand is based is pivotal to a decision on solvency then the existence of a debt is a relevant consideration. What the section seems designed to avoid is companies against which an application for winding up based on a statutory demand is pending challenging the standing of the applicant late in the day."
5 On appeal, Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998, the Full Court did not consider it necessary to resolve finally what approach should be taken to s 459S. However, in a passage which is clearly obiter but nonetheless of assistance, Steytler J, delivering the Judgment of the Court, said (at 8):
"The materiality or otherwise of the disputed debt to the appellant's solvency was required to be assessed having regard for the available evidence as a whole. There will often be the prospect that a company's assertions as to its financial standing will not be made out when the whole of the available evidence is considered (as proved to be the case here). If that prospect is not evaluated at the time of the hearing of the application the court would be left to decide the application on the strength, only, of the applicant's own assertions. That would not have been the intention of the legislature. The court is required by s 459S to be satisfied that the ground sought to be raised is
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- material to proving a company is solvent, not that it is material on the strength of the applicant's contentions only.
Moreover the test, under s 459S(2) is that of whether or not the ground sought to be raised in opposition to the application is 'material' to proving that the company is solvent, not that of whether or not it is determinative of the company's solvency. It is not only determinative evidence which is material to proof of solvency. It will be enough, for the purposes of an application under s 459S, to show that the ground sought to be raised might turn out to be determinative of the applicant company solvency once all of the evidence has been heard, depending upon what evidence is accepted by the trier of fact."
6 The same conclusion was reached by Austin J in Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467. After quoting the passage from Zan Holdings that I have quoted above, his Honour said:
"The court considers the materiality question before deciding whether to grant leave to the company to dispute the debt. It has not, at that stage, reached a conclusion about the company's overall solvency, and may not have heard all the relevant evidence. It is not in a position to decide, at that stage, whether the debt in question is the difference between solvency and insolvency. Further, Master Sanderson's formulation tends to substitute 'decisive' for 'material' in subs (2). In other contexts, 'material' is taken to refer to a likelihood or significant propensity to effect an outcome, or even a mere possibility of doing so."
7 In the Palifax decision Austin J also makes reference to Gradfan Pty Ltd (In Liq) v Miling Nominees Pty Ltd (1996) 14 ACLC 652. It is relevant to note that, in that decision, Master Ng was of the view that the question of leave to adduce evidence under s 459S and the question of solvency should be dealt with together. The learned Master then went on to consider the reasons why an application was not made to set aside the statutory demand, that being a consideration as to whether or not the discretion conferred by s 459S ought be exercised in the company's favour. Austin J acknowledges Master Ng's approach as being a useful guide to the section.
(Page 6)
8 After reviewing the authorities and discussing the nature of the discretion conferred by s 459S, Austin J concludes (at 481):
"In my opinion the exercise of the discretion to grant leave under s 459S(1) involves three considerations, namely:
(i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand;
(ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the parties' conduct at that time; and
(iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent."
9 In the light of what was said by the Full Court on appeal in the Zan Holdings' case and in light of his Honour's compelling analysis, I would respectfully suggest that his Honour's approach to s 459S is the proper one. I would, however, offer one qualification. It may be that an order allowing the company to tender evidence in relation to a disputed debt would be granted even if the discretionary considerations in (i) and (ii) were not in its favour. For example, it may be that the discretion could be exercised in the company's favour even though there was no satisfactory explanation as to why an application was not made to set aside the statutory demand. But in any case a company must satisfy the court that the dispute about the debt is material to proving the company is solvent. That is to say the third consideration must be resolved in the company's favour, otherwise the application must fail under the provisions of s 459S(2).
10 Turning to this case, it was conceded by counsel for the applicant that there was a genuine dispute about the debt. In these circumstances I need not go into detail as to the basis upon which the respondent disputes the debt. It will be enough if I say that the respondent says the debt was properly incurred by a related company and not by the respondent. There is no evidence at all as to why an application to set aside the statutory demand was not made by the respondent. During the course of his submissions, counsel for the respondent did attempt to offer such an explanation but this explanation was not grounded in the evidence.
11 Finally, the dispute about the debt is clearly material to proving whether or not the company is solvent. Annexed to the affidavit of
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- Verrills, there is what is described as a balance sheet for the respondent as at 25 August 1999 (Annexure "REV7"). This shows the company having total assets of $4,898 and no liabilities. The amount claimed in the statutory demand is $85,873.74. Clearly, the existence or otherwise of this debt is material to determining whether or not the respondent is solvent.
12 On that basis, then, I am of the view that leave ought be granted to oppose the winding up, taking into account the affidavit of Verrills and the affidavit of Robert Teoh, sworn 15 September 1999.
13 In the Zan Holdings' case I set out four applicable principles when the question of solvency was to be considered. These principles were based on what was said by Sackville J in Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 465. On appeal, the Full Court accepted these principles as stated. They are as follows:
"(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."
14 The only evidence offered by the respondent in relation to its solvency is the balance sheet to which I have already made reference. As to the company's present position, Verrill says (at par 22):
"The respondent ceased trading in March/April 1999 when Verrills Ward Pty Ltd [a related company who is said to have incurred the debt now disputed] was placed in administration and then liquidation and has not incurred any debt since. In respect of prior dealings and debts, to the best of my knowledge information and belief, there are no outstanding judgments or debts save and except for a judgment that was obtained in
(Page 8)
- default of filing notice of intention to defend by Golden West Network Pty Ltd being Local Court Cause No 9448 of 1998."
15 Verrills goes on to say that an application was made to set aside default judgment in the Local Court action but the application was refused. That decision is subject to appeal to the District Court. Pending the appeal, the respondent's solicitors have obtained a stay of execution.
16 In fact, what is said by Mr Verrills is not quite correct. Appearing as Annexure "REV8" to his affidavit is a notice of appeal. This notice makes it plain that on the application to set aside the default judgment a conditional order was made requiring the respondent to make payment into court of the sum of $8,000 as a condition of the judgment being set aside. The actual amount of the judgment is nowhere stated in the affidavit material. It is reasonable to assume that the judgment is for no less than the sum of $8,000.
17 In the circumstances then, it is difficult to see why the balance sheet provided by the respondent does not give some recognition to the Local Court judgment. It may well be the case that the judgment sum could be regarded as a contingent liability, particularly as a stay of execution has been granted. But to make no mention of the judgment sum at all is, it seems to me, to seriously undermine the credibility of the balance sheet.
18 Moreover, the respondent has made no attempt to satisfy any of the tests relevant to solvency. It must be remembered that there is a presumption of insolvency and the onus is on the respondent to overcome that presumption. In my view, on the basis of the limited and questionable evidence available, the respondent has not discharged the onus. I am therefore satisfied, in all the circumstances, that the presumption of insolvency prevails and that it is appropriate to order it be wound up.
19 Subject to hearing the parties, I will make orders in terms of the applicant's minute.
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