Coffex Coffee Pty Ltd v Ilford Tower Pty Ltd
[2011] VSC 449
•9 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List E
S CI 2010 06610
IN THE MATTER OF ILFORD TOWER PTY LTD (ACN 074 539 423)
| COFFEX COFFEE PTY LTD (ACN 087 591 017) | Plaintiff |
| v | |
| ILFORD TOWER PTY LTD (ACN 074 539 423) and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 July 2011 | |
DATE OF JUDGMENT: | 9 September 2011 | |
CASE MAY BE CITED AS: | Coffex Coffee Pty Ltd v Ilford Tower Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 449 | |
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CORPORATIONS – Winding up on just and equitable ground - Appeal from Order of Associate Judge – Standing to bring appeal – Leave to appeal granted and appeal allowed – ss 461(k), 471A Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Cafari | Davies Moloney |
| For the First Defendant | Mr J Selimi | Radebe and Associates |
TABLE OF CONTENTS
Parties and introduction.................................................................................................................... 2
The need for approval of the Court to prosecute the appeal..................................................... 2
Winding up on the just and equitable ground – legal principles............................................ 2
Evidence before the Associate Judge and his Honour’s decision............................................. 3
Evidence on the appeal..................................................................................................................... 4
Are there just and equitable grounds for winding up Ilford?................................................... 5
Other matters relevant to the grant of leave to appeal................................................................ 8
Conclusion........................................................................................................................................... 8
HER HONOUR:
Parties and introduction
On 20 April 2011, on the application of the plaintiff, Coffex Coffee Pty Ltd, an Associate Judge ordered that the first defendant, Ilford Tower Pty Ltd, be wound up in insolvency. Mr Paul Burness and Mr Matthew Jess were appointed liquidators. A Notice of Appeal was filed by Radebe and Associates on 27 April 2011 purportedly on behalf of Ilford. The Notice of Appeal was filed on the instructions of Ms Teresa Dinc, who is the director of the company.
The need for approval of the Court to prosecute the appeal
Section 471A(1) of the Corporations Act 2001 (Cth) prevents a director from filing a Notice of Appeal against a winding up order without first having obtained either the liquidator's written approval under s 471A(1A)(c) or the approval of the court under s 471A(1A)(d).[1] One of the liquidators has written to the Court stating that no instructions have been given by him in relation to the appeal. The approval of the Court had not been sought nor given at the time that the Notice of Appeal was filed. However, subsequently, an interlocutory process, seeking the Court’s approval retrospectively, was filed.
[1]See Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85, Rock Bottom Fashion Market Pty Ltd (In liq) [2000] 2 Qd R 573.
Whether such leave should be granted in part depends upon the prospects of success of the appeal. Therefore, when the matter came before me, I heard argument as to issues on both the leave application and the substantive appeal.
Winding up on the just and equitable ground – legal principles
Coffex applied to wind up Ilford under s 461(k) of the Corporations Act 2001 (Cth) on the grounds that it is just and equitable to do so. Mandie J (as his Honour then was) summarised the relevant principles in Australian Securities & Investments Commission v Kingsley Brown Properties Pty Ltd[2] as follows:
[2][2005] VSC 506.
I discern in the cases recognition of the following pertinent principles and criteria, which I adopt:
•lack of confidence in the conduct and management of the company’s affairs lies at the foundation of applications for winding up on the just and equitable ground;
•the classes of conduct justifying an order are not closed and there is no necessary limit to the generality of the words ‘just and equitable’;
•the facts or conduct which make it just and equitable must have a direct or immediate relationship to, or bearing upon, the management or administration of the affairs of the company or the subject of its business (“a sufficient nexus”);
•fairness was a relevant criterion thus freeing the Court, where appropriate, from technical considerations of legal rights;
•relevant public interest considerations included the protection of investors and the prevention or condemnation of repeated breaches of the law;
•a stronger case might be required where the company was prosperous, or at least solvent, and/or where there was an established business being carried on.[3]
[3]Ibid at [96].
There are a number of cases which are examples of a company being wound up on the just and equitable ground where there has been repeated incompetence or a failure to act with propriety and where it is in the public interest that the company be wound up.[4]
[4]Deputy Commissioner of Taxation of the Commonwealth of Australia v Casualife Furniture International Pty Ltd (2004) 9 VR 549 is an example.
Evidence before the Associate Judge and his Honour’s decision
Some of the affidavits relied on by Coffex were sworn by its solicitor, Colman Francis Moloney. Exhibited to one of those affidavits were two decisions of the Victorian Civil and Administrative Tribunal that involved Ilford.[5] Certain findings and observations were made by the Tribunal in those cases as to the role of Ms Dinc’s brother, Bruno Strangio, in relation to Ilford, and also relating to his representation of Ilford at the hearings. Also exhibited were decisions in other cases which involved Mr Strangio or entities associated with him (although not Ilford).[6] In addition, exhibited to Mr Moloney’s affidavit was the transcript of a hearing in the Magistrates’ Court. The transcript reveals that during the course of the Magistrates’ Court proceeding, Mr Strangio was cross examined by Mr Moloney as to his role in the management of Ilford. In the Magistrates’ Court proceeding, Coffex is the plaintiff and Ilford and Mr Strangio are the defendants.
[5]Ilford Tower Pty Ltd trading as Appetitos Chadstone v Perpetual Trustees Ltd & Anor [2010] VCAT 137 and Ilford Tower Pty Ltd trading as Monash Kebabs v Banchi Lodge Pty Ltd [2010] VCAT 1228.
[6]Lettieri v Strangio [2008] VSCA 205, Strangio v Westpac Banking Corporation [2008] FCA 1408, Aussie Vic Plant Hire Pty Ltd v County Court of Victoria [2008] VSC 245, Aussie Vic Plant Hire Pty Ltd & Strangio v County Court of Victoria & Anor [2007] VSC 532.
The Associate Judge was satisfied that Ilford was being run by Ms Dinc’s brother, Mr Bruno Strangio, who was acting as a director of the company whilst he was bankrupt. The Court lacked confidence in the conduct and the management of the company’s affairs and ordered that Ilford be wound up.
Evidence on the appeal
Although no objection was taken to the admissibility of the exhibits to Mr Moloney’s affidavits at the hearing before the Associate Judge, objection was taken when the matter came before me. In this regard, I note that r 77.06(7) of the Supreme Court (General Civil Procedure) Rules 2005 provides in part that an appeal from an Associate Judge is by way of re-hearing, but the parties are at liberty to rely upon any affidavit used before the Associate Judge, subject to any proper objections to admissibility.[7] Therefore, the failure to take the objection on the first hearing did not result in Ilford being bound by the consequences of that decision as may have been the case had the appeal been of a different nature.[8] I ruled that the exhibits were not admissible.[9]
[7]See also Supreme Court (Corporations) Rules 2003 (Vic) r 16.5(1).
[8]Smits v Roach (2006) 227 CLR 423 at [46].
[9]Reasons for ruling dated 17 August 2011.
The practical effect of this ruling was that the material on which the Associate Judge’s decision was based could not be taken into consideration. There was no other evidence as to Mr Strangio’s role in connection with Ilford, other than an affidavit sworn by Ms Dinc in support of her application for approval to prosecute the appeal. She stated that since her appointment as a director, she has had control of Ilford and has managed its affairs. According to her, she asked her brother to manage two businesses owned by the company and he has done so under her control and direction. Ms Dinc gave an undertaking that if the winding up order is set aside, her brother will not be employed as a manager of any business owned by Ilford and will not have any role in the management of the affairs of the company. Given the inadmissibility of the exhibits to Mr Moloney’s affidavit, there was no evidence before me that Mr Strangio did act as a director of Ilford and the company cannot be wound up on that basis.
Coffex also relied on two letters from the Australian Taxation Office (“ATO”) to the liquidators. I ruled that these letters were admissible.[10]
[10]Reasons for ruling dated 17 August 2011.
Are there just and equitable grounds for winding up Ilford?
The first letter from the ATO to the liquidators states that there is no claim by the Commissioner of Taxation in the liquidation of Ilford but that there may be a claim when activity statements for each quarter from January 2009 to the date of liquidation and income tax returns for each of the last three financial years are lodged. The second letter states that the records of the Tax Office indicate that Ilford may be liable to pay superannuation guarantee charges in respect of unpaid employee entitlements and requests the liquidators to provide further information.
An opportunity to provide responding material was given to Ilford, but it chose not to file any. In those circumstances, Coffex submitted that Ilford had failed to ensure compliance with its tax obligations and had failed to explain this. Coffex also submitted that Ilford had failed to explain whether it is liable to pay any superannuation guarantee charges in respect of unpaid employee entitlements, what steps would be taken to ensure compliance in the future and whether its books and financial records were up to date. It submitted that in these circumstances, it was just and equitable that Ilford be wound up. Coffex relied on the following passages of Hansen J (as his Honour then was) from Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd:[11]
I bear in mind that the defendants and other Guss family companies have brought themselves into compliance with their taxation obligations, and I have regard to the submission that that, it may be expected, will continue to be the position in the future. And I have regard to the like submission made in respect of obligations under the Corporations Act to file notices with ASIC….The Deputy Commissioner's lack of confidence in the defendants' likely observance of their taxation obligations is well justified in the circumstances. For that reason and also because it would be fair to do so, it is appropriate to order winding up.[12]
[11](2004) 9 VR 549.
[12]Ibid at p 579, 582.
In Casualife, the Deputy Commissioner applied to wind up two companies under s 461(1)(k) of the Corporations Act. The companies conducted a furniture business and were controlled by Mr Guss and his family. The furniture business had previously been conducted by other Guss-controlled companies. There was systemic refusal by those entities to pay tax. A pattern developed such that a Guss-controlled entity would accumulate tax liabilities and transfer its assets to another Guss-controlled company for minimal or no consideration before it was wound up, leaving an outstanding tax debt. This pattern of conduct occurred over 20 years. By the time that the application to wind up the two companies came before Hansen J, the companies had brought their tax and other affairs into order. Nevertheless, the Court ordered that the companies be wound up on the just and equitable ground:
Taking all matters into account, and all that has been submitted by counsel, I conclude that the Deputy Commissioner's lack of confidence in the conduct and management of the defendants is justified having regard to the history of the furniture business conducted by the Guss family. The history discloses a disdain for the obligation to pay tax and commercial morality in the conduct of a business. The Deputy Commissioner's lack of confidence in the defendants' likely observance of their taxation obligations is well justified in the circumstances. For that reason and also because it would be fair to do so, it is appropriate to order winding up. If the defendant companies were not wound up they would continue operating in the public domain under the same Guss control who would, I find, continue to engage by these entities in the same type of impugned conduct. I am also of the view that it is in the public interest and conducive to commercial morality that the companies be wound up, both to prevent the perpetration of further commercial immorality and for the benefit of having the companies under the control of a liquidator.[13]
[13]Ibid at 582.
Coffex also relied on the decision of von Risefer v Mainfreight International Pty Ltd.[14] In that case, application was made to terminate or permanently stay the winding up of a company. The company had never filed a tax return in respect of income or goods and services tax, had not maintained a registered office, appeared to have no books of account and had otherwise not managed its affairs in accordance with regulatory requirements. The liquidator and the major creditor opposed the application for termination or stay and it was refused. On appeal, Ashley JA (with whom Beach AJA agreed) stated:
[24] I turn to the questions of commercial morality and the public interest. The material before Gardiner AsJ and Judd J showed that the company’s affairs had been conducted without any regard for obligations arising under the Corporations Act or the pertinent tax legislation. Not in any order of importance, (1) The company did not inform ASIC of the details of its registered office at any time after late 1991; (2) The company did not provide regular reports of its affairs to ASIC after May 2003; (3) The company had not lodged tax returns or business activity statements at any time after its commencement; (4) The company was not shown to have any proper accounting records; (5) The directors gave the liquidators minimal assistance in the latter’s attempts to ascertain the true position of the company.
[25] In all, in my opinion, considerations of commercial morality and the public interest in ensuring that an insolvent and badly run company is not relaunched told strongly in favour of the winding-up not being terminated or stayed. Gardiner AsJ and, importantly for present purposes, Judd J were in my respectful opinion entirely justified in reaching, in substance, that conclusion.[15]
[14](2009) 25 VR 366.
[15]Ibid at 380.
The facts in both Casualife and von Risefer v Mainfreight International Pty Ltd were extreme. The evidence in the present case is not of that character. At their highest, the letters from the ATO evidence that tax returns and activity statements have not been filed for some time and that tax and superannuation guarantee charges may be payable. The failure to lodge tax returns and activity statements is a serious omission. However, in the absence of evidence of other serious and repeated recalcitrance, incompetence or improper conduct, that failure alone does not amount to a sufficient basis upon which to order that the company be wound up on the just and equitable ground. Here the evidence is simply insufficient to establish that Ilford is a badly run company that ought to be prevented from continuing to operate.
Other matters relevant to the grant of leave to appeal
In addition to considering the prospects of the appeal, before granting leave to appeal, the Court must also be satisfied that the costs of doing so will not erode the assets of the company to such an extent that creditors will be prejudiced.[16] Protection of the assets of the company may be established by proof of the company’s solvency.[17] Alternatively, the order granting leave may be conditional on appropriate arrangements being in place such that the appeal costs will be borne by the person seeking leave (or some other appropriate person) rather than by the company.[18] Ms Dinc proposed that if leave were granted, the company, through her as director, would undertake to pay into Court within 7 days $20,000 on account of anticipated costs of the proposed appeal. As I heard argument as to both whether leave should be granted and the substantive appeal together on the one day, the issue of protection of the company’s assets receded in importance as the hearing progressed.
[16]Rodgers v CJS Panels Pty Ltd [2001] VSC 470; Lane Cove Council v Geebung Polo Club Pty Ltd (Green as liq) and Others (No 2) (2002) 167 FLR 175.
[17]Ibid.
[18]Lane Cove Council v Geebung Polo Club Pty Ltd (Green as liq) and Others (No 2) (2002) 167 FLR 175 at 178.
Conclusion
Leave to appeal should be granted and the appeal should be allowed.
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