Complete Windscreen v Nielsen and Moller Windscreens (Applicant) No. SCGRG 95/1242 Judgment No. 5267 Number of Pages 10 Corporations

[1995] SASC 5267

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MATHESON J

CWDS
Corporations - Corporations Lawss 459F, G, HI J, L and N and s 467A - application to set aside statutory demand - application filed and served within 21 days, but necessary affidavits in support not filed or served within time - whether s467A could be invoked in the circumstances. Re J and E Holdings Ptg Ltd (1995) 17 ACSR 319; David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 14 ACSR 569; (1995) 15 ACSR 771 applied. Bartez Fabrics Pty Ltd v Phillips Fox (1994) 12 ACLC 462; Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994)14 A(JSR 284, considered.

HRNG ADELAIDE, 15 September 1995 #DATE 26:10:1995 #ADD 27:11:1995

Counsel for applicant:     Mr B M O'Brien with him
   Mr R Bellman

Solicitors for applicant:    Windemere Bellman

Counsel for respondent:     Mr S P White with him
   Ms S E Anderson

Solicitors for respondent: O'Loughlins

ORDER
Application dismissed.

JUDGE1 MATHESON J A statutory demand for payment of debt dated 30 May, 1995 was served on the plaintiff on 5 June. On 20 June the plaintiff filed and served on the defendant an application pursuant to s459G of the Corporations Law ("the Law"), seeking an order that the statutory demand be set aside. No supporting affidavit had then been filed.

2. Relevant sections of the Law include:
    "459F (1) If, as at the end of the period for compliance
    with a statutory demand, the demand is still in effect and
    the company has not complied with it, the company is taken
    to fail to comply with the demand at the end of that period.

(2) The period for compliance with a statutory demand is:
(a) if the company applies in accordance with section 459G
    for an order setting aside the demand:
(i) if, on hearing the application under section 459G, or
     on an application by the company under this paragraph, the
     Court makes an order that extends the period for
     compliance with the demand - the period specified in the
     order or in the last such order, as the case requires, as
     the period for such compliance; or
     (ii) otherwise - the period beginning on the day when the
     demand is served and ending 7 days after the application
under section 459G is finally determined or otherwise
     disposed of; or
    (b) otherwise - 21 days after the demand is served."

"459G (1) A company may apply to the Court for an order
    setting aside a statutory demand served on the company.

(2) An application may only be made within 21 days after the
    demand is so served.

(3) An application is made in accordance with this section
    only if, within those 21 days:
    (a) an affidavit supporting the application is filed with
    the Court; and
    (b) a copy of the application, and a copy of the supporting
    affidavit, are served on the person who served the demand on
    the company."

3. The affidavits in support of the application were not filed until 1 August and not served until 4 August. The 21 day time limit under s459G expired on 26 June. The defendant has applied to have the plaintiff's application dismissed on the ground that the supporting affidavits were not filed and served within 21 days after the demand was served. It argues that s459G makes it clear that an application is only effectively made thereunder if it is accompanied by a supporting affidavit. The plaintiff conceded that if it had not filed the actual application within 21 days, the court could not extend the time limit set by the legislation. It does not seek to rely on s1322, but does seek to rely on s467A. I will set out both sections:
    "467A An application under Part 5.4 or 5.4A must not be
    dismissed merely because of one or more of the following:
    (a) in any case - a defect or irregularity in connection
    with the application;
    (b) in the case of an application for a company to be wound
    up in insolvency - a defect in a statutory demand;
    unless the Court is satisfied that substantial injustice has
    been caused that cannot otherwise be remedied (for example,
    by an adjournment or an order for costs).

"1322(1) In this section, unless the contrary intention
    appears:
(a) a reference to a proceeding under this Law is a
    reference to any proceeding whether a legal proceeding or
    not; and
    (b) a reference to a procedural irregularity includes a
    reference to:
     (i) the absence of a quorum at a meeting of a
     corporation, at a meeting of directors or creditors of a
     corporation or at a joint meeting of creditors and members
     of a corporation; and
     (ii) a defect, irregularity or deficiency of notice or
     time.

(2) - (3) ...

(4) Subject to the following provisions of this section but
    without limiting the generality of any other provision of
this Law, the Court may, on application by any interested
    person, make all or any of the following orders, either
    unconditionally or subject to such conditions as the Court
    imposes:
    (a) - (c) ...
    (d) an order extending the period for doing any act, matter
    or thing or instituting or taking any proceeding under this
Law or in relation to a corporation (including an order
    extending a period where the period concerned ended before
    the application for the order was made) or abridging the
    period for doing such an act, matter or thing or instituting
    or taking such a proceeding;
    and may make such consequential or ancillary orders as the
    Court thinks fit."

4. Counsel for the plaintiff, Mr O'Brien, contrasted the drafter's use of the words "under s459G" in ss459H, J, L and N of the Law with the words "in accordance with s459G" that appear in s459F, and relied on some reasoning of Bartex Fabrics Pty Ltd v Phillips Fox (1994) 12 ACLC 462. In that case, the application was served a day late. At p469, Young J said:
"Section 467A is really an internal equivalent of s1322(2)
    and requires the Court to turn a blind eye to any defect
    whether large or small in an application under Part 5.4. An
    application to set aside a statutory demand is an
    application under Part 5.4. It is accordingly completely
    unnecessary in most cases to enter into the question as to
whether one needs resort to s1322.

There is no doubt in my mind that failure to serve an
application under s459G at the appropriate time is a defect
or irregularity within s467A of the Law ... If there is
    service a day late of an application which is made under
Part 5.4, that is a defect or irregularity which under s467A
    must not cause the dismissal of the application ...

Although s459G says that the application is made when the
    application is both filed and served, in my view there is
    still a valid application before the Court and the failure
    to serve is as much a defect as if by mistake a court clerk
    had failed to actually file the document on the twenty-first
    day or some other technicality had got in the way of a
    perfect application being filed and served. It may be that
    if the application is not made at all within twenty-one days
    (and) the defendant does not waive that fault that one does
not get a defect within s467A and one is forced back to one
or other of the constructions of ss459G and 1322 in the
    decided cases to which I have already adverted. However,
    that problem can remain for another day.

Mr Simpkins also put that the words in s459G(3) 'An
    application is made in accordance with this section' only
    had relevance to s459F. Under s459F(2) the period for
    compliance was extended if and only if the application was
in accordance with s459G. Mr Simpkins noted that when the
    statute spoke about the power to set aside the demand, it
    was not dealing with an application made in accordance with
    s459G, but rather with an application made under s459G.
    Mr Simpkins put that the legislature had chosen its words
    deliberately so that there was power to set aside the demand
    under s459J even if the application was not served in time.
    I think this argument is correct, but it is not necessary to
    make a final determination in view of the significance in
this case of s467A."

5. Mr O'Brien argued that an application to set aside a statutory demand which is filed and served within time, but in respect of which the supporting affidavits are out of time is a defective application, but it is nonetheless an application in respect of which s467A can operate so as to cure the defect so long as irreparable and substantial injustice has not been caused by that defect.

6. Most of the reported cases focus on s1322, but in Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994) 14 ACSR 284, Macrossan CJ (with whom Demack J agreed) said:
    "There is a great deal to be said for the view that 'a
    defect or irregularity in connection with the application',
the phrase appearing in s467A(a), should not be taken to
    include failures to bring an application within the
    specified time, but only to other kinds of defects and
    irregularities with the result that what would then be
    thought of as a particular provision dealing with extensions
    of time in necessary cases would be found exclusively
contained in s1322. On this basis the section just
mentioned and s467A could be read comfortably together
    without any awkward conflict between them."

7. The Appeal Division of the Supreme Court of Victoria in David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 15 ACSR 771 referred to the majority decision in Cavetina's case, and in their joint judgment, Brooking and Phillips JJ said:
    "Their Honours plainly took the view that no distinction was
    to be drawn between on the one hand cases like Texel (Pty
Ltd v Commonwealth Bank of Australia (1994) 2 VR 298) and
    the present case, where nothing was done within the 21 day
    period by way of launching the application, and on the other
    hand cases like Cavetina, where the application and
    affidavit were filed within the 21 day period but served
    outside it. With that, we respectfully agree."

8. I also refer to Re J and E Holdings Pty Ltd (1995) 17 ACSR 319. The New South Wales Court of Appeal had to consider a summons filed by the plaintiff out of time for an order extending the period to apply to the court pursuant to s459G of the Corporations Law to set aside a statutory demand served on it by the defendant. The principal issue for the Court was whether s1322 or s467A of the Corporations Law empowered it to extend the time for such an application. The Court held that s1322 did not authorise an extension of the period within which an application under s459G could be made. In relation to s467A, Sheller JA (with whom Priestley and Powell JJA agreed) said at p327:
"I do not think s467A helps the plaintiff. There is no
    application under Pt 5.4 before the court. There is no
    question of such an application being dismissed because of a
    defect or irregularity in connection with the application.
    The position is quite simply that unless the court has a
    power to extend the time within which the application to set
    aside the statutory demand can be made, the plaintiff has no
right to make it. That is not a situation which s467A
    addresses in any way; see Cavetina at 279."

9. Since the argument before me, the High Court of Australia published its reasons for judgment in David Grant and Co Pty Ltd v Westpac Banking Corporation on 11 October, 1995. The judgment of the court was delivered by Gummow J (Brennan CJ, Dawson, Gaudron and McHugh JJ concurring). There is so much in the reasoning of the judgment that is relevant here that in quoting therefrom it is difficult to decide what to omit. I acknowledge that his Honour does not deal with the argument apparently first invoked by Young J in Bartex Fabrics (supra) and invoked before me by Mr O'Brien that the legislature has only used the words "in accordance with" in s459F and 459G. I also acknowledge that in the David Grant case an application had been filed within time (it was not served within time).

10. At pp3-4, Gummow J said:
    "The provisions of the new Pt5.4 constitute a legislative
    scheme for quick resolution of the issue of solvency and the
    determination of whether the company should be wound up
    without the interposition of disputes about debts, unless
    they are raised promptly. The salient features of the
    scheme, as they affect the present dispute, are as follows.

Section 459E provides for the service by a creditor of a
    statutory demand on a company. Failure by the company to
    comply with the demand within the period for compliance may
    found an application that the company be wound up in
    insolvency. If, during or after the three months ending on
    the day when the application is made, the company failed to
    comply with the demand, the court must presume that the
    company is insolvent (s459C(2)(a)).

The period for compliance is stated in s459F(2)(b) as being
    21 days after the demand is served. However, if the company
applies in accordance with s459G for an order setting aside
    the demand, the applicable period is that specified in
    s459F(2)(a). Section 459G(2) stipulates that an application
    for an order setting aside a statutory demand which has been
    served on the company 'may only be made within 21 days after
    the demand is so served'.

Paragraph (d) of s1322(4) of the Law, the enactment of which
    preceded the 1992 Act, provides that the court may, on
    application by an interested person, make an order extending
    the period for doing any act, matter or thing or instituting
or taking any proceeding under the Law or in relation to a
    corporation, including an order extending a period where the
    period in question ended before the application was made for
    the order.

Section 57 of the 1992 Act, which inserted Pt5.4, commenced
    on 23 June 1993. There have since been divergent views in
various courts as to whether s1322(4) of the Law empowers a
    court to extend the time within which a company can file an
application under s459G to set aside a statutory demand.
    This divergence of opinion calls for resolution by this
    Court."

11. At pp10-12, his Honour said:

"In providing that an application to the court for an order
    setting aside a statutory demand 'may only' be made within
    the 21 day period there specified and that an application is
made in accordance with s459G only if, within those 21 days,
    a supporting affidavit is filed and a copy thereof and of
the applications are served, sub-ss(2) and (3) of s459G
    attach a limitation or condition upon the authority of the
    court to set aside the demand. In this setting, the use in
    s459G(2) of the term 'may' does not give rise to the
    considerations which apply where legislation confers upon a
    decision-maker an authority of a discretionary kind and the
    issue is whether 'may' is used in a facultative and
    permissive sense or an imperative sense. Here, the phrase
    '(a)n application may only be made within 21 days' should be
    read as a whole. The force of the term 'may only' is to
    define the jurisdiction of the court by imposing a
    requirement as to time as an essential condition of the new
right conferred by s459G. An integer or element of the
right created by s459G is its exercise by application made
    within the time specified. To adapt what was said by
    Isaacs J in The Crown v McNeil, it is a condition of the
gift in sub-s(1) of s459G that subs(2) be observed and,
    unless this is so, the gift can never take effect. The same
    is true of sub-s(3).

This consideration gives added force to the proposition
    which has been accepted in some of the authorities that it
    is impossible to identify the function or utility of the
word 'only' in s459G(2) if it does not mean what it says,
    which is that the application is to be made within 21 days
    of service of the demand, and not at some time thereafter
and that to treat s1322 as authorising the court to extend
the period of 21 days specified in s459G would deprive the
    word 'only' of effect.

Further, it is significant that the scheme established by
    the new Pt5.4 itself contains specific provisions conferring
    upon the court an express power to extend time. First, the
    court may make an order extending the period for compliance
    with the statutory demand. If the company applies 'in
accordance with section 459G' to set aside the demand, then
    an order extending the time for compliance may be made. The
    order may be made either on the hearing of the application
under s459G or on an application by the company under par(a)
    of s459E(2). Such an extension may itself be extended on
    further application (par(a)).

Secondly, in the circumstances specified in sub-s(2) of
    s459R, the court may extend the six month period within
    which there is to be determined an application for winding
    up in insolvency. That period may be further extended by
    subsequent order (par (b) of s459R(2)).

In addition, the question whether s459G is supplemented by a
    power to extend the time for making an application
    thereunder should be considered in the light of the
    consequences upon the presumption of insolvency under
    s459C(2). That presumption is an important element of the
    scheme of Pt5.4.

Section 459C(2) requires the court to presume that the
    company is insolvent if, during or after the three months
    ending on the day when the application for winding up in
    insolvency is made, any of the circumstances specified in
    pars(a)-(f) apply. Paragraph (a) applies where the company
    failed to comply with the statutory demand. The paragraph
    uses the expression 'failed (as defined by section 459F) to
    comply' (emphasis added). In turn, s459F details the
    circumstances in which the company is taken to fail to
    comply, and does so in terms which speak only of an
    application to set aside the demand 'in accordance with
    section 459G.

The text of s459F is set out earlier in these reasons. The
    effect of s459F is that the company is taken to fail to
    comply if, at the end of the period for compliance, the
    demand is still in effect and the company has not complied
    with it. The term 'period for compliance' is defined in
    pars (a) and (b) of s459F(2). On the one hand, that period
    is 21 days after the demand is served (par(b)). On the
    other hand, if an order has been sought setting aside the
    demand, the period may be a longer one, as detailed in sub-
    pars(i) and (ii) of par(a). However, this will only be so
    if, in the terms of par(a), the company itself 'applies in
accordance with section 459G'.

These matters emphasise the importance of s459G as an
    integral part of the particular scheme established by Pt5.4.
Paragraph (d) of s1322(4) empowers the court to make an
    order where the period concerned ended before the
    application to extend it is made. An application to set
    aside the demand made not within the 21 days specified in
    s459G but within another period allowed pursuant to an order
under s1322(4), could not modify what otherwise would be the
    operation of the definition of the 'period for compliance'
    with the statutory demand set out in s459F(2). That in turn
    would not change the answer to the question posed under
    s459C(2) as to whether the court must presume the company to
    be insolvent because it had, within the period there
    specified, failed 'as defined by s459F' to comply with the
    statutory demand.

For these reasons, the requirement in s459G that the
    application to the court for which it provides be made only
    within 21 days after service of the demand should not be
    treated as supplemented or qualified by the operation of
    s1322(4)."

12. At pp13-14, his Honour said:

" Section 467A provides that an application under Pt 5.4
    'must not be dismissed' merely because of 'a defect or
    irregularity in connection with the application', unless the
    court is satisfied that substantial injustice has been
    caused and this cannot otherwise be remedied. However,
    s467A cannot assist the appellants. If an application for
    an order setting aside a statutory demand has not been made
    within 21 days after service of the demand, there is no
    application under Pt 5.4 before the court. Therefore, there
    is no question of such an application being dismissed
    because of a defect or irregularity in connection with it.
In Re J and E Holdings Pty Ltd (1995) 17 ACSR 319 at 327; 13
    ACLC 867 at 873, Sheller JA summed the matter up as follows:
    'The position is quite simply that unless the Court has a
    power to extend the time within which the application to set
    aside the statutory demand can be made, the plaintiff has no
    right to make it.'

Sheller JA also referred, (1995) 17 ACSR 319 at 324-325; 13
    ACLC 867 at 871, to various examples where it might be
    thought that, upon the construction he preferred, which I
    also have accepted, Pt 5.4 might operate harshly. In
    particular, reference was made to the drastic commercial
    consequences which may follow the issue of process for
    winding up and to the inability of a company, which for good
    reason had been late in filing or serving an application to
    set aside the statutory demand, to prevent the issue of that
    winding up process. The damage to the commercial reputation
    of the company in the meantime might not be answered by the
    eventual success of the company in defeating the application
    to wind it up as insolvent. Further, default clauses in
    securities given by the company may have been so drawn as
    not to take full account of the new statutory scheme, with
    the consequence that floating charges may have crystallised
    and the whole of the principal and interest become payable.

No doubt, in some circumstances, the new Pt 5.4 may appear
    to operate harshly. But that is a consequence of the
    legislative scheme which has been adopted to deal with
    perceived defects in the pre-existing procedure in relation
    to notices of demand. It also may transpire that a winding
    up application in respect of a solvent company is threatened
    or made for an improper purpose which amounts to an abuse of
    process in the technical sense of that term, as explained in
Williams v Spautz (1992) 174 CLR 509 at 518-522, 532-537.
    However, in an appropriate case, injunctive relief may then
    be available to the company in a court of general equity
    jurisdiction Bryanston Finance v de Vries (no 2) (1976) Ch
    63 at 78, 79-80; L and D Audio Acoustics Pty Ltd v Pioneer
Electronic Australia Pty Ltd (1982) 7 ACLR 180 at 183; l
    ACLC 536 at 538; Pacific Communication Rentals Pty Ltd v
Walker (1993) 12 ACSR 287 at 289; 12 ACLC 5 at 6-7; Re J and
E Holdings Pty Ltd (1995) 17 ACSR 319 at 324; 13 ACLC 867 at
    87l."

13. It was not necessary for the High Court to refer to the judgment of Hayne J at first instance in the David Grant case (see (1994) 14 ACSR 569). However, I draw attention to the fact that his Honour discussed the Bartex Fabrics case (supra). At pp572-573, he said:
    "Section 467A requires that an application under Pt 5.4A not
    be dismissed merely because of a defect or irregularity in
    connection with the application. A number of things may be
    said about the application of that provision in connection
with s459G and about the reasoning that underlies Bartex
    Fabrics.

First, there is a verbal point - that s467A presupposes that
    there is an application under Pt 5.4A but that there is some
    'defect or irregularity in connection with it'. Section
    459G(3) says that an application is made in accordance with
    the section (and thus under Pt 5.4A) only if certain steps
are taken within the 21 day period specified by s459G(2).
    Thus if those steps are not taken, it may be said that there
    is no application under Pt 5.4A and no question of defect or
    irregularity falls for consideration.

Second Bartex Fabrics was a case in which the failure
    related only to service of the application, not to its
    filing and Young J expressly reserved the question whether
    s467A applied in the case where no application is filed
    within time. That is, his Honour expressly reserved the
    question whether failure to file an application on time was
    a defect or irregularity in an application.

Third, the verbal point that I have mentioned should not be
    permitted to obscure the fundamental importance of giving a
meaning to s459G(2) and (3) and in particular the word
    'only' where it appears in each subsection. Thus even if
    the verbal point that I have mentioned is one that is to be
    put aside for some reason, the question remains what is the
    meaning or effect that is to be given to the word 'only' in
both s459G(2) and (3).

Fourth, although I spoke in Texel of Pt 5.4A being a code, a
    view which I note was adopted by Brownlie J in the Supreme
    Court of New South Wales in Pacific Communication Rentals
Pty Ltd v Walker (2993) 12 ACSR 287, 288, that description
    of the effect of the provisions should not be allowed to
    obscure the real debate. That is, and must be focused upon
    the search for what is meant by the words used in Pt 5.4A
and for present purposes s459G in particular. Thus, to take
    but one example that I mentioned in Texel, it should not be
    permitted to obscure the fact that in Pt 5.4A the
    legislature shows a clear capacity for providing for
    extensions of time when it wishes to do so (see s459R) while
    in the same part it chooses emphatic language to prescribe
another time limit, the time limit given in s459G.

Fifth, if the failure to abide by the time limit prescribed
by s459G(2) and (3) is a 'defect or irregularity' and that
    failure to comply with the time limit prescribed is
    something which the court not simply may ignore but must
    ignore, how does one distinguish between the cases when
    filing or service is one day late, one week late or one
    month late? If the argument based on s457A is sound, the
    court has no discretion. In every such case the failure to
    file or the failure to serve within time is a defect or
    irregularity and the court must ignore it unless the party
    giving the notice can demonstrate substantial injustice not
    remediable for example by adjournment or costs. Thus
    whereas the clear intention of the legislation is to focus
    on whether the company receiving the demand has met it or
    not, the construction of the part that is adopted in Bartex
    Fabrics is one that would shift attention away from the
    party receiving the notice to the position of the party
    giving it.

Sixth, and this may be no more than a restatement of the
    third point I have made earlier, if the failure to serve or
    file within time is a mere defect or irregularity, why use
    the words an application is made in accordance with this
    section 'only if' steps are taken within the prescribed time
    unless their use is to prescribe an absolute time limit.

With the greatest respect, it is for these reasons that I
consider that the argument based on s467A which is adopted
    in Bartex Fabrics is an argument that is unsound."

14. I respectfully agree with Hayne J's reasoning, and it is fatal to the plaintiff's argument here. Moreover, I think there is much in the judgment of Gummow J (supra) that reinforces it. Accordingly, my conclusion is that the defendant's application should be upheld, and it follows that the plaintiff's application must be dismissed.