Consolidated Press (Finance) Ltd v Australian Horticultural Finance Pty Ltd

[1992] FCA 448

Re: CONSOLIDATED PRESS (FINANCE) LIMITED
And: AUSTRALIAN HORTICULTURAL FINANCE PTY LTD and OKARI MANAGEMENT PTY
LIMITED
Nos. N G3067 and N G3066 of 1992
FED No. 448
Corporations Law
(1992) 10 ACLC 1117
(1992) 8 ASCR 341
(1992) 108 ALR 402
(1992) 36 FCR 141

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J.(1)

CATCHWORDS

Corporations Law - Statutory notice of demand under s. 460 Corporations Law - effect of omission of all alternatives in notice (to pay, secure or compound) - whether defect is fatal.

Corporations Law: s. 460, s. 1322.

HEARING

SYDNEY

#DATE 29:5:1992

Counsel for the Applicant: G. Blake

Solicitors for the Applicant: Aitken and Magney

ORDER

THE COURT ORDERS THAT:

1. The notice of demand issued under s. 460 of the Corporations Law by Consolidated Press (Finance) Limited to Australian Horticultural Finance Pty Limited and Okari Management Pty Limited, dated 17 March 1992 is invalid.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

These are two applications to wind up two companies. Subject to one matter, the applicant would be entitled to orders for winding up. The particular problem lies in the form of the notice of demand issued by the applicant in each case. It is sufficient if I refer to the notice of demand in proceeding number 3067 of 1992, directed to the company, Okari Management Pty Limited as the notice in the other case is in substantially the same terms. The Okari notice, so far as relevant, provides as follows:

"CONSOLIDATED PRESS (FINANCE) LIMITED A.C.N. 001557035 being a creditor to whom OKARI MANAGEMENT PTY LIMITED A.C.N. 033982018 is indebted in the sum of $1,273,632.66, HEREBY DEMANDS that the said sum be paid to it at care of Messrs. Aitken and Magney, Solicitors, 13th Floor, 32 Bridge Street, Sydney, in the state of New South Wales, within three (3) weeks of the date of service of this Notice. FAILING payment of this debt, action will be taken to have OKARI MANAGEMENT PTY LIMITED wound up by the Supreme Court of New South Wales or the Federal Court of Australia on the ground that it is unable to pay its debts. This notice is given pursuant to the provisions of the Corporations Law Section 460. Dated 17 March 1992"

1. The problem is that the notice does not state that the company may secure or compound for the debt to the reasonable satisfaction of the applicant creditor. The question is whether the omission of these alternatives renders the notice bad.

2. The purpose of a notice of demand under section 460 of the Corporations Law and its predecessors under earlier Corporations legislation of this country and of the United Kingdom, is plain enough, namely, to inform the company to which the notice is directed of the intention of the creditor to institute proceedings to wind up the company if the demand is not complied with: see Re Crust 'N' Crumb Bakers (Wholesale) Pty Limited (1991) 5 ACSR 70, per McPherson S.P.J. at 73. See also the judgment of Senior Master Mahony in the Supreme Court of Victoria in Re Manda Pty Limited (1991) 6 ACSR 119 at 120.

3. In my opinion, for a notice to satisfy this test, it must inform the company of the three alternatives that it has available to it: payment of the debt, or securing or compounding for it to the reasonable satisfaction of the creditor. Failure to specify any one of those alternatives, in my view, renders the notice bad in law. It is true that the terms of s. 460(2)(a) do not require the notice to specify that, if the company has for three weeks after service of the notice failed to pay the sum or to secure or to compound for it to the reasonable satisfaction of the creditor, winding up proceedings will be brought. Despite the lack of an express requirement to do so in my view, it is necessary to place in the notice the alternatives of securing or compounding the debt. This view is premised on two bases. First, it certainly is the convention, and has been so for many years, that the statutory demand is drawn in such a form as to indicate all these matters to the recipient. Second, for the notice to comply with its fundamental purpose mentioned earlier, it must state each of the three options. Accordingly, each notice is bad.

4. Counsel for the applicant, on the assumption that the notice is otherwise bad, seeks an order pursuant to s. 1322 of the Corporations Law that the omission in the notices constitutes a "procedural irregularity" within the meaning of that section, and that it should not be invalidated unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice, but cannot be remedied by any order of the Court declaring the proceedings to be invalid.

5. I do not find it necessary to decide for present purposes whether a defect of this kind answers the description of a procedural irregularity within the meaning of s. 1322. In my opinion, the irregularity may have caused substantial injustice that cannot be remedied by order of the Court. The company has not appeared and it may be that the company, though not in a position to make payment of the debt (a substantial amount) would have been in a position to secure or compound for it to the reasonable satisfaction of the creditor. This must be tested on the basis of rational possibility. Accordingly, the Court holds that the two notices of demand are invalid.