Digiorgio Family Wines Pty Ltd v Reschke Pty Ltd - [2018] SASC 86

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
DIGIORGIO FAMILY WINES PTY LTD v RESCHKE PTY LTD
[2018] SASC 86
Judgment of Judge Dart a Master of the Supreme Court
25 June 2018
CORPORATIONS - WINDING UP - APPLICATIONS FOR WINDING UP BY COURT - ORDERS - ADJOURNMENT OF HEARING
Defendant applies for adjournment - matter previously adjourned on the same basis - adjournment not granted - presumption of insolvency - onus on defendant to establish solvency - evidence not sufficient to discharge the onus.
Held: Order for winding up made.
Corporations Act 2001 (Cth) s 95A, s 459C(2), s 459E, referred to.
Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728; Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125; Commonwealth Bank of Australia v Begonia Pty Ltd [1993] 11 ACLC 1075; Reschke Pty Ltd v Digiorgio Family Wines Pty Ltd [2017] SASC 148; Reschke Pty Ltd v Digiorgio Family Wines Pty Ltd [2017] SASC 187, considered.

DIGIORGIO FAMILY WINES PTY LTD v RESCHKE PTY LTD
[2018] SASC 86
JUDGE DART:

I made an order on 22 June 2018 winding up the defendant in insolvency. These are my reasons for doing so.
Background
The plaintiff and defendant had a commercial relationship. The plaintiff provided wine making and storage services to the defendant.
In August 2017 the plaintiff served a statutory demand on the defendant, claiming the amount of $1,610,194.63 was due. The defendant made application to this Court seeking to set aside the statutory demand. I heard the application. By judgment delivered on 20 October 2017 the amount claimed in the statutory demand was varied to the amount of $1,026,541.10.[1] The defendant appealed the decision. The appeal was dismissed by his Honour Justice Doyle on 12 December 2017.[2] A subsequent application for permission to appeal to the Full Court was dismissed. These proceedings were commenced on 21 March 2018.
[1] Reschke Pty Ltd v Digiorgio Family Wines Pty Ltd [2017] SASC 148.
[2] Reschke Pty Ltd v Digiorgio Family Wines Pty Ltd [2017] SASC 187.
Since the argument in respect of the statutory demand, the defendant has paid the sum of $82,789.31. Accordingly, the amount of $943,751.79 remains outstanding.
During the appeal process the time within which the defendant was required to comply with the statutory demand was extended from time-to-time.[3] The provisions of s 459C(2) of the Corporations Act 2001 (Cth) provide that the Court must presume a company is insolvent if, in the three months prior to the application, the defendant failed to comply with a statutory demand. Ultimately, time for compliance expired without any response from the defendant. The proceedings were issued within the three month period.
[3] Corporations Act 2001 (Cth) s 459F.
Application to adjourn
At the commencement of the hearing on 22 June the defendant applied for an adjournment of the argument. An application and supporting affidavit were filed shortly before the hearing commenced.[4]
[4] Defendant's Interlocutory Process, filed 22 June 2018, FDN9; and Affidavit of Burke Reschke, sworn 22 June 2018, FDN10.
The stated purpose of the adjournment was to permit the defendant to refinance. The affidavit was sworn by the Director of the defendant. It exhibited a document headed “Binding Terms Sheet”. The document records a proposal to secure investors in the defendant in two tranches totalling $10 million. The two tranches are to be secured by a Convertible Note Issue. The document contained two terms described as conditions precedent. The first was the company procuring an adjournment of the proceedings for 21 days and the second was an obligation on the defendant to secure an agreement from National Australia Bank to sell their current mortgage to the proposed investors. During the course of argument a further email was received, in which the condition precedent in respect of National Australia Bank was varied.
The application to adjourn was opposed. The matter had previously been listed for argument on 8 June 2018. Following discussions between the parties the plaintiff consented to an adjournment for a fortnight. The purpose of the adjournment on that occasion was to permit the defendant to finalise a financing proposal. It is apparent that the original financing proposal did not proceed and that the material before the Court on 22 June 2018 related to an attempt to obtain finance from a different financier.
The statutory demand in this matter was served on 9 August 2017, nearly 10 months ago. The defendant is still not in a position to pay the significant debt owing. Part of the debt owing relates to services provided by the plaintiff to the defendant in 2015.
I made a note on the fiat at the hearing on 8 June 2018 which was as follows:
Defendant seeks an adjournment to finalise an arrangement in respect of financing. The plaintiff is prepared to allow one further adjournment. If the matter is not resolved on the next occasion, the argument will proceed.
A plaintiff is entitled to have its matter dealt with by the Court. The defendant has been indulged by the Court on two previous occasions. The first was on 15 May 2018 when it was granted an extension of two weeks to file its affidavits in respect of solvency. The second was the adjournment on 8 June 2018. In the circumstances, I declined to further adjourn the matter.
Defence of solvency
The plaintiff established all it needs to establish in respect of its application and, subject to the defence put forward by the defendant, it was entitled to the order sought.
The defendant filed a Notice of Appearance containing its grounds of defence.[5] The sole ground on which the application for winding up was opposed was that the defendant is solvent. On the application, the defendant needed to overturn the presumption of insolvency.
[5] Notice of Appearance, filed 14 May 2018, FDN6.
The Corporations Act defines insolvency as:
95ASolvency and insolvency
(1)A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2)A person who is not solvent is insolvent.
On 17 April 2018 the defendant was ordered to file any material it proposed to rely upon in respect of solvency within 28 days. The matter was next before the Court on 15 May. At the time of that hearing the defendant had not yet filed any material. The matter was adjourned for a fortnight.
On 30 May 2018 the Director of the defendant filed an affidavit.[6] The matter came on in Court that day. The affidavit exhibited unaudited financial statements for the financial years ending 30 June 2016 and 30 June 2017. The financial statements disclose a surplus of assets over liabilities in a significant amount. They also disclose the fact that the company is indebted to National Australia Bank in an amount of slightly over $4 million.
[6] Affidavit of Burke Reschke, sworn 30 May 2018, FDN8.
Relevantly, paragraph 7 of the affidavit says:[7]
7.     I have been sourcing funding to:
7.1.    Refinance the NAB debt.
7.2.    Pay the debt due and payable to the applicant in these Proceedings.
7.3.    Pay all unsecured and contingent creditors of Reschke.
[7]    Affidavit of Burke Reschke, sworn 30 May 2018, FDN8.
In winding up proceedings there are a number of well-established and understood principles. They include that, because the defendant is presumed to be insolvent, it bears the onus of proving that it is solvent.[8] In order to discharge the onus, the Court should ordinarily be presented with the fullest and best evidence of the financial position of the defendant.[9] There is a distinction between solvency and a surplus of assets. A company may at the same time be insolvent and wealthy. The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all of its debts as and when they fall due, must be considered in determining insolvency.[10]
[8] Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125.
[9] Commonwealth Bank of Australia v Begonia Pty Ltd [1993] 11 ACLC 1075.
[10] Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728.
The material presented by the defendant was clearly inadequate to establish solvency. Although counsel for the plaintiff made detailed submissions about the shortcomings of the financial statements, there was no need to consider the material in any great depth. To avoid an order for winding up the defendant needed to establish, to the civil standard, that it was presently solvent. The material presented in the affidavit was nearly 12 months old. It was not relevant to establishing the present position of the company. There was no basis on which the Court could find that the company was presently solvent. Therefore, no defence having been established by the defendant, the winding up of the company was inevitable.