Essendon Travel (Vic) P/L v Essendon Travel (Vic) P/L
[1994] FCA 144
•22 MARCH 1994
IN THE MATTER OF ESSENDON TRAVEL (VIC) PTY LTD
CHRISTINE AIZEN v.ESSENDON TRAVEL (VIC) PTY LTD
No. VG3429 of 1993
FED No. 144/94
Number of pages - 9
Corporations Law
(1994) 12 ACLC 299
(1994) 49 FCR 594
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
OLNEY J
CATCHWORDS
Corporations Law - statutory demand - application to set aside - application dismissed without adjudication on its merits - whether application finally disposed.
Corporations Law - application to wind up company in insolvency - non-compliance with statutory demand - application filed before expiration period for compliance with demand - whether application invalid.
Corporations Law - application to wind up company in insolvency - non-compliance with statutory demand - form of application - contravention of a provision of the law - power of Court to declare proceeding valid.
Corporations Law - ss 459F, 459G, 459P, 459Q, 459S, 1322;
Corporations Regulations - Form 509H
Federal Court Rules - O 71 rr 37(4), 38(1), Form 93C, 94, 95, 128
HEARING
MELBOURNE, 2 March 1994
#DATE 22:3:1994
Mr M.J Bevan-John (instructed by Jack Sher and Associates) appeared for the applicant.
Mr P. Marella (instructed by Mark Gray and Associates) appeared for the respondent.
ORDER
The Court:
1. DECLARES that the application herein is not invalid by reason of any contravention of any provision of the Corporations Law.
2. GRANTS leave to the respondent to oppose the application on the ground that it denies that it is liable to the applicant for the amount claimed in the statutory demand served on 20 October 1993 or for any amount.
3. RESERVES the question of the costs of the hearing on 2 March 1994.
4. DIRECTS that the respondent have leave to file and serve any further affidavit material upon which it intends to rely by 15 April 1994.
5. DIRECTS that the applicant have leave to file and serve any affidavit material in reply by 27 April 1994.
6. ORDERS that the matter be listed for trial on 3 May 1994.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
REASONS FOR DECISION ON PRELIMINARY ISSUES
THE APPLICATION
OLNEY J This is an application to wind up a company pursuant to s 459P of the Corporations Law.
The application was filed on 10 December 1993.
The application (omitting formal parts) is as follows:
1. The applicant claims:
(a) an order that ESSENDON TRAVEL (VIC) PTY LTD be wound up.
2. Pursuant to section 459Q of the Corporations Law, the Applicant states as follows:
(a) On 13 October, 1993 the Applicant's Solicitors ascertained from records maintained by the Australian Securities Commission that the registered office of ESSENDON TRAVEL
(VIC) PTY LTD ("the company") was situated at C/o Peter L. Roberts and Associates Pty Ltd of 368 King Street, West Melbourne, Victoria. On 20 October 1993 a statutory demand in the form annexed and marked "A" was left at the registered office of the company, with which it appeared the company had the following connection, namely that Peter L. Roberts and principal of Peter L. Roberts and Associates Pty Ltd, is the accountant employed by the company.
The application has annexed to it a copy of a statutory demand dated 20 October 1993 and a copy of an affidavit sworn by the applicant on 20 October 1993 verifying that the amount of the debt is due and payable. On the day the application was filed the applicant filed 3 affidavits all sworn by herself on 10 December 1993.
The first affidavit is in Form 94 in the Federal Court Rules. In it the applicant says that the amount of $30,000 is due and payable to her by the respondent, that the debt was incurred by way of an unsecured loan and that the respondent has failed to pay the amount claimed or to secure or compound for it to the reasonable satisfaction of the applicant. The affidavit substantially complies with the requirements of O 71 r 37(4)(b) except that it fails to state when the debt was incurred.
The second affidavit is in Form 128 in the Federal Court Rules and contains "the prescribed information" as required by O 71 r 37(4)(a). The applicant's third affidavit is in Form 95 in the Federal Court Rules. This is an affidavit verifying that the debt remains due and was obviously intended as compliance with O 71 r 38(1)(c) which provides that in a case in which an application under s 459P relies on a failure to comply with a statutory demand, the applicant must file either before or at the hearing of the application, an affidavit in accordance with Form 95 made not earlier than 3 days before the date of the final hearing of the application. The fact that the affidavit was sworn prematurely is not presently relevant. A further affidavit can be filed in due course.
Apart from affidavits of a formal nature not connected with the ground upon which the applicant relies, no other evidence has been tendered to support the winding up application. In particular, there is no evidence or other statement in the material filed by the applicant asserting that the respondent has failed to comply with a statutory demand, nor is there any reference to an application made by the respondent in the Supreme Court of Victoria to set aside the statutory demand and the outcome of that proceeding.
The applicant did however arrange for the Supreme Court file to be produced at the hearing and ready access to the information on the file was available to the Court and the parties. More detailed reference will be made to the application setting aside the statutory demand later in these reasons.
THE RESPONDENT'S OBJECTIONS
9. The respondent filed notice of intention to appear and to oppose the application on the following grounds:
(A) the winding up application is defective or irregular, inter alia,
on the grounds that:
(i) paragraph 4 of the purported statutory demand is not in the prescribed form in that it refers to section 459(2) of the Corporations Law;
(ii) the purported Form 93C omits paragraph (c) and paragraph 2;
(iii) the purported Form 92B omits the "Important Note";
(iv) section 470(1)(a)of the Corporations Law and Order 71 Rule 38(1)(a)(ii) have not been complied with;
(v) Order 71 Rule 38(1)(b) has not been complied with;
(vi) the purported Form 95 has been made earlier than three days before the date of the final hearing of the application and accordingly Order 71 Rule 38(1)(c) has not been complied with.
(B) The respondent is not indebted to the applicant: (Particulars of this ground are pleaded but it is unnecessary to reproduce them).
(C) The company is not insolvent
(D) Accordingly the company denies that it is indebted to the applicant for the alleged debt and respectfully requests this Honourable Court to dismiss the application to wind up the company with an order for costs.
In the course of argument counsel for the respondent raised a further issue namely that the application had been filed before the period for compliance with the statutory notice had expired.
The respondent has filed affidavit material in support of both its denial of liability to the applicant and its claim that it is solvent.
THE PRELIMINARY ISSUES
12. When the application came before the Court for hearing on 2 March 1994 counsel for the respondent suggested that I deal with the issues raised by paragraph A of the grounds of objection and further that I rule on the question of whether leave was required pursuant to s 459S of the Corporations Law for the respondent to rely, in opposition to the winding up application, upon the respondent's denial of liability for the debt claimed by the applicant such denial having been the ground relied upon in the respondent's application to set aside the statutory demand.
Counsel for the applicant had no objection to the proposed procedure and I agreed that the matter should be dealt with accordingly.
THE APPLICATION TO SET ASIDE THE STATUTORY DEMAND
14. On 20 October 1993 the applicant served a Creditor's Statutory Demand for Payment of Debt on the respondent claiming the sum of $30,000 said to be an unsecured loan due and payable by the respondent to the applicant. The statutory demand was in Form 509H in the Corporations Regulations and was served on the respondent by being left at the registered office of the respondent.
By notice of motion filed in the Supreme Court of Victoria on 11 November 1993 (the Supreme Court proceedings) the respondent sought an order pursuant to s 459G of the Corporations Law setting aside the statutory demand and on the same day the respondent filed a supporting affidavit. There is no evidence as to the date of service of the notice of motion and supporting affidavit but same were both filed with a period of 21 days after service of the statutory demand and as no question appears to have been raised to the contrary it is assumed for present purposes that the application to set aside the statutory demand was made in accordance with s 459G of the Corporations Law.
The ground relied upon in the respondent's application to set aside the statutory demand was a denial that it was liable to the applicant for the amount claimed or for any amount.
The applicant entered an appearance in the Supreme Court proceedings and filed affidavit material supporting her claim. On the affidavit material filed there were clearly a number of factual issues in dispute. Whether or not the evidence adduced in the Supreme Court proceedings justified a finding that there was a genuine dispute as to the claimed liability was never decided.
The notice of motion first came before Master Evans on 1 December 1993 when it was referred to the court for hearing on 3 December 1993. On the latter date the motion was dismissed with costs.
According to the affidavit material filed in these proceedings, shortly before the Supreme Court proceedings were to be heard, the respondent's then solicitor instructed the respondent's counsel that the application was to be withdrawn. Counsel duly advised the judge to that effect and an order was made dismissing the application with costs.
The respondent, through one of its directors, says in these proceedings that not only was the respondent's then solicitor not instructed to cause the application to be withdrawn, but further, that the solicitor did not notify the respondent of the outcome of the application and it was only after enquiries were made a day or so before this application was heard that the result of the Supreme Court proceedings became known to the respondent.
In these rather unusual circumstances it is said on behalf of the respondent that the application to set aside the statutory demand has never been adjudicated upon and accordingly, so it is argued, it is open to the respondent upon the hearing of the winding up application, and without leave, to rely upon the same grounds as were to have been relied upon had the matter been heard in the Supreme Court and indeed, upon any other grounds that could have been relied upon in that application.
The provision of the Corporations Law relevant to the question so raised is s 459S which provides:
459S(1) In so far 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.
I have great difficulty in following the respondent's reasoning. The question of whether or not the application in the Supreme Court proceedings has been adjudicated upon is irrelevant to the question of whether s 459S operates to prevent the respondent opposing the winding up application on grounds that were relied upon, or could have been relied upon, for the purposes of the application to set aside the statutory demand. Section 459S is extremely wide in its operation. It does not matter whether an application to set aside the statutory demand has been made or not. Nor does it matter what grounds were raised in such an application if one has in fact been made. Except to the limited extent provided for in sub-section (2), s 459S has the effect of prohibiting an issue being raised in opposition to a winding up application if that issue could have been raised in an application to set aside a statutory demand upon which the applicant for winding up relies.
In the Supreme Court proceedings the respondent relied upon the ground that it was not indebted to the applicant and in these proceedings it seeks to rely upon the same ground to oppose the winding up application. If it be the case that the ground sought to be relied upon is material to proving that the respondent is solvent, then the Court may grant leave for the respondent to rely upon that ground.
It seems to me however, that the question of whether the application to set aside the statutory demand has been adjudicated upon may have more relevance in the context of determining whether or not there has been default in complying with the demand.
Section 459F of the Corporations Law provides:
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.
If the circumstances under which the Supreme Court made an order dismissing the application to set aside the statutory demand can be construed as not amounting to the application being finally determined or otherwise disposed of, then it would follow that the time for compliance with the statutory notice is still running and that therefore there can have been no failure to comply.
Notwithstanding the circumstances surrounding the dismissal of the application to set aside the statutory demand (as to which I accept for present purposes the affidavit evidence in relation to the matter) I am unable to conclude, in the absence of authority suggesting that some other view is open, other than that the application was finally disposed of upon the making of the order in the Supreme Court dismissing the application. It may well be said that the Supreme Court made no determination of the application in the sense that it did not adjudicate upon its merits, but an order dismissing the application can hardly be said to be other than a final disposal of the application. That being so, there being no other relevant order made, the period for compliance with the statutory demand expired 7 days after the date of the order. To be precise, the period for compliance ended at midnight on 10 December 1993.
THE GROUNDS OF OBJECTION
29. Apart from ground A(ii) which will be referred to later, the other defects and irregularities pleaded in ground A provide no basis for opposing the application.
Grounds A(i) and (iii) refer to matters which could have been raised in the application to set aside the statutory demand and, not being matters material to the question of solvency, they cannot now be raised in opposition to the winding up application.
Grounds A(iv), (v) and (vi) do not raise questions of any substance. To the extent that any procedural irregularities have occurred, in the absence of any suggestion that substantial injustice has been or is likely to have been caused, such irregularities may be cured by an order of the Court made pursuant to s 1322 of the Corporations Law.
THE FORM OF THE APPLICATION
32. Ground A(ii) appears to raise a question of mere non-compliance with the form of the winding up application, but the issue is in reality much more fundamental than that. (In the notice of intention to appear there is an obvious typographical error in that the word "and" should read "of" in order to make sense).
Form 93C in the Federal Court Rules is the prescribed form of application to wind up a company under s 459P of the Corporations Law. Paragraph 2 of the form has two sub-paragraphs, namely sub-paragraphs (a) and (b), but the application in these proceedings has omitted the latter which is intended to deal with facts relevant to the allegation of non-compliance with the statutory demand.
Section 459Q of the Corporations Law provides:
459Q If 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 application:
(a) must set out particulars of service of the demand on the company and of the failure to comply with the demand; and
(b) must have attached to it:
(i) a copy of the demand; and
(ii) if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and
(c) unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that:
(i) verifies that the debt, or the total of the amounts of the debts,is due and payable by the company; and
(ii) complies with the rules.
The application filed in these proceedings is deficient in that it does not comply with the requirement of s 459Q(a) in so far as it does not provide particulars of the failure of the respondent to comply with the demand.
The Court has power under s 1322(4) of the Corporations Law to declare that any proceeding purporting to have been instituted or taken under the Law is not invalid by reason of a contravention of a provision of the Law (s 1322(4)(a)) but that power may only be exercised if the Court is satisfied that the proceeding is essentially of a procedural nature (s 1322(6)(a)(i)), that it is in the public interest that an order be made (s 1322(6)(a)(iii)) or that no substantial injustice has been or is likely to be caused to any person (s 1322(6)(c)).
Section 459Q expresses in emphatic terms that an application to wind up a company on the ground that the company has failed to comply with a statutory demand must set out particulars of the failure to comply with the demand. The alleged failure to comply goes to the very heart of the applicant's case which relies upon a statutory presumption of insolvency arising from that failure.
The presumption of insolvency upon the failure to comply with a statutory demand arises from s 459C of the Corporations Law which has effect, inter alia, for the purposes of an application under s 459P. So far as relevant, s 459C(2) provides:
459C(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a) the company failed (as defined by section 459F) to comply with a statutory demand;
It is contemplated by s 459C(2)(a) that the presumption of insolvency may arise from a failure to comply with a statutory demand after the day when the application is made. Such a result would make it difficult to comply with the requirement of s 459Q(a) in so far as it requires an application which relies upon a failure to comply with a statutory demand to set out particulars of the failure to comply. Be that as it may, s 459C(2)(a) leaves no doubt that the Court must (subject to s 459C(3)) presume insolvency even if the failure to comply with a statutory demand has occurred after the winding up application has been made.
In this application the applicant relies solely on an alleged failure to comply with a statutory demand. She has not set out in the application or in any of the affidavit material filed in support of the application any particulars of the alleged failure to comply. Indeed, there had been no failure to comply at the time when the application was made. On the other hand, the Court has before it the file in the Supreme Court proceedings which has provided adequate evidence of the application to set aside the demand and of the outcome of the application. Further, it is obvious from the affidavit material filed by the respondent that it is in no doubt whatever as to the substance of the allegation upon which the applicant seeks to rely in support of the winding up application. The respondent does not suggest that it has complied with the demand. On the contrary, the respondent says it has not complied with the demand because, as it says, it is not indebted to the applicant.
A proceeding under the Corporations Law is not invalidated by a procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by an order of the Court and by order declares the proceeding to be invalid (s 1322(2)). The applicant's failure to comply with s 459Q(a) is a procedural irregularity. However, I am satisfied that the irregularity has not caused substantial injustice to the respondent. The respondent has neither been misled as to the nature of the proceedings nor as to the particular ground relied upon. It has in fact responded to the application as if there had been no irregularity in the application.
In the circumstances it is appropriate that I make an order pursuant to s 1322(4) declaring that the application in this proceeding is not invalid by reason of the failure of the applicant to comply with any provision of the Corporations Law.
SHOULD LEAVE BE GRANTED PURSUANT TO S 459S?
43. The only remaining question to determine is whether in the circumstances of the case the applicant should have leave to rely upon its denial of liability for the purpose of opposing the winding up application. There is of course a difference between an assertion that a company is not liable for a particular sum of money claimed by a creditor and an assertion that the company is solvent. In many cases the question of solvency involves much broader issues than the question of whether it is liable to a particular creditor. But that will not always be the case. The amount of the claimed debt may be of such proportions in relation to the overall affairs of the company as to be likely to be decisive in tipping the balance one way or the other. In those circumstances the issue of whether or not the company is liable for a particular debt would be material to proving that the company is solvent.
It is unnecessary to go into the details of the evidence adduced to support the respondent's claim that it is solvent. It is sufficient to say that from what has been put before the Court so far, it is highly likely that if the respondent is not liable to the applicant in the amount claimed, the evidence could well provide proof to the contrary of the presumption of insolvency. In my opinion, it is appropriate that the applicant have leave to rely upon its denial of liability in opposing the winding up application. I am particularly comfortable in granting leave in this case where there has been no previous adjudication on the question of whether there is a genuine dispute as to the applicant's claim.
CONCLUSION
45. The formal orders which I make at this stage are as follows:
THE COURT:
1. DECLARES that the application herein is not invalid by reason of any contravention of any provision of the Corporations Law.
2. GRANTS leave to the respondent to oppose the application on the ground that it denies that it is liable to the applicant for the amount claimed in the statutory demand served on 20 October 1993.
3. RESERVES the question of the costs of the hearing on 2 March 1994.
It will also be necessary for directions to be given in relation to the further conduct of the proceedings.
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