Fanniesab Pty Ltd v Futistasera Pty Ltd
[2016] VSC 359
•24 June 2016
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 6634
| FANNIESAB PTY LTD (ACN 120 335 195) | Plaintiff |
| v | |
| FUTISTASERA PTY LTD (ACN 120 336 192) | Defendant |
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JUDGE: | DIGBY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 October 2015 |
DATE OF JUDGMENT: | 24 June 2016 |
CASE MAY BE CITED AS: | Fanniesab Pty Ltd v Futistasera Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 359 |
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APPEAL – Orders of Associate Judge winding up defendant – Refusal of defendant’s application for adjournment – Miscarriage of discretion asserted – Nature of Order 77 Supreme Court (General Civil Procedure) Rules 2005 appeal – Rehearing – Power to receive further evidence under Order 77.06.9(2)(a) – ss 459 and 459S of Corporations Act 2001 (Cth) –– Standing of plaintiff to serve statutory demand – Whether winding up proceedings an abuse of process given that underlying judgment debt – Set aside - Admissibility and probity of expert report as to solvency.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Clarke | M P Lanza Lawyers |
| For the Defendant | Mr J Evans | Madgwicks Lawyers |
HIS HONOUR:
Outline of appeal
This is an appeal by the defendant (‘Futistasera’) from the orders of an Associate Judge of this Court made on 21 May 2015 that Futistasera be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (‘the Corporations Act’).[1]
[1]Under Reg 16.5 of the Supreme Court (Corporations) Rules 2013 an appeal from the order or judgment of an Associate Judge in any application under s 459G of the Corporations Act lies to the Court of Appeal. No such application under s 459G of the Corporations Act was made in this proceeding.
Futistasera’s Notice of Appeal dated 1 June 2015 contains three primary grounds:
(a) his Honour erred in the exercise of his discretion by refusing the adjournment sought by Futistasera on 21 May 2015;
(b) his Honour erred in law in making the winding up order by reason of the fact that the plaintiff (‘Fanniesab’) lacked standing to bring the proceeding and to serve the creditor’s statutory demand pursuant to s 459E of the Corporations Act; and
(c) his Honour erred in law, or as a matter of discretion, when he made the winding up order in circumstances where the judgment debt on which the statutory demand was founded had been set aside on 26 March 2015, rendering the maintenance and pursuit of the winding up proceeding by Fanniesab after this date an abuse of process.
By Order [3] of Orders made 16 September 2015, Futistasera was granted leave to file an Amended Notice of Appeal.[2] The Amended Notice of Appeal permitted Futistasera to seek to have Fanniesab’s Originating Proceeding dated 12 December 2014, to wind up Futistasera, dismissed on the ground that, if it be found on this appeal that his Honour the Associate Judge erred in one or more of the ways alleged in Futistasera’s Amended Notice of Appeal, Fanniesab’s proceedings should be dismissed on the basis that the evidence now before the Court on this appeal demonstrates that Futistasera has rebutted the presumption of insolvency created by s 459C(2)(a) of the Corporations Act.
[2]AB029.
The evidence now before the Court to which Futistasera refers in relation to this added element of its appeal is the expert report of an accountant, Sharlene Anderson, dated 6 August 2015 (‘the Anderson Report’).[3] Futistasera contends that this report provides a clear and cogent evidentiary foundation upon which it should be concluded that Futistasera is, and was at all material times, solvent.
[3]AB413-521.
Background
The relevant factual and interlocutory background to the appeal is as follows:
(a) Fanniesab is the owner of the premises at 32 Dunlop Road, Hoppers Crossing (‘the premises’). The directors of Fanniesab are Frances Inturrisi and Anna Cole (née Maddalena).
(b) Frances Inturrisi is also the sole director of and controls Futistasera. There are two shareholders of Futistasera, Frances Inturrisi and her husband Sebastian Inturrisi.
(c) Futistasera conducts a brothel business at the premises, authorised by a brothel licence.
(d) A written lease dated 26 February 2007 was executed by the directors of Fanniesab and Futistasera.[4] Frances Inturrisi has however alleged that there is no binding lease.[5]
[4]AB076.
[5]AB051, [17].
(e) Fanniesab asserts, and Futistasera disputes that between February 2007 and September 2014, Futistasera paid rental to Fanniesab in the sum of $737,021.34 towards Fanniesab’s mortgage over the title to the premises.
(f) On 5 June 2013, Fanniesab’s former solicitors Bowman & Knox sent a letter to Futistasera in relation to an alleged default in payment of the rent under the disputed lease, and demanded payment within 14 days.[6]
[6]AB006; AB334.
(g) On 20 May 2014, in Federal Court proceeding VID 775 of 2013, Justice Davies granted leave to Anna Maddalena, pursuant to s 233(1)(g) of the Corporations Act, to institute proceedings on behalf of Fanniesab against Futistasera in respect of the claims referred to in paragraphs 6 to 17 of the Affidavit of Anna Maddalena sworn on 31 July 2013, namely the alleged debts in the nature of a shortfall in rent paid to Fanniesab, and a further asserted debt in relation to an alleged loan agreement between Fanniesab and Futistasera.[7]
[7]AB636.
(h) On 20 June 2014, Fanniesab issued a writ in this Court against Futistasera, annexed to which was a statement of claim. The statement of claim, inter alia, alleged that:[8]
[8]AB004-013.
(i) a lease was made on or about 26 February 2007 between Fanniesab as landlord and Futistasera as tenant, for a term of five years;
(ii) the rental for the first five years was to be $152,982.00 plus GST per annum;
(iii) the shortfall in rental paid under the lease was $483,289.33;
(iv)Fanniesab borrowed $165,000.00 from Bendigo Bank secured by a second mortgage over the premises;
(v) the sum of $165,000.00 was then lent by Fanniesab to Futistasera;
(vi)Futistasera would pay interest on the second mortgage; and
(vii) Futistasera would either repay or refinance the loaned amount at the end of the five year lease, namely 26 February 2012.
(i) On 14 October 2014, Frances Inturrisi, director of Futistasera, received a copy of the writ and statement of claim from the company accountant and on that day contacted Madgwicks Lawyers to retain their services.[9]
[9]AB107.
(j) However, Futistasera did not file an appearance to the writ within the time allowed under the Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’).
(k) On 29 October 2014, judgment was entered against Futistasera in default of appearance.[10]
[10]AB014.
(l) On 10 November 2014, Fanniesab served a creditor’s statutory demand on Futistasera for payment of that judgment debt, being $651,489.33.[11]
[11]AB141-142.
(m)Futistasera did not apply to set aside the statutory demand within the 21 day period allowed under s 459G Corporations Act, namely, by 1 December 2014.
(n) On 12 December 2014, Fanniesab filed an originating process (SCI 2014 06634) to wind up Futistasera on the ground of insolvency.[12] This originating process was supported by the affidavit of Mario Peter Lanza, solicitor, sworn on 12 December 2014,[13] and was initially returnable on 25 February 2015.
[12]AB036-037.
[13]AB034-035.
(o) On 16 February 2015, before the return date of the originating process, Futistasera filed an application in proceeding SCI 2014 05450 to set aside the default judgment.[14]
[14]AB018.
(p) On 25 February 2015, Associate Justice Efthim made orders including the following:[15]
[15]AB638-639.
1.The Defendant file and serve an affidavit by 4:00pm on 4 March 2015, advising that an application has been made to set aside the default judgment and that the Directors believe it is solvent.
2.The Defendant file and serve any affidavit material upon which the Defendant seeks to rely by 4:00pm on 3 April 2015.
3.The Plaintiff file and serve any affidavits or other material it relies upon by 17 April 2015.
4.A half-day hearing of the application is set down on 4 May 2015, at 10:30am, in Court 5, Ground Floor, 436 Lonsdale Street, Melbourne.
(q) On 26 February 2015, Frances Inturrisi filed an affidavit pursuant to the orders made on 25 February 2015 in the winding up proceeding.[16]
[16]AB103-126.
(r) On 23 March 2015, Associate Justice Derham set aside the default judgment dated 29 October 2014.[17]
[17]AB640-641.
(s) On 10 April 2015, Futistasera filed and served a defence and counterclaim in proceeding SCI 2014 05450, in which Futistasera denied that its ‘occupation of the premises was pursuant to any lease between the plaintiff and the defendant …’, and stated that it ‘never became subject to, or bound by, the terms of the Purported Lease, which is void and of no effect’.[18]
[18]AB333-335.
(t) On 1 May 2015, Mario Lanza swore, filed and served an affidavit in support of the winding up application,[19] no submissions having been filed by either party.
[19]AB137-164.
(u) On 4 May 2015, Mr Walker, the solicitor for Futistasera requested a short adjournment to allow Futistasera to prove solvency.[20] On this occasion the Associate Judge ordered that the trial would be further adjourned to 21 May 2015 and ordered that Futistasera file and serve any further affidavit on which it intended to rely by 12.00pm on 18 May 2015.[21] At this hearing, his Honour warned Futistasera that he would not adjourn the proceedings again, and also warned Futistasera that if the company’s materials in the application did not establish the necessary matters his Honour would wind up the company.[22]
[20]AB374-375.
[21]AB642-643.
[22]AB378.
(v) On 11 May 2015, Futistasera engaged Worrells, solvency and forensic accountants, to conduct an audit of the 2014 financial year accounts of Futistasera and to provide a solvency report.[23]
[23]AB172-173.
(w) Futistasera did not file any affidavit by 18 May 2015 but on 21 May 2015 filed an affidavit sworn by Sazz Nasimi, solicitor, exhibited to which were:[24]
[24]AB165-174.
(i) an email from the expert accountant Sharlene Anderson dated 19 May 2015;
(ii) an email to Mario Lanza dated 19 May 2015; and
(iii) a preliminary solvency related findings report from Worrells dated 20 May 2015 produced by Sharlene Anderson.
(x) On 21 May 2015, the trial of the winding up application came on before Associate Justice Efthim. Mr Walker, solicitor for Futistasera, sought a further adjournment of seven days.
(y) At the hearing on 21 May 2015, Associate Justice Efthim refused a further adjournment and wound Futistasera up in insolvency.[25] In ‘Other Matters’ his Honour noted:
[25]AB643-644.
The Defendant applied for a 7 day adjournment which was refused. The originating process was filed on 15 December 2014, and was adjourned on 3 occasions. On the last adjournment on 4 May 2015, the Defendant was informed that if the Defendant did not file material to support that it was solvent, it would be wound up. Sharlene Anderson, chartered accountant of Worrells Accounts, gave evidence that she was engaged on 11 May 2015 to provide accounts regarding solvency. She received documents this day from the Defendant which were emailed to her last night. On the documents and accounts she had reviewed, she could not say if the company was either solvent or insolvent. The adjournment was refused because the Defendant’s directors had ample time to prove solvency. The Company had not complied with a statutory demand and was presumed insolvent, which had not been rebutted.
(z) The defendant filed and served an affidavit on 21 August 2015 attaching the Anderson Report on the question of solvency.[26]
[26]AB522-634.
(aa) On 16 September 2015 I ordered, inter alia:
2.The defendant have leave to file and serve the Expert Witness Report of Worrells, prepared by Sharlene Anderson, dated 6 August 2015 in the form which exists at [AB413]-[AB521] in the Appeal Book.
The application before the Associate Judge on 21 May 2015 was one in which Futistasera resisted its winding up on solvency grounds alone. No case or argument in relation to Fanniesab’s standing to issue a statutory demand or claims of abuse of process, as a result of a setting aside of the default judgment in proceeding S CI 2014 5450, was before the Associate Judge or argued by Futistasera.
Amended Notice of Appeal
Futistasera’s Amended Notice of Appeal from Orders of Associate Judge dated 24 August 2015, is in the following terms:[27]
[27]Leave to amend its Notice of Appeal and rely on an Amended Notice of Appeal dated 24 August 2015 was granted on 16 September 2015 [T50].
A.His Honour erred in law, in that his discretion miscarried in refusing the defendant’s application for an adjournment, in that:
(1)His Honour prejudged the application, having previously stated (on 4 May 2015) that he would not allow a further adjournment should one be sought on 21 May 2015;
(2)His Honour failed to give any, or sufficient weight to the lack of evidence as to prejudice which would be suffered by the plaintiff by reason of an adjournment;
(3)His Honour failed to give any, or sufficient weight to the consequences for the defendant if the application for adjournment were refused, namely that a winding up order would be made against the defendant;
(4)His Honour gave excessive weight to the desirability of winding up applications being determined quickly, in particular where the adjournment sought was only for a further period of 7 days, the proceeding had been on foot since December 2014, and one of the central issues in the winding up application, being the status of the plaintiff as a creditor, had not been determined until 26 March 2015, when orders were made setting aside the plaintiff’s judgment against the defendant in proceeding no. S CI 2014 05450;
(5)His Honour failed to give sufficient weight to the fact that Ms Sharlene Anderson had given evidence to the Court to the effect that she believed that she would be in a position to place audited, up to date accounts, before the Court at an adjourned hearing on 28 May 2015, which would provide the Court with substantial evidence on the question of whether the defendant was solvent (and where His Honour did not make any finding that he did not accept the evidence);
(6)His Honour gave weight to the wrongful assertions by counsel for the plaintiff that the defendant had said either “nothing” or “I don’t think it should be payable now” in its defence to a claim by the plaintiff for a debt of $165,000 in proceeding no. S CI 2014 05450, when in fact the defendant had previously adduced evidence which showed that the said debt did not in fact exist.
B.His Honour erred in law in making the order winding up the defendant in insolvency, by reason of the fact that the plaintiff lacked standing to bring the proceeding, where:
(1)The plaintiff had 2 directors, Frances Inturrisi and Anna Maddalena;
(2)The proceeding was purported to be brought by Ms Maddalena alone (without seeking the consent of Ms Inturrisi) in the name of the plaintiff, relying on orders made by the Honourable Justice Davies in the Federal Court of Australia, proceedings no. VID775/2013 on 20 May 2014;
(3)The orders made by Justice Davies did not authorise Ms Maddalena to:
(a)Serve the defendant with a creditor’s statutory demand pursuant to section 459E of the Corporations Act 2001 (Cth) (Act), which the plaintiff purported to do on or about 10 November 2014, and non-compliance with which demand the plaintiff relied upon as creating a presumption of insolvency of the defendant in the present proceeding;
(b)Commence the present proceeding in the name of the plaintiff.
C.His Honour erred in law in making the order winding up the defendant in insolvency, by reason of the fact that, either as a matter of law, or as a matter of discretion, His Honour should have dismissed the proceeding by reason of the facts that:
(1)At the time of the issue of the proceeding, the plaintiff held a judgment debt against the defendant in the amount of $651,489.33, pursuant to a judgment dated 29 October 2014 in proceeding no. S CI 2014 5450;
(2)The plaintiff was relying, for the purpose of a presumption of insolvency under section 459C of the Act, on the non-compliance by the defendant with a creditor’s statutory demand pursuant to section 459E of the Act, which the plaintiff had purported to serve on the defendant on or about 10 November 2014, in which the only debt demanded was the judgment debt;
(3)The plaintiff had no authority of its directors (or otherwise) to serve the defendant with a creditor’s statutory demand pursuant to section 459E of the Corporations Act 2001 (Cth) (Act), which the plaintiff purported to do on or about 10 November 2014, and non-compliance with which demand the plaintiff relied upon as creating a presumption of insolvency of the defendant in the present proceeding;
(4)The judgment dated 29 October 2014 in proceeding no. S CI 2014 5450 had been set aside on 26 March 2015, and the defendant had filed a defence and counterclaim in that proceeding on 10 April 2015;
(5)The plaintiff did not adduce any evidence showing that it was a creditor of the defendant, other than by virtue of its claims in proceeding no. S CI 2014 5450;
(6)There was no evidence before the Court that the defendant had any creditors with debts which were due and payable as at 21 May 2015, other than the plaintiff, whose debt was disputed;
(7)There was no, or insufficient, evidence before the Court on 21 May 2015 from which the Court could reasonably have found that the defendant was insolvent, separately from the presumption of insolvency referred to in sub-paragraph (2) above.
If the Court were to determine that his Honour erred in law on one or more of the grounds set out above, Futistasera seeks to have the Court dismiss the proceeding on the basis that the evidence before the Court on the appeal demonstrates that Futistasera has rebutted the presumption of insolvency created by s 459C(2)(a) of the Corporations Act; and Futistasera seeks orders including that the appeal is allowed and the Fanniesab proceeding be dismissed.[28]
[28]Amended Notice of Appeal [AB032].
Nature of Appeal
This appeal is brought pursuant to Order 77.06 of Chapter 1 of the Rules, which relevantly provides:
77.06 Appeals to Trial Division constituted by Judge of the Court
An appeal under section 17(3) of the Supreme Court Act 1986 to the Trial Division constituted by a Judge of the Court from a determination of the Trial Division constituted by an Associate Judge shall be brought in accordance with Rules 77.06.1 to 77.06.9.
77.06.9 Powers of Judge of the Court hearing appeal
(1)On an appeal referred to in Rule 77.06, a Judge of the Court shall have all the powers of the Court constituted by an Associate Judge.
(2) The Judge of the Court shall have power to—
(a)receive further evidence upon questions of fact, whether by oral examination in court, by affidavit, or by deposition taken before an examiner;
(b) draw inferences of fact;
(c)give any judgment and make any order which ought to have been given or made; and
(d) make any further or other order as the case may require.
(3)The powers of a Judge of the Court under this Rule may be exercised notwithstanding—
(a)that no notice of appeal has been given in respect of any particular part of the judgment or order of the Associate Judge which is the subject of the appeal or by any particular party to the proceeding before the Associate Judge; or
(b)that any ground for allowing the appeal or for affirming or varying the judgment or order of the Associate Judge is not specified in the notice of appeal.
Such an appeal is one in which the Court is required to give the judgment which, in its opinion, ought to have been given at first instance, upon being satisfied that the decision the subject of appeal is afflicted by legal, factual or discretionary error. The Court hearing an appeal pursuant to Order 77.06 may exercise the powers specifically provided for in rule 77.06.9, including rule 77.06.9(2)(a), which latter rule expressly provides the power to receive ‘further evidence’, if appropriate. The nature of an appeal pursuant to Order 77.06 is by way of a rehearing, and not confined to the correction of errors of law as such. This position was confirmed by the Court of Appeal in Hou v Westpac Banking Corporation.[29]
[29][2015] VSCA 57, [44].
Futistasera, however, concedes that it is necessary for it to establish a relevant error in respect of the decision below.[30] Accordingly, here, in particular in relation to an appeal concerned with the Associate Judge’s exercise of his discretion to refuse an adjournment, it is necessary for Futistasera to persuade me that his Honour fell into some sort of error in the exercise of his discretion before I am able to set aside or vary his Honour’s decision, and substitute the result of the exercise of my own discretion.
[30]T124.21-125.02.
The exercise of the discretion provided for by Order 77.06.9(2)(a) is informed by the proper construction of that rule taking into account all relevant factors, including competing prejudice, and in appropriate cases considering whether the outcome below is unreasonable or plainly unjust or has been arrived at by the application of factual error or incorrect principles.
Receipt of further evidence on appeal
At a preliminary hearing on 16 September 2015, I heard the parties on the question of whether Futistasera could file the Anderson Report, under Order 77.06.9(2)(a) of the Rules.
On 16 September 2015, Futistasera was given leave to file the Anderson Report.[31] My ex tempore reasons for granting that leave are from page 40 onwards of the transcript.
[31]T50.
The power to receive further evidence, on an interlocutory application, and for the purpose of an appeal yet to be argued, is one in respect of which the Court has a wide general discretion, to be exercised with prime consideration directed to achieving fairness between the parties and what will best serve the interests of justice.
Four factors which are usually of key importance in the exercise of this discretion are whether:
(a) the further evidence is admissible and potentially probative;
(b) the further evidence, if accepted, would be likely to demonstrate that the order under appeal is erroneous, or is in some way unjust or unfair, and in all the circumstances should be set aside and/or supplemented or replaced by other orders;
(c) there are sufficient reasons, or other justification given by the applicant as to why the further evidence was not adduced at first instance; and
(d) admission of the further evidence would in the circumstances be unacceptably prejudicial, or unfair.
In CDJ v VAJ,[32] the High Court when dealing with legislation in similar terms to Order 77.06 of the Rules, cited McDonald v McDonald[33] and Wollongong Corporation v Cowan[34] and explained that:
(i)Historically, at common law, once judgment had been entered after trial before a jury, a common law court would not entertain any new action to set aside the judgment;
(ii)However, before entry of judgment a disaffected party might move for a new trial and in that context an order for a new trial was in the nature of an interlocutory remedy obtained in the courts original jurisdiction. In that regard it is to be observed that the common law initially had no concept of an appellate jurisdiction;
(iii)The principles laid down in the Wollongong Corporation case (and it must follow in McDonald) and also in McCann v Parsons[35] are to be understood by reference to the procedures of the common law courts;
(iv)However, the cases referred to in the last preceding sub-paragraph are not authoritative in relation to the admissibility of further evidence under a statutory power to admit evidence on appeal.
[32](1998) 197 CLR 172, 197-198 [96]-[97].
[33](1965) 113 CLR 529 (‘McDonald’).
[34](1955) 93 CLR 435 (‘Wollongong Corporation’).
[35](1954) 93 CLR 418.
The power provided by Order 77.06.9(2)(a), on appeal from an Associate Judge to receive further evidence as to questions of fact, whether by oral examination in Court, affidavit or deposition taken before an examiner, is exercised in the context of a statutory appeal and not in the original jurisdiction of the Court. That power is clearly somewhat limited although discretionary. This is indicated by the setting in which Order 77.06.9(2)(a) is located. That is, within rules dealing with the framework within which a certain type of sub-intermediate appeal is to be dealt with by a single judge.
Order 77.06 establishes a process in the nature of an appeal and not a hearing de novo. Accordingly, in my view, the circumstances in which it will be appropriate to exercise the power, and attendant discretion, conferred by Order 77.06.9(2)(a) to receive further evidence, is to be approached by primarily considering the proper construction of the empowering rule rather than on the basis of the more general common law principles applied by Courts when considering an interlocutory application to admit fresh evidence. Courts usually do so in the context of considering whether or not to impugn the outcome of the trial below and whether there should be a new trial.[36] The context here is quite different.
[36]CDJ v VAJ (1998) 197 CLR 172, 199 [102].
In the exercise of the power and discretion under Order 77.06 a further factor to be considered is the subject matter of the proceeding with which the appeal is concerned.[37] This is relevant and important because the purpose of the power to admit further evidence is to ensure that subject proceedings do not miscarry.[38]
[37]Ibid 200 [104].
[38]Ibid.
On an application to admit further evidence in the more general common law setting to which I have referred, the Court usually applies principles bordering on fixed rules.[39] By contrast the exercise of a discretion pursuant to a power to receive further evidence in relation to an appeal process established by the rules of the Court is likely to be properly informed by broader, less rigid considerations, including, as mentioned, the subject matter of the proceeding with which the appeal is concerned, the remedial nature of that appeal process and the balancing of competing relevant factors, including prejudices.
[39]Ibid.
In Foody v Horewood,[40] Chernov JA (with whom Ashley and Neave JJA agreed) considered that Rule 64.22(3), concerning the Court of Appeal’s power to receive further evidence, empowered the Court with a general and wide discretion to receive further evidence (Rule 64.22(3) is in substantially the same terms as Order 77.06.9(2)(a)). I also note that the Court of Appeal in Foody cited CDJ v VAJ with approval, in this regard.
[40](2007) 62 ACSR 576, [59] (‘Foody’).
Accordingly, I consider that under Order 77.06.9(2)(a) the exercise of the discretion to receive further evidence in an appeal under that Rule is not constrained by the approach applied in the other settings identified above, namely of only admitting such evidence if that evidence could not, with reasonable diligence, have been obtained for use at trial and only then upon satisfaction that if such further evidence as is sought to be relied upon had been available at trial, it is reasonably clear that an opposite outcome would have resulted.
In my view, the proper approach to the exercise of discretion under Order 77.06.9(2)(a) is a broader and more flexible one, and includes the consideration and accommodation of factors including those identified above.[41]
[41]See paragraphs [21]-[23] above.
It was on the above bases that I admitted the Anderson Report,[42] including because:
[42]AB413-521.
(a) of the existence of a power to exercise such a discretion under Order 77.06.9(2)(a);
(b) the exercise of discretion under the Order referred to is not constrained by a strict requirement that, with the exercise of reasonable diligence, the subject evidence could not have been adduced at the hearing below. Nor is the exercise of the discretion under Order 77.06.9(2)(a) constrained by the requirement that it is reasonably clear that such additional evidence would give rise to a reversal of the outcome under appeal. I add however that both these matters may, nevertheless, be relevant to the proper exercise of the discretion created by that Rule; and
(c) the material in support of Futistasera’s application to rely on the Anderson Report established to my satisfaction that the Anderson Report:
(iv)was relevant to Futistasera’s contention that it was solvent at certain times;
(v) could, if accepted, have a critical bearing on the outcome of this application, in Futistasera’s favour;
(vi)would cause no irremediable prejudice to Fanniesab if it was able to be challenged by Fanniesab; and
(vii) would, if excluded from evidence, have potentially prejudiced Futistasera.
The parties’ submissions as to the need to find error
Fanniesab submits that this appeal is in the nature of a rehearing, and not a hearing de novo. Accordingly, Futistasera is required to establish error on the part of the Associate Judge before his decision can be reviewed and then if appropriate, set aside or varied on appeal.
Futistasera accepts that the appeal is in the nature of a rehearing and accepts that Futistasera is required to demonstrate that the Associate Judge fell into error before the appellate Court can exercise its own discretion.[43]
[43]T124.21-125.02.
Ground A of the Amended Notice of Appeal
Futistasera’s submissions
Futistasera submits that the Associate Judge erred in law in the exercise of his discretion to refuse Futistasera’s application for an adjournment on 21 May 2015.
During oral submissions, counsel for Futistasera conceded that Ground A(1) was no longer pressed.[44] Ground A(1) asserts that his Honour prejudged the application before him, having previously stated (on 4 May 2015) that he would not allow a further adjournment should one be sought on 21 May 2015.
[44]T62.23-63.06.
Consequently, Futistasera argues that the decision to refuse the adjournment was made in circumstances attended by the five remaining discretion related errors outlined in Ground A(2)-(6) of the Amended Notice of Appeal which are extracted and set out above.
Futistasera submits that the principal reasons given by his Honour for refusing the adjournment were the failure by Futistasera to have adduced evidence as to solvency by 21 May 2015, despite having had the opportunity to do so, and because ‘no wind-up case should go this long’.[45]
[45]AB411.19.
Futistasera submits that his Honour’s reasons do not disclose that he took into account the matters set out at Amended Notice of Appeal A(2), (3) and (5), or that the Associate Judge took into account the matters set out at A(6). It is submitted by Futistasera that the Court should infer that his Honour did not take into account the matters at A(2), (3) and (5); however no such inference is pressed with respect to A(6).[46]
[46]Futistasera’s Outline of Submissions on the Appeal dated 3 September 2015, [13].
Counsel for Futistasera submits that his Honour’s decision failed to properly weigh a number of factors, which when considered cumulatively favoured the granting of the adjournment.[47] Those factors are:
[47]T64.09-19.
(a) there was no evidence of the prejudice granting the adjournment would cause to Fanniesab;
(b) the extent of prejudice to Futistasera, in that a winding up of Futistasera would be of significant detrimental consequence;
(c) the adjournment sought was only for seven days, in circumstances where the proceeding had already been on foot for five months with the earlier adjournments being granted so that the judgment debt could be set aside; and
(d) excessive weight was given to case management considerations and the desirability of having matters heard quickly.
Further, counsel for Futistasera submitted that the hearing on 4 May 2015 was effectively the first time that Fanniesab could have complained of a failure by Futistasera to put on affidavit evidence as to solvency, considering the earlier adjournment granted on 25 February 2015, it could be inferred, was principally for the purposes of setting aside the default judgment, an outcome which was achieved on 23 March 2015.[48]
[48]T66.13-31.
In summary, Futistasera submits that his Honour’s reasons failed to give weight to the above material considerations or gave undue weight to the desirability of winding up applications being determined quickly. Alternatively, Futistasera submits that the decision to refuse the adjournment was plainly unjust.
Fanniesab’s submissions
Fanniesab submits that the winding up application was set down for trial on 4 May 2015, by the orders made on 25 February 2015.[49]
[49]T96.
Further, Fanniesab submits that the warnings given by the Associate Judge at the hearing on 4 May 2015 are not indicative of error, rather they made Futistasera fully aware of what is to be done to sufficiently establish its solvency.[50]
[50]T97.16-23; T98.5-9.
Fanniesab submits that the relevant principles to be applied in exercising the discretion to adjourn a trial are set out in Aon Risk Services Australia Ltd v Australian National University[51] and that they did not miscarry.[52]
[51](2009) 239 CLR 175.
[52]T103.1-5.
Further, Fanniesab submits that the Associate Judge took into account the High Court’s statements concerning the operation of Part 5.4 of the Corporations Act and the need to deal with applications to wind up companies in insolvency promptly.[53]
[53]ASIC v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1, 13-14 [27].
Fanniesab also relies on Eaton v ISS Catering Services Pty Ltd,[54] in which the Court of Appeal referred to the discretionary nature of a decision to grant or refuse an adjournment and observed that an appellate Court will rarely consider it justified to allow an appeal against such a decision.[55]
[54](2013) 42 VR 635.
[55]Ibid 644 [38].
Fanniesab submits that an expert report could have been obtained by the time of the hearing on 21 May 2015 if Futistasera had exercised reasonable diligence, and also pointed out that as much was conceded by the solicitor for Futistasera before the Associate Judge on 21 May 2015.[56]
[56]T39.26-40.31.
Further, Fanniesab submits that Futistasera has not shown any error in the exercise of the discretion by the Associate Judge to refuse to grant the third adjournment.
Decision - Amended Notice of Appeal – Ground A
I am most mindful that the decision under review was in relation to the exercise of discretionary power by the Associate Judge, and also related to a matter of practice and procedure. An appellate Court is reluctant to overturn such exercises of discretion.[57]
[57]Eaton v ISS Catering Services Pty Ltd (2013) 42 VR 635,644 [38].
In my view, Futistasera has failed to establish to my satisfaction that the Associate Judge’s exercise of discretion on 21 May 2015 to refuse Futistasera’s further application to adjourn Fanniesab’s winding up application miscarried for the following reasons:
(a) At the previous return date of the matter before his Honour on 4 May 2015, Futistasera had received a clear warning that it must have the material upon which it relied to establish its solvency before the Court by 21 May 2015, and that no more adjournments would be granted.
(b) It was Futistasera which on 4 May 2015 (the hearing before 21 May 2015) sought only a further short adjournment to be in a position to resist the winding up application; Futistasera was afforded more than two weeks’ adjournment.[58]
[58]T8.10-19, T12.9.
(c) Futistasera also conceded on 4 May 2015 that it had earlier been given an opportunity to put its material relating to its solvency before the Court but that Futistasera had itself failed to do so and that its failure to do so on 4 May 2015 was indefensible.[59] Further Futistasera, by its solicitor, conceded that it had been tardy throughout the proceeding to date, including in not challenging the statutory demand within the required time limit.[60]
[59]T7.26-30.
[60]T17.18-19.
(d) On 21 May 2015 Futistasera was again not able to file a solvency report and sought yet a further adjournment of the winding up proceeding for a week.
(e) At the hearing on 21 May 2015, Futistasera could say nothing more concrete than it had received a ‘preliminary indication … that the company is solvent’.[61]
[61]T14.30-31.
(f) Although Futistasera proffered the explanation that its accountant had been overseas on holidays and that had created difficulties with the forensic accountant gaining access to source materials, Futistasera could only submit that:
(viii) the preliminary insolvency report then available was developed only by reference to the 2014 financial year accounts;[62]
[62]As of 21 May 2015 Anderson appears to have only considered 2014 financial year accounts (see preliminary report at AB171-174).
(ix) the accounts being used to develop the insolvency report were not audited, however the forensic accountant engaged to produce the solvency report would produce ‘audited accounts’ if the adjournment was granted;[63] and
[63]T15.19-20.
(x) Futistasera’s forensic accountant had not yet received all relevant financial materials or instructions necessary to develop her report on her client’s solvency.
(g) His Honour thoroughly reviewed and considered the circumstances underlying Futistasera’s application for a further adjournment, and in connection with the relevant debt and winding up proceedings.
(h) His Honour considered Fanniesab’s prejudice if a further adjournment was to be granted and appears to have accepted that yet another adjournment would result in Fanniesab suffering further delay and legal expenses, as well as being further delayed in having a Liquidator in place who could seek a tenant for the subject property, and consequently delay Fanniesab realising and recouping its losses.[64]
[64]T41, 42 and 43.1-6.
(i) His Honour also considered submissions in relation to the prejudice which Futistasera would suffer if no further adjournment was granted and it was wound up.[65] Namely the effect on Futistasera of a winding up order, and his Honour’s reluctance to order the winding up of a company unless at law it was necessary.[66]
[65]T17.22-31.
[66]T43.26-28.
(j) On 21 May 2015, his Honour also focused on, and considered, the oral evidence given that day by Ms Sharlene Marie Anderson, Forensic Accountant and Registered Company Auditor, to the effect that:
(i) Although Ms Anderson had been engaged by Futistasera to determine whether or not it was solvent, Ms Anderson stated that:
(A) she held only preliminary views;
(B) she would complete her report within seven days of 21 May 2015;
(C) she could only make comment about the financial affairs of Futistasera to 30 June 2014, and up to that point Ms Anderson could only say that there were in her view ‘no indicators of insolvency’.[67]
[67]T25.13-16.
(ii) Ms Anderson however, also informed his Honour that she had written stating that she ‘was not sure that they (Futistasera) are solvent as at 2014’.[68]
[68]T29.7-9.
(iii) Ms Anderson stated that she could not say whether Futistasera could pay a debt of $650,000 (which is the sum the subject of the Fanniesab Petition) and Ms Anderson also stated that she did not have Futistasera’s ‘current financials’.[69]
[69]T25.17-20.
(iv) Ms Anderson was not able to say at the current stage of her investigations that Futistasera was solvent,[70] and recognised that it could be insolvent.[71]
[70]T36.13-14.
[71]T30.9-14; 24-31; T31.2-6; T32.8-9.
(v) Ms Anderson was not engaged to report on Futistasera’s insolvency until 11 May 2015.
(k) His Honour noted that there was no material before the Court from Futistasera explaining why it had taken so long to produce Futistasera’s insolvency report and his Honour also noted that Ms Anderson had conceded that she was not engaged until 11 May 2015.[72]
(l) At the hearing on 21 May 2015, the solicitor for Futistasera accepted that Futistasera was presumed insolvent as at 21 May 2015.[73]
[72]T40.5.
[73]T40.18-19.
Although it was submitted by Futistasera to his Honour on 21 May 2015 that audited accounts of Futistasera would be before the Court, via Ms Anderson’s evidence, within 7 days,[74] in fact the Anderson Report, which I have now admitted in this Appeal:
[74]T22.30 to T23.2.
(a) was not produced until 6 August 2015, and was not filed until 22 September 2015;
(b) is not an ‘audited report’ and was not supported by any audited accounts of Futistasera;
(c) is based on unaudited accounts which dealt with the Futistasera’s affairs only up to 30 April 2015.
In my view the matters I have highlighted above demonstrate that in the exercise of his discretion to refuse Futistasera yet a further adjournment on 21 May 2015, his Honour considered and appears to have taken into account all relevant matters. It has not been shown to my satisfaction that his Honour took into account any irrelevant matter or that his Honour made any material factual error or acted on any error of principle. Further, in my view, the appellant has failed to establish that the outcome of his Honour’s exercise of discretion was unreasonable in the circumstances or plainly unjust.
In this matter the learned Associate Judge considered, and it appears took into account, the relevant circumstances in which the application for adjournment and the underlying application for a winding up order were made, and the relevant competing prejudices and potential prejudices in relation to both Fanniesab and Futistasera. His Honour also appropriately alluded to the requirement to afford Futistasera a reasonable opportunity to put on the material which it wished to rely upon and also to the need, in the interests of justice, to dispose of the application for winding up as expeditiously as possible.[75]
[75]T43.16-23.
Further, I am not persuaded, as Futistasera has submitted, that his Honour failed to take into account appropriately the evidence or lack of evidence as to Fanniesab’s prejudice if the adjournment was granted, or failed to give appropriate weight to the consequences to Futistasera of a winding up order, or gave excessive weight to a need for the winding up application to be determined quickly.
I am also not persuaded that the issues now raised by Futistasera in this Appeal as to the status of Fanniesab as a creditor or the removal of the default judgment in S CI 2014 5450, were matters which should have resulted in a different exercise of discretion by the Associate Judge. These matters were not sought to be relied on by Futistasera within the strict statutory window allowed in relation to challenging statutory demands.[76] Furthermore, these matters were not relied upon below for the purpose of directly contesting the winding up proceeding.
[76]Section 459G of the Corporations Act.
Furthermore, I am not persuaded that, in the circumstances which existed and which were addressed by his Honour on 21 May 2015, his Honour in any way failed to appropriately take into account the relatively short additional period of a seven days of adjournment sought by Futistasera. His Honour made it clear that he took into account the short period of further adjournment sought, but did so in the context of the previous adjournments granted and the earlier warnings he had given to Futistasera, and the extensive time also afforded to Futistasera to put on the solvency material it had foreshadowed before 21 May 2015. His Honour also took into account the state of Futistasera’s expert material available on 21 May 2015 and the evidence about the time required to finalise that material.
I reject Futistasera’s argument that his Honour failed to give proper weight to the evidence of Ms Anderson. In my view, his Honour carefully and thoroughly considered Ms Anderson’s evidence, as demonstrated by his many questions and exchanges with Ms Anderson on 21 May 2015. Further, in my view, his Honour was entitled to consider, as it appears he did on 21 May 2015, that Ms Anderson had been so recently introduced to Futistasera’s financial affairs and was so incompletely briefed and so far from being in a position, because of Futistasera’s tardiness, to provide any meaningful evidence as to Futistasera’s solvency, that her evidence as at 21 May 2015 was of little or no weight on the central issue.
Finally, I reject Futistasera’s argument that his Honour gave any particular weight to the assertions of Fanniesab that Futistasera owed Fanniesab the $165,000 which was the subject of proceeding S CI 2014 5450. I am not satisfied that Futisatasera has pointed to any basis for such a finding.
For the above reasons I am not satisfied that Futistasera has, in the appeal, established the existence of any relevant error by the Associate Judge in the exercise of his discretion to refuse a further adjournment to Futistasera on 21 May 2015.
My above findings should, I consider, dispose of the Futistasera’s appeal because no error has been identified in the Associate Judge’s decision not to grant a further adjournment to Futistasera, and further Grounds of Appeal in parts B and C of the Amended Notice of Appeal were not matters that were argued before the Associate Judge.
However, for completeness, and because it may be of assistance hereafter, I shall deal with the additional errors asserted by Futistasera.
Ground B of the Amended Notice of Appeal
Futistasera’s submissions
Futistasera submits that his Honour erred in law in making the order winding up Futistasera in insolvency by reason of the fact that Fanniesab lacked standing to bring the proceeding.
Futistasera submitted that Fanniesab did not have standing as:
(a) Fanniesab had two directors, Ms Inturrisi and Ms Maddalena;
(b) the proceeding was purported to be brought by Ms Maddalena alone (without the consent of Ms Inturrisi) in the name of Fanniesab, relying on the orders of Justice Davies in the Federal Court made 20 May 2014; and
(c) the orders made by Justice Davies did not authorise Ms Maddalena to serve Futistasera with the creditor’s statutory demand or to commence the winding up proceeding in the name of Fanniesab. Justice Davies made the following orders:
1. The applicant be authorised pursuant to s 233(1)(g) of the Corporations Act 2001 (Cth) to institute proceedings on behalf of the company against Futistasera Pty Ltd in respect of the claims referred to in paragraphs 6 – 17 of the affidavit of the application sworn 31 July 2013.
2.The respondent pay the applicant’s costs thrown away by reason of the adjournment application made on 19 May 2014 fixed in the sum of $2,800 with a stay of 30 days on payment.
…
3. The proceeding be otherwise be dismissed with no orders as to costs.
Futistasera submits that as the substance of this ground of appeal was not the subject of submissions before the Associate Justice leave is required, and is sought, to agitate this point on appeal. Futistasera submits that the present case is one where no further evidence needs to be adduced on this issue, and it is both expedient and in the interests of justice that Futistasera be permitted to agitate it on appeal.
Futistasera relies upon Clarke & Walker Pty Ltd v Thew[77] and St George Bank v Active Property Investment Pty Ltd[78] for the proposition that ‘proceedings’ does not extend to service of a written demand for payment.[79]
[77](1967) 116 CLR 465.
[78](2010) 77 NSWLR 148.
[79]The Federal Court Orders of 20 May 2014 are broad enough to authorise the intuition of more than one proceeding or Court process and for such proceedings or Court process, amongst other things, to be in respect of the plaintiff’s claims, including winding up proceedings in respect of the plaintiff’s claim to recover the relevant debts and any statutory demand in relation thereto.
Futistasera submits that the orders of Justice Davies permitted the institution of the debt recovery proceeding, but not the institution of the winding up proceeding. In this regard, Futistasera submits that there is a profound difference between a proceeding for the recovery of debt or damages and a proceeding seeking to wind up a company; as the former is a process for enforcing debts and the latter is not. Further, Futistasera submits that this distinction is recognised by the Court as it does not allow a civil proceeding for the recovery of debt to be brought in the same proceeding as a winding up order.
Alternatively, Futistasera submits that if the winding up proceeding was permitted by the orders of Justice Davies, the statutory demand could not be relied upon as an evidentiary integer in the winding up proceeding.[80]
[80]T82.6-13.
Futistasera submits that as Fanniesab did not have standing to serve the statutory demand or to issue the winding up proceeding, either the winding up proceeding is a nullity (as it was issued without the proper authority of Fanniesab), or the statutory demand was ineffective to give rise to the presumption of insolvency.
Fanniesab’s submissions
Fanniesab accepts that the issuing of a statutory demand is not a ‘proceeding’.[81] However, Fanniesab submits that the allegation that the statutory demand is a nullity is a matter that ought to have been, and can only be, raised at first instance.[82]
[81]T115.9-10.
[82]T115.11-15.
In Crema Pty Ltd v Land Mark Property Developments Pty Ltd,[83] Justice Dodds-Streeton considered whether a company could fail to apply to set aside a statutory demand under s 459G, and then on appeal circumvent the restrictions imposed by s 459S simply by contending that the statutory demand is a nullity on the basis that the specified debt is not due and payable.[84] Fanniesab relies on the following reasoning from her Honour:
[83](2006) 58 ACSR 631 (‘Crema’).
[84]Ibid 648 [113].
Such an outcome would be contrary to the pre-eminent objective of Pt 5.4 of “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”. It would subvert the intended operation of Pt 5.4 expressed in the explanatory memorandum as follows:
Paragraph 669:
This proposed Division, together with proposed Division 4 [22459P — 459T], also provides a means of dealing with statutory demand disputes in such a way that an alleged defect in the statutory demand does not have the effect of prolonging proceedings leading to the commencement of a winding up, by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding up proceedings have commenced.
In my opinion, whatever the status of a statutory demand upon proof of an allegation that the specified debt is not due and owing, such an allegation constitutes a ground which may be relied upon in an application to set aside the statutory demand and, if no such application is made, s 459S will apply. Before any argument based on the status of the statutory demand could be made, leave would have to be granted on proper material, and the allegation proved.
The fallacy in the appellants’ submission on nullity in the present case is that it assumes that they have succeeded in the arguments which they require leave to raise.
The appellants do not seek leave pursuant to s 459S and as (for reasons set out below) the relevant complaints do not appear material to proving solvency, leave could not be granted.
It follows that, in the absence of leave, the appellants were not entitled to oppose the application for winding up on the basis of their complaints in relation to the statutory demand.[85]
[85]Ibid 648 [114]-[118] (citations omitted).
Fanniesab submits that the general rule is that a party cannot on an appeal raise a question of fact which was not litigated below,[86] and further submits, as a rule, a party who has conceded or abandoned an argument or ground of objection at trial will not be allowed to make the validity of what was conceded or abandoned the basis for overturning the result of the trial.[87]
[86]Metwally v University of Wollongong (No 2) (1985) 60 ALR 68, 71.
[87]Paule v Far Horizons Pty Ltd (1998) Aust Torts Reports 81-486.
Fanniesab submits that the conduct of Futistasera militates against these new points being raised for the first time on appeal. Fanniesab contends that it was a tactical decision by Futistasera not to raise any issue other than solvency before the Associate Judge, and to rely upon the preliminary report of Ms Anderson to seek an adjournment despite previous adjournments and warnings, and to proffer no excuse for the delay. Fanniesab submits that the orders of Justice Davies refer to proceedings in the plural, and should not be read down to a specific single proceeding or a proceeding which then ceases at the time judgment is obtained.[88]
[88]T117.21-31.
Fanniesab observes that Futistasera is not able to point to any authority for the proposition that a director/shareholder cannot issue a statutory demand on behalf of a company.[89] Further, Fanniesab submits that Futistasera’s failure to oppose the statutory demand on this basis at an earlier stage shows that it was implicit that there was implied authority to so act.[90]
[89]T118.12-19.
[90]T119.8-15.
Additional Futistasera submissions
Futistasera also seeks to distinguish Crema on the grounds that it was concerned with flaws within the statutory demand itself, as opposed to the statutory demand being issued in the name of Fanniesab where there was no authority to issue such a demand.[91]
[91]T129.8-16.
Futistasera submits that there is no evidence that Ms Maddalena is the Managing Director of Fanniesab and, as such, is entitled to issue the statutory demand or issue the winding up proceeding.[92]
[92]T130.31-131.6.
Futistasera further submits that, having conceded the issuing of a statutory demand is not a proceeding, it is difficult to see how it can be said that the statutory demand served here was validly served.[93]
[93]T131.19-23.
Decision - Amended Notice of Appeal – Ground B
In my view Futistasera is not now able to impugn the orders of 21 May 2015 because of its inaction in the period provided by s 459G of the Corporations Act, including its failure to:
(a) apply in a timely manner to set aside Fanniesab’s statutory demand on the basis of what it now contends for, namely a lack of standing on the part of the plaintiff to issue that demand;[94] and
(b) appropriately raise and pursue those same matters concerning standing at the time the matter was before the Associate Judge on, and after, 4 May 2015.
[94]Amended Notice of Appeal B(1)-(3), AB030-31.
In my view, Futistasera must obtain leave to raise the standing related points it now seeks to pursue for the first time. I also consider that such leave should be refused because that application, which was not made by Futistasera until it argued this appeal on 9 October 2015, was made too late, and well after the hearing the subject of this appeal by the Associate Judge. I consider that leave should be refused on the basis of this dilatory conduct and further because the standing arguments are not themselves material to proving that Futistasera is solvent.
Futistasera has not sought to justify leave pursuant to s 459S of the Corporations Act, or explain why there was no timely application to set aside the statutory demand. Neither has Futistasera satisfied me that the technical and procedural issues it raises about the underlying debt and the statutory winding up process are material to proving its solvency.
Given Futistasera has not been granted leave, it cannot resist the winding up on the basis of the standing related arguments it now seeks to raise because those issues seek to impugn the statutory demand[95] and should have been raised at that stage of the winding up proceedings.[96] .
[95]Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216.
[96]Futistasera also failed to formally raise and prosecute before the Associate Judge its arguments based on the setting aside of the default judgement in SCI 2014 05450. Nor did Futistasera seek to defer the hearing of the s 459G application until after its application to set aside the default judgment against it.
Further, leave, even were it to be granted, would in any event not itself result in setting aside the statutory demand, or to the displacement of the existing presumption of insolvency under section 459C of the Corporations Act because, as Fanniesab submits in relation to Futistasera’s argument based on setting aside the defendant’s judgment in the other proceeding, doing so results in no more than the emergence of a ‘disputed’ debt.
Finally, I observe that s 459S of the Corporations Act is designed to minimise delay in the winding up process and were Futistasera at this very late stage able to call that section in aid, the opposite effect would be achieved. This in my view, together with the scheme of Part 5.4 of the Corporations Act, which is intended to achieve expedition, is a further reason to refuse leave.[97]
[97]Crema (2006) 58 ACSR 631.
Ground C of the Amended Notice of Appeal
Futistasera’s submissions
Futistasera submits that as a matter of law, or as a matter of discretion, the Associate Justice should not have made the winding up order in circumstances where the only unpaid debt of Futistasera, of which there was either evidence or an assertion, was the judgment debt upon which the statutory demand was founded and which was now disputed.
Further, Futistasera submits that by virtue of the default judgment which underpinned the statutory demand having been set aside, Fanniesab was now in the position of being an alleged creditor whose debt was genuinely disputed, and that the maintenance by it of the winding up proceeding after that point constituted an abuse of process.
It is to be noted that Futistasera does not submit that by issuing its statutory demand, Fanniesab committed an abuse of process (putting to one side the question of authority to issue the statutory demand), rather Futistasera submits that the maintenance of the winding up application in circumstances where the debt underlying the statutory demand was now disputed was an abuse of process.[98]
[98]T128.12-21.
Futistasera relies upon Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq), where White J stated:[99]
The preponderance of authority is that a company may not be wound up on the application of a person claiming to be a creditor whose debt is disputed unless that dispute is resolved. Otherwise the applicant will not establish its standing to apply for the company’s winding up. Because the winding up jurisdiction should not be used to resolve disputed questions of debt, it may be an abuse of process for an alleged creditor, whose debt is disputed, to apply to wind up the company.
[99](2004) 185 FLR 130, 147 [72].
Futistasera submits that it could not earlier rely upon s 459G of the Corporations Act as it was not open to Futistasera to challenge the debt on the basis of genuine dispute until the debt was set aside, and this situation did not arise until after the time for compliance with the demand had expired.
Further, Futistasera submits that because it could not rely upon s 459G of the Corporations Act to have the statutory demand set aside, it is not bound by s 459S and therefore leave is not required to raise the issue of disputed debt.[100] However, if leave is required under s 459S, Futistasera seeks that leave.[101]
[100]T86.15-87.17.
[101]T87.18-31.
Futistasera submits that his Honour did not refer to these issues concerning s 459S when giving his reasons, although it was raised in the amended Notice of Appearance filed in the proceeding and by Futistasera briefly during the hearing of the proceeding.
Fanniesab’s submissions
Fanniesab however submits that unless leave is given under s 459S of the Corporations Act, a company cannot resist a winding up order on the basis that the applicant does not have standing as a creditor because of an issue relating to the demand, such as a disputed debt.
Further, Fanniesab contends that the issue concerning s 459S was raised by the Associate Justice at the hearing on 4 May 2015, but nothing was done by Futistasera in that regard between 4 May 2015 and 21 May 2015 including issuing and bringing any such application for leave or otherwise.
Fanniesab submits that the course which should have been taken by Futistasera was to bring an application under s 459G within the 21 day time limit.[102] At the same time, Futistasera could have moved to set aside the default judgment and it could have sought to defer the hearing of the s 459G application until after the resolution of the application to set aside default judgment.[103]
[102]T113.10-12.
[103]T113.13-19.
Fanniesab submits that its issue of its statutory demand was a legitimate process in the circumstances.[104] Fanniesab relies upon Meehan v Glazier Holdings Pty Ltd[105] for the proposition that while a winding up application should not be used for the improper purpose of compelling a solvent company to pay a disputed debt, it does not preclude the use of statutory demands to enforce a debt in circumstances where there were ongoing disputes between the parties.
[104]T114.9-12.
[105](2005) 53 ACSR 229, 238 [46]-[47].
Decision - Amended Notice of Appeal – Ground C
In my view the grounds argued by Futistasera in Ground C of its Amended Notice of Appeal should also not be available to it to impugn the judgment and orders of the Associate Judge made on 21 May 2015 for the same reasons I have outlined above for rejecting Ground B of the appeal.
I also reject Futistasera’s argument that the Associate Judge failed to refer to or provide reasons in relation to s 459S of the Corporations Act on either 4 May 2015 or 21 May 2015, in circumstances where Futistasera submits that its Notice of Appearance raised this issue.
I note that Futistasera’s Amended Notice of Appearance dated 25 February 2015, opposes winding up on the grounds that ‘there is a genuine dispute about the existence of the amount of debt under the Statutory Demand’ and ‘the defendant is solvent’.
In my view, Futistasera did not formally or effectively, by the documents it filed with the Court, including its Notice of Appearance in this proceeding, or its submissions, raise an application under s 459S of the Corporations Act before the Associate Judge.
Solvency issue
Futistasera’s submissions
Futistasera relies upon the following passages from Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd,[106] where Finkelstein J considered what evidence was required to prove solvency on the balance of probabilities:
The question whether a company is solvent involves both a question of law and a question of fact. The legal question, or what may be partly a legal question, is what is meant by the word “insolvent” in s 459A for the purpose of determining what is meant by the opposite. The judge will provide that meaning. He or she may say that the word has a technical meaning and state what that meaning is. Or he or she may say that the word is used in its ordinary sense and go to a dictionary to discover that meaning.
A company that wishes to establish the fact of solvency in accordance with the meaning laid down by the judge must tender evidence for that purpose. Then the following steps will occur. First, the judge will decide whether the evidence is relevant. The judge will then determine whether the evidence is admissible, for not all relevant evidence finds its way into court. Next, the judge will assess the probative value of the evidence. That assessment is inductive. Finally the judge will decide whether the claimed solvency is probable or more probable than not.
It is contrary to basic rules of evidence to assert there is only one method of proving solvency, namely the production of audited accounts. I can explain why by way of a simple, but not wholly fanciful, example. Assume that a company secretary gives the following uncontradicted evidence. “My company is listed on the ASX. At present it has a market capitalisation of around $2.5 billion. I am familiar with the company’s records and am able to say that that the company’s assets (excluding intangible assets, for their valuation is unreliable) exceeds its liabilities by about $1.5 billion. Among those assets are cash and securities that can be converted to cash in seven days that are amounts in aggregate $500 million. I apologise for not producing the last audited accounts. I left them back in the office.” a judge would fall into legal error if on this evidence he did not find the company to be solvent.
The explanation to be given to the cases to which Weinberg J referred is this. There are many shaky companies in the marketplace. Applications are made to wind up some of them. Applications are also made to wind up solvent companies. In each case a representative can come along attempting to prove solvency to avoid a winding up. Judges will look with care at the evidence especially if the judge suspects the company is or may be in a weak financial position. Dependent upon the degree of doubt justified by the facts, a judge may say that the only evidence he will treat as probative is “the fullest and best” evidence available — the kind that in Commonwealth Bank of Australia v Begonia (1983) 11 ACSR 609 Hayne J said was often necessary although interesting enough, not in that case. In some instances this may be the company’s audited accounts together with verified proof of both the ownership and value of the company’s assets. On the other hand there will be many instances where proof of that sort is not required. In such cases there is no good reason to put the company to the time, trouble and expense of producing audited accounts. In the end it will all depend upon each particular fact of a case.
[106][2007] FCA 548, [11]-[14].
Futistasera also seeks to rely upon Re Cube Footwear Pty Ltd[107] as establishing that the test for solvency in a winding up application requires a consideration of cash flow insolvency, not balance sheet insolvency.[108]
[107][2013] 2 Qd R 501.
[108]T89.7-15.
Further, Futistasera relies upon Crema, in which Justice Dodds-Streeton stated that s 95A of the Corporations Act enshrines the cash flow test of insolvency, in contrast to the balance sheet test.[109]
[109]T127.12-15
Futistasera also submits that the relevant date at which it is required to establish solvency is 9 October 2015, the date of the hearing of this appeal.[110]
[110]T91.24-28.
Futistasera submits that the Anderson Report establishes that Futistasera was profitable in the financial years ended June 2013 and June 2014, and was also profitable for the financial year up to April 2015. Accordingly, Futistasera submits, it is reasonable to infer that the company has continued to trade profitably during the subsequent period, and using the cash flow test of solvency, the Court can be satisfied that the company is solvent.[111]
[111]T91.12-23.
Futistasera also submits that despite the purported errors identified in the Profit and Loss Statement by the CFAS Advisory Report[112] at Item 10, this does not alter the fact that the company has traded profitably since at least 1 July 2012.[113] Futistasera also points out that even if rent was payable in the sum claimed by Fanniesab, Futistasera could reverse out the management fees which it paid and still be operating profitably over the period July 2012 to April 2015.[114]
[112]CFAS Report tendered T56.24-25.
[113]T92.1-9.
[114]T92.20-31.
Futistasera submits that on a simple asset/liability ratio Futistasera has a 1:1 ratio, which is typical of a profitable trading unit trust which distributes out all profits each year.[115] Futistasera disputes the manner in which the liquidity ratio table and quick asset ratio table in the CFAS Advisory Report were calculated.[116]
[115]T93.1-9.
[116]T93.16-94.28.
Fanniesab’s submissions
Fanniesab submits that the relevant date at which solvency is to be assessed is 21 May 2015, the day the Associate Judge made orders winding up Futistasera.[117]
[117]T104.25-27.
Fanniesab submits that Futistasera has outstanding tax payments to the Australian Taxation Office (ATO) and those tax payments have been outstanding for a considerable period of time.[118] Further, the repayments that have been made were in small, round amounts of $100, $200, $300, which is an indicia of insolvency.[119]
[118]T106.9-15.
[119]ASIC v Plymin (2003) 175 FLR 124, 213-214 [386]; T106.16-23.
Fanniesab submits that the accounts prepared were unaudited and while this is not fatal to Futistasera establishing solvency, generally speaking audited accounts are prepared and further it was indicated to the Associate Judge at the hearing on 4 May 2015 that if a further adjournment was granted audited accounts would be provided.[120]
[120]T106.24-27.
Fanniesab relies on the principles distilled by Justice Weinberg in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd[121] as to what is required to rebut the presumption of insolvency:
In order to discharge that onus the Court should ordinarily be presented with the "fullest and best" evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.
Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.
There is a distinction between solvency and a surplus of assets. A company may be at the same time 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 its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (supra); Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (supra) at 465-466.
The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (supra) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J.
The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (supra) at 466-467.
It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (supra).
[121][1999] FCA 728, [44].
Fanniesab disputes the liquidity ratio contained in the Anderson Report of 1:1, as it relies on goodwill being valued at $165,000, for the following reasons:
(a) the size of the goodwill figure relative to the total assets of $212,098 as of April 2015;
(b) the goodwill value of $165,000 is purported to be a ‘conservative value’ because a proposed contract of sale in August 2011 valued goodwill at $324,000, in circumstances where:
(xi) the proposed contract was nearly three and a half years old by the time of the hearing before the Associate Judge;
(xii) the contract is only signed by the vendors and not the purchasers and Fanniesab has no knowledge of the surrounding circumstances;
(xiii) the offer appears to have been made by the vendor, as opposed to a purchaser;
(xiv) the proposed contract was conditional upon security of tenure in the premises which Futistasera no longer has as a result of the dispute between Fanniesab and Futistasera; and
(xv) the prostitution service provider’s licence is specific to the address of the brothel at 32 Dunlop Road, Hoppers Crossing.
I note however that Futistasera objects to Fanniesab’s claim that it has no security of tenure because Fanniesab is a company that is effectively deadlocked with two opposing directors and cannot terminate the business relationship between itself and Futistasera without the concordance of Ms Inturrisi.[122]
[122]T127.19-128.11.
Fanniesab submits that its expert report from CFAS Advisory of 2 October 2015 (‘CFAS Report’) shows that once adjustments have been made removing goodwill as an asset, in April 2015 the liquidity ratio is 0.43 and the quick asset ratio is 0.19.
The Anderson Report
The affidavit of Ms Anderson, sworn 21 August 2015, states that she:
(a) was formally retained by Futistasera on 14 May 2015;
(b) had conducted a preliminary review of the financial statements of Futistasera for the year ending 30 June 2014 by 20 May 2015, and by that date had been unable to identify any indicators of insolvency of Futistasera, including in relation to any deficiency of assets or material trading losses;
(c) required additional materials to finalise her evaluations as at 20 May 2015;
(d) intended to have her final insolvency report prepared prior to 21 May 2015, however was unable to do so because certain documents she required were not provided to her within the time she required, largely because Futistasera’s accountant had been overseas over a period leading up to 21 May 2015. Ms Anderson also noted that on 27 May 2015 she had personally specified to Futistasera’s accountant those accounting materials she required to complete her solvency report.
The Anderson Report[123] states:
[123]AB526.
(a) Ms Anderson’s opinion that Futistasera was solvent as at 30 April 2015, and in the period between 30 June 2013 and 30 June 2014;[124]
[124]AB527.
(b) that an examination of Futistasera’s invoices and banking records disclose that it was paying its debts as and when they fell due;
(c) the financial statements relied on by Ms Anderson disclose that Futistasera is operating a profit making business;
(d) that she has considered Futistasera’s financial position, including by reference to a cash flow test and also a balance sheet test, and concluded that Futistasera has sufficient total assets with which to discharge its total liabilities;
(e) Futistasera’s Profit and Loss Statements, for the financial years ending 30 June 2013 and 2014 and to 30 April 2015, disclose that Futistasera’s business operations were profitable during those periods;[125] and
(f) that a liquidity ratio analysis demonstrates that Futistasera’s total assets are sufficient to discharge its total liabilities and on this basis Futistasera is technically solvent.[126]
[125]AB534 at 6.3 and 6.4.
[126]CB540 at 7.5.
Fanniesab’s submissions on the Anderson Report
Fanniesab submits that the Anderson Report is based on a long series of facts and documents, none of which has been proven and in respect of which leave has not been sought. Further, there is an absence of evidence of matters relied on in the Anderson Report.[127]
[127]Fanniesab applied, by Submissions including those dated 13 October 2015, to exclude and/or limit the weight of the Anderson Report by excluding and/or limiting the weight to be given to certain statements in the Annexure of the Report. Futistasera, by Submissions dated 22 October 2015, opposed Fanniesab’s evidentiary submission concerning the Anderson Report. I have admitted all of the Anderson Report including Annexures for the reasons stated elsewhere in these Reasons.
Fanniesab also makes extensive submissions as to the extent to which the Anderson Report ‘involves’ hearsay evidence.
Fanniesab also submits that even accepting that the reference to certain facts in that report are in the nature of references to facts which have been assumed, and could be admissible under s 60 of the Evidence Act 2008 (Vic) (‘Evidence Act’), the use to which the hearsay evidence may be put should be limited pursuant to s 136 of the Evidence Act. That is, limited to establishing the factual basis upon which the expert holds her opinion, and not to proving the facts which are assumed.[128]
[128]Fanniesab’s Written Submissions dated 13 October 2016, [2].
Fanniesab submits that hearsay evidence in the Anderson Report should not be relied on by Futistasera, or the Court, to foreclose the dispute between the parties in relation to a number of items which Fanniesab asserts would materially alter Ms Anderson’s key conclusions, including the disputed items: liability for rent; current liability to the ATO; contractual liability for management fees; and the true value of goodwill.
Fanniesab also submits that no weight should be given to the Anderson Report because the hearsay material it relies upon is unreliable, including in respect of tax records[129] which are out of date given that no Business Activity Statements for 2015 have been considered. Therefore, the Anderson Report’s opinions as to Futistasera’s company position; value of goodwill; rental liability; and liability for management fees are not the subject of reliable opinion by Ms Anderson. Fanniesab also notes that those opinions have been contradicted by Mr Smith in the CFAS Report referred to above.
[129]AB447.
I consider however, that Fanniesab’s application to have me reject parts of and/or limit the use to be made of the evidence referred to above should be rejected for reasons I shall come to shortly. I do not consider that Ms Anderson’s expert evidence is unfairly prejudicial or misleading or confusing and consider that it should be admitted, together with all Annexures for the reasons I mention below.
Further:
(a) the evaluation in the Anderson Report, if accepted, is, in the present context, relevant to the likely solvency of Futistasera on a prima facie basis;
(b) the company records and financial statements upon which Ms Anderson relies to form her opinions as to Futistasera’s solvency are prima facie evidence of what they record pursuant to s 1305 of the Corporations Act, although they are subject to rebuttal and challenge; and
(c) there is no evidence to establish the existence of any specific dispute as to Futistasera’s currently liability to the ATO.
The Anderson Report asserts that on a cash flow basis[130] and on a balance sheet basis, Futistasera was solvent between 30 June 2013 and 30 June 2014, and arguably solvent on Ms Anderson’s extrapolation and assertion as at 30 April 2015.
[130]Re Cube Footwear Pty Ltd [2013] 2 Qd R 501.
For reasons I have explained below I am however not satisfied that Futistasera was solvent, at the date of the hearing of 21 May 2015 before the Associate Judge, or at the hearing of the appeal on 9 October 2015 or at any other time during the period opined on by Ms Anderson.
I do not consider that it is reasonable to infer from Ms Anderson’s analysis that Futistasera traded profitably in the financial years 2013 and 2014 and then also to 30 April 2015, nor that on a projected and hypothetical basis Futistasera is likely to have continued to trade profitably for the remainder of the 2015 financial year.
The relevant creditor’s statutory demand on Futistasera for payment of $651,489.33 was served on 10 November 2014; the time within which Futistasera was required to apply to set aside the creditor’s statutory demand was by 1 December 2014.
On 21 May 2015 Associate Justice Efthim ordered Futistasera be wound up.
I do not accept Fanniesab’s assertion that the Futistasera accounts should be adjusted to allow for a rental liability to Fanniesab, notwithstanding that liability is disputed by Futistasera. I consider that given the controversy about the existence of the asserted lease and the removal of the default judgment, the sum of rental said by Fanniesab to be owed by Futistasera to it should be regarded as a neutral item for the purposes of evaluating the Anderson Report. However, these same issues are, as I explain below, relevant to the Futistasera assertion that it owns considerable goodwill.
Fanniesab points out that the leave obtained by Futistasera to rely upon the Anderson Report does not extend to any other evidence not before the Associate Judge on 21 May 2015, nor to the evidence, such as annexures and returns upon which the Anderson Report is based.
More specifically, Fanniesab submits that the leave to admit the Anderson Report does not extend to receiving affidavits sworn subsequent to 21 May 2015, which it submits should not be permitted to supplant the absence of evidence of matters relied upon in that expert report.
Fanniesab also disputes the substance and accuracy of the Anderson Report in the following specific ways:[131]
[131]Fanniesab’s Amended Outline of Submission 7 October 2015, [34].
(a) the goodwill figure of $165,000 is not maintainable in circumstances where there is no presently existing lease and accordingly there is a significant asset deficiency evidencing insolvency;
(b) the contract of sale referred to above cannot be relied upon as it did not proceed, was only signed by the vendors, and was conditional upon the landlord granting a variation of the existing lease with a term of five years and options of four terms of five years each;
(c) the accounts relied upon in the Anderson Report were not audited;
(d) no cash flow statements from Futistasera as proprietor were provided;
(e) no unit trust deed has been tendered, despite the assertion that Futistasera is a trustee of a unit trust, and the terms and obligations of the ‘beneficiary loan’ are unknown;
(f) profit remains subject to the payment of management fees, however the terms and obligations relating to the payment of management fees are not known;
(g) the material relied upon in respect of the debt to the ATO evidences an inability to meet debts as and when they fall due;
(h) it is unclear whether the Anderson Report is concerned with solvency as at the date of the report (August 2015), 30 April 2015, or 21 May 2015, including because the Anderson Report relies upon the accounts up to 30 April 2015 and a tax portal as at July 2015; and
(i) the Anderson Report is replete with hearsay, argument and submission, and is confusing and contains inconsistencies.
Fanniesab’s further written submissions of 13 October 2015 as to the admissibility and weight to be given to the Anderson Report
Fanniesab submits that the Anderson Report contains a great deal of hearsay evidence.[132]
[132]The hearsay is said by Fanniesab to be the factual assertions in paragraph [6.3] (AB420); the factual assertions in paragraph [6.6] (AB420); the factual assertions in paragraph [7.4.10]–[7.4.12]; the factual assertions in paragraph [7.4]-[7.4.4]; the factual assertion that rent is not presently due and payable (paragraph [9.5] (AB429); the assertion of fact constituted by Annexure 7 (AB448-AB449); the assertion of fact constituted by Annexure 8 (AB450-AB512); the assertion of fact constituted by Annexure 10 (AB518-AB519) and Annexures 3 and 5 (AB440-AB442; AB446), which are unaudited accounts.
Fanniesab submits that the limitation under s 136 of the Evidence Act ought to be invoked so as to limit the use to which the hearsay evidence may be put, by reason of the following:
(a) there is a genuine dispute concerning the liability for rent; the current liability to the ATO; the contractual liability for management fees; and the true value of goodwill;
(b) the assertions of fact are in the nature of assumptions; and
(c) the hearsay material is unreliable.
Further, Fanniesab submits that little or no weight should be attached to the hearsay evidence it identifies in respect of the Anderson report and therefore to the opinions expressed as to:
(a) the company’s tax position as at 21 May 2015, 6 August 2015 or 9 October 2015;
(b) the purported goodwill of the company;
(c) the liability for rent; and
(d) the liability for management fees –
particularly having regard to the observations in the CFAS Report. Fanniesab also submits that the Anderson Report relies upon hearsay material which is controversial and is unreliable. Further, Fanniesab submits that the tax records relied upon by Futistasera[133] are hopelessly out of date in that no Business Activity Statements for 2015 have been considered.
Futistasera’s further written submissions of 22 October 2015 concerning the admissibility and weight to be given to the Anderson Report
[133]AB447.
Futistasera notes that Fanniesab’s submission accepts that the entire Anderson Report has gone into evidence, and absent an order under section 136 of the Evidence Act, may be relied upon by the Court on this appeal.
Futistasera submits that Fanniesab’s application for an order under section 136 should be refused for the following reasons:
(a) the time for making such an application was when the evidence was admitted (on 16 September 2015), or at the hearing of the appeal on 9 October 2015;
(b) as the appeal is being heard by judge alone, and the Court is in a position to give the documents such weight as he considers appropriate, there is no reason for the Court to conclude that the use of the allegedly hearsay evidence as truth of its contents would be unfairly prejudicial to any party;
(c) the policy of sections 60 and 77 of the Evidence Act is that hearsay evidence which is admitted for a non-hearsay purpose is admitted for all purposes, and that policy should not be undercut by the making of orders under section 136 of the Evidence Act as a matter of course;[134]
(d) despite the assertion by Fanniesab that there are disputes regarding the liability of Futistasera to the ATO, there was no evidence adduced by it on this issue;
(e) despite the assertion by Fanniesab that ‘the hearsay material is unreliable’, there is no evidentiary basis for that allegation. The company’s financial statements are prima facie evidence of their contents (see section 1305 of the Corporations Act).
[134]Seven Network Ltd v News Ltd (No 8) (2005) 224 ALR 317, 322 [21] (Sackville J).
Interlocutory background to the Anderson report
By Ruling made on 16 September 2015 I granted leave for Futistasera to file and serve the Anderson Report.
I consider that, subject to the specific findings I make herein as to the probity and or weight to be ascribed to parts of the Anderson Report, the whole of that Report, together with all its annexures, should be received into evidence.
This is because to the extent that this expert report references information and materials produced by others, such material is acceptable, and indeed common place, in expert reports. Ultimately however, referenced or incorporated materials of this type must be the subject of acceptable independent proof before the facts or matters asserted in such materials can form the sub-strata of the expert report which is to some degree built upon such materials. Reference by an expert to facts which the expert does not prove is permissible to explain the factual basis upon which the expert holds his or her opinion, but does not prove the facts assumed. Fanniesab contends that in the circumstances I should invoke s 136 of the Evidence Act to limit the use to which identifiable “hearsay” in the Anderson Report can be put, particularly in relation to the factually contentious items referred to by Ms Anderson in her report. Those contentious items deal with Futistasera’s liability for rent, its current liability to the Australian Taxation Office, its contractual liability for management fees and the value of goodwill.
Futistasera argues that because the Anderson Report, and its Annexures, have “gone into evidence”, absent an order under s 136 of the Evidence Act, that Report be relied upon in the appeal. Futistasera also submits that Fanniesab’s application to limit the use of the Anderson Report comes too late. Futistasera acknowledges however that in this appeal the court can ascribe the weight it considers appropriate to Ms Anderson’s evidence.
Futistasera also submits that hearsay evidence which is admitted for “non-hearsay” purposes is nevertheless admitted for all purposes and that at all events Fanniesab has not sought to call evidence on the disputed items referred to above by Fanniesab. Futistasera also submits that the financial statements referred to by Ms Anderson are prima facie evidence pursuant to s 1305 of the Corporations Act.
Conclusion – Anderson Report
In my view, I should give little weight to the views which are put forward in Ms Anderson’s report on a number of the key items which are heavily in dispute, and the validity of which (from an accounting point of view) will depend on the ultimate outcome of the factual and legal dispute between the parties in relation to those items. These contentious items, include Futistasera’s true tax position as at November 2014, 21 May 2015, 6 August 2015 and 9 October 2015, (indeed over the period referred to by Ms Anderson), the value of the asserted goodwill of Futistasera, Futistasera’s position as tenant in the premises from which it operates and Futistasera’s liability to pay management fees, which Futistasera claims largely absorbs its profits from year to year.
I am not persuaded that the Anderson Report appropriately deals with these key items, including because Ms Anderson assumes a favourable outcome for her client on each of the underlying disputes, concerning goodwill, rental security and management fees. Ms Anderson also appears to take into account Futistasera’s assumed tax position, even though the most current Business Activity Statement for Futistasera is for the period ending December 2014[135] and it would appear that no Business Activity Statements are available for Futistasera during 2015.
[135]AB447.
Further, Ms Anderson has accepted $165,000 as the value of goodwill of Futistasera at April 2015[136] even though Futistasera does not have a lease of the premises from which it operates.[137]
[136]AB442; AB555.
[137]AB108, [17].
Furthermore, although unsubstantiated by the documentation and terms of such an arrangement, Ms Anderson accepts that Futistasera’s profits have been ‘distributed to the Godfathers Settlement as managements fees’ in the years 2013 and 2014.[138]
[138]AB533, [6.3].
I consider the above matters to be sufficient to support my conclusion that the Anderson Report can be given very little weight and does not establish the solvency of Futistasera over any of the periods addressed by Ms Anderson, including 21 May 2015 and 9 October 2015.
Recent correspondence received from the plaintiff
I note that on 10 June 2016, the Court received from the solicitor for Fanniesab an email attaching an affidavit of Anna Maddalena sworn 9 June 2016. In that email Fanniesab sought, pursuant to liberty to apply in order 7 of the Orders of Justice Robson dated 28 May 2015, to have the Court urgently reconsider Justice Robson’s decision to continue a stay of the liquidation of Futistasera.
On 14 June 2016, my Associate responded to the 10 June 2016 email informing the parties that I anticipated handing down judgment in this matter within a week and in the circumstances I was not disposed to deal with the issues raised in Fanniesab’s email and attached affidavit before handing down judgment on the Appeal. The 14 June 2016 email also informed the parties that if they objected to this course being taken they were at liberty to bring an application in that regard.
Decision
For the reasons I have outlined above, I am not satisfied that Futistasera has rebutted the presumption of insolvency created by operation of section 459C(2)(a) of the Corporations Act in late 2014.
Further, for the reasons set out above, I dismiss Futistasera’s Appeal from the orders of the Associate Judge made 21 May 2015.
Accordingly, the stay of the Associate Judge’s order of 21 May 2016, ordered by Justice Robson on 10 June 2016, is from 24 June 2016 (the date of this determination) at an end.
I shall hear the parties as to any other necessary orders and as to costs.
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