Fortune Technology Fund Ltd v PREMIERE Eastern Energy Ltd - [2018] WASC 35

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FORTUNE TECHNOLOGY FUND LTD -v- PREMIERE EASTERN ENERGY LTD [2018] WASC 35

CORAM: MASTER SANDERSON

HEARD: 17 JANUARY 2018

DELIVERED : 17 JANUARY 2018

PUBLISHED : 7 FEBRUARY 2018

FILE NO/S: COR 248 of 2017

BETWEEN: FORTUNE TECHNOLOGY FUND LTD
First Plaintiff
MAGIC CARPET FUND III
Second Plaintiff
SKYVEN GROWTH OPPORTUNITIES FUND PTE LTD
Third Plaintiff
VENSTAR INVESTMENTS LTD (formerly known as VENSTAR INVESTMENTS PTE LTD)
Fourth Plaintiff
AND
PREMIERE EASTERN ENERGY LTD
Defendant

Catchwords:

Corporations law - Winding up in insolvency - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Adjournment refused
Company wound up

Category: B

Representation:

Counsel:

First Plaintiff                  :     Mr D W John
Second Plaintiff             :     Mr D W John
Third Plaintiff                :     Mr D W John
Fourth Plaintiff              :     Mr D W John
Defendant:     Mr S C M Wong

Solicitors:

First Plaintiff                  :     Herbert Smith Freehills
Second Plaintiff             :     Herbert Smith Freehills
Third Plaintiff                :     Herbert Smith Freehills
Fourth Plaintiff              :     Herbert Smith Freehills
Defendant:     Cornwall Stodard

Case(s) referred to in judgment(s):

Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548

MASTER SANDERSON: This was the plaintiffs' application to wind up the defendant on the grounds of insolvency. At the commencement of the hearing counsel for the defendant applied for an adjournment. That application was opposed by counsel for the plaintiffs. After hearing argument I refused the adjournment. The matter then proceeded and after hearing argument I ordered that the defendant be wound up. I indicated I would publish reasons both for refusing the adjournment and winding up the defendant. These are those reasons.
The plaintiffs' application to wind up the defendant was filed 23 October 2017. The application alleged that the defendant had failed to comply with a statutory demand. The matter was returned in chambers on 5 December 2017. On that date the following orders were made:
1.By consent by 12 December 2017 the plaintiffs file and serve any evidence that they seek to rely upon in response to the evidence filed by the defendant on 4 December 2017.
2.By 19 December 2017 the defendant file and serve any evidence in response to the evidence of the plaintiffs filed in accordance with order 1 above.
3.By 10 January 2018 the parties file and serve written submissions that they seek to rely upon at the hearing of the winding up application.
The matter was set down for hearing on 17 January 2018.
The defendant filed an affidavit of Andrew William Metcalfe sworn 4 December 2017. That affidavit was filed on 7 December 2017. The plaintiffs filed submissions in support of its application on 12 January 2018. When the matter was called on for hearing counsel for the defendant tendered an affidavit of Jarrod John Munro sworn 17 January 2018 - that is, the day of the hearing. He also tendered an outline of submissions in support of the adjournment. Mr Munro's affidavit went to the issue of the adjournment. Essentially the affidavit said the defendant had taken steps to have its accounts audited but the audit would not be finalised before 2018 'at best'. Mr Munro, who is a legal practitioner, stated that
the audited financial reports are like to establish that the Company is solvent [6(e)].
No basis is provided for that opinion. Mr Munro then goes on to say that the defendant is in the process of selling certain of its assets and the sale would be completed by the end of March 2018. At best the evidence provided by Mr Munro on that issue is vague.
The submissions filed by counsel for the defendant in support of the application for the adjournment picked up both Mr Metcalfe's affidavit and Mr Munro's affidavit. Counsel pointed out that the defendant is engaged in the business of retail and wholesale distribution of petrochemical products including sourcing, storage, shipping, sales and distribution and after sales services of petrochemical products in China.
Counsel then pointed out that the audited reports for the year ended 31 December 2016 showed the defendant had cash at bank in an amount of approximately $126 million, current assets (including cash at bank) of around $203.6 million and current liabilities of $54.1 million. Counsel submitted, and I accept, that as at 31 December 2016 the defendant was solvent. Further audited accounts of the defendant would not be available before the end of March 2018. Counsel accepted there was no evidence at all other than vague statements by Mr Metcalfe and Mr Munro as to the financial position of the defendant as between 31 December 2016 and the date of hearing.
It was against that background that I rejected the application for an adjournment. The timetable for the hearing of this matter had been set by agreement between the parties. When that timetable was set there was no suggestion by the defendant that extra time was needed to produce audited reports. Indeed, as was accepted by counsel for the plaintiffs, to resist a winding up application on the basis the defendant was solvent audited financial statements were not essential. Management accounts or at least a statement of the defendant's position from someone in management with knowledge of the accounts might well have been sufficient. There was never at any stage before the hearing any suggestion that such evidence could not be obtained in conformity with the timetable.
Furthermore, there was no explanation from the defendant as to why having agreed to a timetable for hearing the matter could not proceed. Any party seeking an indulgence and adjournment of a hearing is obliged to explain why the matter should be adjourned. Without such an explanation it is not in the interests of justice and it is not fair to the other party simply to adjourn the matter for the convenience of the defendant.
Accordingly I rejected the defendant's application to adjourn the hearing.
In opposition to the winding up application counsel for the defendant pointed to the fact that as at 31 December 2016 the defendant was not only solvent but was in a healthy financial position. He then referred to the evidence of Mr Metcalfe. Mr Metcalfe is an accountant and the company secretary of the defendant. He confirmed the accuracy of the accounts as at 31 December 2016. He then refers to the defendant's quarterly report for the quarter ended 30 June 2017. He says that although the cash position of the defendant has deteriorated somewhat it is still in a healthy financial position. He anticipates that as at 30 September 2017 the defendant will have cash at bank of just over $91 million. No accounts let alone audited accounts are provided to support Mr Metcalfe's evidence on this issue. He goes on to say that he does not expect the accounts for the half‑year ending 30 June 2017 to be available until March 2018 and the accounts for the year ending 30 June 2017 would not be available until June 2018.
Under the heading 'Foreign currency controls' there appears the following:
All of the Premiere Group's cash reserves are held in Chinese bank accounts. Due to foreign currency controls in China, it is extremely difficult for the Company to readily transfer large sums of cash to other jurisdictions, including Australia and Singapore.
It is to be borne in mind that the application to wind up was based upon the failure of the defendant to comply with a statutory demand. No application was made to set that demand aside and it would appear that the defendant does not dispute the debt. The amount of the demand was for Singapore dollars, $9,991,233. While that is a significant sum, in the light of the assets which Mr Metcalfe says the defendant has, it is an amount which the defendant could pay from its cash reserves. If it has not done so it may well be that it is unable to obtain release of funds from China. The consequence is that it is unable to meet its debts as and when they fall due - that is to say, it is on the cash flow test insolvent.
Of course there is a degree of speculation in the above. What is important is that there are no up to date accounts which establish the defendant is solvent. As I mentioned above management accounts rather than fully audited accounts may well have been sufficient to satisfy the test of solvency. But without any up to date accounts the vague and unqualified assertions of both Mr Metcalfe and Mr Munro are not, in my opinion, satisfactory.
In further support of his application counsel for the defendant referred to the decision of Finkelstein J in Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548. His Honour said:
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 [13].
With respect that example does seem to me to be fanciful. In this court at least evidence is led on affidavit. If a company secretary swore an affidavit attempting to establish solvency and did not attach accounts it would be inexcusable. No competent firm of solicitors would allow such a situation to arise. Any listed public company with a significant market capitalisation should be able to produce management accounts at the touch of a button. Perhaps that was not the case back in 2007; but it is certainly the case now. Moreover if application was made to cross‑examine the company secretary his embarrassment in responding to questions would be acute.
What his Honour seems to be saying is that applications to wind up listed public companies with a significant market capitalisation should never succeed. As a matter of principle that cannot be right. There is nothing in the Corporations Act 2001 (Cth) which differentiates between a small private company with one shareholder and a listed public company with significant market capitalisation. There have been enough high profiled collapses of listed public companies to demonstrate the fact a company listed on the ASX and subject to the checks and balances of the listing rules is not a guaranteed solvent. The best evidence rule applies equally to the smallest and the largest of corporate enterprises.
In my view the defendant failed to establish that it was solvent. I am not satisfied on the evidence presented it demonstrated it could meet its debts as and when they fell due. Accordingly I made an order winding the defendant up.