Gawa Pty Ltd v Australian Morgan Land Corp Pty Ltd No. Scgrg-98-222 Judgment No. S6686

[1998] SASC 6686

GAWA PTY LTD -v- AUSTRALIAN MORGAN LAND CORPORATION PTY LTD

Judge Burley

In this matter, the plaintiff originally applied for the winding up of the defendant company on the ground of insolvency. The plaintiff relied upon deemed insolvency, said to arise from the defendant’s non-compliance with a statutory demand issued under Section 459E of the Corporations Law by the plaintiff.

When the matter was first brought on for hearing, the question arose as to whether or not the plaintiff was precluded from proceeding on the original statutory demand, because the alleged non-compliance with the statutory demand had occurred at a time greater than three months prior to the filing of the summons to wind up. 

On that day, I adjourned the summons to today so that the parties could put further submissions to me.  In the meantime, the plaintiff, having obtained advice on the point, accepted the view that the summons, based on the original statutory demand, could not be proceeded with, because the non-compliance with that demand occurred more than three months prior to the filing of the summons to wind up. 

I think this is a correct acceptance of the effect of the provisions of  Section 459C(2)(a) of the law.  That sub-section is as follows:

“The court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made:

(a)...... the company failed (as defined by 459F) to comply with the statutory demand …..”

It follows that, if the failure to comply with the statutory demand occurred before (as opposed to during or after) the commencement of the relevant three month period, the presumption required by the subsection does not apply. 

However, the matter does not end there.  The plaintiff and a supporting creditor, A.J.  Blunt Painting Contractors Pty Ltd, have issued fresh notices of demand.  Those notices of demand, made under Division 2 of Part 5.4 of the Law, were made after the summons.

The defendant has made application in these proceedings to have each of those two statutory demands set aside.  Normally, such an application would be dealt with by way of separate summons constituting the relevant application for the purposes of Division 3 of Part 5.4 of the Law.  However, this is an unusual situation in that, as I have said, the statutory demand relied upon was issued after the issue of the winding up summons. 

In those circumstances, assuming that the plaintiff may rely on a statutory demand served on the defendant after the winding up summons was issued, I think it is appropriate for the defendant to make an application in the winding up action for an order setting aside the statutory demand issued by the plaintiff.  That position does not necessarily apply where a supporting creditor is involved.  In this case, the supporting creditor served a statutory demand on the defendant after the summons was issued and the defendant has applied to set it aside in these proceedings. 

Mr Neate, counsel for the supporting creditor and for the plaintiff, contended that the defendant could not apply to set aside the statutory demand issued by the supporting creditor in these proceedings, because the supporting creditor was not effectively a party in these proceedings, or so I understand his argument. 

I disagree with that contention.  The supporting creditor is able to come into the proceedings and, although not formally a plaintiff, or a defendant, the supporting creditor is part of the proceedings, just as an intervener may be part of the proceedings, when so joined under the ordinary rules of the Supreme Court.  To that extent, given the exigencies of this case, I think it is appropriate to allow the defendant to apply in this action for an order setting aside the statutory demand issued by the supporting creditor. 

If I were to decide otherwise, it would mean that the defendant would lose the opportunity to apply to set aside the statutory demand served by the supporting creditor, because the relevant 21 day period has already expired. 

To the extent that it is necessary to give exemptions from the requirements of the Corporations Rules to enable the defendant to pursue an application against a supporting creditor to set aside the supporting creditor's demand, I grant those exemptions.  It may be that no exemptions are in fact necessary, because there is a sufficient relationship created in this action between a supporting creditor and a defendant which enables those as parties to the action to join issue on the question of whether or not the statutory demand should be set aside. 

I turn to the question of the basis upon which the defendant has sought to have each of the statutory demands issued in March of this year set aside.  Mr Hall, counsel for the defendant, relied upon the provisions of 471A of the Law.  Subsection (1) of that section is as follows:-

`While a company is being wound up in insolvency, or by the Court, a person cannot perform, or exercise, and must not purport to perform or exercise, a function, or power as an officer of the company ...'

There follows a number of exemptions, which I need not deal with for present purposes. 

Mr Hall submitted that the winding up in insolvency commences with the issue of the summons and that Section 471A(1) of the Law precludes the company through its officers meeting a statutory demand, where that statutory demand has been issued after the issue of the winding up summons.  He argued that the statutory demand should therefore be set aside. 

I can see no basis for such an argument when the provisions of Division 3 of Part 5.4 (Sections 459G to 459J) of the Law are considered.  They deal with applications to set aside statutory demands.  Nothing in those sections suggests that a statutory demand may not be issued after the issue of a winding up summons.  In addition, Section 459C(2) of the Law indicates that an effective statutory demand may be issued after the issue of the summons because the failure to comply may occur “during or after” the relevant three months period.  That period ends “on the day when the application [to wind up] was made”.  Because the relevant non-compliance may occur after the three month period, by implication at least, so may the service of the statutory demand occur.  An obvious example of why this must be so is the case of a supporting creditor who serves the statutory demand after the issue of a winding up summons and later seeks to be substituted as the plaintiff if the original plaintiff cannot or will not proceed with the summons.  The supporting creditor should be able to rely upon his or her statutory demand and the subsequent non-compliance therewith.

This approach fits in with the contentions advanced by Mr Neate in opposition to the defendant’s assertions.

Mr Neate referred me to the provisions of Section 513A of the Law.  He submitted that that section had the effect of determining that the winding up for the purposes of this case would only commence on the day when the order for winding up was made and, if that were the case, Section 471A did not come into play, because a winding up order had not yet been made. 

I accept that submission.  In my view, Section 513A only applies to the extent that paragraph (e) thereof provides that the winding up commences on the day when the order for winding up was made.  None of the other sub-paragraphs of that section apply to the circumstances of this case.  Therefore, it cannot be said that, if a statutory demand is made after the date upon which the winding up summons is issued, the directors would be in breach of Section 471A by arranging for the payment of the amount claimed in the statutory demand, or any lesser amount that the defendant, through its directors, considered should be paid. 

The defence, based on Section 471A, was the only defence put forward by the defendant to support the contention that the statutory demands should be set aside.  It was not contended that the amounts demanded therein were not owing.  Consequently, if the defendant fails in its contentions with regard to the effect of Section 471A, it means that the statutory demands should not be set aside. 

As I have said, I consider that Mr Neate has correctly described the part that Section 513A of the Law has to play in the circumstances and that when that section is applied, it is clear that the winding up has not commenced, because a winding up order has not been made in these proceedings.  Consequently, the defence put forward by the defendants in relation to the statutory demands must fail.

That leaves me in a situation where the provisions of Section 459F(2) of the law come into play.  Subparagraph (a)(ii) of that sub-section provides, in effect, that the defendant has a period of seven days after the refusal of the application to set aside the statutory demand, within which to comply with it.

In those circumstances, I consider that the only course open to me is to adjourn this matter to the next Companies list and deal with such application as any of the parties may make on that occasion. 

For the above reasons, the applications by the defendant to set aside the statutory demands, issued respectively by the plaintiff and the supporting creditor, will be dismissed.  I adjourn the summons to the next Companies List.

I will hear the parties as to costs.