Gelor Pty Ltd v Magic Star (WA) Pty Ltd
[2002] WASC 148
GELOR PTY LTD -v- MAGIC STAR (WA) PTY LTD [2002] WASC 148
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 148 | |
| Case No: | COR:27/2002 | 3 MAY 2002 | |
| Coram: | ACTING MASTER CHAPMAN | 13/06/02 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Leave refused Order to wind up the defendant | ||
| B | |||
| PDF Version |
| Parties: | GELOR PTY LTD (ACN 085 027 265) MAGIC STAR (WA) PTY LTD (ACN 061 357 381) |
Catchwords: | Winding up Insolvency Failure to comply with statutory demand Application under s 459S for leave to oppose winding up by disputing debt claimed in statutory demand Winding-up application |
Legislation: | Corporations Law, s 459S |
Case References: | Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467 Robowash Pty Ltd v Robowash Finance Pty Ltd [2001] WASC 112 Switz Pty Ltd v Glowbind Pty Ltd (2000) 33 ACSR 723 Aust Yieh Stainless Steel Pty Ltd v Horans Steel Pty Ltd [2000] NSWSC 244 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Consolidated Constructions Pty Ltd; Re Satellite Group Ltd (2000) 35 ACSR 565 Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
MAGIC STAR (WA) PTY LTD (ACN 061 357 381)
Defendant
Catchwords:
Winding up - Insolvency - Failure to comply with statutory demand - Application under s 459S for leave to oppose winding up by disputing debt claimed in statutory demand - Winding-up application
Legislation:
Corporations Law, s 459S
Result:
Leave refused
Order to wind up the defendant
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr A J Aristei
Defendant : Mr D C Eley
Solicitors:
Plaintiff : Carles Solicitors
Defendant : Eley Palmer Archer
Case(s) referred to in judgment(s):
Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467
Robowash Pty Ltd v Robowash Finance Pty Ltd [2001] WASC 112
Switz Pty Ltd v Glowbind Pty Ltd (2000) 33 ACSR 723
Case(s) also cited:
Aust Yieh Stainless Steel Pty Ltd v Horans Steel Pty Ltd [2000] NSWSC 244
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
Consolidated Constructions Pty Ltd; Re Satellite Group Ltd (2000) 35 ACSR 565
Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298
(Page 3)
1 ACTING MASTER CHAPMAN: The plaintiff, on 23 January 2002, filed an originating process seeking an order that the defendant be wound up. The brief facts are that on 21 December 2001 a statutory demand was served on the defendant. The debt claimed was not paid and no application to set aside the statutory demand was made. Further, the statutory requirements for bringing the application to wind up the defendant have been complied with and as I understand it, that is accepted by the defendant.
2 The defendant relies upon s 459S of the Corporations Law to oppose an order for winding up. Section 459S reads as follows:
"459S(1) [Demand may not ground opposition] In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
459S(2) [Ground material to solvency] The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent."
3 As is apparent from this section, the defendant requires leave of the Court and that leave is not to be granted unless the Court is satisfied that the ground is material to prove that the defendant is solvent.
4 Counsel for the defendant referred in his written submissions to Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467 where Austin J said at 481, par [49]:
"49. In my opinion the exercise of the discretion to grant leave under s 459S(1) involves three considerations, namely:
(i) a preliminary consideration of the defendant's basis for disputing the debt which was the subject of the demand;
(ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside
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- the demand, and the reasonableness of the party's conduct at that time; and
- (iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent."
5 This was adopted by Master Sanderson in Robowash Pty Ltd v Robowash Finance Pty Ltd [2001] WASC 112 at par [12]. With respect, I am also in agreement. That being the case, I turn to consider the first of those considerations.
6 It is clear from the wording of s 459S(2) that the defendant can only rely upon grounds which are material to proving that the defendant is solvent. In that regard the plaintiff referred to the decision of Switz Pty Ltd v Glowbind Pty Ltd (2000) 33 ACSR 723 where Spigelman CJ said:
"[36] The defendant's contentions are supported by the obiter remarks of the Full Court in Bayview Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd. With respect, I have come to the conclusion that the Full Court's reasoning should not be followed. In my opinion, although both constructions are open, the construction which focuses on the defendant's case better serves the purposes of the legislative scheme. The alternative construction has the potential to undermine the achievement of those purposes.
[37] The basic authority on s 459S is David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; 131 ALR 353; 18 ACSR 225. In the course of delivering his reasons, with which all the members of the court agreed, Gummow J said at CLR 270:
'The provisions of the new Pt 5.4 constitute a legislative scheme for 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.'
…
[42] Subsection 459S(1) directs attention to facts and matters upon which the company wishes, if granted leave, to oppose an application to wind it up. Subsection (2) imposes a mandatory condition that the court must be satisfied that the ground which
(Page 5)
- the company wishes to use in this way is 'material to proving that the company is solvent'.
[43] The words are not 'material to solvency' or 'material to finding solvency' but 'material to proving' solvency. The use of the word 'proving', a present participle in the active voice, indicates that the test is to be applied to a process then under way, or in contemplation, before the court. Section 459S(1) makes it clear that that process of 'proving' is being conducted by the company.
[44] The statutory context is as follows:
(i) A 'creditor' may apply to the court for a company to be wound up in insolvency: s 459P(1).
(ii) Upon receipt of such an application the court is empowered to order that 'an insolvent company be wound up in insolvency': s 459A.
(iii) A company is insolvent if it is not able 'to pay all (its) debts, as and when they become due and payable': s 95A.
(iv) Where, as here, the company has failed to comply with a statutory demand, the court 'must presume that the company is insolvent': s 459C(2).
(v) The presumption referred to in (iv) 'operates except so far as the contrary is proved for the purposes of the application': s 459C(3), relevantly, the application under s 459P for a company to be wound up in insolvency: s 459C(1).
[45] The phrase which falls for consideration in the present case from s 459S(2) - 'the ground is material to proving that the company is solvent' - relates back to the process envisaged in s 459C(3) - 'except so far as the contrary is proved'.
…
[53] By the time an application under s 459S is made, the company will be presumed to be insolvent and will have the burden of proving that it is not. In my opinion s 459S(2) directs
(Page 6)
- attention, in part, to what it is that the company intends to prove and how it intends to prove it. If the company is not prepared to contemplate the possibility that its assertion of solvency is subject to qualification, then the court cannot be 'satisfied' of the mandatory precondition in s 459S(2). An objective element is introduced by the word 'material' but that can only be determined after identifying the company's contentions.
[54] If, as here, the company intends to prove that it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to it 'proving' its solvency, cannot be satisfied.
[55] The process of proving solvency is not some kind of forensic game. Solvency is a matter peculiarly within the knowledge of the company. The primary source of information on the solvency of the company must be the company itself.
[56] It may well prove to be the case that whether or not a particular debt is owing is material, indeed crucial, to a company being able to establish its solvency. However, if the company itself is not prepared to mount a case which contemplates that as a possibility, then it is not open to the court to be 'satisfied' in the sense required by s 459S(2) on the basis that the company should be protected from itself. As I have said, the fact that the company does intend to so contend would not determine the issue of whether the disputed debt is 'material', let alone whether leave should be granted under s 459S(1). On the submissions made to this court, these issues do not arise. The appeal should be dismissed."
- With respect I agree with those observations. However, in the case before me, it is not clear what the defendant intends to prove. At par 9(j) of his affidavit sworn 15 March 2002, Lawrence Kurt Boyle ("Mr Boyle") deposes as follows:
"(j) Magic's current creditors total $8,437 while it current debtors total $100,752 leaving it in a solvent position. It is only if the alleged debt of Gelor was taken into account that Magic would be insolvent on its balance sheet."
(Page 7)
- not entirely consistent with the written submissions of the defendant, nor the previous subparagraphs of par 9 of the affidavit of Mr Boyle.
8 At pars 14 - 17 of the written submissions it is contended as follows:
"14. The evidence of the defendant is that apart from the alleged debt of the plaintiff it is not insolvent. There is nothing to dispute that evidence.
15. The evidence is that the defendant does not trade, but holds contracts and in the course of holding those contracts, assets and liabilities may arise. Alternatively, the defendant may undertake a particular course of action and if funds are required for that, then they are provided to the defendant for that purpose.
16. There is no evidence to suggest that the defendant is insolvent. It has been deposed that the creditors of the defendant are about one tenth of its debtors and there are no trading debts.
17. There is nothing to contradict the evidence of Boyle that when funds are required for the defendant to meet any legitimate debt, they are provided to the defendant. There is no suggestion that there are any creditors of the defendant apart from the alleged debt of the plaintiff and the admitted debt of $8,437 which it is also admitted there is a corresponding debt owed to the defendant."
9 The defendant appears to be contending that even with the alleged debt it is solvent. On what is before me I am not satisfied that the test of materiality to the defendant "proving" it's solvency has been satisfied.
10 In addressing the second consideration one would have thought the defendant would have been frank and open in explaining why the indebtedness was not raised in an application to set aside the demand, given the circumstances. Regrettably that has not been the case.
11 In his affidavit sworn 15 March 2002 Mr Boyle deposes to the fact that the statutory demand was served at the registered office of the defendant on 21 December 2001. Although he deposes to the fact that he was on vacation until 13 January 2002, he does not specifically depose to the fact that he went away and if he did, when he went away. More particularly, he does not depose as to when the statutory demand first
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- came to his attention and why he took no steps to seek to set it aside before the 21-day period had expired. In par 7(d) he deposes as follows:
"(d) when I returned from vacation at the beginning of January my solicitor's office was closed, which I am told is quite common practice at that time of the year; and"
(1) Did he return prior to the expiry of the 21 days?
(2) When did the defendant first become aware of the statutory demand?
(3) How does par 7(d) of his affidavit sit with 7(e)?
13 On what is before me the statutory demand might well have come to the attention of Mr Boyle before the 21 days had expired. Further, I consider that given the terms of the statutory demand he would have had some inkling as to its effect.
14 Having made those observations, the date upon which the statutory demand was served has not gone unnoticed. It fell on the eve of the Christmas/New Year period when traditionally many businesses either close down or at least wind down their operation.
15 In exercising my discretion I am mindful of the observations of Austin J in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (supra) where, at par [57], he said:
"57. As mentioned earlier, the Court must balance the legislative policy of preventing disputes about debts from being raised at the winding up stage, against the potentially harsh effect of the 21 day time limit for challenging a statutory demand, which was held in the David Grant case not to be capable of extension ..."
16 Companies cannot simply ignore a statutory demand and expect to obtain leave of the Court pursuant to s 459S. In my view, it is incumbent upon the defendant to satisfy the Court that its actions were reasonable. I accept that once the 21-day period had elapsed the defendant was not able to apply to set the statutory demand aside. As mentioned previously, the application seeking to wind up the defendant was made on 23 January 2002. It is not clear to me when the defendant brought its application to rely upon s 459S, but it appears that it was not until after the written
(Page 9)
- submissions of the plaintiff had been filed and served. The defendant has not acted in a timely way.
17 On the evidence before me I am not satisfied that the conduct of the defendant was reasonable.
18 The third consideration relates to whether the dispute about the debt is material to proving that the defendant is solvent.
19 The plaintiff has challenged a number of paragraphs in the affidavit of Mr Boyle, including par 9. In my view that paragraph is not objectionable. Mr Boyle deposes to the fact that he is the sole director of the defendant and he is authorised to swear the affidavit. As Mr Boyle is the sole director of the defendant the matters deposed to would be within his knowledge. Having said that, I do not consider the evidence goes far enough. It is not clear what is meant by the words "insolvent on its balance sheet", nor are there details of the current debtors or current creditors given. One cannot ascertain on the evidence given whether or not the defendant could meet its debts as and when they fell due.
20 The defendant disputes the debt the subject to the statutory demand on a number of grounds. For the purposes of the leave application it is not appropriate to deal with the question in a detailed way. That is a matter to be reserved for the winding-up application. From a cursory examination of the evidence I am satisfied that the dispute as to the debt is bona fide. Having said that I am not satisfied that leave should be granted, the defendant having failed to persuade me on the first two grounds.
21 In his oral submissions counsel for the defendant submitted:
"We are seeking the leave application at the same time. If that is granted, then dealing with the winding up. If its not granted, then the matter just dies away. My friend is certainly correct there. If leave is not granted then the matter comes to an end. Admittedly where the debt has not been paid, the statutory demand has not been set aside and leave is not given the presumption of insolvency remains."
22 Whilst the presumption of insolvency remains it can be rebutted. It is regrettable the defendant did not follow the observations of Master Sanderson in Robowash Pty Ltd v Robowash Finance Pty Ltd (supra) where he said, at par [5]:
(Page 10)
- "On 16 March 2001 Robowash issued a winding-up application. On 20 April 2001 Finance issued this application. By consent it was agreed that this application should be dealt with prior to the hearing of the winding-up application. Based upon what was said by Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd (2001) 19 ACLC 532 at 543, that is clearly the correct approach."
23 On the question of solvency, one would have expected more than the bare assertions made by Mr Boyle. Such assertions should have been supported by copies of income tax returns, returns which are required by regulating bodies and other documents of the defendant. I accept the submission by counsel for the defendant that some of the documentation would most likely have been prepared by Mr Boyle. However, I do not accept that they would necessarily be self serving. Forms which had been completed in the normal course of company business would carry some additional weight. In any event, one would expect there would be other documents held by the company which would support some of the claims made. Neither the Court nor the plaintiff has been given sufficient upon which to support the statements of solvency made by Mr Boyle.
24 As to the statements that Mr Boyle will make available funding from other sources, I am not told what those sources are, nor what limit, if any, may be placed upon them.
25 On the evidence before me I am not satisfied that the company is solvent. I am therefore satisfied an order for the winding up of the defendant should issue.
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