Hadley v BetHQ Pty Limited

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FEDERAL COURT OF AUSTRALIA

Hadley v BetHQ Pty Limited [2016] FCA 1263

File number: NSD 936 of 2016
Judge: FARRELL J
Date of judgment: 25 October 2016
Catchwords:

CORPORATIONS – application under 459S of the Corporations Act 2001 (Cth) for leave to raise grounds to oppose application for winding up – whether proposed grounds are material to proving solvency

CORPORATIONS – application to wind up company under s 459P of the Corporations Act 2001 (Cth) – where statutory demand and originating process posted to respondent’s registered office and principal place of business in Queensland – where respondent’s sole director claims non-receipt of documents – where registered office said to be “virtual office” and business conducted out of office in Victoria – whether obligation on officeholders to superintend collection of mail from registered office
Legislation:

Corporations Act 2001 (Cth) ss 459C(2)(a), 459F, 459G, 459H, 459P, 459Q, 459S, 465A(c), 467A, 470(1)(a)

Evidence Act 1995 (Cth) s 160(1)

Federal Court (Corporations) Rules 2000 (Cth) rr 5.4, 5.6

Cases cited:

Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728

Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; [1999] NSWSC 15

Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd (2012) 200 FCR 146; [2012] FCAFC 2

Grant Thornton Services (NSW)Pty Limited v St George Wholesale Distributors Pty Limited [2008] FCA 1777

In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546

Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214

Nick Scali Ltd v JSK Logistics Pty Ltd [2008] NSWSC 597

Perpetual Nominees Ltd v Masri Apartments Pty Ltd; Perpetual Nominees Ltd v Aus Constructions Pty Ltd (2004) 49 ACSR 719; [2004] NSWSC 551

Re OCNR (Australia) Pty Ltd; Convergence Team Pty Ltd v OCNR (Australia) Pty Ltd [2014] QSC 102
Date of hearing: 18 October 2016
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 62
Counsel for the Plaintiff: Mr C Parkin
Solicitor for the Plaintiff: Colin W Love & Company Lawyers
Counsel for the Defendant: Mr A G Martin
Solicitor for the Defendant: Cam Ly & Co Solicitors
Solicitors for the Supporting Creditor: Ms B Heffernan and Mr S Psaltis of Mercantile Legal

ORDERS

NSD 936 of 2016
BETWEEN:

JAMES IAN HADLEY

Plaintiff
AND:

BETHQ PTY LIMITED

Defendant

RACING VICTORIA LIMITED

Supporting Creditor

JUDGE:

FARRELL J

DATE OF ORDER:

18 OCTOBER 2016

THE COURT ORDERS THAT:

1.The Defendant, BetHQ Pty Limited, be wound up in insolvency.

2.Antony de Vries and Suelen McCallum be appointed as liquidators.

3.The costs of the Plaintiff be paid out of the Defendant’s assets.

4.Orders 1 and 2 be stayed until 4.00 pm on Tuesday, 25 October 2016.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

  1. Unless otherwise indicated, references to provisions of a statute are references to provisions of the Corporations Act

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Details
Case
[2016] FCA 1263
Decision Date

CaseChat Overview and Summary

Hadley v BetHQ Pty Limited was a case before the Federal Court of Australia, where the applicant sought leave to oppose an application for winding up on the basis of solvency. The applicant, BetHQ, was a company that had failed to comply with a statutory demand for debt. The respondent, Mr Hadley, had filed an application to wind up the company in insolvency. BetHQ's director argued that the company had ceased operations and vacated its office in Victoria and that the statutory demand and originating process were posted to a "virtual office" in Queensland. The court was required to determine whether BetHQ could provide material grounds to oppose the winding up application and whether BetHQ's director had an obligation to superintend the collection of mail from the registered office. The court found that BetHQ had failed to discharge its onus under s 459S(2) to demonstrate that the debt claimed by Mr Hadley was material to proving solvency. The court accepted that the statutory demand and originating process were posted to BetHQ's registered office and principal place of business, but it was not satisfied that BetHQ's director had an obligation to superintend the collection of mail from the registered office. The court concluded that BetHQ had not provided material grounds to oppose the winding up application and that leave should be refused. The court also found that all matters relevant to making an order for winding up had been proved, and it granted the application to wind up BetHQ in insolvency.

The court determined that BetHQ did not discharge its onus under s 459S(2) to demonstrate that the debt claimed by Mr Hadley was material to proving solvency. BetHQ did not provide any financial records or other information about its assets, liabilities, and financial position. The court accepted Mr Parkin's submission that s 459S(2) is mandatory in its terms. The court found that BetHQ's director's evidence in the affidavit sworn on 26 August 2016 did not address the issue of solvency, and he was not called to give evidence on the leave application. The court found that the fact that only Racing Victoria came forward to support the application for winding up did not give rise to an inference that BetHQ was solvent or that the debt was pivotal to the issue of BetHQ's solvency. The court found that the fact that the Norfolk Island gaming licence imposed financial conditions on BetHQ said nothing about BetHQ's compliance with them or its financial position, particularly when it had ceased operations. The court found that there was no evidence before it as to the terms on which uncalled capital might be called or of Mr Ball's capacity to meet any call. The court concluded that leave under s 459S should be refused. The court granted the application to wind up BetHQ in insolvency and appointed Antony de Vries and Suelen McCallum as liquidators. The court ordered that the costs of the plaintiff be paid out of the defendant's assets and that orders 1 and 2 be stayed until 4.00 pm on Tuesday, 25 October 2016.

Orders

Orders of the court

1. The Defendant, BetHQ Pty Limited, be wound up in insolvency.

2. Antony de Vries and Suelen McCallum be appointed as liquidators.

3. The costs of the Plaintiff be paid out of the Defendant’s assets.

4. Orders 1 and 2 be stayed until 4.00 pm on Tuesday, 25 October 2016.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

BetHQ did not discharge its onus under s 459S(2) to demonstrate that the debt claimed by Mr Hadley is material in the sense of being pivotal to the issue of solvency. No financial records or other information as to BetHQ’s assets, liabilities and financial position were put in evidence by BetHQ on the leave application. Mr Ball’s evidence in the affidavit sworn on 26 August 2016 does not address the issue of solvency; he states only that BetHQ ceased operations at its Preston office in March 2016 and vacated that office in April 2016. He was not called to give evidence on the leave application. The fact that, after advertising the application for winding up, only Racing Victoria has come forward to support the application does not give rise to an inference that BetHQ is solvent or that the debt is pivotal to the issue of BetHQ’s solvency. The fact that the Norfolk Island gaming licence imposes financial conditions on BetHQ says nothing about BetHQ’s compliance with them or its financial position, particularly when it has ceased operations. There is no evidence before the Court as to the terms on which uncalled capital might be called or of Mr Ball’s capacity to meet any call. I accepted Mr Parkin’s submission that s 459S(2) is mandatory in its terms.Conclusion I determined that leave under s 459S should be refused.APPLICATION TO WIND UP BETHQ IN INSOLVENCY Mr Martin renewed his application to adjourn the hearing of the application. That application was refused for reasons previously given. I found that all matters relevant to the making of an order for winding up had been proved, but there were some matters which required comment. First, Mr Martin objected to paragraphs [4], [6] and [10] of the Hadley Affidavit (see [6] above) on the basis that they are hearsay and conclusions based on facts not in evidence. Mr Martin submitted that he was not seeking to dispute the debt but merely to put the plaintiff to proof. It is not open to BetHQ to make the argument that Mr Hadley is not a creditor unless the Court grants leave under s 459S having regard to the statutory scheme that contemplates that disputes about the existence of debts be resolved through the process of having the statutory demand set aside: Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; [1999] NSWSC 15 per Austin J at [36]-[39]. The presumption of insolvency which founds an order under s 459P arises from the failure to comply with a statutory demand which is still in effect: s 459C(2)(a) and s 459F. It was therefore not necessary for Mr Hadley to prove the debt in the Hadley Affidavit so that while paragraphs [4] and [6] were of doubtful relevance, Mr Martin’s objection to them could not be sustained. Relevant to resolving Mr Martin’s objection to paragraph [10] of the Hadley Affidavit are the terms of s 459Q(c) and r 5.4. Section 459Q relevantly provides:459Q Application relying on failure to comply with statutory demandIf an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the application:(a)must set out particulars of service of the demand on the company and of the failure to comply with the demand; and(b)must have attached to it:(i)a copy of the demand; and(ii)[not relevant]; and(c)unless the debt, or each of the debts, to which the demand relates is a judgment debt – must be accompanied by an affidavit that:(i)verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and(ii)complies with the rules.

Ratio Decidendi

Legal Principle Established

Rule 5.4 relevantly provides:Affidavit in support of application for winding up (Corporations Act s 459P, s 462, s 464)(1)The affidavit in support of an originating process seeking an order that a company be wound up must be made by the plaintiff or by a person with the authority of the plaintiff or plaintiffs.(2)If the application is made in reliance on a failure by the company to comply with a statutory demand, the affidavit must:(a)verify service of the demand on the company; and(b)verify the failure of the company to comply with the demand; and(c)state whether and, if so, to what extent the debt, or each of the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made.Note:An example of the affidavit in support of an application for winding up in insolvency for failure to comply with a statutory demand is shown in Schedule 3 (Notes to these Rules)(3)[Not relevant](4)The affidavit must be made within 7 days before the originating process is filed. The purpose and express words of s 459Q(c)(i) and r 5.4(2)(c) is to verify that the debt the subject of the statutory demand remains due and payable. The language is one of “a formal affirmation” and not of the need to “prove and demonstrate by good evidence or otherwise substantiate” the debt and that conclusion is supported by the legislative context: see Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd (2012) 200 FCR 146; [2012] FCAFC 2 per Finn, Gordon and Murphy JJ at [17]-[23]. The Hadley Affidavit at paragraph [10] addresses the requirements of s 459Q(c)(i) and r 5.4(2)(c); in so far as it is not in admissible form, it does not need to be. Mr Martin’s objection to that paragraph cannot be upheld. Mr Martin also objected to paragraph [5] of Mr Hadley’s affidavit sworn on 17 October 2016 which reiterated paragraph [10] of the Hadley Affidavit. There is no statutory requirement for this statement to be updated and I consider that it should be treated as a submission only. The second issue was the significance of the two irregularities identified at paragraph [12] above. BetHQ did not make any complaint on the basis of these irregularities. I am satisfied that there is no substantial injustice resulting from them which should prevent the making of a winding up order if it is otherwise justified having regard to the fact that notice of the application for the winding up order was indeed published on ASIC’s website on 13 July 2016 and the period of the delay in giving notice to ASIC as required by s 470(1)(a) was a matter of a few days: see s 467A. This reflects the approach taken by Barrett J in Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214 at [8]. Thirdly, Mr Martin asserted that BetHQ was in fact solvent, a claim which BetHQ is entitled to prosecute without leave under s 459S. He again raised the argument that BetHQ has paid up capital in excess of $800,000 and unpaid capital of $184,511. He submitted, and he was correct, that the amount of $184,511 exceeds the aggregate of the debts claimed by Mr Hadley and Racing Victoria. However, that fact is ultimately not to the point. It is the defendant company which bears the onus of proving solvency and rebutting the presumption established by s 459C(2)(a). The matters on which Mr Martin has based his submissions are entirely inadequate to do that for reasons previously given. Ordinarily, the court should be presented with the “fullest and best” evidence of the defendant’s financial position; 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: see Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 per Weinberg J at [44]. No financial statements of any kind were in evidence and Mr Martin’s submission from the bar table that BetHQ is solvent was not founded on any evidence from Mr Ball. I was not in a position to be satisfied on the balance of probabilities that BetHQ is solvent.