Home Corp Projects v Australian Home Mortgage Corporation (No 100)

[2001] NSWSC 701

Reported Decision: (2001) 19 ACLC 1491

New South Wales

Supreme Court

CITATION:	Home Corp Projects (No 100) v. Australian Home Mortgage Corporation [2001] NSWSC 701
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3222/01
HEARING DATE(S):	14 & 15 August, 2001
JUDGMENT DATE:	16 August 2001
PARTIES :	Home Corp Projects (No 100) Pty Ltd [Plaintiff] Australian Home Mortgage Corporation Pty Ltd (In liquidation) [Defendant]
JUDGMENT OF:	Palmer J

COUNSEL :	S.T. White, N. O'Brant [Plaintiff] J.T. Johnson [Defendant]
SOLICITORS:	Cornwall Stodart [Plaintiff] Watson Mangioni [Defendant]
CATCHWORDS:	CORPORATIONS - STATUTORY DEMAND - LEAVE TO PROCEED - Creditor serving disputed statutory demand is company in liquidation - debtor files application to set aside demand under s.459G without first obtaining leave under s.500(2) to commence proceedings against company in liquidation - leave under s.500(2) sought nunc pro tunc after expiry of twenty-one day period limited by s.459G - whether Court has jurisdiction to grant leave nunc pro tunc - whether "application" for purposes of s.459G means application made in accordance with Corporations Law - held - an application under s.459G without prior leave under s.500(2) is not a nullity, it is effective to invoke the Court's jurisdiction - failure to obtain leave is a mere defect or irregularity in exercise of Court's discretion which can be cured by granting leave nunc pro tunc. WINDING UP - LEAVE TO PROCEED - DISCRETION - Held - the primary question in the exercise of discretion under s.500(2) is whether the proposed proceedings will unduly interfere with the orderly winding up - Court should be satisfied that the proposed proceedings are not vexatious and there is a serious issue to be tried but will not otherwise enter into the merits. WORDS AND PHRASES - "Application" under s.459G means an application which is effective to invoke the Court's jurisdiction under the section, not an application which complies with all other requirements of the Corporations Law.
LEGISLATION CITED:	Conveyancing Act 1919 - s.37A Corporations Law - ss.236, 459A, 459E, 459G, 459H, 459P, 500, 588FB
CASES CITED:	- Emanuele v Australian Securities Commission (1997) 188 CLR 114 - Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 - David Grant & Co Pty Ltd (rec. appt’d) v Westpac Banking Corporation (1995) 184 CLR 265 - Mandarin International Developments Pty Ltd v Growth Corp (Australia) Pty Ltd & Anor (1998) 143 FLR 408 - Oceanic Life Limited v Insurance and Retirement Services Pty Ltd (1993) 11 ACSR 517 - Re Sydney Form Works Pty Ltd (1965) NSWR 646 - Re Testro Brothers Consolidated Limited (1965) VR 18
DECISION:	Plaintiff granted leave under s.500(2) nunc pro tunc to proceed with application under s.459G; genuine dispute found; statutory demand set aside.

1 On 4 June 2001 a statutory demand under s.459E of the Corporations Law (“CL”) was served by the defendant on the plaintiff claiming a debt of $93,019. As at that date the defendant was in liquidation pursuant to a resolution for voluntary winding up. Accordingly, no action or other civil proceeding could be commenced against it except by leave of the Court under CL s.500(2). 2 On 22 June 2001, Christopher Brennock, a director and shareholder of the plaintiff, sought and was granted leave under CL s.236 to bring proceedings in the name of the plaintiff to set aside the defendant’s statutory demand. On the same day, an originating process and supporting affidavit were filed in the name of the plaintiff seeking to set aside the statutory demand pursuant to CL s.459G. 3 Through an oversight on the part of the plaintiff's solicitor, no order granting leave to the plaintiff to commence those proceedings had been sought pursuant to CL s.500(2). The matter was fixed for hearing on 16 August, 2001. 4 On 18 July 2001 the defendant's solicitors wrote to the plaintiff's solicitors drawing attention to the plaintiff's failure to obtain leave under CL s.500(2). On 20 July the plaintiff's solicitors wrote advising that the plaintiff would seek leave nunc pro tunc under CL s.500(2) on the commencement of the hearing of these proceedings. On 14 August the matter came on for hearing before me and the plaintiff sought and was granted leave to file in court a Notice of Motion returnable instanter seeking leave nunc pro tunc to commence these proceedings. 5 Essentially, there are three issues before the Court. The first is: whether the Court has power to grant leave pursuant to CL s.500(2) nunc pro tunc in respect of an application under CL s.459G. The second is: if the Court does have such power whether the Court should grant leave in the circumstances of this case. The third is: if leave nunc pro tunc is granted, whether the plaintiff has demonstrated to the Court's satisfaction that there is a genuine dispute between the plaintiff and the defendant as to the existence or amount of the debt for the purposes of CL s.459H(1). Whether leave can be granted nunc pro tunc 6 Mr Johnson, who appears for the defendant, submits that the requirements of CL s.459G are clear and must be strictly observed. The debtor must within twenty-one days after service of the statutory demand file and serve its application to set aside the statutory demand and must serve that application and the supporting affidavits on the creditor within that time. 7 Mr Johnson submits that “application” for the purposes of CL s.459G means an application properly made in accordance with the requirements of the Corporations Law . In a case requiring that the application be by prior leave of the Court under CL s.500(2), an application made without such leave is not an application for the purposes of CL s.459G. Leave under CL s.500(2) cannot be granted after the twenty-one day period referred to in CL s.459G has expired because the effect of granting such leave nunc pro tunc would be to extend the time for making a proper application beyond the time strictly limited by the section. The jurisdiction of the Court is defined by the temporal requirements in CL s.459G(2) and (3) and the Court has no power to extend time for compliance: David Grant & Co Pty Ltd (rec. appt’d) v Westpac Banking Corporation (1995) 184 CLR 265. 8 I am unable to accept that submission. In my view the point is covered by the decision of the majority of the High Court in Emanuele v Australian Securities Commission (1997) 188 CLR 114. In that case the respondent had failed to obtain the leave of the Court as required by CL s.459P(2) before applying for an order that a company be wound up in insolvency under CL s.459A. The majority held that that failure was a mere defect or irregularity in the exercise of the Court's jurisdiction which could be cured by granting leave nunc pro tunc. The commencement of the proceedings without leave was not a nullity, so that the Court had jurisdiction to make the winding up order which was in fact made: see especially the judgments of Toohey and Dawson JJ at pp.128 and 125 respectively. 9 There is no policy consideration peculiar to the Corporations Law regime for the winding up of companies established by Pt 5.4 Divs 2 and 3 which requires that “application” when used in CL s.459G be construed otherwise than to mean an application which is effective to invoke the jurisdiction of the Court. 10 The underlying purpose of CL s.459G is to require the alleged debtor company to move swiftly in taking action to dispute a statutory demand and to require that it substantiate its allegation that there is a genuine dispute by serving its affidavit in that regard promptly. That purpose is not frustrated simply because the company, having filed and served an application and supporting affidavit within the required time, has failed to seek prior leave under CL s.500(2), if such leave is required. 11 Further, the underlying purpose of CL s.500(2) is quite different from that of CL s.459G. The purpose of CL s.500(2) is to ensure that proceedings against a company in liquidation do not improperly interfere with its orderly winding up: see, for example, Re Testro Brothers Consolidated Limited (1965) VR 18; Re Sydney Form Works Pty Ltd (1965) NSWR 646. There is no purposive link between CL s.459G and s.500(2); the two sections are only brought into play in the same matter in the purely fortuitous circumstance that the creditor issuing the disputed statutory demand happens to be a company in voluntary liquidation. 12 I can detect nothing in CL Pt 5.4 Divs 2 and 3 which would render the reasoning of the majority in Emanuele inappropriate to apply to an application for leave nunc pro tunc to commence proceedings under CL s.459G. In my view an application to the Court made within time under CL s.459G without prior leave, where such is required by CL s.500(2), is nevertheless an application for the purposes of that section. Leave under CL s.500(2) may be granted nunc pro tunc in an appropriate case. Whether leave should be granted 13 The question then arises as to whether leave under CL s.500(2) should be granted nunc pro tunc. If that leave is not granted nunc pro tunc, the Court cannot permit the plaintiff's application under CL s.459G to proceed further. 14 Mr Johnson does not challenge the evidence of the plaintiff's solicitor that failure to obtain leave under CL s.500(2) was due to inadvertence. He very fairly and frankly concedes that if such leave had been sought at the time that the plaintiff sought an order under CL s.236, then it would have been granted almost as a matter of course since the foreshadowed proceedings against the company in liquidation are not for the purpose of obtaining a judgment against it but for the purpose of challenging a statutory demand issued by it. Mr Johnson can point to no prejudice to the defendant which would be occasioned by the granting of leave now rather than on 22 June. 15 However, Mr Johnson says that as a matter of discretion the Court should refuse leave so that the plaintiff's application under CL s.459G cannot proceed. He says that granting leave to enable the plaintiff to challenge the statutory demand lacks utility. 16 As the evidence reveals, the two shareholders and directors of the plaintiff, Mr Brennock and Mr Leishman, are deadlocked in dispute. On 8 February 2001 they entered into a settlement agreement in which they agreed that after sale of the plaintiff's only substantial assets, namely two developments on the Central Coast, the net proceeds would be distributed in part to the plaintiff and in part to Mr Brennock, and Mr Brennock would transfer his shares to Mr Leishman. The two developments have been sold but the contracts apparently have not yet been completed. 17 In these circumstances, Mr Johnson says that no leave should be granted under CL s.500(2) to enable the plaintiff to defend winding up proceedings for a number of reasons. First, he says that the plaintiff is insolvent and should not be allowed to trade. The plaintiff should not be permitted to challenge the defendant's statutory demand but should be left to await its fate when a winding up application is made by the defendant. 18 Second, a winding up order should be made because the settlement agreement between the directors and shareholders of the plaintiff is an asset-stripping agreement which should be set aside by a liquidator of the plaintiff as a fraudulent disposition under s.37A of the Conveyancing Act or as an uncommercial transaction under CL s.588FB. 19 Third, the plaintiff's affairs are in chaos and the company should be wound up on the just and equitable ground. 20 I am unable to accept those submissions. First, there is not sufficient evidence to support the factual assertions made by Mr Johnson. Those assertions were not issues in the proceedings before me. If they had been, no doubt the plaintiff would have adduced evidence specifically directed to them. 21 Second, and even more important, the discretion to be exercised under CL s.500(2) is concerned solely with the effect of the proposed proceedings upon the company in voluntary liquidation, here the defendant. The primary question for the Court is whether the proposed proceedings against the company in liquidation will unduly interfere with its orderly winding up. Beyond ascertaining that there is some utility to the proposed proceedings, it is extraneous to that consideration to have regard to the question whether it is in the interests of the proposed plaintiff, or its members or creditors, that it be allowed to commence the proceedings. Clearly, the Court will take into account whether the proposed proceedings are frivolous, vexatious or an abuse of process and would be struck out if allowed to proceed. A serious question to be tried must be shown: see, for example, Oceanic Life Limited v Insurance and Retirement Services Pty Ltd (1993) 11 ACSR 517. 22 In the present case there is utility in the plaintiff being permitted to challenge the defendant's statutory demand. If there is in fact no proper basis for the demand because there is a genuine dispute as to the debt, then it is an injustice that the plaintiff be wound up, without having had the opportunity to contest the defendant's demand in the appropriate court. Whether genuine dispute as to debt 23 Whether there is a serious question to be tried depends upon whether the plaintiff has shown that the defendant's debt is genuinely in dispute. To prove the debt the defendant relies upon entries in its own financial records and in the records of the plaintiff. The evidence shows that Mr Leishman controlled a group of companies of which the defendant was a member. Although the plaintiff was not a member of that group or a related entity of any of its members, its financial records were kept by staff of Mr Leishman's group. 24 Mr Brennock says that there was an agreement between himself and Mr Leishman, his co-director, that no liabilities would be incurred by the plaintiff without the consent of both directors. 25 The evidence clearly discloses that payments were made into the bank account of the plaintiff from the bank account of the defendant from time to time, but the evidence does not disclose why those payments were made, upon what terms and for what purpose they were applied. There are no minutes of directors of the plaintiff referring to the payments. Mr Brennock says that he did not know about the payments being made to the plaintiff by the defendant and certainly did not authorise the incurring of liability by the plaintiff for those payments. Mr Johnson concedes that there is no evidence showing that Mr Brennock knew of or authorised the alleged borrowings by the plaintiff from the defendant. 26 Mr Brennock challenges the accuracy of the plaintiff's accounts showing the plaintiff to be in debt to the defendant. He says that those accounts were prepared by the defendant's staff and that they have not been adopted by the plaintiff's board. 27 In these circumstances, I am of the view that the plaintiff has established, at the least, a plausible contention requiring investigation as to whether the alleged borrowings by the plaintiff from the defendant were duly authorised and were properly incurred by the plaintiff and as to what, if any amount, is owing by the plaintiff to the defendant: see, for example, Mandarin International Developments Pty Ltd v Growth Corp (Australia) Pty Ltd & Anor (1998) 143 FLR 408, and Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785. 28 Accordingly, I am satisfied that there is a genuine dispute as between the plaintiff and the defendant as to the existence of the debt claimed in the defendant's statutory demand. In those circumstances leave to commence proceedings under CL s.459G should be granted nunc pro tunc to the plaintiff under CL s.500(2). 29 Consequently, there will be an order that the defendant's statutory demand served on 4 June 2001 will be set aside. The defendant will pay the plaintiff's costs. Exhibits may be returned.

Last Modified: 08/22/2001