HQ Wood Pty Ltd (ACN 630 562 891) Plaintiff v J & G Flooring Pty Ltd (ACN 663 355 771) Defendant
[2024] VSC 103
•22 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 05612
IN THE MATTER of J & G FLOORING PTY LTD (ACN 663 355 771)
BETWEEN:
| HQ WOOD PTY LTD (ACN 630 562 891) | Plaintiff |
| v | |
| J & G FLOORING PTY LTD (ACN 663 355 771) | Defendant |
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JUDGE: | Gobbo AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 March 2024 |
DATE OF RULING: | 22 March 2024 |
CASE MAY BE CITED AS: | Re J & G Flooring Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 103 |
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CORPORATIONS – External administration – Application for termination of winding up under s 482(1) of Corporations Act 2001 (Cth) – Circumstances in which winding up order was made – Paucity of evidence on application – Public interest considerations – Conduct of solicitor for the Applicant – Obligations under Civil Procedure Act 2010 (Vic) – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Angelakis, solicitor | Mills Oakley |
| For the Applicant, Mr John Dirito | Ms Z Davis, solicitor | ZD Legal |
| For Andrew MacNeill (in his capacity as liquidator of J & G Flooring Pty Ltd (ACN 663 355 771)) | Mr J Pomaroff, solicitor | Mason Black + Mendelsons Lawyers |
TABLE OF CONTENTS
Legal principles................................................................................................................................ 10
The circumstances leading up to the winding up order........................................................... 13
The evidence..................................................................................................................................... 19
The submissions............................................................................................................................... 23
Consideration.................................................................................................................................... 24
Solvency........................................................................................................................................ 24
Public Interest.............................................................................................................................. 25
Civil Procedure Act and compliance............................................................................................ 28
Conclusion......................................................................................................................................... 31
HER HONOUR:
On 28 February 2024, the Court ordered that the defendant, J & G Flooring Pty Ltd (ACN 663 355 771) (‘Company’) be wound up in insolvency and appointed Andrew MacNeill as liquidator (‘Liquidator’). This ruling concerns an application to terminate or stay that liquidation. The law relating to whether a winding up is terminated or stayed is settled.[1] However, the circumstances of this winding up, and the conduct of the Applicant and, more specifically, his solicitor requires particular attention given the manner in which this proceeding has been run before the Court.
[1](1982) 6 ACLR 526 (‘Re Warbler’).
On 4 March 2024, Ms Davis of ZD Legal, provided an unsealed interlocutory process to the Registry seeking an urgent hearing for orders, inter alia, pursuant to s 482 of the Corporations Act 2001 (Cth) (‘Act’) that the winding up of the Company be terminated or stayed (‘Application’). Accompanying the unsealed interlocutory process was an unsealed copy of Ms Davis’ affidavit affirmed on 4 March 2024 (‘First Supporting Affidavit’) and a Hearing Date Information Form. At the outset, it is important to highlight some deficiencies in the documents submitted to the Registry, which were ultimately amended on advice from the Registry and accepted for filing in a different form, and the Application generally.
In addition to s 482 of the Act, the unsealed interlocutory process provided to the Registry stated that the Application was made pursuant to r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’). As the Application was made in a Victorian Court the UCPR have no application. The interlocutory process ultimately filed on 5 March 2024, did not seek orders pursuant to the UCPR.
Further, Ms Davis’ unsealed First Supporting Affidavit provided to the Registry contained an exhibit sheet in the following terms:
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
CRIMINAL COURT
APPEALS LISTS ECI 2023 05937
JOHN DIRITO
Appellant
and
KNOX CITY COUNCIL
Respondent
EXHIBIT CERTIFICATE
The sealed First Supporting Affidavit before me does not appear to have been re-sworn to correct the exhibit certificate which does not contain this error. Rather the exhibit certificate appears to have simply been swapped.
In support of the request for an urgent listing date for the Application, a Hearing Date Information Form was provided to the Registry. The Hearing Date Information Form states that the Application was to be brought pursuant to s 272(1) of the Criminal Procedure Act 2009 (Vic) (‘Criminal Procedure Act’). This proceeding, filed in the Commercial Court, is governed by the Act. The Criminal Procedure Act is not applicable.
The Application filed on 5 March 2024 was made by the Company. Pursuant to the Orders of the Court made on 28 February 2024, the Company is in liquidation. Accordingly, it has no standing to make the Application.
The catalyst for the making of the Application was that the solicitor for the Company, Ms Davis, failed to appear at the hearing of the winding up application before the Judicial Registrar on 28 February 2024, at which the Company was wound up. The explanation provided by Ms Davis at paragraphs 6 to 14 of her First Supporting Affidavit, and replicated in a further affidavit of Ms Davis affirmed on 6 March 2024 (‘Second Supporting Affidavit’), as to why she was not present at the hearing on 28 February 2024, is as follows:
6.On 27 February 2024, (partially without prejudice) emails were exchanged between our office and Mills Oakley, in which their office was informed of, amongst other things, my ill-health at the time and that we would likely seek a short additional adjournment to get instructions from our client regarding payment to the plaintiff.
7.At or around 9:30am through to 11:34am on 28 February 2024, the Plaintiffs caused to send various response correspondence rejecting all offers and requesting full receipt of the then stated total amount due, to be agreed to prior to the hearing commencing at 12:00pm that same day, or otherwise be wound up.
8.Noting this, I urgently prepared my previously referred Unfiled Affidavit for emailing to the court, whilst I also caused to commence launching of the video link hearing at the same time, intending to join in the background whilst finalizing the document for sending.
9.From memory I believe it was approximately 12:10pm at that time.
10.Unfortunately, however, before I was able to send anything, my computer froze entirely and locked me out of taking any action whatsoever for at least 10 or more minutes.
11.Approximately 10-15 minutes later, I was able to force my computer to shut down and restart, and eventually rejoined the hearing at around 12:35pm.
12.As a result of the technical issues, I was not able to join the link again until quite late but had hoped the court and Plaintiff’s solicitors would be aware we intended to appear and our matter would be able to be stood down for what might have only been a few minutes if it had even been called at all yet.
13.After re-joining, I immediately conversed with the court clerk who advised me that J & G Flooring’s matter had already been called and the company had been wound up in our absence, despite our efforts to remain in contact with the court and the plaintiff’s solicitors.
14.The court clerk advised that the plaintiff had sought for my client’s company be wound up in our absence and that we were purportedly also supportive of the company being wound up, which was expressly not the case.
The Application was initially listed for hearing before me at 11:00am on 8 March 2024, following the request for an urgent listing by Ms Davis. When the matter was called at 11:00am (both inside and outside the Court), neither Ms Davis nor anyone from her firm was present. Ms Davis arrived at approximately 11:16am. Ms Davis attributed her lateness to being ‘in the wrong building’, and stated that she ‘[had not] appeared in [the] William Cooper building before’, ‘made the mistake of following security’ and ‘[was] at a locked door’. This was despite the address for the hearing appearing on the Daily List and in email correspondence sent from my chambers on 5 March 2024 and again on the morning of the hearing.
At the hearing on 8 March 2024, the following affidavits were before the Court:
(a) First Supporting Affidavit;
(b) affidavit of Mark David Wenn sworn 5 March 2024 (‘First Wenn Affidavit’). The purpose of the First Wenn Affidavit was to properly inform the Court of the circumstances of the winding up of the Company and otherwise respond to matters raised in the First Supporting Affidavit; and
(c) affidavit of Mark David Wenn sworn 7 March 2024 (‘Second Wenn Affidavit’). The purpose of the Second Wenn Affidavit was to put before the Court relevant correspondence which had been exchanged between Mills Oakley, the solicitors for the plaintiff, and Ms Davis’ firm.
At that hearing, Ms Davis sought leave to file an amended interlocutory process which she informed the Court had been provided to the Registry on 7 March 2024 (‘Amended Application’) together with the Second Supporting Affidavit. I granted leave to file the Amended Application so that the named applicant was Mr John Dirito (‘Applicant’), the sole director and shareholder of the Company.
It would appear that the fact that the Company had no standing to make the Application was only realised by the solicitor for the Applicant and the Company following correspondence from the plaintiff’s solicitor. The Second Wenn Affidavit included a letter sent by Mr Wenn to Ms Davis on 6 March 2024 in the following terms:
We invite you to immediately withdraw your application as it is fatally flawed.
According to the sealed Interlocutory Process served on our office on 5 March 2024, the company is purportedly making this application pursuant to s482 of the Corporations Act 2001 (Act), and pursuant to regulation 36.16 of the Uniform Civil Procedure Rules (UCPR).
There are two issues with your application:
1. The requirements as to standing under s482(1A) of the Act are not satisfied. The company cannot make this application. In any event, we query how you have proper instructions from the company to make the application given the company is in liquidation and the director is accordingly without power to provide you with instructions.
2. You are making this application in the Supreme Court of Victoria, which is not subject to the UCPR as this court is in Victoria, not New South Wales or Queensland, and operates pursuant to the rules relevant to the Supreme Court of Victoria.
If we are required to appear on Friday we place you on notice that an application for costs will be made and sought against your instructor on an indemnity basis, and this correspondence relied upon on the question as to costs.
The Amended Application, in addition to relying on s 482 of the Act, also sought to rely on s 90-15 of Schedule 2 to the Act. The power conferred by s 90-15 of Schedule 2 to the Act is broad. The Court may, pursuant to s 90-15 of Schedule 2 to the Act, terminate a provisional or a voluntary winding up. There is no reported authority in which s 90-15 of Schedule 2 to the Act has been used to terminate an insolvent liquidation, and its application to this context is, in my view, doubtful.[2]
[2]Section 90-15 of Schedule 2 to the Act fills the absence of an express power to terminate a provisional liquidation, and the gap caused by the repeal of s 511, which made s 482 of the Act applicable to voluntary liquidations. See Re S & W Slade Pty Ltd (In Liq) [2020] NSWSC 981, [2] (Black J). By contrast, s 482 of the Act enacts a specific power to terminate an insolvent winding up. Given the existence of specific provision, it is doubtful that there is any need to construe the general provision (s 90-15 of Schedule 2 to the Act) as conferring an alternative power.
At the hearing on 8 March 2024, I asked the solicitor for the Liquidator what the position was in respect of the Company and the Liquidator’s investigations. Specifically, I asked Mr Pomaroff whether the Liquidator’s position was as represented in the First Supporting Affidavit of Ms Davis, that:
25.Mr Gamage advised that based on the information gathered so far, they were of the opinion the company indeed appeared to be solvent and that the liquidation should be terminated as soon as possible.
26.When I advised Mr Gamage it was intended we would file an application under 482 of the Corporations Act to set aside the winding up, he advised me that they would support whatever application to cease the liquidation or reverse the orders that was eventuated.
27.Mr Gamage asserted to me it was the liquidator’s intention to work as quickly as possible to return control and access back to Mr Dirito and that the liquidation was not recommended.
Mr Pomaroff informed that Court that the statement contained in paragraphs 25 to 27 of the First Supporting Affidavit was not correct and that his firm had advised ZD Legal of this in writing on 6 March 2024. Mr Pomaroff explained that the Liquidator had not yet been provided with the Company’s books and records by the Applicant and that the Applicant was yet to complete a Report on Company Activities and Property (‘ROCAP’).
I pause to note that in the Second Supporting Affidavit, the passage in the First Supporting Affidavit extracted at paragraph 13 above appears to have been changed, without explanation. I extract the relevant paragraphs below as they appear in the Second Supporting Affidavit:
25. .
26. When I advised Mr Gamage it was intended we would file an application under 482 of the Corporations Act to set aside the winding up, he advised me that based on the information gathered so far, the Company appeared to be solvent and that if that were in fact so, they would provisionally support the application to court if made..
27. Mr Gamage asserted to me it was the liquidator’s intention to work as quickly as possible to undertake their necessary investigations to facilitate the appropriate action for the Company..
No explanation was offered by Ms Davis as to why the matters set out in paragraphs 25 to 27 of her First Supporting Affidavit differed from those set out in the same paragraph numbers in her Second Supporting Affidavit.
The solicitor for the Applicant otherwise sought an adjournment of the Amended Application on 8 March 2024 in order to file further material. The adjournment was opposed by the solicitor for the plaintiff but consented to by the solicitor for the Liquidator. Ultimately the matter was adjourned by me for hearing on 15 March 2024 at 12:00pm with Orders made that the Applicant file and serve any further affidavit material and a written outline of submissions not exceeding six pages by 12:00pm on 13 March 2024, being a date which Ms Davis assured me would be capable of being met by the Applicant culminating in the following exchange:[3]
HER HONOUR: Yes and I want to be clear with you, Ms Davis, and I’m yet to hear from Ms Green or Mr Pomaroff about these matters, but where [sic] I minded to adjourn the matter and make orders for the filing of material, those orders are not aspirational. Those orders require strict compliance.
MS DAVIS: Yes.
HER HONOUR: I have read the court file, I have seen what’s occurred before the judicial registrar and I have seen a continued non-compliance with court orders by your firm. It is unacceptable.
MS DAVIS: Yes.
[3]Transcript of Proceedings (8 March 2024) 7.11-7.22.
No affidavit material or submissions were filed by or on behalf of the Applicant in compliance with my Order of 8 March 2024.
On 14 March 2024, the following further affidavits were filed on behalf of the plaintiff and Liquidator:
(a) affidavit of Mark David Wenn sworn 14 March 2024 (‘Third Wenn Affidavit’). The Third Wenn Affidavit confirms that the plaintiff is presently owed the sum of $26,543.86 of which a part payment of $14,598.63 has been deposited by the Applicant into the Mills Oakley trust account. That payment is yet to be released to the plaintiff. The affidavit otherwise deposes to the additional costs which have been incurred since the hearing on 8 March 2024 ($5,845.97) and those which the plaintiff estimated would be incurred at the hearing on 15 March 2024 ($2,500.00); and
(b) affidavit of Andrew MacNeill affirmed 14 March 2024 (‘Liquidator’s First Affidavit’). The Liquidator’s First Affidavit deposes to the dealings between the Liquidator and his staff and the Applicant and Ms Davis since the winding up order was made together with the Liquidator’s view of the Amended Application under s 482 of the Act.
A further updating affidavit from the Liquidator was filed at approximately 10:00am on 15 March 2024 (‘Liquidator’s Second Affidavit’), as was an outline of submission from each of the plaintiff and Liquidator.
On 15 March 2024, the Amended Application came before me for hearing. The matter was called inside and outside the Court at 12:02pm. There was no appearance by Ms Davis or ZD Legal for the Applicant. Regrettably, as I was part-heard with another matter, the Amended Application was stood down. Had this not occurred, the Amended Application would have been dismissed by me in the Applicant’s absence. Ms Davis arrived outside the courtroom at approximately 12:57pm. The matter was re-called for hearing at 1:02pm.
When the matter was recalled, I asked Ms Davis why she was not present in Court at 12:00pm. The explanation I received was as follows:
I feel, firstly, regretful that I again have to have such a situation to apologise to the court for. It seems like a horrendous pattern in the last few weeks. I discovered that my emails, chats had substantial issue. Unbeknownst to me, none of my correspondence, none of my documents had gone…[4]
…
Unfortunately, then I had an accident and I rolled my ankle, then I had another incident, which I can’t sort of discuss. Needless to say, I had to be in the bathroom for a while to fix everything, and I now have sprained my ankle. And, luckily, my laptop is – I don’t even believe it may have been working previously, but it’s brand new, and nothing seems to want to assist.[5]
…
If I could just lastly just very quickly provide additional context here, that is quite literally the difficulty and the reason why it was unbeknownst to me because it’s not my actual email address that’s having an issue, but it’s the Outlook and the connection to the laptop.
As my colleague would note, the emails referred to are sent from my phone. They are short emails. Obviously, all of the important emails – the ones that really do matter – are being sent with documentation and at length from my laptop. I was unaware that they weren’t going until sometimes days later when, in fact, I then received my own email CC’d to myself arrive in my inbox, and I realised it had been so substantially delayed, if having been sent at all.
It has been connecting and reconnecting and disconnecting, and I’ve had to take some serious time to properly deal with it. It’s something to do with Microsoft 365. It’s beyond my purview and it’s very timely and in the worst time frame. I wish to apologise.[6]
[4]Transcript of Proceedings (15 March 2024) 2.13-2.18.
[5]Ibid, 2.25-2.31.
[6]Ibid, 4.16-5.4.
There was no communication from Ms Davis or ZD Legal to either my chambers or the Court to indicate that Ms Davis was unable to attend Court on time on 15 March 2024.
Moreover, and concerningly, on 15 March 2024 at approximately:
(a) 12:06pm, when Ms Davis ought to have been in Court, Ms Davis emailed my chambers and the other parties with an affidavit of Mr Greg Saligari affirmed 14 March 2024 (‘Saligari Affidavit’) and an affidavit of the Applicant sworn 15 March 2024 (‘Applicant’s Affidavit’), six minutes after the scheduled hearing time; and
(b) 12:24pm, when Ms Davis ought to have been in Court, Ms Davis emailed my chambers and the other parties with an outline of submission, 24 minutes after the scheduled hearing time.
Ms Davis sought leave to rely on Applicant’s Affidavit and the Saligari Affidavit. When I put to Ms Davis that she had not complied with my Orders made 8 March 2024, and that she had not sought any extension to my Order, the following explanation was received:[7]
[7]Ibid, 7.4-8.1.
MS DAVIS: And I understand. And again, that’s where I’ve landed in this mess where even my email and my request was then even further delayed. It’s ridiculous on my behalf.
HER HONOUR: Do you assert, do you, Ms Davis, that you sent an email to the court seeking an extension?
MS DAVIS: I had attempted to. I had spoken to Mr Pomaroff that I would be doing so.
HER HONOUR: I wish to be very clear about this. Do you assert that you sent an email to the court seeking an extension?
MS DAVIS: Numerous, in fact, which did not proceed through.
HER HONOUR: Do those emails appear in your sent items?
MS DAVIS: No. And that’s the problem. They sat in the outbox, which I was unable to pull up. I’ve had to remove all of the emails – the OneDrive. I’ve had to extract every single thing. There was about eight different emails.
HER HONOUR: Are they still sitting in the outbox?
MS DAVIS: The most recent ones are, but the ones from a few days ago – because obviously I’ve had to tend to the issue, I then attempted to provide a lengthy correspondence, again, when I didn’t realise that everything else had not sent. It was only subsequent to that I did, and I’ve tried to take measures - - -
HER HONOUR: Does your lengthy correspondence, Ms Davis, refer to you having attempted to send an email to the court seeking an extension of my orders? You will need to direct me to where you’ve done that.
MS DAVIS: I believe that I seek leave noting, at that stage, it was well past the time.
No communication was received from Ms Davis or ZD Legal seeking to extend my Orders made 8 March 2024. I regard the explanation offered by Ms Davis as wholly unsatisfactory and lacking substance, particularly as emails were sent by Ms Davis to my chambers on 15 March 2024 without incident. Further, the Liquidator’s First Affidavit exhibits email correspondence successfully sent by Ms Davis to the Liquidator on 13 March 2024 and 14 March 2024 and to the Liquidator’s solicitor on 14 March 2024.
In addition, Ms Davis sought to rely on an affidavit purportedly sworn by her at 11:00am on 15 March 2024 before a staff member from her office. Ms Davis’ purported affidavit was not provided to my chambers nor to the other parties. Neither the original affidavit nor a copy was brought by Ms Davis to the hearing. When pressed, I asked Ms Davis to email the affidavit to my Associate in Court. She was unable to do so.[8] I then stood the matter down for 10 minutes to enable this to occur. Again, Ms Davis was unable to provide the affidavit.[9] Leave was not granted in respect of the affidavit. It was not produced.
[8]Ibid, 10.31-11.7.
[9]Ibid, 12.2-12.4.
Legal principles
Section 482 of the Act provides relevantly in the context of this Amended Application:
482(1)At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
482(1A) An application may be made by:
(a)in any case – a liquidator, or a creditor contributory, of the company; or
(b)...
(c)...
The jurisdiction to terminate a winding up under s 482 of the Act is discretionary. There are no statutory criteria prescribed as to how such discretion should be exercised. In the oft cited case of Re Warbler Pty Ltd,[10] Master Lee QC provided a list of criteria for guidance:
[10]Re Warbler (n 1).
1.The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: In Re: Calgary and Edmonton Land Co Ltd (In liq) (1975) 1 WLR 355 at pp 358-359 per Megarry J. See also sec. 243 of the Act [i.e, Companies Act 1961].
2.There must be service of notice of the application for a stay on all creditors and contributories, and proof of this; Re South Barrule Slate Quarry Co (1869) 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3.The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows (supra) [[1974] VR 689]; Re Data Homes Pty Ltd (supra) [[1971] 1 NSWLR 338], Law of Company Liquidation (supra) at p 395.
4.The attitude of creditors, contributories and the liquidator is a relevant consideration: sec. 243(1), Calgary and Edmonton Land Co Ltd (supra).
5.The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: In re a Private Company (1935) NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] Vic Rp 78; (1970) VR 593 at p 598.
6.If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd (supra) [[1903] 2 Ch 174].
7.The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows (supra).
8.The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’: Krextile Holdings Pty Ltd v Widdows (supra).
In Re Skay Fashions Pty Ltd,[11] Tadgell J, in considering this type of application, stated at [746]:
… The Court will refuse to act simply upon the assent of creditors. Here some of the creditors of the company have said that they do not oppose the application; others have expressed no point of view and some of them, as I have indicated, have opposed the application.
The Court also has to consider whether the termination of the winding up will be conducive or detrimental to commercial morality and the interests of the public at large. It is a clear axiom that insolvent companies should be wound up and that they should stay in liquidation unless solvency can be demonstrated. If solvency could be demonstrated here, it would be no more than bare solvency. That is about as much as could ever be expected if an adjournment were allowed. The Court would if making an order to terminate a liquidation, probably, and in the ordinary course should, give directions for the resumption of management of control of the company by its officers. As I say, here I am given no information at all as to who might conduct the company’s affairs or how they might be conducted. For all one knows, they would be conducted in the same sloppy fashion as they have been conducted heretofor.
[11](1986) 10 ACLR 743.
In Metledge (t/a Metledge and Associates) v Bambakit Pty Ltd (in liq),[12] Barrett J stated at [31]:
In any application under s 482 for an order terminating winding up, the onus is on the applicant to make out a positive case for termination: Re Calgary and Edmenton Land Co Limited [1975] 1 WLR 355 at pp 358, 359. Where the ground for winding up was insolvency, an indispensable part of the applicant’s task is to prove solvency. As a matter of public policy or commercial morality, the Court will not countenance the return of an insolvent company to the mainstream of commercial life: see, for example, Re Mascot Home Furnishers Pty Ltd [1970] VicRp 78; [1970] VR 593; Re Denistone Real Estate Pty Ltd [1970] 3 NSWLR 327; Re Data Homes Pty Ltd [2971] 1 NSWLR 338. Upon an application of the present kind, as in the case of defence to a winding up summons where the presumption of insolvency operates, the party bearing the onus of proof must lead the “fullest and best” evidence of the financial position; Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 477.
[12][2005] NSWSC 160 (‘Metledge’).
Ferguson J (as her Honour then was) noted in Stoljar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liq) at [49]:[13]
... In this regard, where effectively the Court’s imprimatur is sought to permit a company to begin trading again, I do not think that it is acceptable to brush aside considerations such as the likely position of future creditors and persistent failures by the director of the company to comply with statutory obligations. This is particular so in circumstances where the company has been insolvent in the past and there is insufficient evidence to establish that it would be anything more than barely solvent were it to commence trading again. I accept that how the company has performed in the past is the best indicator of how it is likely to conduct itself in the future. In my view, if all the evidence is considered there is no doubt that it would be contrary to public interest and contrary to commercial morality to permit the company to resume trading.
[13][2011] VSC 577.
In Re Glass Recycling Pty Ltd (ACN 001 332 654),[14] Brereton J said (citations omitted):
Essentially, on such an application, the court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists. Where the winding up was on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not, or is no longer, insolvent. This is usually the most significant consideration … Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidators‘ costs and expenses are covered, and the members agree …[15]
[14][2014] NSWSC 439.
[15]Ibid, [18].
In considering an application under s 482 of the Act, considerable weight will be given to the views of a liquidator. The Court will be reluctant to rely on evidence from an officer of a company as to the financial position, unless that evidence is corroborated by the liquidator.[16] A liquidator’s support for the application is an important factor.[17] It will be unusual for the Court to grant an order under s 482 of the Act over the objection of a liquidator.[18]
[16]Page v Scott (as Liquidator of Parkway One Pty Ltd in Liq) [2019] NSWSC 1495, [94] (‘Parkway One’) (Rees J) citing Re Enviro Energy Australia Pty Ltd (in liq) [2010] NSWSC 1222, [6] (White J).
[17]Re Dream House Fashion Pty Ltd (In Liquidation) [2015] NSWSC 2035, [11] (Black J).
[18]Re LJAC Energy Pty Ltd (in liq) [2013] NSWSC 1231.
In addition to considering the views of a liquidator, the Court must consider the public interest, including whether granting the order would be detrimental to commercial morality. They are not narrow concepts and extend beyond investigating misconduct in the company’s affairs or the creditors’ pecuniary interests.[19]
[19]Gematech Pty Ltd v Bardi Investments Pty Ltd [2008] NSWSC 196, [24]–[31] (Hammerschlag J).
The circumstances leading up to the winding up order
On 11 August 2023, the Magistrates’ Court of Victoria delivered a Judgment against the Company in favour of the plaintiff in the sum of $14,598.63 in proceeding number MAG-CI-230056928 (‘Judgment Debt’).
On 18 August 2023, the plaintiff served on the Company by ordinary prepaid post at its registered office, a statutory demand in the sum of $14,626.63 (‘Statutory Demand’). The debt described in the Statutory Demand comprised the Judgment Debt and interest.
On 29 November 2023, the plaintiff filed an application to wind up the Company on the ground of insolvency pursuant to s 459P of the Act, relying on the Company’s failure to comply with the Statutory Demand.
On 19 February 2024, the Company’s application in the Magistrates’ Court for a rehearing of the proceeding which was the subject of the Judgment Debt was heard and dismissed. Accordingly, from at least 19 February 2024, the Company knew that it was required to pay to the plaintiff the amount demanded in the Statutory Demand absent grounds of opposition being filed and prosecuted.
On 28 February 2024, Gitsham JR ordered that the Company be wound up in insolvency.
Some of the circumstances leading up to the making of winding up order are set out in other matters in the Judicial Registrar’s Order made 28 February 2024. Those matters include:
The Defendant’s application in the Magistrates Court for a rehearing of the proceedings the subject of the underlying judgment debt was heard on
19 February 2024 and dismissed on that day.There has been no appearance on behalf of the Defendant today by its solicitor or by any other representative. An appearance form lodged by the Defendant with the Court indicated the that winding up orders would be sought today. The matter was called on in the audio-visual hearing and the Court called for any appearance by the Defendant, its’ solicitor firm or the solicitor with the conduct of the file and there were none.
The solicitor for the Plaintiff indicated there had been last minute attempts to resolve the matter with the Defendant’s solicitor today and the Defendant’s solicitor was aware of this hearing and the intention of the Plaintiff to seek a winding up order. No resolution was reached.
The notice of appearance filed by the Defendant does not contain any grounds of opposition and is in the wrong form. Orders have been made on two separate occasions for a correct notice of appearance with grounds of opposition to be filed and none have been filed.
In the circumstances the Court determined it appropriate for the matter to proceed.
The narrations in other matters to the Order of Gitsham JR made 28 February 2024 are better understood in the context of the following chronology.
On 12 January 2024, Ms Davis filed an incomplete Form 8A Notice of Appearance. The Supreme Court (Corporations) Rules 2023 (Vic) (‘Corporations Rules’), not the Supreme Court (General Civil Procedure) Rules2015 (Vic), are the applicable rules for the provision of a notice of appearance in corporations matters. The correct Notice of Appearance is a Form 4 pursuant to r 2.9 of the Corporations Rules.
On the first return of the winding up application on 17 January 2024, the Judicial Registrar recorded in other matters that the solicitor for the Company, Ms Davis, must file the correct Notice of Appearance (Form 4) including any grounds of opposition prior to the next hearing. Ms Davis did not comply with the Judicial Registrar’s direction.
On the second return of the winding up application on 31 January 2024, the Judicial Registrar again recorded in other matters that the solicitor for Company, Ms Davis, must file the correct Notice of Appearance (Form 4) including any grounds of opposition prior to the next hearing. Ms Davis did not comply with the Judicial Registrar’s direction.
On the third return of the winding up application on 14 February 2024, the Judicial Registrar ordered that the Company file and serve its Notice of Appearance (Form 4) and grounds of opposition by 4:00pm on 21 February 2024. The matter was adjourned and listed at 10:30am on 28 February 2024.
On 26 February 2024, Ms Davis emailed to the Court’s Winding Up Administration Inbox an appearance form used for administrative purposes and required prior to each hearing of the proceeding. This is a separate document to the Form 4 Notice of Appearance. The appearance form recorded, on behalf of the Company, that the orders sought at the hearing were “wind up”. At the time of the making of the winding up order, no Form 4 Notice of Appearance or grounds of opposition had been filed by Ms Davis on behalf of the Company.
On 28 February 2024 at 9:47am, the Judicial Registrar’s chambers sent to each party in the winding up list that day, a running order of the list. The parties were informed that the proceeding was in the batch of matters to be called not before 12:00pm.
When the proceeding was called shortly after 12:00pm, the plaintiff’s solicitor, Mr Wenn, appeared. There was no appearance by Ms Davis, for the Company. The Judicial Registrar called for an appearance by the Company, calling the Company’s name in addition to the Company’s solicitor’s firm name, ZD Legal, and the Company’s solicitor, being Ms Davis, as noted on the appearance form returned to the Court on 26 February 2024.
At 12:47pm on 28 February 2024, the Court’s Winding Up Administration Inbox received an email marked as ‘urgent’ from Ms Davis attaching an unsealed affidavit of Ms Davis affirmed 28 February 2024 (‘Unfiled Affidavit’) ‘regarding [her] personal difficulties and [her] clients best interests to be afforded time to provide instructions and/or make payment on the amounts owing to discharge the need for the winding up order’. Ms Davis also noted she had ‘tended to filing this affidavit just now with Red[C]rest’. The email providing chambers with the Unfiled Affidavit was the most recent in a chain of 13 prior communications between the solicitor for the plaintiff and the solicitor for the Company. Many of these communications are marked as ‘without prejudice’. Having regard to the description of the communications as ‘without prejudice’, I have not read these emails. The Court Registry’s records show that the Unfiled Affidavit was not lodged on RedCrest for filing.
Ms Davis joined the Zoom hearing on 28 February 2024 after the proceeding had been called and Orders pronounced by the Judicial Registrar.
Before I turn to the evidence in support of the Amended Application, it is necessary to say something further in respect of Ms Davis’ conduct on 28 February 2024. Electronic hearings have been used in this Court since approximately March 2020 due to the COVID-19 pandemic. Electronic hearings of the winding up list have remained in place since that time. Practitioners are routinely advised in emails from this Court, and indeed all Victorian Courts which still conduct electronic hearings, of the need to join an electronic hearing prior to the scheduled commencement time so that any technical difficulties can be addressed. In this matter, the Court emailed the parties in the following terms on 22 February 2024:
…
Procedure for the hearing – using Zoom
All persons who have registered their contact details as per the above will be sent an email/calendar invitation for whichever batch time their matter has been allocated. Matters in each batch will then be called one by one and the persons appearing should announce their appearances as normal.
The email will have instructions on how to join the Zoom conference (including by telephone).
Practitioners are expected to be in the Zoom conference 10 minutes before the allocated batch time (e.g. 10:20am for a 10:30am start).
…
The batch time allocated to the winding up proceeding before the Judicial Registrar was 12:00pm. Therefore, practitioners were expected to be in the Zoom hearing by 11:50am.
There was no explanation before me as to why Ms Davis was not present in the Court’s Zoom hearing at the appointed hearing time of 12:00pm. Further, there was no explanation before me as to why Ms Davis had not made any attempt to join the Court’s Zoom hearing prior to the nominated time of 12:00pm.
In addition, in her First Supporting Affidavit and Second Supporting Affidavit, Ms Davis asserts that her computer froze some time after 12:10pm and that it took 10 to 15 minutes for her to regain the use of her computer. Even if that were the case, those events occurred after the proceeding had been listed for hearing. Ms Davis ought to have joined the Zoom hearing by 11:50am. Given the years now in which practitioners have been required to appear in electronic Court hearings, I do not accept Ms Davis’ evidence as providing an adequate explanation for her nonattendance in Court. Further, Zoom hearings (such as the hearing before the Judicial Registrar) are accessible by telephone as confirmed in the email from the Judicial Registrar’s chambers on 22 February 2024. There was no attempt by Ms Davis to join the Zoom hearing by telephone, were it the case that her computer was inoperable. In addition, the Court’s Registry staff and the Associate to the Judicial Registrar can be contacted by telephone and email. There was no attempt by Ms Davis to contact any Court staff (by telephone or email) to advise of her inability to use her computer on 28 February 2024 between 12:10pm and approximately 12:25pm.
At the hearing on 8 March 2024, I informed Ms Davis that the Court’s Zoom hearings are recorded and that those recordings are maintained by the Court. I asked Ms Davis whether I should review that recording of the hearing before the Judicial Registrar on 28 February 2024. Ms Davis invited me to do so.
Having reviewed the Zoom recording, I note that the first matter in the not before 12:00pm batch was called at approximately 12:02pm. At that time, Ms Davis was not in the Zoom hearing nor was she in the Zoom waiting room. The hearing in this matter was called at approximately 12:11pm, other matters were pronounced at approximately 12:17pm and Orders were pronounced by the Judicial Registrar at approximately 12:19pm. Prior to pronouncing the other matters and Orders, the Judicial Registrar again called the matter and called for an appearance by ZD Legal and Ms Davis. Ms Davis was not in the Zoom hearing at 12:11pm or 12:19pm or any time in between and was not in the Zoom waiting room. There is no record of Ms Davis having attempted to join the Zoom hearing between 11:50am and 12:46pm. Ms Davis was admitted to the Zoom hearing at approximately 12:46pm. Notwithstanding these matters, there are references in the First Supporting Affidavit and Second Supporting Affidavit by Ms Davis to her not being able to ‘join the link again’, to her ‘rejoining’ and to her ‘brief unintentional absence from the online hearing’. To the extent that Ms Davis’ affidavits suggest that she was present in the Zoom hearing prior to her alleged computer difficulties at approximately 12:10pm or indeed at any time prior to 12:46pm, I reject that evidence.
Finally, it would appear from the First Supporting Affidavit and Second Supporting Affidavit that Ms Davis was spending her time on 28 February 2024 preparing her Unfiled Affidavit rather than attending Court. The point of the Unfiled Affidavit appears to have been for Ms Davis to seek a further adjournment of the winding up application, which had already been adjourned on three occasions, and to do so where no grounds of opposition had been filed by her firm. Further, the Unfiled Affidavit was prepared notwithstanding that Ms Davis had sent four emails to Mr Wenn between 7:10pm on 27 February 2024 and 11:40am on 28 February 2024 (with no apparent computer difficulties) in which no request for an adjournment was made. Those emails are in evidence before me in the First Wenn Affidavit. Those emails also clearly record the plaintiff’s intention to proceed with its application to wind up the Company on 28 February 2024 with the last email sent by Mr Wenn at 11:47am stating:
Zoe, there is nothing difficult about this, and instead of writing long emails that with respect do not advance the position at all, you could be telling your client to pay what is being asked, or accept being wound up.
It is more than a little perplexing that, having received Mr Wenn’s email at 11:47am advising of his client’s intention to proceed with the winding up application, Ms Davis did not immediately log into the Zoom hearing.
It is also concerning that after Ms Davis became aware that the Company had been wound up, she appears not to have informed her client. The Applicant has deposed that the first he knew of the making of the winding up order was when the Liquidator arrived at his premises on 29 February 2024.
The evidence
The Liquidator’s First Affidavit disclosed the following matters which were not challenged by the Applicant:
(a) the Applicant has not produced the complete books and records of the Company. Consequently, the Liquidator has been unable to offer an opinion to the Court as to the Company's solvency or comment on the nature and extent of creditors. In particular, and despite repeated requests, the Applicant has not provided the Liquidator with full access to the Company books and records via the Company’s Quick Books Online account and the limited access which has been provided remains insufficient to enable the Liquidator to review critical data and reports such as Balance Sheets and Profit and Loss Statements;
(b) after the winding up order had been made on 28 February 2024, the Applicant transferred $88,000.00 from the Company’s bank account to a personal account held in his name. On 1 March 2024, the Applicant transferred a further sum of $12,899.00 from the Company's bank account to a personal account held in his name;
(c) on 13 March 2024, a copy of a receipt for a payment of $70,000.00 from ZD Legal to the Company's liquidation account was provided to the Liquidator. The description for the payment was “J and G funds returned”. On 14 March 2024, the Liquidator was copied into an email from Ms Davis to Mr Pomaroff which contained a statement that the Applicant would be arranging to repay the balance of the funds of $30,899.00 to the Company's liquidation account within one to two hours. On 14 March 2024, the Liquidator was copied into an email from Ms Davis to his staff. A copy of a receipt for a payment of $30,899.00 from ZD Legal to the Company’s liquidation account was attached. The description for the payment was “J and G funds returned”. As at the time of the Liquidator’s First Affidavit, no funds had been returned to the Company’s liquidation account despite multiple demands;
(d) no payment has been made to the Liquidator in respect of his remuneration and disbursements, and no agreement has been reached with the Applicant with respect to the same. The Liquidator has incurred substantial remuneration and expenses in dealing with the Applicant and his solicitor. The Liquidator’s remuneration as at 14 March 2024 was $50,995.82;
(e) the Applicant is associated with J & G Flooring (Vic) Pty Ltd (ACN 633 772 826) (In Liquidation) (‘J & G Flooring (Vic)’), another company which has been placed into liquidation. The circumstances surrounding this liquidation are unexplained;
(f) on 5 March 2024, Compliance Business Advisory Pty Ltd, a firm associated with Mr Saligari, provided the Liquidator with a copy of a Special Purpose Compilation Report incorporating:
(i) a statement of Profit or Loss for the period 25 October 2023 to 28 February 2024 recording a total comprehensive profit of $81,557.00; and
(ii) a statement of financial position as at 28 February 2024 recording total equity of $112,495.00 made up of cash and cash equivalents of $99,794.00. Due to the Applicant’s failure to provide complete access to the Company’s books and records, the Liquidator has been unable verify the matters stated in the Special Purpose Compilation Report;
(g) additionally, as a result of the Applicant withdrawing $100,899.00 from the Company’s bank account, the cash asset of $99,794.00 recorded in the Special Purpose Compilation Report may not be accurate;
(h) on 12 March 2024, the Liquidator received a copy of a notice of breach of lease in relation to the Company's lease of 5/9-11 Industrial Circuit, Cranbourne West in the State of Victoria. The notice of breach stipulates that in addition to making a payment of $2,542.05, it is a condition of remedying the breach for the liquidation of the Company to be terminated within 14 days; and
(i) as the Liquidator is yet to receive full access to the books and records of the Company, he is unable to comment on the extent and attitude of creditors.
The Liquidator’s Second Affidavit disclosed the following:
(a) a payment of $70,000.00 from ZD Legal has been received into the Company’s liquidation account; and
(b) the sum of $30,899.00 has not been received into the Company’s liquidation account.
The evidence of the Liquidator is to be compared with the evidence of the Applicant and Mr Saligari which was broadly in the following terms:
(a) Mr Saligari is now the formally appointed accountant for the Company and will remain so moving forward, if the Company is brought out of liquidation;
(b) Mr Saligari prepared the Special Purpose Compilation Report, with profit and loss and balance sheets;
(c) Mr Saligari was responsible for the reporting of the financial affairs and associated affairs of the Company since its incorporation on 25 October 2022 until its winding up;
(d) at the time of the winding up of the Company, Mr Saligari considered the Company was solvent;
(e) the Applicant ‘stupidly transferred the bulk of the money out of the business account’ as he was ‘unsure what was about to happen’ and ‘didn’t fully understand the seriousness of the situation’ but does now;
(f) the Applicant has rectified all of the issues that previously existed at the time of the winding up and has ‘paid every dollar’ back to the Company’s liquidation account, specifically sending $70,000.00 and $30,899.00 to his solicitor’s trust account as soon as the funds were again available to him; and
(g) in respect of the Liquidator’s costs, the Applicant has seen them and accepts them, and confirms the entire amount is able to be paid from the funds in the Company’s liquidation account.
Critically, at the hearing on 15 March 2024, Mr Pomaroff informed me that:
(a) the balance of the Company’s funds of $30,899.00 withdrawn by the Applicant from the Company’s account following the appointment of the Liquidator had not been refunded;[20] and
(b) the Liquidator still did not have full access to the Company’s Quick Book Online account.[21]
[20]Transcript of Proceedings (15 March 2024) 61.28-61.30.
[21]Ibid, 61.8-61.14.
The submissions
In support of the Amended Application, the Applicant submitted that:
(a) the Company is solvent and has available for consideration ‘suitable financial records’ including evidence from the Company’s Quick Books Online account which shows a sufficient basis to deduce that the Company is solvent and an independent auditor’s report affirming the Company’s solvency;
(b) there are no aged debtors/creditors of the Company, further indicating that the Company is solvent;
(c) the termination of the winding up order is in the best interests of the creditors and shareholders of the Company (after submitting that there are no creditors of the Company), as well as other local Australian businesses who will likely suffer contractual losses if the Company remains in liquidation;
(d) there has been full payment to the plaintiff of the debt owed in relation to the winding up application;
(e) there has been full repayment of the funds transferred by the Applicant from the Company’s bank account to a personal account in his name. It was submitted that while this misconduct is a factor to be considered by the Court, it was brief and corrected, and therefore ought not be fatal in circumstances where ‘insolvency is clearly not actual’; and
(f) there have been significant changes in the Company’s operations and financial management since the winding up order including Mr Saligari’s commitment to formally manage the Company’s financial affairs and the awareness and preparedness of the Applicant, as director, to implement proper management procedures and financial accounting measures.
Both the plaintiff and Liquidator submit that the winding up ought not be terminated and the Amended Application ought to be dismissed with costs.
The Liquidator relied on the matters set out in paragraphs 61, 62 and 64 above. The plaintiff submitted that:
(a) the Court could not be satisfied that the Company is solvent, let alone that there was any satisfactory evidence bearing on the issue;
(b) there was non-compliance by the Applicant with the requirements of the Liquidator; and
(c) the making of an order terminating the winding up would be contrary to the public interest.
Consideration
Solvency
The Applicant bears the onus of establishing that the Company is solvent. The Court should be provided with the ‘fullest and best’ evidence of the Company’s financial position.[22]
[22]Parkway One (n 16), [90].
Mr Saligari deposes to his view that the Company is solvent. He does so in the absence of putting before the Court, or providing to the Liquidator, complete financial records for the Company.
Unsubstantiated assertions made by a controller of a company are of no value to the Court.[23] It is ‘insufficient to demonstrate bare solvency through a balance sheet, on which the assets barely exceed the liabilities’.[24] Complete financial statements were not put before the Court. There was no evidence of how many creditors the Company has, or how much they are owed. Whilst the Applicant contended that the plaintiff’s debt had been paid in full, the plaintiff informed me that was not correct and directed me to the evidence in the Third Wenn Affidavit. I accept Mr Wenn’s evidence. There was no evidence before me from which I could conclude that the Company is solvent.
[23]Metledge (n 12), [31], [33].
[24][2015] NSWSC 2068 (Brereton J) (‘Re We Will’).
The absence of evidence as to solvency is compounded by the Applicant’s failure to comply with his obligations as a director of a company in liquidation. The Applicant only provided the ROCAP to the Liquidator after having been cautioned by me during the hearing on 8 March 2024. The ROCAP is problematic in that it confirms that no amounts are owing in respect of tax. That is to be contrasted with the Special Purpose Compilation Report which records a liability for GST of $12,186.00. This inconsistency was not addressed by either Mr Saligari or the Applicant’s evidence.
There was no evidence that the Applicant had reached an agreement with the Liquidator for the payment of the Liquidator’s remuneration and disbursements.
The debt owed to the plaintiff has not been paid in full.
It must follow that the Court is unable to find that the Company is solvent.
Public Interest
There was no evidence before the Court that the Amended Application had been brought to the attention of the Australian Securities and Investments Commission (‘ASIC’) or of their view. The need for this to occur was raised by me with Ms Davis at the hearing on 8 March 2024. The failure to notify the ASIC and seek its views is a material factor given the Applicant’s conduct following the appointment of the Liquidator together with this being the second company of which the Applicant was the sole director, and that has been wound up in insolvency. Misconduct by a director is a matter that the Court must consider.[25]
[25]Commissioner of Taxation v Annesley Plant Hire Pty Ltd, [13].
The Applicant has provided limited books and records to the Liquidator despite multiple demands by the Liquidator. In my opinion, the Applicant’s conduct demonstrates a disregard for his obligations under the Act.
J & G Flooring (Vic) is the second company of which the Applicant was the sole director and which was wound up in insolvency on 5 October 2022. The liquidators’ report in relation to J & G Flooring (Vic) indicated that the company was presumed insolvent and therefore liable to insolvent trading claims from the date of its incorporation. In relation to the adequacy of the books and records of J & G Flooring (Vic), in their report the liquidators stated:
To date, the director has provided me with minimal records of the company…The director has also failed to provide log-in details for the company’s QuickBooks accounting software and [has] not complied with my subsequent requests to provide the company’s books and records.
…
It does not appear financial statements have been prepared and the underlying books and records required pursuant to s.286 of the CA have not been provided. To date, I have not been given evidence that the company maintained adequate books and records to satisfy the requirements of s.286 of the CA.
Further, in their report the liquidators expressed the opinion that, in the Applicant’s role as the sole director of J & G Flooring (Vic), the Applicant breached ss 180-183 and 588G of the Act for the following reasons:
failure to meeting statutory obligations; and
failure to prevent the company from incurring further debt whilst the company was insolvent; and
failure to act in the best interest of the company by advancing funds to the director for what appears to be personal expenses; and
failure to act in the best interests of the company by advancing funds no interest/security granted and the company did not derive any benefit from the transfer.
The evidence in the J & G Flooring (Vic) liquidators’ report, alongside the evidence in the present proceeding suggests a repeated failure by the Applicant to comply with the obligations imposed on a company director, to which no response or explanation was given.
The cumulation of the evidence also suggests a departure from the standard of attentiveness and diligence expected of a company director, in that the Applicant has failed to receive and denied knowledge of:
(a) the winding up application in relation to J & G Flooring (Vic);
(b) the Complaint in the Magistrates’ Court resulting in the Judgment Debt; and
(c) the winding up application in relation to the Company.
The plaintiff submitted, and I accept, that the evidence regarding the Applicant’s conduct in his role as a director raises, at the very least, a question as to whether the prerequisites for a banning order pursuant to s 206D of the Act would be satisfied.
Further, the plaintiff submitted, and I accept, that since the making of the winding up order on 28 February 2024, the following provisions may have been breached by the Applicant:
(a) ss 198G(1) and 468 of the Act by reason of the transfer by the Applicant of approximately $100,000.00 from the Company’s bank account into a personal account in his name after the commencement of the winding up;
(b) s 475 of the Act by reason of the Applicant’s failure to provide the ROCAP to the Liquidator within 10 business days. Further the ROCAP did not disclose the creditors of the Company;
(c) ss 530A(1) and 530A(2) of the Act by reason of the Applicant failing to provide the Liquidator with sufficient access to the Company’s Quick Books Online account, failing to allow the Liquidator to attend and inspect the entire floor of the Company’s premises and, again, failing to disclose the creditors of the Company;
(d) s 530B of the Act by reason of the Applicant failing to provide the Liquidator with sufficient access to the Company’s Quick Books Online account; and
(e) r 2.8B of the Corporations Rules by reason of the Applicant failing to serve the ASIC with the Amended Application.
The conduct of the Applicant, and that of Ms Davis, demonstrates continued disregard for the processes of the Court, notwithstanding that the Applicant seeks a favourable exercise of discretion from the Court. That attitude was displayed before Gitsham JR, and it has continued before me. The explanation offered by Ms Davis concerning the circumstances in which the winding up order was made by Gitsham JR is inadequate. However, even if Ms Davis’ evidence was accepted, it misses the point. As Brereton J said in Re We Will Pty Ltd: [26]
Under s 482, while one issue may be an explanation as to why there was no appearance when the order was made, the more important consideration is whether the condition that required that the company be wound up no longer exists, and whether it is commercially and morally safe to entrust the company once again to the management of its directors.[27]
[26]Re We Will (n 24).
[27]Ibid, [11].
The Applicant failed to adduce cogent evidence relevant to either consideration.
In the premises, the Amended Application must be refused.
Civil Procedure Act and compliance
For completeness, it is necessary that I record some further observations in relation to the conduct of the Applicant and his solicitor, Ms Davis, in relation to this proceeding.
The Commercial Court is a managed list. The Commercial Court seeks to give effect to the overarching purpose of the Civil Procedure Act 2010 (Vic) (‘CPA’): to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[28] To do so effectively, the Commercial Court relies on the cooperation of the parties and their legal advisers — and their compliance with the overarching obligations under the CPA.[29] The overarching obligations apply to any person who is a party, any legal practitioner, legal representative or law practice acting for or on behalf of a party.
[28]Supreme Court of Victoria, Practice Note SC CC 1 Commercial Court, 24 February 2024.
[29]Ibid.
Section 9 of the CPA includes, as its objects: (a) the just determination of the civil proceeding; (b) the public interest in the early settlement of disputes by agreement between parties; (c) the efficient conduct of the business of the Court; (d) the efficient use of judicial and administrative resources; (e) minimising any delay between the commencement of a civil proceeding and its listing for trial beyond that reasonably required for any interlocutory steps that are necessary for the fair and just determination of the real issues in dispute the preparation of the case for trial; (f) the timely determination of the civil proceeding; and (g) dealing with a civil proceeding in a manner proportionate to the complexity or importance of the issues in dispute and the amount in dispute.
Part 2.3 of the CPA provides that each person to whom the overarching obligations apply has a paramount duty to the Court ‘to further the administration of justice in relation to any civil proceeding in which that person is involved’. The part then sets out a number of overarching obligations that apply to each person.
The Court of Appeal in Northern Health v Kuipers,[30] reinforced the importance of compliance with the CPA and case management principles (citations omitted):
...Case management procedures that are adopted by courts seek to give effect to the overarching purpose of the Act in a manner that is fair to all parties while simultaneously advancing the administration of justice. The importance of compliance with case management procedures is reflected in the extensive sanctions that courts can impose under the Act in cases of non-compliance.
Parties conducting proceedings in a managed list, such as the List, must do all they can to comply with the Court’s timetabling orders. If they do not, they face the risk that orders will be made which may affect the manner in which, and the extent to which, they can conduct their case. For example, as appears from above, under s 51 of the Act, the Court may order that a party be precluded from relying on particular evidence. Parties should not seek to avoid compliance with an order by adopting an artificial interpretation of the order or by taking advantage of an ambiguity. Rather, they should endeavour to comply with the intended purpose of the order.[31]
[30][2015] VSCA 172.
[31]Ibid, [119]-[120].
Regrettably, the circumstances leading up to and surrounding the making of the winding up order, the Application and the Amended Application point to, at best, a persistent delinquent attitude by Ms Davis, in her dealings with the Court.
The evidence reveals that there has been a sustained failure by Ms Davis to conduct the proceeding with the care and skill that is expected and in accordance with the obligations imposed under the CPA. Directions and Orders made by the Judicial Registrar were repeatedly ignored. Orders made by me were similarly ignored. Documents were repeatedly filed with significant errors occasioning costs to her client and the other parties. Additionally, Ms Davis had sought in her appearance form sent to the Court for the hearing on 28 February 2024 that her client, the defendant company to a winding up application, be wound up. The litany of errors were not addressed nor adequately explained by Ms Davis in any affidavit material. Ms Davis’ non-compliance with Court Orders was not adequately explained. Ms Davis was inexplicably not in Court when the winding up application was listed and was not present when the proceeding was called before the Judicial Registrar. Despite swearing two affidavits, Ms Davis did not depose to why she was not in Court at 12:00pm when the winding up proceeding was listed.
It is apparent that Ms Davis continues to ignore the need to be on time for Court hearings. At the hearing before me on 8 March 2024, she arrived approximately 16 minutes late, leaving the Court and other practitioners to wait. Ms Davis was also late to the hearing before me on 15 March 2024, arriving 57 minutes late during which period she was emailing documents sought to be relied upon to my chambers and the other parties.
The conduct of Ms Davis has occasioned delays. Her conduct has also resulted in unnecessary costs and expenses to her client and the other parties. Ms Davis has created a significant demand on Court and judicial resources, including:
(a) necessitating numerous attendances by the Court’s Registry staff addressing the continued errors in documents she has filed;
(b) seeking an urgent listing and then applying for an adjournment; and
(c) being repeatedly late to Court,
all of which have occurred in circumstances that were entirely avoidable. This conduct is wholly unsatisfactory and must be discouraged.
Conclusion
Given the paucity of evidence from which I could conclude that the Company is solvent, and given the serious morality issues which have not been properly addressed, I have no option but to dismiss the Amended Application.
I will invite the parties to file any submissions in respect of costs by no later than 4:00pm on 28 March 2024. Those submissions should include any application for special costs orders under s 29 of the CPA.
In addition, I will require that:
(a) the solicitor for the Applicant serve an authenticated copy of my Orders and this ruling on the Applicant by no later than 4:00pm on 25 March 2024;
(b) an affidavit of service be filed by 5:00pm on 25 March 2024 confirming the matters in sub-paragraph (a) above; and
(c) the Applicant be informed that he is at liberty to make any application for compensation (should he consider it appropriate) pursuant to s 29(1)(c) of the CPA or other relief pursuant to s 29(1)(f) of the CPA. Should the Applicant inform the Court that he wishes to make such an application, the Court will then address the further management of such application.
Additionally, given the matters raised in this ruling, I consider it appropriate that the proceeding be referred to both the Legal Services Commissioner and the ASIC. It will be up to those authorities to take such action as they consider appropriate.
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