Hume v Carey - [2022] WASC 256

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   HUME -v- CAREY [2022] WASC 256
CORAM:   HILL J
HEARD:   5 AUGUST 2022
DELIVERED          :   5 AUGUST 2022
PUBLISHED           :   9 AUGUST 2022
FILE NO/S:   COR 68 of 2022
BETWEEN:   ALISTAIR DAVID HUME
Plaintiff
AND
NORMAN PHILLIP CAREY
First Defendant
GOLDBLAZE NOMINEES PTY LTD
Second Defendant
HHA ARCHITECTS PTY LTD (IN LIQ)
Third Defendant

Catchwords:

Corporations – Application to terminate winding up of company – Whether defendants had standing to seek winding up of company – Whether defendants were contingent or prospective creditors – Whether person with untried claim for unliquidated damages is a prospective creditor – Requirement to consider matters in s 462(4) on application

Corporations – Application to terminate winding up of company – Whether evidentiary onus to prove solvency where winding up ordered on grounds other than insolvency – Whether material change since order for winding up made – Winding up stayed until further matters

Legislation:

Corporations Act 2011 (Cth), s 461(1)(k), s 462(2), s 462(4), s 482(1), s 482(1A)

Result:

Winding up stayed until further order
Matter relisted for further directions

Category: B

Representation:

Counsel:

Plaintiff	:	In Person
First Defendant	:	S M Radovanovic
Second Defendant	:	S M Radovanovic
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	In Person
First Defendant	:	Mony De Kerloy
Second Defendant	:	Mony De Kerloy
Third Defendant	:	No appearance

Case(s) referred to in decision(s):

Browne-Kerr v Woods (in his capacity as liquidator of Thoroughbred Consultants Pty Ltd) [2021] VSC 627
Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455
Druin Pty Ltd v Caporale Designs Pty Ltd [2009] NSWSC 739
Gerblich v Smart World Enterprises Pty Ltd (No 2) [2012] SASC 5
Goldblaze Nominees Pty Ltd as Trustee for The Goldblaze Unit Trust v HHA Architects Pty Ltd [2021] WASC 189
Hume v Goldblaze Nominees Pty Ltd as Trustee for The Goldblaze Unit Trust [2021] WASCA 177
Mann v Goldstein [1968] 1 WLR 109; [1968] 2 All ER 769
Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311
Stonegate Securities Ltd v Gregory [1980] Ch 576; [1980] 1 All ER 241
Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 316 FLR 318

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

The plaintiff by originating process dated 13 April 2022 seeks orders pursuant to s 482(1) and s 482(1A) of the Corporations Act2001 (Cth) (Act) for the winding up of HHA Architects Pty Ltd (HHA Architects) to be terminated. The basis for the application is set out in the originating process. The grounds include that HHA Architects has no debt and no contingent creditors and does not have any current PI insurance cover.
The application is opposed by the first and second defendants who appeared by counsel at the hearing of the application. Essentially, counsel for the defendants contends that there is no relevant change in circumstances from the date the liquidators were appointed which would justify the termination of their appointment. In addition, counsel emphasised there was no evidence before the court as to the solvency of HHA Architects.
Prior to hearing the application, I ordered that the liquidators provide to the court a report on the status of the liquidation, which I received on 19 July 2022 and which has been served on the parties. In considering the application, I have had regard to this report.

Background to the application

On 24 February 2021, the first and second defendants applied to wind up HHA Architects under s 461(1)(k) of the Act.
On 11 June 2021, Master Sanderson delivered his reasons for decision on the application.[1] As set out in his reasons for decision, in order to bring proceedings under s 461 of the Act, it is necessary for a party to have standing under s 462(2) of the Act. The basis for the application by the defendants was that they had brought proceedings against HHA Architects for professional negligence in proceedings CIV 1102 of 2019. Those proceedings have not yet been heard or determined.
[1] Goldblaze Nominees Pty Ltd as Trustee for The Goldblaze Unit Trust v HHA Architects Pty Ltd [2021] WASC 189.
Master Sanderson expressed the view at [1] that:
Those proceedings have not yet been determined and so it is not possible to say the plaintiffs are a creditor of the defendant. But based upon the pleaded claim it is possible to say the plaintiffs are a prospective creditor of the defendant. On that basis it has standing to bring this application.
Following the delivery of reasons for decision, formal orders were made by Justice Archer on 17 June 2021 in the following terms:
1.Pursuant to section 461(k) of the [Act], the defendant be wound up.
2.Jimmy Trpcevski and Gary John Anderson, both official liquidators (or such other official liquidator as the court considers appropriate) jointly and severally be appointed the liquidators of the defendant.
3.The defendant pay the costs of this application.
The plaintiff in the present proceedings lodged appeal notices against these orders in the Court of Appeal on 12 August 2021. These documents were rejected for filing on the basis that he had sought to institute appeals on behalf of the company, contrary to O 4 r 3 of the Rules of the Supreme Court 1971 (WA). On 26 August 2021, the plaintiff filed an application for a review of the decision not to accept the documents for filing. The application was heard and dismissed by the Court of Appeal on 24 September 2021.[2]
[2] Hume v Goldblaze Nominees Pty Ltd as Trustee for The Goldblaze Unit Trust [2021] WASCA 177.
Following the dismissal of this application, the plaintiff filed the originating process for termination of the liquidators' appointment.

Legal principles

Pursuant to s 482 of the Act, at any time during the winding up of the company, the court may 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.
The application may be made by a contributory of the company.
There are no criteria specified in the Act to indicate when an application to terminate a winding up will be granted. The power to make an order under s 482(1) is discretionary. While the court does not have to find special reasons for granting an application to terminate a winding up, there must be some valid reason for the discretion to be exercised in favour of the applicant, taking into account the interests of the creditors, the liquidator, the members of the company and weighing in the balance the public interest.
The factors that generally inform the exercise of the court's discretion to terminate a winding up include:
(a)the attitude and interests of creditors (including future creditors who might be prejudiced if the company was released from winding up);
(b)the interests of the liquidator (particularly with respect to costs) and contributories;
(c)the nature and extent of creditors and whether all debts have been discharged;
(d)the company's current trading position and general solvency;
(e)any explanation for any non-compliance by directors with their statutory duties and of the circumstances leading to the winding up order;
(f)the nature of the company's business; and
(g)the public interest including the public interest in upholding commercial morality.

Disposition

I accept that as a shareholder or contributory of HHA Architects, the plaintiff has standing to bring this application.
In this case, the original winding up order was made pursuant to s 461(1)(k) of the Act which provides that the court may order the winding up of the company if the court is of opinion that it is just and equitable that the company be wound up.
Section 462 of the Act sets out the parties who have standing to apply for winding up. Relevantly this includes a creditor (including a contingent or prospective creditor) of the company.
Pursuant to s 462(4) the court must not hear an application by a person who is a contingent or prospective creditor of the company for an order to wind up the company unless and until;
(a)such security for costs has been given as the court thinks reasonable; and
(b)a prime facie case for winding up the company has been established to the court's satisfaction.
Section 462(5) expressly provides that, except as permitted by this section, a person is not entitled to apply for an order to wind up a company.
In this case, as is apparent from the reasons of Master Sanderson, he considered the first and second defendants were prospective creditors of HHA Architects. However, there is no indication from the reasons of the Master that any consideration was given to the requirements in s 462(4) that such an application could not be heard until the matters in that section had been expressly considered. Further, it does not appear that Master Sanderson was referred to the provisions of s 462(4) of the Act, or to any relevant authorities on the question as to whether the first and second defendants in these proceedings were properly considered to be prospective creditors.
In this case, the first and second defendants contended they are a creditor, or alternatively a contingent or prospective creditor, of HHA Architects. I do not accept this submission. The basis for this submission is that they have commenced proceedings against HHA Architects.
To be a contingent creditor, there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen.[3]
[3] Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455, 459 (Kitto J).
A 'prospective creditor' is a creditor in respect of a debt which will certainly become due in the future, either on some date already determined or on some date determinable by reference to future events.[4] In either case, there must be an existing obligation, and out of that existing obligation a liability on the part of a company to pay a sum of money which will arise on a future event, whether it be one which must happen or only one which may happen.
[4] Stonegate Securities Ltd v Gregory [1980] Ch 576, 579; [1980] 1 All ER 241, 242 (Buckley LJ).
In Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd,[5] Santow J set out a number of legal principles with regard to the standing of a party to apply for the winding up of a company. Relevantly, his Honour stated that an applicant is required to establish a debt and that where there is a bona fide dispute of substance as to the existence of the debt, it cannot be said that the claimant is a creditor who has the right to bring proceedings.[6] His Honour expressly dissented from the view that 'an arguable claim' against the company is sufficient to give a petitioning creditor standing to seek the liquidation of the company.[7] This was on the basis that the potentially fatal power to trigger winding up was not intended to be vested in those with merely arguable claims. Such claims might well turn out eventually to be without foundation, yet the company may have been destroyed or injured with no redress.
[5] Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311, 317 ‑ 323.
[6] Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd, 317G.
[7] Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd, 318B.
In Treadtel International Pty Ltd v Cocco,[8] Barrett AJA (with whom Gleeson and Leeming JJA agreed), stated at [57] that it is a well‑established rule of practice that a person who claims to be a creditor but whose debt is disputed on genuine grounds will not be permitted to initiate or pursue a winding up application. Reference was made to Mann v Goldstein[9] where Ungoed‑Thomas J stated that 'the winding up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds)'.
[8] Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 316 FLR 318.
[9] Mann v Goldstein [1968] 1 WLR 1091, 1098 ‑ 1099; [1968] 2 All ER 769, 775.
On the evidence before me, the first and second defendants have commenced proceedings against HHA Architects for breach of contract and negligence. The claim is disputed.
In these circumstances, consistent with the authorities set out above, I do not accept that the first and second defendants are a creditor, prospective creditor, or contingent creditor of HHA Architects. On this basis, the first and second defendants did not have standing to bring the application to wind up HHA Architects and the order to wind up this company should not have been made.
Counsel for the defendants submitted that these matters could have been raised by the plaintiff at the hearing on the winding up and that, on this basis, the court should not exercise its discretion to terminate the winding up. In support of this submission, counsel referred to the decision of Lunn J in Gerblich v Smart World Enterprises Pty Ltd (No 2).[10] In that case, his Honour expressed the view (at [21]) that the plaintiffs were essentially attempting to re-argue the original contested proceedings. His Honour went on to state in the same paragraph:
I am not holding that there may not be some circumstances in which it is permissible to use s 482(1) for this purpose, but other than in exceptional circumstances the discretion under s 482(1) should not be exercised on grounds and arguments, which were available to be put before the court on the winding up proceedings.
[10] Gerblich v Smart World Enterprises Pty Ltd (No 2) [2012] SASC 5.
In this case, there is no evidence before the court that these matters were raised at the initial hearing before the Master or that his attention was drawn to these authorities or to s 462(4) of the Act. It is not in dispute that HHA Architects was not represented at the winding up application and it is not clear on the materials before me what materials Master Sanderson took into account in reaching his decision. Given this, I consider that these matters can be raised on this application.
In any event, in my view there have been two material changes in circumstances since the decision of Master Sanderson and the subsequent orders of Archer J. In this regard, it is important to note that the basis for Master Sanderson's decision was his concern that the professional negligence insurance policy of HHA Architects be safeguarded. First, it is apparent from the report of the liquidators that a deed has been entered into between the liquidators and the first and second defendants in respect of the insurance policy. Second, it is apparent from the most recent amendment to the statement of claim in those proceedings that the first and second defendants have joined the professional indemnity insurers of HHA Architects as a defendant in CIV 1109 of 2019 and pursue a claim directly against the insurers. That is, on the evidence before this court, it appears the first and second defendants have taken steps to safeguard any access they may have to the insurance policy of HHA Architects.
I turn then to the factors that inform the exercise of the court's discretion to terminate a winding up:
(a)while I accept the first and second defendants, as possible future creditors of the company, oppose the termination of the winding up, it is not clear as to why, given the matters referred to above, they will be prejudiced if the company is released from winding up;
(b)the liquidators set out in their report that they have outstanding costs. At present, there are no funds to pay these costs;
(c)at present, there are no other creditors of the company and the company is not trading;
(d)the liquidators contend that Mr Hume has not complied with their requests for information, which is disputed by Mr Hume. The contention that Mr Hume has not complied with requests from the liquidator is a factor that weighs against the termination of the liquidation. Until orders are made terminating the liquidation, he is required as a matter of law to comply with the requests that have been made. This conduct is also relevant to the question of upholding commercial morality, being compliance with the Act and orders of the court;
(e)I have already set out the circumstances which led to the order for winding up being made.
The defendants submit that the plaintiff has not put on evidence to prove the solvency of HHA Architects which they contend must be done prior to any order being made by the court to terminate the winding up. In this regard, counsel for the defendants relied on the decision of Druin Pty Ltd v Caporale Designs Pty Ltd.[11] In that case, White J stated that at [18]:
No order will be made under that section to terminate a winding-up unless the court is satisfied as to the company's solvency. That is the position even where there has been an irregularity in obtaining the winding-up order. (citations omitted)
[11] Druin Pty Ltd v Caporale Designs Pty Ltd [2009] NSWSC 739.
His Honour went on to state at [20] that:
In Double Bay Newspapers Pty Ltd v Fitness Lounge Pty Ltd I set aside a winding-up order pursuant to r 36.16(2)(b) notwithstanding the absence of evidence of solvency of the defendant company in circumstances where, by reason of a fundamental irregularity, the company was entitled to have the order set aside ex debito justitiae.
In Browne-Kerr v Woods (in his capacity as liquidator of Thoroughbred Consultants Pty Ltd),[12] M Osborne J summarised the authorities in relation to whether it was necessary on an application to terminate a winding up to establish solvency. After summarising the authorities, he expressed the view at [101] that:
[I]t is not a prerequisite to the exercise of the discretion that solvency be established. As the authorities make clear, the power under s 482 is discretionary. The list of relevant factors is just that — a list where the particular significance of each factor is a matter of judgement, to be made in the particular circumstances under consideration. That solvency is not a precondition is entirely consistent with the quotation from Master Lee QC in Re Warbler Pty Ltd, as cited by Ashley AJA in Von Risefer, Master Lee noted that 'solvency is of significance when a stay of proceedings is sought', before continuing that 'the solvency or otherwise of a company will loom large where the company was wound up because of inability to pay its debts as they fell due.' (citations omitted).
[12] Browne-Kerr v Woods (in his capacity as liquidator of Thoroughbred Consultants Pty Ltd) [2021] VSC 627.
I agree with the view expressed by M Osborne J.
In this case, HHA Architects was not wound up because of insolvency. It was wound up in circumstances where it should not have been. While I do not consider that the plaintiff is entitled to have the winding up set aside as of right, I consider the fact that HHA Architects should not have been wound up at all to be a relevant discretionary factor that weighs very heavily in favour of the application to terminate the winding up.
In relation to the solvency of HHA Architects, the report of the liquidators filed on 19 July 2022 discloses two liabilities: first the costs of the liquidation and second, any liability to the first and second defendants. Consistent with the view that I have expressed above, I do not consider that any liability to the first and second defendants is relevant to a question of whether HHA Architects will be solvent if the winding up is terminated. This leaves then the question as to the costs of the liquidation. In my view there is no question that the liquidators are entitled to be paid their costs that have been reasonably incurred in the conduct of the liquidation.

There is no evidence before the court as to whether these costs have been assessed or approved. In the circumstances of this case, I consider that the liquidators' costs should be assessed and approved by the court. I also consider that, given the matters I have referred to above, the parties should have the opportunity to file written submissions as to who should bear the costs of the liquidators.
In the circumstances, I propose to stay the winding up until further order. Once the liquidators' remuneration and expenses have been assessed and the question as to who should be liable for those costs determined, further orders can be made. In the event that I consider the plaintiff should be liable for some or all of these costs, if these costs can be secured or paid, the winding up will be terminated. If they cannot, the stay will be lifted and HHA will remain in liquidation.

Orders

At the conclusion of the hearing, I made orders in terms of Annexure A.

ANNEXURE A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
9 AUGUST 2022