In the matter of A.S.P.E.C.T – Australasian South Pacific Educational & Commercial Training Incorporated Inc

[2018] NSWSC 2048

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of A.S.P.E.C.T – Australasian South Pacific Educational & Commercial Training Incorporated Inc [2018] NSWSC 2048
Hearing dates:	7 August 2018
Date of orders:	07 August 2018
Decision date:	07 August 2018
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Application for adjournment refused. Defendant wound up and liquidator appointed.
Catchwords:	CORPORATIONS – winding up – grounds for winding up – appointment of liquidator.
Legislation Cited:	(NSW) Associations and Incorporations Act 2009, ss 63, 64
Cases Cited:	My Peace Incorporated, In the matter of [2014] NSWSC 1906 Sandel v Porter (1966) 115 CLR 666
Category:	Principal judgment
Parties:	Owners of Strata Plan 74910 (Plaintiff) A.S.P.E.C.T. Inc (Defendant)
Representation:	Counsel: P Afshar (Plaintiff) B Nazer (Solicitor) (Defendant)   Solicitors: Chambers Russell Lawyers (Plaintiff) Byron Associates (Defendant)
File Number(s):	2018/089043

Judgment (ex tempore)

Adjournment Application

1. An application is made on behalf of the defendant A.S.P.E.C.T, or more fully Australasian South Pacific Educational & Commercial Training Incorporated Inc, for an adjournment of the hearing set down for today of proceedings for its winding up brought by the plaintiff Owners, Strata Plan 74910 by originating process filed on 20 March 2018.

2. The proceedings were set down for hearing by the Chief Judge in Equity at a directions hearing on 30 July 2018, in circumstances where the defendant was unrepresented. However the defendant was, in conformity with her Honour's direction, notified by e-mail that day of the fixture of the proceedings for final hearing today.

3. The prior history of the proceedings is also relevant. Having been instituted, as I have said, by originating process filed on 20 March 2018, they first came before the Court on 23 April 2018. On that day the defendant was represented by its public officer, and directions were made that it file and serve all evidence on which it intended to rely at the hearing by 11 May 2018, no further evidence to be relied on if not filed and served by that date. Provision was made for the applicant to serve evidence in reply by 18 May, and the proceedings were adjourned to 21 May with a view to allocation of a hearing date and, if appropriate, for mediation.

4. On 21 May, the defendant was again represented, this time by a person described as its paralegal consultant Ms Constantinidis. Black J noted that the matter was “settled in principle”, and that Ms Constantinidis would be seeking legal advice as to the contents of the proposed deed of settlement, and stood the matter over to 18 June. On 18 June, the Court was informed by Mr Noble, who appeared for the plaintiff, that it had not been possible to make contact with the defendant over the last week or so, and that attempts to communicate had been unsuccessful. He sought that the matter be adjourned for two weeks, and Black J acceded to that application, adjourning the proceedings to 2 July 2018.

5. On 2 July, the defendant's public officer appeared and sought an adjournment for four weeks, to which the plaintiff acceded. However, Black J observed:

Yes, well Miss Patania, I will stand the matter over for four weeks but it's been adjourned on several occasions. So in four weeks' time it will likely either have to have settled or it will have to go forward to a hearing. It can't continue to come back at regular intervals for a settlement that continues into the interminable future.

6. Ms Patania responded:

I fully appreciate your position on this matter, however may I add to this that the defendant has been requesting this documentation since 2016 and has been denied access to it. So I have prepared for today your Honour a notice of motion requesting an actual subpoena to be issued to compel such.

7. His Honour replied:

Ms Patania you've settled these proceedings or you haven't settled these proceedings. If you've settled these proceedings then it's time to implement settlement. If you haven't then it may be time to implement a hearing. You don't get to have both. Thank you. Is there anything further before I stand the matter over?

8. The proceedings were adjourned to 30 July "with a view to parties advising whether the matter has settled on a final basis or otherwise with a view to setting the matter down for hearing”.

9. On 30 July the proceedings were listed before the Chief Judge. There was no appearance on behalf of the defendant. Although Mr Noble, for the plaintiff, expressed some hope that the matter might still be settled, it was not settled at that point. He estimated that the hearing would take half a day, and her Honour suggested that the Court would be available to hear the matter that Thursday - that is to say, Thursday of last week. The matter was again stood down to enable Mr Noble to endeavour to speak to the defendant, and he did so. Ms Patania conveyed her apologies to the Court, asserting that she was unwell and was going to supply a medical certificate. The Chief Judge noted that on 2 July Black J had told Ms Patania that the matter was either going to have to be settled or it would go forward to a hearing and could not come back at regular intervals for a settlement that continued into the interminable future. Her Honour offered hearing dates on Thursday or Friday, 2 or 3 August, but at Mr Noble's request deferred it until 7 August, and directed the plaintiff to notify the defendant that the matter was listed for hearing on 7 August before me. The evidence tendered before me today establishes that such e-mail notification was given at 3.09pm on Monday 30 July 2018.

10. The plaintiff is ready for hearing and wishes to proceed. The defendant's application for an adjournment was put essentially on the basis that Mr Nazer – who was retained only yesterday – is not presently in a position to argue the defence, having come into the matter so recently, and that there are arguable defences.

11. At first, application was made that the proceedings be "struck out". The legal basis upon which that contention was advanced is obscure. It was said that the proceedings should be struck out because the defendant acknowledges the debt and is prepared to pay it. The fact that the defendant acknowledges that it is indebted to the plaintiff is no reason for striking out proceedings for the winding up of the defendant on grounds that it is insolvent. Nor is the fact that a defendant says that it is prepared to pay, when it has not in fact paid, any reason for doing so.

12. Alternatively, it was submitted that the proceedings should be adjourned to enable the defendant to obtain access to and examine the various invoices upon which the debts which ultimately found the proceedings are claimed, and/or to sell or refinance the subject property in order to pay the debt. As to the first, the underlying debts are established for the purposes of these proceedings by judgments of the Local Court, one dating from 2013 and the other from 2016. There is no suggestion that any application has ever been made to set aside those judgments. There is no utility in adjourning proceedings in order to enable underlying invoices to be examined in those circumstances.

13. As to enabling the subject property to be sold or refinanced, there is no evidence as to what, if any, equity there is in the subject property. The title search of the subject strata unit discloses that it is subject to two caveats, although the amounts claimed under those caveats are unknown. The judgment debts – which, with interest, total about $49,000 - have been outstanding, in one case since 2013, and in the other since 2016. There is in evidence correspondence in which officers of the defendant have in effect indicated that the Association does not have the cash with which to pay the debt. The very fact that the debts have been outstanding for so long is a strong indication that that is so. The defendant has, by its officer, engaged in contentious correspondence with the plaintiff's lawyers as recently as July of this year. The circumstance that unless the case was settled it was going to proceed to hearing was made abundantly clear by Black J, and must have been clear last Monday when notification of today's hearing was given.

14. If there appeared to be any tenable defence, then the late retention of lawyers might still be of some significance, because one would not likely preclude the defendant from engaging lawyers to advance a tenable defence. But prima facie an unpaid creditor of an incorporated association is entitled to a winding up order, and no tenable defence to the allegation of insolvency has, at this stage, been articulated. I have, therefore, come to the conclusion that on the material presently before the Court it seems that acceding to an adjournment application would be a futility because no tenable defence has been identified. In those circumstances - and not lightly, bearing in mind the potential consequences for the defendant - it seems to me that the injustice to the plaintiff in acceding to the adjournment application would substantially outweigh the injustice to the defendant in declining it.

15. Accordingly the application for an adjournment or for striking out is refused.

Winding Up Application

16. By originating process filed on 20 March 2018 the plaintiff Owners Strata Plan 74910 seeks orders that the defendant incorporated association A.S.P.E.C.T. be wound up pursuant to the Associations Incorporations Act 2009 (NSW) and a liquidator appointed.

17. The plaintiff is a strata body corporate pursuant to the Strata Schemes Management Act 2015 (NSW), s 8(1), and in that capacity is the registered proprietor of a strata building located at 13-19 Brian Street Rockdale. The defendant is the owner of lot 59 in the strata scheme, and as such was and is liable to pay strata contributions to the plaintiff. As a result of defaults by the defendant in payment of strata contributions, the plaintiff commenced proceedings in the Local Court, and in June 2013 obtained a default judgment for the sum of $6,480.59. That judgment has thereafter continued to accrue interest.

18. The defendant has not since satisfied the judgment, nor until recently paid any further strata contributions, and on 13 October 2016 the plaintiff obtained a second default judgment against the defendant in the Local Court, this time for $32,030.57. Both judgments remain unsatisfied, except to the extent of payments of $5,000 made since these proceedings were commenced.

19. Meanwhile, on or about 26 February 2016, the defendant was involuntarily deregistered for failure to lodge the required annual summary of financial affairs over three consecutive years. The defendant was subsequently reinstated on the application of the plaintiff, in order to allow the plaintiff to take proceedings to recover the strata contributions owed to it.

20. The procedural history of the present proceedings has been described in the judgment on the defendant's adjournment application.

21. As at 17 January 2018, the defendant owed to the plaintiff a total of $51,786.58, comprising unpaid strata contributions of $42,189.33 and interest of $9,597.25.

22. Associations Incorporations Act 2009 (NSW), s 63(1)(c), provides that the Supreme Court may order the winding up of an incorporated association if, inter alia, the association is insolvent. As I explained in In the matter of My Peace Incorporated [2014] NSWSC 1906, the Act contains no definition of "insolvency", and while it provides that Parts 5.5 and 5.6 of the Corporations Act 2001 (Cth) are made applicable to the winding up process consequent upon an order for winding up being made, section 64 of the Act does not make applicable, to the winding up of an association, the earlier provisions of the Corporations Act relevant to winding up. In particular, it does not make applicable Part 5.4 (winding up in insolvency), or Part 5.4A (winding up on other grounds).   

23. It follows that the Corporations Act definition of "insolvency" is not incorporated into the Associations Incorporations Act. However, for reasons explained in My Peace Incorporated, at [3], Parliament should be taken have to have intended the applicable concept of insolvency to be that which was in common use in the field of the winding up of corporations and bankruptcy of individuals when it enacted the Act in 2009. The notion that insolvency involves an inability to pay one's debts from one's own resources as and when they fall due has been established in that field for many years. [1]

    1. See, for example, Sandel v Porter (1966) 115 CLR 666.

24. In this case, the principal evidence of insolvency is the non-payment of strata contributions over a period from before 2013 until very recently, that is to say, a period of nearly, if not, five years. Non-payment of an obligation, which is an incident of the right to hold property, is an indication, although by no means conclusive, that the property owner is unable to pay. More significantly, it is not so much the recovery of two judgments in respect of those unpaid contributions, but the fact that those judgments, which were obtained by default – that is to say, no defence was filed – have remained unsatisfied ever since. Unsatisfied judgments - that is to say failures to comply with commands of courts to pay money, bespeak, generally speaking, an inability to pay that money. They at least support an inference that such an inability is the explanation for their remaining unpaid.

25. Next, there is nothing in particular in this case to suggest that there is any serious dispute about the debts in question. I acknowledge that there have been requests for provision of the invoices for the various strata fees; but ultimately, there is no suggestion on the part of defendant that it was not liable to pay strata contributions, and there is no suggestion on its part that it has paid them - except, as I have said, to the extent of $5,000 in recent times. Any potential dispute is about quantum, and only at the margins of the indebtedness. The failure to pay is therefore not explained by any genuine dispute that the defendant is indebted to the plaintiff for something approximating the amount of the outstanding judgments.

26. Sometimes non-payment of undisputed debts is explained by recalcitrance, rather than inability; but the defendant protests that it is willing to pay, and does not suggest that it is simply refusing to do so when capable of doing so. From time to time the defendant's officer has, in correspondence, referred to difficulties in meeting the defendant's financial obligations. In her affidavit, read in the proceedings today, the defendant's public officer says that the defendant has agreed to a debt comprising strata levy, legal costs and interest, and acknowledges a debt to the plaintiff, although going on to deny the judgments of the Local Court on grounds which simply do not affect the correctness of those judgments.

27. The defendant has from time to time requested agreement to payment plans which would involve the payment of the debt over a protracted period by instalments. Indeed, at the rate of $1,000 per calendar month, or $12,000 per year, to which reference is made in the affidavit which I have mentioned, it would take many years for the current debt to be extinguished, particularly when regard is had to the fact that interest continues to accrue on it.

28. In my view, in the absence of any real dispute about the existence of the underlying debts, the amount of the debts, the time for which they have been outstanding, the period over which they were accrued, and the requests of the defendant from time to time for agreement to payment plans, point to the overwhelming inference being that the Association is unable to pay its present debts as and when they fall due and is, therefore, insolvent.

29. The defendant has argued that it is not insolvent; that it can pay the debt and that there is equity in the subject property which it could realise, or against which it could borrow for those purposes. There are two difficulties with that proposition. The first is that there is no evidence, short of bare assertion, that it has any equity, or as to the extent of any equity, in the subject property. The public officer's affidavit does not assert it and, even less, is there any evidence which would quantify such equity.

30. The second, and more telling problem, is the timeframe. It was suggested that perhaps six weeks would be needed to sell the property, or to market it, and another six weeks to complete the sale. The very fact that a period of something like three months is proposed for that purpose, and that it is proposed for the first time at the end of the hearing today in final submissions, and notwithstanding the procedural history to which I have already referred, indicates once again that the Association is not able to pay its debts as and when they fall due. It cannot be overlooked that there are two judgment debts which have been due and payable for years and remain unpaid.

31. As a matter of discretion, the case for a winding up order is strengthened by admissions, which the evidence reveals, that the defendant's affairs are in disarray and, in particular, that the defendant, having been deregistered, was reinstated on the application of the plaintiff so that the plaintiff could obtain a remedy in respect of unpaid strata contributions. Taken with the prima facie entitlement of an unpaid creditor of an insolvent corporation to a winding up order, there is no sufficient discretionary reason for declining to make a winding up order.

32. The plaintiff relies also on the just and equitable ground, but having regard to the view I have come on the question of insolvency, it is not necessary to deal further with that.

33. In the course of my delivering this judgment, a former officer of the plaintiff sought leave to address the court, which I have declined because he has no standing to do so and because the Association is represented, as it must be, by its lawyer. But it became clear enough that the former officer wished to contend that the company had various cross-claims against the plaintiff. If so, and if a liquidator is satisfied that there are such cross-claims, a liquidator will be able to pursue them if they have not, to this point, been agitated.

34. It does, to a degree, beggar belief how two judgment debts could have been allowed to remain outstanding and uncontested for as long as they have in the face of such asserted cross-claims. In the reasons given above in refusing the adjournment application, I sought to spell out the opportunities that had been afforded to the defendant to put forward its case, if any, in these proceedings. Not least of them was the direction made by Black J on 23 April 2018, which included that the defendant file and serve all evidence on which it relies by 11 May 2018, with no further evidence to be served without the leave of the court after that date. Not only did the defendant serve no evidence then, but it served no evidence until yesterday, when it served the evidence to which I have referred. And yet it has engaged in contentious correspondence with the plaintiff, and in negotiations with the plaintiff in the meantime. As I said earlier, Black J made very clear that if the case was not settled it would have to be heard, and it was for that reason that Ward CJ in Eq set the matter down for hearing today.

35. The court orders that:

1. The defendant be wound up under Associations Incorporations Act 2009, s 63(1)(c).

2. Blair Pleash of 2 Park Street, Sydney, be appointed liquidator of the defendant.

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Endnote

Decision last updated: 18 March 2019