In the matter of Arrow Law Pty Ltd
[2016] NSWSC 748
•06 June 2016
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Arrow Law Pty Ltd [2016] NSWSC 748 Hearing dates: 6 June 2016 Decision date: 06 June 2016 Jurisdiction: Equity - Corporations List Before: Stevenson J Decision: (1) Order that the defendant, Arrow Law Pty Ltd, be wound up in insolvency.
(2) Order that Ozem Kassem and Robert Kite of Cor Cordis Chartered Accountants be appointed joint and several liquidators of Arrow Law Pty Ltd.
(3) Order that the plaintiff’s costs be costs in the winding up of the defendant, Arrow Law Pty Ltd.Catchwords: CORPORATIONS – winding up – contested application to wind up legal practice – where consent judgment entered against defendant after failure to pay amount specified in deed of settlement – persistent failure to pay judgment debt – where statutory demand issued – where application to set aside statutory demand dismissed by another court –where defendant presumed insolvent under Corporations Act 2001 (Cth) – whether defendant sustained onus of proving solvency Legislation Cited: Corporations Act 2001 (Cth) Category: Principal judgment Parties: RajLaw (NSW) Pty Ltd (Plaintiff)
Arrow Law Pty Ltd (Defendant)
Gaurav Anand (Interested Party)Representation: Counsel:
Solicitors:
D Krochmalik (Plaintiff)
M Bennett (Defendant)
Madison Marcus (Plaintiff)
Arrow Law Pty Ltd (Defendant)
MSQ Legal Pty Ltd (Interested Party)
File Number(s): SC 2016/123074
EX TEMPORE Judgment (REVISED)
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The matter before me is a contested application to wind up the defendant, Arrow Law Pty Ltd.
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Both the plaintiff, RajLaw (NSW) Pty Ltd and Arrow Law are incorporated legal practices.
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Some time ago a dispute arose between the two companies which led to litigation in this Court. That litigation was settled on the basis of the parties entering into a deed of settlement which required Arrow Law to pay RajLaw $200,000 by 31 October 2015. The deed provided that if that sum was not paid by that date, Arrow Law would consent to a judgment being entered in favour of RajLaw against Arrow Law in the sum of $500,000.
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The $200,000 was not paid. Consequently, on 2 November 2015, the consent judgment referred to in the deed of settlement was entered in favour of RajLaw against Arrow Law in the sum of $500,000.
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On 5 November 2015, RajLaw issued a statutory demand against Arrow Law for the $500,000.
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The parties came before me in my capacity as Applications Judge on 13 November and 16 November 2015. The matters before me then were applications by Arrow Law to set aside the 2 November 2015 judgment and to seek a stay of that judgment insofar as it caused the payment of more than $200,000. Arrow Law’s contention was that, to the extent that the deed of settlement had the effect that non-payment of the $200,000 by 31 October 2015 would lead to a judgment being entered for $500,000, it was void as a penalty.
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On 16 November 2015, by consent, I stayed the 2 November 2015 judgment until 20 November 2015 and noted the agreement between the parties that if, by 19 November 2015, Arrow Law paid RajLaw the $200,000, RajLaw would consent to the stay being extended until further order.
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The $200,000 was not paid by 19 November 2015; or at all. It still remains unpaid.
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Those matters came before Pembroke J on 15 April 2016. On that occasion, his Honour ordered that Arrow Law be prohibited from taking any further step in those proceedings until it paid to RajLaw the $200,000 plus interest.
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Pembroke J's orders noted the parties' acknowledgement that nothing in those orders constituted an impediment to RajLaw seeking to otherwise enforce the judgment.
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In the meantime, on 30 November 2015, Arrow Law made an application to the Supreme Court of Queensland to seek to set aside the statutory demand. That application was heard by Dalton J on 16 March 2016. Her Honour dismissed the application.
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On 21 April 2016, RajLaw filed an originating process seeking an order that Arrow Law be wound up in insolvency.
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There is no dispute that, subject to the matter I will deal with in the next paragraph, RajLaw has established all the matters required to ground a winding up order.
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In that regard Mr Krochmalik, who appears for RajLaw, pointed out a technical shortcoming in the statutory notice. Arrow Law is incorporated in South Australia. However, the statutory demand showed a New South Wales address for RajLaw and thus did not comply with ASIC form 509H. There is, however, no suggestion that Arrow Law was misled by this technical problem. I see no injustice, for the purposes of s 467A of the Corporations Act 2001 (Cth) (let alone substantial injustice) which would render that technical shortcoming a reason to deny RajLaw such relief to which it is otherwise entitled.
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The issue before me is whether, a state of insolvency now being presumed, Arrow Law has shown that it was in fact solvent.
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Evidence of Arrow Law's current financial position is scanty. It is carrying on a legal practice and evidently has two employees.
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The principal of Arrow Law, Mr Niren Raj, has adduced evidence of draft profit and loss accounts for the years ended 30 June 2014 and 30 June 2015. Those draft accounts are prepared on an accrual basis and, in that regard, show that there was a profit before tax for the financial year ended 30 June 2014 in the order of $430,000 and for the year ended 30 June 2015 in the order of $485,000.
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But no balance sheets, not even draft balance sheets for those financial years, are before me. There is no evidence at all before me of the financial position of Arrow Law for the current financial year.
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Mr Raj deposes that the outstanding creditors of the business of Arrow Law are in the sum of something in the order of $23,000. That of course does not take into account the amount owing to RajLaw which, on any view, is the $200,000 plus interest thereon.
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In that regard, in his affidavit of 1 June 2016, Mr Raj said "[i]f any amount is owing to [RajLaw] by [Arrow Law], the amount owing should not exceed the sum of…$207,000.”
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That understates matters as, on any view, that amount is owing.
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No attempt has been made on behalf of Arrow Law to verify properly, on the basis that is normally expected in matters such as this, the quantum and nature of Arrow Law’s assets and liabilities.
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Further, in an affidavit of Mr Raj sworn before the Supreme Court of Queensland he said:
“Neither the applicant, Raj Law Pty Ltd nor myself have had, nor have now, the financial capacity to pay the balance of the Order to the respondent or to pay that sum into court. If the court were to order that the applicant pay the full amount of the Order into court as a condition of setting aside the statutory demand, the applicant would be unable to satisfy that condition.”
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That material, together with the other material before me, especially the evidence of Arrow Law's continued failure to pay the undisputed amount owing by it to RajLaw pursuant to the 2 November 2015 judgment (the $200,000), satisfies me that, far from Arrow Law sustaining its onus to show that it is solvent, the proper conclusion that I should draw is that in all probability Arrow Law is actually insolvent.
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In those circumstances I make the following orders:
Order that the defendant, Arrow Law Pty Ltd, be wound up in insolvency.
Order that Ozem Kassem and Robert Kite of Cor Cordis Chartered Accountants be appointed joint and several liquidators of Arrow Law Pty Ltd.
Order that the plaintiff’s costs be costs in the winding up of the defendant, Arrow Law Pty Ltd.
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Decision last updated: 08 June 2016
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