In the matter of Bitar Pty Ltd
[2015] NSWSC 2158
•12 October 2015
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Bitar Pty Ltd [2015] NSWSC 2158 Hearing dates: 12 October 2015 Date of orders: 12 October 2015 Decision date: 12 October 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Winding up order made.
Catchwords: CORPORATIONS – winding up – winding up in insolvency – failure to comply with creditor’s statutory demand – application to stay proceedings – stay until completion of assessment of legal costs – where legal profession legislation prevents commencement or maintenance of proceedings to recover legal costs the subject of application for assessment – whether winding up proceedings seek to recover costs – winding up proceedings not proceedings for debt recovery – whether company may rely upon pending cost assessment proceedings to dispute existence or amount of debt – (CTH) Corporations Act 2001, s 459S – requirement of leave – where not material to proving solvency – application to adjourn proceedings – where other proceedings in which company may have successful claim pending – no evidence as to nature or strength of claim – dependence on other proceedings to pay debt indicative of present insolvency. Legislation Cited: (CTH) Corporations Act 2001, s 459G, s 459S
(NSW) Legal Profession Act 2004, s 355
(NSW) Legal Profession Uniform Law, s 198(7)Cases Cited: TS Recoveries Pty Ltd v Sea-Slip Marinas (Australia) Pty Ltd [2007] NSWSC 1074; (2007) 25 ACLC 1371 Category: Principal judgment Parties: Bitar Pty Ltd ACN 090 407 579 (applicant/defendant)
PMF Legal Pty Ltd ACN 155 497 153 (respondent/plaintiff)Representation: Counsel:
Solicitors:
J Loxton (applicant/defendant)
P Fordyce (respondent/plaintiff)
McKell’s Solicitors (applicant/defendant)
PMF Legal Pty Ltd (respondent/plaintiff)
File Number(s): 2015/247840
Judgment (ex tempore)
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HIS HONOUR: The plaintiff PMF Legal Pty Limited is an incorporated legal practice which formerly acted for the defendant Bitar Pty Limited. By originating process filed on 24 August 2015, PMF Legal seeks an order that Bitar be wound up in insolvency and a liquidator appointed. The application relies on Bitar's failure to comply with a creditor's statutory demand served on Bitar on or about 27 July 2015, which demanded payment of an amount of $52,772.76 described in the schedule to the demand as:
Costs pursuant to engagement letter dated 18 December 2014 (see attached schedule 2) in respect of matter KATT10/140075 in the sum of $52,772.76.
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The statutory demand was accompanied by the requisite affidavit verifying that the amount of the debt was due and payable, and that the deponent believed that there was no genuine dispute about the existence or amount of the debt. The company did not, within the period of 21 days permitted by the statutory demand, comply with it, nor did it make any application pursuant to (CTH) Corporations Act 2001, s 459G, to set aside or vary the demand. As a result, the company is presumed to be insolvent.
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By interlocutory process filed on 25 September 2015, however, the company seeks an order – said to be pursuant to (NSW) Legal Profession Act 2004, s 355(b), and/or (NSW) Legal Profession Uniform Law, s 198(7)(b) – that the proceedings be stayed pending completion of an assessment under the legal profession legislation of the legal costs which were referred to in the creditor's statutory demand.
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Legal Profession Uniform Law commenced on 1 July 2015 and relevantly applies to matters in respect of which instructions were first given (or, at the very least, bills rendered after) 1 July 2015. It is common ground that the former Legal Profession Act is applicable in the circumstances of this case. Section 355 of that Act provides:
If an application for costs assessment is made in accordance with this division:
…
(b) the law practice must not commence or maintain any proceedings to recover the legal costs until the costs assessment has been completed.
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The new Uniform Law prohibits commencement, but not maintenance, of such proceedings in those circumstances. Apparently, the intent of the provision in the new law is to prohibit commencement of recovery proceedings if proceedings for costs assessment had already been commenced, but not to prohibit their maintenance if the recovery proceedings were commenced before application was made for costs assessment. However, where as here s 355 of the 2004 Act applies, if an application for costs assessment is made, maintenance of pending proceedings to recover the legal costs, as well as the commencement of fresh proceedings to do so, is prohibited until the costs assessment has been completed.
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That therefore raises the question of whether these proceedings for the winding up of the defendant company are proceedings for the recovery of the legal costs as, after they were instituted, the defendant on 18 September 2015 has made an application for costs assessment in respect of those costs.
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If the plaintiff were to succeed in the present proceedings, it would not obtain a judgment or order for payment of the legal costs it claims; it would obtain only an order that the defendant be wound up and a liquidator appointed. Courts have frequently emphasised that proceedings of this kind are not debt recovery proceedings, but proceedings for the winding up of insolvent companies. It is true that the plaintiff's standing as a creditor may depend on the existence of a debt in respect of legal costs, but that does not mean that the proceedings are proceedings for recovery of those costs.
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It is also true that the defendant might, as a matter of discretion, avoid a winding up order by paying the amount of the debt asserted by the plaintiff. But fundamentally, the test must be what relief could be given in the proceedings. On no view would the relief given in the proceedings be a judgment for or in respect of the legal costs in question. In my view, these are not proceedings for recovery of legal costs within Legal Profession Act, s 355, and accordingly the basis upon which a stay is sought is not established.
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Alternatively, the defendant applies for an adjournment, on the basis that there are pending before the Court other proceedings to which the defendant is a party and which have been set down for hearing on 25 November this year, in which it seeks, inter alia, an order releasing to it at least part of a fund of about $1.6 million said to be held in another solicitor’s trust account for the benefit of the defendant and the other party to those other proceedings.
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The evidence does not indicate, in any meaningful way, the nature – let alone the strength – of the defendant's claim in those proceedings, nor the prospects that any amount will be paid out to the defendant, let alone when that might happen. If the defendant's solvency and ability to pay the plaintiff's debt depends on the outcome of proceedings to be heard in six weeks' time, which might or might not result in a payment to the defendant, then that tends to evidence present insolvency, rather than present solvency. If so minded, a liquidator may elect to proceed to prosecute those proceedings on behalf of the defendant. It seems to me there is far too little to show that the pendency of those proceedings justifies deferring the hearing of the winding up proceedings to await their outcome.
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Finally, insofar as an adjournment was supported on the basis of the pendency of the costs assessment application, Corporations Act, s 459S, would preclude the defendant relying, in opposition to the winding up proceeding, on a dispute as to the existence or amount of its indebtedness to the plaintiff as asserted in the creditor's statutory demand. That extends to relying on any such dispute in support of a submission that, as a matter of discretion, the winding up application should be dismissed [TS Recoveries Pty Ltd v Sea-Slip Marinas (Australia) Pty Ltd [2007] NSWSC 1074; (2007) 25 ACLC 1371, [13] per Barrett J (as his Honour then was)].
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Leave under s 459S could only be granted if a dispute as to the existence or amount of the debt were relevant to proving the solvency of the defendant. As things presently stand, there is no evidence to show that it would be material to proving the defendant's solvency.
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For those reasons, it seems to me that there is insufficient reason to grant an adjournment of the originating process. The interlocutory process is dismissed with costs.
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For the reasons already given, the defendant is presumed to be insolvent and there is nothing to rebut that presumption. The evidence establishes that the requisite notices have been placed with ASIC; that the debt remains due and payable and that Anthony Warner, an official liquidator, has consented to act as liquidator.
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As there appears to be some aspiration to address the situation before the order takes effect, I will allow the defendant a week's grace before the order is entered.
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The Court orders that:
The defendant be wound up in insolvency and Anthony Warner of CRS Insolvency Services be appointed liquidator of the defendant;
The plaintiff's costs be paid out of the assets of the defendant;
These orders are not to be entered before 20 October 2015.
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Decision last updated: 25 May 2018
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