In the matter of CII Group Pty Ltd

[2025] NSWSC 318

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of CII Group Pty Ltd [2025] NSWSC 318

Hearing dates:

26 March 2025

Date of orders:

26 March 2025

Decision date:

26 March 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Adjournment of winding up not granted; winding up order made.

Catchwords:

CORPORATIONS – Insolvency – Winding-up – Adjournment – Costs

Legislation Cited:

Corporations Act 2001 (Cth) ss 440A, 459R, 459S

Cases Cited:

- Amorin Constructions Pty Ltd v Kamtech Electrical Services Pty Ltd (2008) 73 NSWLR 627; [2008] NSWSC 285

- Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] 244 CLR 1; [2011] HCA 18

- Creevy v Deputy Commissioner of Taxation [1996] 19 ACSR 456

- Deputy Commissioner of Taxation v Bradley, Keeling Management Pty Ltd [2003] 44 ACSR 377; [2003] NSWSC 47

- Deputy Commissioner of Taxation v Fyna Constructions (Hire & Sales) Pty Ltd (admins apptd) [2019] FCA 578

- Flint v Richard Busuttil & Co Pty Ltd [2013] 216 FCR 375; [2013] FCAFC 131

- Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543

- Re Brew Still Pty Ltd (admin apptd) [2023] NSWSC 256

- Re Offshore and Ocean Engineering [2012] NSWSC 1296

- Offshore and Ocean Engineering v Greenwich Contractors Pty Ltd [2012] NSWCA 371

Category:

Principal judgment

Parties:

Dunmore Lang Colleges Ltd (Plaintiff)
CII Group Pty Ltd (Defendant)

Representation:

Counsel:
Mr J Pokoney (Plaintiff)
Mr M Mathas (Solicitor) (Defendant)

Solicitors:
Dentons Australia (Plaintiff)
Mathas Law (Voluntary Administrators of Defendant)

File Number(s):

2024/302982

JUDGMENT – ex tempore (Revised 27 March 2025)

Adjournment application

1. The Plaintiff, Dunmore Lang Colleges Ltd (“DLC”) seeks an order winding up CII Group Pty Ltd ("CII"). For a lengthy period, CII has asserted its solvency and it led voluminous expert evidence to seek to establish that solvency. A review of that expert report suggests, and Mr Mathas (who appears for CII on the instructions of newly appointed voluntary administrators to CII), largely concedes that that expert report depended wholly upon unproved assumptions and was not capable of proving CII's solvency.

2. In the event, after CII had long asserted its solvency, and led that voluminous expert report which substantially delayed the determination of the proceedings, voluntary administrators have now been appointed to CII, on the afternoon before the hearing of the winding up application, on the necessary basis that CII is insolvent or likely to become insolvent.

3. CII, by its voluntary administrators, now brings an application under s 440A of the Corporations Act 2001 (Cth) (“Act”) to adjourn the hearing of the winding up application. That section requires the Court to take that course, if a company is under voluntary administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. The application was put by Mr Mathas, who appears for CII on the instructions of the voluntary administrators with his customary moderation, and with elegance, but neither that moderation nor that elegance could conceal its underlying hopelessness, or the fact that Mr Loi, an experienced insolvency practitioner, who gave evidence in support of the application, could not reasonably have thought that it could succeed.

The evidence in respect of the adjournment application

4. CII reads Mr Loi’s affidavit dated 26 March 2025 in support of the application. Mr Loi refers to his and Mr Chand's appointment as the voluntary administrators of CII on the afternoon of 25 March 2025 which, as I noted above, was the afternoon before this hearing. He refers to having had a conference with Mr Sunito, the sole director of CII, immediately before his appointment, and to matters that he was told during that conference, none of which Mr Loi has had the opportunity to verify, given the lateness of his appointment. Those matters were that Mr Sunito believed that the only creditors of CII at the commencement of the proceedings were DLC (which, I interpolate, as Mr Mathas fairly acknowledges, had long ago served a creditor’s statutory demand (“Demand”) for a substantial amount, the claim for which has not been and could not be contested in these proceedings), and the Australian Taxation Office (“ATO”).

5. Mr Sunito referred to payments made to the ATO since the commencement of the proceedings, although the significance of those payments cannot be assessed without a wider understanding of CII’s affairs, which Mr Loi has not yet obtained. Mr Loi referred to Mr Sunito’s representation that he wished to put a deed of company arrangement (“DOCA”) to creditors which would involve contributions totalling $1.4 million in instalments to be paid by the end of April 2025 with the balance to be paid within four months after the DOCA was executed. Mr Loi, of course, has had no opportunity to assess Mr Sunito’s ability to pay, or cause another entity to pay, those contributions, whether in instalments over that relatively lengthy period, or at all. Mr Loi refers to a Microsoft Excel spreadsheet provided by Mr Sunito which represented the assets which Mr Sunito “believed” could be used as security for payment of the contributions, but Mr Loi has also had no opportunity to verify that representation.

6. Mr Loi refers to having received confirmation from Mr Sunito’s legal representatives that they had received $100,000 in their trust account to be held available to "meet obligations as voluntary administrator if required" and which he contends demonstrates some capacity of Mr Sunito to pay the proposed DOCA contributions. Mr Mathas also submits that I should infer that that payment indicates a capacity to proceed with the proposed DOCA, or at least provides some comfort in that respect. It does not seem to me that that payment supports any such inference. It instead indicates, in a disturbing characteristic that is often seen in applications of this kind, that an amount has been contributed by the deed proponent that is likely to ensure that the voluntary administrators will receive payment of their fees and disbursements, but is not sufficiently large to provide any comfort that any significant distribution could be made to other creditors of CII, including DLC.

7. Mr Loi in turn explains that, unsurprisingly where the voluntary administrators of CII were only appointed yesterday, his staff and he have not advanced the voluntary administration of CII to any great extent, and they have not been able to conduct any investigations into its financial affairs, including any investigations to verify the statements made by Mr Sunito to him or to determine the financial position of CII or Mr Sunito’s capacity to procure contributions to a deed fund. Mr Loi in turn observes that, "[s]ubject to the need to verify the above amounts", he believes that the outline proposal made by Mr Sunito would enhance the position of CII’s creditors. That, of course, is a conclusion that depends wholly on its premise, and its premise is unverified, as Mr Loi himself accepts, where he has not verified, and could not verify, Mr Sunito’s ability to contribute the above amounts, given the lateness of the voluntary administrators’ appointment.

8. Mr Loi in turn expresses the view that an adjournment of the proceedings until shortly after the voluntary administrators’ report is delivered for the second meeting of creditors is in the best interest of CII’s creditors, for identified reasons. Those identified reasons in turn depend wholly upon the correctness of the information provided by Mr Sunito to Mr Loi, because it cannot be in creditors’ interest to adjourn the winding up application, for example, to allow them to be provided further information as to the option of a DOCA, unless the information provided to Mr Loi is true and there is some prospect that a DOCA is workable.

9. DLC, which opposes the application to adjourn the winding up, in turn tenders two letters of demand dated 9 April 2024 and 17 April 2024. Those demonstrate the length of time that the debt claimed by DLC has not been paid by CII, but otherwise add little to the determination of this application.

The relevant case law

10. Mr Mathas rightly draws attention to relevant case law, which includes my review of the relevant decisions and relevant principles in Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543 at [5]ff (“Australian Tailings Group”). I there referred to the scope of the section, and noted that whether the Court would be satisfied of the matters set out in s 440A(2) of the Act was to be determined in the relevant circumstances, and that the authorities make clear that that requires a sufficient possibility, and not merely speculation, that creditors' interests will be advantaged by the adjournment of the winding up application: Creevy v Deputy Commissioner of Taxation [1996] 19 ACSR 456 at 456-457. In Australian Tailings Group I recognised, and I here also recognise, that the circumstances in which that question is to be determined may differ between, for example, an application brought at an early point and seeking a shorter adjournment, immediately after an administrator is appointed, or a situation where an administrator has been in office for some time: Deputy Commissioner of Taxation v Bradley, Keeling Management Pty Ltd [2003] 44 ACSR 377; [2003] NSWSC 47 at [18].

11. I also recognised in Australian Tailings Group that the lateness of the appointment of an administrator may be a relevant factor, particularly where that appointment is made shortly before the hearing of a winding up application: Re Offshore and Ocean Engineering [2012] NSWSC 1296 at [15]; leave to appeal refused in Offshore and Ocean Engineering v Greenwich Contractors Pty Ltd [2012] NSWCA 371. I noted in Australian Tailings Group at [6] that that matter was relevant because:

"The Court should treat applications for adjournment of winding up, where a voluntary administrator is appointed...on the eve of the hearing, with scepticism, which should be reinforced where that involves a reversal of the company's previous position that it is solvent. Second, that is relevant because...the lateness of the appointment may deprive the administrator of any real understanding of the company's affairs."

12. Mr Mathas fairly recognised the relevance of those matters in submissions. I also here recognise, as I recognised in Australian Tailings Group, that the question of the adjournment of the winding up application is governed by the statutory test set out in s 440A(2) of the Act, and that depends upon the Court reaching a state of satisfaction in the circumstances, including the recent appointment of Mr Loi as voluntary administrator, that it is in the interests of CII’s creditors for it to continue under administration. I also there added that [7]:

"If an administrator is appointed so late that he or she has no real understanding of the company's affairs, then a winding up will less readily be adjourned and an administration less readily extended, because the Court will less likely be satisfied that it is in fact in the interests of the company's creditors for the company to continue under voluntary administration."

13. Mr Mathas also draws attention to my decision in Re Brew Still Pty Ltd (admin apptd) [2023] NSWSC 256, where I also drew attention to applicable principles and included a detailed review of relevant case law, including the observations of Griffith J in Deputy Commissioner of Taxation v Fyna Constructions (Hire & Sales) Pty Ltd (admins apptd) [2019] FCA 578, and again declined to adjourn a winding up application in somewhat similar circumstances to this case.

14. Here, it seems to me plain that the Court could not reach any state of satisfaction that it is in the interests of CII’s creditors for CII to continue under administration rather than be wound up. That matter depends entirely upon matters of which CII’s director has informed Mr Loi, which have not been proved and which have not been investigated by Mr Loi in the short time in which he has held office. Assuming, without deciding, that payments have been made by CII to the ATO (although not to DLC) in the last year, that simply indicates the possibility of a preference in favour of one creditor of CII, and that provides no basis on which to consider that the voluntary administration is in the interests of creditors generally, where that preference may well be recoverable by a liquidator on a winding up, so as to bring about a pro rata distribution to creditors in a winding up.

15. Here, as in many last-minute applications of this character, the application must fail, because its lateness has deprived the voluntary administrators of the opportunity to make investigations of its factual basis, and the Court cannot be satisfied of that factual basis, or that a voluntary administration would support a better return to creditors than a winding up. For these reasons, the application must be dismissed. I will hear the parties as to whether, having regard to the conclusions that I have reached, an order should be made against Mr Loi personally in respect of the costs of the application.

Costs of the adjournment application

16. I noted the possibility above that an order for costs would be made against Mr Loi personally in respect of this application. Little turns, in that respect, on whether he is treated, for these purposes, as having brought the application in the name of CII, or acted as an officer of CII in bringing the application, or is a third party for the purposes of third party cost orders. There are several previous cases where orders for costs have been made against voluntary administrators in respect of last-minute applications of this character, where they are brought without a reasonable basis.

17. Mr Pokoney, who appears for DLC, seeks such an order. Mr Mathas has responded, again with moderation and putting what can be put in opposition to such an order. Mr Mathas points out that the application has not taken up a significant amount of court time. That is true, but misapprehends the purpose of a costs order. While DCL had briefed Counsel today, and its solicitors would have been present today for winding up application in any event, their time has been used in this application and they will in turn charge DCL for that time.

18. It seems to me that, here, it should have been apparent to Mr Loi, before this application was brought, that he had no real knowledge of the truth of its factual basis. That was the unfortunate position in which he found himself, by reason of the voluntary administrators’ late appointment; but that did not require that he bring this application, and it was open to him to recognise, as a review of the case law would have indicated, that the application had little or no prospect of success, where the lateness of his appointment meant that he simply did not know whether the factual basis of the application was or was not correct.

19. In these circumstances, whether the matter is approached on the basis that Mr Loi is the true proponent of the application, or that he is a third party for the purposes of a third party cost order, there is a sufficient degree of unreasonable conduct in his bringing the adjournment application to warrant a costs order against him, where he was not bound to, but did, bring an application which would almost inevitably fail for its lack of factual basis. It seems to me that a costs order should be made against Mr Loi, in the interests of justice, where DLC would otherwise be left to seek to recover its costs against CII which is, as the appointment of the voluntary administrators itself indicates, either insolvent or likely to become insolvent, and where it is plainly unlikely that CII will meet that costs order in full or in substantial part.

20. For these reasons, I make a further order that Mr Loi pay the costs of and incidental to the application for adjournment of the winding up, as agreed or as assessed.

Winding up application

21. As I noted above, by Originating Process filed on 16 August 2024, DLC applies to wind up CII. CII had previously filed a notice of appearance in the proceedings, on 13 September 2024, which indicated that it would defend the proceedings on the basis that it was solvent. It subsequently served a lengthy expert report, seeking to establish solvency, but that expert report has not been read or tendered today. CII appears, by solicitors now instructed by the voluntary administrators which it appointed yesterday, implicitly accepting that it is insolvent or likely to become insolvent, where that is the basis for the appointment of voluntary administrators.

22. Turning now to the evidence read in support of the winding up application, DLC reads the affidavit dated 16 August 2024 of Ms Spain, which exhibited a bundle of documents and referred, inter alia, to service of the Demand on which this application relies. The Demand relates to an amount of $1,117,466.33 arising under a Put and Call Option Deed dated 28 January 2022 entered into between DLC and a third party, One GC MQ Park Pty Ltd, and CII as guarantor, as varied by a Deed of Variation of Put and Call Option Deed dated 29 August 2023. The amount claimed by the Demand is not, and cannot be, contested by CII in these proceedings, where it did not seek to set aside the Demand on the basis that that amount was genuinely disputed and has not brought or obtained leave to contest that matter under s 459S of the Act in this application.

23. By a second affidavit dated 29 August 2024, Ms Spain leads evidence of the giving of notice of the application to the Australian Securities and Investments Commission (“ASIC”) in Form 519. By an affidavit dated 12 September 2024, Ms Rositano proves the giving of notice of the application for the winding up order to ASIC. By an affidavit of service Mr Richards dated 21 March 2025, he proves service of a consent of liquidator upon CII.

24. By an affidavit dated 25 March 2025, Ms Spain in turn proves a recent company search in respect of CII, which indicates that CII is not presently the subject of a winding order made by another Court, although it is, of course, now in voluntary administration by reason of the appointment of voluntary administrators yesterday.

25. By a further affidavit also dated 25 March 2025, Ms Spain in turn refers to the fact that, by an oversight of the legal representatives and the Court, an order was not made on 9 December 2024 extending the time to determine the winding up under s 459R of the Act. That plainly was an oversight, where the determination of the proceedings had been delayed, both by the extensive expert evidence led by CII to seek to establish its solvency, which had the result that a hearing would take longer than was ordinarily the case, and the fact that the matter was only ready for hearing late last year, when a hearing date could not be allocated until today.

26. It is plain that the Court has power to extend the time to determine a winding up order under s 459R of the Act, nunc pro tunc. I should add to my oral judgment that, in Amorin Constructions Pty Ltd v Kamtech Electrical Services Pty Ltd (2008) 73 NSWLR 627; [2008] NSWSC 285, Hammerschlag J (as his Honour then was) on-served that the use of the slip rule, in respect of s 459R of the Act, should not be permitted to undermine the policy of Pt 5.4 of the Act which requires winding-up applications to be dealt with expeditiously. I accept that proposition and I proceed on that basis. Having said that, the Full Court of the Federal Court has observed in Flint v Richard Busuttil & Co Pty Ltd [2013] 216 FCR 375 at [46]; [2013] FCAFC 131 that it is difficult to see why the slip rule should not apply:

“[i]f the surrounding circumstances are such … that it can be concluded that proper attendance for the matter (had the error not occurred) could only have resulted in the discretion being exercised in one way.”

27. It is plain that, had either the parties or the Court adverted to that matter, an order would have been made under s 459R of the Act extending the time for determination of the winding up, and the Court would have been satisfied that special circumstances justified that extension, given the matters that had caused the delays to which I referred above. I will make an order under s 459R of the Act, nunc pro tunc, for that reason.

28. Finally, by an affidavit dated 25 March 2025, Mr Murrie-West addresses the continuance of the debt owed by CII to DLC, and confirms that that debt has not been paid.

29. Where CII does not press its contention that it is solvent, this application is straightforward. A presumption of insolvency arises from CII’s non-compliance with the Demand, and the effect of that presumption was summarised by the High Court of Australia in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] 244 CLR 1; [2011] HCA 18 at [28] as follows:

“Where a demand has not been complied with, the statutory assumption of insolvency arises/applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective by an order sought setting it aside, the company is required to prove to the contrary of the presumption.”

30. The presumption of insolvency has arisen and CII has not sought to establish its solvency so as to rebut that presumption. In those circumstances, a winding up order should be made.

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Decision last updated: 04 April 2025