In the matter of Fratelli's Fresh Pasta Pty Ltd

[2011] NSWSC 576

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Fratelli's Fresh Pasta Pty Ltd [2011] NSWSC 576

Decision date:

17 June 2011

Before:

White J

Decision:

Refer to para [1] of judgment.

Catchwords:

CORPORATIONS - winding up - winding up in insolvency- whether special circumstances justify extending the time for determining the plaintiff's application that company be wound up in insolvency pursuant to s 459R(2) of the Corporations Act 2001 (Cth) - special circumstances of case justify extension of time - where delay in the provision of up-to-date financial information relating to the affairs of the company - where delay in determining application attributable to parties preparing material to proposed amended claim seeking winding-up on alternative grounds pursuant to s461(1)(e) and (f) of Corporations Act 2001 (Cth)

CORPORATIONS - winding up - winding up in insolvency and on other grounds - whether plaintiff should have leave to amend originating process to seek winding-up on other grounds - applications for winding up in insolvency and applications for winding up by the court on other grounds may be brought in the same proceedings - desirable that all aspects of controversy be determined in the one proceeding - leave given to amend originating process

LEGAL PRACTITIONERS - where timetable consented to in hope winding-up proceedings would be automatically dismissed after six months pursuant to s 459R of Corporations Act - obligations of legal practitioners to ensure determination of real issues and avoid ambush

Legislation Cited:

Corporations Act 2001 (Cth)
Civil Procedure Act 2005

Cases Cited:

White v Overland [2001] FCA 1333
Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116
Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited [2008] NSWCA 243
Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No. 2) [2011] NSWSC 113
Expile Pty Ltd v Jabb's Excavations Pty Ltd [2002] NSWSC 851; (2002) 194 ALR 138
Ann Street Mezzanine Pty Ltd (in liq) v Beck [2009] FCA 333; (2009) 27 ACLC 485
Re National Computer Systems and Services Ltd (1991) 9 ACLC 1361

Category:

Interlocutory applications

Parties:

Anthony Franco (Plaintiff)
Frattelli's Fresh Pasta Pty Limited (1st Defendant)
John White (2nd Defendant)

Representation:

R Winfield (Plaintiff)
K Ginges (2nd Defendant)
Papantoniou Blake (Plaintiff)
Zraika Partners Lawyers (2nd Defendant)

File Number(s):

2010/399483

Judgment

1. HIS HONOUR: On 31 May 2011 I made the following orders:

1. Order pursuant to s 459R(2) of the Corporations Act 2001 (Cth) that the time for determining the plaintiff's application that the first defendant be wound up in insolvency be extended up to and including 30 September 2011.

2. Give leave to the plaintiff to file and serve an amended originating process in the form of Annexure H to the affidavit of Andrej Vrana sworn 1 February 2011.

3. Order that the plaintiff's interlocutory process filed 1 February 2011 be otherwise dismissed.

4. Reserve the question of costs of the plaintiff's interlocutory processes dated 1 February 2011 and 30 May 2011 until after the determination of proceedings.

5. Order that by 14 June 2011 the plaintiff file and serve:

a) any further affidavits to be relied upon;

b) a statement of claim; and

c) if any application is made for leave to further amend the originating process that has not been consented to, an interlocutory process seeking that leave. Any such interlocutory processes is to be returnable for hearing on 20 June 2011 before the corporations list judge.

6. Stand over the proceedings to 20 June 2011 at 10am before the Corporations List Judge for the purpose of:

a) giving directions with respect to filing and service of defence and affidavits;

b) to hear any interlocutory process; and

c) to fix the matter for hearing of the originating process.

1. These are my reasons.

1. On 1 December 2010 the plaintiff filed an originating process naming Fratelli's Fresh Pasta Pty Limited as the defendant. He sought an order that the company be wound up in insolvency. The originating process was supported by an affidavit from the plaintiff. He deposed that he was one of two directors of the company. The other director is a Mr John White. The plaintiff deposed that he and Mr White each held 50 per cent of the shares in the company. He deposed that the company had purchased two businesses and that he had " put $400,000 into a loan account in the defendant ". He deposed that his relationship with Mr White had broken down and said that he had been excluded from the business. He annexed to his affidavit a profit and loss statement and balance sheet for the company as at 30 June 2010. The profit and loss statement reported a trading loss in the year ended 30 June 2010 and the balance sheet reported a deficiency of net assets of $243,811.11. The balance sheet also reported a surplus of current assets over current liabilities of $145,221.76. The reported deficiency in net assets was due to what was described as non-current liabilities being directors' loans from the plaintiff ($375,287.03) and from Mr White ($768,453.55).

1. The plaintiff does not rely on a presumption of insolvency. He seeks to establish that the company is insolvent.

1. The originating process was first returnable before the Registrar on 1 February 2011.

1. Section 459R of the Corporations Act 2001 (Cth) provides:

" 459R Period within which application must be determined

(1) An application for a company to be wound up in insolvency is to be determined within 6 months after it is made.

(2) The Court may by order extend the period within which an application must be determined, but only if:

(a) the Court is satisfied that special circumstances justify the extension; and

(b) the order is made within that period as prescribed by subsection (1), or as last extended under this subsection, as the case requires.

(3) An application is, because of this subsection, dismissed if it is not determined as required by this section.

(4) An order under subsection (2) may be made subject to conditions. "

1. On 1 February 2011 Mr White filed a notice of appearance stating that he is an officer and contributory of the company and intended to appear before the court to oppose the winding-up application. On the same day orders were made by consent that Mr White be joined as the second defendant to the proceeding. Orders were made also by consent that the first defendant be given leave to file a submitting appearance. The proceedings were stood over to the Corporations List Judge on 7 February 2011.

1. Also on 1 February 2011 the plaintiff filed an interlocutory process seeking inter alia the following orders:

" 1. To the extent that may be necessary leave be granted to the Plaintiff pursuant to section 459P to bring proceedings.

2. Leave be granted to the Plaintiff to amend the originating process.

3. The Second Defendant be restrained from conducting the business owned by the First Defendant without the consent in writing of the Plaintiff.

4. The First Defendant forthwith deliver to the Plaintiff:

(a) at his solicitor's office, keys to the business premises situate at Unit 2, 6-20 Braidwood Road, Strathfield South;

(b) access to all computers, business records, MYOB records, financial records of the First Defendant. "

1. That interlocutory process was supported by an affidavit of the plaintiff's solicitor. He annexed a proposed amended originating process that contained an alternative claim that the first defendant be wound up on the grounds in s 461(e) or (f) of the Corporations Act . No reliance was placed on s 461(k) (the " just and equitable " ground).

1. The interlocutory process was also returnable on 7 February 2011.

1. On 7 February 2011 Barrett J made orders by consent fixing a timetable for the parties to issue subpoenas and notices to produce. The consent orders also fixed a time by which the second defendant, Mr White, was to make any application for summary dismissal of the proceedings. The proceedings were stood over to 14 March 2011. No order was made with respect to the plaintiff's interlocutory process of 1 February 2011.

1. In the event no application was brought for summary dismissal.

1. On 14 March 2011 Ward J made orders by consent adjourning the proceeding for two weeks. On 28 March 2011, again by consent, the matter was stood over to 18 April 2011. On 18 April 2011 Barrett J made orders by consent that the second defendant, Mr White, make available for the plaintiff's inspection by 6 May 2011 such of the company's books as were in his possession; that by 9 May 2011 he serve any affidavits on which he intended to rely in relation to the plaintiff's interlocutory process; that the plaintiff serve affidavits in reply by 23 May 2011; and that the matter be relisted on 30 May 2011 to set a date for hearing of the plaintiff's interlocutory process.

1. On 27 May 2011 the plaintiff's counsel forwarded to my associate proposed consent orders signed by counsel for the parties extending the time for the plaintiff to serve affidavits in reply to 3 June 2011 and providing that the matter be relisted on 6 June 2011 for the setting of a hearing date of the plaintiff's interlocutory application.

1. My associate advised the parties that I was not prepared to make the proposed consent orders as:

a) no reason had been provided as to why time should be further extended, having regard to three previous extensions;

b) the effect of the orders, if made, would be that the originating process would be dismissed on 1 June 2011 by virtue of s 459R; and

c) the parties needed to provide evidence to justify an extension under s 459R.

The parties were advised that the matter would remain in the Corporations List for 30 May 2011.

1. On 30 May 2011 the plaintiff filed a further interlocutory process seeking an order for extension of the time for determination of the proceeding pursuant to s 459R (2). That application was made returnable instanter.

1. I also dealt with the outstanding issues under the plaintiff's interlocutory process of 1 February 2011. After much bickering the plaintiff was provided with inspection of at least some of the financial records of the company and did not press for any further orders in accordance with para 4 of the interlocutory process of 1 February 2011. His counsel also advised that the plaintiff was not pressing for an order seeking to restrain the second defendant from conducting the company's business. There were thus three issues, namely:

1) whether there were grounds for extending the time for determining the plaintiff's application that the company be wound up in insolvency, and if so, whether time should be extended;

2) whether the plaintiff should have leave to amend the originating process so as to seek a winding-up of the company on the alternative grounds in s 461(1)(e) and (f); and

3) whether the plaintiff should be given leave " to the extent that may be necessary " to bring the application under s 459P that the applicant be wound up in insolvency.

Application to Extend Time pursuant to s 459R

1. On the hearing of the applications on 30 May 2011 the plaintiff's counsel acknowledged that she and the plaintiff's solicitor had overlooked the requirement in s 459R(1) that an application that a company be wound up in insolvency be determined within six months. I was surprised to be informed that the defendant's legal advisers had not overlooked that requirement. The second defendant's solicitor, Mr Zraika, and subsequently his counsel, Mr Ginges, made it clear that they understood that had the last proposed consent orders been made and the matter stood over to 6 June 2011, then the proceedings would have been automatically dismissed pursuant to s 459R after 1 June 2011. They made it clear that the defendant proposed to submit that the plaintiff's interlocutory process would then also have to be dismissed because the proceedings would no longer be on foot. Mr Zraika submitted that the defendant was under no obligation to alert the plaintiff to the pitfall of s 459R of which the plaintiff's legal advisers were evidently oblivious.

1. I disagree. The ambush approach to litigation is discredited. It should be rejected by any solicitor or barrister. It is inconsistent with the duties of parties and their legal representatives under s 56 of the Civil Procedure Act 2005 to ensure the just, quick and cheap resolution of the real issues in proceedings. The real issue on the Originating Process is whether the first defendant is insolvent. The second defendant and his legal advisors, as much as the plaintiff and his legal advisors, have a duty to co-operate in seeing that that issue is resolved as quickly and as cheaply as it properly can be, consistent with its being resolved justly. That issue would not be resolved at all if s 459R were allowed to apply with no attention having been given as to whether an extension of time should be ordered under s 459R(2).

1. In White v Overland [2001] FCA 1333 Allsop J (as his Honour then was) said (at [4]):

" However, by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. ... Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game. It is a costly and stressful, though necessary, evil. ... Representatives do not owe duties to the other side's client. They owe duties to their own client. But no one's interests are advanced by litigation proceeding on assumptions which are seen or suspected to be false. ... " (emphasis in original)

1. This was approved by the Court of Appeal in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 where the ambush approach to litigation was condemned. The court noted that it was common in equity and commercial litigation that counsel volunteer to each other what points will be argued (at [27] and [29]). In Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Ltd [2008] NSWCA 243 Allsop P said (at [160]):

" ... it cannot be emphasised too strongly that it is the responsibility of the parties, through their legal representatives, to exercise a degree of co-operation to express the issues for trial before and during the trial. Such co-operation can now be taken as an essential aspect of modern civil procedure in the running of any civil litigation, including hard-fought commercial cases. The need for clarity, precision and openness as part of this co-operation has been emphasised in the context of ambush or surprise: White v Overland [2001] FCA 1333 at [4], expressly approved in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116 (Heydon JA, with whom Mason P and Young CJ in Eq agreed); Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 at [59]-[60] (Ipp JA, with whom Sheller and Hodgson JJA agreed); Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 at [4] (Bryson JA with whom Basten JA agreed); and Hooker v Gilling [2007] NSWCA 99 at [52] (McColl JA, with whom Ipp and Basten JJA agreed)."

1. In Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No. 2) [2011] NSWSC 113 a director of a company that had been served with a statutory demand made it clear to a solicitor for the person serving the demand that he assumed that the demand had been served on a particular day when the solicitor knew it had been served some days earlier. I was critical of the solicitor's failure to correct the director's misapprehension. I observed that litigation is not a game in which parties or their legal advisors should keep their cards close to their chest to achieve a tactical advantage (at [21]). This was critical to my decision to exercise a discretion that I found was available under s 459S to permit the company to oppose the winding-up application on a ground that could have been relied upon for the purposes of an application to set aside the statutory demand.

1. In the present case the second defendant and his legal advisors went beyond merely staying silent in the hope that the plaintiff would fall into the trap of s 459R. The second defendant consented to orders that provided for the future fixing of a hearing date for the plaintiff's interlocutory process in the expectation that before the time arrived for fixing a date to hear that interlocutory process the proceeding would have been dismissed by force of statute. They did not alert the plaintiff or the judge who was asked to make the consent order that this would be the result. Even if an ambush approach to litigation could otherwise be condoned, consenting to an order in those terms could not. That is not acceptable conduct.

1. Nor is it acceptable that the plaintiff's legal advisors should have failed to acquaint themselves with the requirements of s 459R.

1. Had the proceeding been dismissed by virtue of s 459R it would have been open to the plaintiff to have instituted a fresh application to wind up the first defendant in insolvency. Nothing would have been achieved for the defendants by their allowing the time to have expired without alerting the plaintiff to the consequences. It was submitted for the defendants that in that event the plaintiff would have been ordered to pay the costs of the proceedings, and an order would have been sought that no fresh proceeding be brought until the costs were paid. It is unnecessary to express a concluded view on what costs order would have been made. But it would be wrong to assume that the plaintiff would necessarily have been ordered to pay the costs. Depending upon the view that the judge hearing the application took as to the conduct of both parties and their legal advisors the burden of costs might well have not fallen on the plaintiff, but on the parties' legal advisors.

1. I have reserved questions of costs arising out of the applications heard on 30 May 2011 until after the determination of the other issues in the proceedings. At that time I may consider whether the costs should be borne wholly or partly not only by the plaintiff and the second defendant, but by their respective legal advisors.

1. The first issue is whether there are special circumstances that justify an extension of the period within which the application to wind up the first defendant in insolvency is to be determined. If there are such special circumstances, there remains a question as to whether the court in its discretion should grant an extension. In Expile Pty Ltd v Jabb's Excavations Pty Ltd [2002] NSWSC 851; (2002) 194 ALR 138, Hamilton J said (at [5]-[6]) that there should be no exhaustive attempt to define or list the matters which may fall within the rubric of special circumstances and that the word " special " is used in contradistinction to " ordinary " or " common ". His Honour emphasised that merely because special circumstances exist that justify an extension does not mean that the discretion under s 459R(2) need be exercised.

1. In the present case there are circumstances that are not ordinary or common, but special, which justify an extension.

1. To obtain an order for the winding-up of the first defendant in insolvency, the plaintiff must establish insolvency at the date of the hearing and at the date of the filing of the application (see Ann Street Mezzanine Pty Ltd (in liq) v Beck [2009] FCA 333; (2009) 27 ACLC 485 at [9]-[12]). It is clear from the affidavits filed that the plaintiff ceased any active involvement in the affairs of the first defendant in October 2010. He sought production of documents including financial records of the first defendant. The second defendant had concerns about allowing the plaintiff unfettered access to the books and records of the first defendant, notwithstanding that the plaintiff is a director of the first defendant. That is because the second defendant maintains that the plaintiff has commenced work for a competitor. Rather than simply seeking an order from the court at any of the directions hearings for the production of the first defendant's financial records, the parties' solicitors spent considerable time, and no doubt costs, in debating their respective clients' position in correspondence. It appears that the plaintiff served a notice to produce on 11 February 2011, although the notice was not itself put into evidence before me. The second defendant objected to the notice. Again, the grounds of objection were not before me. There was extended wrangling about the plaintiff's entitlement to inspect documents. It was not until 11 May 2011 that the plaintiff was provided with a USB stick that included financial records up-to-date to 29 April 2011. There should have been no delay in the provision of up-to-date financial information relating to the affairs of the first defendant.

1. It is true that the plaintiff's legal advisors were at fault. The plaintiff's solicitor preferred advancing his client's case by correspondence rather than taking active steps in the litigation to obtain an order from the court for the production of necessary documents. Much of the correspondence in evidence on the applications before me is to be deplored. But the fact that legal advisors should have taken more effective steps to obtain necessary evidence does not mean that the circumstances are otherwise than special, that is, not common or ordinary.

1. I also think that the delay in the plaintiff's obtaining such financial information justifies an extension of time. The plaintiff is entitled to a reasonable period in which to consider the effect of the financial information now provided and if necessary to obtain the assistance of an accountant or other qualified person. Section 459R expresses a public interest in the prompt resolution of applications for winding up in insolvency. In Expile Pty Ltd v Jabb's Excavations Pty Ltd , Hamilton J summarised a number of those reasons as follows (at [9]):

" ... There are various good reasons for this policy and I do not purport to be exhaustive. They include winding up applications not being dealt with on material which is stale. They include situations where a company may be trading or engaging in transactions whilst it is insolvent, which should not be protracted. And they include companies, which are not insolvent, not having the commercial cloud caused by the existence of winding up proceedings hanging over their heads for a long time. ... "

1. Undoubtedly it is undesirable that the company have the application that it be wound up in insolvency hanging over its head for a long time. However, for the reasons which follow, even if the application that the company be wound up in insolvency was automatically dismissed as a consequence of my refusing the application to extend time under s 459R(2), there would remain an application that the company be wound up on other grounds. Moreover, there would be nothing to prevent the plaintiff bringing a fresh application that the company be wound up in insolvency. There is a risk that the company will continue to incur debts that will not be met if the company is insolvent, but the risks to persons dealing with the company if it is insolvent will not be ameliorated by the automatic dismissal of the application that the company be wound up in insolvency. Because any winding-up by the court will commence on the making of a winding-up order and not from the date of filing of the originating process (s 513A(e)) persons dealing with the company are not at risk of receiving dispositions of property of the company that would be void if s 468 applied.

1. There are further special circumstances justifying an extension of time under s 459R(2). The delay is partly attributable to the parties' preparing material relevant to the plaintiff's proposed interlocutory process that is also material to the plaintiff's proposed amended claim seeking winding-up orders on the alternative grounds of oppression under s 461(1)(e) and (f). The interlocutory process and the proposed additional grounds for seeking a winding-up order raised additional matters of preparation that are out of the ordinary. For the reasons which follow, they were not matters improperly raised in the context of an application to wind up the company in insolvency. These matters also justified an extension of time under s 459R(2).

Proposed amendment to originating process

1. Counsel for the second defendant submitted that the claim to wind up the first defendant in insolvency could not properly be joined with a claim that it be wound up on other grounds. He referred to the decision of McLelland J (as his Honour then was) in Re National Computer Systems and Services Ltd (1991) 9 ACLC 1361 where his Honour said (at 1363):

" It would rarely if ever be appropriate for a creditor's application for the winding-up of a company (which is of the nature of an order in rem ) on the ground of insolvency to be joined with a claim for relief of some other kind made by either of the parties. Such an application has particular public aspects which render it desirable that it be kept separate from the course of other, private, litigation. ... The applicant creditor is considered as representing the whole class of creditors to which it belongs ... Furthermore, it is in the public interest that an application to wind-up a company on the ground of insolvency, once filed, be determined without avoidable delay, particularly if the company is continuing to trade, in order to reduce as far as possible (a) the period during which debts may be incurred which may not be paid, (b) the period of uncertainty as to the validity of transactions with the company which may be open to challenge under, for example, ss 468 or 565 of the Corporations Law , (c) the period of uncertainty as to whether other parties will be able to commence or proceed with proceedings against the company (see s471(2) of the Corporations Law ), and (d) the risk that assets which would otherwise be available to creditors might become unavailable ... "

1. It was submitted for the second defendant that a claim that the first defendant should be wound up on one of the grounds in s 461 of the Corporations Act was not a claim for relief of the same kind as the claim that the first defendant be wound up in insolvency. Hence, it was submitted that it was inappropriate to allow the proposed amendment to the originating process. Further, the delays in the preparation of the case attributable to pursuit of the proposed additional grounds for winding up provided no proper reason for extending the time for determination of the application to wind up the first defendant in insolvency.

1. In Re National Computer and Services Limited , McLelland J was not dealing with the question of whether an application for winding up in insolvency was a claim for relief of a different kind than an application for winding up on other grounds. There the defendant company sought to have the winding-up proceeding transferred to the Federal Court to be heard in conjunction with or after a claim brought by the defendant in the Federal Court for damages against the plaintiff for alleged misleading or deceptive conduct.

1. It is true that Parts 5.4 and 5.4A of the Corporations Act contain different provisions dealing with applications for winding up in insolvency and applications for winding up by the court on other grounds. There are different rules concerning an applicant's standing to bring an application. There is no counterpart in Part 5.4A to s 459R. However, these differences do not mean that an application for winding up cannot be brought both on the ground that the defendant company is insolvent and in reliance on a ground under s 461 (or pursuant to another provision such as s 233). This must follow from s 459B. That section provides that where, on an application under ss 234, 462 or 464, the court is satisfied that the company is insolvent the court may order that the company be wound up in insolvency. If the court, on an application under s 462, can order that the company be wound up in insolvency, it must be open to an applicant to claim that the company should be wound up both on a ground in s 461 and on the ground that the company is insolvent. An example of such an application that is the converse to the present case is Melbase Corporation Pty Limited v Segenhoe Limited (1995) 13 ACLC 823. There the applicant in the Federal Court had filed a winding-up application relying on the grounds in s 461(e), (f) and (k). It applied for leave to amend the application to apply also under s 459P(2) to have the respondent wound up in insolvency. Lindgren J granted the application.

1. I conclude that it is open to an applicant to proceed under both Part 5.4 and Part 5.4A.

1. The plaintiff has standing to apply for a winding-up pursuant to s 462 on a ground provided for by s 461 as he is a contributory of the first defendant. His evidence, if accepted, provides an arguable ground for winding-up under s 461(1)(e) or (f). It is desirable that all aspects of the controversy be determined in the one proceeding. For these reasons I gave leave to the plaintiff to file the amended originating process as sought in his solicitor's affidavit.

1. The amended originating process for which leave was sought did not seek to rely upon the just and equitable ground in s 461(1)(k). This may have been a deliberate choice. On the other hand, I cannot exclude the possibility that just as the plaintiff's legal advisors proceeded in ignorance of s 459R, they may not have given any real consideration to s 461(1)(k). It would be undesirable for the plaintiff at the hearing to contend that even if insolvency and oppression were not established, the company should be wound up on just and equitable grounds. If that contention is to be made, the defendant should be alerted to it before they are required to complete their evidence. The second defendant may have grounds on which to resist an application for leave for the plaintiff to further amend the originating process, if such an amendment were to be sought. It is for this reason that I have directed that if the plaintiff seeks to make any further amendment to the originating process, and if that application is to be opposed, an interlocutory process seeking leave be returnable on the next directions date.

Leave to bring Application under s 459P

1. The remaining question is whether the plaintiff should have leave to bring his application under s 459P if such leave is necessary. The plaintiff claims standing under s 459P both as a creditor and as a director. Insofar as he claims standing as a director, he would require leave. If he is a creditor only because of a contingent or prospective debt, he would also require leave (s 459P(2)). Under s 459P(3) leave can only be given if the court is satisfied that there is a prima facie case that the company is insolvent.

1. I am satisfied that there is a prima facie case that the company is insolvent if the debt claimed by the plaintiff is due and payable. The second defendant denies that the plaintiff has a debt that is due and payable. He says that there was an agreement between he and the plaintiff that shareholder loans were only repayable when the company sold its business. The plaintiff has not yet filed an affidavit in response to the second defendant's evidence in that respect, but I was told by counsel for the plaintiff that the plaintiff disputed this.

1. The plaintiff is only insolvent if it is unable to pay all its debts as and when they become due and payable. If the plaintiff's debt is due and payable, he does not need leave under s 459P. If neither his debt, nor that of his co-shareholder and director is due and payable, the evidence does not establish a prima facie case that the company is insolvent. Accordingly, if leave is required under s 459P(2) the condition for the grant of leave is not established.

1. The remaining substantive issues raised by that interlocutory process had either been resolved or were not pressed. For this reason I ordered that the balance of the plaintiff's interlocutory process of 1 February 2011 be dismissed.

Decision last updated: 23 June 2011