In the matter of GHS Safety Products Pty Ltd

[2019] NSWSC 668

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	In the matter of GHS Safety Products Pty Ltd [2019] NSWSC 668
Hearing dates:	5 June 2019
Date of orders:	06 June 2019
Decision date:	07 June 2019
Jurisdiction:	Equity - Corporations List
Before:	Rees J
Decision:	1. Order pursuant to section 459A of the Corporations Act 2001 (Cth) that GHS Safety Products Australia Pty Ltd (ACN 112 732 073) be wound up in insolvency. 2. Appoint Peter Paul Krejci of BRI Ferrier (NSW) Pty Limited, Level 30, Australia Square, 264 George Street, Sydney, NSW 2000 to act as the liquidator of GHS Safety Products Australia  Pty Ltd. 3. GHS Safety Products Australia Pty Ltd to pay the plaintiff’s costs of these proceedings.
Catchwords:	CORPORATIONS — Winding up — Following failure to comply with statutory demand — Whether presumption of insolvency displaced — Barely sufficient cash at bank deposited before hearing — Credits and debts to ATO contingent upon favourable objection ruling — Evidence of imminent demand on guarantee given by company — Payment of plaintiff’s debt after judgment reserved — Winding up order made.
Legislation Cited:	Corporations Act 2001 (Cth), ss 95A, 459A, 459C, 588FA, 588FE, 588FF Legal Profession Uniform Conduct (Barristers) Rules 201 Taxation Administration Act 1953 (Cth), s 8AAZLGA
Cases Cited:	Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075 De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468; (1987) ACLR 850 Deputy Commissioner of Taxation v De Simone Consulting Pty Limited [2007] FCA 548 Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 116 FLR 314; (1994) 14 ACSR 580 Expile Pty Limited v Jabb’s Excavations Pty Limited (2003) 45 ACSR 711; [2003] NSWCA 163 Furlong v Wise & Young Pty Ltd [2016] NSWSC 647 Furlong v Wise & Young Pty Ltd [2016] NSWSC 1839 Furlong v Wise & Young Pty Ltd (No 2) [2018] NSWSC 1986
Texts Cited:	Assaf, Statutory Demands: Law and Practice (1st ed., LexisNexis, 2008) Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed., LexisNexis, 2012)
Category:	Principal judgment
Parties:	John Hyde Page (Plaintiff) GHS Safety Products Pty Ltd ACN 112 732 073 (Defendant)
Representation:	Counsel: Mr J Hyde Page (Plaintiff in person) Mr D Allen (Defendant)   Solicitors: Gardner Ekes Lawyers (Defendant)
File Number(s):	2018/387725

Judgment

1. This is an application by a barrister to have a liquidator appointed to a former client, GHS Safety Products Australia  Pty Ltd (the company) in respect of unpaid fees which have since been assessed by the Court. Although the company did apply to have a statutory demand issued by the barrister set aside, the application was out of time and thus dismissed. The main question for the Court, therefore, is whether the presumption of insolvency which arose when the company failed to comply with the demand has been rebutted by the company such that the Court is satisfied that the company is able to pay its debts as and when they fall due.

FACTS

2. The company was incorporated in 2005 and, as I understand it from materials submitted by the company to the Australian Taxation Office (ATO), engaged in research and development (R&D) into new control systems for the mining industry. Until recently, the company had 200 ordinary shares held by GIM Investments (NCLE) Pty Limited, Ce Tan, Australian Centre Study Agency Pty Limited and Parmasivan Moodley. Initially, Mark Leishman and Gilbert Leishman were directors of the company. On 10 April 2014, Mark and Gilbert Leishman ceased to be directors and Kim Leishman became a director. On 27 April 2016, Paul Ekes became a director of the company. On 23 November 2016, Kim Leishman ceased to be a director and Paul Ekes continued as sole director.

R&D activities

3. According to material submitted by the company to the ATO, the R&D activities of the company were funded in the year ended 30 June 2015 by contributions from the company’s shareholders which were held by Wyse & Young International Pty Ltd on trust in a bank account. Wyse & Young International paid the R&D expenses incurred and also provided bookkeeping services to the company. The registered office of the company was also Wyse & Young International.

4. According to material submitted by the company to the ATO, the company then changed its funding model. In June 2015, the company entered into loan agreements with Bramco International Pty Limited and Bramco Mining & Engineering Pty Limited. The purpose of the loan agreements was to fund the company’s R&D activities by advancing payments to the company on agreed expenses captured in a registered R&D project and in accordance with R&D design agreements for the period of the registered project. Apparently, Bramco International manufactures control systems for the mining industry.

5. According to information submitted by the company to the ATO, in the 2015 and 2016 income years, the company incurred expenses of $773,318 comprising:

1. light and power associated with running laboratory facilities;

2. rent;

3. telephone expenses;

4. component parts procured to build prototype units that evaluated hypotheses; and

5. professional fees in respect of compliance services, approvals, and legal fees in respect of intellectual property.

The company, apparently, did not own any assets outright and had no asset registers. These expenses were, rather, an allocation of 35% of expenses incurred by other parties who operated a factory in which the company conducted its R&D activities. The assets used in the business were owned by other parties and were either on loan to the company or formed part of its rent expense. The company expected to earn income in the 2017 income year as a result of licence fees and royalties, R&D tax incentives and a potential partial sale of intellectual property.

6. As part of his case, the barrister tendered an email from George Dimitriou of Wyse Partners Pty Limited attaching draft financial statements for the company for the year ended 30 June 2016. The financial statements are unsigned but bear a date of 8 August 2016. The company’s counsel cautioned against relying upon these draft financial statements as they were unsigned and there was a complicated history of dispute between Mr Dimitriou and the Leishmans which had resulted in lengthy court proceedings. That appears to be correct: Furlong v Wise & Young Pty Ltd [2016] NSWSC 647; Furlong v Wise & Young Pty Ltd [2016] NSWSC 1839 and Furlong v Wise & Young Pty Ltd (No 2) [2018] NSWSC 1986.

7. I note that, on 4 May 2016, the registered address of the company changed from Wyse & Young International to JLOH & Associates, which I take to be a different accounting firm. The first judgment cited above was given by Stevenson J on 19 May 2016. Both events pre-dated the date appearing on the draft financial statements. Accordingly, I attach no weight to the draft financial statements as they appear to have been prepared at a time when Wyse & Young International was no longer retained by the company and there was a dispute between them. I also accept the company’s submission that the financial position of the company as at 30 June 2016 is of little relevance to this Court in assessing whether the company is insolvent today, almost 3 years later. The difficulty for the company, however, is that there are no other financial statements before the Court as to the company’s position in 2016 or, more importantly, at any time since.

8. On 24 March 2017, the company lodged an R&D Tax Incentive Application with the Commonwealth Department of Industry, Innovation and Science in the sum of $1,106,075. In April 2017, the ATO notified the company that it was conducting a high risk refund review on the R&D claims and requested information in relation to the claims.

Guarantee to 1 Loan Pty Ltd

9. On 1 June 2017, David Rod, a solicitor at Spectrum Legal, was retained by 1 Loan Pty Ltd in respect of a proposed loan of $650,000 by that company to Kathleen and Gilbert Leishman.

10. On 13 June 2017, 1 Loan entered into a Loan Agreement with Kathleen and Gilbert Leishman. In addition, 1 Loan entered into a Deed of Guarantee and Indemnity with GHS Safety Products Australia . The deed was executed by Paul Ekes. Under the deed, the company guaranteed punctual repayment of the loan by Kathleen and Gilbert Leishman.

11. On 14 June 2017, an entry was made in the Personal Property Securities Register in respect of the guarantee.

12. I note that there is no reference to Mr Rod, his firm or 1 Loan in the judgments to which I earlier referred, and it would appear that the loan and guarantee was unconnected with Mr Dimitriou, Wyse & Young International or the dispute between the company and the Leishmans.

ATO rejects R&D claims

13. In June and July 2017, GDC Tax on behalf of the company provided information and documents to the ATO in respect of the R&D claims. In July 2017, the ATO advised that the R&D claims would be escalated to a formal comprehensive review and that the ATO would retain the monies associated with those claims under section 8AAZLGA to the Taxation Administration Act 1953 (Cth) until such time as the ATO no longer considered the outstanding issues to be a risk to revenue. In August 2017, the ATO commenced a formal comprehensive review of the income tax affairs of the company for the 2015 and 2016 income years, in addition to the outstanding R&D claims.

14. In October 2017, the ATO conducted an interview with representatives of the company, Mark Leishman and Paul Ekes, and representatives of GDC Tax. The ATO issued an information request for source documents in respect of the issues discussed at the interview. The company provided further documents to the ATO in November and December 2017.

15. On 15 December 2017, the ATO issued a position paper indicating that it considered that the company was neither eligible for the R&D claims of $1,106,075 nor tax deductions for expenses of some $2.5 million said to give rise to the R&D claims. The ATO considered that the factory identified on the floor plan provided by the company was not the R&D laboratory where the “purported core R&D and supporting activities” were conducted. Nor was the ATO satisfied that the overhead costs had in fact been incurred by the company in relation to R&D activities, but rather had been incurred by Bramco Group Australia Pty Ltd, Bramco International and Bramco Mining & Engineering. The invoices to support the professional and licence fees did not, in the ATO’s view, have the requisite nexus to core and supporting R&D activities, nor had the costs been incurred by the company, but rather by the Bramco companies. Similar views were expressed by the ATO about the claim for components, salary and consultants.

16. The ATO considered that there was not sufficient evidence to substantiate that R&D activities were actually being carried out or that R&D expenditure was in fact incurred. Further, the company had derived assessable income of $276,642 which it had not declared. The ATO proposed to make tax adjustments for the income years ended 30 June 2015 and 30 June 2016 with the result that:

1. for the financial year ended 30 June 2015, the company’s taxable income would increase from zero to $244,142; and

2. for the financial year ended 30 June 2016, the company’s taxable income would increase from zero to $32,500.

Company retains barrister

17. In January 2018, the company sought the advice of the barrister in respect of the ATO’s position paper. On 16 January 2018, the barrister issued a costs agreement between himself and Gardner Ekes, solicitor. On 17 January 2018, Mark Leishman sent the barrister, Paul Ekes and others a draft email to the ATO including advising that the company had engaged the barrister to prepare a response to the position paper. On 23 January 2018, the barrister rendered an invoice for $3,400 plus GST. This was paid.

18. On 1 March 2018, the barrister emailed Mark Leishman and Paul Ekes attaching a further costs agreement between himself, GHS Safety Products Australia and Bramco International Pty Ltd, explaining that he needed a new costs agreement under which the company and Bramco took direct responsibility for his fees. On 5 March 2018, the barrister issued a second invoice for $23,000 plus GST. On 12 March 2018, Paul Ekes emailed the barrister advising, “your fees are fine”. Mr Ekes later clarified that, when making this remark, he had only seen the costs agreement but not the invoices.

19. On 14 March 2018, Mark Leishman forwarded the company’s submission in response to the position paper to the ATO, noting that the submission had been prepared by the barrister.

20. On 21 March 2018, Mr Ekes forwarded a signed costs agreement. Mr Ekes also noted that he understood that the barrister’s fees had been discussed with Mark Leishman to be around $20,000 and that he understood that there was a bill for $29,000 “and fair enough you have done some extra work”.

21. On 23 April 2018, the barrister advised Mark Leishman and Mr Ekes that he had lodged his second invoice with the Supreme Court for assessment, and Mr Ekes replied “I never disagreed to your fees buddy, well what I believed they were to be and don’t worry, I won’t run away. I have never asked your fees to be cost assessed either”.

Company objects to ATO

22. On 31 August 2018, the company lodged an objection with the ATO in respect of amended tax assessments issued for the years ended 30 June 2015 and 30 June 2016, which reflected the ATO’s disallowance of the R&D claims deductions referred to in the position paper. That objection has still to be determined.

23. Whether the company owes tax seems to me to be a matter of considerable importance to the company’s solvency. The company did not tender the amended tax assessments nor its Integrated Client Account - Running Balance Account with the ATO. The company relied on a printout of the ATO portal for the company obtained by Mr Ekes on 26 May 2019. The undated printout states:

CLIENT ACCOUNT LIST

Description            Balance

Income tax account          $1,106,175.25 CR

Integrated client account      $0

Total               $1,106,175.25 CR

The balance of the income tax account is identical to the company’s R&D claim of 24 March 2017, which the ATO has since rejected. As best I can interpret the printout of the ATO portal, the R&D claim remains credited, presumably until the company’s objection to the amended notices of assessment has been determined. It does not indicate, it seems to me, that whatever tax has been assessed under the amended notices of assessment is not due and payable. As the company has not tendered those assessments, I infer that the amended tax assessments were in the form proposed in the ATO’s position paper and that, as a consequence, the company had taxable income of $276,642 for the 2015 and 2016 years and was likely obliged to pay tax as a consequence.

24. In September 2018, the company ceased to trade. The company has not adduced any evidence as to why.

Costs assessment and these proceedings

25. On 6 November 2018, a certificate of determination was issued in respect of the barrister’s second invoice in the amount of $23,000. The certificate was filed with the Court and, on 16 November 2018, judgment was entered in that amount. On 20 November 2018, the barrister issued a statutory demand based upon the judgment debt. On 22 November 2018, Mr Ekes acknowledged receipt of the statutory demand.

26. On 13 December 2018, the company filed an application for review of the costs assessor’s determination. Put broadly, issue was taken with the amount of detail provided in the barrister’s second invoice, whether the invoice was addressed to the correct company, whether the barrister had given his correct name and Australian Business Number, and whether he was allowed to issue an invoice as trustee for a trust under the Legal Profession Uniform Conduct (Barristers) Rules 2015.

27. On 1 April 2019, the Costs Review Panel reviewed the assessment of the barrister’s fees and allowed $25,300, apparently adding GST which the first assessor had omitted. Unfortunately, it would appear that the company’s submissions to the Review Panel did not reach them and the review decision was made in the absence of those submissions. The barrister noticed this on receiving the review decision and, on 17 April 2019, informed the company’s solicitor of the Review Panel’s apparent error and proposed to invite the Costs Review Panel to correct its determination in light of the company’s submissions. It appears that the company did not respond to the barrister’s sensible suggestion.

28. On 24 May 2019, the company’s solicitor emailed the barrister in advance of a directions hearing in these proceedings on 27 May 2019, seeking an adjournment for two weeks and also indicating that “my client would consider sitting down to resolve this matter”. The barrister declined to consent to an adjournment but offered to settle the proceedings on payment of $22,000. Also on 24 May 2019, the company issued 26,000 ordinary shares to Paul Ekes, who thereby became a shareholder. Mr Ekes paid for the shares by depositing $26,000 into the company’s bank account.

29. On 26 May 2019, the company filed a summons in the Common Law Division of this Court against the barrister, seeking leave to appeal from the determination of the Costs Review Panel. The company is represented in those proceedings by Gardner Ekes. Also on 26 May 2019, Paul Ekes swore an affidavit in these proceedings. As to the solvency of the company, Mr Ekes set out the history of the company’s R&D claim and deposed: the company has no employees or any debts other than to the barrister; the company operates rent-free; and, the company is solvent. This evidence was supplemented by the tender, during the hearing, of a screen shot of the company’s bank account showing a balance of $26,194.54 as at the date of the hearing. I have not summarised this evidence: that was the extent of the company’s evidence in chief as to solvency.

30. On 4 June 2019, the barrister made contact with George Dimitriou, asking whether he had any financial statements for the company. Mr Dimitriou responded, providing the draft financial statements to which I have already referred, and also advised that another company affected by this company was 1 Loan represented by David Rod of Spectrum Legal. The barrister contacted Mr Rod, who thereby became aware of the application to wind up the company. Mr Rod had not had any previous contact with the barrister on this or any other issue.

31. On 5 June 2019, that is, the morning of the hearing, Mr Rod affirmed an affidavit in respect of the loan from 1 Loan to Kathleen and Gilbert Leishman and the guarantee which I have already described. Further, Mr Rod deposed that he understood that the amount owing to 1 Loan under the Loan Agreement was $1,109,879 and:

A notice in respect of the principal of the loan advanced by 1 Loan is to be served today. A notice, styled as a notice addressed to [the company] will be served on [the company].

32. During the course of the hearing, I granted leave to the company to adduce further evidence in respect of the affidavit of Mr Rod and the draft financial statements provided by Mr Dimitriou. I adjourned the hearing to permit such evidence to be prepared. Although the affidavits then served went beyond the scope of the leave which I had granted, the barrister did not object to further leave being granted to read the affidavits, which were to the following effect:

1. Hector Ekes, solicitor, deposed that he is the brother of Paul Ekes and is not charging the company for the legal work done in these proceedings or in the Common Law Division of this Court. He will attend to payment of counsel’s fees personally. He has paid the filing fee in the Common Law proceedings and will not ask for reimbursement of this fee from the company. He will, however, enforce costs orders made in favour of the company.

2. Paul Ekes deposed that he had agreed with his brother Hector Ekes to pay any legal fees for work done for the company once the company receives the R&D tax refund. Further, the company did not owe any money to GDC Tax and, if GDC Tax performed any work for the company in the future, he would pay for that work, not the company. As to the guarantee given by the company to 1 Loan, Paul Ekes said that he didn’t recall the company giving the guarantee and had not yet received a demand. Importantly, he did not say that, if such a demand was issued, he or anyone else standing behind the company would or could pay it.

Is the company solvent?

33. As matters stand, there is a presumption of insolvency by reason of the company’s failure to comply with the statutory demand issued in respect of the barrister’s unpaid fees. As such, on this application, the onus is on the company to prove to the contrary: section 459C(3). Section 95A(1) of the Corporations Act 2001 (Cth) provides:

A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

34. The barrister submitted, and the company did not submit otherwise, that a company must put forward “the fullest and best” evidence of its financial position in order to establish solvency: Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075 at 1081 per Hayne J; Deputy Commissioner of Taxation v De Simone Consulting Pty Limited [2007] FCA 548 at [14]. As Santow JA (with whom Meagher and Handley JJA agreed) explained in Expile Pty Limited v Jabb’s Excavations Pty Limited (2003) 45 ACSR 711; [2003] NSWCA 163 at [16]:

Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd(supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.

35. The company’s evidence in respect of solvency falls far short of this requirement. There is no explanation by the company, apart from what I could glean from the ATO’s position paper and the company’s submissions to the ATO, as to what the company’s activities were, why the company ceased trading, what the company’s assets and liabilities were and how those assets and liabilities have changed to the present position.

36. As to the present position, the company’s assets consist of the contents of its bank account which was, until two weeks ago, effectively empty. A bank statement for the company’s bank account is also in evidence for the period from 14 December 2018 to 14 March 2019. During this three month period, the balance of the account ranged from -$0.46 to $19.54.

37. The ATO has issued amended notices of assessment for the 2015 and 2016 years in unknown amounts which have not been paid. Using the company tax rate for those years and assuming that the amended notices reflected the ATO’s position paper, tax payable would be $82,505 absent accumulated tax losses and the like. Whether the company’s objection to the amended notices of assessment will be successful is a matter of conjecture. There is no evidence that, if the objection is unsuccessful, the company can pay the tax assessed or that anyone standing behind the company can or will do so. Whether the company has lodged a tax return for the 2017 or 2018 years is unknown.

38. There are no financial statements for the company apart from the draft financial statements for the 2016 on which I cannot rely. There are no financial statements, draft or final, for any other year in evidence.

39. Paul Ekes’ assertions as to solvency fall far short of “the fullest and best” evidence of the company’s financial position. Having reviewed the 385 pages of documents exhibited to Mr Ekes’ first affidavit, in particular, communicates penned by him, I am reluctant to accept his assertions without supporting evidence of the kind described in the authorities cited at [34].

40. At the time of the hearing, the company had not paid the barrister an invoice for $25,300 rendered 15 months ago. More importantly, there was reliable evidence that the company is about to receive a demand for payment of over $1 million in respect of a guarantee. There is no evidence that the company, or anyone standing behind the company, can or will pay such a demand. I gave leave to the company during the hearing to put on evidence as to this matter and the subsequent affidavit of Paul Ekes deposed to several things, but not as to this. In the circumstances, the company has not proved that it is solvent.

Subsequent events

41. At the conclusion of the hearing on 5 June 2019, I reserved judgment and informed the parties that I intended to give judgment the following morning but would confirm this by email in the morning. Such an email was sent by my associate at 8.45 am on 6 June 2019, advising that the matter was listed for judgment at 10.00 am that day. At 9.51 am on 6 June 2019, my Chambers received an email from the defendant’s solicitor attaching an affidavit by Hector Ekes. At 10am, Hector Ekes appeared for the company and sought to read his affidavit in support of an application to adjourn the proceedings until a payment of the barrister’s fees which had been made could be received, with the proceedings to then be dismissed. The barrister did not embrace the company’s suggestion and opposed the company seeking to re-open its case.

42. I granted the company leave to file the affidavit of Hector Ekes in Court and, after reviewing the affidavit, formed the view that its contents would not alter the conclusion which I had reached as to the appropriate orders to be made in this case. In those circumstances, I made the following orders:

1. Order pursuant to section 459A of the Corporations Act 2001 (Cth) that GHS Safety Products Australia Pty Ltd (ACN 112 732 073) be wound up in insolvency.

2. Appoint Peter Paul Krejci of BRI Ferrier (NSW) Pty Limited, Level 30, Australia Square, 264 George Street, Sydney, NSW 2000 to act as the liquidator of GHS Safety Products Australia  Pty Ltd.

3. Order the defendant to pay the plaintiff’s costs of these proceedings.

43. I advised the parties that I would have to revise my judgment to incorporate the events of the morning and would publish my reasons when I had had an opportunity to do so. These are those revised reasons.

44. The affidavit of Hector Ekes reveals that, after the conclusion of the hearing on 5 June 2019, the barrister emailed the company’s solicitor noting that he had seen the solicitor’s messages and could hazard a guess as to the reason for his call. The barrister advised that he would be in a meeting for the “next little while” and provided details of a bank account to which payment of the $23,000 judgment debt could be made. The company’s solicitor replied without prejudice, “We will make payment only on the basis that proceedings are dismissed”.

45. The barrister replied about 20 minutes later simply attaching a page from Assaf, Statutory Demands: Law and Practice (1st ed., LexisNexis, 2008), the relevant passage being reproduced in Statutory Demands and Winding Up in Insolvency at [10.26] (2nd ed., LexisNexis, 2012), the gist of which was that where, on a winding up application, the debtor company has paid the debt in full then ordinarily the court will dismiss the winding up application and the company could rely on such a payment in opposing a winding up application. It could be inferred from the barrister’s email that he was indicating that the company could rely on the fact that it had paid his fees in opposing the winding up application. This was apparently perceived by the company’s solicitor who replied, “We prefer consent orders dismissing the matter”. I assume that the company wanted certainty rather than to rely upon how a judge might deal with the matter.

46. The company’s solicitor sent another email to the barrister attaching a remittance advice, “Confirming payment of $23,000 to you by our client in satisfaction of the outstanding debt”. The remittance advice indicated that the payment was “processing”. It is apparent that the company was no longer insisting on an agreement that the proceedings be dismissed before it paid the monies. There is no suggestion in Hector Ekes’ affidavit that the barrister communicated with the company or its solicitor separately to the emails annexed to his affidavit, nor agreed to consent to the dismissal of the proceedings.

47. The company’s solicitor sent another email to the barrister later that evening attaching the company’s bank statement “showing the funds have cleared”. The bank statement indicates, in fact, that two online payments were made from the company’s bank account on 5 June 2019 after the screen shot which was tendered by the company that day had been taken, being:

1. the payment to the barrister of $23,000; and

2. an online payment of $3,100 described as “PYMT Paul Ekes”,

leaving a balance of $94.54. Why the company would make a payment of $3,100 to its director is unknown, but it has had the result of reducing the balance of the company’s bank account to, basically, nothing.

48. The extract of the text provided by the barrister to the company’s solicitors referred to De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468; (1987) ACLR 850 and noted that a slightly different view had been taken in Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 116 FLR 314; (1994) 14 ACSR 580. In Guy Holdings, the company paid the amount demanded in the statutory demand shortly before the hearing of the winding up application. Zeeman J explained at FLR 320; ACSR 585:

It is implicit from De Montford that in a case such as the present, there must be some positive reason for ordering that the respondent be wound up going beyond the mere deemed insolvency. … [W]here the debt the subject of the statutory demand has been paid after the filing of the application, the application ought be dismissed unless there is established some positive reason that a winding up order ought to be made …

His Honour dismissed the winding up application as it had not been established that the company owed anything to the applicant or any other creditor and no other matter had been established making it appropriate to appoint a liquidator.

49. In this case, payment was not made before the hearing but after judgment had been reserved. Although the company paid the barrister the amount claimed in the statutory demand (which I note, as an aside, falls short of the amount of his costs as since assessed by the Review Panel and made no allowance for his costs of these proceedings), the barrister did not consent to the dismissal of the proceedings nor embrace the company’s request for an adjournment but opposed the company having leave to re-open its case.

50. Most significantly, however, the payment of the barrister’s fees “at the heel of the hunt” does not alter the conclusion I had formed as to the company’s solvency. Indeed, the fact that the company’s bank account has been emptied after the hearing rather supports the conclusion I had reached. Adopting Zeeman J’s language, there is a positive reason for ordering that the company be wound up going beyond the mere deemed insolvency arising from the company’s failure to comply with the barrister’s statutory demand. There is evidence that the company has unpaid tax assessment notices of unknown amount but probably some $80,000, was about to receive a demand for payment of over $1 million in respect of a guarantee and has no funds to pay these amounts, nor anyone standing by who is ready, willing and able to do so.

51. It remains appropriate to appoint a liquidator, as I have already done. Unfortunately for the barrister, the payment made to him will likely be voidable on application of the liquidator as an unfair preference under sections 588FA, 588FE(2) and 588FF of the Corporations Act 2001 (Cth). So too will likely be the payment from the company to Paul Ekes made yesterday.

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Amendments

14 June 2019 - GHS Safety Products Pty Ltd amended to GHS Safety Products Australia Pty Ltd

Decision last updated: 14 June 2019