In the matter of Harcorp Pty Ltd

[2025] NSWSC 661

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Harcorp Pty Ltd [2025] NSWSC 661

Hearing dates:

19 June 2025

Date of orders:

19 June 2025

Decision date:

19 June 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order the Company be wound up on the basis of insolvency; that order to be stayed for three weeks.

Catchwords:

CIVIL PROCEDURE — appearance — withdrawal of appearance — leave of Court — where breakdown in relationship between solicitor and client — leave granted

CORPORATIONS — winding up — practice and procedure — leave of Court — where director of company seeks leave to appear for company — leave granted

CORPORATIONS — winding up — statutory demand — failure to comply with statutory demand — whether company should be wound up — where winding up ordered subject to a stay

Legislation Cited:

Corporations Act 2001 (Cth), ss 95A, 459S

Uniform Civil Procedure Rules 2005 (NSW), rr 7.1–7.2, Sch 7

Cases Cited:

- Australian Securities and Investment Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] 244 CLR 1; [2011] HCA 18

- Australian Securities and Investments Commission v Plymin (No 1) [2003] 175 FLR 124; [2003] VSC 123

- Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC1551

- Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621

Category:

Principal judgment

Parties:

JLK Consolidated Pty Ltd t/as JLK Law Group (Plaintiff)
Harcorp Pty Ltd (Defendant)

Representation:

Counsel:
S E Odgers (Plaintiff)

Solicitors:
JLK Law Group (Plaintiff)
W Howard (director) (Defendant)

File Number(s):

2025/105316

JUDGMENT

Nature of the application

1. By Originating Process filed on 18 March 2025, the Plaintiff, JLK Consolidated Pty Ltd trading as JLK Law Group (“JLK”), applies to wind up Harcorp Pty Ltd (“Company”) on the basis of insolvency, relying on the presumption of insolvency arising from an unsatisfied creditor’s statutory demand (“Demand”).

Whether to grant leave to cease to act to the Company’s solicitor

2. Mr Allan, who has previously acted for the Company in these proceedings, seeks leave to cease to act for the Company. He reads his affidavit dated 18 June 2025 and relies on submissions dated 18 June 2025 in support of that application. When Mr Allan had previously served a notice of intention to cease to act, my Associate, at my request, had drawn his attention to the fact that an insufficient period of notice of that intention would be given before this hearing. Had matters rested there, I would likely not have granted leave to Mr Allan to cease to act for the Company. However, matters did not rest there, because Ms Howard, the director of the Company, subsequently sent numerous emails to my Associate against Mr Allan’s advice, some attacking Mr Allan’s conduct, in a manner which plainly demonstrated a breakdown in the relationship between the Company and Mr Allan.

3. It is also plain that, at least as matters stand, Ms Howard is conducting herself on the basis that she, rather than Mr Allan, will represent the Company in the winding up application. She has provided an expert report to the Court, served her affidavit in respect of the application and made submissions this morning in respect of the application. As presently advised, I will grant her leave to represent the Company in the application, and, in those circumstances it seems to me preferable that I grant leave to Mr Allan to cease to act and allow Ms Howard to do what she is already doing, namely herself to represent the Company in the application. Ms Howard did not oppose my making that order.

4. For completeness, Mr Allan did not seek, and I did not make, any order against the Company in this application. Any question as to costs as between Mr Allan and the Company is a matter to be addressed by their retainer agreement, and in such other proceedings as either party may initiate, which would not be brought in the Corporation’s List of this Court.

5. Accordingly, I grant leave for Allan Bullock Solicitors and Advocates, and Mr Thomas Allan, to cease to act for the Company, and Mr Allan, is excused from further attendance.

Dispensing with Uniform Civil Procedure Rules rr 7.1-7.2 to permit Ms Howard to represent the Company

6. After I granted leave for Mr Allen to cease to act, I asked Ms Howard, the Company’s director, whether she sought to adjourn the winding up application and she did not wish to do so. I have drawn Ms Howard’s attention to a risk, which is not a certainty, that her representing the Company in the winding up application will expose her to a potential liability for costs. I have also drawn her attention to my present inclination to dispense with the applicable rules, to permit her to represent the Company, if she wishes to do so. I have also informed her that she is not bound to do so, and that, if she did not do so, the winding up application would likely proceed without submissions from her on the Company’s behalf. She has indicated that she wishes to make submissions for the Company in the winding up application and seeks to be heard for it in the application.

7. The usual position, under r 7.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), is that the Company may only carry on proceedings by a director if the director is also a plaintiff. That is not and cannot be satisfied here, where the Company is the defendant in a winding up application. There are many cases where the Court has declined to permit a director to represent a company in a winding up application, and I have often adopted that approach. However, on balance, I am persuaded that I should grant leave to Ms Howard to represent the Company, first, because she has already indicated the evidence, an expert’s report and her affidavit, on which she relies, and the submissions which she wishes to make; second, because it will promote the interests of the justice if the Company has the opportunity to be heard in the winding up, rather than it being determined in its absence; and, third, any adjournment to allow Ms Howard to obtain other solicitors for the Company would have had several difficulties to which I have previously referred, including the uncertainty as to whether she or the Company could do so and the prejudice to the public interest from an adjournment. For those reasons, I dispense with the applicable rules so as to permit Ms Howard to appear on behalf of the Company in the application.

Whether the proceedings should be adjourned by reason of issues as to the proof of assumptions made in the Company’s expert report

8. I have drawn to Ms Howard’s attention the difference between proof of facts on the one hand and expressions of opinion by an expert by reference to assumed facts on the other. Ms Howard asked whether she could lead further evidence as required by the Court. I have pointed out to her that the Court will not be requiring any further evidence on the Company’s part, as distinct from determining the case by reference to the evidence led by the parties to the proceedings. I have asked Ms Howard whether she wishes to seek a further adjournment, but she has again indicated that she does not wish to do so, and that course is likely sensibly taken where there is limited prospect that a further adjournment would have been permitted.

9. In any case, I have regard to the fact that little here may turn upon the question of whether matters assumed as facts in Mr Cotter’s expert report are proved or not proved, since, on one view, even if the assumptions he made were proved, his report could not establish that the Company could pay all of its debts as and when they fall due, as distinct from what he describes as the Company’s “ordinary course of business” debts as they fall due. The question of solvency is not limited only to ordinary course of business debts and, in those circumstances, there would likely have been no utility to the Company in seeking to adjourn, in order to establish the underlying facts assumed in the report, quite apart from the fact that it does not seek to do so.

Objection to Ms Howard’s affidavit

10. Ms Howard has read an affidavit dated 16 June 2025 which refers to a complaint in respect of JLK’s representation of the Company in proceedings in the Dust Diseases Tribunal. Mr Odgers, who appears for JLK, objected to significant parts of that affidavit on the basis of relevance, having regard to s 459S of the Corporations Act 2001 (Cth) (“Act”). I have admitted those parts of the affidavit on the basis that the question of their relevance can be addressed in closing submissions.

11. I have explained the operation of s 459S of the Act to Ms Howard and drawn her attention to the fact that that section prevents any dispute as to the underlying debt being raised in an application of this kind, where leave of the Court has not been granted. Ms Howard points out, and I have noted, that she contends that Mr Kolovos, the principal of JLK, was fully aware of a dispute, which she had referred to the Office of the Legal Services Commissioner. I note that matter, but once again note that no application was here brought by the Company under s 459S of the Act.

12. I have asked Ms Howard whether she seeks to adjourn to bring such an application and she has indicated she does not do so. Again, it seems to me that decision is probably a sensible one, because there is here no explanation of why an application to set aside the Demand was not previously made. Assuming, as may well be the case, that the existence of the debt claimed in the Demand is material to the Company’s solvency, leave under s 459S would likely still not have been granted without evidence to explain the failure to bring such an application, particularly where the form of a creditor’s statutory demand itself warns of the consequences of not bringing any application to set it aside. There is limited likelihood that an adjournment application would have succeeded, where there is no explanation of that matter and an adjournment would have the public policy difficulties to which I have previously referred.

13. For these reasons, the affidavit of Ms Howard is read, but I recognise that parts of its content will not be available to her in closing submissions, and I have drawn that matter to her attention.

Admission of valuation report

14. I will admit a valuation report dated 1 March 2016 (Ex D2) in respect of a property which Ms Howard tenders for the Company. I appreciate that that valuation report may not comply with the Expert Witness Code of Conduct in Schedule 7 of the UCPR (“Code”), but it is arguably admissible as a business record, being a document produced in the ordinary business of the valuer. I also recognise that ultimately there may be little or no utility in a valuation report of 2016, in respect of proceedings conducted in 2025, but that is a question of weight not a question of admissibility.

Applicable principles

15. I should now address the applicable principles. As I have observed above, this is an application to wind up the Company where JLK is entitled to rely, and does rely, on a presumption of insolvency created by a failure to comply with the Demand. The effect of that presumption was summarised by a unanimous High Court in Australian Securities and Investment Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] 244 CLR 1 at [28]; [2011] HCA 18, where the Court observed that:

“Where a demand has not been complied with, the statutory presumption of insolvency 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 setting it aside, the company is required to prove to the contrary of that presumption.”

16. The test for solvency is in turn set out in s 95A of the Act with effect that, relevantly, the Company is only solvent if it is able to pay all its debts as and when they become due and payable. Section 95A(2) has effect that a company which is not solvent is insolvent. That definition adopts a cash flow test of insolvency which turns upon the income sources available to the Company and the debts that it has to pay rather than a balance sheet test directed to the value of its assets and liabilities, although a balance sheet test can provide context for the application of the cash flow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621; Australian Securities and Investments Commission v Plymin (No 1) [2003] 175 FLR 124 at [370]ff; [2003] VSC 123; Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 at [39].

Affidavit evidence

17. I now turn to the evidence led by JLK in respect of the winding up application. By a first affidavit dated 18 March 2025, Mr Kolovos, who is a director of JLK, leads evidence as to the service of the Demand upon the Company. That Demand was for the amount of $55,026.19, which related to invoices issued by JLK to the Company, less a payment that had been received. It appears that those invoices related to the provision of legal services in respect of a matter in the Dust Diseases Tribunal. In the course of submissions, Ms Howard, a director of the Company, who appeared for it by leave, pointed to areas of dispute in respect of the services provided by JLK to the Company in the Tribunal. However, as I noted above, no application to set aside the Demand was made and no application was made, under s 459S of the Act, to raise any dispute in opposition to this application. Accordingly, the only question in this application is whether the presumption of insolvency, to which I have referred, has been displaced by evidence of the Company’s solvency.

18. By his affidavit dated 15 April 2025, Mr Kolovos proves service of the Demand on the Company. By a second affidavit also dated 15 April 2025, Mr Kolovos proves service of the winding up proceeding on the Company. I recognise that Mr Kolovos qualified aspects of his evidence in that respect, in a subsequent affidavit, but it is plain that the Company has received the Demand and has received the winding up application, where it has been represented by solicitors in the proceedings, although those solicitors were granted leave to withdraw this morning, where their working relationship with the Company and Ms Howard had broken down. By a third affidavit also dated 15 April 2025, Mr Kolovos proved the lodgement of a Form 519 with the Australian Securities and Investments Commission (“ASIC”) and publication of the winding up application. A consent of liquidator of Mr Naidenov is also in evidence (Ex P1).

19. By a further affidavit dated 12 June 2025, Mr Kolovos responded to aspects of the solvency evidence on which the Company relied, and, in particular, to an expert report of Mr Cotter, upon which the Company relied. He there referred to other known creditors of the Company, which he indicated included a consent judgment in other proceedings, and professional fees owed to another firm of solicitors. As I understand it, at least one of the creditors referred to in that affidavit has at a previous point indicated that it is a supporting creditor in respect of this application. By a further affidavit dated 17 June 2025, Mr Kolovos corrected aspects of his earlier affidavit evidence, including as to the service of the winding up application; annexed an updated ASIC search, which indicated that the Company had not then been wound up; and confirmed that the debt remained due and payable. There is plainly no suggestion that the debt has been paid where, on several occasions in the course of submissions today, Ms Howard has made clear that she chooses not to cause the Company to pay that debt, because she considers it is disputed.

20. The Company in turn relied on a report dated 8 May 2025 described as “solvency opinion” of Mr Cotter (Ex R1). I should note several matters in respect of that solvency opinion. First, it is not clear whether that solvency opinion complies with the Code, but I admitted it in any event, and I have not discounted its weight by reason of any matter relating to compliance with the Code. That approach is of course favourable to the Company in the relevant circumstances. Second, Mr Cotter notes that his opinion was sought as to whether the Company could pay total claims against it in the amount of $481,857.02, although it is not apparent that his solvency opinion goes that far. Third, Mr Cotter makes clear, in an orthodox way, that he has relied upon financial information provided to him, including the Company’s internally prepared management accounts recorded in a Xero accounting database in his report. He also reserves the position as to change of his opinion, if further information is provided to him. There is, here, no evidence led by the Company to seek to establish the truth of the internally prepared management accounts upon which Mr Cotter has relied. Having said that, little ultimately turns on that matter in respect of the application.

21. Mr Cotter refers to three substantial claims against the Company as “extraordinary” and “out of the ordinary course of business” and expresses the opinion that the Company is unable to meet those claims from its ordinary ongoing cash flow. That proposition is put in a polite manner, but its substance is clear. There is, so far as the test for solvency, which I have addressed above, is concerned, no distinction between ordinary course debts and debts that are out of the ordinary course. The test for solvency requires that a company be able to meet all of its debts as and when they fall due, not only its ordinary course of business debts. Mr Cotter, in effect, concludes that, subject to further financial support that might be provided to the Company, it cannot meet all the debts that are claimed against it as and when they fall due. His solvency report, far from assisting the Company, in fact demonstrates its lack of solvency, unless regard is had to the prospect of external financial support by Ms Howard.

22. Mr Cotter in turn points out that the Company has a significant surplus of net assets, and it appears likely that that is correct in respect of its non-current, but not its current, assets and liabilities. That, however, does not assist the Company where it has not realised those net assets; it is unlikely that it could do so within a sufficiently short time to establish solvency; and, in any event, Ms Howard’s position appears to be that she has no intention of authorising the Company to meet the relevant debts and they will in fact remain unpaid, or at least the debt claimed by JLK will remain unpaid. Mr Cotter also refers to the Company’s ability to draw on existing liquid assets and readily available credit facilities and access to immediate additional funding for repayment of a director loan, based on demonstrated capacity of the director. That capacity of the director has not been demonstrated in these proceedings, by evidence that would establish that manner; but, even putting that aside, there is no documented intention of the director to repay the relevant loan, so as to permit the payment to JLK which she does not propose to have the Company make; and any ability to draw on existing liquid assets and available credit facilities has not been utilised, in fact, to pay the Company’s debts including the debt to JLK as and when they fall due.

23. Importantly, Mr Cotter’s report also addresses the Company’s balance sheet, although solvency is determined on a cash flow test. His reference to the Company’s balance sheet shows that its current liabilities of in excess of $1.09 million substantially exceed its current assets of $66,651.16. On a balance sheet basis, even if that were applicable, the Company is also presently insolvent within the next 12-month period, being the current financial period, so far as its current assets are far short of its current liabilities. I recognise that the Company’s non-current assets significantly exceed its current and non-current liabilities, but that does not assist without evidence of the ability to realise those non-current assets in a timely way, or any evidence of a willingness to do so in order to meet the Company’s current debts. Accordingly, Mr Cotter’s report does not assist the Company in establishing its solvency.

17. I recognise that the Company also tenders a valuation of a property at Burleigh Heads, Queensland, made on 1 March 2016, which is plainly well out of date, and an updating valuation of a real estate agent which indicates that property has a substantial value as at mid-June 2025. I do not doubt that that property has substantial value, whether it is the range indicated by the real estate agent or not, but again that does not assist the Company in establishing solvency unless it has the capacity to realise that property within a relatively short period, and has the intent to do so, because the ownership of a property which could be sold but will not be sold does not assist the Company in paying its debts as and when they fall due.

18. Ms Howard also reads her affidavit dated 16 June 2025, admitted over objection, which indicates that she disputes the claims which are the subject of the Demand. As I have pointed out above, however, this is a winding up hearing; a presumption of insolvency already arises from an unsatisfied creditor’s statutory demand; no leave was sought or granted under s 459S of the Act; and an asserted dispute as to the underlying debt does not prove solvency, where solvency is not otherwise established.

19. Mr Odgers draws attention to the evidence and the applicable principles, and contends, by reference to the evidence to which I have referred above, that the Company is unable to pay its debts from its ordinary ongoing cash flow. I have noted above that Mr Cotter’s report supports that proposition. Mr Odgers also submits that, on an analysis not undertaken in Mr Cotter’s report, there are other indicators of insolvency, but it is not necessary to address those other indicators where an inability to pay the Company’s debts as and when they fall due is sufficient, without more, to establish insolvency. Mr Odgers also rightly points out that the challenge, in Ms Howard’s affidavit, to the debt relied on in respect of the claim is not available to the Company, absent leave under s 459S of the Act.

20. Ms Howard, in her submissions, responds to some of the matters raised in JLK’s outline of submissions, but her focus is upon her disagreement with the debt that is claimed against the Company, which is not a matter that is available in this application. To the limited extent that she addresses solvency, she does so on the assumption, which is not correct, that the Company can be solvent by being able to pay “normal course of business debts”, while it is unable to meet the large debts which are here owed by it. The presumption of insolvency has not been rebutted and the Company should be wound up on that basis.

Short stay of the winding up

28. In the particular circumstances, I have indicated to the parties that it seems to me to be appropriate to stay the winding up application for three weeks, to allow the Company and Ms Howard to consider their positions. Although I have found that the Company is insolvent, it plainly has significant property holdings, and it has an asserted, but undocumented and unperformed, claim that Ms Howard can provide it assistance to meet its debts, if she chooses to do so. The period which is allowed for that stay will allow Ms Howard the opportunity to cause the Company to discharge the debt, and fund its doing so, if, contrary to her view expressed to date, she wishes to cause the Company to do so.

29. I recognise, of course, and I have drawn to Ms Howard’s attention, the fact that the Company appears to have other creditors, at least of one of which has already indicated its intention to appear as a substituted creditor in the winding up. It is possible that, if Ms Howard causes the Company to pay JLK’s debt, one or more of those other supporting creditors will then rely on their own debts and pursue the winding up as substituted creditor, unless the debts owed to them are also paid. These are ultimately matters for the Company, and Ms Howard has a choice whether to fund the Company to repay the debt owed to JLK, or not to do so, within the three-week period of the stay.

Orders

30. For these reasons, I will make the orders sought by JLK, which include the usual order that JLK’s costs of and incidental to the winding up application be costs in the winding up. I will stay the winding up for three weeks to 4:00pm on 10 July 2025 and re-list the matter before me at 9.15am on 9 July 2025 to confirm whether the relevant debt has been discharged by that date and, at that point, whether any substituting creditor wishes to intervene if that debt has been discharged and the winding up order might then be set aside.

31. I noted, in granting Ms Howard to appear for the Company, that she would potentially be exposed to an order for costs against her, in representing the Company. I am presently not inclined to make such an order against Ms Howard, personally, because it seemed to me that she has done her best to represent the Company in a responsible way, while I recognise that her emotions have at times overcome her. I am of course bound to hear, and I will hear, Mr Odgers if he contends to the contrary. Responsibly, Mr Odgers indicated that JLK did not seek to press for a personal costs order against Ms Howard in the circumstances, where its costs would be provable in any ultimate winding up against the Company. No doubt, it may be necessary to revisit that order if a winding up order is ultimately not made.

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Decision last updated: 25 June 2025