In the matter of Stoligor Investments Pty Ltd

[2012] NSWSC 1096

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Stoligor Investments Pty Ltd [2012] NSWSC 1096
Hearing dates:	30 July and 13 August 2012
Decision date:	13 August 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	The Defendant be wound up. Christopher John Palmer be appointed liquidator of the Defendant. The Defendant to pay Plaintiff's costs of proceedings quantified in the amount of $6,114.80. Orders stayed until 2pm on 28 August 2012.
Catchwords:	CORPORATIONS - Winding up - Statutory demand - Failure to comply with statutory demand - Corporations Act 2001 (Cth) s 459S - Whether debt claimed is material to proving solvency.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) s 98(1) - Corporations Act 2001 (Cth) ss 459A, 459F, 459J, 459Q, 459S, 459S(1), 459S(2), 482 - Uniform Civil Procedure Rules 2005 (NSW) rr 7.2, 42.1
Cases Cited:	- Barclays Australia (Finance) Pty Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 - David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 - Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd [2011] NSWSC 113 - FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 - Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 - May v Christodoulou [2011] NSWCA 75 - Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661 - Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 - Yates v Boland [2000] FCA 1895
Category:	Principal judgment
Parties:	Tomas Etridge (Plaintiff) Stoligor Investments Pty Ltd (Defendant)
Representation:	Counsel: B. Fudge (sol) (Plaintiff) I. Stolyar (Director in person) (Defendant) Solicitors: Barrie Fudge & Company (Plaintiff) I. Stolyar (Director in person) (Defendant)
File Number(s):	12/157477

Judgment - EX TEMPORE

1. By application filed on 17 May 2012, Mr Tomas Etridge seeks an order under s 459Q (or more precisely ss 459A and 459Q) of the Corporations Act 2001 (Cth) that the Defendant, Stoligor Investments Pty Ltd ("Company"), be wound up in insolvency.

Background

1. The application is based on the service of a statutory demand ("Demand") on the Company on 15 February 2012, and the Company's failure within 21 days of service of the Demand to pay or secure or compound for it to the Plaintiff's satisfaction.

1. The matter was previously listed before me on 30 July 2012. On that occasion I granted leave to Mr Stolyar, a director of the Company, to appear on its behalf, notwithstanding that r 7.2 of the Uniform Civil Procedure Rules 2005 (NSW) had not been strictly complied with. I also drew Mr Stolyar's attention to his potential liability to pay the costs of the proceedings, and to the fact that the Company might benefit by seeking independent legal advice. As I pointed out on that occasion, an order for winding up has potentially serious consequences for a company and the Court's jurisdiction, particularly at the point at which it deals with a winding up application, is significantly confined by s 459S of the Corporations Act.

1. I pause here to note that this matter has some regrettable features. Mr Stolyar contends that there are issues as to whether the entity which owed the relevant debt was the Company, and his primary case appears to be that the debt was owed by Mr Stolyar personally; however, the debt has not yet been paid either by the Company or by Mr Stolyar personally. Mr Stolyar also contends that there were issues as to service of proceedings in the Consumer Trader and Tenancy Tribunal ("CTTT") upon the Company and that the Company has had difficulty with obtaining either a review of the judgment of the CTTT or a setting aside of that judgment by application to a lower court. Those difficulties appear to have arisen, at least in part, from non-compliance by the Company with time limits which are imposed for good public policy reasons.

1. It is unfortunate that opportunities which might have been available to the Company to agitate the issues which it seeks to now agitate had not been taken up at a previous time, and it is perhaps regrettable that the Company did not seek legal advice so as to seek to protect its position at an earlier time. It may be that matters now sought to be raised before me could have been raised in an application to set aside the Demand under, for example, s 459J of the Corporations Act. However, the fact that matters could have been raised at an earlier time does not permit the Court to deal with them now. Indeed, s 459S of the Corporations Act adopts the opposite approach in treating the fact that matters could have been raised in an application to set aside a statutory demand at an earlier point as a barrier to them being raised in opposition to a winding up order without leave of the Court, which can only be granted on limited grounds.

The Company's contentions

1. Returning now to the facts of the matter, the Demand was based on a judgment debt in the amount of $16,938 in the Local Court of New South Wales. The judgment of the Local Court was in turn founded on an award in the amount of $16,938 made in favour of Mr Etridge by the CTTT on 9 June 2011, which was registered as a judgment of the Local Court. The Demand was served on the Company by prepaid post sent on 15 February 2012. The winding up application was advertised on 15 June 2012. Mr Etridge's evidence, by affidavit dated 10 August 2012, is that the amount due under the Local Court judgment is presently due and unsatisfied. A consent of a liquidator to appointment has been filed.

1. By notice of motion filed on 27 June 2012, Mr Stolyar sought an order dismissing the winding up application. I treated that motion as in issue in the proceedings although, as Mr Stolyar agreed in the course of submissions, the motion and Mr Stolyar's supporting affidavit in substance set out the basis for the Company's defence of the winding up application.

1. The basis of that defence is, first, the Company did not receive the funds claimed by Mr Etridge and, implicitly, Mr Stolyar personally did so; and, second, there is a genuine dispute about the existence of the debt. Mr Stolyar's affidavit dated 27 June 2012 makes statements to that effect in conclusory form. That affidavit also contains certain allegations in respect of the conduct of proceedings by Mr Etridge in the CTTT.

1. A further affidavit of Mr Stolyar in reply dated 10 July 2012 contains further material directed to impugning the CTTT's decision. Mr Stolyar contends, in summary, that the conditions for release of the rental bond to Mr Etridge were not satisfied; Mr Etridge was in arrears of rental; another person had paid the rental bond rather than Mr Etridge; and Mr Etridge had caused damage to the relevant unit as a result of a fire and other damage. Mr Stolyar also contends that he, not the Company, was the lessor of the property, as Mr Etridge made the relevant payments to Mr Stolyar. The lease which is in evidence shows the Company as the lessor, but Mr Stolyar contends that that resulted from an error on the part of the real estate agent handling the lease.

Analysis

1. There are at least two difficulties with the approach adopted by the Company. The first is that, in substance, that approach was directed to establishing that the CTTT was wrong in its findings. However, those findings have taken effect as a judgment of the Local Court. It is well established that an appeal against a judgment does not in itself establish a genuine dispute as to the relevant debt, even if raised in an application to set aside a statutory demand: for example, Barclays Australia (Finance) Pty Ltd v Mike Gaffakin Marine Pty Ltd (1996) 21 ACSR 235. In Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [11] Barrett J summarised the position as being that it was "well established" that the fact that a judgment reached after a hearing on the merits may be liable to be set aside as a result of an appeal does not mean that there is a "genuine dispute" as to the existence of the debt.

1. There may, in some circumstances, be room to set aside a statutory demand, in an application brought within 21 days, under section 459J of the Corporations Act, if an appeal has been brought or is to be brought, although this typically would only occur on condition that the relevant moneys be paid into Court. In the present case, that course is not open to the Court, because an application to set aside the Demand was not brought within 21 days of the service of the Demand, and the High Court has made clear in David Grant & Co Pty Ltd v Westpac Banking Group [1995] HCA 43; (1995) 184 CLR 265 that there is no jurisdiction under the Corporations Act to extend the time for such an application.

1. As I emphasised to Mr Stolyar when the matter was last before me, the Court's jurisdiction in dealing with Mr Etridge's application to wind up the Company based on the failure to comply with the Demand is a statutory jurisdiction conferred by, and limited by, s 459S of the Corporations Act. The non-compliance with the Demand in this case gave rise to a failure to comply with the demand, within the meaning of sections 459F and 459Q of the Corporations Act. Section 459S(1) of the Corporations Act in turn provides that, where an application to wind up the Company on insolvency relies on its failure to comply with the Demand, the Company may not, without the court's leave, oppose the application on a ground that it relied on, or could have but did not rely on, in an application to set aside the Demand. All the matters now raised by the Company (through Mr Stolyar) could have been relied upon in an application to set aside the Demand.

1. In any event, section 459S(2) provides that the Court may not grant leave under s 459S(1) unless it is satisfied that the ground sought to be raised is material to proving that the Company is solvent. I will treat the Company, through Mr Stolyar, as having made an application for such leave. However, the statute does not permit me to grant that leave, absent evidence that the relevant ground is material to proving the Company is solvent. There is no evidence before me as to the Company's financial position, although Mr Stolyar asserted from the bar table that the Company is not trading. Assuming that to be the case, it is possible that the debt claimed would be material to proving the Company's solvency, in the sense that it would be the only debt to which the Company was exposed: Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661; Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd [2011] NSWSC 113. However, even if I were able to make that assumption in the absence of evidence, I do not consider that I could grant such leave where I cannot be satisfied that there is a serious question to be tried as to a challenge to the debt on which the Demand is based, where it is founded on a judgment debt which has not been set aside.

Orders

1. In these circumstances, I cannot grant leave to the Company to oppose the application on the grounds relied upon by Mr Stolyar; the Company's solvency has not been established by affirmative evidence before me; and a presumption of insolvency arises from the failure to comply with the Demand and has not been rebutted.

1. I will accordingly make orders that:

1. The Defendant, Stoligor Investments Pty Ltd, be wound up under the Corporations Act.

2. Christopher John Palmer be appointed liquidator of the Defendant.

Costs and other orders

1. In the ordinary course, the result of these orders would be that the Company should pay Mr Etridge's costs of the proceedings. However, I heard the parties as to costs.

1. Mr Fudge, who appears for the Plaintiff, Mr Etridge, seeks an order for costs against Mr Stolyar personally, where he has conducted the defence of these proceedings on behalf of the Company.

1. I have not found the question of costs in this matter to be easy. On the one hand, there is a significant risk that Mr Etridge will not recover costs in a winding up of the Company, given Mr Stolyar's submission from the bar table that the Company does not trade. On the other hand, as I will note below, the Court's ability to award costs against a third party is confined, and I am concerned that an award of costs against Mr Stolyar in this matter would be based on little more than the proposition that he chose not to obtain legal advice on behalf of the Company, in circumstances that there is at least a qualified right for a Company to be represented by a director in proceedings of this kind.

1. Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that:

"Subject to rules of court and to this or any other act;

(a) costs are in the discretion of the court, and

(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and

(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."

UCPR r 42.1 in turn provides that, if an order is made as to costs, the court is to order that costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

1. The question whether the court should make a costs order against a director who carries on proceedings on behalf of the Company, in this case Mr Stolyar, is to be determined by reference to the factors identified by the High Court in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, where Mason CJ and Deane J (with whom Gaudron J concurred) noted that an order for costs could be made against a non-party where, relevantly, the party to the litigation is an insolvent person or man of straw, the non-party has played an active part in the conduct of the litigation and has an interest in its subject matter; see also Yates v Boland [2000] FCA 1895.

1. In FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] Basten JA (with whom Beazley and Giles JJA agreed) noted that the exceptions to the general rule that an order for costs is only made against a party to the litigation should not be allowed to expand so as to undermine the rule itself, and noted relevant factors including that the unsuccessful party was the moving party, the conduct of the litigation was unreasonable or improper and the unsuccessful party was insolvent. In May v Christodoulou [2011] NSWCA 75, the majority of the Court of Appeal held that the fact that a director represents a Company is not enough, in itself, to justify the exercise of the power to award costs against the director personally. Sackville AJA observed at [102]-[103] that a relevant question was whether the non-party or director had engaged in conduct that was so inappropriate that a costs order should be made against him. Handley AJA, who was in the minority, regarded the fact that a director's involvement had prolonged the proceedings to be relevant to the exercise of the discretion.

1. I do not think it can be said that Mr Stolyar's conduct of the proceedings was in any way improper. He has conducted the proceedings with a degree of brevity, although they have been mentioned before the court on several occasions. On the other hand, there is no doubt that Mr Stolyar's involvement is likely to have prolonged the proceedings, in that he has resisted a winding up order in circumstances where, if properly advised, the Company may have recognised that it was very likely that that order would be made, having regard to the limits imposed by s 459S of the Corporations Act.

1. On balance, and with some hesitation, I have concluded that I should not make an order for costs against Mr Stolyar personally. Had Mr Etridge proceeded against the Company, in circumstances that it was represented by a legal practitioner, he would have been left to recover his costs against the Company. The risk that he would be unable to do so is a usual incident of an application to wind up a Company which may have limited assets. In the present case, although the proceedings may have been somewhat lengthened by Mr Stolyar's involvement, that reflects the fact that he lacks the professional skills of a legal practitioner and has not reached the judgments which a legal practitioner might reach in this matter. I do not understand the authorities to authorise me to make orders for costs against directors, simply because they fall short of the level of legal skill which might be exercised by a qualified legal practitioner in respect to a matter.

1. In these circumstances, I will order that the defendant, Stoligor Investments Pty Limited, pay the plaintiff's costs of the proceedings.

1. Mr Etridge also seeks an order for costs payable in a lump sum. The court has a well recognised practice of making such an order in winding up applications where the costs are on the face of them reasonable and likely to be proportionate to the costs which would be obtained on an assessment. That practice is well justified by the costs which would otherwise be imposed upon the parties by the assessment process, which may well be wasted if a Company has limited assets. In these circumstances, Mr Fudge has sought a lump sum order for costs of $4,580 and disbursements comprised of the filing fee, company searches, service fee in respect of the originating process and the costs of publication of the advertisement. In my view the costs and disbursements which Mr Etridge seeks to have ordered in his favour are reasonable. Accordingly, I will make a lump sum costs order in favour of the Plaintiff in the amount claimed.

1. Mr Stolyar has also indicated that he seeks to have discussions with Mr Etridge (though his legal advisers) in respect of the possibility of a compromise of these proceedings, before the winding up orders become effective. That is a course that would not usually be permitted where orders for winding up have been made. However, I am conscious that it has been put that the Company is not trading and therefore, even if an order for winding up did become effective, there is at least a prospect that the Court would be prepared to stay or terminate that winding up under s 482 of the Corporations Act if it were established that the debt due to Mr Etridge had been paid and that there were no other discretionary reasons against the making of such an order. Where the Court might be prepared to stay or terminate a winding up order after it became effective, it seems to me that the pragmatic course is to stay that order before it becomes effective, to allow the possibility of a resolution to be explored. I will therefore stay the orders for a period of 14 days.

1. I should indicate to Mr Stolyar that the winding up order will automatically become effective at the end of 14 days unless agreement is reached with the Plaintiff, Mr Etridge, and the matter is restored before me for, in effect, an order that the winding up be permanently stayed under s 482 of the Corporations Act.

1. Accordingly, I make the following additional orders:

3. The Defendant pay the Plaintiff's costs of the proceedings, quantified in the amount of $6,114.80.

4. These orders be stayed until 2pm on 28 August 2012.

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Decision last updated: 21 September 2012