Johnston's Transport Industries Pty Ltd v New South Wales Road Transport Association Inc

[2007] NSWSC 327

CITATION:	Johnston's Transport Industries Pty Ltd v New South Wales Road Transport Association Inc [2007] NSWSC 327
HEARING DATE(S):	10/04/07
JUDGMENT DATE :	10 April 2007
JURISDICTION:	Equity DIvision Corporations List
JUDGMENT OF:	Barrett J
EX TEMPORE JUDGMENT DATE:	10 April 2007
DECISION:	Winding up order made
CATCHWORDS:	ASSOCIATIONS AND CLUBS - incorporated association - application for winding up in insolvency - features of special statutory regime - proof of inability to pay debts - where association also registered under Industrial Relations Act 1996 - whether such registration relevant to winding up application
LEGISLATION CITED:	Associations Incorporation Act 1984, s.51 Corporations Act 2001 (Cth), ss.95A, 455C(2)(a), 459P2, 465A, 585(a) Industrial Relations Act 1996, ss.217(1)(c), 218, 226, Division 2 of Part 3 of Chapter 5
CASES CITED:	QBE Workers' Compensation (NSW) Ltd v Wandiyali ATSI Inc (2004) 62 NSWLR 117
PARTIES:	Johnson's Transport Industries Pty Limited - First Plaintiff Border Express Pty Ltd - Second Plaintiff McGrath Newcastle Pty Ltd - Third Plaintiff A.J. Mills & Sons Pty Ltd - Fourth Plaintif New South Wales Road Transport Association Inc - Defendant
FILE NUMBER(S):	SC 2122/07
COUNSEL:	Mr J.M. White - Plaintiffs
SOLICITORS:	Kemp Strang - Plaintiff

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY 10 APRIL 2007

2122/07 JOHNSTON'S TRANSPORT INDUSTRIES PTY LTD & ORS v NEW SOUTH WALES ROAD TRANSPORT ASSOCIATION INC

JUDGMENT

1 By a summons filed on 4 April 2007, the plaintiffs seek an order that the defendant be wound up and an order appointing liquidators. The defendant is an association incorporated under the Associations Incorporation Act 1984. The application is made under s.51 of that Act on the ground specified in s.51(1)(c), that is, that "the incorporated association is unable to pay its debts".

2 For reasons discussed in QBE Workers' Compensation (NSW) Ltd v Wandiyali ATSI Inc (2004) 62 NSWLR 117, s.51 of the Associations Incorporation Act represents the sole source of the court's jurisdiction to order the winding up of bodies of this kind. Provisions of the Corporations Act 2001 (Cth), although applied to incorporated associations by State law in certain ways, do not impinge upon the process of seeking a winding up order, the grounds for making such an order or the court's jurisdiction to order winding up. I therefore approach the current application by reference solely to the Associations Incorporation Act.

3 I should mention several differences between the case now before me and analogous cases in which winding up is sought under the Corporations Act.

4 First, the ground relied upon here is simply that the association is “unable to pay its debts”. The additional words, “as and when they become due and payable” appearing in s.95A of the Corporations Act are absent.

5 Second, the Associations Incorporation Act creates no machinery for the creation of a presumption of insolvency of the kind made available by s.455C(2)(a) and s.585(a) of the Corporations Act.

6 Third, the persons who, under s.51(2), are competent applicants for winding up are the Director General of the Department of Fair Trading, the association itself, a member of the association and a creditor of the association. In a case where a member seeks winding up there is, in the present statutory context, no need for the kind of leave made necessary by s.459P(2)) in a case where a contributory of a company applies for an order for his winding up under the Corporations Act.

7 Fourth, the requirements under s.465A of the Corporations Act for lodgment with ASIC of notice of the application and for advertising of the application have no counterpart in the Associations Incorporation Act.

8 In the present case, the application for a winding up order is made by four competent applicants acting together. They are members of the association. The only question for decision, apart from the question of the exercise of the discretion that s.51 clearly creates, is whether the ground in s.51(1)(c) has been made out; in other words, whether it has been shown that the incorporated association is unable to pay its debts.

9 The affidavit in support of the application is the affidavit of Mr Johnston. He is the vice-president of the association and a member of its executive committee. He deposes that on 2 April 2007 the executive committee resolved that the association is unable to pay its debts and that an application should be made to the court seeking orders to have the association wound up. That resolution was not, of itself, sufficient to create a ground for winding up although a special resolution of the members of the incorporated association would have been: see s.51(1)(a).

10 In the event, and as I have said, the application was not made by the association itself, but rather by four of its members. It appears that each of those members is a company an officer of which is, in turn, a member of the executive committee of the association.

11 Exhibited to Mr Johnston's affidavit is a report by the association's auditors, Wearne & Co, dated 26 March 2007. That report includes a statement of the then current cash position. That statement shows available cash of $505,853, against which stand statutory taxes of $415,848 and other accounts payable of $543,665. Taking all of those items into account, the cash demands exceed the available cash by $453,296. The statement by Wearne & Co then refers to trade receivables of a net amount of $437,049. Assuming all those to be fully collectable, the result reflected by the report is a cash shortfall of $16,247.

12 Mr Johnston refers in his affidavit to certain matters not taken into account in the Wearne & Co report. He says that there is an estimated $50,000 which is owing to creditors but is not included in the accounts. In addition, it is estimated that, of the trade receivables reflected in the Wearne & Co report at a net $437,049, some $85,000 will be uncollectable. Having regard to those additional items, Mr Johnston estimates that what he refers to as a shortfall of assets to liabilities (or perhaps more accurately the cash shortfall) is approximately $151,000.

13 The Wearne & Co report also pays attention to the association's business model. It concludes that the model is unsustainable. The overhead structure is too high and, one infers, operations simply cannot continue on the financial basis now existing. Wearne & Co express the need for "cash management strategies" to be developed. Mr Johnston's affidavit refers to steps that have been taken and strategies that have been considered with a view to overcoming these problems. The assessment is that a recovery of the kind the auditors had thought might be possible in theory cannot be achieved in practical terms.

14 In short, the association is currently in a negative cash position to a substantial extent and the executive committee has concluded that there is no realistically available basis on which that position can be remedied. As a result the executive committee has concluded that inability to pay debts exists. There is no reason to question that assessment.

15 The ground envisaged by s.51(1)(c) is accordingly established and, there being no apparent reason to the contrary, the court will make a winding up order.

16 I should add that there is a reference in the evidence to the association being registered under Chapter 5 of the Industrial Relations Act 1996 as a registered industrial organisation. Section 217(1)(c) of the Industrial Relations Act contemplates that a body incorporated under the Associations Incorporation Act may also be registered under the Industrial Relations Act. Section 218 sets out the criteria for registration. Division 2 of Part 3 of Chapter 5 of the Industrial Relations Act deals with cancellation of registration. Section 226 sets out the grounds on which the Commission may cancel the registration of an industrial organisation.

17 I mention these provisions only to make the point that an order for winding up under s.51 of the Associations Incorporation Act in respect of an incorporated association which is also registered as an organisation under the Industrial Relations Act does not of itself affect or in any way cut across the regime created by the latter Act. The impact of that legislation is therefore not something to which the court needs to pay attention when considering a winding up application of the present kind. It may be that the making of a winding up order is something that will be relevant to the grounds under s.226 for the cancellation of the registration under the Industrial Relations Act; but that is a separate matter of no present relevance.

18 I make the following orders:

1. Order pursuant to s.51 of the Associations Incorporation Act 1984 that New South Wales Road Transport Association Inc ARBN 118 151 223 be wound up.
2. Order that Ian James Purchas and Nicholas Craig Malanos, both of level 1, 32 Martin Place, Sydney, be appointed liquidators of New South Wales Road Transport Association Inc.
3. Order that the plaintiffs' costs of the proceedings be paid by the defendant.

19 The orders may be taken out forthwith.

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