Koenig, G. v Perceptive Systems P/L (ACN 006 242 986)

[1993] FCA 990

I

JUDGMENT No. .. ?%,.,....l .,.23..

-	IN THE FEDERAL COURT OF AUSTRALIA	)
1

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VICTORIA DISTRICT REGISTRY	1	No VG 3266 of 1993
GENERAL DIVISION

L\ I	.GL.:-Q.	BETWEEN:	GRAHAM KOENIG
'4

(J, '$4 . I (Applicant)

AND:  PERCEPTIVE SYSTEMS PTY LTD
ACN 006 242 986

Coram:  Ryan J

Place: Melbourne

Date:  23 and 24 December 1993

FEDERAL COURT Or
AUSTRALIA

MINUTE OF ORDERS

THJ3 COURT ORDERS on 23 DECEMBER 1993:

1. That Perceptive Systems Pty Ltd be wound up by this Court under the provisions of the Corporations Law.

2.    That Andrew Leonard Dunner of Harrison Garner and Dunner of 34 Eastern Road, South Melbourne in the State of Victoria, an official liquidator, be appointed the liquidator of the company.

day.

3. That the applicant's costs, including any reserved costs, and the costs ordered to be paid on 15 December 1993 be taxed and reimbursed out of the property of the company in accordance with sub-section 466(2) of the Corporations Law.

4 .    That there be a stay of this order for 21 days from this

5.    That the Registrar be directed pursuant to 0.71 r.39 of the Rules of this Court to seal this order forthwith.

AND THE COURT FURTHER ORDERS ON 24 DECEMBER 1993:

6.    That publication of a notice of this order in compliance with 0.71 r.42(l)(d) be deferred until after the expiration of 21 days from this day or until further order.

7. That the applicant's costs of the hearing this day be taxed and reimbursed out of the property of the company in accordance with sub-section 466(2) of the Corporations Law.

NOTE :	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	1  NO VG 3266 of 1993
)
GENERAL DIVISION	1

BETWEEN:  KOENIG

(Applicant)

AND :	PERCEPTIVE SYSTEMS PTY LTD
ACN 006 242 986

(Respondent)

Coram:  Ryan J

Place: Melbourne

Date:  23 December 1993

REASONS FOR JUDGMENT

m a n J: This is an application for the winding up of Perceptive Systems Pty Ltd ("Perceptive Systems") based on non-payment of a judgment debt arising from an order made in the County Court of Victoria on 22 June 1993. On that day, his Honour Chief Judge Waldron ordered:

"(i) That the Defendant pay $50,000.00 into Court alternatively into
a joint interest bearing bank account in the name of the

Plaintiff and the Defendant or their solicitors within 28 days

of this date.

(ii) In the event of the Defendant complying with paragraph (i):

(a)	leave be granted to the Defendant to deliver an Amended Defence and Counterclaim within 14 days of the date fixed for the payment into Court alternatively the joint bank account as the case may be;
(b)	leave be granted to the Plaintiff to deliver a Reply and Defence to Counterclaim within 14 days after delivery of the Defendant's Amended Defence and Counterclaim;
(c)	interlocutory steps be otherw~se in accordance with the Rules;

(d) costa be in the cause;

(iii) In the event of the Defendant failing to comply with paragraph

(i) there be judgment for the plaintiff for

$60,000.00 plus interest from the date of iaeue of

the W r i t and c o s t s t o be taxed on Scale D together with the cos t s of t h i s application f ixed a t $425.00.

( i v ) The P la int i f f pay the Defendant t h e reserved cos t s of the

hearing on 8th June 1993 f ixed a t $132.00."

Perceptive Systems failed to comply-with that order because, as deposed to by one of its directors, Mr Veitch, in an affidavit sworn in the action in the County Court on 21 September 1993, Perceptive Systems "has been unable to pay the sum of $50,000 as contemplated by paragraph 1 of his Honour's order". However, on 26 October 1993 Perceptive Systems issued a writ in the County Court against the applicant, Mr Xoenig, claiming damages for negligence in his capacity as a management and marketing consultant to Perceptive Systems. Because of Perceptive System's solicitor's belief that the damages recoverable in that action would exceed the jurisdiction in the County Court it is proposed to transfer the action to the Supreme Court.

Perceptive Systems now seeks to resist the winding up application on the sole ground that it is presently solvent.

A balance sheet and profit and loss statement for the year	ending 30 June 1993 in respect of Perceptive Systems and its
wholly-owned subsidiary, 3DIS Security Pty Ltd ("Security")
has been exhibited to an affidavit of M r Veitch. That exhibit
includes the following note:

"Sale o f business undertakinq

In November 1992 3DIS Security Pty Ltd became a shareholder i n a new

company 3DIS Pty Ltd. The other major shareholder was Edward Keller -

(Australia) Pty Ltd but their shareholding has since been disposed of
to (sic)

The purpose of the new company as to continue to develop the technology previously developed by Perceptive Systems Pty Ltd and to market that technology.

As part consideration for the use of the technology Perceptive Systems Pty Ltd received a sum of $250,000 which was used to satisfy outstanding creditors. All other 'assets of the company were transferred to 3DIS Pty Ltd under certain agreements for the continuation of the project.

Following these changes the value of goodwill, patents and other assets has been written down resulting an an extraordinary loss of $2,002,563 being recorded for the year.

Part of the shareholding in 3DIS Pty Ltd was subsequently sold to generate sufficient cash to discharge the company's remaaning debts."

The group accounts for Perceptive Systems and Security revealed that the group's sole non-current asset is the investment in 3DIS Pty Ltd which has a value at cost of $625,001.00. The group had a bank overdraft of $38,649.00 and "other current liabilities" of $30,940.00 and its current assets were represented by $42,312.00 in cash and $3,333.00 in "receivables and deposits". No provision is made in the accounts as at 30 June 1993 for any liability to Mr Koenig.

As a result of the sale of part of the group's shareholding in

Pioneer Resources N.L. a public no liability company which	3DIS Pty Ltd, control of that company is now exercised by
acquired 60% of the issued shares in 3DIS Pty Ltd on 11 June 1993 for $1,750,000.00. Mr Veitch has deposed in an affidavit sworn on 5 December 1993:

"Because 3 Dis Pty Ltd is a proprietary company the control of which and the majority shareholding of which is vested in Pioneer Resources N.L., minority shareholdings in 3 Dis Pty Ltd are not readily negotiable. As recently as early October 1993 Pioneer Resources offered a consideration of $225,000.00 cash and 2,420,000.00 by way of Pioneer Resources N.L. shares for the Respondent's shareholding in 3 Dis Pty Ltd."

The same deponent has further sworn that "Perceptive Systems has no debts which are presently due other than the amount claimed by the applicant".

The shareholding of Security in 3DIS Pty Ltd was further diluted in October 1993 by a new issue in which neither Perceptive Systems nor Security was able to participate. That event is recorded in the following note to Security's accounts :

"NOTE 10. EVENTS AFTER BALANCE DATE

In October 1993 3DIS Pty Ltd announced a pro rata share issue to all

shareholders. The company was unable to subscribe for its entrtlement and this was taken up by Pioneer Resources N.L.. As a result the company's share of the capital of 3DIS Pty Ltd has been drluted which may result in a drminution in the value of the investment. This dimrnutron in value has not been brought to account in these financial statements."

M r Williams took up his entitlement to participate in that

issue by purchasing a further 25,000 shares at $1 a share on behalf of his family trust because, as he has deposed, "of the excellent long term merits of the company's [3DIS Pty Ltd] core technology". Mr Williams has also deposed that "a number

of overseas investors have expressed interest in acquiring
equity in 3DIS Pty Ltd and are currently considering their

position".

A consultant chartered accountant, Mr Hawkes, has assessed the

current net value of Security's holding in 3DIS Pty Ltd at $534,878.00. That valuation has been influenced by the sale to Mr Williams of 5% of the shares in 3DIS Pty Ltd and the values attributed by Pioneer Resources N.L . to the principal assets of 3DIS Pty Ltd (goodwill and intellectual property) when Pioneer Resources acquired its 60% shareholding in that company. On the basis of the sale to Mr Williams of a 5% holding in 3DIS Pty Ltd for $75,000.00, Mr Hawke has expressed the opinion that "Perceptive Systems has an ability to generate funds by sales of proportions of its holding in 3DIS

Pty Ltd" .

Evidence has also been adduced from M r Alderton, the accountant who has regularly prepared the accounts for Perceptive Systems and Security. He has deposed that both companies have kept proper financial and accounting records and has expressed the opinion that:

"Subject to the claim of the Applicant and a shareholder's claim which, in the opinion of the Directors is unsustainable, it is my

op~nion	that:-
(a)	The profit and loss accounts of the companies are drawn up so as to give a true and f a ~ r vrew of the profit or loss of the
companies for the f~nancial year ended 30th June, 1993;
(b)	true and fair view of the state of affalrs of the company as at

The balance sheet of the companies are drawn up so as to give a

the end of that financial year;

(c) At the date of this statement there are reasonable grounds to believe that the companies will be able to pay their debts as and when they fall due."

In his final affidavit sworn 21 December 1993, M r Veitch has

deposed: 

"3.	I have made application to the Westpac Banking Corporation Ltd for a loan of $50,000.00 for me to purchase shares in 3 DIS Pty Ltd from 3 DIS security Pty Ltd. My loan was approved on the 20th day of December 1993 and I expect to be provided with written loan approval sometime later today.
4.	I am informed by the Westpac Banking Corporation Ltd that loan
funds will be available to me within three to four weeks.
5.	Upon receipt of the loan funds referred to I propose to purchase shares in 3 DIS Pty Ltd from 3 DIS Security Pty Ltd."

In the light of these facts, the Court is required to decide whether it is satisfied that Perceptive Systems is insolvent in the sense of being unable to pay its debts as they become due: see eg London and -Counties A s s e t s Company Limited v

Brighton Grand Concert H a l l P ic ture Palace Limited	[l9151 2 K B
493 at 501.

The current debts of Perceptive Systems, as they have become due, appear to be current liabilities as disclosed by its financial statements as at 30 June 1993 amounting to $69,589. There is no evidence that those liabilities have been discharged or as to how they have been discharged. In addition, on the evidence, Perceptive Systems has a further liability to the applicant of $60,000 plus interest and costs pursuant to the order of the County Court of 22 June 1993.

It is true that M r Alderton has deposed that there are reasonable grounds to believe that Perceptive Systems and Security will be able to pay their debts as and when they fall

part of the liabilities totalling $69,589 disclosed by the	due but there is no evidence that they have discharged any
group financial statements as at 30 June 1993. As well, the evidence does not provide any basis for concluding that Perceptive Systems can discharge its liability to the applicant within the foreseeable future.
Even if M r Veitch obtained the loan of $50,000 to which he has referred, the receipt of that sum by Security, if totally passed to Perceptive Systems, would not discharge its total liabilities in excess of $129,000 to which I have already referred.
Perhaps, as Dr Bleechmore of Counsel for Perceptive Systems, has contended, given time, its indirect shareholding in 3DIS Pty Ltd could be realized for an amount in excess of its total current liabilities including that to the applicant. However the true test for present purposes is that indicated, as follows, by Buckley on the Companies Acts (13th Edn p.460) quoted in Re Tweed's Garages Ltd [l9621 All ER 121 at 122:

"The particular indicat~ons of insolvency mentioned in paras (a), (b)

and (c) [of S. 223 of the Companies A c t , 1948) are all instances of commercial insolvency, that is of the company being unable to meet current demands upon it. In such a case rt is useless to say that if

its assets are real~sed there will be ample to pay 20s. in the pound:

this is not the test. A company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realisable; but although this be so, yet if it have not assets ava~lable to meet its current lrabilities it is commerclally

~nsolvent and may be wound up."

Dr Bleechmore invited me to infer that the failure of Perceptive Systems to pay the applicant's judgment debt is due

Perceptive System's overtopping cross-claim which it now	contention that the debt is not properly due because of not to an inability to pay the amount but to the company's
wishes to pursue in the Supreme Court. However, in my view, this is not a case of an amply solvent debtor which simply refuses to pay a particular debt; C.£. Re Sarina ex Parte Council of the Shire of Wollondilly (1980) 43 FLR 163.
The present debtor apparently acquiesced in the fixing of a time limit of 28 days for it to pay into Court the sum of $50,000 stipulated in the County Court order of 22 June 1993. By as late as 21 September, it was still not able to pay that amount and it has no more than a prospect of receiving $50,000 in late January 1994 if Mr Veitch persists with his proposed purchase of shares in 3DIS Pty Ltd. Even then Perceptive Systems would be unable to pay the applicant's debt in full and its chances of deriving further funds from other sales of shares are considerably more tenuous and remote.
In these circumstances I am not satisfied that Perceptive Systems inability to pay the applicant's debt and possibly other debts which are presently due stems from what Barwick CJ in Sande l l v P o r t e r [l9661 115 CLR 666 at 670 called "a temporary lack of liquidity". His Honour there said:

"Insolvency is expressed in 5.95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not lmited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of has assets within a relatively short time - relative to the nature and amount of the debts and to the

circumstances, lncludins the nature of the business, of the debtor.	The conclusion of insol;ency ought to be clear froni a consideratron
of the debtor's financial vositron in its entirety and aenerallv speaking ought not to be d& simply from evidence of a Eemporar+ lack of liquidity. It is the debtor's inabrlity, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indrcates insolvency. Whether that state of his affa~rs has arrlved is a question for the Court and not one as to whrch expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's
aesets or capacities yielding ready cash in sufficient time to meet the debts as they fall due."

I consider that the "relatively short time" there referred to

has already been accorded to Perceptive Systems or would

certainly expire before the end of January 1994. As already

evidence adduced on its behalf I am unable to conclude that	\
there is a likelihood of Perceptive System's deriving sufficient money from sales of shares in 3DIS Pty Ltd to meet its current debts within a reasonable time. Accordingly, a winding-up order on the ground of insolvency must be made.

I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment of his Honour Mr Justice Ryan

Associate: Q-L-4 d d

Counsel for the applicant:	Mr S Gardiner
Solicitors for the applicant:	Dunemann, Sutherland
Counsel for the respondent:	Dr J F Bleechmore
Solicitors for the respondent:	Ellinghaus & Lindner