Lechmere Financial Corp v Aspermont Ltd - [2003] FCA 1138

FEDERAL COURT OF AUSTRALIA
Lechmere Financial Corporation v Aspermont Limited [2003] FCA 1138
CORPORATIONS – insolvency – application to wind up company in insolvency – non-compliance with statutory demands – presumption of insolvency arising therefrom – whether company discharged onus of demonstrating solvency – whether discretion of Court should be exercised to decline to order winding up
Corporations Act2001 (Cth) ss 95A, 459A, 459C(2)(a), 459F(1), 459G, 459H, 459J, 459K, 459P, 459P(1), 459S, 467(1)
Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 approved
Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (1993) 11 ACSR 1 cited
Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 applied
Commonwealth of Australia v SCI Operations Pty Ltd (1998) 192 CLR 285 cited
Eagle v The New Zealand School of Advertising, Marketing and Public Relations Limited (1989) 4 NZCLC 64,844 considered
Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711 applied
Hungerfords v Walker (1989) 171 CLR 125 cited
Jones v Dunkel (1959) 101 CLR 298 applied
Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 applied
London, Chatham & Dover Railway Co v South Eastern Railway Co [1893] AC 429 cited
National Australia Bank Ltd v Budget Stationery Supplies Pty Ltd (unreported, NSWCA, Mason P, Handley and Sheller JJA, 23 April 1997, BC 9701417) cited
President of India v La Pintada Compama Navigacion SA [1985] AC 104 cited
Re Bond Corporation Holdings Ltd (1990) 1 WAR 465 followed
Re National Computer Systems & Services Ltd (1991) 6 ACSR 133 cited
Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675 considered
Switz Pty Ltd v Glowbind Pty Ltd (2000) 18 ACLC 343 approved
LECHMERE FINANCIAL CORPORATION v ASPERMONT LIMITED
W3003 of 2003
RD NICHOLSON J
20 OCTOBER 2003
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W3003 OF 2003

IN THE MATTER OF ASPERMONT LIMITED
ACN 000 375 048

BETWEEN:

LECHMERE FINANCIAL CORPORATION
PLAINTIFF

AND:

ASPERMONT LIMITED
ACN 000 375 048
DEFENDANT

JUDGE:

RD NICHOLSON J

DATE OF ORDER:

20 OCTOBER 2003

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.Subject to the following orders, the application to wind up the defendant be adjourned until 18 November 2003.
2.The period within which the application is to be determined is extended to and includes 18 November 2003.
3.The defendant forthwith pay into Court the sums of:
(a)$117 000.00
(b)$838 500.00
being a total of $955 500.00.

failing which by close of business on 21 October 2003, the application will stand granted in terms of order 8 hereof.
4.The defendant forthwith apply to the Supreme Court of Western Australia to discharge the interim injunction granted with its consent on 13 December 2002 injuncting it from making payment of the statutory demands to the plaintiff, failing proof of which being filed and served within 48 hours thereof, the application will stand granted in terms of order 8 hereof.
5.In the event the injunction is discharged, the defendant shall forthwith file and…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2003] FCA 1138
Decision Date: 20 OCTOBER 2003

CaseChat Overview and Summary

Lechmere Financial Corp has applied to the Federal Court of Australia to wind up Aspermont Ltd, a public company listed on the Australian Stock Exchange. The application is based on two statutory demands made by Lechmere Financial Corp under s 459D of the Corporations Act 2001 (Cth). The defendant contests the application on several grounds, including that the statutory demands were not still in effect at the end of the compliance period, that the defendant was restrained from complying by a court order, and that the defendant is solvent and able to pay its debts as they fall due. The court was required to determine whether the statutory demands remained in effect and whether the defendant could satisfy them, in light of the interim injunction and the defendant's solvency.

The court found that the statutory demands were still in effect at the end of the compliance period, as the extension granted by the Supreme Court of Western Australia did not affect the statutory demand's status. The court also held that the interim injunction did not prevent the defendant from complying with the statutory demands, as the injunction was not a bar to the defendant paying the plaintiff. Regarding solvency, the court found that the defendant was not solvent, despite its ability to pay debts as they fell due, because it lacked sufficient assets to meet all its liabilities as they became due. The court accepted the defendant's financial statement, which showed a surplus of assets over liabilities, but noted that the defendant's cash reserves were insufficient to meet the statutory demands. The court also considered the defendant's future revenue prospects but found them insufficient to rebut the presumption of insolvency.

The court granted the application to wind up Aspermont Ltd, subject to certain conditions. The application will be adjourned until 18 November 2003, and the defendant must pay the amounts demanded by the statutory demands into court or discharge the interim injunction. If the defendant fails to comply with these conditions, the application will be granted, and the defendant will be wound up on the ground of insolvency. The court appointed Garry John Trevor of Ferrier Hodgson as liquidator for the winding up.

Orders

Orders of the court

1. Subject to the following orders, the application to wind up the defendant be adjourned until 18 November 2003.

2. The period within which the application is to be determined is extended to and includes 18 November 2003.

3. The defendant forthwith pay into Court the sums of:

(a) $117 000.00

(b) $838 500.00

being a total of $955 500.00.

failing which by close of business on 21 October 2003, the application will stand granted in terms of order 8 hereof.

4. The defendant forthwith apply to the Supreme Court of Western Australia to discharge the interim injunction granted with its consent on 13 December 2002 injuncting it from making payment of the statutory demands to the plaintiff, failing proof of which being filed and served within 48 hours thereof, the application will stand granted in terms of order 8 hereof.

5. In the event the injunction is discharged, the defendant shall forthwith file and serve an authority for the Court to pay the monies held by it to the plaintiff and upon such payment the application shall stand dismissed.

6. In the event the application to discharge the injunction is refused, the defendant shall forthwith file and serve notice of such refusal whereupon the Court will list the application for determination on a date and time to be fixed on or before 18 November 2003.

7. In the event the defendant has not complied with either direction (5) or (6) by close of business on 17 November 2003 the matter be listed for determination of the application at 2.15pm on 18 November 2003.

8. Upon non-compliance with orders 3 or 4 the terms on which the application will stand granted are:

(a) The defendant be wound up by the Court on the ground that the defendant is insolvent.

(b) Garry John Trevor of c/- Ferrier Hodgson, Level 14, 26 St George’s Terrace, Perth, Western Australia, be appointed liquidator of the defendant for the purpose of the said winding up.

(c) The liquidator is to open a trust account at the branch of the National Australia Bank situate at 50 St George’s Terrace, Perth, Western Australia for the purpose of the winding up.

9. The defendant pay the plaintiff’s costs of the application (including reserved costs) to be taxed.

Background

Background to the litigation

The grounds on which the defendant opposes the application are:‘(1)The statutory demands were not ‘still in effect’ at the end of the period for compliance within the meaning of s 459F(1) of the Act. Therefore, no presumption of insolvency has arisen under s 459C(2)(a).(2)The company could not comply with the statutory demands due to an order made in the Supreme Court of Western Australia before the end of the period for compliance restraining it from paying Lechmere the monies the subject of the statutory demands.(3)In any event, the company is solvent as it is able to pay all of its debts as and when they become due and payable.’BACKGROUND CIRCUMSTANCES The plaintiff is a corporation incorporated in the British Virgin Islands and operating out of Monaco. The defendant is a public company listed on the Australian Stock Exchange. It has approximately 103 million shares on issue held by 960 shareholders. The Executive Chairman of Directors is Mr Kent. A company controlled by him, Drysdale Investments Ltd (‘Drysdale’), holds about 47% of the issued shares. The defendant’s principal activities are publishing magazines, journals and internet news services for the mining, oil and gas, construction and transport industries. It has 48 employees. The first statutory demand, that dated 14 January 2002, required the defendant to pay to the plaintiff or to secure compound interest in respect of a debt in the sum on $117 000. It was described as interest on a loan of $780 000 owed by the defendant to the plaintiff which loan bears interest at the rate of 15% per annum for the half yearly period ending 30 June 2001 and 31 December 2001. In the statutory demand dated 18 July 2002 the plaintiff as creditor sought payment to it or security or compounding of a debt in the sum of $838 500. That included the sum of $780 000 as the principal amount of the loan together with interest on the loan (bearing interest at the rate of 15% per annum) for the half yearly period ended 30 June 2002. On 12 August 2002, Mr Kent instituted proceedings CIV2117 of 2002 in the Supreme Court of Western Australia against the plaintiff seeking declaratory and injunctive relief against the plaintiff in relation to the monies the subject of the statutory demands. In those proceedings he claims that the monies are due and payable to him. On 28 November 2002, the Supreme Court of Western Australia dismissed applications by the defendant under s 459G for orders to set aside each of the statutory demands. In dismissing these applications the Supreme Court ordered that the period for compliance with the statutory demands be extended by 21 days to 19 December 2002. On 13 December 2002, Mr Kent applied to the Supreme Court in CIV2117 for and obtained an interim injunction restraining the defendant from paying to the plaintiff the monies the subject of the statutory demands. The defendant consented to the injunction. On 24 October 2002 Mr Kent had obtained orders in CIV2117 for leave to amend the writ of summons by adding the plaintiff as a defendant and to serve the notice of the amended writ on the plaintiff. The plaintiff was then served with the notice of the amended writ and the order for the interim injunction at Monaco on 6 February 2003.

Evidence

Evidence Before The Court

During the hearing Mr Kent and the chief financial officer of the defendant were in Court. Neither was called to give evidence. On issues to which I will refer the failure to call either or both of these persons supports an inference that their evidence would not have assisted the defendant’s case and makes it possible for the Court to more readily draw any inference fairly to be drawn from the other evidence: Jones v Dunkel (1959) 101 CLR 298.MR CROSS’ PRIMARY EVIDENCE Mr Cross’ evidence was that the defendant is able to pay its debts as and when they fall due and is solvent. His evidence was the defendant is continuing to pay all of its other creditors in the ordinary course of business and in accordance with their normal trading terms and conditions. At the same time, it has funds set aside for payment of the amount demanded by the statutory demands. Mr Cross attested that the defendant is currently funding development of new products through its internet news sites and has been applying cash reserves in establishing those assets. Revenue from the defendant’s operations increased by 11.09% over the last financial year from $3 580 000 (30 June 2002) to $3 997 000. In line with that trend, the defendant expects that revenue from its operations will increase by a further 19% to above $4 750 000 during the current financial year. Mr Cross produced a consolidated unaudited statement of financial position as at 30 June 2003. The plaintiff did not take issue about the financial statement not being audited. Mr Cross says the financial statement gives a true and fair view of the financial position of the company as at 30 June 2003, apart from an error in the value of the company’s investments included in the financial statement as a current asset. He says there has not been any material change in the defendant’s financial position since then.DEFENDANT’S SUBMISSIONS To consider whether the defendant brings a case which rebuts the presumption of insolvency, I turn initially to the submissions as made for the defendant.Statement of financial performance Counsel for the plaintiff refers to the statement of the company’s financial performance for the period ending 31 January 2003 annexed to the affidavit of Mr Cross sworn on 19 February 2003 and questions why a similar statement to 30 June 2003 has not been produced. He says that the only inference that can be drawn from the defendant’s failure to do so is that it would have shown a far worse position. For the defendant, it is submitted there was no need to produce a similar statement as particulars of the defendant’s financial performance for last financial year are produced in the defendant’s report to the Australian Stock Exchange for the quarter year ended 30 June 2003 annexed to Mr Cross’ affidavit of 31 July 2003. I accept that submission.Consolidated accounts In evidence is a document entitled ‘Consolidated Unaudited Statement of Financial Position as at 30th June 2003’. It discloses total current assets of $2 022 922 and total current liabilities of $1 927 029, this disclosing a balance sheet credit of $95 893. In current assets, cash is shown as $1 166 265. Receivables consisted of $634 348 due from trade debtors after making provision of $22 901 for doubtful debts.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W3003 OF 2003

BETWEEN:	LECHMERE FINANCIAL CORPORATION PLAINTIFF
AND:	ASPERMONT LIMITED ACN 000 375 048 DEFENDANT
JUDGE:	RD NICHOLSON J
DATE OF ORDER:	20 OCTOBER 2003
WHERE MADE:	PERTH