Masri Apartments Pty Ltd (in liq) v Perpetual Nominees Ltd

[2004] NSWCA 471

Reported Decision: 52 ACSR 136
(2005) 23 ACLC 165

Court of Appeal

CITATION:	MASRI APARTMENTS PTY. LIMITED ACN 097 751 669 (IN LIQUIDATION) and AUS CONSTRUCTIONS PTY. LIMITED ACN 103 449 663 (IN LIQUIDATION) v. PERPETUAL NOMINEES LIMITED ACN 000 733 700 [2004] NSWCA 471
HEARING DATE(S):	23/11/2004
JUDGMENT DATE:	17 December 2004
JUDGMENT OF:	Spigelman CJ at 1; Mason P at 2; Beazley JA at 3
DECISION:	1. Appeal dismissed.; 2. Leave granted to the respondent nunc pro tunc to apply for an order to wind up each of the appellants.; 3. Otherwise confirm the orders made by Austin J on the 24 June 2004 winding up each appellant.; 4. The appellants are to pay the respondent's costs of the appeal; Upon the application of the appellants:; 5. Vary the order made by Ipp JA on 30 July 2004 staying the winding up orders made by Austin J on 24 June 2004 to the effect that there be a stay of the orders winding up each appellant by Austin J on 24 June 2004 up until 4.00 p.m. on 22 December 2004.
CATCHWORDS:	CORPORATIONS - Winding up - Insolvency - Prospective creditor - Whether leave required to make application to wind up on the ground of insolvency - Secured creditor - Secured creditor not required to surrender security before bringing application to wind up - Secured prospective creditor requires leave to bring application to wind up on ground of insolvency - s.459P(2). - STATUTORY CONSTRUCTION - Corporations Act 2001 (Cth), s.459P. - PRACTICE AND PROCEDURE - Failure of a party to obtain leave before applying for a winding up order - Whether court has power to cure defect by granting leave nunc pro tunc.
LEGISLATION CITED:	Acts Interpretation Act 1901 (Cth) Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth)
CASES CITED:	Emanuele v. Australian Securities Commission (1997) 188 CLR 114 Re Gem Sapphires (Aust) Pty Limited (1983) 8 ACLR 225 Re Testro Brothers Consolidated Limited [1965] VR 18 Roy Morgan Research Center Pty Ltd v Wilson Market Research Pty Limited (1996) 39 NSWLR 311 Stonegate Securities Limited v. Gregory [1980] Ch. 576
PARTIES :	Masri Apartments Pty. Limited ACN 097 751 669 (In Liquidation) and AUS Constructions Pty. Limited ACN 103 449 663 (In Liquidation) (Appellants) Perpetual Nominees Limited ACN 000 733 700
FILE NUMBER(S):	CA 40544/2004
COUNSEL:	T. Hale SC/J. Chippendall (Appellant) P. Whitford SC
SOLICITORS:	M.D. Nikolaidis & Co. (Appellant) Gadens Lawyers (Respondent)

LOWER COURTJURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	SC 2513/2004; SC 2514/2004
LOWER COURT JUDICIAL OFFICER :	Austin J

CA 40544/2004
SC 2513/04
SC 2514/04

SPIGELMAN CJ
MASON P
BEAZLEY JA

17 December 2004

MASRI APARTMENTS PTY. LIMITED ACN 097 751 669 (IN LIQUIDATION) and AUS CONSTRUCTIONS PTY. LIMITED ACN 103 449 663 (IN LIQUIDATION) v. PERPETUAL NOMINEES LIMITED ACN 000 733 700

Headnote

The appellants, for the purposes of undertaking a real estate development project, obtained finance by way of two secured loans of which the respondent was custodian. Following the service of a statutory demand upon each appellant, the respondent successfully applied to the Court for the winding up of the appellants on the ground of insolvency: Corporations Act 2001 (Cth) , s.459P.

On appeal the question arose whether the appellants should be wound up on the ground of actual insolvency and if so whether the respondent needed leave under s.459P of the Corporations Act .

(i) On the assumption there had been no event of default under the loan agreements, the respondent was a prospective creditor and required the leave of the Court before it could apply for the winding up order to be made: s.459P(2).

(ii) A secured creditor is not confined to relying upon its security or required to surrender its security before being entitled to bring proceedings: see Re Gem Sapphires (Aust) Pty Limited (1983) 8 ACLR 225 .

(iii) A party who is both a secured creditor and a contingent or prospective creditor falls within s.459P(2).

(iv) The failure to obtain leave of the Court before proceeding to apply for the making of a winding up order is an irregularity which may be cured by granting leave nunc pro tunc: Emanuele v ASC (1997) 188 CLR 144 .

(v) The appellants were insolvent.

(vi) As the appellants were not trading and had no viable prospect of obtaining alternative finance, there was no discretionary basis upon which the Court ought to have refused leave to the respondent to make application for the winding up of each appellant: s.459P(3).

ORDERS

1. Appeal dismissed.

2. Leave granted to the respondent nunc pro tunc to apply for an order to wind up each of the appellants.

3. Otherwise confirm the orders made by Austin J on the 24 June 2004 winding up each appellant.

4. The appellants are to pay the respondent’s costs of the appeal

Upon the application of the appellants:

5. Vary the order made by Ipp JA on 30 July 2004 staying the winding up orders made by Austin J on 24 June 2004 to the effect that there be a stay of the orders winding up each appellant by Austin J on 24 June 2004 up until 4.00 p.m. on 22 December 2004.

CA 40544/2004
SC 2513/04
SC 2514/04

SPIGELMAN CJ
MASON P
BEAZLEY JA

17 December 2004

MASRI APARTMENTS PTY. LIMITED ACN 097 751 669 (IN LIQUIDATION) and AUS CONSTRUCTIONS PTY. LIMITED ACN 103 449 663 (IN LIQUIDATION) v. PERPETUAL NOMINEES LIMITED ACN 000 733 700

Judgment

1 SPIGELMAN CJ: I agree with Beazley JA.

2 MASON P: I agree with Beazley JA.

3 BEAZLEY JA: On 24 June 2004, the appellants (AUS Constructions and Masri Apartments) by order made by Austin J, and after a contested hearing, were wound up on the ground of insolvency. In making the winding up orders, his Honour relied both upon presumed insolvency under s.459C(2)(a) of the Corporations Act2001 (Cth) (the Act) after a failure by each of the appellants to comply with a statutory demand and upon proved insolvency.

4 On the appeal to this Court from those orders, the principal issue became whether the respondent had standing to apply for the making of a winding up order on the ground of proved insolvency.

Background facts

5 Masri Apartments had acquired a development site at Liverpool upon which AUS Constructions proposed to develop a residential home unit building. To finance the development project, AUS Constructions had obtained 2 loans in a total sum of approximately $12 million ($10 million and $2 million respectively) from MFS Premium Income Fund. Perpetual was the custodian of the loans. Masri guaranteed both loans. The loans were further secured by way of mortgages over Masri’s real estate and by fixed and floating charge over the assets of both appellants. The due dates for the loans were 16 months after the date of advance. As the loans were made in September 2003, the due date for payment was January 2005.

6 On 10 March 2004 Perpetual, whose business was, relevantly, conducted from the Gold Coast in Queensland, posted a statutory demand to each appellant dated 5 March 2004 addressed to the respondents at an address in Penshurst, New South Wales. As at the date of posting, that address was, by operation of the provisions of s.142 of the Act, the registered office of the appellants. However, on 4 March 2004, the appellants had lodged a change of address of their registered office with ASIC. In accordance with the provisions of s.142(3) of the Act, that change of address took effect on the seventh day after the notice was lodged, i.e. on 11 March 2004.

7 It was not in dispute that the directors of the appellant did not actually receive the statutory demand. However, pursuant to the provisions of s.109X of the Act and s.29(1) of the Acts Interpretation Act 1901 (Cth) service was “effected at the time at the letter would be delivered in the ordinary course of post”. Austin J proceeded on the assumption that a letter posted from the Gold Coast to suburban Sydney would not have been delivered in the ordinary course of post until at least the second day after posting. On that assumption, the letter would have been delivered on 12 March 2004. By that date however, the appellants’ registered office had, by operation of s.142(3), changed to the new address.

8 One of the issues before Austin J was whether service occurred at the time of posting or at the time of presumed receipt. His Honour held that in circumstances where s.29(1) of the Acts Interpretation Act deemed service by post to be effected by properly addressing, prepaying and posting the document as a letter, that service occurred at the point of posting. Accordingly, his Honour found that there had been valid service of the statutory demands.

9 By Summons dated 21 April 2004, Perpetual applied to the Court for the winding up of the appellants on the ground of insolvency: s.459A and on the just and equitable ground: s.461(1)(k). The application for winding up on the ground of insolvency was based upon non-compliance with the statutory demands in accordance with s.459F which provides, relevantly that the period for compliance with a statutory demand is 21 days after service of the demand.

10 A corporation served with a statutory demand may apply to the Court to set aside the demand: s.459G. Such application must be made within 21 days after the demand is served: s.459G(2). As the appellants were unaware of the service of the statutory demands they lost that opportunity. Notwithstanding that no application had been made, Austin J permitted the appellants to raise a genuine dispute about the existence of the debts claimed by Perpetual. His Honour held, and this has not been contested, that it was not necessary for the appellants to obtain leave under s.459S to do so.

11 The question of service having been determined in favour of Perpetual the principal dispute between the parties became whether there had been any default under the loan agreements entitling Perpetual to demand repayment of the full amount owing. Perpetual had alleged three defaults. Of those, his Honour found that there was a genuine dispute in respect of two. However, he found that there had been a default under cl.7.18 of the loan agreement. That clause provided:

“The Borrower shall at the option of the Lender be immediately in default upon the occurrence of any of the following events of default:
…
7.18 If a Caveat or other encumbrance is registered against the Security Property without the Lender’s consent.”

12 Two Caveats had been lodged against the real estate at Liverpool. The evidence before his Honour in relation to those Caveats comprised the pleadings in a possession claim made by Perpetual against the appellants. In its Statement of Claim in the Possession List proceeding, Perpetual pleaded that two Caveats had been lodged against the Liverpool land in breach of the loan agreements and that Masri had failed to do everything it could to remove the Caveats, in breach of the mortgages. In their defence, the appellants admitted that two Caveats had been lodged but alleged that neither Caveator had a Caveatable interest. In respect of the first, it was withdrawn immediately upon being challenged. They intended that the second Caveator was Perpetual’s finance broker and had lodged a Caveat as a result of Perpetual failing to pay the broker’s fees from the loan. They contended that the broker had no Caveatable interest.

13 Austin J found however that it was the registration of the Caveat that gave rise to default under cl.7.18 regardless of whether the Caveat might be open to removal or other challenge. On that finding, Perpetual’s debt had become due and owing.

14 The appellants also challenged the formal validity of the statutory demands in that they failed to give an address for service in New South Wales and the supporting affidavits did not comply with the rules of Court governing the form and content of affidavits in winding up proceedings. His Honour rejected both these contentions. It followed, that as his Honour had found that service had been properly effected and that no application had been made under s.459G to set aside the statutory demands within the time prescribed by the Act, that the appellants were presumed to be insolvent under s.459H.

15 His Honour also dealt with the question of the appellant’s actual insolvency.

16 His Honour concluded that even without taking into account Perpetual’s debt, the appellants were insolvent. His Honour’s finding that there was no genuine dispute in respect of the Caveat question meant that the amount claimed in the two statutory demands could not be disputed on any substantial ground. He concluded that taking into account Perpetual’s claim, the conclusion that the defendant companies were insolvent was irresistible.

17 The appellants had argued the Court should exercise its discretion against the making of winding up orders so as to permit the appellants to enter into Deeds of Company Arrangement. The principal reason advanced in support of a favourable exercise of discretion was that under the proposed Arrangements, the appellants would be able to prosecute a claim against Perpetual seeking damages for alleged changes made to the funding agreements by Perpetual during the course of the loan agreements. His Honour however was sceptical about the proposal, considering it to be “extremely and unsatisfactorily vague”. More particularly, his Honour considered that the directors had had ample time to put forward a specific proposal, as the Court had indicated they ought to do. They had not done so.

18 Finally, his Honour rejected Perpetual’s application that the winding up orders be made on the just and equitable ground. However, having found that the two companies were clearly insolvent, he made orders winding them up on the ground of insolvency.

The appeal

19 Four specific issues arose on the appeal. The first was whether the statutory demand had been served at the registered office of the appellants. That question involved the resolution of the issue whether, under s.29(1) of the Acts Interpretation Act, service was effected at the time of posting or at the time of delivery in the ordinary course of business. The second question was whether the trial judge was correct in finding that the registration of a Caveat was sufficient to constitute an event of default, under cl.7.18 or whether it was necessary for Perpetual to show that the Caveat had been properly lodged, that is by a person with a registrable interest.

20 The third issue was whether Perpetual had standing to make application for an order for the winding up of the appellants on the ground of insolvency and, more particularly, whether leave was required under s.459P(2) for it to make that application. This issue raised the further question as to whether the Court had power to grant leave nunc pro tunc.

21 Finally, there was the question raised by Perpetual’s Notice of Contention as to whether his Honour should have ordered that the appellants be wound up on the just and equitable ground. The relevance of this issue was that if leave was not granted to Perpetual to bring an application on the ground of insolvency, it still sought to maintain the winding up orders made by Austin J on the just and equitable ground.

22 In my opinion, it is only necessary to resolve the third of these issues.

Standing of Perpetual to bring an application to wind up the appellants on the ground of proved insolvency

23 Section 459P specifies the persons and entities that may apply for a winding up order. Under s.459P(1)(b) “a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor)” may do so. However, under sub-s.2(a) “a person who is a creditor only because of a contingent or prospective debt” may only apply for a winding up order with the leave of the court.

24 Perpetual is a secured creditor. As such it has standing under s.459P(1) to make an application to wind up on the ground of insolvency. The question that arises however is whether it is a prospective creditor, and if so, given that it is also a secured creditor, whether it needs the leave of the court under sub-s.2. If Austin J was correct in finding that the registration of the Caveats was an event of default, then, the entirety of Perpetual’s debt became due and owing upon that default. If however, his Honour erred in that regard, then Perpetual is a prospective creditor, being a creditor whose debt will become due in the future: see Stonegate Securities Limited v. Gregory [1980] Ch. 576 at 579 per Buckley LJ; Roy Morgan Research Center Pty. Ltd. v. Wilson Market Research Pty. Limited (1996) 39 NSWLR 311 at 322-323 per Santow J.

25 For present purposes, I will proceed upon on the assumption, and without deciding the point, that Austin J was wrong in finding that the mere registration of a Caveat was a sufficient event of default under cl.7.18. On that assumption, Perpetual was not able to rely upon presumed insolvency. However, Austin J found on the evidence that the AUS Constructions and Masri Apartments were in fact insolvent. In this Court, the question arose whether an order could, on that basis, be made for the winding up of each of the appellants and, if so, whether s.459P required that Perpetual, being a secured prospective creditor, needed the leave of the Court to make the application to wind up the companies on the ground of insolvency.

Were the companies insolvent?

26 As I have indicated, Perpetual’s Summons sought to wind up the companies on the ground of presumed insolvency and upon the just and equitable ground. In support of its Summons it tendered the report of H.J. Wily whom the companies had appointed Administrator under s.436A of the Act on 20 May 2004. According to the Administrator, each of the companies was insolvent.

27 Having regard to the material contained in the Administrator’s report, Austin J found that, even without taking Perpetual’s loan into account, the companies were insolvent. In reaching that conclusion, he accepted Mr. Wily’s assessment that the value of the Liverpool land may be sufficient to pay out the secured creditor but there otherwise would be little or nothing left over to pay out the unsecured creditors. I will return to his Honour’s finding on insolvency below.

28 Senior counsel for the appellants contended that the evidence in the Administrator’s report should not have been admissible to prove actual insolvency as the appellants had been brought to Court to defend a case of presumed insolvency and, relevantly for the purposes of the appeal, whether there had been an event of default by reason of the lodgement of the Caveats. It was submitted, therefore, that there was no occasion for the Court to consider the Administrator’s report in relation to the determination of that issue. Accordingly, it should not have been used to prove insolvency.

29 Although Perpetual had tendered the Administrator’s report in support of its application to wind up the appellants on the just and equitable ground, the appellants had themselves relied upon it to establish why the Court ought not exercise its discretion to wind up the appellants. In doing so it is apparent that they had not anticipated that the report would be used to establish insolvency. However, there was no restriction on the basis upon which the report was admitted.

30 Senior counsel submitted that had the appellants been aware that actual insolvency was in issue, they would have adduced evidence show that they were not insolvent so as resist the grant of leave: see s.459P(3). Senior counsel submitted that the evidence of insolvency in the report was, in any event, general. He further submitted that the evidence that would have been adduced would have established that most of the debts of the appellants had been incurred after the grant of Perpetual’s loans and that most were either not presently due and payable or were subject to family arrangements to defer payment. The evidence that would have been relied upon was contained in two affidavits of Samir Masri, a director of the appellants, sworn 9 July 2004 and 22 July 2004 respectively, in support of the application for a stay of the winding up orders and which were read on the appeal.

31 Before proceeding to consider the evidence before Austin J on the question of insolvency, some observations should be made about the appointment of the Administrator. The appellants contend that Perpetual had varied the funding arrangements and that the difficulties in which they found themselves had been caused by those variations. The appellants had appointed the Administrator for the purpose of entering into Deeds of Arrangement that would contain a proposal whereby the directors would fund the legal costs of obtaining an opinion as to whether there may be a claim against Perpetual for damages arising out of the funding variations and if so, whereby the directors would fund the bringing of such a claim.

32 As already stated, the Administrator in his report of 9 June 2004, expressed his opinion that the appellants were insolvent. He stated that neither appellant was trading nor in a position to resume normal trading. He also expressed the opinion that should any claim against Perpetual be successful, then the proposed Deeds of Arrangement provided a better chance of a return to the unsecured creditors than did liquidation.

33 Based upon the Administrator’s reports Austin J found that Masri Apartments had external unsecured debts of over $290,000.00 and AUS Constructions had external unsecured debts of over $400,000.00. As appears below, his Honour noted that there was no direct evidence of the terms of repayment of these debts. He drew the inference however that given the nature of the appellants’ business they were due and owing in the short term.

34 The affidavit evidence of Mr. Masri to which I have referred was directed to establishing that the debts were not due and owing. An examination of that material reveals the following. In addition to the funding provided by Perpetual, AUS Constructions had unsecured loans of approximately $2.4 million, being funds advanced by Samir and Shem Masri and Laurie Debono (the private lenders). Samir Masri and Laurie Debono are directors of the appellants. Samir and Shem Masri informed the Administrator they were the shareholders in the appellants, although the formal company records did not reveal this. The funds advanced by the private investors were used to pay for architectural and other fees relating to pre-construction costs as well as for the first progress payment to the builder. $2 million of those funds had been borrowed by way of short- term borrowings and secured on the homes of the private lenders. The short term borrowings were to be repaid from the draw-downs of the facility provided by Perpetual. The private lenders have been unable to meet the ongoing interest payments on these loans. Samir Masri said that the only prospect of the private lenders recovering the moneys they had advanced was to re-establish the building project. As I have said, Perpetual will not provide any more funding under its loan arrangements. Accordingly, alternative funding would need to be found.

35 AUS Constructions owes $130,000.00 to Global Capital Corporation for brokerage services and other smaller debts to various trade creditors. There are a number of other debts. AUS Constructions owes $25,000 in legal fees although Samir Masri said they were not due until the end of the project. However, for the reasons I set out below in relation to Masri Apartment’s indebtedness to the solicitors I consider that the evidence establishes that that debt is due and owing. In addition, there are a number of small debts owed to family members for secretarial and like services in respect of which Samir Masri says that no demand will be made. There is also said to be a debt for Land Tax in the sum of $3,460.00 for the period ended 31 December 2003. However, as AUS Constructions does not own land, it is possible this debt may be owed by Masri Apartments.

36 At the date of the Administrator’s Report, AUS Constructions had current assets of less than $50,000.00 and a debt owed to it by the builder in the sum of $250,000.00. This sum was a prepayment for the construction of the units. It had a nett trading loss for the year ended 30 June 2003 of approximately $7,000.00.

37 The directors of AUS Constructions had informed the Administrator that as at March 2004, when the statutory demands were served, they were in a position to provide additional loans to the company. On the evidence in Samir Masri’s affidavit, that may have been questionable even at that time, but would now appear not to be the case, unless it is part of a total alternative refinancing proposal.

38 It is apparent from this brief overview, which is not intended to be exhaustive, that AUS Constructions is insolvent.

39 That leaves the position of Masri Apartments. Its major, and, effectively, only asset, the Liverpool land, is security for the Perpetual advance. On the assumption that that advance is not presently due and owing (but will become due and owing in about January 2005) the realised value of the land may be sufficient to pay the Perpetual debt.

40 According to the proofs of debt lodged with the Administrator, the major unsecured creditor is Global Capital Corporation for brokerage services for a debt of $266,3472.00. Samir Masri deposes in his affidavit that this claim is incorrect and that Global Capital Corporation is owed $130,000.00 by AUS Constructions. However, Global Capital Corporation also lodged a proof of debt for that amount in relation to AUS Constructions. Accordingly, on the evidence before the Court there is uncertainty about that indebtedness.

41 The other debt of major significance was in the sum of $25,000.00 owed to the appellants’ solicitors. A like amount is owed by AUS Constructions. Samir Masri stated in his affidavit that a term and condition of this obligation was that it was to be paid at the end of the project. However, that evidence is to be weighed with the fact that the solicitors have lodged a proof of debt and, on the evidence before the Court this project has reached the end of its life. In my opinion, on the evidence, the debt to the solicitors is now due and owing.

42 The balance of the debts in a total amount of $1880, are all in small amounts and are owed to family members and friends. Although a proof of debt has been lodged in respect of each debt, Samir Masri has stated that on his enquiries no demand will be made for repayment. There may also be the debt for land tax to which I have referred above.

43 In my opinion the evidence establishes that Masri Apartments has a debt that is due and owing in the sum of $25,000.00. It has no means of paying that debt and is insolvent. It may, of course, also owe the further amount of $266,347.00 to Global Capital Corporation. I should add that even if I am wrong and the legal fees are not presently due and owing, the latter fees are presently owing. In its present financial condition, the appellant is not able to pay those fees as and when they become due and payable and so is insolvent: s.95A.

Should the Court grant leave to Perpetual to make application to wind up the appellants?

44 That leaves the question whether Perpetual requires leave to make an application to wind up each of the appellants on the ground of insolvency and if so, whether leave should be granted.

45 In the first instance that requires a consideration of the full terms of s.459P. That section provides:

“Who may apply for order under section 459A

(1) Any one or more of the following may apply to the Court for a company to be wound up in insolvency:
(a) the company;
(b) a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor);
(c) a contributory;
(d) a director;
(e) a liquidator or provisional liquidator of the company;
(f) ASIC;
(g) a prescribed agency.
(2) An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court:
(a) a person who is a creditor only because of a contingent or prospective debt;
(b) a contributory;
(c) a director;
(d) ASIC.
(3) The Court may give leave if satisfied that there is a prima facie case that the company is insolvent, but not otherwise.
(4) The Court may give leave subject to conditions.
(5) Except as permitted by this section, a person cannot apply for a company to be wound up in insolvency. “

46 A number of observations may be made about the structure of the section. First, sub-ss.1 and 2 do not specify separate or independent categories of parties that may make application for winding up on the ground of insolvency under s.459A. Rather there is overlap between the groups. Thus, contributories, directors and ASIC are parties specified within sub-s.1 who may bring proceedings to wind up the company in insolvency. However, each of those parties needs the leave of the Court to do so under sub-s.2.

47 Secondly, a creditor, for the purposes of sub-s.1(b), is given an extended definition so as to include, not only a creditor whose debt is due and owing but also secured creditors and a creditor who “is only a contingent or prospective creditor”. The inclusion of the words “secured creditor” in para (b) is, presumably, to make it apparent that a secured creditor is not confined to relying upon its security, or required to surrender its security before being entitled to bring proceedings to wind up an insolvent company. Such a requirement is a requirement in bankruptcy: see Bankruptcy Act 1966 (Cth), s.44, but does not apply in company law: see Re Gem Sapphires (Aust) Pty. Limited (1983) 8 ACLR 225 per Bowen CJ in Eq. at 227.

48 Next there is a change of wording between sub-s.1(b) on the one hand relating to contingent or prospective creditors, and sub-s.2(a) on the other. In sub-s.1 the expression creditor includes a creditor who “is only a contingent or prospective creditor”. However, when specifying the entity that requires leave for the purposes of sub-s.2, para (a) provides that “a person who is a creditor only because of a contingent or prospective debt” needs the leave of the court. In my opinion, it is apparent from this difference in wording that the word “only” in sub-s.2(a) is not intended to signify an entity that is solely a contingent or prospective creditor so that a party who is both a secured creditor and a contingent or prospective creditor falls within sub-s.2.

49 In my opinion, this also follows from the policy that underlies the need for a specified group of eligible applicants to obtain the leave of the court. Liquidation is a serious, indeed fatal step, in the life of a company. It is not a means of debt collection. Rather, in the case of insolvency, it is a means whereby creditors and potential creditors are protected from the continued trading by a company that is unable to pay its debts as they become due. The legislature could not have meant to allow that step to be taken by a party whose debt was not presently due as in the case of a prospective creditor, or which may not become due in the case of a contingent creditor, unless there was good reason to do so. That “good reason” is where the company is insolvent. Thus, the Court may not grant leave to an entity falling within sub-s.2 unless it is “satisfied that there is a prima facie case that the company is insolvent, but not otherwise”.

50 There are a number of reasons why the section limits the grant of leave, not the least of which is that otherwise, a prospective or contingent creditor could use the section as a means of pressure or harassment. The same might be said of a contributory or a director. By requiring that these parties obtain leave, the legislature ensures a system whereby the purpose for which the section was enacted, that is, that insolvent companies not trade, is appropriately applied.

51 It follows, on the assumption that I have made, that Perpetual needed the leave of the Court before it could apply for the winding up order to be made. It did not seek such leave. That raises the question whether the Court has the power now to grant leave.

52 In my opinion, there is no doubt as to the power of the Court to grant leave at this point. In Emanuele v. Australian Securities Commission (1997) 188 CLR 114, the Court held that a failure to obtain the leave of the court before proceeding to apply for the making of a winding up order was a defect or irregularity which may be cured by granting leave nunc pro tunc: see also Re Testro Brothers Consolidated Limited [1965] VR 18 at 33-35.

53 In this case, the evidence is indisputable that the appellants are insolvent. His Honour found that that was the case even without having regard to Perpetual’s debt. If in fact there was an event of default by the companies by reason of the lodgement of the Caveats, then the extent of the indebtedness is overwhelming. That being so, the requirements of s.459P, set out above, have been met. In circumstances where the appellants are not trading and, unless they have alternative finance, to which I refer below, have no prospect of resuming trading, I consider that leave ought to be granted

54 There was some evidence before Austin J as to the prospect of the appellants refinancing the project. That evidence revealed that funding in the sum of $10.4 million had been approved. However, as his Honour noted, the proposal was subject to many conditions and there was no evidence before him, either that the finance was still available, or that the appellants could meet the conditions. The appellants have not adduced any further evidence in relation to the availability of that or any other finance. It is now over 6 months since the conditional finance referred to by Austin J was approved and in the absence of evidence that it is available, the Court ought to infer that it is not a viable prospect for refinancing. The inference is reinforced by the terms of the proposed Deed of Arrangement, which post-dated the finance approval, in which there was no reference to the availability of finance to continue the project. Rather, the purpose of the proposed Arrangement was, potentially, to pursue a claim for damages against Perpetual.

55 It follows, in my opinion, that there is no discretionary basis upon which the Court ought to refuse leave. In my opinion, leave should be granted nunc pro tunc to the appellants to make application to wind up the appellants on the ground of insolvency.

56 Accordingly, I would propose the following orders:

1. Appeal dismissed.

2. Leave granted to the respondent nunc pro tunc to apply for an order to wind up each of the appellants.

3. Otherwise confirm the orders made by Austin J on the 24 June 2004 winding up each appellant.

4. The appellants are to pay the respondent’s costs of the appeal

Upon the application of the appellants:

5. Vary the order made by Ipp JA on 30 July 2004 staying the winding up orders made by Austin J on 24 June 2004 to the effect that there be a stay of the orders winding up each appellant by Austin J on 24 June 2004 up until 4.00 p.m. on 22 December 2004.

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Last Modified: 12/17/2004