NAB v Onyx

[2008] NSWSC 973

CITATION:	NAB v Onyx [2008] NSWSC 973
HEARING DATE(S):	17/09/08
JUDGMENT DATE :	17 September 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
EX TEMPORE JUDGMENT DATE:	17 September 2008
DECISION:	Paragraph 26
CATCHWORDS:	Corporations Law. Application to wind up company in insolvency by substituted creditor. Application for leave under s 459S as no application to set aside statutory demand. Application refused. Company wound up.
PARTIES:	National Australia Bank Limioted v Onyx Group Pty Limited
FILE NUMBER(S):	SC 5142/2007
COUNSEL:	Mr EC Muston for plaintiff Mr DJ Durston for defendant
SOLICITORS:	Turks Legal for plaintiff Gillard Consulting Lawyers for defendant

- 1 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

WEDNESDAY 17 SEPTEMBER 2008

5142/07 NATIONAL AUSTRALIA BANK LIMITED v ONYX GROUP PTY LIMITED

JUDGMENT

1 HIS HONOUR: I am presently engaged in a hearing which is winding up proceedings against the defendant. The present plaintiff is the National Australia Bank Ltd which has been substituted as a creditor.

2 The original statutory demand on which the present plaintiff relies, which is exhibit A before me, is a statutory demand served on 19 July 2007 which claimed a debt in these terms:

“(a) A debt outstanding to the Creditor pursuant to the invoice issued by the Creditor to the Debtor dated 22 June 2007 - $45,000”

3 The affidavit is supported by an affidavit of Kam Kon Soong sworn on 19 October 2007. Paragraphs 2, 3 and 4 of that affidavit in these terms:

“2. Upon the payment contemplated in Clause1 above, the Creditor assigns to the Third party all its right, title and interest in the Debt.

3. The Creditor warrants that it knows of no other debt due (or to become due) to it from the Debtor and this Deed shall bar any proceedings or other claim by the Creditor which it might take or make against the Debtor in relation to the debt.

4. The Creditor will, for the purposes of facilitating the above payments, adjourn the Proceedings to a date following Wednesday, 6 February, 2008 convenient to the parties and to the Court.” ‘

4 At the commencement of the hearing the usual affidavits proving all formalities in respect of the winding up were read before the Court and there 0were appropriate admissions that the statutory demand had been served and that no action had been taken within 21 days to set aside that demand.

5 The defendant had subpoenaed the deponent of the affidavit verifying, Mr Soong, who was called but did not appear. In respect of attempts at service, there was no proof of any service upon him.

6 There was then an application made for an adjournment so that Mr Soong could be subpoenaed and made available to give evidence at the hearing and that led to a question as to the relevance of his evidence.

7 The question, in respect of the demand, is that the defendant wishes to challenge the demand on the basis of the grounds of opposition set out in a document filed on 3 September. Paragraphs 1 to 6 seek to set aside the ground and effectively say that the affidavit in support of the demand was false, in particular in that an invoice was issued pursuant to an agreement but not rendered until after the demand.

8 In relation to ground 7, that indicates that the debt is no longer due and payable. Paragraph 8 relates to something to do with an employee not saying whether the invoice was supplied, and paragraph 9 says there is an offsetting claim.

Section 459S of the Corporations Act is in the following form:
“Company may not oppose application on certain grounds.
2. In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have relied on, but did not so rely on (whether it made such an application or not)
2. the Court is not grant leave under sub-section (1) unless it is satisfied that the ground is material to proving a company is solvent.”

9 As can be seen, the present defendant without leave is not able to oppose the application on a ground that the company could have relied upon in an application to set it aside. The present offsetting claim referred to in paragraph 9 is not something that the company could at that stage rely upon. The only possible claim is that the affidavit was false and therefore the demand should be set aside.

10 The basis of the falsity is said to be what results from the deed which was made between the original plaintiff in these proceedings and the defendant on 18 February 2008. Paragraphs (D), (E) and (F) of the recitals in that deed are as follows:

“D. The Creditor served a Statutory Demand on the Debtor, acknowledges the agreement for building services is based on a facsimile quote dated 8 June, 2007 that the Debtor relies upon and admits that it has no proof as to the delivery of the invoice upon which that Statutory Demand was based (dated 22 June 2007 hereinafter the “invoice”).


E. The Creditor admits that the first time the Invoice was delivered to the Debtor was on 29 November, 2007 notwithstanding it genuinely believed that the Invoice had been rendered in accordance with the then current agreement for building services between the parties and was delivered by one of its agents to a representative of the Debtor on or about 22 June, 2007.
F. The Parties hereto agree and acknowledge that as at the date of this Deed, the total indebtedness (including interest, costs of the proceedings and GST) of the Debtor to the Creditor is $28,000 (“the Debt”).”

11 The deed went on to provide for payment of the $29,000 and, as I understand it, that amount has been paid.

12 It seems to me that there is a real difficulty with the argument as to whether in fact the affidavit was false. In recital (E) the statement is that it was genuinely believed that the invoice was delivered. That makes falsity unlikely. Whether the failure to deliver the invoice would be sufficient to allow the setting aside of the statutory demand may be dependent upon what were the arrangements for the payment of the debt.

13 Leaving all these things aside, it has to be noted that the Court is not to grant leave under section 459S unless it is satisfied that the ground is material to proving that the company is solvent.

14 It seems that at the most that the dispute might have shown the amount was $28,000 rather than $45,000 and that that the difference of some $17,000 was not payable. Even if that submission is incorrect, whether the $45,000 is material to the solvency of the company is another matter. On the matters set out in the accounts the company has current assets of $742,965.77 and current liabilities of $384,181.24.

15 Evidence as to solvency has not been tendered at this stage, other than the balance sheet. Accepting that the balance sheet figures might not be a test of solvency, it is hard to see that the $17,000 or the $45,000 would be material to the question in hand. In any event, the Court is concerned with the situation at the current time and certainly the debt is not payable at this stage.

16 In those circumstances it seems to me that the dispute sought to be relied upon is not material to proving the company is solvent and, accordingly, I refuse the application for relief in paragraph 1 of the interlocutory process dated 9 September 2008.

17 This then brings me back to the adjournment application, and I will hear what the parties have to say in respect of that.

(Counsel addressed on the application for an adjournment)

18 It seems to be that the question of any evidence that might be given in respect of the falseness of the affidavit is not relevant to the present proceedings and, accordingly, I refuse the application for an adjournment.

(Later)

19 This is the further hearing of the application to wind up the defendant. I will not repeat what I have earlier said today in the application under s 459S and the adjournment application which can be included in this judgment.

20 This is a matter, as I have said, where there is a presumption of insolvency arising from the failure to pay the statutory demand. The only evidence that is before the court, apart from this presumption of insolvency, is the evidence in pars 2 and 3 of the affidavit of Christine Maree DeLacy of 6 September 2008 which is in these terms:

“I have caused the Defendant’s accountants, Economos Pty Ltd to prepare a Financial Report in draft form for the Defendant up to 30 June, 2008. A copy of that Report is annexed and marked “A” (the "Financial Report").
I note the matters set out in the Director's Declaration forming a part of that document and state that those matters are, to the best of my knowledge, information and belief, true and correct and I would be prepared to sign that Declaration."

21 Annexure A, which is the report referred to in par 2, is stamped as "Draft as at 30/06/08" and is not signed. The balance sheet discloses a total of current assets of $742,965.77. This amount is made up of cash and cash equivalents of $7,047.77 and what are described as “trade and other receivables” of $735,918, in the notes of account described as "income receivable". Non-current assets amount to $7,687.37. Current liabilities are shown in the balance sheet as at 30 June 2008 at $384,181.24. There is the “non-current liabilities” which are a loan to the director of the company, Christine DeLacy, of $297,114.24. In respect of that loan, Ms DeLacy has sworn that she had no current intention to call up payment of the loan and would not call upon that loan in circumstances where it would cause the defendant to become insolvent. I infer from this that in fact it is repayable by either notice or demand. If one allows for non-current liabilities, the surplus of net assets is $69,357.66.

22 Nowhere in the evidence is there any expression as to the solvency of the company or as to whether in fact the company is able to pay its debts as and when they fall due.

23 Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 said the following in respect of the circumstances with which I am now confronted:

"The authorities which govern the operation of s459G of the Corporations Law seem to me to establish the following propositions:

The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: s459C(2) and (3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 per Spender J; Commissioner of Taxation v Simionato Holdings Pty Ltd . (1997) 15 ACLC 477 per Mansfield J.

·In order to discharge that onus the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.

Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra ); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.

There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company's assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (supra ) ; Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (supra) at 465-466.

The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (supra) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J.

The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (supra) at 466-467.

It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (supra).”

24 It is important to realise, as has been emphasised by Weinberg J, that the company bears the onus of proving its solvency. The third point in his Honour's comments certainly apply to the present case and indeed there are no assertions as to solvency and in fact no evidence showing whether or not it can pay its debts as and when they fall due. The nature of the assets is not elucidated any more than in the way in which they are shown in the accounts.

25 The other situation which is to be noted is that all the accounts show is the situation as at 30 June 2008 and nothing is given as to the present circumstances of the company, although it may be something pointing towards the present position.

26 Having regard to the nature of the evidence, I am not satisfied that the company has demonstrated that it is solvent and, accordingly, in my view, the company is insolvent and I propose to make an order for winding it up.

1. In this matter I order that the defendant be wound up in insolvency.
2. I appoint Scott Darren Pascoe as the liquidator of the company.
3. I order that the plaintiff's costs be paid in accordance with the Corporations Act .

27 There is an application for a stay of the orders which I have just made and there has been tendered some evidence that there is a process of refinancing, presumably, of the National Bank's debt.

28 The application is not an application for a stay pending an appeal. The company has a right to always apply statutorily for a stay or termination under the relevant parts of the Corporations Act. That can be made at any appropriate time when matters such as solvency can be addressed in an appropriate form and the capitalisation of the director's debt could also be addressed.

29 At the moment it seems to me that the company, in my judgment, as I have said, is insolvent and I should not order a stay. The company can, of course, make its application for a stay in the usual course in accordance with its rights under the Corporations Act when the time is appropriate.

30 Accordingly, I decline the oral application for a stay today.

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