Offermans –v- Ingham Manufactures Pty Ltd

[2003] QDC 46

DISTRICT COURT OF QUEENSLAND

CITATION:

Offermans –v- Ingham Manufactures Pty Ltd [2003] QDC 046

PARTIES:

Dennis John OFFERMANS as liquidator of Bonmere Pty Ltd (in liquidation) ACN 067 410 968
(plaintiff)
V
Ingham Manufactures Pty Ltd ACN 009 766 741
(defendant)

FILE NO:

311 of 2002

DIVISION:

District Court

PROCEEDING:

Application for Summary Judgment

DELIVERED ON:

23 April 2003

DELIVERED AT:

Townsville

HEARING DATE:

14 April 2003

JUDGE:

CF Wall QC

ORDER:

Judgment for the plaintiff against the defendant for $50,279.05 plus interest of $4,413.53, a total of $54,692.58 together with costs of and incidental to the application to be assessed on the standard basis unless agreed.

CATCHWORDS:

CORPORATIONS LAW – INSOLVENCY – LIQUIDATION –  UNFAIR PREFERENCES – VOIDABLE TRANSACTIONS

PRACTICE - SUMMARY JUDGMENT – application for summary judgment – wh payments to defendant unfair preference payments – wh company solvent at time of relevant transactions – wh defendant had reasonable grounds for suspecting that company was insolvent or would become insolvent – wh transactions voidable – wh defendant has prospect of defending plaintiff’s claim

Uniform Civil Procedure Rules 1999 – r 292(2)

Corporations Act 2001 – s 95A(1) and (2), s 459E, s 588FA, s 588FE, s 588FG(2)(b)

Hamilton v BHP Steel (JLA) Pty Ltd (1995) 13 ACLC 1548 cons

Sandell v Porter (1966) 115 CLR 664, 670 – 671 cons

COUNSEL:

S.Mosch (solicitor) for the plaintiff

W. Elliot for the defendant

SOLICITORS:

Suthers Taylor for the plaintiff

MacDonnells Solicitors for the defendant

HIS HONOUR:  This is an application for summary judgment to recover what is said to be unfair preference payments by Bonmere Pty Ltd, a company in liquidation, to the defendant.  Part only of the plaintiff's claim is the subject of the application.  The plaintiff is entitled to succeed if I am satisfied that the defendant has no real prospect of successfully defending the plaintiff's claim and there is no need for a trial of the claim.  See Rule 292(2).

The facts are not really in dispute and nor are the payments, rather it is the interpretation which the plaintiff puts on those facts and payments that is contested by the defendant.

The relevant legislation is the Corporations Act 2001.

Section 95A(1) and (2) provide:

"(1)A person is solvent if, and only if, the person is      able to pay all the person's debts, as and when they become due and payable;

(2) A person who is not solvent is insolvent."

Person includes a company.

The authorities referred to by Mr Mosch and Mr Elliott establish that the question of fact as to whether or not a company was unable to pay its debts as they fell due from its own money is to be decided as a matter of commercial reality in the light of all the circumstances, including prevailing business practices and the ordinary conduct of the business community from time to time.  What is involved is not a mere accounting exercise but an appreciation of whether moneys can be readily mustered in order to pay creditors.  See Hamilton v. BHP Steel (JLA) Pty Ltd (1995) 13 ACLC 1548 and the cases there cited including Sandell v. Porter (1966) 115 CLR 664 at 670-671 where Barwick CJ said:

"An essential step in making out that a payment is a preference within s. 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent.  Insolvency is expressed in s. 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 limited to his cash resources immediately available.  They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.  The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.  It is the debtor's inability, 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 indicates insolvency.  Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due."

The plaintiff was appointed voluntary administrator of Bonmere Pty Ltd (hereinafter called Bonmere) on the 22nd of May 2002 and liquidator on the 18th of June 2002 when the company was placed in liquidation.  The relation back period commenced on the 22nd of November 2001.

The claimed payments are:

1.   $10,000 on or about the 1st of March 2002; and

2.   $49,409.05 on the 2nd of May 2002.

Each payment was by cheque from Bonmere to the defendant. 

The defendant trading as Modu-line Kitchens, makes cabinets and kitchen works and sells them directly to builders.  Bonmere traded as Northern Lifestyle Homes and was a builder.  William Clarence Mealing and Anne Dorothy Mealing were directors of Bonmere.  David Gusmeroli is a director of the defendant.

In about April 1999, the defendant approved the establishment of a credit account for Bonmere in relation to its purchases from the defendant.  The defendant's trading terms required payment to be made by Bonmere to the defendant within 30 days of the date of invoices issued by the defendant.

According to Mr Gusmeroli, Bonmere was a customer of the defendant from the 24th of May 1999 until the 3rd of May 2002, although trading between the two ceased in January 2002.  Mr Gusmeroli says that "during this time Bonmere was a slow payer of accounts."

As at the 30th of June 2001 Bonmere's liabilities exceeded its assets by $384,541 and its operating loss before income tax was $462,204.  These figures are not conclusive of insolvency, but they certainly indicate a parlous overall financial situation.  Mr Elliott referred to some of the figures in the balance sheet and profit and loss statement, compared to the position in the preceding year, but realistically that exercise was not sufficient to alter the impression created by the whole of the financial statements as at the 30th of June 2001.

The balance sheet lists as a current asset of the company "Steven Mealing - lot 65, purchase $144,715."  In Exhibit DG3 to Mr Gusmeroli's affidavit filed on the application, the Mealing family assets (as at perhaps about January 2001) are stated to include "Vacant land, lot 65, Fairfield Waters, owned by Steven Mealing and Deborah Burns, value $170,000, equity $58,000."  The footnote says "Steven Mealing intends to dispose of the vacant land at lot 65 with surplus funds being injected into Bonmere."  Mr Elliott conceded that the land is the same and that Exhibit DG3 "is contrary to what's shown in the company's assets and liabilities."

Notwithstanding the terms of its credit account, for a time Mr Gusmeroli does not appear to have been overly concerned by non-payment of accounts within the 30 day period.  He says some builders do not pay accounts until 60, 90 or 120 days after the account is rendered.

Bonmere's debtor transaction history with the defendant is Exhibit DG2 to Mr Gusmeroli's affidavit.  Two accounts seem to have been operated - account number 7553 until it was paid off on the 16th of August 2001 and account number 9551, which commenced on the 31st of May 2001."  The last debit entry for count number 7553 is on the 28th of May 2001.  As at the 28th of February 2001, Bonmere owed the defendant $80,018.95 (account number 7553).  An invoice on that date increased the amount from $75,827.95 to that figure.  Only two invoices were sent by the defendant to Bonmere after the 28th of February 2001.  They were each for $220 on the 12th of April 2001 and 28th of May 2001 respectively.  By those dates, Bonmere was well outside its trading terms with the defendant.  As at the 23rd of April 2001, Bonmere owed the defendant $40,281.45. 

On the 20th of June 2001, the defendant and Bonmere entered into a Deed to secure payment of the amount then owed by Bonmere to the defendant.  The debt owed by Bonmere was $40,061.45.  This was the total of 14 invoices, 13 of which were overdue for payment by between 153 days and 206 days.  Bonmere agreed to make weekly payments of $2,000 commencing on the 11th of May 2001 and a final payment of $61.45.

By clause 4.2(a)(ii) of the Deed, Bonmere agreed that should it default in making any payment, the defendant was at liberty to:

"Issue a statutory demand for the unpaid balance of the Debt (which the Debtor shall not be entitled to contest) and thereafter proceed to have the Debtor placed in liquidation and wound up."

According to the debtor transaction history for account 7553, Bonmere made payments of $2,000 on the 23rd of May 2001 (2), 7th of June 2001, 13th of June 2001, 25th of June 2001, 27th of June 2001, 11th of July 2001 and 2nd of August 2001.  $4,000 was paid on the 27th of July 2001 and the 16th of August 2001 and $16,061.45 was paid on the 16th of August 2001.  The account was then closed with a nil balance.  Even though paid in full, the payments schedule agreed to in the Deed had not been adhered to.

Account number 9551 went from a starting debit balance of $220 on the 31st of May 2001 to a debit balance of $55,253.55 on the 31st of January 2002.  It was at that time that Mr Gusmeroli became aware that Bonmere had ceased trading with the defendant and had commenced a new line of credit with an alternate supplier.  He decided to take legal action to recover the outstanding amount.

Mr Gusmeroli says that the business practices then prevailing in the building industry were influenced by what he says was an economic decline in that industry since January 2000, which made it more difficult to obtain payments from building companies, as a result of which some leniency was afforded to building clients.  He considered that Bonmere was merely experiencing a cash flow problem which is not unusual in the building industry.  His decision to take legal action was taken, he says, because Bonmere was no longer providing the defendant with its business.  With respect to Mr Gusmeroli, I think that the financial statements of Bonmere which I have already referred to, suggest more than a simple cash flow problem.

Account number 9551 was cleared by two payments, the subject of the present application, namely $10,000 on the 5th of March 2002 and $45,253.55 on the 3rd of May 2002, being part of an amount of $49,409.05 paid on that date.

The payment of $10,000 was by cheque dated the 1st of March 2002, which appears to have been banked in the defendant's account on the 5th of March 2002.  The defendant's own trading history for Bonmere (Exhibit DG2 to Mr Gusmeroli's affidavit) indicates that this payment was for invoice number 1282 dated the 15th of November 2001 for $9,570.  The balance of $430 was presumably applied against the running account balance.  The plaintiff says that the $430 was also in part payment for invoice number 1283, also dated the 15th of November 2001.

That may be so, as whilst that invoice was included in those the subject of the second payment of $45,253.55, those invoices total $45,683.55, being $430 more than $45,253.55. 
Whatever may be the precise position, I cannot accept the denial in paragraph 6(b) of the Defence of the defendant that the payment of $10,000 was not payment for invoice number 1282 and either part of the general account balance or part of invoice number 1283.  I certainly cannot accept the contention in paragraph 6(b) of the Defence that the payment was a pre-payment in advance for products to be supplied for a display home and was not connected to invoices 1282 and 1283.  That contention is contrary to, and not supported by, the defendant's own trading history for Bonmere, and is inconsistent with Mr Gusmeroli's statements that Bonmere ceased trading with the defendant in January 2002, as a result of which he took steps to recover the balance then owing by Bonmere.  It still remains though to determine whether Bonmere was insolvent at the time it paid the $10,000.  A conclusion that it was maybe easier to draw as a result of the rejection of the defendant's reason for denying the plaintiff's allegation as to what the payment was for. 

This brings me to the second payment claimed by the plaintiff of $49,409.05.  Bonmere's account number 9551 with the defendant indicates a debit balance as at the 6th of March 2002 of $45,253.55.  Paragraph 9(a) of the Defence of the defendant admits that on the 2nd of May 2002 it received $45,253.55 from Bonmere "being moneys owing to the defendant."
The defendant's trading history for Bonmere indicates that that sum was credited to the Bonmere account with the defendant in payment for 11 outstanding invoices variously dated from the 15th of November 2001 to the 31st of January 2002, which then totalled $45,683.55.  $430 of that had previously been paid leaving an account balance of $45,253.55.

Before this payment had been made, the defendant, pursuant to section 459E of the Corporations Act, issued a statutory demand for payment of the debt of $45,253.55 to Bonmere, dated the 14th of March 2002. This required Bonmere to pay the debt within 21 days after service on Bonmere of the demand. Failure to pay is a ground for winding up the company. Mr Gusmeroli's affidavit accompanying the demand refers to the amount owing as being for kitchens and related products and services sold by the defendant to Bonmere during 2001 and 2002.

In the meantime, on the 14th of March 2002 the defendant instituted proceedings in the Magistrates Court at Townsville against William and Anne Mealing claiming the amount of $45,253.55 as money payable under a guarantee together with interest.  The guarantee was required by the defendant as part of the credit arrangements extended to Bonmere in April 1999.  Mr and Mrs Mealing did not defend this claim and on the 30th of April 2002 judgment was given for the plaintiff, the defendant in the present proceedings, for the amount of the claim plus interest of $3,677.18 and costs of $1,241, a total of $50,171.73. 

The amount claimed in the statutory demand had not been paid by the 19th of April 2002 and on that date the defendant applied to the Supreme Court for an order winding up Bonmere, relying upon the non-payment of the $45,253.55 pursuant to the statutory demand.  Mr Gusmeroli, in his affidavit in support of the application to wind up Bonmere, sworn on the 19th of April 2002 deposes in paragraph 7 that the company, that is Bonmere, "is unable to pay its debts."  In other words, it was insolvent according to Mr Gusmeroli.

I am unable to accept Mr Gusmeroli's later assertion in paragraph 17 of his affidavit filed on the present application, that at the time of filing the winding up application he believed that Bonmere was in a position to pay the debt and would do so without the need for winding up.  At best for Mr Gusmeroli, that belief does not establish the contrary of the fact that in fact Bonmere was then insolvent.

The winding up application was returnable on the 2nd of May 2002.  On that date Bonmere paid the amount claimed and $4,155.45 of the costs and interest component of the Magistrates Court judgment owing by Mr and Mrs Mealing, a total of $49,409.05, and the application was not then proceeded with. 

As at the 2nd of May 2002, Bonmere had assets of $410,182.82 and liabilities of $1,353,491.  It had an overdraft account with the Pioneer Permanent Building Society which had a debit balance of $511,169.88 as at the 2nd of May 2002 when the account was closed.  The amount of $49,409.05 came from this overdraft account but that is not determinative of the company being able to pay its debts as and when they became due and payable. 

In paragraphs 18 and 19 of his affidavit filed on the present application, Mr Gusmeroli deposes that he was influenced by a Finance Restructuring Proposal prepared by Bonmere's directors and provided to him in about January 2001, and advice from Mr Mealing that the business was profitable.  That proposal is Exhibit DG3 to his affidavit.  It is clearly not a realistic proposal or one consistent with Bonmere's financial statements as at the 30th of June 2001.  The proposal forecast a net profit after tax for the year ended 30th of June 2001 of $170,878, and suggested an overdraft facility of $200,000.  In fact, the company posted a loss before income tax for that period of $462,204 and its liabilities then exceeded its assets by $384,541.  Mr Gusmeroli also deposes that Mr Mealing advised him that the refinancing proposal "had been accepted by Pioneer Building Society".  Judging from the Pioneer Permanent Building Society statement of account, Exhibit DJO14 to Mr Offerman's affidavit, that overdraft account may not in fact have been opened until the 1st of May 2002.

In my view, notwithstanding what Mr Gusmeroli has deposed to, the commercial reality is that Bonmere was insolvent on the 20th of June 2001 and remained so until it was wound up.  Realistically, it was not able to pay its debts as and when they became due and payable.  Practically speaking, that was also the view held by the defendant at relevant times.

The financial statements of Bonmere support this conclusion.  The financial position of the company as a whole having regard to its balance sheets and its record of not paying debts as they fell due, even making allowance for a degree of flexibility in those arrangements tolerated by the defendant, point to no other conclusion.  The defendant in fact effectively conceded insolvency as at the 19th of April 2002.  The company in the Deed also effectively agreed that if it did not make payments of $2,000 each week, (which it did not) it could not contest that it was insolvent.  Clearly the company was insolvent on the 1st of March 2002, and still insolvent on the 2nd of May 2002, the dates of the payments claimed in this application.

All the evidence supports insolvency during the relation back period which encompasses the dates of the two payments.  This was no mere temporary lack of liquidity.  The company's position was terminal and it was just a question of time before the inevitable winding up occurred.

If it is concluded, as I have, that the company was insolvent at the relevant times, the defendant relies on S.588FG(2) of the Corporations Act. Mr Elliott agreed that the evidence as to this defence "really goes back to what Mr Gusmeroli says" but conceded that Mr Gusmeroli "doesn't specifically deal with the matters raised by S.588FG(2)".

The plaintiff concedes that each payment is not an unfair loan to the company and that the company provided valuable consideration.

The defendant contends that at the time of each payment it had no reasonable grounds for suspecting that Bonmere was insolvent or would become insolvent, and a reasonable person in the defendant's circumstances would have had no such grounds for so suspecting.

In my view, for the reasons I have already given, this defence has not been made out. In fact, I consider that the material before me establishes the contrary of what the defendant is required to prove. The defendant has not established even an arguable defence under S.588FG(2)(b). In my view, Mr Gusmeroli on behalf of the defendant and therefore the defendant itself, would have had at least "a positive feeling of actual apprehension" that Bonmere was in fact insolvent at the time of each payment, or "an actual apprehension or fear" that it was insolvent, to use the language used in some of the authorities. A reasonable person in the defendant's position would in fact have had reasonable grounds for so suspecting. In fact, on the 19th of April 2002, Mr Gusmeroli was positively asserting that the company was unable to pay its debts. It follows from what I have said that the defendant cannot make out the defence pleaded in paragraph 16 of its defence.

For the reasons I have given, I am satisfied that the two payments of $10,000 and $49,409.05 are unfair preferences under S.588FA and insolvent transactions under S.588FC, with the consequence that they are voidable transactions under S.588FE.  The defendant has no real prospect of defending the plaintiff's claim for them and there is no need for a trial in relation to that claim. 

The two payments total $59,4098.05.  The plaintiff concedes that at this stage of proceedings, the judgment that it is entitled to should be for this amount less the credits referred to in paragraph 23 of the amended statement of claim totalling $9,130, and I think that for the reasons advanced by Mr Elliott, that is a proper concession.

The amount then that the plaintiff is entitled to judgment for is $59,409.05 less $9,130, namely $50,279.05 plus interest.  Should this be the result the defendant does not contest the claim for interest.  The relevant period is from the 3rd of May 2002 to today, the 23rd of April 2003.  On my calculations that is 356 days.  The rate claimed is 9 per cent.  The daily rate is $12.3975.  The total amount for interest is $4,413.53.

I give judgment for the plaintiff against the defendant for $50,279.05 plus interest of $4,413.53, a total of $54,692.58, together with costs of and incidental to the application to be assessed on the standard basis unless agreed.

The defendant will have leave to defend the balance of the plaintiff's claim.  The defendant of course can still have recourse to its Magistrates Court judgment against Mr and Mrs Mealing.

I give the parties liberty to apply on two days' notice in respect of any of my calculations and figures.

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