Prima SRL v Prima South East Pty Ltd

[2008] FCA 1534

FEDERAL COURT OF AUSTRALIA

Prima SRL v Prima South East Pty Ltd [2008] FCA 1534

CORPORATIONS – application for winding up – Registrar determined there was a genuine dispute about existence or amount of debt owed under s 459G of Corporations Act 2001 (Cth) – defendant company had entered into administration – defendant applied to adjourn application pursuant to s 440A(2) – plaintiff was major shareholder, supplier and creditor of defendant – no evidence that defendant could continue to trade without plaintiff’s support – application granted

PRACTICE AND PROCEDURE – plaintiff had failed to fully comply with statutory obligations – failures did not cause a substantial injustice to defendant – s 467A operated to prevent dismissal of application

Corporations Act 2001 (Cth) ss459E, 459F(2)(a)(ii), 459G, 459H, 459P, 470(1), 459Q(b), 467A, 440A, 466(2), 1322(4)
Corporations Rules 2003 (SA) r 5.5

Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 cited

Deputy Commissioner of Taxation v Yates Security Services Pty Limited (1997) 26 ACSR 629 cited

PRIMA SRL ACN 091 805 855 v PRIMA SOUTH EAST PTY LTD ACN 091 805 855

SAD 112 OF 2008

LANDER J

8 OCTOBER 2008

ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 112 OF 2008

BETWEEN: PRIMA SRL ACN 091 805 855
Plaintiff

AND: PRIMA SOUTH EAST PTY LTD ACN 091 805 855
Defendant

JUDGE:	LANDER J
DATE OF ORDER:	8 OCTOBER 2008
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1.Pursuant to s 1322(4) of the Corporations Act 2001 (Cth), the time for lodgement of the ASIC Form 519 be extended to 17 September 2008.

2.Prima South East Pty Ltd ACN 091 805 855 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

3.Christopher Robert Powell, an official liquidator be appointed liquidator of the company.

4.The plaintiff’s costs be taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 112 OF 2008

BETWEEN: PRIMA SRL ACN 091 805 855
Plaintiff

AND: PRIMA SOUTH EAST PTY LTD ACN 091 805 855
Defendant

JUDGE:	LANDER J
DATE:	8 OCTOBER 2008
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1. On 11 December 2007 the plaintiff served a statutory demand on the defendant seeking payment of the sum of €210,655.47 pursuant to s 459E of the Corporations Act 2001 (Cth) (the Corporations Act).

2. The defendant applied under s 459G to set aside the statutory demand on the ground that there was a genuine dispute between the parties about the existence or amount of the debt, the subject of the demand.

3. On 11 July 2008 Registrar Christie determined that there was a genuine dispute in relation to part of the debt but found that there was an admitted amount as that term is defined in s 459H of the Corporations Act in the amount of €72,500.

4. She found that the defendant had paid one instalment pursuant to the agreement which existed between the plaintiff and the defendant in the sum of €2,013.88 and concluded that the final substantiated amount was €70,486.12.  She made an order varying the statutory demand by substituting for the amount of the debt claimed the sum of €70,486.12.

5. On 6 August 2008 the plaintiff commenced this proceeding pursuant to s 459P of the Corporations Act seeking an order that the defendant be wound up in insolvency under the provisions of the Corporations Act.

6. The plaintiff relied upon the defendant’s failure to pay the amount of the amended demand or to secure or compound that amount within seven days of the order made by Registrar Christie on 11 July 2008: s 459F(2)(a)(ii).

7. The plaintiff has not complied fully with its statutory obligations in relation to the proceeding. It failed to file a Form 519 with the Australian Securities and Investments Commission (ASIC) as required by s 470(1). The failure to file the Form 519 was due to the oversight of the plaintiff’s solicitor. It would be appropriate if an order is made, as sought by the plaintiff to extend the time for lodgement of the Form 519 to and including 17 September 2008, which is the date upon which the form was filed.

8. The plaintiff has failed to comply with two other obligations.  The liquidator has failed to include the hourly rates in the liquidator’s Consent to Act Form 8 as required by r 5.5 of the Corporations Rules 2003 (SA). The originating process also did not annex to it a copy of the order made by Registrar Christie on 11 July 2008, as required by s 459Q(b) of the Corporations Act. Neither of those failures by the plaintiff are such that it could be said that the defendant was caused a substantial injustice and, in those circumstances, s 467A would operate to prevent the dismissal of the application.

9. On 26 September 2008 the defendant entered into administration and Nicholas Cooper and Andrejs Strazdins were appointed joint and several administrators.  The company entered into administration in accordance with a resolution of the director of the defendant, Jurgen Peuckert, on 25 September 2008.  The resolution appointing the administrators was a consequence of the director concluding that the company was insolvent or likely to become insolvent at some future time.

10. The defendant has applied to adjourn the plaintiff’s application pursuant to s 440A(2) of the Corporations Act. It relies on two affidavits sworn by Mr Nicholas Cooper, the first sworn on 30 September 2008 and the second sworn on 3 October 2008.

11. In the first affidavit, Mr Cooper says that the defendant’s sole director, Mr Peuckert, is prepared to assist with the company’s business during the period of administration.  He says that two third parties have expressed interest in purchasing the defendant’s business and Mr Peuckert would formulate a Deed of Company Arrangement involving the defendant continuing to trade and for the defendant’s business to be sold.  Mr Cooper has offered his opinion that, for those reasons, there would be a benefit in the voluntary administration continuing.

12. Mr Cooper deposed in that affidavit that he had not then had the opportunity to carry out extensive investigation and inquiries regarding the financial position of the defendant so could not say that it was in the interests of the creditors for the company to continue under administration rather than be wound up.

13. In his second affidavit, Mr Cooper has said that the defendant has traded during the period of administration by supplying stock on hand to its customers.  In the week that the company has been in administration, the company has made sales of $3,647.33 from which it has derived a gross profit margin of approximately 50%.

14. Mr Cooper has exhibited a valuation performed by MGS Valuations Pty Ltd which has valued the defendant’s plant and equipment at $56,565 on a market value for existing use basis and $43,165 on an auction value basis.

15. Included in the defendant’s plant and equipment is a 2007 Mercedes Sprinter which had been valued by MGS Valuations Pty Ltd at $50,000 for existing use and $40,000 on an auction realisation value.  In fact, that motor vehicle is subject to finance in favour of BMW Financial Services Australia Pty Ltd.  In those circumstances, the value of the defendant’s plant and equipment not subject to finance is $6,565 on a market value for existing use basis and $3,165 on an auction value basis.

16. The defendant, apparently, has debtors of $14,924.  The defendant’s stock is recorded at a cost price of $82,101, but valued at $30,000 on a market value for existing use basis and $2,000 on an auction value basis.  The defendant has cash at the bank of $2,624.65.

17. The defendant’s liabilities are said to be $225,764, but that is to overstate the unsecured liabilities by $43,000, which is the debt owed to BMW Financial Services Australia Pty Ltd, which is secured over the Mercedes Sprinter.  The plaintiff is by far the largest creditor of the defendant and is identified by Mr Cooper as being owed $123,282.85.  The Australian Taxation Office is owed $27,329.25 and the defendant’s accountants $14,685.

18. Mr Cooper has said in his second affidavit that he has formed the opinion that the defendant’s creditors will secure a greater return by way of the administration continuing, than if the defendant was wound up.  He said:

    (1)There will be substantial difference in the amount recovered from the sale of stock on a going concern basis by way of an administration and as opposed to a sale by way of an auction through a liquidation.

    (2)During the administration the defendant will be able to trade on and generate profit as previously referred to in his affidavit.

    (3)In the event that the defendant is wound up it is extremely unlikely that the defendant will be able to trade on without the support of the employees of the defendant and Mr Peuckert.

    (4)During the administration I am confident that there are good prospects that the defendant’s business will be able to be sold as a going concern.

    I consider that any offer for the purchase of the defendant’s business made whilst the company was in liquidation would be for substantially less than if the defendant had sold during the course of the administration.

19. Section 440A(2) of the Corporations Act provides that the Court should adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the best interests of the company’s creditors for the company to continue under administration rather than be wound up.

20. The plaintiff holds 70% of the defendant’s issued share capital.  The defendant supplies goods manufactured by the plaintiff in South Australia pursuant to a supply agreement between the plaintiff and defendant.  On 1 April 2008 the plaintiff terminated the defendant’s exclusive right to distribute the plaintiff’s goods in Australia.

21. On 2 October 2008 the plaintiff advised the defendant that it would continue to make deliveries until a new distributor was appointed in Australia but only upon the basis that payment was made in advance.

22. On 3 October 2008 the defendant’s director wrote to the plaintiff complaining of the plaintiff’s failure to support the defendant and bringing this application for the appointment of a liquidator.  He said in his letter that the plaintiff’s action in stopping supply would “kill” the company within two weeks.

23. The plaintiff, thus, is the major shareholder, the major creditor and the supplier of the defendant.  It seems to me clear that the plaintiff will not support the defendant.  Moreover, the plaintiff intends not to provide further goods to the defendant, except upon the terms mentioned above.  It is unlikely in those circumstances that the defendant could, as Mr Cooper has suggested, trade on.

    Mr Cooper has deposed that he has arranged for the defendant’s business to be advertised for sale and there are two persons interested in the purchase of the business.  He has exhibited the advertisement which he inserted in the newspaper and that seeks expressions of interest for the purchase of the defendant’s business. The advertisement says:

    The company acts as Australian distributor for Prima Vehicle Components.  The company supplies handles, latches, dual lighting, ventilation fixtures and other accessories to manufacturers of buses, coaches and aeroplanes.  The following assets are offered for sale:

    intellectual property
      plant and equipment
      stock.

24. The fact of the matter, however, is that whilst the defendant has been the Australian distributor for Prima Vehicle Components, the plaintiff terminated that distributorship on 1 April 2008.  The defendant can now only obtain its stock from the plaintiff on the basis that the defendant pays in advance for that stock.

25. It seems to me, having regard to the plaintiff’s stated position, that the defendant really has no ongoing business or at least no saleable business.

26. There is no evidence as to how the defendant could continue to trade without the plaintiff’s support.  Indeed, the inference must be that it could not.  There is no evidence that the defendant could pay for any of the stock in advance or at all.  I am not therefore persuaded that the creditors would receive a better or earlier dividend by the administration continuing, rather than the company being liquidated: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456. At the very highest, from the defendant’s point of view, the defendant’s case is one of speculation rather than of possibilities which is not sufficient to engage section 440A: Deputy Commissioner of Taxation v Yates Security Services Pty Limited (1997) 26 ACSR 629.

27. In those circumstances, the following orders should be made:

    1.Pursuant to s 1322(4) of the Corporations Act 2001 (Cth) the time for lodgement of the ASIC Form 519 be extended to 17 September 2008.

    2.Prima South East Pty Ltd ACN 091 805 855 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

    3.Christopher Robert Powell, an official liquidator be appointed liquidator of the company.

    4.The plaintiff’s costs be taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:

Dated:        17 October 2008

Counsel for the Plaintiff:	Mr P Britten-Jones
Solicitor for the Plaintiff:	Stewart-Rattray Lawyers
Counsel for the Defendant:	Mr T Duggan
Solicitor for the Defendant:	Thomson Playford Cutlers

Date of Hearing:	8 October 2008
Date of Judgment:	8 October 2008