Profounder Electrical Pty Ltd v Profounder Factory Direct Pty Ltd - [2025] WASC 51

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   PROFOUNDER ELECTRICAL PTY LTD v PROFOUNDER FACTORY DIRECT PTY LTD [2025] WASC 51
CORAM:   LUNDBERG J
HEARD:   20 FEBRUARY 2025
DELIVERED          :   20 FEBRUARY 2025
FILE NO/S:   COR 103 of 2024
BETWEEN:   PROFOUNDER ELECTRICAL PTY LTD
Plaintiff
PROFOUNDER FACTORY DIRECT PTY LTD
Defendant
PRESTIGE POWDERCOATERS (WA) PTY LTD
Applicant for Substitution

Catchwords:

Corporations - Winding up and insolvency - Application pursuant to s 465B of the Corporations Act 2001 (Cth) for a supporting creditor to be substituted as plaintiff in the winding up application - Deficiencies in the applicant's supporting affidavit - Consideration of requirements for substitution - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 459R, s 465B
Rules of the Supreme Court 1971 (WA), O 37 r 6

Result:

Orders made to substitute the supporting creditor as plaintiff

Representation:

Counsel:

Plaintiff	:	No appearance
Defendant	:	A Roberts
Applicant for Substitution	:	R Collins

Solicitors:

Plaintiff	:	CX Law
Defendant	:	Solomon Brothers
Applicant for Substitution	:	Hilton Bradley

Case(s) referred to in decision(s):

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs appointed) [2011] HCA 18; (2011) 244 CLR 1
Cadura Investments v Rototek Pty Ltd [2004] WASC 349; (2004) 51 ACSR 390
Kolichis v Deputy Commissioner of Taxation [2014] WASCA 76
South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465

LUNDBERG J:

These reasons relate to the interlocutory application filed by Prestige Powdercoaters (WA) Pty Ltd (Prestige) to be substituted as the plaintiff in the substantive winding up application, in place of the original plaintiff, being Profounder Electrical Pty Ltd (Profounder Electrical).
The application is brought pursuant to s 465B of the Corporations Act 2001 (Cth). These reasons explain why I acceded to Prestige's application at the conclusion of the hearing this morning.
To date, within the present proceedings, two creditors have sought orders to wind up the defendant company, Profounder Factory Direct Pty Ltd.
I had inferred from the course these proceedings have taken that the original plaintiff, Profounder Electrical, and the first supporting creditor, the Commissioner of State Revenue, reached some degree of financial accommodation with the defendant in respect of their respective outstanding debts.[1] The circumstances of these settlements are not directly relevant to the present application - it is sufficient to note that those creditors have been content not to press further with their applications.
[1] Mr Cangemi deposes, on information and belief, and in rather general terms that the plaintiff and the Commissioner both 'settled' with the defendant (see [6] and [7] of his affidavit affirmed 16 January 2025).
By way of brief explication of the procedural history of this matter, it may be noted that this proceeding was originally commenced by Profounder Electrical on 27 June 2024, pursuant to s 459P of the Corporations Act 2001 (Cth). The initial plaintiff sought orders that the defendant be wound up on the grounds of insolvency, following the defendant's failure to comply with a statutory demand said to have been served by that plaintiff on 4 April 2024. That statutory demand was for the sum of $8,424.35, said to represent a debt for the provision of goods and services.
Following the settlement between the defendant and the original plaintiff, the first supporting creditor, being the Commissioner of State Revenue, then took up the cudgels. The Commissioner had issued a statutory demand for payment of $6,206.34, said to be unpaid payroll tax for the period from 1 July 2020 to 30 June 2021. The Commissioner filed an application to be substituted as the plaintiff in the proceeding. That, too, has now fallen away.
The cudgels have been left to a third creditor, namely Prestige. Prestige asserts it is owed $38,975.46 by the defendant, which is said to be the unpaid balance of a default judgment obtained in Prestige's favour in the Magistrates Court of Western Australia.
By orders made on 16 October 2024, the Court initially granted Prestige leave to appear in the proceedings in its capacity as a supporting creditor. Indeed, Prestige had given notice of its intention to appear in the proceedings by formal notice filed on 17 September 2024.
Prestige now wishes to be substituted as the plaintiff in this proceeding and, for this purpose, has filed the interlocutory process pursuant to s 465B of the Corporations Act 2001 (Cth). In the event it is substituted, Prestige seeks orders that the defendant be wound up in insolvency.
Prestige's application is supported by the affidavit of Stephen Murray Cangemi affirmed on 16 January 2025. Mr Cangemi is the managing director of Prestige. Prestige has also filed a consent from a liquidator, Mr Stephen Michell of PCI Partners, who has consented to be appointed as the liquidator of the defendant, should that be needed.
The application for substitution was opposed by the defendant, although on limited grounds.
The Court has power to order that another person be substituted as the plaintiff in a proceeding under s 459P for a company to be wound up. The power is found in s 465B(1), and is conditioned by the matters in s 465B(2). Those provisions read as follows:
(1)The Court may by order substitute, as applicant or applicants in an application under section 459P, 462 or 464 for a company to be wound up, a person or persons who might otherwise have so applied for the company to be wound up.
(2)The Court may only make an order if the Court thinks it appropriate to do so:
(a)because the application is not being proceeded with diligently enough; or
(b)for some other reason.
Pursuant to s 465B(4), if an order for substitution is made, the new applicant may rely on a presumption of insolvency that was available to the original creditor.
There are three issues to consider on a substitution application.
The first is whether the applicant is 'a person who might otherwise have so applied for the company to be wound up', which is in effect a standing question. The second issue is whether it is appropriate to make an order for substitution as referred to in s 465B(2). The third issue is whether as a matter of discretion such an order should be made.
I will turn to the standing issue first.
Counsel for the defendant challenged Prestige's standing (and the application generally) having regard to certain deficiencies in the affidavit of Mr Cangemi. True it is that Mr Cangemi's affidavit adopted something of an unusual style in its presentation. Some brief explanation is needed in this regard.
The body of the affidavit contains only sparse information concerning the underlying debt asserted by Prestige. To find the details, one must turn to the first attachment to the affidavit, which is, unusually, someone else's affidavit.
In the body of his affidavit, Mr Cangemi deposes that a creditor's statutory demand was served on 3 May 2024 (at [2]), that the amount referred to in the statutory demand remains due and payable by the defendant (at [3]), and as at the date of affirming the affidavit the defendant owes Prestige the sum of $38,975.46 (at [8]). These paragraphs read as follows:
2.On 2 May 2024, I instructed my solicitors, Hilton Bradley Lawyers to issue a Creditor's Statutory Demand on the Defendant, Profounder Factory Direct Pty Ltd ACN 632 293 175. The Creditor's Statutory Demand was served on the Defendant's registered office on 3 May 2024 by Ms Shuchi Bhandari. Annexed and marked "SC-1" [sic] is a copy of the Affidavit of Service of the Creditor's Statutory Demand of Ms Bhandari affirmed on 7 May 2024.
3.The amount referred to in the Creditor's Statutory Demand attached in the Affidavit of Ms Bhandari referred to in "SMC-1" remains due and payable by the Defendant to the Applicant.
…
8.As at today's date the Defendant owes the Applicant the sum of $38,975.46. This sum does not include the legal costs and disbursements for this application which have not yet been ordered and assessed by this Honourable Court.
As can be seen, the nature of the liability itself is not explained in the body of the affidavit, nor when it arose.
The affidavit attached by Mr Cangemi is an affidavit of service of Ms Bhandari, who is a paralegal employed by Prestige's solicitors. That affidavit appears to have been affirmed on 7 May 2024 and has been prepared in the style of an affidavit to be filed in the Supreme Court of Victoria (but which I understand was not filed in that Court). The affidavit of Mr Bhandari is Attachment SMC-1 to Mr Cangemi's affidavit. A certificate identifying an exhibit (described as Exhibit A) is appended to Ms Bhandari's affidavit. The exhibit consists of several documents, being:
(a)the creditor's statutory demand;
(b)the accompanying affidavit, being a Form 7 affidavit of Mr Cangemi affirmed on 2 May 2024;
(c)an envelope bearing a tracking number; and
(d)a copy of the Australia Post Express Post tracking confirmation.
Mr Cangemi has also attached to his affidavit, as Attachment SMC-2, a copy of the notice of appearance filed by Prestige on 17 September 2024. As a filed document, it is unclear why that attachment would need to be appended to this, or any other, affidavit.
The defendant's criticism is that the applicant has sought to adduce evidence, through the first attachment to Mr Cangemi's affidavit, in an inadmissible manner which provides no evidentiary platform, or at least no sufficient platform, for the substitution application. I apprehend the submission includes a criticism that there has been no attention given by the draftsperson of the affidavit to the requirements of O 37 r 6 of the Rules of the Supreme Court 1971 (WA), for example.
Counsel's criticisms of the affidavit are not without substance.
It is certainly not good practice to simply attach affidavits sworn by others to one's affidavit, including any attachments which are appended to that other person's affidavit. The difficulties are compounded where the deponent, as in this case, does not expressly depose to his or her belief as to the truth of particular matters in the attached affidavit.
However, when I read the affidavit of Mr Cangemi as a whole,[2] it is clear that he has positively deposed that a statutory demand was issued to the defendant by Prestige, a matter in respect of which he is able to give evidence given his role as the managing director of the company, and that the statutory demand in question is the document attached to Ms Bhandari's affidavit.
[2] As to which, see Kolichis v Deputy Commissioner of Taxation [2014] WASCA 76 [11] (Martin CJ, Murphy JA and Beech J).
The statutory demand itself appears to have been prepared and issued by Prestige's solicitors, but Mr Cangemi has deposed that he instructed them to do so. That is, Mr Cangemi is giving direct evidence that he is the source of the content of the statutory demand (which itself attaches a Form 7 affidavit sworn by Mr Cangemi), although the affidavit could certainly have been drafted in clearer terms.
Reading the affidavit as a whole, including the attached documents on their face, Mr Cangemi at least deposes in admissible form that:
(a)Prestige is a creditor of the defendant in an amount greater than the statutory minimum and remains a creditor.
(b)A statutory demand was served on the defendant on 3 May 2024.
(c)The debt which is the subject of the statutory demand, which is only explained in the statutory demand and in Mr Cangemi's Form 7 affidavit which is appended thereto, is a judgment debt obtained by default in the Magistrates Court of Western Australia.
(d)The liability arose on or about 18 May 2023, as appears from the judgment attached to the statutory demand, which Mr Cangemi had instructed his solicitors to issue.
There is therefore evidence before the Court that Prestige was a creditor of the defendant when these proceedings were originally commenced on 27 June 2024.
However, even if I disregard the evidence which is wholly contained in the attached affidavit of Ms Bhandari, it remains the case that the available evidence in the body of Mr Cangemi's affidavit affirmed on 16 January 2025 is sufficient to demonstrate that Prestige is a creditor, and was so at the relevant time. Further, there was no submission advanced by the defendant in opposition that there is any genuine dispute as to this liability, bearing in mind that, whether the supporting creditor's debt was the subject of a genuine dispute would be relevant to the question of substitution. In particular, it has been said that the Court should generally not order the substitution of a creditor whose debt is disputed on substantial grounds: see, for example, Master Sanderson's observations in Cadura Investments v Rototek Pty Ltd.[3]
[3] Cadura Investments v Rototek Pty Ltd [2004] WASC 349; (2004) 51 ACSR 390.
I thus accept that Prestige is a person who might otherwise have applied for the defendant to be wound up. Accordingly, the standing requirement under s 465B(1) is satisfied.
The second issue to address is whether one or other of the requirements in s 465B(2) is satisfied. The power to substitute another person is obviously limited by the terms of s 465B(2).
I am satisfied that the application for winding up has not been proceeded with diligently enough, which is the ground identified in s 465B(2)(a). Ordinarily, applications for a company to be wound up in insolvency are to be determined within 6 months: s 459R(1). In the present case, that period was extended by order made on 7 January 2025, enlarging the period until 21 February 2025. As matters stand, the originating process seeking winding up orders was filed more than 8 months ago, which is a lengthy period in the context of winding up applications and given the policy which underlies pt 5.4 of the legislation to have a speedy resolution of applications such as this: Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd).[4]
[4] Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs appointed) [2011] HCA 18; (2011) 244 CLR 1 [27] - [28] (Gummow, Heydon, Crennan, Kiefel and Bell JJ).
Turning to the final issue, the Court must consider whether the discretion should be exercised to substitute the new creditor as the plaintiff to the proceeding. There are competing policies at play in this regard, which require consideration: South East Water Ltd v Kitoria Pty Ltd. [5]
[5] South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465.
First, it is plain that an insolvent company should not be permitted to continue trading to the detriment of its creditors, and thus it is appropriate for another creditor to be substituted where the expeditious winding up process is threatened by the inaction of the original petitioning creditor.
Against this, the Court should be astute to ensure the winding up process is not used by a creditor as a debt collection mechanism, where that creditor's debt is subject to a genuine dispute, and where the subject company is trading satisfactorily.
The circumstances of the present case point in favour of substitution of Prestige. The relevant circumstances are as follows:
First, it is evident on the material before the Court that two other statutory demands have been served on the defendant, by the original plaintiff and by the Commissioner of State Revenue. The claims of those parties have fallen away, leaving Prestige to pursue the winding up application.
Second, Prestige was granted leave to appear in the proceeding many months ago, in October 2024, and has been actively involved since that time as a supporting creditor.
Third, as I have explained above, I am satisfied Prestige is a judgment creditor of the defendant and I am satisfied that Prestige was a creditor of the defendant at the date on which the originating process was filed.
Fourth, Prestige served its own statutory demand on the defendant and there appears to have been no application by the defendant to set that aside.
For the reasons I have expressed above, I concluded the application for substitution of Prestige as the petitioning creditor should be made, and I ordered accordingly, as well as making directions for the ultimate hearing and determination of the winding up application on 24 March 2025.
Finally, the Court notes that, following Prestige's substitution as the plaintiff to this proceeding, and by reason of s 465B(4), Prestige will be permitted to rely on the presumption of insolvency in s 459C(2)(a), which arises by reason of the defendant company's failure to comply with the original plaintiff's statutory demand.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IR
Associate to the Hon Justice Lundberg
20 FEBRUARY 2025