Pyramid Building Society (In liquidation) v Sovereign Office Machines P/L

[1993] FCA 513

PYRAMID BUILDING SOCIETY (IN LIQUIDATION) v. SOVEREIGN OFFICE MACHINES PTY
LIMITED
No. 3007 of 1993
FED No. 513
Number of pages - 3
Corporations

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Heerey J(1)

CATCHWORDS

Corporations - winding-up - set-off of funds held by company on trust - alleged breach of superannuation regulations - parties dealing on express assumption - equitable estoppel.

Corporations Law (Cth) ss.460, 553(2)

Bankruptcy Act 1968 (Cth) s.86

West Street Properties Pty Limited v Jamison (1974) 2 NSWLR 435

Commonwealth v Verwayen (1990) CLR 394

Pyramid Building Society (In liquidation) v Sovereign Office Machines Pty Limited

HEARING

MELBOURNE, 9 June 1993

#DATE 9:6:1993

Counsel for the applicant: Mr S P Gardiner

Solicitor for the applicant: Clayton Utz

Counsel for the respondent: Mr P H Vickery

Solicitor for the respondent: Hunter Newns

ORDER

The Court orders:

1. The application be dismissed.

2. That the applicant pay the respondent's costs to be taxed

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

JUDGE1

HEEREY J In this application for the winding up of Sovereign Office Machines Pty Limited ("the company") on the grounds of insolvency the principal issue is whether it has been shown that the company is in truth insolvent having regard to the dealings between the applicant Pyramid Building Society (in liquidation) ("Pyramid") and the company.

1. The Company carries on business at Hamilton supplying office computers and equipment. The sole directors and shareholders are John William Davies and his wife, Wendy Therese Davies.

2. The company banked with Pyramid and the debt on which the petition is based arose out of overdraft facilities granted to the company in the early part of 1990, not long prior to the collapse of Pyramid itself. The company conducted a superannuation fund known as Hamilton Office Equipment Staff Superannuation Fund which was initially established under a trust deed dated 1 May 1982. The only beneficiaries were Mr and Mrs Davies. The company in its capacity as trustee of that fund had an account with Pyramid number 4.8599. As at 30 June 1989, the credit balance in that account was $58,636.73 and as at 30 June the following year $90,882.06.

3. In March 1990 the company needed an overdraft facility for the purpose of its business. It applied to Pyramid and the application was approved to the extent of $60,000. By a letter dated 8 March 1990, Pyramid wrote to the company setting out the terms of the proposed facility, which included interest at 19.75 per cent with a default rate of 26.75 per cent. The letter included the following:
   

"Security: Pyramid Building Society 30 day term account (balance $60,000) account number 4.8599,

Hamilton Office Equipment Staff Superannuation Fund.

Special A lein (sic) over account number 4.8599,

Condition: the Society will require written authorisation in a form as determined by our solicitors from Hamilton

Office Equipment Staff Superannuation Fund confirming

Pyramid Building Society account number 4.8599 may be

held as overdraft security for Sovereign Office

Machines Pty Ltd."

1. There was also a "Set-off/appropriation of deposits agreement" entered into about this time which included a provision that Pyramid was
   

"hereby irrevocably authorised to set-off and appropriate the whole or any part of amounts including interest Accrued thereon now or hereafter placed on deposit or on account with the Lender in account number 4.8599 and any renewal or partial renewal thereof ("the Deposits") in or towards

payment of the whole or any part of the Borrowers

obligations which the borrower may from time to time be indebted or liable to the lender (whether immediately or contingently) and all interest and charges payable in

respect thereof."

1. The demand under s.460 of the Corporations Law which was served on 13 November 1992 made a demand for $95,929.54 due under the overdraft facility. The correctness of that amount is not in dispute. The amount of the account number 4.8599 is accepted as being approximately $70,000 in credit. I was informed by counsel for the company that his clients were ready, willing and able to meet the difference between the two amounts within three days. I treat that as an undertaking given to the court. However, Pyramid says that no right of set-off exists.

2. In my opinion, counsel for the company was correct in contending that Pyramid has to make allowance for the amount standing to the company's credit in account number 4.8599. To the extent that the company held that account not beneficially but as trustee for the beneficiaries of the fund, counsel argued, correctly in my view, that this fact in itself did not prevent the application of the doctrine of equitable set-off. He referred to West Street Properties Pty Limited v Jamison (1974) 2 NSWLR 435 at 441-442 and Spry, Equitable Remedies (Third Edition) at 174-175.

3. Counsel for Pyramid relied on s.86 of the Bankruptcy Act 1968 (Cth) which is applicable to the winding up of companies by virtue of Corporations Law s.553(2). Section 86(1) provides:
   

"Subject to this section, where there have been mutual

credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy -

(a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;

(b) the sum due from the one party shall be set off against any sum due from the other party; and

(c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.

1. He said that there were no "mutual credits, mutual debts or other mutual dealings" between Pyramid and the company because the latter held the account in a different capacity from that in which it incurred the overdraft debt.

2. In my opinion that provision has no application here because the company is not a person claiming to prove a debt in the winding up of the applicant, notwithstanding the fact that Pyramid happens to be in liquidation as a result of an order of the Supreme Court of Victoria made on 13 December 1990. But I am not concerned with the administration of the winding up of Pyramid. Rather, Pyramid comes as a litigant in this court seeking to have the company wound up.

3. There was an attack made by counsel for Pyramid on the validity of the security over the account of the company. It was claimed that the Occupational Superannuation Regulations prevented this, as the funds had not absolutely vested in Mr and Mrs Davies. Without investigating the validity of those assertions, it seems to me that Pyramid and the company at the time the overdraft facility was granted in March 1990 plainly dealt with each other on an express assumption that the funds in account number 4.8599 would be available as security. The principles of equitable estoppel prevent Pyramid departing from that assumption: Commonwealth v Verwayen (1990) 170 CLR 394. The assumption involved mixed questions of fact and law but that does not prevent the doctrine applying: Verwayen at 413.

4. Moreover, Pyramid has in fact exercised its security over the account in question. Demand was made by the company but the money was not repaid. No doubt the funds were swallowed up in the insolvency of Pyramid, but the fact remains that Pyramid has appropriated the money for its own purposes. Pyramid cannot now take on the role of an Equity policeman and deny the company the right to set off the amount of those funds against Pyramid's debt because of some alleged breach of trust as between the company and its beneficiaries in giving the security to Pyramid in the first place.

5. There are no supporting creditors and the inference I draw from the evidence is that the company is carrying on business and meeting its obligations in the ordinary way. Accordingly, the application will be dismissed.