Re Brew Still Pty Ltd (admin apptd)

[2023] NSWSC 256

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Re Brew Still Pty Ltd (admin apptd) [2023] NSWSC 256

Hearing dates:

17 March 2023

Date of orders:

17 March 2023

Decision date:

17 March 2023

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Decline to adjourn winding up application and winding up order made

Catchwords:

CORPORATIONS — Winding up — Practice and procedure — Application to adjourn winding up application under Corporations Act 2001 (Cth) s 440A(2) — Where administrator appointed shortly before winding up proceedings — Where winding up application previously opposed on ground of solvency — Short adjournment sought for several purposes — Whether adjournment in creditors’ interest

CORPORATIONS — Winding up — Failure to comply with creditor’s statutory demand — Presumption of insolvency — Where no solvency evidence led by Company

Legislation Cited:

• Corporations Act 2021 (Cth), ss 198G, 440A, 459F, 466

Cases Cited:

• Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18

• Deputy Commissioner of Taxation v Fyna Constructions (Hire and Sales) Pty Ltd (admins apptd) [2019] FCA 578

• Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543

• Re Business in Focus Pty Ltd [2015] NSWSC 2074

• Re Ming Tian Real Property Pty Ltd [2021] NSWSC 912

• Re New View Windows Pty Ltd trading as Narellan Windows and Glass [2020] NSWSC 1905

• Re Reed Constructions Australia Pty Ltd [2012] NSWSC 1045

• Re Trinity Constructions (Aust) Pty Ltd (admin apptd) [2021] NSWSC 1277

• Re Victor Sports Pty Ltd [2021] NSWSC 1148

• Re Wetherill Park Holdings Pty Ltd [2021] NSWSC 282

Category:

Principal judgment

Parties:

Adhub Pty Ltd (First Plaintiff)
Media Buyers Pty Ltd (Second Plaintiff)
Brew Still Pty Ltd (Defendant)
Deputy Commissioner of Taxation (Supporting Creditor)

Representation:

Counsel:
Harris D (First and Second Plaintiff)
McGrath M (Defendant)
K Metlej (Solicitor) (Supporting Creditor)

Solicitors:
Oakbridge Lawyers (First and Second Plaintiff)
Landmark Legal (Defendant)
Craddock Murray Neumann Lawyers (Supporting Creditor)

File Number(s):

2022/00258558

Judgment – Ex Tempore (Revised 22 March 2023)

Application for adjournment of a winding up

1. By Originating Process filed on 28 November 2022, nearly four months ago, the Plaintiffs, Adhub Pty Ltd (“Adhub”) and Media Buyers Pty Ltd (“Media Buyers”), applied to wind up the Defendant, Brew Still Pty Ltd (“Brew Still”), in insolvency. The Deputy Commissioner of Taxation appears in the application as a supporting creditor, and also seeks to have Brew Still wound up. The winding up application filed by Adhub and Media Buyers was founded upon a default judgment obtained by them on 10 October 2022 in the Local Court of New South Wales at Sydney, which it appears, has since been set aside, and a creditor’s statutory demand dated 18 October 2022.

2. The winding up application was set down for hearing on 17 March 2023. Shortly before the hearing of that application, on 14 March 2023, Brew Still appointed Mr Gidley as voluntary administrator of Brew Still and, by Interlocutory Process filed on the day before the winding up application, on 16 March 2023, Brew Still applied for an order that the winding up application be adjourned to a date to be fixed. Mr Gidley’s evidence is that the adjournment is now sought to 21 April 2023. Ms McGrath, who appears for Brew Still in the application, has confirmed that this application is brought with the authority of Mr Gidley as the voluntary administrator appointed to Brew Still and that appears to be consistent with the position set out in his affidavit. That is of some significance, both because s 198G of the Corporations Act 2001 (Cth) (“Act”) restricts the exercise of a director’s power while a company is in voluntary administration, and because it is relevant to the question of costs, if the application is not successful.

Affidavit evidence

3. Turning now to the evidence read in support of the application to adjourn the winding up, Brew Still (on Mr Gidley’s authority) reads an affidavit of Ms Kimberly Gates dated 31 January 2023. Ms Gates is the solicitor acting for Brew Still in the proceedings, and this affidavit was filed in opposition to the winding up order. It attached what was described as a confirmation of Brew Still’s cashflow and budget and the end of year financial report for the financial year ending June 2023. Mr Metlej, who appears for the Deputy Commissioner of Taxation, draws attention to one aspect of the cashflow which is annexed to that affidavit, namely that it proceeds on the basis that amounts of $1,000 per week, or $4,000 per month, will be paid to the Deputy Commissioner of Taxation in reduction of the debt owed to it over the relevant period. That appears to reflect a proposal put to the Deputy Commissioner of Taxation by Brew Still on 19 December 2022, and rejected by the Deputy Commissioner of Taxation, on 31 January 2023, where the Deputy Commissioner of Taxation required payment of the debt owed to it in full. Plainly, any cashflow that proceeds on the basis of a proposal that has been put to the Deputy Commissioner of Taxation and rejected, is undermined by that matter. In any event, Ms Gates’ affidavit does not address, and there is no other evidence of, the implications of those documents for Brew Still’s solvency or otherwise.

4. Brew Still also reads the affidavit of Ms Gates dated 16 March 2023, which attaches an email provided by the sole director of Brew Still, which in turn includes a proposal for funding of Brew Still by a sale and leaseback agreement for brewery equipment in the amount of $237,269.64. I pause to note that that amount is significantly less than the amount due to the unsecured creditors of Brew Still, as identified by the voluntary administrator in evidence to which I will return. There are other difficulties with that proposal, which include a matter noted by Brew Still’s director, that the lender would not proceed with it until the winding up proceedings were “lifted”; the fact that the quote was indicative only, and it is fair to recognise the practical reality that borrowers from time to time have difficulty in bringing indicative quotes offered in respect of financing to fruition; and, third, that the quote was valid for five business days from the issue date, and its validity has long ago expired. Ms Gates’ affidavit in turn annexes an initial report of Mr Gidley to creditors of Brew Still, which is notable for the fact that, given Mr Gidley’s recent appointment, he provides no information in that report as to Brew Still’s current financial position, although he outlines a lengthy process of discussion with Brew Still in respect of his appointment dating back to 21 February 2023, and indicates that he estimates the costs that would be incurred in respect of this appointment are $50,000 exclusive of GST.

5. Third, Brew Still relies on Mr Gidley’s affidavit dated 16 March 2023. Mr Gidley refers to his professional background, and outlines the lengthy process of discussion with Brew Still, its director and its legal advisers since 21 February 2023 in respect of the possibility of his appointment as voluntary administrator to Brew Still. Mr Gidley appears to have advised the director of Brew Still, as long ago as 1 March 2023, of “the issues with eleventh hour administrator appointments where winding up proceedings were on foot”, a matter to which I will return below. Mr Gidley notes that he was not appointed, at that time, where the director of Brew Still then expressed confidence that the winding up application could be resolved by negotiation with the creditors. He refers to the circumstances in which that appointment was finally made on 14 March 2023, three days before the winding up application was due to be heard.

6. Mr Gidley indicates the matters which have been the subject of investigation, presumably since that date. He refers to having been emailed by the director a “deed of proposal described as a draft trading plan”, although that document is not in evidence, and he indicates that he has not had sufficient time to undertake a “detailed review” of Brew Still’s historical financial performance, its financial forecast and modelling as prepared by the director, and the director’s “draft deed proposal”, presumably the document described as the draft trading plan. Presumably, also, the reference to Mr Gidley not having time to undertake a “detailed review” of those documents is to be read as indicating that he has not had time to undertake any substantive review of those documents since, if he has undertaken any such review, he does not disclose its outcome.

7. Mr Gidley refers to Brew Still’s valuation of assets and stock at a value exceeding $1.79 million, but cautiously notes that he has not verified that value, and he is seeking a third party asset and stock valuation, which it appears has not yet been received. He notes that “certain items of plant and equipment have been determined surplus”, implicitly by Brew Still’s director, but he does not identify those items of plant and equipment or indicate anything as to their value. He points to the value of the claims of Brew Still’s unsecured creditors, totalling $692,604.86, plus Adhub’s and Media Buyers’ claim of $19,005.50 and a secured debt owed to a third party.   

8. Mr Gidley also refers to a meeting of Brew Still’s shareholders held on 15 March 2023, where its director advised shareholders that it was his intention to raise further capital or shareholder loans to recapitalise Brew Still, and that that formed part of the director’s draft deed proposal. There is no evidence of how that intention would be implemented, and Mr Gidley’s affidavit does not suggest that other shareholders then indicated that they proposed to contribute additional funds to recapitalise Brew Still. Mr Gidley also refers to an outstanding superannuation guarantee amount of $14,257.83, a matter which is of particular relevance to the Deputy Commissioner of Taxation.

9. Mr Gidley in turn indicates that he is seeking an adjournment of the winding up proceedings so he may investigate particular matters “to determine if the voluntary administration results in a better outcome for creditors of the company” and requests that the winding up proceeding be adjourned until 21 April 2023, to allow him to complete his investigations and release his administrator’s report to creditors, that date being shortly before the second meeting of creditors. I pause to note that that proposition implicitly involves the expenditure of the further $50,000 (plus GST), likely reducing the return to creditors, where that is the estimate of Mr Gidley’s remuneration in respect of the voluntary administration.

10. Mr Gidley also expresses the view that it is in the interests of creditors for the company to continue in administration and seeks an adjournment of the winding up order on that basis. It is not apparent to me why Mr Gidley has formed that view, where he has not investigated several matters to date, and the result of further investigations is, so far as the evidence goes, likely to be to determine either that the director’s proposal is not viable, or that it is; that Brew Still’s historical financial records do not support a restructuring, or that they do; and that the asset valuations live up to the company’s valuation or that they do not. There is, on Mr Gidley’s affidavit, no reason to think that the result that will follow from that further investigation will be positive rather than negative, and it is not immediately apparent why it would be in the creditors’ interest to expend $50,000 (plus GST) on a voluntary administration which is as likely to demonstrate that there was never any real prospect of a restructuring of Brew Still as the contrary. Mr Gidley’s view is also to be approached in the context that his evidence is that, as long ago as 1 March 2023, he had determined that a voluntary administration was the only available alternative to Brew Still, presumably to a winding up, and had therefore at least formed the view that Brew Still was then insolvent or likely to become insolvent.

11. The Plaintiffs, Adhub and Media Buyers, in turn read an affidavit dated 16 March 2023 of their solicitor, Mr Bastiani. It is largely unnecessary to address the content of that affidavit, other than to note that, by a communication with shareholders, the director of Brew Still had advised them of the appointment of a voluntary administrator to Brew Still, and characterised that step as taken:

“to help avoid the company being liquidated which would now [sic] doubt result in our closure, the loss of share capital and all the hard work we have put in it getting to this stage of operations.”

12. A further communication from that director in turn characterises the winding up application as reflecting a “loophole in the courts”, although it is not apparent to me why either a presumption of insolvency arising from an unsatisfied creditor’s statutory demand or a winding up of a company that is presumed to be insolvent has the character of a “loophole”. He also observes that the appointment of the voluntary administrator “is a protection move, with the aim to defeat the issues at hand and continue operations and continue our growth.”

13. The Deputy Commissioner of Taxation who, as I noted above, opposes the adjournment of the winding up application, reads the affidavit dated 21 February 2023 of Ms Eather which addresses the current tax position of Brew Still. That affidavit indicates that Brew Still is currently indebted to the Commonwealth of Australia in an amount exceeding $74,000 in respect of superannuation guarantee contributions and penalties, that amount extending back to the 30 September 2021 quarter. Ms Eather confirms that, as at 21 February 2023, that amount remains due and payable by Brew Still to the Deputy Commissioner of Taxation. She also refers to amounts outstanding by way of Brew Still’s running balance account, which has steadily increased since 12 May 2022, to the current debit balance of $51,334.95. She also refers to the proposal to repay the superannuation guarantee amount put by Brew Still, at an amount of $1,000 per week, with the implication that that amount would have only been repaid over some 70 weeks or so, which was rejected by the Deputy Commissioner of Taxation.

Submissions and applicable principles

14. I now turn to the parties’ submissions and the applicable principles. Ms McGrath, who appears for Brew Still, acting on Mr Gidley’s instructions, submits that Brew Still’s asset pool far outweighs its debt and that it has “responsibly” taken the step of entering voluntary administration, which will “likely result in the continuation of a viable and solvent business”, and the administration costs will not significantly affect Brew Still’s ability to pay its debts.

15. It seems to me that that submission requires several qualifications. The first is that it is not apparent that the value of Brew Still's assets outweigh its debts, because Mr Gidley has, rightly, qualified the position as to the value of its assets pending the third party valuation which it is seeking but has not obtained. Second, the proposition that Brew Still has "responsibly" taken the step of appointing a voluntary administrator needs to be qualified to note that that step was taken three days ago, and apparently in the context of defensive steps to respond, at the latest possible time, to a longstanding winding up application. Third, the proposition that the costs of the administration, of approximately $50,000 (plus GST), would not significantly affect Brew Still's ability to pay its debts may be strictly correct, if Brew Still is unable to pay its debts in any event, but that additional expenditure would, of course, reduce the returns that are available to creditors in a winding up.

16. Ms McGrath also refers to the Explanatory Memorandum of the Corporate Law Reform Bill 1992 (Cth) which observes, in respect of s 440A of the Act, that it would generally not be appropriate to wind up a company under administration unless the position of the company was deteriorating rapidly in the period prior to a second meeting of creditors. It does not seem to me to be necessary to determine whether that view is consistent with that taken in later case law, where I should, in respect of national corporations legislation, adopt the approach taken in that case law unless I were convinced it was incorrect. Second, in any event, it seems to me likely that, where a company is cash flow insolvent, or likely cash flow insolvent, and where its assets are not shown to be readily realisable or their value is not shown to exceed the amounts of its debts, then a continuance of an administration will often rapidly erode the position of creditors, not least because wasted costs will be incurred in respect of administration.

17. In opposing the adjournment application, Mr Harris, who appears for Adhub and Media Buyers, in turn refers to relevant case law. He refers to the observations of Brereton J in Re Reed Constructions Australia Pty Ltd [2012] NSWSC 1045 at [14], where his Honour referred to the possibility that a voluntary administration might be embarked upon as a "last resort" in response to a winding up proceeding, and expressed the view that, in those circumstances, the plaintiff would be entitled to have its winding up application heard and determined, unless the Court is satisfied in the matter specified in s 440A(2) of the Act. Here, the evidence suggests that, at least so far as the director of Brew Still is concerned, the voluntary administration process has in fact been initiated as a defensive step to the winding up proceedings, and I referred above to his observations as to its defensive character. Mr Harris also refers to Re Business in Focus Pty Ltd [2015] NSWSC 2074 at [6], where Brereton J observed that an existing winding up application should not be expected to be "derailed by the last minute appointment of administrators", while rightly also recognising that the Court would have regard to whether there is evidence that the continuance of the administration, even for a short time, is in the interest of creditors in order to determine the issue raised by s 440A of the Act.

18. Mr Metlej, for the Deputy Commissioner of Taxation, in turn draws attention to the very helpful decision of Griffiths J in Deputy Commissioner of Taxation v Fyna Constructions (Hire and Sales) Pty Ltd (admins apptd) [2019] FCA 578, where his Honour undertook an extended review of the matters relevant to an adjournment application under s 440A of the Act. His Honour observed that he did not view the lateness of the appointment of an administrator as providing a basis for a residual discretion to refuse an adjournment, and it does not seem to me that the observations of Brereton J to which I have referred above treat that matter as having that character. Rather, Griffiths J there noted that the lateness of such an appointment would affect the Court's assessment of the evidence relied upon as establishing the state of satisfaction required of the Court under s 440A(2) of the Act for an adjournment to be granted. It seems to me that that proposition is well-founded, not least because, if an administrator is able to provide little information as to the prospects of a voluntary administration, then the Court is unlikely to be able to find that the adjournment will be in the interest of creditors.

19. Griffiths J in turn outlined a number of relevant factors, namely that the defendant carries the onus of persuading the Court that it should attain the relevant satisfaction under s 440A(2); second, that the question whether the administration should continue is closely related to the question whether creditors could hope to benefit more financially from an administration as opposed to a winding up; third, that persuasive evidence would be required to allow the Court to be satisfied that there are assets that would produce a larger dividend or an accelerated dividend in an administration than a winding up; fourth, that it is relevant to take into account the extent to which the administrator has had an opportunity to examine the affairs of the relevant companies, noting that here Mr Gidley has been in discussion with Brew Still for an extended period, but has only been in an office for an administrator for a short period; fifth, that the principal inquiry under s 440A(2) is whether the administration for the period of the adjournment is in creditors' interests, rather than whether the administration generally is in creditors' interests; sixth, that the reference to creditors' interests is a reference to their interests in recovering the debt owed to them; and, seventh, that the views of primary external creditors as to their commercial interests, including whether or not they prefer for good reasons to have the company immediately wound up, deserve significant weight.

14. The last factor noted by Griffiths J has relevance here where Mr Metlej, for the Deputy Commissioner of Taxation, points to the Deputy Commissioner of Taxation's concern that Brew Still has been insolvent for an extended period, and that an adjournment of the winding up is likely to have the consequence that it will incur further tax liabilities which will ultimately not be paid. There is no reason to think that that concern is not a rational one, in the relevant circumstances, given the evidence of increasing unpaid liabilities owed to the Deputy Commissioner of Taxation over an extended period. I note that Griffiths J there noted, also, that a lack of evidence in that case as to the underlying remaining value of a company impeded his ability to be satisfied that trading under administration was a realistically superior alternative for creditors to a winding up, rather than merely resulting in further delay to recovery and erosion of remaining assets. The same position seems to exist here.

15. Mr Harris in turn refers to my decision in Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543 where I observed (at [5]-[7]) that:

“Section 440A(2) of the [Act] provides that the Court is to 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 interests of the company’s creditors for the company to continue under administration rather than be wound up. Whether the Court is satisfied of that matter is to be determined in the relevant circumstances, and the authorities make clear that that requires a sufficient possibility, and not mere speculation, that creditors’ interest will advantaged by the adjournment of the winding-up application; Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 456-457. The case law recognises … that the circumstances in which that question is to be determined may differ between, for example, an application brought at an early point and seeking a shorter adjournment, immediately after an administrator is appointed, or a situation where an administrator has been in office for some time and the Court has to assess whether further to adjourn a winding-up application. The relevance of the circumstances in which the application is brought was emphasised by Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Limited [2003] NSWSC 47; (2003) 44 ACSR 377 [19], and I reviewed the relevant issues in Re Denham Constructions Pty Limited [2016] NSWSC 1426 at [6] ff.

The parties have recognised, rightly, that the lateness of the appointment of an administrator may be a relevant factor, where that appointment is made shortly before the hearing of a winding-up application: Re Offshore and Ocean Engineering Pty Limited [2012] NSWSC 1296 at [15]; leave to appeal refused in Offshore and Ocean Engineering v Greenwich Contractors Pty Limited [2012] NSWCA 371. That is relevant, first, because … the Court should treat applications for adjournment of a winding-up, where a voluntary administrator is appointed, as here, on the eve of the hearing, with scepticism, which should be reinforced where that involves a reversal of the company’s previous position that it is solvent. Second, that is relevant because, as here, the lateness of the appointment may deprive the administrator of any real understanding of the company’s affairs.

I should also here recognise that the question of adjournment of a winding-up application is governed by a statutory test, set in s 440A(2) of the Act, that depends upon the Court reaching a state of satisfaction, in the circumstances – which may include the fact that an administrator has recently been appointed – that it is in the interests of the company’s creditors to continue under administration. There is, it seems to me, no general predisposition … to adjourn a winding-up application merely because an administrator has only recently been appointed and knows little or nothing of substance as to the company’s affairs. The prospects of an application for adjournment are not improved if, rather than the administrator frankly admitting his or her lack of knowledge of the Company, he or she leads evidence of information provided to him or her, which is itself not established by evidence, then disclaims any knowledge whether that information is correct. If an administrator is appointed so late that he or she has no real understanding of the company’s affairs, then a winding-up will less readily be adjourned and an administration less readily extended, because the Court will less likely be satisfied that it is in fact in the interests of the company’s creditors for the company to continue under voluntary administration. I recognise that, in some cases, there will be value in the continuance of voluntary administration, at least to allow further investigations to be made, but that will turn on there being sufficient evidentiary basis for the Court to conclude that the making of those investigations is itself in creditors’ interests.”

22. Mr Harris also refers to my decision in Re Trinity Constructions (Aust) Pty Ltd (admin apptd) [2021] NSWSC 1277 and to the observations of Rees J in Re Victor Sports Pty Ltd [2021] NSWSC 1148, where her Honour noted that costs incurred by an administrator in carrying out further investigations may erode the return to creditors, particularly if some of those tasks would likely be better done by a liquidator.

Determination

23. On balance, I am not satisfied for the purposes of s 440A of the Act that it is in the interests of Brew Still’s creditors for the winding up to be adjourned, even for a period of about a month, and for the company to continue under administration during that period rather than be wound up. I recognise that that would allow Mr Gidley to undertake further investigations, but the difficulty is that there is nothing in the evidence led before me to suggest those investigations are likely to lead to a positive outcome, involving a restructuring of the company to the benefit of the creditors, rather than simply to expose at least the Deputy Commissioner of Taxation to the risk of further unpaid tax liabilities and other creditors to the erosion of their position by reason of the costs incurred in the voluntary administration. It seems to me that the proposition that the deed proposal put by the director, or the realisation of assets, will lead to advantageous results are matters of mere speculation, where the deed proposal is not in evidence, the basis on which it will be funded is not established, and the position in respect of assets remains to be confirmed by a third party valuation.

24. It seems to me that, here, the late appointment has the consequence that Mr Gidley is simply not sufficiently well informed as to Brew Still’s affairs to form any realistic view that a calculation of the voluntary administration, even for a relatively short period, will be to creditors’ advantage, by comparison with a liquidation, and there is no more reason to think that that course will be advantageous than that it will be disadvantageous to creditors.

25. For these reasons, I dismiss Brew Still’s application, brought on Mr Gidley’s instructions, for an adjournment of the proceedings.

Costs

26. I will hear Ms McGrath as to whether Mr Gidley should be ordered to pay the costs of and incidental to the adjournment application, so that creditors’ returns are not eroded by that application, consistent with the approach I adopted in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 912 at [12]ff. Ms McGrath did not oppose the order, and I will make it on that basis.

Whether a winding up order should be made

27. As I noted above, by Originating Process filed on 28 November 2022, Adhub and Media Buyers sought an order winding up Brew Still, and that Mr Barnden, who has consented to appointment, be appointed as liquidator. The current voluntary administrator of the company, Mr Gidley, has responsibly taken the view that he does not seek to be heard in respect of the winding up application, although he will seek to be heard as to the identity of the liquidator to be appointed.

28. Adhub and Media Buyers read the affidavit dated 16 November 2022 of Ms Macallan which establishes service of the creditor’s statutory demand, so as to give rise to a presumption of insolvency, when that demand was not satisfied. Adhub and Media Buyer also read affidavits dated 28 November 2022 of Mr Scott Mitchell, in respect of Media Buyers, and Mr Michael Mitchell, in respect of Adhub, verifying the debts claimed in the creditor’s statutory demand. By his first affidavit dated 24 January 2023, Mr Bastiani proves publication of a notice of the winding up application on ASIC’s insolvency website and, by his second affidavit dated 24 January 2023, Mr Bastiani proves lodgement of a form 519 notice of winding up application with ASIC. By a further affidavit dated 16 March 2023, Mr Bastiani provides a current company search of Brew Still, which establishes that Brew Still is not already in liquidation and also proves the amount of the continuing debt owed to the Plaintiffs, subject to the receipt of two small payments on 13 March 2023 in an amount less than the debt claimed. Adhub and Media Buyers also tender the consent of liquidator of Mr Barnden. The Deputy Commissioner of Taxation did not read the affidavit of Ms Eather on the winding up application, where that application was not opposed by the voluntary administrator.

29. The principles which apply in an application of this kind are well established. The application is brought where a presumption of insolvency arises from Brew Still's non-compliance with the creditor’s statutory demand. Where a debtor fails to comply with a creditor’s statutory demand within the period specified in s 459F of the Act, that non-compliance gives rise to a presumption of insolvency. The effect of that presumption was discussed by the High Court of Australia in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18 at [28], where the Court observed that:

"Where a demand has not been complied with, the statutory assumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective by an order sought setting it aside, the company is required to prove to the contrary of the presumption.”

30. Here, Mr Gidley, as voluntary administrator of Brew Still, has not sought to establish the contrary of the presumption of insolvency, and that is perhaps not surprising in circumstances that his appointment as voluntary administrator turns on the premise that Brew Still is either insolvent or likely to become insolvent. The presumption of insolvency has not been displaced.

31. I recognise that there was reference to the fact that the creditor’s demand was based on a default judgment issued by the Local Court, which was set aside after the presumption of insolvency had arisen by non-compliance with the creditor’s statutory demand. However, that position has been considered in earlier case law, including my decision in Re New View Windows Pty Ltd trading as Narellan Windows and Glass [2020] NSWSC 1905 and Rees J’s decision in Re Wetherill Park Holdings Pty Ltd [2021] NSWSC 282. As I observed in Re New View Windows, the fact that a default judgment is set aside (without more) is not significant in a winding up application, brought after a presumption of insolvency has already arisen. A creditor’s standing to bring a winding up application is founded on the debt that arises from the supply of goods or services, and that debt does not depend upon the default judgment, but upon the supply of those goods or services. The basis for a winding up order is potentially established where the applicant is a creditor on that basis and the presumption of insolvency has arisen, because the demand was issued while the default judgment subsisted and the debtor did not comply with it. It is, of course, open to the defendant to seek to establish its solvency, but Brew Still does not seek to do so here.

32. For these reasons, I am satisfied that a winding up order should be made and, subject to submissions which may be made by Mr Gidley and by the Deputy Commissioner of Taxation, the Court would ordinarily appoint the Plaintiffs’ nominee, Mr Barnden, as liquidator. I will hear the parties as to that question.

Identity of liquidator to be appointed

33. A question now arises as to the identity of the liquidator to be appointed to Brew Still, where I have found that Brew Still should be wound up on the application of Adhub and Media Buyers. The Plaintiffs seek to have Mr Barnden appointed as liquidator of Brew Still, and that position is supported by the Deputy Commissioner of Taxation. Mr Gidley, who was recently appointed as voluntary administrator of Brew Still, submits that he should be appointed as liquidator of Brew Still.    

34. Ms McGrath, who appears for Mr Gidley in that respect, responsibly does not put any submission that Mr Gidley has any particular informational advantage in respect of the appointment, where he has only been in office as voluntary administrator of Brew Still for a very short time, and his evidence indicates that, understandably, he has made some investigations but has not developed any significant familiarity with the true position of Brew Still in the short period in which he has been in office. Ms McGrath instead referred to another matter, which is that Mr Gidley has consented to his appointment as liquidator (having been proposed for appointment by the Deputy Commissioner of Taxation) in other proceedings brought in the Federal Court of Australia to seek to wind up a subsidiary of Brew Still, Phoenix Brewhouse Pty Ltd (“Phoenix”), which are yet to be determined.    

35. Mr Metlej, for the Deputy Commissioner of Taxation, recognises that the Deputy Commissioner of Taxation had there proposed Mr Gidley for appointment; submits that the Deputy Commissioner of Taxation supports Mr Barnden's appointment in respect of Brew Still; and, implicitly, recognises that the Federal Court of Australia can then determine, in the application to wind up Phoenix, whether Mr Barnden would then be the appropriate appointee, because he has already been appointed to Brew Still, or Mr Gidley would then be the appropriate appointee.

36. The Court's usual practice is to appoint the liquidator nominated by the applicant for a winding up order as to the company to be wound up, and it will depart from that usual practice only where there is good reason to do so. It seems to me that no good reason to do so emerges here. First, the fact that Mr Gidley has consented to appointment as the liquidator of Phoenix does not provide reason to appoint him, rather than Mr Barnden, to Brew House where he has not yet been appointed to that position, and both the Deputy Commissioner of Taxation and the Federal Court will have the opportunity to take account of the appointment or Mr Barnden as liquidator to Brew Still in determining the identity of any liquidator to be nominated or appointed to Phoenix. Second, as I noted above, there is no suggestion that Mr Gidley has any informational advantage over Mr Barnden in respect of Brew Still. Third, there is some force in the Deputy Commissioner of Taxation's submission that the fact that Mr Gidley has been involved, over a period of several weeks, in discussions whether a voluntary administrator should be appointed to Brew Still is more likely to be a disadvantage rather than an advantage for his appointment as liquidator to Brew Still. I should emphasise that I do not form any view that is adverse to Mr Gidley’s actual impartiality in that regard.

37. For these reasons, I am satisfied that an order should be made that Mr Barnden, rather than Mr Gidley, be appointed as liquidator of Brew Still.

Costs of the winding up

38. The Plaintiffs seek reimbursement of their costs, as assessed, in the winding up application under s 466(2) of the Act, and that order would follow in the ordinary course. I am satisfied, in the particular circumstances of the matter, that the Deputy Commissioner of Taxation's evidence and its submissions were of assistance in determining the application. On that basis, I should also order that the Deputy Commissioner of Taxation's costs be reimbursed on the same basis as the Plaintiffs’ costs.

Orders

39. Accordingly, I make the following orders:

1. Brew Still Pty Ltd be wound up in insolvency.

2. Mr Andrew Barnden of Rodgers Reidy (New South Wales) Pty Ltd be appointed as liquidator.

3. The Plaintiffs’ costs of the winding up application, and the Deputy Commissioner of Taxation's costs of the winding up application, excluding the costs of the adjourned application payable by the voluntary administrator, be payable in the winding up under s 466(2) of the Corporations Act 2001 (Cth), as agreed or assessed.

**********

Amendments

23 March 2023 - Catchword amended

Decision last updated: 23 March 2023