Re Empire Plant Hire Pty Ltd (ACN 626 953 580)
[2020] VSC 530
•19 August 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 05699
IN THE MATTER of EMPIRE PLANT HIRE PTY LTD (ACN 626 953 580)
| C.C INVESTMENTS PTY LTD (ACN 092 386 760) | Plaintiff |
| v | |
| EMPIRE PLANT HIRE PTY LTD (ACN 626 953 580) | Defendant |
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JUDGE: | Efthim AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 July 2020 |
DATE OF JUDGMENT: | 19 August 2020 |
CASE MAY BE CITED AS: | Re Empire Plant Hire Pty Ltd (ACN 626 953 580) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 530 |
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CORPORATIONS – Company winding up application pursuant to s 459P of the Corporations Act 2001 (Cth) – Abuse of process – Statutory demand withdrawn – Second statutory demand served but defendant’s solicitor not notified – No application made within time to set aside the statutory demand because defendant alleged it was not served – Application pursuant to s 459S of the Corporations Act 2001 (Cth) – Solvency.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Lowry | Peter G Richards |
| For the Defendant | Mr P Miller | Madgwicks |
HIS HONOUR:
The plaintiff, C.C Investments Pty Ltd (ACN 092 386 760), seeks an order that the defendant, Empire Plant Hire Pty Ltd (ACN 626 953 580), be wound up in insolvency pursuant to s 459P of the Corporations Act 2001 (Cth) (‘the Act’). The plaintiff relies on a failure by the defendant to comply with the statutory demand dated 15 November 2019. The demand claimed that the defendant owed the plaintiff $1,986,952.71 plus GST pursuant to a contract of sale of personal property executed by the parties on 27 February 2018.
The defendant is presumed insolvent pursuant to s 459C(2)(a) of the Act because it failed to comply with the statutory demand within the 21 day period after it was served.
The service of the statutory demand was disputed and on 29 May 2020 Judicial Registrar Matthews determined that the statutory demand had been served on the defendant by being left at the defendant’s registered office.
Background
The relevant background has been summarised by Matthews JR in her decision regarding service of the statutory demand. Matthews JR stated:
Some background is necessary so as to understand the parties’ evidence and submissions.
It is common ground that on or around 25 October 2019, the plaintiff served a statutory demand dated 25 October 2019 on the defendant by post, claiming payment of the amount of $1,986,952.71 plus GST, for monies said to be due and payable pursuant to a contract for sale of personal property executed by the parties on 27 February 2019 (‘First Statutory Demand’). It is readily apparent that the amount claimed, and the means by which it is said to arise, is the same as in the Second Statutory Demand, being the Claimed Debt. It is also common ground that accompanying the First Statutory Demand was a purported affidavit sworn by Cataldo Timpanaro in support which, as was subsequently apparent, was incomplete as it was missing the page containing the jurat (‘First SD Affidavit’).
In a letter dated 14 November 2019, the defendant’s solicitor set out the reasons why the defendant said that the Claimed Debt was disputed, and it also stated that First SD Affidavit was defective as it did not contain the jurat. The defendant called for the First Statutory Demand to be withdrawn.
On 15 November 2019, the plaintiff’s solicitor informed the defendant’s solicitor by letter that the First Statutory Demand would not be withdrawn and that a re-sworn affidavit was going to be served on the defendant that day. It is a matter of contention between the parties as to whether the plaintiff’s solicitor also informed the defendant’s solicitor in a telephone conversation on 18 November 2019 that another statutory demand had been served. I do not need to resolve this conflict for this application, however it may be relevant at the trial of the proceeding.
On 15 November 2019, the defendant made an application to set aside the First Statutory Demand. By orders made by consent on 4 December 2020 (consent having been reached by the parties on 2 December), the First Statutory Demand was set aside, the application to set it aside was dismissed and there was no order as to costs.
It is apparent from the material filed that the Secondary Statutory Demand is the same document as the First Statutory Demand except that the date ’25 October 2019’ has been crossed out and the date ’15 November 2019’ has been hand-written alongside the crossed-out date. It does not appear to have been re-signed.
It is also apparent from the material filed that the purported affidavit of Cataldo Timpanaro in support of the Second Statutory Demand (‘Second SD Affidavit’) is the same document as the First SD Affidavit, except it contains the page which had been missing, such that the original jurat from 25 October is present and it then has the following added:
RESWORN by Cataldo Timpanaro the abovenamed deponent at Melbourne this 15th day of November 2019
This was followed by the deponent’s signature and the details and signature of the person taking the affidavit (being Peter Richards, the defendant’s solicitor, who had also taken the First SD Affidavit).[1]
[1][2020] VSC 307, [9]-[15].
The grounds of opposition
The defendant opposes the application on two bases. First, it says that the application constitutes an abuse of process. Second, it seeks relief under s 459S of the Act to oppose the application by relying on a genuine dispute that it has not previously raised.
Abuse of process
In ReKornucopia (No 4),[2] Sifris J referred three bases upon which a defendant could raise as constituting an abuse of process. His Honour said: [3]
Prior to the commencement of Part 5.4 of the Act, the weight of the authority supported the existence of three bases upon which a debtor-company was permitted to assert that a winding up application constituted an abuse of process. These were:
(a)that the winding up application was bound to fail (where, for example, the plaintiff could not prove that it possessed standing as a creditor, or that the company was insolvent);
(b)where the winding up application is made for an improper purpose, according to the principles set out by the High Court in Williams v Spautz;[4] and
(c)where there is a substantial contest as to the existence or enforceability of a debt relied upon by the plaintiff or the existence of a cross-claim or offsetting claim, which should properly be resolved in separate proceedings. This is the ‘disputed debt’ principle, as referred to above and below.
[2][2020] VSC 7.
[3]Ibid [80].
[4](1992) 174 CLR 509.
The defendant submit that the effect of Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd[5] is that the only base upon which an abuse of process can be raised is the second ground raised by Sifris J in accordance with the principles set out by the High Court in Williams v Spautz.[6]
[5](2011) 244 CLR 1.
[6](1992) 174 CLR 509.
In Kornucopia, when considering the second ground of abuse of process relied upon by the defendant, Sifris J said:
While the second category alleging that an application is brought for an ‘improper purpose’ according to the principles of Williams v Spautz is said to fall outside of the regime imposed by Part 5.4, and may still be raised, it is affected by the provisions of Part 5.4. A company may allege that the application has been ‘used for the improper purpose of compelling a solvent company to pay a disputed debt’, but to establish that improper purpose, it remains necessary for the company to adduce evidence of solvency, given that the starting point is the presumption of insolvency. The short point is that where the company is presumed to be insolvent, and there is no evidence of solvency, the existence of a genuine dispute is largely irrelevant to the Court’s discretion. The company ought to have raised the dispute prior to the final hearing of the winding up application, by an application made under either ss 459G or 459S, as contemplated by the regime imposed by Part 5.4. That is the case regardless of how the company frames the abuse of process it relies upon. The common law doctrine of abuse of process cannot be employed in a manner that would undermine the intention of Parliament that disputes as to the existence or enforceability of a debt be dealt with under the provisions of the Act.[7]
[7]ReKornucopia (No 4) [2020] VSC 7, [89].
In order to rely upon an abuse of process, it is therefore necessary for the defendant to adduce evidence of solvency.
The definition of solvency is found in s 95A of the Act. It provides that:
Solvency and insolvency
(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.
In Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd,[8] Weinberg J referred to the evidence required to be put on behalf of a company to rebut the presumption of insolvency. His Honour stated: [9]
[8][1999] FCA 728.
[9]Ibid [44].
•The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: s 459C(2) and (3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 per Spender J; Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477 per Mansfield J.
•In order to discharge that onus the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.
•Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (above); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.
•There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (above); Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (above) at 465–466.
•The adoption of a cash flow test for solvency does not mean that the extent of the company’s assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (above) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J.
•The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (above) at 466–467.
•It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (above).
To rebut the presumption of insolvency, the defendant relies on a statement on oath by Christopher Francis Hodgers, the sole director and company secretary of the defendant, who deposes that he strongly believes that if not for the alleged debt claimed by the plaintiff which is disputed, the defendant is solvent.
Mr Hodgers produced to the Court a copy of the financial statements of the defendant for the year ended 30 June 2019. Those statements are not based on audited accounts. The balance sheets shows net assets of $50 being cash and cash equivalents. It has an equity of 50 fully paid ordinary shares of $1 each. The income statement for the year ended 30 June 2018 has no retained earnings or accumulated losses at the end of each of those financial years.
The financial records produced by the defendant do not fall within the scope of the matters raised by Weinberg J that are required to rebut a presumption of insolvency. Counsel for the defendant advised the Court that there was no good explanation for why the evidence of solvency is lacking.[10]
[10]T38.4-6.
Not only is this evidence insufficient to rebut the presumption of insolvency, but matters relevant to solvency have not been disclosed to the Court by the defendant. Peter Gregory Richards, solicitor for the plaintiff, in an affidavit sworn on 29 July 2020, deposes that the financial statements fail to disclose in respect of the year ending 30 June 2019 a related party loan to the defendant in the sum of $1,195,681.00 by Construction Victoria Pty Ltd (administrators appointed). That liability is disclosed in the report of the Administrators of Construction Victoria dated 17 January 2020, which was filed by the Administrators with the Australian Securities and Investments Commission (‘ASIC’) pursuant to r 72-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) and s 438A of the Act.
Mr Richards also deposes that the financial statements did not include any financial information for the defendant for the year ending 30 June 2020. On 20 December 2019, the company Nationwide Concrete Pumping Victoria Pty Ltd (administrators appointed) entered into a Pooled Deed Of Company Arrangement (‘DOCA’). The defendant is a party to the DOCA as guarantor under clause 18.1. The defendant agreed to guarantee the performance of the obligations of the companies, Nationwide Concrete Pumping Victoria Pty Ltd and Nationwide Concrete Pumping (Qld) Pty Ltd and the director of each of those companies, Veronica Mary Roberts, who is the former director of the defendant up to 25 May 2020.
Under clause 10.1 of the DOCA, the companies and the director agreed to pay the sum of $250,000.00 to the DOCA administrators by ten equal payments of $25,000.00. The first being on 1 February 2020 and the final payment on 1 November 2020. The defendant guaranteed that obligation, thus the defendant has a contingent liability of $250,000.00 in the year ending 30 June 2020, which has not been disclosed to this Court.
The evidence relied on by the defendant is not able to rebut the presumption of insolvency.
In Kornucopia, Sifris J made it clear that a company may allege that an application to wind up has been brought for the improper purpose of compelling a solvent company to pay a disputed debt where the company has adduced evidence of solvency. Here the defendant cannot prove solvency and therefore cannot reply on the principles of Williams v Spautz.
Even if the defendant could rely on Williams v Spautz, there is no abuse of process here. The defendant submits that when multiple statutory demands are issued at the same time, an abuse of process may arise. Here the fact that two statutory demands were issued is not sufficient to constitute an abuse of process because the plaintiff has withdrawn the first demand and only relies on the second demand.
The defendant submits that the facts demonstrate that the plaintiff issued the second demand and the winding up proceeding for the improper purpose of compelling the defendant to pay a disputed debt. It says that the plaintiff knew the defendant had legal representation as the defendant had engaged its solicitors to set aside the first demand. By letter dated 15 November 2019, the plaintiff’s solicitors served the re-sworn affidavit to the defendant’s solicitors but not the second demand. It says the omission to include the second demand as an attachment to the letter dated 15 November 2019 can only be seen as a deliberate attempt not to bring the service of the second statutory demand to the defendant’s solicitor’s attention.
The defendant submits that the circumstances are aggravated by the plaintiff agreeing to set aside the first demand. At the time, the plaintiff agreed to set aside the first demand and it failed to notify the defendant or its solicitor that the second demand had been served.
In the circumstances, the defendant submits that the Court should infer that:
-the issue and service of the second demand in these circumstances was designed to confuse or obfuscate the defendant and its legal team, to prevent any application being brought to set it aside;
-the issue and service of the second demand was designed to place pressure on the defendant to compel it to pay a debt which the plaintiff knew was disputed;
-the issue of the originating process seeking orders for the winding up of the demand is a continuation of this purpose; and
-the proceeding is therefore brought and continued for the improper purpose of placing pressure on the defendant to compel it to pay a disputed debt.
Mr Richards, in his affidavit sworn on 6 March 2020, deposes that on 14 November 2019 he received a letter from Madgwicks, solicitors for the defendant, concerning the adequacy of the first affidavit (attached to the first statutory demand) and other objections. Madgwicks demanded that by 11:00am the next day the first statutory demand be withdrawn. On 15 November 2019, at 11:00 am, an originating process and affidavit in support to set aside the first demand were served on the plaintiff by email.
At 4:26pm on 15 November 2019, Mr Richards attached a letter in an email to Madgwicks. That letter reads as follows:
…
We refer with thanks to your letter of 14 November received at 4.30pm.
First, we taken your word that the copy of the Affidavit in Support accompanying the Statutory Demand was an unsworn version. It had in fact been sworn on 25 October 2019, as is evident from the copy PDF attachment herewith.
The jurat is apparent from the copy attachment. Nevertheless, and for the avoidance of any doubt, the Deponent has re-sworn the Affidavit, and the re-sworn Affidavit is herewith, and will be served on your client today.
In all events, we do not believe the failure to provide details of jurat at the time of service of the Statutory Demand, when the fact of the Affidavit having been sworn is incontrovertible, vitiates the process
…
The first statutory demand was withdrawn and the plaintiff agreed to pay the defendant’s costs. A second statutory demand was served personally on the defendant’s registered office and the defendant claimed that this demand never came to its attention. Judicial Registrar Matthews held that the demand was validly served.
On 18 November 2019, there was a telephone conversation between Mr Richards and Aleksander Kovaceski, solicitor for the defendant. In relation to that conversation, Mr Richards deposes the following:
On Monday 18 November 2019 I telephoned Mr ALEKSANDER KOVACESKI, a Solicitor in the office of Madgwicks, and stated that C.C. Investments would consent to the First Statutory Demand being set aside and offered to pay Empire’s costs. Ultimately those proceedings were dismissed by consent and Empire’s costs were paid by CC Investment Enterprises Pty Ltd (“CC Investments”).
In that conversation, I stated to Mr Kovaceski that the Re-sworn Affidavit had been served on Empire on 15 November 2019. I cannot recall with certainty whether I also stated that another Statutory Demand had also been served. I verily believe that as a professional courtesy to him, I wanted to convey to him, that notwithstanding the defective First Statutory Demand, CC Investments was repeating the process of applying for a winding up of Empire, which had been started with the First Statutory Demand. I did not state to Mr Kovaceski, and had no reason to state to him, who served the documents on Empire of 15 November 2019.
There is nothing on the evidence before me that would lead to any inference that the second demand was designed to confuse or obfuscate the defendant and its legal team and to prevent any application being brought to set aside the demand. The demand was not posted, but rather hand delivered to the registered office of the defendant. Mr Richards has done all that he was required to do at law. Having the demand delivered to the registered office makes it more likely that service of a statutory demand would come to the notice of the recipient than if it was served by post.
I do not accept that Mr Richards had a duty to advise the defendant’s solicitor that another demand would be served. In my view, he has done everything he could and there is no abuse of process.
The defendant has also raised that even in cases where service is properly affected in accordance with the Act, the Court retains a broad discretion under s 459A and s 467 of the Act to refuse to make a winding up order pursuant to what has become known as the Fair Notice Doctrine. One of the bases recognised in the authorities for refusing to make a wind up order is where a statutory demand is served but does not come to the attention of the company, and the creditor is aware of this.[11]
[11]See FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136.
Here, there is nothing before me to demonstrate that the plaintiff, the creditor, had knowledge that the second demand had not come to the attention of the Company. Furthermore, the defendant has gone to absolutely no effort to provide evidence of solvency. Even though the Court does retain a broad discretion, I would not exercise it under s 459A or s 467 of the Act.
Section 459S
Section 459S of the Act states:
Company may not oppose application on certain grounds
(1)In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2)The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
The defendant did not comply with the second statutory demand served on it and is therefore presumed insolvent. It can only get leave to raise a genuine dispute pursuant to s 459S of the Act by demonstrating that the debt claimed by the plaintiff is material to proving that the defendant is solvent.[12] Here, the defendant has not been able to meet this requirement and therefore leave will not be granted. Even if leave was granted, I doubt on the evidence that I have before me that there is a genuine dispute.
[12]See Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37.
The defendant will be wound up.
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