Re Furniture Mart the Alternative
[2000] QSC 76
•7 April 2000
SUPREME COURT OF QUEENSLAND
[Re Furniture Mart The Alternative In Discount Furniture And Bedding Pty Ltd]
PARTIES: RE THE CORPORATIONS LAW
andRE FURNITURE MART THE ALTERNATIVE IN DISCOUNT FURNITURE AND BEDDING PTY LTD ACN 082 839 683
EX PARTE BANK OF QUEENSLAND LIMITED
ACN 009 656 740FILE NO/S: No 427 of 2000 DELIVERED ON: 7 April 2000 DELIVERED AT: Brisbane HEARING DATE: 14 March 2000 JUDGES: BW Ambrose J ORDER: 1. I dismiss the applicant’s application to wind up the respondent
2. I refuse the applicant’s application to be substituted as a creditor in application No. 427 of 2000
3. I order that the applicant pay to the respondent its costs of incidental to the application incurred subsequent to 24 February 2000 including today’s costs to be assessed
4. I order that the respondent pay to the applicant its costs of and incidental to the applicant to wind up prior to 24 February 2000 to be assessed
CATCHWORDS: CORPORATIONS LAW – WINDING UP – whether to exercise discretion to permit the substitution of the applicant as creditor SOLICITORS: Mr S B Collins of Clarke & Kann for the applicant
Mr D Tucker for Tucker & Associates for the respondent
This is an application by Bank of Queensland Limited (the applicant) for an order that Furniture Mart The Alternative in Discount Bedding Pty Ltd (the respondent) be wound up under the provisions of the Corporations Law.
The application was initially based upon the failure of the respondent to comply with a statutory demand for payment of the sum of $2,100-00.
At material times the respondent conducted a furniture supply business. In the course of its business it accepted payment for goods it supplied to new customers by use of an EFTPOS machine through which the applicant received monies paid by those customers. On 26 March and 3 and 4 April 1999 various transactions occurred between the respondent and a group of its new customers in which those customers paid the respondent by use of credit cards which were approved by the applicant’s EFTPOS machine.
Subsequent to those approvals however it was either discovered or suspected that persons involved in paying for furniture which they collected from the respondent had used credit cards which had been stolen or at least which they were not authorised to use. It was on 9 April 1999 that the applicant advised the respondent that it would be “reversing” various credits to the respondent’s account based upon the use of those credit cards.
Unsurprisingly the applicant had relied upon the monies received from the purchasers suspected to be fraudulent or at least that it thought it had received from those purchasers for the purpose of meeting the day to day costs of conducting its business.
On 7 May 1999 the applicant served upon the respondent a notice of demand for $49,447-88 in respect of the impugned transactions.
On 26 May 1999 the respondent commenced action in the Magistrates Court against the applicant to recover the sum of $49,447-88. Those proceedings were not however served until the following year.
It was on 24 December 1999 that a statutory demand was served by the applicant upon the respondent claiming $2,100-00. This application to wind up the respondent was filed by the applicant on 17 January 2000 and it was then that the respondent applied to set aside that statutory demand. However no affidavit complying with the requirements of s 459(5)(3) was served with it.
On 23 February 2000 the debt the subject of the statutory demand for $2,100-00 was paid by the respondent to the applicant and was accepted by the applicant. The respondent also offered to have its application to set aside the statutory demand dismissed and to pay the applicants costs of that proceeding.
On 23 February 2000 the respondent effected service of its Magistrates Courts proceedings on the applicant.
It seems clear therefore that having accepted payment of the whole of the debt the subject of the statutory demand which founded the application to wind up the respondent, the applicant ceased at the material time to be a creditor who might proceed with the application to wind up the respondent.
However for whatever reason the statutory demand had been initially served only with respect to $2,100-00 of the $49,447-88 initially demanded by the applicant, and it now contends that it is still a creditor of the respondent in respect of that sum (less $2,100-00) and it now seeks to be substituted as a petitioning creditor in relation to the balance of the debt allegedly due and demanded formally on 7 May 1999.
It is the case for the respondent however that on the evidence it has a defence to the applicant’s claim against it. It says that it was purely by mischance and oversight that the application to set aside the statutory demand on 17 January 2000 was defective in that it was not supported by an affidavit of the kind required by s 459G(3) of the Corporations Law.
It is the case for the respondent that it did have a good defence to that claim but by reason of its failure to make a proper application to set aside the demand in time it could no longer oppose the winding up application with respect to the $2,100-00 which was subject to that demand. However it says it now has and always has had at least and arguable defence to the applicant’s claim for the whole of the monies demanded from the respondent on 7 May 1999. In particular it still has a good defence to the balance of the $49,447-88 after deducting from that sum the $2,100-00 paid in full on 23 February 2000. Indeed it asserts that it has a good claim to recover from the applicant that sum of $2,100-00 so paid. It is unnecessary for me to deal with that point on this application.
It suffices to say that the nub of the respondent’s argument in opposing the applicant’s application to be substituted in respect of the balance of the debt and then proceed with the application to wind up the respondent is its contention on the facts that it has a good defence in respect of the whole of that sum and that that matter is currently the subject of action in the Magistrates Court against the applicant which on the respondent’s argument has wrongfully declined to credit the respondent’s account with the various sums of money it was paid by credit cards approved by the applicant’s EFTPOS machine in February and March 1999.
It is clear on the material that the respondent may only be shown to be insolvent upon the application to wind up if it is truly indebted to the applicant in respect of the sum of $49,447-88 (minus the $2,100-00 already paid by the respondent in the circumstances to which I have referred).
If the applicant was not legally entitled to “reverse” the EFTPOS transactions with the respondent which had in fact been approved by the applicant according to its system involving use of its machine then the respondent is not indebted at all to the applicant.
Stated shortly if it is reasonably arguable upon the facts canvassed upon this application that the applicant could not lawfully “reverse” transactions approved by its EFTPOS machine then there will be a triable issue between the applicant and the respondent which should be determined in the current proceedings between them in the Magistrates Court and not upon a contested winding up application in this court.
Although the applicant was served with the respondent’s claim against it in the Magistrates Court in January 2000 it had not by the time of making this application delivered a defence – although it was conceded that the time for delivery of a defence had not expired by the date of hearing.
I raised with counsel the possibility of simply adjourning from time to time this application to wind up pending the determination of that action. However unless the application to wind up could be dealt with within six months of its first being filed -on 17 January 2000 – it would automatically be dismissed.
It is clear on the cases that a creditor with a debt which is disputed may not be substituted for an applicant who no longer remains a creditor. In this respect I refer to Re Beverage Holdings Pty Ltd Greater Pacific Investments Pty Ltd (in liq.) 1991 CCH Australian Company Law Cases 1197 at 1199 and Re Calsil Ltd 1982 1ACLC 329 where Master Lee (as he then was) held that any creditor whose debt “is substantially disputed is not a “creditor” within the meaning of section 221 of the Company’s Act (Qld) – the equivalent of current s 459P(11) of the Corporations Law). In South East Water Ltd v Kitoria NO.V.G. 3053 of 1996 Fed No. 577/96 Corporations 12:7:96 Ryan J in the Federal Court at Melbourne on 12 July 1996 considered the discretion a court has to substitute another creditor for an applicant under section 465B of the Corporations Law and at para 35 of his judgement concluded that there should be no substitution of an applicant on an application to wind up a corporation “without having first had the existence of the debt which he (the proposed substituted applicant) claims determined in a court of competent jurisdiction. In D Monfort and Ors v Southern Cross Exploration N/L 1987 5 ACLC 709 Needham J observed at 711 –
“It would I think be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice then when the debtor failed to comply with that notice take proceedings to be paid the full amount claimed and then seek to wind the defendant up nonetheless.”
Whether the principle relating to s 364 and the deemed insolvency of companies applies to such a situation or not, I would not in the exercise of my discretion permit the creditor to proceed with the claim for winding up in those circumstances. In my opinion the principle set out in those decisions applies to creditors who seek to be substituted. I would not as at present advised consider that the principle would apply to the very same creditor who had taken the proceedings on the s 364 notice. Counsel for the plaintiffs has said that there is nothing inequitable about the application of the plaintiffs because there was no holding out to the defendants that this was the only sum owing to them. Undoubtedly the evidence indicated that the plaintiff have other claims against the defendant that the only claim as I understood it which the plaintiffs could make the subject of a s364 notice was the claim which they did make the subject of this notice.
In my view the applicant can succeed on its application to be substituted as an applicant creditor with a sufficient debt to permit it to seek to wind up the respondent only if it can establish that its alleged debt is not subject to a bona fide dispute on the part of the respondent on substantial grounds.
I will therefore consider briefly whether the respondent on the material has demonstrated that it does have cause to dispute its indebtedness to the applicant.
It is the case for the respondent that its director was informed by officers of the applicant that the “transaction would be approved” by the bank, if the machine indicated such approval after the relevant credit card had been “swiped” through the machine.
It is the contention of the respondent that upon its proper construction the merchant agreement between the applicant and the respondent is not inconsistent with the advice given to the respondent by the applicants servant or agents that the approval indicated upon the applicant’s EFTPOS machine would safely permit the respondent to allow purchasers of his goods to remove them from his business premises because the EFTPOS machine could indicate that the payment of the purchase price by the user of the relevant credit card had been approved by the applicant.
As the evidence presently stands it seems uncertain indeed whether the holders of the cards allegedly improperly used do in fact dispute their liability to meet the obligations recorded by the applicant’s EFTPOS machine.
There is correspondence between the solicitors for the parties concerning the dispute as to the liability of the respondent to have the EFTPOS transaction approval “reversed” which stretches back to April 1999.
There appear to be no other creditors of the respondent who are unpaid; at least there is no evidence to this effect. The only creditor of the respondent appears to be the applicant and as I have indicated the respondent’s indebtedness to the applicant is disputed and the terms of that dispute are currently before the Magistrates Court and will probably be determined within the next six months. There can be no other creditors then disadvantaged should the applicant not be substituted as a creditor to whom the respondent is indebted in a sufficient sum to give the court jurisdiction to entertain that application.
I am not satisfied that the applicant in this case is not simply attempting to use the winding up proceedings of this court as a debt collecting mechanism. Presumably the applicant will give consideration to counter claiming against the respondent in the respondent’s Magistrates Court action the amount of debt it asserts currently to be owing by the respondent. If that were done then obviously the dispute as to the respondents indebtedness or the applicants indebtedness to the respondent will be determined in an appropriate forum.
In my view this court is not the appropriate forum to determine such a matter on a company winding up application.
If the applicant succeeds in the Magistrates Court action instituted by the respondent undoubtedly it will obtain a judgment and a proper statutory demand for payment of that judgment debt may then be served.
The suggestion made on the part of the applicant that if the respondent were wound up a liquidator would be enabled to investigate the whole matter I find unpersuasive. It is not the purpose of a winding up order to enable a liquidator to conduct investigations to see whether in fact there ever was a debt owed by the company in liquidation which might support or justify the winding up order.
There are suggestions in the material relied upon by the applicant that perhaps the respondent was “cooperating with” the persons who paid for furniture he sold to them with credit cards it is suggested were used without authority or legal right.
The whole matter has been investigated by police officers who appear not to entertain any suspicion about the integrity of the respondent. In the circumstances I am persuaded that the dispute between the respondent and the applicant formalised in the Magistrates Court proceedings instituted by the respondent against the applicant is a bona fide one. Having come to that conclusion I am called upon to exercise a discretion to permit the substitution of the applicant as a creditor owed an undisputed debt in the required sum for the applicant as a creditor to the extent $2,100-00 which was paid to and accepted by the respondent on 23 February 2000. The applicant concedes that it is no longer a creditor which may proceed upon its application initially made on 17 January 2000 and it will only be a creditor able to proceed with that winding up application if it becomes substituted.
In the exercise of my discretion for the reasons I have given at some length I decline to make such an order for substitution.
The respondent has succeeded upon the argument today. In the circumstances I dismiss the applicant’s application to wind up the respondent in application number 427 of 2000 filed on 17 January 2000 and I refuse its application to be substituted as a creditor made on 14 March 2000. I order that the applicant pay to the respondent its costs of and incidental to the applications, incurred subsequent to 24 February 2000 including today’s costs to be assessed.
I order that the respondent pay to the applicant its costs of and incidental to the applicant to wind up prior to 24 February 2000 to be assessed.
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