Re Futistasera Pty Ltd (in liquidation)
[2015] VSC 788
•28 May 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 06634
IN THE MATTER OF FUTISTASERA PTY LTD (IN LIQUIDATION)
| FANNIESAB PTY LTD (ACN 120 335 195) | Plaintiff |
| v | |
| FUTISTASERA PTY LTD (ACN 120 336 192) (IN LIQUIDATION) | Defendant |
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JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 & 28 May 2015 |
DATE OF JUDGMENT: | 28 May 2015 |
CASE MAY BE CITED AS: | Re Futistasera Pty Ltd (in liquidation) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 788 |
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CORPORATIONS – Application by company director under s 471A of the Corporations Act 2001 (Cth) for the court’s approval to appeal the winding up order of an associate judge under r 77 ch I of the Supreme Court (General Civil Procedure Rules) 2005 – Where judgment debt in favour of creditor that petitioned for winding up is set aside – Allegation debt based on sham lease – Leave to appeal granted – Winding up stay pending determination of appeal.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J L Evans | M P Lanza Lawyers |
| For the First Respondent | Mr M Clarke | Madgwicks Lawyers |
| For the Second Respondent Defendant | Mr J Snow |
HIS HONOUR:
I have before me an interlocutory process dated 22 May 2015 in matter No 6634 of 2014, wherein the plaintiff is Fanniesab Pty Ltd (Fanniesab) and the defendant is Futistasera Pty Ltd (in liquidation) (Futistasera).
Futistasera was wound up on the grounds of insolvency by order of Efthim AsJ made 21 May 2015.
The applicant is Frances Inturissi, a director and contributory of Futistasera. Ms Inturissi has applied for orders under ss 471A(1A)(d) and 482 of the Corporations Act2001 (Cth) (Act) for leave, or alternatively the court’s approval, to cause Futistasera to appeal, pursuant to Order 77 of Chapter I of the Rules of the Supreme Court, the order of Efthim AsJ made 21 May 2015 winding up Futistasera. The first respondent is Anna Maddelena (Ms Maddelena), a co‑director of Fanniesab with Ms Inturissi. The second respondent is the liquidator of Futistasera, Richard Rohrt.
Section 471A provides:
(1) While a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company.
(1A) Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is:
(a)as a liquidator appointed for the purposes of the winding up; or
(b)as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or
(c)with the liquidator’s written approval; or
(d)with the approval of the Court.
Section 482 provides:
(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
(1A)An application may be made by:
(a)in any case–the liquidator, or a creditor or contributory, of the company; or
(b)in the case of a company registered under section 21 of the Life Insurance Act 1995–APRA; or
(c)in the case of a company subject to a deed of company arrangement–the administrator of the deed.
On Monday, I made an interlocutory order that until 4.00 pm today, or further order, the winding up of Futistasera be stayed.
The evidence in support of the application for the court’s approval, or for leave for the appeal to be instituted, is an affidavit of Ms Inturissi, sworn 22 May 2015.
Ms Inturissi deposes that she is a director of Futistasera in the proceeding and makes the affidavit from her own knowledge, unless otherwise stated.
Ms Inturissi says that she is also a director of Fanniesab, the plaintiff in this proceeding. The other director of Fanniesab is Anna Maddelena. Ms Inturissi produces an Australian Securities and Investment Commission extract dated 22 May 2015 in respect of Fanniesab and Futistasera.
Ms Inturissi relied on the affidavit in support of Futistasera’s application to set aside the judgment in default of appearance obtained by Fanniesab on 29 October 2014. The affidavit has been relied upon in any event in support of the application on the interlocutory process for leave to appeal the order made by Efthim AsJ for the winding up of Futistasera.
In her affidavit Ms Inturissi says that in or about August 2013 Maddelena commenced proceedings against her in the Federal Court of Australia. Ms Inturissi says that pursuant to the originating process in the Federal Court, Maddelena sought orders that she be permitted to institute proceedings in the name of Fanniesab against Futistasera, and alternatively an order that Futistasera be wound up. Ms Inturissi exhibits the affidavit in support, sworn by Maddelena in support of that application, and Ms Inturissi exhibits the affidavit she made in response.
On 20 May 2014, Ms Inturissi says Davies J made orders in the Federal Court of Australia allowing Maddelena to institute proceedings on behalf of Fanniesab against Futistasera pursuant to s 233(1)(g) of the Corporations Act, and Ms Inturissi exhibits the orders.
Ms Inturissi deposes that on or about 14 October 2014 she received a copy of the writ and the statement of claim in the Supreme Court proceeding numbered 5450 of 2014 from her company accountant at the registered office of Futistasera. Ms Inturissi exhibits the statement of claim.
Ms Inturissi says further that on or about 14 October 2014 she contacted Madgwicks Lawyers to retain their services to defend the proceeding on behalf of Futistasera. Ms Inturissi deposes that on or about 14 October 2014 Madgwicks requested, through a client services letter, that she place money into a trust to allow them to commence working on the proceeding, including taking instructions and filing a notice of appearance.
Ms Inturissi deposes that on 31 October 2014 she advised Madgwicks that she was having difficulty obtaining the money requested, as she was suffering some short term cash flow issues. Ms Inturissi says that on 11 November 2014 Madgwicks again requested that she place money into trust, but she was still having difficulty obtaining the money requested.
Ms Inturissi says that on or about 26 November 2014 she attempted to file a notice of appearance on behalf of Futistasera, but this document was rejected. Ms Inturissi says that on or about 1 December 2014 the Bendigo Bank agreed to allow her to extend her facility, enabling her to place money into trust for Madgwicks to act on behalf of Futistasera in the proceedings. Ms Inturissi deposes that on or about 4 December 2014 she placed the requested funds into Madgwicks’ trust account.
Ms Inturissi says that she is informed and believes that on or about 5 December 2014 Madgwicks had attempted to file a notice of appearance on behalf of Futistasera but that the notice of appearance was rejected on the basis that default judgment had been obtained by Fanniesab in the proceedings. Ms Inturissi exhibits a copy of the default judgment.
Ms Inturissi says she is informed and believes that on or about 9 December 2014 Madgwicks Lawyers searched the court file relating to the proceedings and became aware that an amended statement of claim was filed on 29 October 2014. Ms Inturissi says to her knowledge the amended statement of claim was not served on Futistasera. Despite Ms Inturissi being a director of the plaintiff, she was not aware of the amended statement of claim, or that steps were being taken to enter default judgment against Futistasera.
Ms Inturissi says that on or about 17 February 2015 Madgwicks filed on her behalf an application by way of summons to set aside the default judgment. Ms Inturissi says on 26 March 2015 Derham AsJ made orders setting aside the default judgment obtained by Fanniesab and made orders with respect to the timetable of the proceeding.
Ms Inturissi says on 10 April 2015 Futistasera filed and served a defence in the proceeding. Ms Inturissi says that while Fanniesab’s statement of claim refers to the existence of a lease between Fanniesab as landlord and Futistasera as tenant of premises located at 32 Dunlop Road, Hoppers Crossing, her understanding as a director of both Fanniesab and Futistasera is that there was no valid or binding lease between the parties.
Ms Inturissi says Ms Maddelena sold Lorraine Starr, a brothel, in 2004 and Ms Starr had a restraint clause inserted into the contract which prevented Ms Maddelena from owning or running another brothel for five years.
Ms Inturissi says that in about May 2010 Ms Maddelena suggested that Ms Inturissi sell Futistasera’s business and concentrate on her health. Ms Maddelena suggested that if she sold the business to a third party, they could then put in place a real lease by which the third party could pay rent.
Ms Inturissi says the business had never paid rent, because there was never any need for it. Ms Inturissi said there had been suggestion of a lease being put in place right at the start, but it never eventuated. Ms Inturissi says that in or about April/May 2011 Ms Maddelena was approached by a lady named Lee, who was interested in purchasing the business. Ms Inturissi says they organised a meeting, which took place at the Werribee Red Rooster.
Ms Inturissi says that at this meeting she and Ms Maddelena told Lee that the purchase price of the business was $365,000. Ms Inturissi says that throughout the course of this meeting Lee negotiated the price down to $350,000, and she agreed. Ms Inturissi says she told Lee that she would have to lease the premises from Fanniesab and that a new lease would have to be drawn up. Ms Inturissi said she told Lee that currently the business was not paying any rent, because she also owned the building.
Ms Inturissi goes on to say:
We determined that the rental term would be 25 years consisting of a 5 year terms [sic] with four further 5 year options. We agreed on the rental of $152,982.00 as it was the amount I was already paying in interest to the Bendigo Bank plus a little extra.
Ms Inturissi says that in about June 2011 Lee paid a deposit of $35,000 and thereafter applied to get a brothel operating licence. Ms Inturissi said soon thereafter she was contacted by Consumer Affairs Victoria, because they had discovered an anomaly in the paperwork submitted by Lee in support of her application for a brothel licence. Ms Inturissi says that what had occurred was that during the various discussions with Lee, and unbeknown to her, Ms Maddelena had held herself out as being the owner of the business. Ms Inturissi says that Ms Maddelena had told Lee that her name was Kim Doyle, which was an alias that Ms Maddelena used.
Ms Inturissi says that acting on this representation, Lee, in her application for a brothel licence, stated the owner of the business was a Kim Doyle. Ms Inturissi says that this raised alarm bells with Consumer Affairs Victoria, as Kim Doyle/Maddelena did not have a licence to own a brothel and only had a licence to manage a brothel. Ms Inturissi says she advised Consumer Affairs that she did not know why Lee had stated Kim Doyle/Maddelena was the owner when, clearly, Ms Inturissi was the owner and also that Ms Maddelena only managed the brothel on an ad hoc basis due to Ms Inturissi’s medical condition.
Ms Inturissi said at the time she was still recovering from various operations and medications and a person called Sebastian thought it would be a good idea to go on a holiday back home to Italy for a family reunion. Ms Inturissi said she now knows that Sebastian suggested this trip because he thought that she might not be around for too much longer.
Ms Inturissi said she went overseas on 29 June 2011. Ms Inturissi said that whilst overseas, she again started getting ill and upon her return went to the Andrew Love Centre in Geelong, whereupon she was advised by her oncologist that her spleen had grown to 3.5 kilos.
Ms Inturissi says that on 24 November 2011 she had surgery to have her spleen removed. Ms Inturissi says that on the Monday following her operation, 28 November 2011, Ms Maddelena came to see her in hospital. Ms Inturissi says that this visit was purely business, as she only spent a few moments with her and asked her to sign some documents. Ms Inturissi says she cannot accurately remember the true nature of the documents that she signed, due to the heavy painkillers that she was on, but she is confident that the document that she did sign was the lease on which Ms Maddelena now relies.
Ms Inturissi says that the issue of the lease is a new invention by Ms Maddelena, as it makes no sense for her to pay rent to herself. Ms Inturissi says that Ms Maddelena, she believes, has come up with this argument after speaking to some clever lawyers as, prior to their falling out, in or about May this year, Ms Maddelena had never raised this bizarre argument, and as Ms Maddelena was the one paying the amount of the lease herself from her home computer and also prepared the monthly BAS for the accountant, this new invention made up by Ms Maddelena is ‘Her way of getting back at me for the fallout.’
Ms Inturissi says that Ms Maddelena was responsible for transferring the money from Futistasera’s account to Fanniesab’s account and paying the rent/loan every month from her home office. Ms Inturissi says the rental issue is a complete nonsense. Ms Inturissi says:
It has been manufactured, similar to the claim for the consultancy fees, by Maddelena after our fall out on 7 May 2013.
Ms Inturissi further says:
Futistasera has never paid any rent to Fanniesab because it would be like taking money out of my left pocket and putting it into my right pocket. Instead, I through Futistasera, have been paying and servicing the loans that had been taken out for the business as a whole. Maddelena has not made any contribution to loans from the start.
Ms Inturissi says:
Alternatively, if there is found to be a valid lease between the parties, Futistasera satisfied any obligation to pay rent under that lease by making payment to the Bendigo Bank of amounts totalling $919,154.05 (being amounts otherwise payable by the plaintiff).
Ms Inturissi says these amounts are identified at paragraph 9 of Fanniesab’s statement of claim filed in the proceedings. Ms Inturissi says that at no time prior to 2013 did Fanniesab assert or give Futistasera notice that Futistasera was not paying the rent that Futistasera was required to pay under any lease.
Ms Inturissi then summarises Futistasera’s defence. Ms Inturissi refers to Fanniesab’s statement of claim and says it refers to Fanniesab receiving an advance of $165,000 pursuant to a loan agreement with the Bendigo Bank and advancing this sum to Futistasera pursuant to a loan agreement between Fanniesab and Futistasera.
Ms Inturissi says there was no loan agreement between Fanniesab and Futistasera as alleged at paragraphs 14 and 15 of the statement of claim, including as:
(1)at no time did she have a conversation with Ms Maddelena in the terms alleged in paragraph 14 of the statement of claim;
(2)in or about February 2007, Futistasera obtained a loan in the amount of $165,000 directly from Bendigo Bank, not from Fanniesab as alleged.
Ms Inturissi says she does not understand what Maddelena’s concern is.
Ms Inturissi says Futistasera has borrowed that money and Fanniesab, Ms Maddelena and she had put up property as security. Ms Inturissi says Futistasera has been servicing the loan repayments from the start. Ms Inturissi says Futistasera has not missed any payments and it should be in a position to pay off the loan completely in three years’ time. Ms Inturissi says she does not know how the five‑year period has come about, because the repayments were set by the bank.
Ms Inturissi says that on 10 November 2014 Fanniesab served a statutory demand on Futistasera pursuant to the default judgment obtained on 29 October 2014. Ms Inturissi says she does not recall receiving the statutory demand. That is not to say that she did not receive it. And therefore Ms Inturissi cannot explain why she did not address the statutory demand. Ms Inturissi says that on 15 December 2014 Fanniesab commenced winding up proceedings against Futistasera.
Ms Inturissi says that on 15 February 2015 the matter was listed before Efthim AsJ. On that occasion, Efthim AsJ made orders for the carriage of the winding up proceeding. Ms Inturissi exhibits those orders. Ms Inturissi says that thereafter she instructed Madgwicks Lawyers to set aside the default judgment upon which the statutory demand and winding up application was based.
Ms Inturissi says that similarly she instructed her accountant, Mr Joseph Giuffre of J Giuffre & Co, to commence finalising the financials of Futistasera. Mr Giuffre announced he encountered significant difficulties in doing this, as various financial documents had been removed from Futistasera’s premises by Maddelena. Ms Inturissi says that on or about 10 April 2015 Mr Giuffre completed the financials of Futistasera and provided them to her lawyers. Ms Inturissi exhibits those.
Ms Inturissi says she understands from her discussions with Mr Sazz Nasimi of Madgwicks that the financials that had been provided in an unaudited manner would not be accepted by Efthim AsJ. Ms Inturissi says she then asked her accountant to find an auditor that is able to audit the financials that he had finalised. Ms Inturissi says she understands from her accountant that he did find an auditor; however, that auditor, having looked at the documents, informed her lawyers that he could not complete an audit in that time frame. Approximately two weeks were lost in this process, Ms Inturissi says.
On 4 May 2015, Madgwicks Lawyers attended the Supreme Court and sought an adjournment so that Futistasera could find an insolvency expert who could provide an insolvency report. Ms Inturissi says that on 4 May 2015 Efthim AsJ granted a short adjournment. Ms Inturissi says on 5 May 2015 Ms Sharlene Anderson was informally appointed to commission an insolvency report. Ms Inturissi says Ms Anderson thereafter requested a large amount of documents so that she could draft an insolvency report. Ms Inturissi says unfortunately this report could not be finalised by 21 May 2015, the date on which the matter returned before Efthim AsJ. Ms Inturissi says Ms Anderson did, however, prepare a preliminary report that was submitted to the court, which she exhibits. Ms Inturissi says she understands that Ms Anderson was requesting, at the very least, a further seven days in which to finalise the report.
Efthim AsJ made orders on 21 May 2015 to have Futistasera wound up and Mr Richard Rohrt appointed as liquidator. Ms Inturissi says she is adamant that Futistasera is solvent. Ms Inturissi says, ‘Other than the rental debt, which is disputed, I have no outstanding obligations, to the best of my knowledge to any third parties.’
Ms Inturissi says on 21 May, at around 5.00 pm, Mr Rohrt attended the business premises and introduced himself. Ms Inturissi says that Mr Rohrt informed her that Futistasera was now in liquidation. Mr Rohrt also said that Ms Maddelena had a buyer for the business. Ms Inturissi says that it has been her concern from the outset that Ms Maddelena has been running this proceeding because she wants to force her to sell the business because she would not allow her to be a part of it. She says:
I therefore, on the facts presented in this affidavit, request that the Court stay the liquidation so that I can finalise my evidence to the court and satisfy the court that Futistasera is solvent.
Anna Maddelena has also sworn an affidavit, which has been filed. Ms Maddelena deposes that she is a director of Fanniesab, and she says the following facts are within her own personal knowledge, save those that are stated.
Ms Maddelena says that the applicant in this application, Frances Inturissi is the other director of Fanniesab, and they are both directors and shareholders in Fanniesab. Ms Maddelena says that Futistasera has failed to pay rental moneys pursuant to a signed lease between Fanniesab and Futistasera dated 26 February 2007. Ms Maddelena says:
By order of the Federal Court of Australia I have been authorised to commence proceedings on behalf of Fanniesab Pty Ltd against Futistasera Pty Ltd for monies owing on the lease.
I have instructed solicitors who have commenced proceeding number SCI 2014/5450 which includes a claim for $483,289.33 as rental monies owing to Fanniesab Pty Ltd.
Ms Maddelena says she has read the affidavit of Frances Inturissi dated 22 May 2015. Ms Maddelena says:
There are many matters therein that I say are incorrect in the Inturissi Affidavit.
Ms Maddelena says the primary allegations made by Ms Inturissi and the defence to her claim that no rental moneys are owing to Fanniesab are based on allegations that Ms Inturissi did not sign the lease, or that the lease is a sham. Ms Maddelena says that is not true. Ms Maddelena says that a solicitor in Geelong, by the name of Frank Vinci, acting for Ms Inturissi, herself and Futistasera and Fanniesab, was engaged in the preparation of the lease. That solicitor has provided instructions to her current solicitors that he will swear an affidavit in proceeding number 5450 of 2014 that Ms Inturissi attended his office on or about 26 February 2007 and signed the lease at his law office.
Ms Maddelena says:
The allegation that the absence of a lease is justified because of the fact that Frances Inturissi or [the defendant] would be paying herself in Fanniesab Pty Ltd show a lack of understanding of business and corporate affairs. This allegation is also obviously inconsistent with the fact that I am a half owner of Fanniesab, and a director of it. Further, I say the obvious when I say the freehold tenancy of Fanniesab Pty Ltd was made possible by me putting up substantial assets as security for the mortgage of Fanniesab Pty Ltd, as well as personal guarantees. Clearly, I would not encumber properties owned by me and sign personal guarantees for Fanniesab Pty Ltd unless I could reasonably expect Fanniesab Pty Ltd to receive rent in accordance with the signed lease with the [sic] Futistasera Pty Ltd prepared and executed in the presence of our solicitor at the time — Frank Vinci.
My solicitors have advised me that there is no known defence to the Lease claimed by Fanniesab Pty Ltd given the existence of the written lease and the evidence of the lawyer engaged by us at the time — Frank Vinci. Accordingly, I say Futistasera Pty Ltd has a debt of [sic] in excess of $483,289.33 as rental monies owing to Fanniesab Pty Ltd with no legitimate defence.
I have sighted the unsigned un‑audited accounts of Futistasera Pty Ltd for the year ending 30‑6‑2014. Those accounts are prepared by the brother of Frances Inturissi. I note those accounts show no profit whatsoever for the last two financial years. They also show net assets of about $8 assuming the goodwill is worth $165,000. If the goodwill of the business is worth less than the amount of $165,000 then there are clearly negative assets in the business.
Ms Maddelena says she has recently spoken with Doug Nicholas of DJ Enterprises Pty Ltd, who is a business broker who specialises in brothel businesses and related land freeholds. He brokered the sale of the freehold land to Fanniesab and the brothel business of Futistasera. At her request, he has spoken with the liquidator of Futistasera. He advised her that based on the figures that he was provided by the liquidator, the brothel business of Futistasera is worth somewhere between $nil and $150,000. Ms Maddelena says this depends on the lease terms Futistasera has with Fanniesab. She says that with no lease she was told by him the business is nearly worthless.
Ms Maddelena says that the lease between Fanniesab and Futistasera has expired, and she advises a monthly tenancy by her solicitors.
Maddelena says:
On any analysis due to the above Fanniesab Pty Ltd will only get cents in the dollar as an unsecured creditor of [the defendant] as there is no prospect to get the full amount of the rent claim paid by the company as it does not have the assets nor income to meet its liabilities to Fanniesab Pty Ltd. Even a sale of the business by the liquidator will only provide a small return to the creditors of [the defendant] namely Fanniesab Pty Ltd.
Ms Maddelena says that it appears that Frances Inturissi is acting against the interests of [Futistasera] in seeking to trade whilst not paying any rent to Fanniesab.
Ms Maddelena says,
It appears that Frances Inturissi is acting against the interests of Fanniesab Pty Ltd in not seeking to sell the brothel business and using the proceeds of sale to pay Fanniesab Pty Ltd its rental debt.
Ms Maddelena says further that moneys are owed by Futistasera to Fanniesab which relate to moneys lent to Futistasera for the acquisition of the brothel business. She humbly requests that the liquidation not be further stayed.
There were many submissions from the Bar table and with reference to evidence that was before Efthim AsJ. The order that Efthim AsJ made on 21 May contains the following under ‘Other Matters’, otherwise no formal reasons were delivered as far as I have been informed. Under ‘Other Matters’, his Honour stated:
Futistasera applied for a 7 day adjournment which was refused.
The originating process was filed on 15 December 2014, and was adjourned on 3 occasions.
On the last adjournment on 4 May 2015, Futistasera was informed that if Futistasera did not file material to support that it was solvent, it would be wound up. Sharlene Anderson, chartered accountant of Worrells Accounts, gave evidence that she was engaged on 11 May 2015 to provide accounts regarding solvency. She received documents this day from Futistasera which were emailed to her last night. On the documents and accounts she had reviewed, she could not say if the company was either solvent or insolvent.
His Honour continues:
The adjournment was refused because the Defendant’s directors had ample time to prove solvency.
The Company had not complied with a statutory demand and was presumed insolvent, which had not been rebutted.
The orders of the court were that Futistasera be wound up in insolvency under the provisions of the - Act and Richard Rohrt be appointed liquidator for the purposes of the winding up. Fanniesab’s costs, including reserved costs, were ordered to be costs in the winding up.
There is one further piece of evidence I should refer to, and I admit that I have not canvassed all the evidence that was before the Associate Justice, but it was evidence which I consider is relevant to considering the merits of each side’s arguments that will need to be tested at trial after hearing sworn evidence.
The income and expenditure account, I should say, for Futistasera’s unit trust for the year ended 30 June 2014 shows the figures for the 2013 year and the 2014 year. The income of the business, which I presume was conducting the brothel, was $420,480.82. The expenses were $420,480.76, leaving a profit of 6 cents. One might accept that as a coincidence if it were to happen in one year, but it happened again the next year.
The following year the income is shown as $421,156.97 and the expenses were such that the profit had swelled to 75 cents. Those accounts in my mind, without making any findings one way or the other, raise the suggestion that they are not the true and fair accounts of the business. I do not need to make any finding about it.
We have two extreme versions of what took place concerning the lease. The accounts appear to be a fiction. That raises the question as to where the truth lies. It is not my function at this application to resolve that issue. The matter before me is to resolve the application.
Ms Inturissi says that there are at least two valid defences to the winding up proceedings and that the Associate Judge erred in making his decision in the face of these propositions.
The first is that the order made in the Federal Court by Davies J gave leave for Ms Maddelena to cause Fanniesab to take proceedings against Futistasera. Mr Evans, for Ms Inturissi, submitted that it is questionable indeed whether leave to take proceedings to recover a debt would include bringing winding up proceedings.
There was a view that winding up proceedings were not to be used for debt collection. That view is out of favour now, but the older cases say it was an abuse of process to use winding up proceedings for that purpose. The purpose was to wind up insolvent companies. But the more modern approach is that winding up proceedings are a legitimate weapon to be used in recovering debts to use. But the fact that it may be seen by the courts as a legitimate weapon does not necessarily mean that it was what was intended and encompassed by the order made by Davies J. In my view, Mr Evan’s argument is a reasonable one that could be put forward.
Secondly, Mr Evans argues on behalf of Ms Inturissi that as the default judgment in favour of Fanniesab was set aside by the order of Derham AsJ, Fanniesab was no longer a creditor of Futistasera and lacked standing to appear before the Associate Justice to request that the winding up order be made.
In Mann v Goldstein,[1] Ungoed‑Thomas J reviewed the authorities on the right of a petitioning creditor to pursue a petition for winding up when a debt is disputed on substantial grounds.
[1][1968] 1 WLR 1091.
His Lordship said, after a thorough review of the authorities, that:
These considerations appear to me to be complicated and inconclusive and afford no satisfactory basis for the exercise of the court’s jurisdiction. For my part, I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor’s petition can only be presented by a creditor, that the winding‑up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding‑up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court.
I direct particular attention to his Lordship’s observation about, ‘Or after it has been clear’. In this case it has become clear, because the judgment debt has been set aside. That authority has been cited with approval in Australia by Yeldham J in Re Glenbawn Park Pty Ltd.[2] His Honour says at page 292:
Many of the reported cases are ones where injunctions have been sought to restrain the advertisement of a petition and all further proceedings upon it. One such case was Mann & Anor v Goldstein [1968] 1 WLR 1091 … where Ungoed‑Thomas J … said —
and his Honour cites the passage I just read, but prefaced it with an early paragraph as follows:
It might be suggested that this court should, where the company is insolvent, intervene on the ground that it would be to the detriment of future possible creditors to countenance the continuation of a company unable to pay its debts as they fall due. But the Companies Court, in accordance with the practice which I have mentioned, does dismiss a petition founded on a substantially disputed debt whose validity it cannot conveniently decide even though the company be insolvent …
[2](1977) 2 ACLR 288.
Justice Yeldham goes on to say:
Earlier his Lordship had cited the passage from Buckley to which Gibbs J referred in the case I have mentioned, Mann v Goldstein was approved and applied by Megarry J in Re Limpne Investments Ltd [1972] 1 WLR 523; … There his Lordship, who dismissed the petition because the debt was shown to be bona fide in dispute, said —
and this is at Weekly Law Reports 527:
It therefore seems to me that this petition must fail. A real dispute, turning to a substantial extent on disputed questions of fact which require viva voce evidence, and involving charges of fraud, cannot properly be decided on petition. Nor is it right, or in accordance with the modern practice, to stand over the petition in order that the disputed issues may be resolved in other proceedings ... The Companies Court must not be used as a debt‑collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company’s head while that litigation is fought out.
As I said, I am not sure whether that is still the position now. But to return to Mr Evans’ propositions, I do not need to decide today whether the views expressed by McGarry J or Ungoed-Thomas J are still good law in view of the new provisions in the Act which allow for proceedings to determine whether there is a genuine dispute to a claimed debt and provision for the winding proceedings to be terminated if the court finds there is a genuine dispute.
No authority has been cited to me today about the unusual position where a petition or an application for winding has been properly commenced but then the creditor who relies on a judgment debt no longer has the benefit of that judgment and is therefore no longer a creditor, seeks to have the winding order made. In my view this raises a serious question to be determined.
Another issue that has been raised by Mr Lanza is the question of the costs of any appeal.
Ford, Austin and Ramsay’s Principles of Corporations Law, under the heading ‘Security for costs’, states:
A company that wishes to appeal may be directed to provide security for costs otherwise than from assets under the control of the liquidator.
Reference is made to Re Rick Wilson Pty Ltd,[3] Arafura Finance Corp Pty Ltd v Kooba Pty Ltd (No 2)[4] and Tricorp Pty Ltd (in liq) v DCT (WA).[5] The learned authors go on then to state:
The question of costs will be addressed when directors seek the approval of the court under s 471A(1A) to cause the company to appeal against a winding up order. The court will be concerned to see that the expenses of the appeal should not erode the resources of the company to the prejudice of creditors and will need to be satisfied that the company is solvent or that someone other than the company will bear the expenses of the appeal ...
[3](1982) 7 ACLR 354.
[4](1987) 12 ACLR 331.
[5](1992) 6 ACSR 706.
The authors there refer to Lane Cove Council v Geebung Polo Club Pty Ltd (No 2)[6] and also they refer to an undertaking which was accepted in Masri Apartments Pty Ltd (in liq) v Perpetual Nominees Ltd.[7]
[6](2002) 41 ACSR 15.
[7](2004) 209 ALR 86.
I now move onto the topic of whether there should be a stay of the winding up, pending the appeal, assuming that I do give leave to appeal.
Under the heading, ‘The company’s proposed appeal’, it states:
The company must be appealing in good faith and the court that is asked for the stay must be satisfied as to the strength of the company’s case for appeal.
Several cases are referred to there, including the New South Wales Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Aust) Ltd,[8] which ‘required it to be shown “that the appeal raises serious issues for the determination of the appellate court”‘. I have indicated already that in my view the appeal would raise such serious issues.
[8](2002) 55 NSWLR 737.
My conclusion is that Ms Inturissi should be given leave, as a director of Futistasera, to cause Futistasera to appeal against the winding up order made by Efthim AsJ on 21 May 2015.
I have considered whether I should limit the grounds of appeal to those that I have referred to. I have decided not to, because it became apparent to me that Mr Evans has not had a chance to review the evidence that Mr Lanza referred to that was given at the hearing, and has not had the benefit of absorbing what Mr Lanza said with respect to the way the proceedings progressed.
I think the fairest approach is to grant leave to appeal on the grounds referred to by Mr Evans and on any other grounds that are considered appropriate.
I am prepared to grant a stay of the winding up of Futistasera.
Orders were made accordingly.
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