Re Grimdi Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2024 06336

IN THE MATTER of GRIMDI PTY LTD (ACN 132 036 269)

BETWEEN:

VICTORIAN WORKCOVER AUTHORITY (ABN 90 296 467 627)	Plaintiff
v
GRIMDI PTY LTD (ACN 132 036 269)	Defendant

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JUDGE:	Steffensen AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	15 January 2025
DATE OF RULING:	15 January 2025 (ex tempore; revised 13 February 2025)
CASE MAY BE CITED AS:	Re Grimdi Pty Ltd
MEDIUM NEUTRAL CITATION:	[2025] VSC 37

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WINDING UP – Leave to withdraw – Defendant seeks that the plaintiff be given leave to withdraw the application to wind up in insolvency for failure to comply with creditor’s statutory demand – Factors to be considered when granting leave to discontinue – Public interest in winding up proceedings – Where application has been advertised – Where evidence of prejudice insufficient – Relevance of prejudice to other creditors – Where no good reason shown for the winding up hearing not to proceed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	D Bosman, solicitor	Lawes Le Maire Lawyers
For the Defendant	P Tatti, solicitor	Aitken Partners

HER HONOUR:

A Introduction

By originating process filed on 22 November 2024, the plaintiff seeks an order for the winding up of the defendant in insolvency on the basis that it failed to satisfy a statutory demand in respect of WorkCover premiums owed to the plaintiff, the Victorian WorkCover Authority.
The plaintiff has filed the usual evidence in support of its originating process, including the affidavit of service of the statutory demand, an affidavit in support of the order sought which states that as at the date of that affidavit, being 21 November 2024, the debt remained due and payable, and an affidavit of service of the originating process. The plaintiff has also filed evidence confirming that the notice of the application was lodged with the Australian Securities and Investments Commission (‘ASIC’) on 26 November 2024, and that the proceeding has been advertised since 2 December 2024 on the ASIC insolvency notices website.
The originating process is listed for hearing in two weeks’ time on 29 January 2025. By interlocutory process filed yesterday, the defendant seeks an order granting the plaintiff leave to withdraw the application pursuant to s 467(3)(e), of the Corporations Act 2001 (Cth) (‘Corporations Act’). By order dated 14 January 2025, Delany J referred the hearing and determination of the defendant’s interlocutory process to me pursuant to r 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and if required, under r 16.1(3) of the Supreme Court (Corporations) Rules 2023 (Vic) (‘Corporations Rules’).
The defendant relies upon the affidavit of one of its directors, Giovanni Anthony Di Francesco, which was affirmed on 17 December 2024 and filed on 14 January 2025, together with an affidavit evidencing service of this application upon the plaintiff, and an affidavit of the defendant’s solicitor, Erin Rebecca Prout, which was filed on 15 January 2025.

B Applicable Principles

Section 467(3)(e), of the Corporations Act gives the Court the discretion to allow an application by a company for a winding up application to be withdrawn. This is consistent with r 5.8 of the Corporations Rules, which provides that an application to wind up a company may not be discontinued except with leave of the Court.
The defendant took the court to four authorities considering the question of leave to withdraw or discontinue. The first being Re a Company Incorporated in the Australian Capital Territory and Re the Companies Ordinance 1962[1] (‘Re a Company’). In that decision, Kelly J noted that where, like this, a matter has been set down to be heard in open court, the court will be loath to hear it otherwise unless there is good reason.[2] Kelly J found there was good reason to grant the petitioning creditor leave to withdraw the originating process on the basis that they had been paid and the hearing of the application had not yet been advertised, such that other creditors were not on notice of the application and did not have a right to appear. Kelly J referred to possible adverse costs consequences to the petitioner should the hearing be advertised and that ‘grave damage’ may be done to the credit of the company that was the subject of the winding up application.[3]
[1]Re a Company Incorporated in the Australian Capital Territory and Re the Companies Ordinance 1962 (1980) 35 ACTR 36 (‘Re a Company’).
[2]Ibid 37.
[3]Ibid.
In JN Taylor Finance Pty Ltd (in liq) v BCF (Bond Corporation Finance) & Ors (No 2),[4] Debelle J granted leave to withdraw a winding up application in circumstances where the provisional liquidator sought the court's approval of a deed of court compromise. The circumstances that favoured the withdrawal were that the only major creditor of the company who was external to the corporate group supported the deed of compromise and discontinuance of the winding up proceeding. Further, no creditors had filed appearances following the advertisement of the hearing, and the appearances that had been filed by intervenors supported the application to discontinue the proceeding.
[4](1991) 5 ACSR 49.
In Chief Commissioner of State Revenue v SPV2Pty Ltd[5] (‘SPV2’), Austin J said that the question of whether leave to withdraw should be granted under s 467(3)(e), depends upon a consideration of the possible prejudice that might arise to any party or any other creditor of the defendant company.[6] In that case, leave was granted on the basis that there was strong evidence that the defendant companies would suffer substantial prejudice vis-à-vis financers. Whilst the ASIC Form 519 had been filed, such that an ASIC search would reveal the existence of the proceeding, the proceeding had not yet been advertised and no appearance had been filed on behalf of creditors, and nor had any creditors indicated that they had any interest in the proceeding. Austin J found that the prejudice to the company outweighed any interest that might be suffered by a supporting creditor who may be planning to make an application for substitution on the return date, as they may institute their own proceedings, albeit they may lose the advantage of the plaintiff’s relation back day.[7]
[5][2008] NSWSC 829 (‘SPV2’).
[6]Ibid [4].
[7]Ibid [6]-[8].
In ReOpen Plains Wholesale Meats Pty Limited[8] (‘Open Plains’), Brereton J considered an application where the winding up proceeding had been in Court on more than one occasion. His Honour said that in these circumstances, the Court would expect to receive evidence of solvency and as to what, if any, notice of intention to appear, and support or oppose the application being received from the creditors or contributories. Brereton J said that it was ‘with considerable misgivings’, that he granted leave to the plaintiff to discontinue.[9] The circumstances found to justify leave were that there was a dispute as to the service of the statutory demand, the quantum of the debt claimed was low, and that the supporting creditor had indicated that they were not in a position to be substituted.
[8][2012] NSWSC 1156.
[9]Ibid [8].

C Consideration

By this application, the defendant is seeking to shortcut the proceeding and avoid a hearing in open court where other creditors will have an opportunity to be heard (if they so desire), as to whether it is appropriate for the plaintiff to be granted leave to withdraw the proceeding.
As intimated by Kelly J in Re a Company, and Brereton J in Open Plains, there needs to be a good reason for an application such as this to be granted. This is due to reasons of public policy and the public interest in winding up proceedings, which is to ensure that companies that are insolvent are not permitted to continue to trade and incur debts. The Corporations Act and Corporations Rules provide for a regime where the interested persons are given notice of an application to wind up a company through both notification to ASIC and the advertisement of the hearing date.
Where, like here, the petitioning creditor has been paid, the Corporations Act allows for other creditors to be substituted in their place. In this case, the application to wind up the company is fixed for a hearing in two weeks’ time and the hearing has been advertised as required under the Corporations Act and Corporations Rules. The good reasons pointed to by the defendant in support of its application are as follows:
(a)First, the defendant points to the fact that the petitioning creditor’s debt has been paid. The defendant says that it did not receive the demand, and that the debt was paid upon the company having notice of the proceeding or shortly thereafter. The defendant submits that had the demand been received, it would have been promptly paid or an application would have been made for it to be set aside on the basis of a calculation error in the schedule of the demand, with the total demanded amount being less than the sum of the items in the schedule. There are some inconsistencies with respect to the defendant’s evidence which seeks to explain its conduct. These inconsistencies were addressed during the course of the hearing with the defendant’s solicitor and it was submitted that they were inconsequential in light of the quick payment of the debt following service of the originating process, and the later payment of an additional amount owing.
(b)Next, the company relies upon evidence that the company is solvent. In this regard, the defendant submits that whilst it is not necessary to adduce evidence of solvency at this stage in a proceeding, the financial year to date profit and loss and balance sheets do not indicate any solvency issues. In this regard, the defendant focused upon its submissions as to the year to date net profit of $588,034.55.
(c)The defendant has adduced evidence that it is working with the other statutory creditors, that is, the Australian Taxation Office (‘ATO’) and the State Revenue Office (‘SRO’). The defendant submits this evidence illustrates that the company is taking matters seriously and actively dealing with the debts owed to these entities (which are substantial), and further indicates that the creditors are engaging with the company to resolve issues rather than taking any enforcement action. In relation to both the ATO and the SRO, Mr Di Francesco says in his affidavit at [37] and [43], that he believes this proceeding ‘poses a significant risk and prejudice to the Company’, because it may derail the discussions with the ATO and SRO. However, how this is the case has not been explained by the defendant, and given the passage of time since the affidavit was affirmed and today’s date, there is no evidence that this anticipated prejudice has actually come to pass.
(d)The defendant also points to the position of the company’s bank, National Australia Bank (‘NAB’) as giving rise to prejudice. The defendant gives evidence of its dealings with NAB, which is a creditor, including by way of cross-guarantees in relation to the debts owed by related entities of the company. Mr Di Francesco says at [29] of his affidavit, ‘NAB has made enquiries with the Company as to the Plaintiff’s alleged debt and how [the company] intends to deal with the proceeding’. At [30] , he says that he believes that if the application is not granted, this may cause significant risk and prejudice to the company, as NAB may exercise its facility rights and immediately call for the repayment of the funds, apply to be substituted as the petitioning creditor, and tighten or limit future lending to the defendant and its corporate group. However, it was submitted that there has been no further correspondence from NAB in relation to this proceeding.
(e)The defendant points to the company’s role in wider group operations and its responsibility for making lease payments, and its responsibility for payment of some employees and insurance, such that it was said that this application puts the whole group at risk, including the employment of between 600 to 700 people. However, I do not understand this to be evidence of prejudice of the application, but rather, prejudice that might arise should a winding up order be made. Whilst Mr Di Francesco gives evidence that if the leave to withdraw is not granted, the company and corporate group may suffer significant risk and prejudice through NAB exercising its rights, again, there is no evidence that this has or is likely to come to pass. In fact, the submission was to the contrary, namely, that no further correspondence had been received from NAB.
(f)The defendant says that it will suffer prejudice if the winding up hearing is allowed to proceed, as it may have to respond to an application by a supporting creditor under s 465B of the Corporations Act to be substituted as the applicant, and should that occur, the defendant would need to adduce evidence to prove that it is solvent, and consider making an application under s 459S of the Corporations Act for leave to rely upon grounds that it could have relied upon in an application to set aside the plaintiff’s statutory demand.
(g)The key point relied upon by the defendant in its submission is that the prejudice to any supporting creditors is minimal. In this regard, the defendant’s solicitor heavily relied on the decision of Austin J in SPV2. This is because withdrawal of this application does not affect any creditor’s right to take their own enforcement action, and petition for a winding up. It is not necessary for them to rely upon the presumption of insolvency that has arisen from the defendant’s failure to satisfy the plaintiff's statutory demand. Further, leave to withdraw does not imply a dismissal of the proceeding, such that there will be no misunderstanding that there has been a finding by the Court on the merits that the company is solvent, or at least not insolvent.
(h)Lastly, the defendant relies upon the fact that the statutory demand is subject to challenge. Given the defect outlined by the defendant, the plaintiff submitted that this weighs in favour of granting leave to withdraw, as the ability of a supporting creditor to rely upon a presumption of insolvency arising from a defective statutory demand is in question. The defendant adopted this submission and I accept that this is similar to the case before Brereton J in Open Plains, where a relevant factor was that there was a dispute as to service of the statutory demand.
In my view, the defendant has not demonstrated there is a good reason for this matter to not proceed in the ordinary way and proceed to its hearing in two weeks’ time.
This is because rather than demonstrating that the company is solvent and able to pay its debts as and when they fall due, the financial information demonstrates a significant net deficit of current assets to current liabilities. I do not accept the defendant's submissions that it is not necessary to consider the balance sheet position as to the availability of assets to meet liabilities. This is precisely the analysis that needs to be undertaken when considering solvency in the manner it is defined in s 95A of the Corporations Act.
In this regard, the balance sheet as at 30 November 2024 shows current assets of around $300,000, of which $224,000 is cash at bank. However, this must be compared as against the current liabilities, which total around $2.6 million, including accounts payable of approximately $1.7 million, and significant liabilities to the ATO which total in the order of $1.3 million. This leads to a significant deficit of current assets to current liabilities. Thus, having regard to the cash flow test of solvency provided in s 95A of the Corporations Act, the company may well be insolvent. This is a weighty factor in favour of dismissing the interlocutory process and allowing the proceeding just to take its normal course.
The defendant gives evidence in Mr Di Francesco’s affidavit at [35], that last month the defendant ceased making payments pursuant to an agreed payment plan with the ATO with respect to its debt. It is not explained why this occurred, and this also does not bode well for demonstrating the company’s solvency.
If the defendant is solvent, and accommodation has been reached between the defendant and its creditors, then no party will seek to petition for the winding up order at the hearing fixed on 29 January 2025. The defendant’s interlocutory process is seeking to shut the creditors out from this opportunity. However, there is no evidence as to the position of the company’s creditors. In this regard, it may have been persuasive had there been evidence that there are no other statutory demands which have been served on the defendant, or that the major creditors did not support the winding up.
No notice of this application has been given to any creditor of the company and it has been brought on short notice, in circumstances where the hearing of the application has been advertised since 2 December 2024. To date, no notices of appearances have been filed by any supporting creditors. However, the Corporations Rules do not provide a time by which a supporting creditor may file its notice of appearance, and they may do so at any time up until the hearing.
As I have already touched on, it is not explained how the company is prejudiced by the proceeding going forward to hearing in the ordinary way, in circumstances where it has been advertised and fixed for hearing in a short period of time. The only prejudice pointed to was the need to respond to the proceeding in the ordinary way any defendant who has paid a debt owing to a petitioning creditor is required to do. This occurs regularly in the winding up list.
This case differs significantly from the authorities referred to above, where the prejudice that the company would suffer should leave to withdraw not be granted was described as ‘grave’ in Re a Company[10] and ‘substantial’ and ‘sufficiently weighty to outweigh whatever prejudice would be suffered by a supporting creditor’ in SPV2.[11]
[10]Re a Company (n 1) 37.
[11]SPV2 (n 5) [2], [4], [8].
Whilst the director asserts that the proceeding has the potential to derail discussions with the ATO, the SRO and NAB, there is no evidence that this has in fact occurred, and further, no evidence that the hearing of the proceeding will have any prejudicial effect, as opposed to the existence of the proceeding.
In this regard, I note in passing that any reputational damage arising from the existence of the proceeding, the horse has bolted on this quite some time ago, when ASIC was notified and the hearing was advertised. The balance of prejudice pointed to appears to be prejudice to the company and group's operations if a winding up order is made, as opposed to if the hearing of these proceedings is allowed to continue in the ordinary way.
I accept that supporting creditors have the ability to institute their own winding up proceedings. However, having regard to the evidence that may demonstrate concern as to this company’s solvency and the lack of evidence as to the position of any other creditors, and given that the hearing has been advertised, I do not consider that the balance weighs in favour of granting the application.
Unlike Open Plains or SPV2, there is no compelling evidence as to the prejudice to the defendant should the proceeding remain on foot. The only prejudice is to the need to respond to the application.
Having regard to the public policy reasons to which I have already referred, I do not consider that it is appropriate to allow the proceeding to be withdrawn at this point, and it is appropriate for the hearing on 29 January 2025 to proceed, at which point it may be that this is exactly what occurs.

I will therefore make an order dismissing the interlocutory process.

[2025] VSC 37

15 January 2025 (ex tempore; revised 13 February 2025)