Re Luxtrend Pty Ltd

[1996] QSC 198

IN THE SUPREME COURT

OF QUEENSLAND  Application No. 52 of 1992

Brisbane

[Re Luxtrend Pty Ltd]

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of LUXTREND PTY LTD

REASONS FOR JUDGMENT

Judgment delivered 24 October 1996

CATCHWORDS: CORPORATIONS LAW - Company in liquidation - power of liquidator to compromise a claim exceeding $20,000 - whether a preference payment is a "debt" under s.477(2A) so as to require approval for compromise - Corporations Law ss.477(1), 477(2A), and 565.

Counsel:J. Sullivan for the applicant

Solicitors:Stokes & Panettiere Solicitors

Hearing Dates:  3 September 1996

IN THE SUPREME COURT

OF QUEENSLAND  Application No. 52 of 1992

Brisbane

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of LUXTREND PTY LTD

REASONS FOR JUDGMENT

Judgment delivered 24 October 1996

This application gives rise to a consideration of whether the proposed settlement of proceedings commenced under s.565 of the Corporations Law claiming more than $20,000 requires the sanction of the Court (or one of the other permitted forms of sanction) by reasons of s.477(2A). Proceedings were commenced to recover $65,462.25 as a preference. The proceedings are defended. Counsel's advice is to the effect that the applicant's prospects are no better than even. The parties are prepared to compromise on the basis that the respondent pay the applicant $10,000.
Section 477(2A) provides—

"477(2A)  [Upper limit on power to compromise]  Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than—

(a)if an amount greater than $20,000 is prescribed - the prescribed amount; or

(b)otherwise - $20,000. "

Section 477(1) of the Law provides—

"477(1)  [Powers]  Subject to this section, a liquidator of a company may—

(a)carry on the business of the company so far as is necessary for the beneficial disposal of winding up of that business;

(b)subject to the provisions of section 556, pay any class of creditors in full;

(c)make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging that they have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or whereby the company may be rendered liable; and

(d)compromise any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the property or the winding up of the company, on such terms as are agreed, and take any security for the discharge of, and give a complete discharge in respect of, any such call, debt, liability or claim."

As will emerge, it is of interest to compare these provisions with ss.377(1) and (2) of the Companies Code. Section 377(1) provided that the liquidator required the authority of the Court, of the committee of inspection or resolution of the creditors to do any of the things set out in s.477(1) of the Law.
           Section 377(2) of the Code relevantly provided that—

"The liquidator may—

. . . .

(j)compromise any debt due to the company other than cause and liability for call and other than a debt where the amount claimed by the company to be due to it exceeds $20,000".

In other words, under the Code the position was the converse of that under the Law.  Under the Code there was a general power to compromise debts under $20,000 but other compromises required approval.
The power contained in s.477(1)(d) of the Law is sufficiently widely expressed to encompass settlement of a preference claim. The question which then arises is whether such a claim is a debt in terms of sub-s.(2A).
           Generally speaking, a debt is a chose in action founding an action for debt; Ogdens Ltd v. Wemberg 1906 L.T. 567 (H.C.). The characteristic of a debt is that it is a sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future; Webb v. Stenton (1883) 11 Q.B.D. 518 at 526; Re ANZ Savings Bank (1972) V.R. 690 at 692. In the latter case it was held there was no debt because there was no present obligation to pay; for that to arise required the performance of a condition precedent - presentation of a passbook and a completed withdrawal slip. It may be doubted that a preference payment constitutes a debt in the sense referred to in this case.
           A preference action is characteristically an action for monies had and received; Enterprise Sheet Metal Pty Ltd (in liquidation) v. Queensland Steel and Sheet Pty Ltd (1995) 1 Qd. R. 511 at 512 and 513. An action for moneys had and received was traditionally brought on an indebitatus count rather than in debt - cf. Holmes v. Hall (1705) 6 Mod. Rep. 161; 87 E.R. 918; Moses v. Macferlan (1760) 2 Burr. 1005; 97 E.R. 676.
           A payment said to constitute a preference is, at the time at which it is made, a valid discharge of the debt.  Whether a liquidator is entitled to avoid a payment as a preference is subsequently determined by the court.
           The considerations being those adverted to, I am of the view that a preference payment is not a debt in the sense I have been discussing.
The question then is whether "debt" has any wider or different meaning in the context of the Law when it is used in s.477(2A).
           In the context of s.556 of the Code (now s.592 of the Law) the New South Wales Court of Appeal has held that "debt" included an undertaking to pay a sum of money at a future time even though the undertaking was conditional and the amount uncertain.  It thus covered obligations under a guarantee - Hawkins v. Bank of China (1992) 26 N.S.W.L.R. 562, 570-572, 576-578 (CA); cf. Russell Halpern Nominees Pty Ltd v. Martin [1987] WAR 150, 153 (FC). This was explained in Re Beckwith 43 F.C.R. 256, 271 as being limited to a conditional but unavoidable obligation to pay a sum of money (as on a guarantee).
           In Hawkins it was said to the effect that "debt" must be construed wherever it appears in the Corporations Law "in a practical and commonsense fashion, consistent with the context and with the statutory purpose".  Even so, it was difficult to conclude that an amount recovered in the preference action is a conditional but unavoidable obligation in the sense used in Hawkins.
It may be argued that the statutory purpose of s.477(2A) is to restrict the power of compromise so that the company does not forgo large sums which might otherwise be available for the benefit of creditors; State Bank of New South Wales v. Turner Corporation Ltd (1994) 14 A.C.S.R. 480 (Fed. Ct.) at 483. That case was not however concerned with the meaning of debt in s.477(2A). Cases under the Code appear to be of little relevance because of the difference between s.477(2A) of the Law and s.377(2) of the Code referred to earlier.
Finally it may be noted that s.477(2A) of the Law refers only to "debt", whereas s.477(1)(d) refers to debt and other forms of liability. This arguably suggests that "debt" in s.477 is restricted to its more traditional meaning; there would otherwise be no reason to refer in s.477(1)(d) to "calls". The deeming provision in s.477(5) (referring to the powers in s.477(2)(h)) does not support either view because, notwithstanding the heading, there is no reference to "debt" in the provision.
While regard can be had to the purpose of a statutory provision to gauge the meaning of a word or phrase, the construction of a provision turns primarily on the words used. I am of the view that a preference action is not a debt in terms of s.477(2A) so as to require an approval as contemplated by the section.
           I order that the costs of the liquidator and of the company of and incidental to this application be costs in the administration.