Re Parkway One Pty Ltd (in liq)

[2019] NSWSC 1495

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Parkway One Pty Limited (in liquidation) [2019] NSWSC 1495
Hearing dates:	28 October 2019
Decision date:	01 November 2019
Jurisdiction:	Equity - Corporations List
Before:	Rees J
Decision:	1. Dismiss the Interlocutory Process filed on 27 August 2019. 2. Order the applicant to pay the costs of the Interlocutory Process.
Catchwords:	CORPORATIONS — Winding up — Termination — Company wound up in insolvency — Whether solvency demonstrated — Substantial real property assets — Unverified cash flow projections — Liquidator unable to reach concluded view on books and records provided — Payments of rent unsupported by primary documents — Failure to pay trade creditors when due — Solvency not adequately supported — Application dismissed.   CORPORATIONS — Winding up — Termination — Commercial morality — Relevant factors — Inadequate explanation of breaches or changes to be made — Failure of director to cooperate with liquidator of another company — History of non-payment of trade creditors — Failure to keep proper books and records — Significant and unexplained cash transactions — Not appropriate to terminate winding up — Application dismissed.
Legislation Cited:	Corporations Act 2001 (Cth), ss 9, 198G, 286, 482, 530A, Insolvency Practice Schedule (Corporations), s 90-15 Supreme Court (Corporations) Rules 1999 (NSW), r 2.8 Trade Practices Act 1974 (Cth)
Cases Cited:	Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Limited (1999) 17 ACLC 972; [1999] NSWSC 494 Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163 Gematech Pty Ltd v Bardi Investments Pty Ltd [2008] NSWSC 196 In re Telescriptor Syndicate Limited [1903] 2 Ch 174 In the matter of 311 Hume Highway Liverpool Fund Pty Ltd (in liq) (2013) 93 ACSR 683; [2013] NSWSC 465 In the matter of Charterarm Investments Pty Ltd [2011] VSC 577 In the matter of CNL Transport Pty Ltd (in liq); Hunt v Smith [2017] NSWSC 291 In the matter of Enviro Energy Australia Pty Ltd (in liq) [2010] NSWSC 1222 In the matter of Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280 In the matter of LL Nominees Pty Ltd (in liq) [2009] FCA 1144 In the matter of Modena Imports Pty Ltd (in liq) [2010] NSWSC 739 In the matter of MWM Sydney Pty Ltd (in liquidation) [2016] NSWSC 688 In the matter of R.A.N.S. Pty Ltd (in liq) [2012] VSC 480 In the matter of Recycling Glass Pty Limited (ACN 001 332 654) [2014] NSWSC 439 In the Matter of SNL Group Pty Ltd (in liq); Su v SNL Group Pty Ltd (in liq) [2010] NSWSC 797 Metledge v Bambakit Pty Ltd [2005] NSWSC 160 Owners Strata Plan 70294 v LNL Global enterprises Pty Ltd (2006) 60 ACSR 646; [2006] NSWSC 1386 QBE Workers’ Compensation Pty Ltd v P Russell Enterprises Pty Ltd [2005] NSWSC 1128 Re Data Homes Pty Limited (in liq) [1972] 2 NSWLR 22 Re Data Homes Pty Ltd [1971] 1 NSWLR 338 Re Mascot Home Furnishers Pty Ltd (in liq) [1970] VR 593 Re Pine Forests of Australia (Canberra) Pty Ltd [2010] NSWSC 1127 Re Skay Fashions Pty Ltd (in liq) (1986) 10 ACLR 743 Re Warbler Pty Limited (1982) 6 ACLR 526; (1982) 1 ACLC 323
Category:	Principal judgment
Parties:	Fiona Page (Applicant) Andrew John Scott as liquidator of Parkway One Pty Limited (ACN 161 446 402 (in liquidation) (Respondent)
Representation:	Counsel: Mr G McDonald (Applicant) Mr HW Somerville (Respondent)   Solicitors: Gavin Parsons & Associates (Applicant) JS Mueller & Co (Respondent)
File Number(s):	2019/223342

Judgment

1. HER HONOUR: This is an application to terminate the winding up of Parkway One Pty Ltd (in liquidation) under section 482 of the Corporations Act 2001 (Cth) and section 90-15(1) of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act. The application is brought by Fiona Page, sole shareholder of Parkway One. Ms Page has standing as a contributory, being a shareholder of a company, to make such an application: section 9, section 482(1A)(a), Corporations Act.

2. The Australian Securities and Investments Commission (ASIC) has been notified of the application, as required by rule 2.8 of the Supreme Court (Corporations) Rules 1999 (NSW), and does not wish to intervene. The monies owed to the petitioning creditor and supporting creditor have been paid and neither appeared at the hearing. The only contradictor to the application was the liquidator, Andrew Scott of PricewaterhouseCoopers, who harboured concerns about the application in respect of solvency and commercial morality.

Facts

3. Mr Scott’s concerns arose, in part, from Parkway One and Ms Page’s dealings with another company, Elefteria Properties Pty Ltd, of which Ms Page was a director with her then husband Lemuel Page. Media articles obtained by the liquidator referred to Mr Page as a conman and scam artist, convicted for fraud in 2017. Ms Page has understandably distanced herself from the conduct of her ex-husband, who she separated from some years ago, although no orders were obtained from the Family Court to formalise any property settlement. I am not much interested in the content of the media articles, but it was not unreasonable for the liquidator, having become aware of the reputation of Mr Page, to attempt to satisfy himself that Parkway One’s business operations were properly conducted and that the company was solvent.

Elefteria Properties

4. In 2010, Elefteria Properties was incorporated. Ms Page and her then husband were appointed directors. Ms Page was the sole shareholder.

5. On 29 November 2012, Parkway One was incorporated. Mr Page was one of several directors and shareholders, but Ms Page was not. Parkway One is trustee of the Parkway One Unit Trust. On 29 November 2012, Parkway One acquired a boarding house for $1.97 million. It would thus appear that the company was incorporated for the purpose of buying the boarding house and Ms Page did not have an interest in the investment. In 2014, the National Australia Bank (NAB) obtained a valuation of the boarding house, comprising a three-storey building with 55 studio rooms, at $3.35 million exclusive of GST.

6. In 2013, Andrew Pitsis commenced proceedings in the Commercial List of this Court against Mr Page, Elefteria Properties and others seeking to recover a loan of $1.84 million plus interest.

7. On 26 May 2015, two Form 484 Change to Company Details forms were lodged with ASIC advising that:

1. On 1 November 2013, Mr Page ceased to be a director of Elefteria Properties, leaving Ms Page as the sole director.

2. On 30 September 2014, Ms Page had become the sole director of Parkway One.

8. On 28 May 2015, consent orders were made by Darke J in the Commercial List proceedings, entering judgment against Mr Page in the sum of $1.84 million plus interest, together with an order that Mr Page pay Mr Pitsis’ costs of the proceedings on an indemnity basis. In addition, by consent, the Court declared inter alia that property of Elefteria Properties was subject to an equitable charge in favour of Mr Pitsis as security for the payment of $1.84 million, including properties in Cardiff, Newcastle and Ashfield. Mr Pitsis lodged caveats on the titles of the properties.

Parkway One buys properties from Elefteria Properties

9. On 14 January 2016, the registered office of Parkway One became Hart Accountants. On 3 February 2016, Parkway One purchased the Cardiff and Newcastle properties from Elefteria Properties for $325,000 and $1.28 million respectively. Shortly after settlement of the purchases, Elefteria Properties paid $156,000 to Parkway One. Mr Page was living, and continued to live, in the Newcastle property, from time to time with other tenants from Silver City Drilling.

10. In May 2016, Elefteria Properties commenced proceedings in the Real Property List of the Court against Mr Pitsis, NAB and Donald Munro (a former director and shareholder of Elefteria Properties) seeking withdrawal of a caveat over another property. Mr Pitsis filed a cross-claim seeking judicial sale of that property and also the Ashfield property.

11. On 23 May 2016, according to a 2018 tax return, Parkway One purchased the Ashfield property from Elefteria Properties. On 30 June 2016, Ms Page ceased to be the sole director of Elefteria Properties and Georgina Lukunic, aged 79 years, was appointed in her place. Ms Lukunic’s address was at the Cardiff property. Media reports obtained by the liquidator said Ms Lukunic was Mr Page’s mother, but it doesn’t much matter.

12. On 1 July 2016, Parkway One entered into a residential tenancy agreement in respect of the boarding house. The contact detail for Parkway One was an email address of Mr Page. It would appear that Mr Page had some ongoing role in managing the property.

13. In about August 2016, a Deed of Settlement and Release was executed by Elefteria Properties and Mr Pitsis to settle the Real Property List second proceedings. On payment of $500,000 by Elefteria Properties by 15 August 2016 and the consent of the other active parties to no costs orders, Mr Pitsis agreed to discharge his equitable charge over inter alia the Cardiff, Newcastle and Ashfield properties and to withdraw his caveat over inter alia the Ashfield property.

Loan from CL Asset Holdings

14. CL Asset Holdings Limited is a company controlled by Theo Baker, although Mr Page is a former director. On 15 August 2016, CL Asset Holdings transferred $500,000 to the trust account of Mr Pitsis’ solicitors. On 19 August 2016, Ms Page entered into a facility agreement with Elefteria Properties in respect of an advance of up to $510,000 and, on the same date, another facility agreement with Parkway One in respect of an advance of up to the same amount to Parkway One.

15. Ms Page says that she has had dealings with Mr Baker for many years and his company lent her funds to lend to Elefteria Properties to pay out the second secured creditor of that company, which had an equitable charge over its assets. Ms Page says that Elefteria Properties sold a number of its properties to Parkway One and the purchase was funded by NAB and indirectly by loans from CL Asset Holdings to Ms Page. The transfer of the properties was said to be a form of property settlement with her ex-husband, although no orders were made by the Family Court to this effect.

16. On 23 September 2016, Elefteria Properties transferred the Ashfield property to Parkway One in consideration for $650,000. Ms Page signed the transfer as sole director of both Elefteria Properties and Parkway One, although she had ceased to be a director of Elefteria Properties three months earlier on 30 June 2016. The liquidator noted this as curious, but I think it is because, according to Parkway One’s 2018 tax return, it acquired the property on 23 May 2016 when Ms Page was still a director of Elefteria Properties; it may simply be that the transfer could not be effected until the caveat was removed.

17. Ms Page says the Ashfield property was tenanted by Mr Page’s grandmother’s carer, his grandmother having passed away. Apparently, Mr Page keeps in touch with the carer and visits her occasionally. The tenant pays rent in lump sums.

18. In January 2017, Ms Page says that Mr Page vacated the Newcastle property and it was leased to Kevin Fuller as a fully serviced apartment for use by his mining company.

19. In March 2017, a statement issued by the managing agent for the boarding house was addressed to Mr Page of Parkway One. This would suggest that Mr Page continued to have a role in managing the property. In April 2017, NAB obtained another valuation of the boarding house, valuing the property at $4.3 million excluding GST. A caveat on title by CL Asset Holdings Limited was noted.

20. In June 2017, creditors appointed Christopher Darin of Worrells Solvency and Forensic Accountants as liquidator to Elefteria Properties. The liquidator requested that Ms Page provide details of the $156,000 payment by Elefteria Properties to Parkway One together with any supporting documentation, but received no response.

21. In July 2017, Mr Page was convicted of two counts of dishonestly obtaining a financial advantage by deception and sentenced to 12 months’ imprisonment. Mr Page appealed.

22. A statement issued by the strata managers of the Newcastle property indicates that from September 2017, the strata managers have routinely charged Parkway One additional sums for debt recovery and legal fees, apparently in respect of recovering monies from the company rather than its tenant.

Change of registered office

23. In late 2017 or early 2018, Ms Page says that Harts Accountants ceased to be accountant for Parkway One. On 6 February 2018, the registered office of Parkway One was changed from Harts Accountants to the Ashfield property. Ms Page says she believed that the address had been changed to that of her family accountant and tax agent, Philip Joannou, in Brighton-Le-Sands.

24. On 28 February 2018, Mr Page’s appeal was determined and he was resentenced to a 12 month suspended term of imprisonment.

25. On 23 July 2018, the owners’ corporation for the Ashfield property obtained judgment against Parkway One for some $18,000 in unpaid strata levies. It was this judgment which ultimately led to the appointment of a liquidator more than a year later. Apparently prompted by this judgment debt, Ms Page put the property up for sale and, on 8 August 2018, the owners’ corporation agreed to take no further action pending the outcome of an auction on 25 August 2018. The Ashfield property was passed in at auction and, on 8 October 2018, the owners’ corporation sought an update from Ms Page in respect of her efforts to sell the property. Ms Page advised that two contracts were ‘out’ and they were waiting for one to exchange.

26. On 1 November 2018, the owners’ corporation sought a further update from Ms Page and advised that, unless they received confirmation that a contract had been exchanged and was unconditional, together with a copy of the front page of the contract, the owners’ corporation may commence proceedings to wind up the company and have a liquidator appointed. On 19 November 2018, a buyer was found for the Ashfield property at $720,000, but delays followed as the buyer had difficulty obtaining finance.

27. In 2019, Parkway One has been renovating the boarding house room by room using funds advanced by Ms Page. When a room became vacant, Ms Page carried out renovations such as repainting the walls, replacing mattresses and curtains and upgrading the bathrooms. There is no building contract for these renovations, nor any short, medium or long term commitment to any builder. Ms Page has paid for the renovations as they take place and there are minimal records in respect of expenses, such as invoices from tradespeople. Ms Page has been able to locate three invoices, all rendered by a tiler, and says that the records were otherwise sent to her accountant. By contrast, her accountant says he has yet to receive any source documents for the 2019 financial year.

Lease of Newcastle property

28. On 22 January 2019, Mr Fuller entered into a lease of the Newcastle property, having apparently already been in occupation for some two years. The Standard Residential Lease Agreement provided that Mr Fuller was to pay rent of $10,183 a month. The lease made no reference to the apartment being a serviced apartment.

29. According to a reconciliation said to have been prepared by Mr Fuller, but not supported by an affidavit from him, Mr Fuller has paid rent as follows (where I have added the last column):

Date	Amount	Paid to
14-Jan-2019	$19,000	Unknown bank account
22-Jan-2019	$2,000	Unknown bank account
18-Mar-2019	$2,500	Shyzi Pty Limited
21-Mar-2019	$4,500	Shyzi Pty Limited
3-Apr-2019	$6,000	Shyzi Pty Limited
4-Apr-2019	$10,000	Shyzi Pty Limited
16-Apr-2019	$10,000	Shyzi Pty Limited
5-Jun-2019	$5,000	Shyzi Pty Limited
24-Jul-2019	$9,000	Shyzi Pty Limited
2-Aug-2019	$20,000	Shyzi Pty Limited
13-Aug-2019	$8,000	Shyzi Pty Limited
15-Aug-2019	$10,000	Shyzi Pty Limited
18-Oct-2019	$10,000	Parkway One

30. It will be seen that there are some curious features of this tenancy:

1. The rental payments bear no relation to those recorded in the lease nor the three invoices in evidence issued by Parkway One to Mr Fuller for rent.

2. The rental payments tend to be rounded in amount.

3. The narrations on the heavily redacted bank statements provided by Ms Page do not record the payments as rent nor refer to Mr Fuller but simply record “transfer”.

4. Only the last payment was made to a bank account of Parkway One, being made shortly before the hearing. The bulk of the monies were paid to Shyzi Pty Ltd, a company of which Ms Page is a director and Mr Page was a former director and shareholder.

5. The rent payable under the lease is well above market rent, being some $3,000 according to a rental appraisal obtained by the liquidator or $5,000 a month according to the advertisement for an apartment in the same building which was recently sold. Whilst Ms Page says this is because the apartment is serviced, this is not recorded in the lease. The expenses included in a cash flow projection relied on by Ms Page to support the solvency of the company going forward do not include expenses one might expect to see if the Newcastle property was a serviced apartment.

31. The liquidator says that there are no primary records evidencing who made the payments, that is, whether it was Mr Fuller or anyone else, nor what the payments were for.

First statutory demand

32. In March 2019, the owners’ corporation of the Ashfield property issued a statutory demand to Parkway One in respect of the judgment debt.

33. In May 2019, Parkway One sold the Cardiff property. It is apparent from the settlement sheet that completion was to have taken place on 30 November 2018 and default interest was paid by the purchaser accordingly. The settlement sheet also indicates that substantial sums were paid from the settlement monies to the local council, for utilities and to Revenue NSW which tends to suggest that Parkway One owed money for water ($20,315.60), to the strata manager of the boarding house ($10,000), to Revenue NSW ($19,040.63) and for gas/electricity ($49,086.41). After paying NAB, Parkway One received some $90,000 from the sale of the Cardiff property.

34. On 31 May 2019, Ms Page wrote to the owners’ corporation of the Ashfield property advising that she had sold the Ashfield property but the purchaser was experiencing delays in obtaining finance and proposed to pay the strata fees from the settlement of the sale. She suggested that the statutory demand would be set aside. Unfortunately, Ms Page says that the sale of the Ashfield and Newcastle properties fell through and she took the properties off the market until the spring sale season.

Appointment of liquidator

35. On 18 July 2019, the owners’ corporation of the Ashfield property commenced these proceedings seeking to appoint a liquidator to Parkway One on the ground of insolvency, pointing to the company’s failure to comply with the statutory demand. On 19 August 2019, there was no appearance for the company and a liquidator was appointed.

36. Ms Page says she only became aware of Mr Scott’s appointment on 23 August 2019. Her explanation for how this came about is not particularly clear. When Hart Accountants ceased to be the company’s accountants, the registered office became the address of the Ashfield property but the company does not occupy this property. It is leased, although as I understand it, to Mr Page’s grandmother’s carer whom it would appear Ms Page knows. As noted above, Ms Page says she did not realise that the registered office had been changed to the Ashfield address, but understood that the registered office had been changed to the address of Mr Joannou. Mr Joannou was the accountant for the Elefteria Trust according to financial statements for the year ended 30 June 2013 signed by Mr Page. Apparently, Mr Joannou also understood that this had happened, but there was no evidence from Mr Joannou himself in this regard. Ms Page thus says she received neither the statutory demand nor the application to wind up the company. Ms Page gave no evidence as to what steps, if any, she had taken or proposed to take to ensure that, in the event that the liquidation is terminated, important mail will come to her attention in the future.

35. On 24 August 2019, Ms Page completed a Report on Company Activities and Property. The assets of the company, comprising the three properties, was said to total $6.72 million. Creditors totalled $4,262,780, including some $430,000 owed to Ms Page and $290,000 owed to Harmat Nominees Pty Limited ATF Harmat Trust, a related company.

36. On 26 August 2019, CL Asset Holdings sent a letter of offer to Parkway One to lend $150,000 for 12 months in the event that the liquidation of the company was terminated. Ms Page’s solicitors wrote to the liquidator, enclosing a draft Interlocutory Process to terminate the winding up. The company was said to have a surplus of $2 million of assets over liabilities. It was noted that Ms Page had obtained a loan to pay sundry creditors, including the liquidator’s remuneration, then estimated by Ms Page to be $5,000.

37. On 26 August 2019, Mr Joannou sent a letter to Ms Page enclosing a tax return for the year ended 30 June 2018. It would thus appear that preparation of the tax return was prompted by recent events. The tax return for Parkway One reported net income of $403,477, distributed to beneficiaries DMXS Trust and Harmat Trust. Whether the tax return has been lodged is not known. Accompanying the draft tax return was a financial report for Parkway One for the year ended 28 June 2018 which was unsigned, undated, and unattributed to any author. According to the financial statements, Parkway One, as at 28 June 2018, had net assets of $433,835 but, in respect of current assets and liabilities, negative assets of some– $855,000.

38. On 27 August 2019, this application was filed. In support of the application, Ms Page deposed that, with the loan from CL Asset Holdings, the company would remain solvent. It may be inferred that, in the absence of the loan, the company was not solvent. The same day, the liquidator issued a request to Ms Page for the books and records of the company.

Second statutory demand

41. On 28 August 2019, solicitors for the owners’ corporation of the Newcastle property served a statutory demand in respect of default judgment obtained against the company. The statement of claim, default judgment and demand are not in evidence.

42. On 29 August 2019, the liquidator advised that he had reviewed Ms Page’s affidavit in support of the application to terminate the winding up but had reservations about the company’s solvency and was of the preliminary view that the company did not have sufficient funds to discharge all creditors which were presently due and payable and would continue to remain in that position in the event that the liquidation was terminated. Mr Scott considered that Ms Page’s affidavit was inadequate and requested that all books and records of the company including updated financial accounts, cash flow statements and trust deed be provided to him. He noted that the company’s financial statements and tax returns were not up to date for 30 June 2019. Some $50,000 was owed to the Australian Taxation Office; rental income appeared insufficient to discharge the debts of the company; the company could not pay its creditors as and when they fell due; and, while the proposed loan was adequate to meet current creditor claims and the costs of the winding up, it would not address future cash flow needs without the future sale of assets, the timing of which was uncertain. Mr Scott advised that his costs were presently some $5,000 but would likely increase as he conducted a further review of the company’s solvency and attended any court hearings and may range from $15,000 to $25,000. Closer to the final hearing, details of actual costs would be provided.

43. On 30 August 2019, Ms Page’s solicitors provided further information and documents to the liquidators. The company’s accountant provided the liquidator with the MYOB backup file but advised that the firm had not commenced work on the 2019 accounts as it had yet to receive the source documents from the client.

44. A statement of account issue by the managing agent for the Ashfield property on 28 August 2019 recorded $28,409 outstanding, the bulk of which had been owing since November 2018. On 2 September 2019, Ms Page attended to payment of this account by three payments in cash at Sydney GPO of $9,600, $9,500 and a further $9,500.

45. In September 2019, the strata manager of the boarding house provided an owner statement for June, July and August 2019 to the liquidator. The owner statements were addressed to the company but marked to the attention of Mr Page. Mr Scott made enquiries of the managing agent and was informed that 32 of the rooms were occupied, 23 were vacant of which 8 were presently unable to be let due to incomplete renovations, and the rent paid by tenants was collected by the managing agent. The liquidator confirmed that the payments referred to in the owner statement in respect of the boarding house were paid to the company’s NAB bank account.

46. On 2 and 3 September 2019, Ms Page’s solicitors provided further documents to the liquidator. On 3 September 2019, the liquidator wrote to Ms Page’s solicitor enclosing a notice to deliver all books and records of the company pursuant to section 530A of the Corporations Act and attached a list of books and records to be delivered.

47. On 3 September 2019, the statutory demand issued by the owners’ corporation for the Newcastle property was met by three further payments of cash at Sydney GPO of $9,000, $9,000 and $3,750. On 4 September 2019, Ms Page attended to payment of outstanding utilities bills by three cash payments at a post office in Port Douglas. The utilities bills totalled some $8,200. As to the source of funds to pay these creditors, Ms Page explained that she had obtained funds from her own resources and other companies she had lent money to. As a result of lending money to the company on a regular basis, and recently paying these debts on behalf of the company, Ms Page said that the exact amount of her loan to the company had not been calculated. As to why the cash payments were each less than $10,000, Ms Page explained that she had asked a friend, Taylor Linton, to make the payments for her and he had told her that the post office would not process payments greater than $10,000 each time.

48. On 4 September 2019, Ms Page swore a second affidavit in support of this application noting that she was also the sole director and shareholder of Carrabolla Pty Limited, Shyzi Pty Limited, Ohmut Pty Limited and Harmat Nominees Pty Limited as trustee of the Harmat Trust. Ms Page attached a cash flow forecast, with the current monthly cash surplus expected to be about $4,000. There is no affidavit from the accountant as to whether he prepared it, and, if so, how. Ms Page expressed a genuine concern that PricewaterhouseCoopers was not experienced with dealing with small businesses and had unrealistic expectations about the records which a company of this size should maintain. Ms Page explained the records which the company had, and those which she did not have, but said it was difficult to collate these documents for the liquidator as she was currently living in Queensland caring for an elderly and frail parent. Ms Page expressed concern about her legal costs and those of the liquidator as being completely disproportionate to the amount owed to unsecured creditors.

49. On 5 September 2019, Ms Page paid further utilities and rates bills by cash payments at the Port Douglas post office totalling some $20,200.

50. On 5 September 2019, the liquidator wrote to Mr Darin, who it will be recalled was the liquidator appointed to Elefteria Properties, requesting a history of his dealings with Parkway One and Ms Page, and asked whether he had a claim against the company. Mr Scott also obtained appraisals of the properties owned by Parkway One. For the Ashfield property, it was thought to be worth between $680,000 and $740,000, with a market rent of $500 a week. The King Street property was thought to be worth between $1.3 and $1.4 million with a market rent of $700 to $750 a week. The boarding house was appraised at $2.4 to $2.6 million.

51. On 6 September 2019, Ms Page attended to payment of the outstanding tax debt by cash payments at Sydney GPO of $25,000, two payments of $9,000, $5,000 and $4,000, being a total of $52,000.

52. On 6 September 2019, Ms Page swore a third affidavit describing her recent payment of creditors and referring to her recent communications with the liquidator in which she expressed concerns about fees and offered to pay $29,000 liquidator’s remuneration in the event that the liquidator consented to the termination of the winding up.

53. On 10 September 2019, the liquidator wrote again advising that he did not consider that sufficient information had been made available to him to express a view on the solvency of the company. Further, there were a number of matters of commercial morality relating to the company which he considered required further investigation or explanation.

1. The bank statements of the company showed a large volume of transactions during the period to 30 June 2019 but no supporting documentation had been provided and he had been unable to analyse the change in financial position of the company since the last set of financial accounts prepared for the year ended 30 June 2018.

2. The cash flow projection provided by Ms Page referred to estimated rental income which was inconsistent with the cash transactions in the company’s bank statements.

3. The invoices to Mr Fuller in respect of the King Street, Newcastle property sought rent significantly higher than market rent for the property. The company’s bank statements did not record receipt of the rental payments. The financial statements for the company for the year ended 30 June 2018 showed that historically the company had received rent for that property, not in cash, but by journal entry. Further information was sought in respect of this and other properties as well as copies of the leases.

The liquidator also asked how the company had financed the purchase of these properties from Elefteria Properties, and requested supporting information.

54. On 13 September 2019, the liquidator of Elefteria Properties informed Mr Scott that he had a number of outstanding matters and queries with Ms Page but she had failed to respond to his numerous requests for information. The liquidator of Elefteria Properties considered that the payment of $156,000 by Elefteria Properties to Parkway One might be voidable.

55. On 18 September 2019, Ms Page supplied further records and invoices to the liquidator. Ms Page considered the liquidator’s inquiries about the involvement of her ex-husband and also how the company bought its properties to be an invasion of privacy. The properties were said to have been promised to her by her ex-husband when they separated and were owned by the company as a result of a property settlement reached with him. Mr Page was said to have had no involvement in the properties since that settlement many years ago. Ms Page provided answers to the questions posed by the liquidator, to the extent that she was able, given that she was in Queensland and did not have ready access to the company’s records and her accountant was overseas.

56. On 12 September 2019, the liquidator and Ms Page spoke further about further information needed. Draft financial statements for 30 June 2019 were provided. These report net assets of $484,000, net profit of $453,000 and negative current assets of – $930,000.

57. On 16 September 2019, Ms Page attended to payment of monies owed to Revenue NSW for land tax, by cheque, for some $31,000. Revenue NSW had issued a notice to mortgagee, NAB, as it had taken all necessary steps to recover the debt from the company but it remained outstanding.

58. On 17 September 2019, Ms Page wrote to the liquidator’s office providing further information and noting that she was not responsible for what her ex-husband did and she had asked him to leave her company alone although he regularly interfered, but meant well.

59. On 18 September 2019, the liquidator followed up requests for information made on 12 September 2019 and noted that insurance on the boarding house had not been paid and some $4,000 remained outstanding. On 19 September 2019, the liquidator issued a report to creditors noting that on the basis of the information received from the company, he had reservations about the company’s solvency. The liquidator noted that, according to the director’s report on company affairs and property, the company had a surplus of assets of $2,457,000, but withheld his estimate of the asset and liability position.

60. On 24 September 2019, Mr Fuller sent an email to Ms Page confirming the arrangements in respect of the lease of the apartment. On 25 September 2019, Theo Baker of CL Asset Holdings wrote to Ms Page confirming his preparedness to invest in the company and proposing to lend $500,000 to be repaid in one year or, if unable to be repaid, to be converted into 50% of the units of the Parkway Unit Trust. Mr Baker also wrote to Mr Joannou setting out the history of his dealings with Elefteria Properties and Mr Page.

61. On 25 September 2019, the liquidator of Elefteria Properties submitted a proof of debt for $184,050 comprising loan advances.

62. On 26 September 2019, Ms Page’s solicitors provide a draft affidavit to the liquidator, and the liquidator advised that the affidavit did not answer a large number of his questions. The liquidator’s office considered it unsatisfactory that Ms Page could not provide the general ledger to the accounts for the financial year ended 30 June 2019. Further questions were posed arising out of the draft affidavit.

63. On 26 September 2019, the company’s accountant, Mr Joannou, replied to the liquidator. He advised that the King Street apartment was leased as a serviced apartment. The rent was paid into various company bank accounts and, following discussions with Ms Page, appropriate journal entries were posted to bring to account the full payment of rent. The general ledger for 2019 was provided as well as an updated cash flow for the period to 30 June 2020. The cash flow was based upon obtaining the loan from CL Asset Holdings, selling the Ashfield and King Street properties by the end of the year, using the balance of the loan to complete renovations for the boarding house to be fully let by early 2020.

64. On 27 September 2019, the liquidator issued a Notice to Terminate Tenancy Agreement and Vacate to Mr Fuller. Mr Fuller was then more than 14 days in arrears under the lease. If payment of rent of $10,318 was paid then the liquidator advised that Mr Fuller would not be required to vacate the property.

65. On 30 September 2019, Mr Joannou provided the liquidator of Elefteria Properties and counsel for Ms Page in these proceedings with loan documents said to have been prepared some years ago by Theo Baker and Ms Page to protect and secure Ms Page’s loans to Elefteria Properties and Parkway One. The loan agreements are particularly obtuse and also curious.

1. On 30 June 2014, Parkway One entered into a loan agreement with Ms Page in respect of an unspecified, interest free, loan by Ms Page to the company. Ms Page executed the agreement as sole director of Parkway One, but she did not become a director of the company until three months later, on 30 September 2014. Documents in the same terms were executed on 30 June 2015 and 30 June 2016.

2. Each of the loan agreements has the same footer containing the initials of Ms Page’s counsel in these proceedings and the same Word document identification number.

There is no evidence in respect of who prepared these documents or when, or when the documents were executed, and I make no finding in this regard.

66. On 1 October 2019, Ms Page’s solicitor advised that Ms Page expected to resolve the disputed claim of Elefteria Properties in the near future and, on 2 October 2019, Mr Darin’s solicitor informed Ms Page’s counsel that Mr Darin was prepared to withdraw the proof of debt on the basis that it appeared that the sum of $156,000 was properly paid to Parkway One at the direction of Ms Page, who enjoyed the benefit of a charge over the proceeds of sale of real property owned by Parkway One. Mr Darin intended to lodge a fresh proof of debt in the winding up of Parkway One in the sum of $28,050 being monies properly characterised as a loan by Elefteria Properties to Parkway One unless a cheque for that amount was received within 24 hours. A cheque was duly provided and the liquidator of Elefteria Properties withdrew its proof of debt in the liquidation of Parkway One.

67. On 2 October 2019, another apartment in the Newcastle property sold for $2.1 million. An advertisement posted in respect of the apartment noted that it was leased at $1,250 a week, although Ms Page says the apartment is not as good as Parkway One’s property and was not leased as a serviced apartment.

68. On 9 October 2019, Ms Page swore a fourth affidavit in these proceedings, confirming her plans for the company, as had been earlier described by Mr Joannou, and attaching an updated cash flow projection.

69. On 18 October 2019, the petitioning creditor advised that it did not intend to appear at the hearing. Mr Pascoe of PricewaterhouseCoopers swore an affidavit based on work he had done with the liquidator Mr Scott in relation to the company. He said he was not satisfied as to the solvency of the company. He had been unable to verify income in the general ledger for the financial year ended 30 June 2019. Rent received in respect of the Newcastle property of $39,000 could not be reconciled in terms of where the cash came from, whether a tenant paid the deposits and whether the cash deposits were attributable to the property. The same applied to the Ashfield property. Additional income said to have been received in respect of the boarding house of $288,000 could not be reconciled as to where it had come from. In total, unverified income totalled $384,000. The rental income contained in the proposed cash flow projections was much higher than cash received. The cash flow projection assumed revenue of $38,000 for each of July, August and September 2019 but the income for those months had only been $16,500, $18,700 and $17,800 respectively. Based on estimated expenses for these months of $30,900, there were estimated losses incurred for each of these months.

70. Mr Pascoe was unable to verify the basis on which the proposed cash flow projection had been prepared and was concerned that the financial records of the company did not correctly record and explain the financial position and performance of the company and were not true and fair financial statements. Queries were raised about the rental income for the Newcastle property as no source documents had been provided to prove that the monthly rent for the property was in fact $10,183 and it far exceeded market rent. Numerous other queries were raised. The liquidator also attached a number of newspaper articles published in respect of Mr Page which, as I have said, do not assist me greatly but explain to some extent the pains taken by the liquidator to reach a degree of comfort that termination of the winding up is appropriate.

71. On 18 October 2019, two cash payments were made at Australian Post Sydney GPO of $4,400 and $6,200. A further $10,000 was deposited in cash into an NAB branch. Ms Page emailed the liquidator’s office advising that Mr Fuller had gone into a branch to pay the October rent in cash and attached the bank deposit slip. Ms Page advised that she had paid strata fees for the Newcastle and Ashfield properties and attached payment receipts. Mr Fuller also emailed Ms Page and the liquidator’s office denying that he had not paid his rent and attaching the schedule of rental payments set out earlier. Mr Joannou also sent an email confirming that the rents in Mr Fuller’s schedule had been deposited into particular accounts, noting that the deposits were “picked up as rent in the Parkway 2019 financials by way of journal entry”. The liquidator responded that, notwithstanding Mr Fuller’s email, the liquidator had not been provided with any primary document which recorded payment of the sum of $10,183 per month. The liquidator sought confirmation that Mr Fuller had paid the payments in respect of the Newcastle property, that such payments had been received by Parkway One, and that any liability to Parkway One was discharged by payments made by Mr Fuller.

66. On 22 October 2019, Ms Page swore her fifth affidavit in these proceedings. On 24 October 2019, Ms Page signed a Deed Poll of Release on behalf of herself, Harmat Nominees, Shyzi, Ohmut and Carrabolla under which she, and each of these companies, released Parkway One from any loans and advances which had been made by the parties to the company “in amounts which are not reconciled at the date of this Deed”. On 25 October 2019, CL Asset Holdings advised that it would make a bank cheque available in the sum of $107,000 in payment of the liquidator’s fees and this cheque was available at the hearing on 28 October 2019. An unsigned Facility Agreement between Parkway One, Ms Page and CL Asset Holdings was also available.

Termination of a winding up

73. The relevant legal principles are summarised by Black J in In the matter ofMWMSydney Pty Ltd (in liquidation) [2016] NSWSC 688 at [16]–[21]. In exercising its discretion on such applications, the Court traditionally turns to the principles set out by Master Lee QC in Re Warbler Pty Limited (1982) 6 ACLR 526 at 533; (1982) 1 ACLC 323 at 328, being:

•   the applicant must make out a “positive case” for the favourable exercise of the court’s discretion;

•   the applicant must show the nature and extent of the creditors, and whether all debts have been discharged;

•   the attitude of creditors, contributories and the liquidator is a relevant consideration;

•   the applicant must show the current trading position and general solvency of the company;

•   the applicant must provide a full explanation for any non-compliance by the directors with their statutory duties;

•   the applicant must explain the general background and circumstances leading to winding up order;

•   the applicant must show the nature of the company’s business, and whether the conduct of the company was in any way contrary to “commercial morality” or “the public interest”.

74. While there is no hierarchy of importance to such factors, it is well accepted that usually the most important factor is the solvency of the company. In In the Matter of SNL Group Pty Ltd (in liq); Su v SNL Group Pty Ltd (in liq) [2010] NSWSC 797, Bergin CJ in Eq described the position as follows at [24]:

… it is clear that in determining whether to terminate the winding up of a company, it is usual that the most significant matter for consideration is the solvency of the Company. The other considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned to, or will be returned to solvency.

75. As Brereton J put the matter in In the matter of Recycling Glass Pty Limited (ACN001 332 654) [2014] NSWSC 439 at [18]: (citations omitted)

Essentially, on such an application, the court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists. Where the winding up was on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not, or is no longer, insolvent. This is usually the most significant consideration. Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidator’s costs and expenses are covered, and the members agree.

76. His Honour also noted (at [19]–[22]) that the interests of future creditors was also relevant, that is, the court seeks some comfort that such a state of affairs is not likely to recur in the foreseeable future. The court requires evidence that demonstrates not only that the company is, but also that it is likely to remain, solvent. In Re Pine Forests of Australia (Canberra) Pty Ltd [2010] NSWSC 1127, Barrett J noted, at [3]:

Stated in very general terms, a central question on any application under s 482(1) is whether the company’s financial health is such that it may safely be released from the form of external administration focussed mainly on the interests of creditors and returned to the mainstream of commercial life where it may, under the control of its directors, incur new debts that have to be paid as and when they fall due. A capacity to operate in a financially sound and responsible way and to service foreseen indebtedness is central to the inquiry.

77. To ensure the financial health of the company going forward, in some cases the Court has granted leave to directors under section 198G(3) of the Corporations Act to take steps to make contributions to be a company before terminating a winding up (In the matter of CNL Transport Pty Ltd (in liq); Hunt v Smith [2017] NSWSC 291 per Gleeson JA) or made termination of a winding up conditional on the payment of outstanding creditors (Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 per Jacobson J).

Commercial morality

78. As to what commercial morality means, an oft-cited passages is that of Buckley J in In re Telescriptor Syndicate Limited [1903] 2 Ch 174 at 180:

The Court refuses to act upon the mere assent of the creditors in the matter and considers not only whether what is proposed is for the benefit of creditors but also whether it is conducive or detrimental to commercial morality and to the interest of the public at large. The mere consent of the creditors is but an element in the case. …

79. While Telescriptor is a decision relating to the bankruptcy jurisdiction, it has been applied in Australia in relation to the winding up of companies since Re Mascot Home Furnishers Pty Ltd (in liq) [1970] VR 593 (Gillard J) and Re Data Homes Pty Ltd [1971] 1 NSWLR 338 (Street J). The latter judgment being upheld on appeal in Re Data Homes Pty Limited (in liq) [1972] 2 NSWLR 22 at 26 (Mason JA, with whom Holmes JA and Hardie JJA agreed) where a wide interpretation of the concept of “commercial morality” was favoured. At 26–7:

But it should not be assumed that there is any sharp dividing line between considerations which are detrimental to commercial morality and those which are opposed to the public interest. They clearly overlap. Nor should it be assumed, as the appellant would have it, that each is a narrow concept for in truth they are designed to give expression to the very broad discretion which s. 243 [of the then Companies Act 1961 (NSW)] confers upon the court.

There is as little reasons for confining considerations of commercial morality to the investigation of misconduct in the affairs of the company as there is for restricting the public interest to the pecuniary interests of existing and future creditors.

80. The particular role of the Court in considering this issue on applications to terminate a winding up, where there are often no contradictors, was described by Palmer J in In the matter of Modena Imports Pty Ltd (in liq) [2010] NSWSC 739. At [8]-[9].

The particular circumstances of this case throw into sharp relief the role of the Court in an application of this kind. It is not the traditional role of umpire in a contest between adversaries, where the Court takes no part in the contest other than to ensure a fair trial and, at the end, to give a decision in favour of one of the contestants. On the contrary, in applications such as this, many of which have no contradictor, the Court is vigilant to protect the public interest.

… Further, protecting the public interest includes upholding commercial morality: the Court should not, by granting such an application, ignore and thus be seen to condone, conduct by the company’s officers which has breached standards of behaviour required by the law. Those who have already offended against those standards should not lightly be given the opportunity of doing so again.

In that case, Palmer J declined to terminate the winding up to enter into a deed of company arrangement as the director was a most unsatisfactory witness who was prepared to engage in dishonest practices and falsify evidence; no proper accounting records had been kept and the director seemed to regard the keeping of proper accounts as just “paperwork” the responsibility for which rested with someone else; the company had somehow assumed debts which had nothing to do with it; and the proposed DOCA was “an affront to commercial morality”.

81. Further examples illustrate the concept of commercial morality. In Re Skay Fashions Pty Ltd (in liq) (1986) 10 ACLR 743, a liquidator had been appointed by the ATO. There remained a debt to the ATO, although the amount on which the winding up application was founded had been paid. It appeared to Tadgell J that “the two principal guiding spirits behind the company … are undischarged bankrupts”. His Honour noted “disquieting” features, including that the company had not appeared on the winding up application and gave no explanation for this; the records of the company were inadequate and the liquidator had been “quite unable … to satisfy himself what the true position of the company’s affairs is” but it appeared there were insufficient liquid assets to meet current liabilities; the report to the liquidator was “demonstrably inaccurate in a not inconsiderable number of respects. I am further left with the very strong impression that the company was badly mismanaged”. In refusing the application to adjourn the application to terminate the winding up, his Honour noted at 746:

The court also has to consider whether the termination of the winding up will be conducive or detrimental to commercial morality and the interests of the public at large. It is a clear axiom that insolvent companies should be wound up and that they should stay in liquidation unless solvency can be demonstrated. … [Further, t]he court would, if making an order to terminate a liquidation, probably, and in the ordinary course should, give directions for the resumption of management and control of the company by its officers. As I say, here I am given no information at all as to who might conduct the company’s affairs or how they might be conducted. For all one knows, they would be conducted in the same sloppy fashion as they have been conducted heretofore.

82. In Metledge v Bambakit Pty Ltd [2005] NSWSC 160, Barrett J referred to a number of matters within the scope of “commercial morality”: the director did not recognise any line of demarcation between the affairs of the company and himself; the director failed to comply with his obligations with respect of a report as to affairs and delivery of books and records to the liquidator; the director demonstrated commercially “sloppy” behaviour including operating the business under a business name, the registration of which had expired. At [35]–[36]:

… [the director] never made any real attempt to deal conscientiously with the responsibilities that accrued to him by reason of the making of the winding up order. … [His] attitude was to regard the winding up as something that was negotiable.

… [The director] did not accept that the liquidator installed by order of the court deserved co-operation and information and was by law entitled to them.

It was likely that the company had never kept adequate books and records, and the prospects of the director doing so on termination of the winding up were “remote”. He has “shown himself to be unconcerned about the responsibilities that attach to the office of company director …”: at [37]. Similarly, Black J refused an application to terminate a winding up by reason of “commercial morality” in In the matter of 311 Hume Highway Liverpool Fund Pty Ltd (in liq) (2013) 93 ACSR 683; [2013] NSWSC 465, because of a failure to maintain or to produce to the liquidator books and records of the company, with no adequate explanation of this failure: at [26]–[28].

83. Breaches of legislation other than the Corporations Act may be relevant to the question of commercial morality. In In the matter of LL Nominees Pty Ltd (in liq) [2009] FCA 1144, Barker J considered it was proper to acknowledge breaches of the Trade Practices Act 1974 (Cth): at [17]. Permanent injunctions restrained the company from engaging in the conduct again such that his Honour was satisfied that the termination was not contrary to the public interest or commercial morality. In In the matter of Charterarm Investments Pty Ltd [2011] VSC 577, the company’s breaches of taxation and superannuation requirements were considered pertinent. As Sifris J explained in In the matter of R.A.N.S. Pty Ltd (in liq) [2012] VSC 480 at [18]:

… the critical focus of the application is on the future of the company and in particular the risk of danger to future creditors. Previous issues of non-compliance and breach by a company and its directors are relevant to the intended future operation of the company, particularly where the breach or non-compliance is sufficiently serious or persistent to the extent that the court can have no confidence that the restored company will continue to operate as a good ‘corporate citizen’ according to law.

Relevant issues in that case were the failure to pay tax, possible insolvent trading and alleged phoenixing (at [28]), although those factors were not sufficient in that case for the termination application to be refused.

84. In In the matter of Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280, Judd J undertook a comprehensive review of the authorities in this area, starting with the nineteenth century bankruptcy cases which culminated in Telescriptor. His Honour terminated the liquidation as, notwithstanding that the director had failed to discharge a number of important statutory and other duties, and to attend to the proper management of the business, these shortcomings were the result of ignorance rather than dishonestly, coupled with circumstances overwhelming their ability to stay on top of important management issues. The director had since engaged professional advisors who would in future maintain the proper books and records for the business, and had learned a valuable but very expensive lesson. Whilst the director may have been tempted to ‘let the company go’ and start a new business, he had chosen to take the more difficult path of regularising the affairs of the company, including borrowing $785,000 to pay creditors: at [35]–[36].

85. While the notion of commercial morality is obviously a broad one, the cases may perhaps be distilled to two key enquiries. First, was the director’s behaviour unsatisfactory having regard to their duties as a director under the Corporations Act as well as basic concepts of honesty and competence; do they understand the nature of a corporation and the content of their duties as a director? A recurring theme is the importance of the duty to keep proper books and records, the duty not to trade while insolvent and the duty of cooperation with the liquidator but breaches of laws other than the Corporations Act, especially taxation legislation, are also relevant. Second, if breaches have occurred in the past, has a good explanation been proffered? Does the director understand that the events which occurred were unsatisfactory? What steps have been taken to mitigate or cure the breaches, or, conversely, is it likely that breaches will recur in the future.

Submissions

86. Parkway One submitted that it was solvent. In support of this, Parkway One pointed to its plans, on termination of the winding up, to immediately sell the Ashfield and Newcastle properties and use the proceeds to retire a substantial part of the NAB debt. Parkway One relied on cash flow projections prepared by the company’s accountant, Mr Joannou, which forecast that the company generates a positive net cash flow of about $7,000 per month before the proposed sale of two properties and increased rental income from completing the renovations to the boarding house, which will generate a monthly surplus, after payment of all expenses, of over $16,300. It was submitted that the Court can be satisfied that the company should take into account the receipt of rent from Mr Fuller when forecasting future cash flows and determining solvency.

87. In respect of solvency, the liquidator’s position was that the evidence was such that he had not been unable to form a concluded view as to solvency. In particular, if the unverified income of the company from Mr Fuller was excluded and market rent was used instead, solvency was ‘line ball’. If rent on the Newcastle property was excluded, the company was insolvent.

88. As to commercial morality, Ms Page submitted that the company was wound up without her knowledge in circumstances where she understand that there was an agreement with the petitioning creditor not to pursue her for the debt, and reserved her rights to pursue her rights against the petitioning creditor in this regard. This submission was somewhat different to the customary humble attitude of applicants to express regret for the failures which have led to a liquidator being appointed to their company without them noticing, usually accompanied by detailed evidence of how they have remedied the deficiencies in their corporate governance and practice and an assurance that it won’t happen again. Ms Page rejected any relevance of the material relied upon by the liquidator in respect of her ex-husband.

89. In respect of commercial morality, the liquidator pointed to some curious features of the evidence of Ms Page; the lease arrangement in respect of the Newcastle property was odd and there was no evidence from the company’s accountant who prepared cash flow projections on which the company’s case on solvency heavily depended, or from the tenant in respect of the said lease. There was no explanation as to how rent paid by Mr Fuller to Shyzi would come across to Parkway One, and how Shyzi’s obligation to account for the monies intersected with the Deed Poll of Release. There was an issue whether section 286 of the Corporations Act had been complied with.

Conclusion and orders

90. Parkway One is a company which was wound up by the Court in insolvency. The most important consideration for the Court is, therefore, whether the company is solvent, and will continue to be solvent in the near future. The onus to establish this rests on Ms Page. Where a party bears the onus of proving solvency, it must lead the “fullest and best” evidence of the company’s financial position: Owners Strata Plan 70294 v LNL Global enterprises Pty Ltd (2006) 60 ACSR 646; [2006] NSWSC 1386 at [5] (Barrett J); Gematech Pty Ltd v Bardi Investments Pty Ltd [2008] NSWSC 196 at [26] (Hammerschlag J); see also Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163 in the context of rebutting a presumption of insolvency. The court will not order a stay or termination of a winding up unless it is satisfied as to the quality of the evidence of the financial position of the company: QBE Workers’ Compensation Pty Ltd v P Russell Enterprises Pty Ltd [2005] NSWSC 1128 (White J). As Austin J has noted, it is relevant to whether the Court will be satisfied as to the quality of such evidence where it is given by a sole director and shareholder of a company, and not by an external accountant or verified by the liquidator: Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Limited (1999) 17 ACLC 972; [1999] NSWSC 494 at [5]–[8].

91. The company has substantial assets. Doing the best I can, the boarding house is worth some $4.3 million (adopting NAB’s 2017 valuation); the Ashfield property is worth some $720,000 and the Newcastle property is worth some $2.1 million (adopting the recent sales result of an apartment in the same building). That is, the company owns $7.12 million in real estate. It owes NAB some $3.42 million, leaving equity of some $3.7 million.

92. Solvency, of course, is a different measure, being whether the company is able to pay its debts as and when they become due and payable: section 95A of the Corporations Act. The net current assets of the company, according to financial statements prepared for the year ended 30 June 2019, are – $930,000. The evidence indicates that for the last two years, the company has failed to pay its bills to trade creditors other than from the sale of property. Revenue NSW was unable to obtain payment of land tax, prompting it to request payment via the mortgagee, NAB. The owners’ corporations of the Ashfield and Newcastle properties have both obtained default judgment against the company and issued statutory demands. Since the appointment of a liquidator, and in the context of an application to terminate the winding up, Ms Page has attended to the payment of trade creditors and the ATO totalling some $170,000. The company’s ability to pay its bills going forward is dependent upon a loan being provided by CL Asset Holdings and selling property.

90. Although cash flow projections have been provided, there is no evidence from the accountant confirming that he prepared the projections and on what basis. It is difficult to attach much weight to the projections in those circumstances. Nor is there any evidence as to whether the remaining funds available from the CL Asset Holding loan after paying the liquidator’s remuneration are adequate to complete the renovation of the boarding house.

91. In an application such as this, the Court places considerable weight upon the view reached by the liquidator, who can be expected to have expertise in determining solvency. As White J made plain in In the matter of Enviro Energy Australia Pty Ltd (in liq) [2010] NSWSC 1222 at [6]:

Courts are generally reluctant to act only on the evidence of the former controller or controllers of the company, unless that evidence is corroborated by evidence of a liquidator who has been able to undertake, and has undertaken, a sufficient investigation of the company’s financial position such that he or she can express an opinion as to solvency, or by an external accountant who has undertaken the same kind of tasks (see Deputy Cmr of Taxation v Sydney Concrete Steel Fixing Pty Ltd [1999] NSWSC 494 ; [1999] 17 ACLC 972 at [8]; and Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [34] and [35]).

In that case, as here, the applicant did not produce evidence from the external accountant who had prepared the financial statements attesting to what records were available to the preparer of the accounts and the extent to which, if at all, that person conducted an audit, or any other verification, of the information summarised in the accounts. Thus, the external verification of the company’s finance required on such an application was lacking: at [30]–[31].

95. Here, notwithstanding cash flow projections provided by the company’s accountant, the liquidator remains concerned as to the solvency of the company, in particular, because the cash flow projections are dependent upon rental income from the Ashfield and Newcastle properties, the receipt of which is not supported by primary documents. Rent from the Newcastle property appears to be received by the company by way of a journal entry rather than money deposited in its bank account. Despite a protracted interaction with Ms Page and the company’s accountant and solicitor, and reviewing records provided by them, the liquidator has been unable to reach a view that the company is solvent and will remain solvent going forward. Having regard to these matters, it does not seem to me that Ms Page has made out a positive case that the company is, and in the near future will continue to be, solvent.

96. As to commercial morality, I accept that any personal failings of Mr Page should not be visited upon his former spouse. Ms Page does not want her ex-husband to be involved in her company, but he appears to continue to have some kind of presence, albeit faint and unsolicited. Documents issued by the managing agent of the boarding house as recently as September 2019 refer to him.

97. I am however concerned about five matters which are relevant to whether it is in the public interest for the winding up to be terminated. First, the circumstances in which the change of registered office did not come to Ms Page’s attention in 2018 were not well explained, nor is there any evidence as to what steps Ms Page intends to take to ensure that the registered office is changed so that important correspondence such as statutory demands or applications to appoint a liquidator to the company come to her attention. Proposed short minutes of order provided after the hearing included an undertaking by Ms Page to change the registered office, to what address is not specified.

98. Second, there is evidence that the liquidator of Elefteria Properties communicated with Ms Page repeatedly in respect of the liquidation of that company and requested information and documents from her but received no reply. It was only recently in the context of Ms Page’s application to terminate this winding up that she provided Mr Darin with the information and documents which he had long been seeking. In circumstances where Ms Page, being the sole director of Parkway One, has failed to provide a liquidator with a timely and fulsome reply to their request for information in respect of the liquidation of another company, this is cause for concern.

99. Third, I am concerned about the company’s long history of non-payment of trade creditors coupled with the company’s attitude to the efforts of such creditors to obtain payment. The company’s response to the efforts of the owners’ corporation of the Ashfield property to obtain payment, articulated by Ms Page, was indignant rather than apologetic. Where business people, through a corporate entity, are protected from personal liability for debts incurred by a company, it is concerning that the director of such a company displays such an approach. It tends to suggest that it is not in the public interest for the benefits of incorporation to continue to be available to this company.

100. Fourth, the company does not appear to have complied with its obligations to keep proper books and records in accordance with section 286(1) of the Corporations Act which provides:

A company, registered scheme or disclosing entity must keep written financial records that:

(a)   correctly record and explain its transactions and financial position and performance; and

(b)   would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

101. Apart from three invoices rendered by a tiler, there appear to be no records kept of the renovation expenses. The liquidator has not been able to verify the rental income of the Ashfield or Newcastle property, nor additional income of $288,000 said to have been received in respect of the boarding house. Ms Page’s attitude to the liquidator’s efforts to obtain proper records is also troubling. Ms Page does not appear to have appreciated from this experience that it is not the liquidator who has unrealistic expectations about the records which the company should maintain, but her.

102. Finally, whilst cash remains a legal form of payment in this country, I am troubled by the amount of cash that has been used in recent times to pay the creditors of the company. In five days from 2 to 6 September 2019, some $130,000 in cash was used as the Sydney GPO and a post office in Port Douglas to pay the outstanding creditors of the company, and further cash payments were made shortly before the hearing.

103. Having regard to both the issues of solvency and commercial morality, I am not prepared to terminate the winding up of the company. The Court has not received a full explanation for any non-compliance by its director with her statutory duties. Ms Page has not demonstrated that the company is no longer insolvent and is likely to remain solvent or that the state of affairs which led to the appointment of a liquidator will not likely recur in the foreseeable future. It does not seem to me that the company may safely be released from external administration and returned to the mainstream of commercial life under the control of Ms Page. I am not sufficiently assured that, if the winding up is terminated, that the company will operate in a financially sound and responsible way, servicing foreseen indebtedness.

104. For these reasons I make the following orders:

1. Dismiss the Interlocutory Process filed on 27 August 2019.

2. Order the applicant to pay the costs of the Interlocutory Process.

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Decision last updated: 01 November 2019