Re: Rock Bottom Fashion Market P/L
[1997] QSC 67
•24 April 1997
IN THE SUPREME COURT
OF QUEENSLAND
Brisbane Application No.2254 of 1997
Before the Hon. Mr Justice Thomas
[Re: Rock Bottom Fashion Market P/L]
IN THE MATTER of the Corporations Law
and
IN THE MATTER of ROCK BOTTOM FASHION
MARKET PTY LTD ACN 010 888 141
REASONS FOR JUDGMENT - THOMAS J.
Judgment delivered 24 April 1997
CATCHWORDS: CORPORATIONS LAW - Winding up by the court -
service of winding up application at registered office - proof of non-delivery ‑ envelope returned with window blacked out, allegedly from wrong address - sufficiency of circumstantial case - service on sole director - service by fax - place of business of director or company
insolvency - failure to comply with statutory demand - whether application should be adjourned pending appeal against judgment giving rise to debt
irregularity in time of service - s.1322 applicable to breach of s.465A and rule 56
Corporations Law ss.220, 465A, 1322 Corporations (Queensland) Rules - 14, 56.
Counsel:M. Gynther for the applicant.
D.J. Innes (director of the respondent Company) for the respondent.
Solicitors:Sykes Pearson & Miller for the applicant.
Hearing dates: 16 and 18 April 1997
IN THE SUPREME COURT
OF QUEENSLAND
Brisbane Application No.2254 of 1997
Before the Hon. Mr Justice Thomas
[Re: Rock Bottom Fashion Market P/L]
IN THE MATTER of the Corporations Law
and
IN THE MATTER of ROCK BOTTOM FASHION
MARKET PTY LTD ACN 010 888 141
REASONS FOR JUDGMENT - THOMAS J.
Judgment delivered 24 April 1997
This is an application to wind up Rock Bottom Fashion Market Pty Ltd ("Rock Bottom"). The applicant, H R and C E Griffiths Pty Ltd is the former landlord of Rock Bottom. On 16 January 1997 in proceedings before Williams J. it obtained a judgment against Rock Bottom for $3,472.70 and for costs to be taxed.
A statutory demand was promptly served for the $3,472.70. Rock Bottom failed to satisfy the demand within the 21 days or at all. On 13 February 1997 it caused a notice of appeal to be lodged in respect of the judgment. No application was brought to set aside the notice of demand. There has been no attempt to pay or secure the debt.
The main issues which have been argued are whether the application has been duly served, and whether the company is insolvent.
The company was represented during proceedings before me by its sole director Mr Donald Innes.
Service
Pursuant to the order of Williams J, Rock Bottom vacated the shop at which it had carried on business, namely shop 2B, Arcadia Walk, Noosa Junction, on 19 January 1997. The company has not traded since that date. The main activity that seems to have been conducted on its behalf since then has been in the form of protracted disputation with solicitors for various parties, and, according to Mr Innes, some so far unsuccessful attempts to realise upon shop fittings retained by Rock Bottom when it lost possession in January.
The statutory demand was served on or about 18 January 1997. At that time the only directors of Rock Bottom were Mr Donald Innes and his wife Cathy Innes. On 31 January Mrs Innes ceased to be a director. Since then Mr Innes has been the sole director.
On 11 March 1997 the applicant filed the present notice to wind up Rock Bottom.
The registered office of the company has at all material times been the home of Mr and Mrs Innes at 14 Pontee Parade, Alexandra Headlands. The evidence shows that after leaving the Noosa shop, Rock Bottom has maintained substantial communication with the solicitors for the applicant by means of the use of premises, including by mans of the fax machine there located, at 20 Duporth Avenue, Maroochydore. That address consists of a shop which is run under the name "Fashion Market" or "Fashion and Market". The nominal proprietor of that business name is probably Mrs Frost who is Cathy Innes' mother, but the conduct and proprietorship of the business that is run there is to say the least doubtful. I have little doubt that Rock Bottom, initially through its directors Mr and Mrs Innes, and subsequently through its sole director Mr Innes, has mixed its affairs and that Mr Innes has mixed his own affairs with the affairs of whatever business operates at that address. Ms Karen Dalgleish, who worked at those premises as shop manager for approximately 10 months up to March 1997 thought that Mr and Mrs Innes were her employers. Mr Innes admitted that he "works there regularly", although he qualified the admission by saying that he does so "in a casual capacity", whatever that means. It is significant that, with respect to the affairs of Rock Bottom, he was in regular contact with the solicitors with the applicant by means of the fax machine located at that address. The post-box address for those premises appeared in the correspondence he wrote on behalf of Rock Bottom. The relevant telephone number at which he received facsimile communications at that address, and from which he transmitted them was 5443 7986. His relevant communications on behalf of Rock Bottom were sent on "Fashion Market" letter head containing the address "Post Box 857, Maroochydore, Queensland 4558", with the ACN no. 010888 141. That is the ACN number of Rock Bottom.
The solicitors for the applicant attempted to effect service of the necessary winding up documents both by the familiar method of posting them to the registered address of the company, and also by delivery to the 20 Duporth Avenue address.
The papers were initially given to the bailiff, Mr Braby, who took them to the Duporth Avenue address and left them with the shop manager Ms Dalgleish. He also left a copy of the bill of costs to be taxed pursuant to the order of Williams J. She placed the documents on the office desk. About an hour later Mrs Cathy Innes arrived and leafed through the documents. Mrs Innes commented that it was "great" because "the documents have been served at the wrong address and they have been served on you". She later commented "they are trying to wind up the company, and we won't have to go to it". She then told Ms Dalgleish to "send the documents back with a note, along the lines that you have not seen us, so you'd have not been able to give us the papers". When asked what that would achieve she responded "we won't have to appear for the date of the winding up". Ms Dalgleish however did not do what was suggested.
The evidence as a whole and the conduct of the case demonstrates that a co-operative and continuing relationship has continued between Mr and Mrs Innes at all material times in relation to the present proceedings. The relevance of this particular incident is that it shows that Mrs Innes was aware of the winding up proceedings, and had possession of the actual documents within 2 days of their filing. It is highly unlikely that she failed to share this information (and the documents of which she obtained physical possession) with her husband, even though for reasons that have not been explained she had ceased to be a director of Rock Bottom some weeks previously.
An attempt was made to cast doubt upon Miss Dalgleish's evidence by means of an affidavit of Mr Innes who claims that her employment was terminated in unfriendly circumstances. However in the absence of any evidence on this incident from Mrs Innes and in the absence of any cross-examination of Ms Dalgleish, I fail to see why it should not be acted on.
On 24 March Ms Burton, the applicant's solicitor, who had been in fairly regular contact with Mr Innes at the Duport Avenue address by means of the fax machine located there, attempted to send a copy of the winding up documents to that location by fax. However after 4 pages had been transmitted, the transmission was cut off. On the following day Ms Dalgleish telephoned Ms Burton to advise that the company fax machine had run out of paper and that therefore the balance of the transmission on 24 March had not been received by the company. Ms Burton, on the same day, then transmitted a full copy of the documents by facsimile to the relevant number.
There is no doubt that Mr Innes used this office regularly, along with the relevant fax machine, both for transmitting and receiving documents on behalf of Rock Bottom. Despite his denials, it is highly probable that he received the full version of the winding up documents on or about 25 March.
On 24 March Ms Burton also sent by pre-paid post the relevant winding up documents to the registered address of the company at 14 Pontee Parade, Alexander Headlands. In the ordinary course of mail the envelope and its contents would have been delivered to that address on 25 March.
Curiously on 11 April, only a few days before the return day of the application, the envelope and its contents were returned to Ms Burton's office. When originally posted, the addressee "the directors, Rock Bottom Fashion Market Pty Ltd, 14 Pontee Parade, Alexander Headlands" was visible through the window of the envelope. The name of the applicant's solicitors, Sykes Pearson & Miller and their address also appeared on the face of the envelope. When returned to Ms Burton, portion of the window had been blacked out so that the addressee and address, namely 14 Pontee Parade, could no longer be seen.
Someone had hand-printed on the front of the envelope:
"RETURN TO SENDER
NOT NO 4.
IMPORTANT DOCUMENTS
SORRY FOR DELAY IN RETURN
AS WE ARE MOVING HOUSE."
The applicants then contacted Mrs Downie, who, with her family, were the occupants of no.4 at the material time. Her evidence is that neither she nor her husband received that letter or sent it back to Sykes Pearson & Miller. I am prepared to find that it was not delivered to no. 4 Pontee Parade. She and her family moved from 4 Pontee Parade on 4 April 1997. Mr Innes, in cross-examination denied knowing "people by the name of Downie" but conceded later that his children played with the children of the occupants of that address. It is a reasonable hypothesis that he knew that the family was moving house. Mr Innes denied personally writing the instructions on the envelope, and specimens of his writing, including printing, suggest that it is probably not his own printing. The same cannot necessarily be concluded with respect to Mrs Innes who presented no evidence on this issue, and of whose printing there are some specimens in the extensive material that has been filed, including various back sheets which Mr Innes, after initially alleging that his wife "does not print", informed the court had been printed by his wife. I do not propose to make any finding through handwriting comparisons, but record that I consider that there is sufficient ground for thinking that the matter should be further investigated and for suggesting that the papers be referred to the Attorney-General for further enquiry.
The present proceedings came on for hearing before me on 14 and 16 April. Under s.220(1) of the Corporations Law, a document may be served on a company by sending it by post to the registered office of the company. This was done in the present case. Proof of actual receipt is unnecessary to establish service, evidence of delivery to the registered address being sufficient, (Fancourt v. Mercantile Credits Limited (1983) 154 CLR 87; re Gasbourne Pty Ltd (1984) VR801; F.P. Leonard Advertising Pty Ltd v. K.D. Travel Services Pty Ltd (1993) 12 ACSR 136).
In some cases non-delivery has been held to be demonstrated by evidence that the documents have been returned to the sender by the post office (e.g. re Gasbourne above). However in the present case I am by no means satisfied that the documents were not delivered to 14 Pontee Parade, despite their eventual return to the applicant's solicitors. To the contrary I am satisfied that they probably were so delivered. It may be noted that in F.P Leonard Advertising v. K D Travel Service Pty Ltd (1993) 11 ACLC 1203, Santow J. considered that a company that wished to prove that a posted document had not been served was required to prove that the document has not been delivered to its registered office; it was irrelevant that the company had not received the document. In the present case I am not satisfied that the company has proved non delivery. Nor, in the circumstances of this case, am I satisfied from the mere circumstance that the envelope was returned by the post office with the abovementioned printing on it, that non-delivery has been proven. It is more probable than not that delivery occurred at no. 14. In the light of Mrs Downie's evidence it is highly unlikely that it occurred at no. 4. Cases concerned with delivery by post are usually determined upon circumstantial evidence. In my view there is a satisfactory circumstantial case of service by post.
My primary conclusion is that the applicant has proved on the balance of probability that the application and supporting affidavits were delivered to the company's registered office on 25 March 1997 and that service has been effected under s.220(1) of the Corporations Law.
There are further findings which I prepared to make which also satisfy the applicant's obligations in relation to service.
Section 220(4A) provides:"220 (4A) [Service on director] Without limiting the operation of subsection (1), a document may be served on a proprietary company that has only one director by delivering a copy personally to that director.
[subs (4A insrt Act 115 of 1995 Sch 4 s24, eff 9 Dec 1995]."
Under the Corporations (Queensland) Rules, it is permissible for a document to be served on an individual by means of facsimile transmission directed and sent to the facsimile transmission number operated at the last known place of business of the person to be served. The relevant part of the rule states as follows:
"Service
14.(1) Subject to rules 13 and 56 and an order of the Court to the contrary, if a document is required or permitted under these rules to be served on a person (whether the expression 'give', 'send' or 'serve' or another expression is used), the document may be served
(a)on an individual
(i)by delivering it to the person personally; or
(ii)by leaving it at, or by sending it by prepaid post to, the last known address of the person or the address (if any) at which the person has authorised service on the person to be effected; or
(iii)by facsimile transmission directed and sent to the facsimile transmission number operated at the address of the place of residence or business of the person last known to the person serving the document; or
(b)on a company
(i)by leaving it at, or by sending it by prepaid post to, the company's registered office; or
(ii)by facsimile transmission directed and sent to the facsimile transmission number operated at the company's registered office."
I am satisfied that at that time the current place of business of both Mr Innes and Rock Bottom was the shop at Duporth Avenue. It was the place where the solicitors for the applicant had been communicating with Mr Innes and the company, and was the place of business last known to Ms Burton who in this instance was the person serving the document. It was the current address from which he dealt with his creditors and others. It is highly likely that Mr Innes in fact received the necessary documents at that address on or about 25 March. I am satisfied that although this facsimile transmission is insufficient to prove direct service on the company, because the address was not the company's registered office, the applicant did succeed in serving Mr Innes with the papers under rule 14 (1)(a) of the Corporations (Queensland) Rules. The company at the material time had only one director, namely Mr Innes. I am satisfied that service was effected upon the company under s.220(4A) of the Corporations Law.
It is unnecessary to consider the further submissions that the company is in the circumstances estopped from denying that 20 Duporth Avenue was the place of its office. Certainly there was regular contact made on behalf of Rock Bottom with the applicant's solicitors since at least the latter part of 1996, continuing use of Rock Bottom's ACN number, extensive contact concerning the legal dispute both before and after judgment, and both express and implied invitation to the solicitors to respond by sending information to that fax number. In short Mr Innes seems to have adopted this as his office and the company's office for the purpose of dealing with the relevant legal dispute, and has continued to do so right up to the time of hearing. However, in the light of my findings under s.220(1) and S.220(4A) it is not necessary to deal further with this alternative basis of service.
Insolvency
Mr Innes submitted that his lodging of an appeal against the judgment upon which the statutory demand was based was sufficient reason to stay the present winding up proceedings, or alternatively to adjourn them until the outcome of the appeal is known. He cited inter alia, D R Electrical & Engineering Pty Ltd (1989) 7 ACLC 1058, Paterson v. Hampton Interiors (1989) 7 ACLC 904 and re Hernil Pty Ltd (1989) 7ACLC 1063. Those cases are concerned with the abuse of process that may result when premature advertising of the winding up application occurs. However, in appropriate circumstances, a court may adjourn or stay a winding up application when an appeal has been brought against a judgment that is the basis of the winding up (Jekos Holdings Pty Ltd v. Australian Horticultural Finance Pty Ltd Fed. Court QG 3006 of 1996 Drumond J. unreported; re Masbert Finance (Australia) Pty Ltd (1976) 2 ACLR5).
The granting of a stay or of an adjournment in such circumstances is discretionary. The mere existence of an appeal by a company against a judgment founding the applicant's debt is not of itself a sufficient ground for adjournment or stay. That was the view of Heerey J. in Ataxtin Pty Ltd v. Gordon Pacific Developments Pty Ltd (1991) 102 ALR 245. His Honour observed in that case that the position might be different where security was given for the petitioning creditors debt (cf re Amalgamated Properties of Rhodesia (1913) Ltd [1917] 2 Ch 115). No suggestion of payment or of security has been made in the present case.
Counsel for the applicant submitted that in any event Rock Bottom is insolvent, and that that circumstance would remove any inclination that the court might otherwise have to stay or adjourn the proceedings.
On the whole of the evidence it would seem that the company is insolvent. It ceased paying rent when the lease expired on 1 November 1996, and was eventually evicted on 19 January 1997. It has not traded since its dispossession, and whilst Mr Innes denies this, the only concrete suggestion of activity is of so far unsuccessful attempts to realise upon the assets that remain after the dispossession. It is possible that the company has some trading interest in the shop at 20 Duporth Avenue, but Mr Innes denies this to be so.
A telling report was filed by Mr J D Garske, the bailiff who attempted to effect execution of a judgment obtained by another creditor (Swadlincote Pty Ltd) against Rock Bottom and also against Mr and Mrs Innes personally. The bailiff's report reads:"I certify, execution attempted at the address provided. I spoke with Judg. Debtor Donald James Innes at that address and made formal demand for payment of debt. Innes states that he and his wife are unable to satisfy debt, and that the company was also unable to satisfy the debt. I informed him that unless the debt was satisfied, goods would be seized and made enquiries in relation to ownership of goods at the address. Innes states that the house is owned by himself and his wife, but subject to two mortgages. He states that the motor vehicle driven by them is a leased vehicle. States he presently has no income. He states he owns no other goods or assets of any nature other than some basic household furniture. In relation to the company, Innes states that it owns no goods or assets of any nature other than some shop fittings. These fittings are at Innes' address having been removed from shops formerly operated by the company. They consist of light fittings, partitions etc. but in my opinion would realize little at a bailiff's auction. Innes states that the company no longer trades.
Under the circumstances I am unable to locate any goods or assets upon which a successful levy could be made, other than perhaps execution over the defendant's real property. Perhaps Judg. Creditor may consider an Oral examination or conduct searches to ascertain the amounts secured by mortgages on property. Warrant therefore returned unexecuted for further instructions. Attempted execution fee claimed.
Sgd:J.D. Garske
Bailiff 21/1/97"
Mr Innes belatedly filed material in an effort to attack the report, including the circumstance that he has commenced litigation with the object of proving that the warrant of execution was invalid. Even if that litigation terminates successfully for Mr Innes and Rock Bottom, the admissions that were made to the bailiff by the sole director of the company are extraordinarily daming on the question of the insolvency of the company. I find Mr Innes' denial of these statements, and his attempt to undermine them quite unconvincing. A manipulative approach has been demonstrated in the conduct of this litigation, and I was not impressed by Mr Innes' evidence.
There is in any event a presumption of insolvency by reason of non-satisfaction of the statutory demand and the absence of any attempt to set it aside. Despite the presentation of lengthy material which seems to have been selectively chosen, there has been no statement of assets and liabilities of the company, no profit and loss sheet and none of the facts or analyses that might be expected to be produced by a respondent company when its solvency is in issue. The true issue has been shirked while lengthy attacks have been made on peripheral targets.
I am satisfied that the ground has been made out, and that no sufficient reason exists for adjourning or staying the present proceedings.
Subject to the matters discussed below, a winding up order should be made.
Irregularities
Section 465A(b) of the Corporations Law requires service to be made within 14 days after the application is made. As the application was filed on 11 March and effected under s.220(1), as I find, on 25 March, this requirement has been met. Mr Innes however points out that if the finding of service were dependant upon receipt of the document by facsimile transmission, rule 14(5) of the Corporations (Queensland) Rules provides that the document is to be taken to have been served "the day following the day the copy is transmitted". On this basis he (and in turn the company) would not have received the documents until 26 March, which would be a day late.
If this were the only basis upon which the service could be upheld, I would be prepared to declare, under s.1322(4)(a) that such service was not invalid by reason of that contravention of s.465A(b) of the law. However it does not arise, in view of the primary finding that service was effected on 25 March.
The further point was taken that under rule 56(4) of the Corporations (Queensland) Rules the application must be served not later than 2 days before it is advertised or gazetted. In the present case the newspaper advertisement was published on 26 March - only 1 day after the service of the application.
The purpose of the rule is to protect trading companies from the some times irreversible damage that advertisement of a winding up application may have upon a company that has an answer to the proceedings. In such cases, the rule provides an opportunity for the company to apply to the court to restrain the advertisement of the proceedings (D.R. Electrical & Engineering Pty Ltd (1989) 15 ACLR 700). In the present case Rock Bottom is not currently trading, and it has no proper ground of opposition to the proceedings. The failure fully to comply with the requirements of rule 56(4) does not in the circumstances amount to an abuse of process (cf. Paterson v. Hampton Interiors (1996) 14 ACLC 1603); D.R. Electrical & Engineering (above)). The non-compliance is not one that has caused or might cause substantial injustice in the present circumstances, (cf. s.1322(2)), and the court may properly declare that the advertising, which was premature by 1 day, was not invalid by reason of the contravention of rule 56.
I shall make an order as per the draft submitted, with the addition of the above declaration.
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