Timms v Dellaplus Pty Ltd - [2008] SASC 61

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
TIMMS v DELLAPLUS PTY LTD
[2008] SASC 61
Reasons of Judge Burley a Master of the Supreme Court
12 March 2008
CORPORATIONS
Application to wind up defendant company - defendant applied for dismissal of winding up application - statutory demand - non-compliance with - deemed insolvency - previous application for leave to oppose winding up application refused - payment of amount of debt into Court - continued willingness by defendant to discharge indebtedness - receipt by defendant of notice from Child Support Agency requiring part of money owed to the plaintiff to be paid to the Agency - whether payment of money demanded by Agency discharged indebtness pro tanto - plaintiff refused to accept payment of balance of moneys to him - plaintiff alleged other debts owed to him by defendant - whether plaintiff a "creditor" - whether winding up application should be dismissed.
Corporations Act 2001 (Cth) Pt 5.4, referred to.
Commissioner of Taxation v Macquarie Healthcare Ltd & Ors (1998) 98 ATC; Australian Mid-Eastern Club Limited v Yassim (1990) 8 ACLC 46; Nationwide v Franklins (2002) 20 ACLC 309; Australian Beverage Distributors Pty Ltd v The Red Rock Cove Pty Ltd [2007] NSW SC 966, considered.

TIMMS v DELLAPLUS PTY LTD
[2008] SASC 61

JUDGE BURLEY: In these proceedings the plaintiff seeks an order for winding up of the defendant on the ground of insolvency. The plaintiff relies upon the deemed insolvency provisions in the Corporations Act (“the Act”) to prove insolvency. The relevant provision is s 459C(2)(a) which provides:
The Court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made:
(a)the company failed (as defined by s 439F) to comply with a statutory demand; …
It is not in dispute that the plaintiff served on the defendant a statutory demand which the defendant failed to comply with as asserted in Part C of the originating process issued on 11 January 2007. The demand was for the amount of $34,299.55 calculated as set out in the Schedule to the demand. The debt comprised loans of $20,000 and $10,000 respectively in February and March 2005 together with interest until 15 November 2006.
It is not in dispute that the defendant failed within the required 21 day period to take steps to set aside the statutory demand.
Section 459C(3) of the Act provides:
(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.
Various applications are referred to in s 459C(1) of the Act including an application under s 459P which sets out those persons who may apply to the Court for a company to be wound up in insolvency. These proceedings constitute an application under s 459P of the Act. It follows, subject to any other provision which restricts the generality of s 459C(3), that a defendant company is able to defend the proceedings by proving that the company is solvent.
Section 459S of the Act provides:
(1)Insofar as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2)The Court is not to grant leave under subs (1) unless it is satisfied that the ground is material to proving that the company is solvent.
The defendant previously invoked s 459S and applied for leave to oppose the winding up application. The application came before Judge Withers for hearing on 15 May 2007. He reserved his decision and delivered judgment on 26 June 2007, when the application was refused: see Judgment No [2007] SASC 236 dated 26 June 2007.
His Honour refused the application for leave to defend because he was not satisfied that the defendant had established that it was solvent and because the defendant had not satisfactorily explained why an application to set aside the statutory demand was not made within the relevant 21 day period. In particular, His Honour pointed to evidence in his judgment (at para [24]) that the debt of $30,000 was admitted by the defendant. The question mark regarding the defendant’s solvency remains; it is clear that the company is, as Mr Dart put it, “balance sheet insolvent” but it is also clear that it has the support of its creditors (other than the plaintiff).
On 16 August 2007 the winding up application and all interlocutory matters were listed for argument on 5 September 2007 at 2.15 pm. I presided on 5 September and heard argument from the parties to the stage where a preliminary point was identified and I agreed to have that point argued before me on 18 September 2007. Argument was presented by both parties on 18 September and I reserved my decision. These reasons relate to that argument.
Before turning to the preliminary point I should mention, as is obvious from the file, that the six-month period after the commencement of the proceedings has long since passed. However, on two occasions that time limit has been extended so that the proceedings are still on foot: see Judgment No [2008] SASC 17, delivered on 5 February 2008, per Sulan J.
At the hearing before me on 5 September 2007 the plaintiff appeared in person and Mr Dart appeared as counsel for the defendant. It was intended that the plaintiff’s application for a winding up order would be heard on that date. Mr Dart referred to an application filed on 16 July 2007 (FDN 18) where the defendant sought an order dismissing the winding up application. The application was made pursuant to s 467(1)(a) of the Act which confers on the Court a discretion to dismiss a winding up application “even if a ground [for winding up] has been proved”. Reliance was also placed on s 467(1)(c) of the Act which empowered the Court to “make any interim or any other order that it thinks fit”. Presumably this was the power relied upon to support an additional application made orally as to the payment of moneys which had previously been paid into Court by the defendant.
The sum paid into Court was the amount of the debt referred to in the statutory demand.
It is common ground that, prior to payment of the funds into Court, the defendant received a notice pursuant to s 72A of the Child Support (Registration and Collection) Act 1988 (“the CSA Act”)which required the defendant to pay part of the loan proceeds to the Registrar of the Child Support Agency.
The relevant parts of s 72A are as follows:
72A(1) The Registrar may give written notice to a person:
(a)by whom money is due or accruing, or may become due, to a child support debtor; …..
requiring that person to pay to the Registrar:
(e)….. – an amount equal to the amount of the support debt; …..
Subsection (2) provides that if a person without reasonable excuse refuses or fails to comply with an notice under subsection (1), that person is guilty of an offence and liable to a penalty of up to $1,000.
A copy of the notice is Exhibit FCH to the affidavit of Mr Hoelscher, the defendant’s solicitor, sworn on 13 August 2007 (FDN 22a).
S 72A(9) provides:
(9)A person who makes a payment in compliance with a notice under subsection (1) is taken to have made the payment under the debtor’s authority or the authority of any person concerned and is indemnified in respect of that payment.
In Commissioner of Taxation v Macquarie Healthcare Ltd & Ors (1998) 98 ATC, Emmett J dealt with a similar provision in the Income Tax Assessment Act 1969 (“the ITAA”). The relevant provisions of the Act enabled a notice to be given to a debtor requiring payment of the amount specified in the notice to the Australian Taxation Office on a statutory basis similar to the requirements of s 72A of the CSA Act. S 218(4) of the ITAA provided, like s 72A(9) of the CSA Act, that any person making a payment in pursuance of the notice would be deemed to have been acting under the authority of the taxpayer and all other persons concerned and was, by virtue of the subsection, indemnified in respect of such payment. Emmett J set out the effect of s 218(4) of the ITAA as follows:
It is clear that in most circumstances there will be no actual direction or authority given by the relevant taxpayer to the debtor of that taxpayer. Absent such a direction or authority and absent a provision such as s 218(4), the recipient of a notice who made a payment in accordance with its terms may well not obtain discharge of the indebtedness to the relevant taxpayer. The effect of 218(4), however, is that when the recipient of a notice makes a payment in accordance with its terms, the recipient will be able to obtain a good receipt from the Commissioner in respect of the payment.
I take s 72A(9) of the CSA Act to have the effect of discharging the liability existing between the creditor and the debtor to the extent of the payment to the Registrar of the Agency. The amount required to be paid under the notice from the Child Support Agency is the sum of $8,447.86.
On 5 September 2007, it became apparent from the defendant’s written submissions that the defendant wished to contend not only that, as a matter of discretion, the Court should dismiss the proceedings but also, independently of the exercise of that discretion, that the plaintiff was no longer entitled to an order for winding up because the plaintiff no longer had standing to pursue such an application. It was submitted that, because the amount of the statutory demand had been paid into Court and because the defendant was prepared to undertake to pay the amount demanded by the Child Support Agency to that Agency and the balance to the plaintiff, the plaintiff ceased to be one of the persons referred to in s 459P of the Act who had standing to apply for a winding up order of the ground of insolvency. A copy of the defendant’s written submissions had, at my direction on 5 September 2007, been provided to the plaintiff. The plaintiff had responded to both these points in his written and oral submissions.
It is not in dispute that the only basis upon which the plaintiff could apply for a winding up order on the ground of insolvency was as a creditor of the company as referred to in s 459P(1)(b) of the Act.
On the question of the moneys paid into Court, Mr Dart, having taken instructions from his client, formally announced that his client would either consent to the payment out of the moneys in Court in the sum of $8,447.86 to the Child Support Agency and the balance to the plaintiff or, if it was directed that the moneys paid into Court be paid out to the defendant’s solicitors, those moneys would be applied in the same manner to the Child Support Agency and the balance to the plaintiff. The latter would consist of the tender of the balance to the plaintiff in discharge of the indebtedness referred to in the statutory demand.
The defendant’s contention that the plaintiff no longer has standing as a creditor is not without its difficulty. I think it is appropriate to examine some of the sections within Part 5.4 of the Act so that a proper understanding of the nature of the defence argument advanced by the defendant may be obtained.
Section 459A of the Act provides:
On an application under s 459P, the Court may order that an insolvent company be wound up in insolvency.
Section 459C provides for certain presumptions to be made. The section applies to applications under s 459P (s 459C(1)(a)).
Section 459C(2)(a) provides:
(2)The Court must presume that the company is insolvent if, [within the relevant period]:
(a)the company failed (as defined by s 459F) to comply with the statutory demand; …..
(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.
S 459P provides that a creditor may apply for an order under s 459A.
In this case the plaintiff claims to be a creditor and has invoked s 459Q of the Act which permits an application for winding up in insolvency where there has been a failure to comply with the statutory demand.
It is clear from the provisions of s 459E that only a creditor may serve a statutory demand on a company.
As a result of these sections it is at least arguable that if a person is not a creditor at the time of the service of the statutory demand signed by or on behalf of that person as a creditor, the notice itself can never be effective and that consequently the presumptions provided for in s 459C may never arise. However, it is clear that, where an alleged debtor fails to apply within the relevant 21 day period for an order setting aside the statutory demand on the basis that the alleged creditor was not at the time of the service of the demand a creditor, the debtor (defendant company) may only defend the application on such a basis if leave, pursuant to s 459S(1), is granted by the Court.
It is not necessary to decide these points, nor is it possible to do so because the case for the defendant has not been argued before me in that way. In this case, the defendant does not assert that the plaintiff was not a creditor at the time of the issue of the statutory demand or at the time of the commencement of these proceedings. Instead, the defendant says, whatever may have been the case as to the existence or not in the past of the relationship of debtor and creditor, since at least 5 September 2007, the plaintiff has not been a creditor because the debt has been discharged by the payment into Court of the amount of the debt referred to in the statutory demand coupled with a continued willingness by the defendant to pay the moneys in discharge of that indebtedness.
The defendant argued that payment to the Child Support Agency in pursuance of the notice given by that agency and a willingness to pay the balance to the plaintiff (or at least to tender the balance to the plaintiff) means that since that date the plaintiff has lost his standing as a creditor to seek an order under s 459A of the Act. The defendant also argued that, even if there has not been an effective discharge of the indebtedness between the parties, the payment into Court coupled with the defendant’s willingness (undertaking) to have the moneys applied to the discharge of the indebtedness, means that the Court, in the exercise of its discretion, should dismiss the proceedings. This is in the context where no other creditor has either joined in these proceedings or commenced other proceedings for the winding up of the defendant.
The defendant relied upon Australian Mid-Eastern Club Limited v Yassim (1990) 8 ACLC 46, a decision of the New South Wales Court of Appeal, and Nationwide v Franklins (2002) 20 ACLC 309, a decision of Barrett J. In the latter case, the plaintiff applied for an order for the appointment of a provisional liquidator and also sought to pursue a notice to produce in respect of which Barrett J said:
The plaintiff is effectively asking for full and free access to virtually the whole of the defendant’s internal accounting records.
His Honour’s decision concerned the notice to produce, but it was necessary for him to view that application in the context of an application for the appointment of a provisional liquidator because it was argued by the defendant that, on the authority of Australian Mid-Eastern Club Limited v Yassim (supra), in the events that had occurred, the plaintiff did not have status as a creditor and therefore could not pursue that application for the appointment of a provisional liquidator because he did not have the necessary standing.
The plaintiff contended that it had standing as a creditor in two respects: first, because of a costs order (in respect of which the costs had been fixed in the sum of $14,190) and , secondly, in respect of a claim for unliquidated damages. So far as the former was concerned there had been a tender of the amount of the costs by the defendant to the plaintiff and the plaintiff rejected that tender. One of the reasons advanced for rejecting the tender was that if the moneys were accepted it could later be found to be a preferential payment. His Honour thought there was no substance in this point (at [9]). I respectfully agree with that conclusion.
His Honour said of the indebtedness relating to the costs order and the tender of payment (at [8]):
As to the costs order, the plaintiff says that the events which were played out yesterday with the cheques did not amount to payment and it therefore retains its creditor status. On this, I have been taken to the decision of the Court of Appeal in Australian Mid-Eastern Club Limited v Yassim and the decision of Santow J in Alcatel Australia Limited v PRB Holdings Pty Ltd (1998) 27 ACSR 708. Principles concerning tender and payment are discussed there and I regard the matter as relatively clear. The defendant tendered the sum of $14,190 to the plaintiff but the plaintiff refused the tender. That refusal, Meagher JA, tells us in the Australian Mid-Eastern Club case, means that the debt was not eliminated, a conclusion which is not surprising. But as Meagher JA later observed, tender is an answer to a debt claimed if there is a continued readiness to pay, coupled with an actual payment into Court. As I read what his Honour said, the actions the defendant took and the other events which happened yesterday afternoon amount to what his Honour called an answer to a claim for the debt. On that basis the plaintiff’s creditor’s status should probably be regarded as gone.
Barrett J later in his reasons referred to the question of the solvency of the defendant (at [11]) but, as I understand his reasoning, he did so in the context that there was before him an application in relation to a notice to produce which he subsequently refused to enforce. Consequently, his reference to the possible insolvency of the defendant was material to the question of whether or not he would make an order requiring the defendant to produce the voluminous documentation sought.
If this matter is to be decided by reference to the above two cases, it seems to me that, factually, it comes within the principle enunciated in the Court of Appeal and the decision of Barrett J.
There is in this case the complication that the defendant received the notice from the Child Support Agency requiring $8,447.86 to be paid to that Agency, but I do not consider that that is a point of distinction. It is clear, from the analysis referred to above, that the payment of the sum referred to in the notice by the defendant to the agency, gives rise to an effective discharge of the indebtedness between the plaintiff and the defendant pro tanto. Thus, I consider that there has been a payment into Court of the amount of the indebtedness referred to in the statutory demand and a willingness on the part of the defendant, at least since 5 September 2007, to have those moneys disbursed so that the indebtedness between the plaintiff and the defendant is discharged.
When, on 5 September 2007, the defendant through its counsel announced that it was willing to have the moneys paid in the manner just stated, I asked the plaintiff whether or not he would accept a payment of the balance held in Court after payment to the Child Support Agency was deducted. He replied that he would not. In those circumstances, the factual substratum has been established by the defendant of a continued readiness to pay coupled with an actual payment into Court as referred to in both of the cases discussed above.

The plaintiff contended that he had not lost the status of creditor, and he therefore had the right to pursue these proceedings for the winding up of the defendant. He relied upon another New South Wales decision, Australian Beverage Distributors Pty Ltd v The Red Rock Cove Pty Ltd, an unreported decision of White J, Judgment No [2007] NSW SC 966, delivered on 31 August 2007. In that matter the defendant applied for a stay of the winding up proceedings or summary dismissal of the winding up application.
Before dealing with this case in detail, it is convenient to mention one aspect of it which is germane to a point raised by the plaintiff. The plaintiff argued that, even if it is assumed that he was not a creditor from 5 September 2007 onwards, the defendant owed other moneys to him so that he remained a creditor. Such an argument was examined by White J in the Red Rock case (at [22]) where his Honour said:
The payment off of a petitioning creditor does not preclude another creditor being substituted. In De Montfort v Southern Cross Exploration NL (1987) 17 NSW LR 468, Needham J said (at 470-471) that he was aware of no case in which a creditor who had issued a notice under s 364 of the Companies (NSW) Code, but had been paid out, was then entitled to continue to pursue proceedings on the basis of other debts owed by the defendant to the plaintiff which had not been the subject of the notice. His Honour said (at 471):
I should have thought that, while the effect of the s 364 notice undoubtedly continues so as to allow another creditor to become substituted for the original plaintiff, that principle could not possibly apply to a case where it is the plaintiff itself who claims to continue proceedings after being paid out the only amount which is claimed in those proceedings. It would, I think, be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice, then, when the debtor failed to comply with that notice, take proceedings, be paid the full amount claimed, and then seek to wind the defendant up nonetheless.
Whether the principles relating to s364 and the deemed insolvency of companies applies to such a situation or not, I would not, in the exercise of my discretion, permit the creditor to proceed with the claim for winding up in those circumstances …..
This conclusion is also material to the question of whether or not these proceedings should be dismissed as sought by the defendant. It seems to me that if a payment into Court together with a continued willingness to pay the amount of the statutory demand are equated with being “paid the full amount claimed” as referred to by Needham J, the winding up application should be dismissed.
White J pointed out (at [24]) that De Montfort had been approved by the Court of Appeal in New South Wales but differing views had been taken by at least two single Judges. His Honour also referred (at [25]) to a decision of Young J who ordered an insolvent company to be wound up where the company had tendered payment of the debt the subject of the statutory demand a few hours after the filing of the winding up summons. The tender was not accepted but there was no payment of the amount of the debt into Court.
His Honour next reviewed a number of other cases including Yassim and Alcatel. He summarised his conclusions as follows (at [33]):
It does not follow that the Court will make a winding up order at the instance of a creditor who unreasonably refuses to accept payment. The better view of the authorities, particularly Motorterms Co Pty Ltd v Liberty Insurance Limited (in lid) per Menzies J at 194-195 and De Montfort v Southern Cross Exploration NL at 470-471, is that the Court’s jurisdiction to wind up a company in insolvency is enlivened where the application is made by a person having the status of a creditor under s 459P(1)(b), and the Court is satisfied that the company is an insolvent company (s 459A). However, the power to make a winding up order is discretionary. Where the winding up application relies on the presumption of insolvency arising from non-compliance with the statutory demand, the Court may, in the exercise of its discretion, refuse to permit a creditor to proceed with the claim for winding up where the debt claimed in the statutory demand has been paid, albeit that payment outside the 21 day period does not oust the statutory presumption of insolvency (De Montfort v Southern Cross Exploration NL at 471; Braams Group Pty Ltd v Miric at 461 [77]-[79]; 135 [77]-[79]). Even if the winding up application does not rely on a presumption of insolvency, the winding up order may be refused as a matter of discretion if, at the time of the making of the winding up order, the petitioner is not then a creditor (Motorterms Pty Ltd v Liberty Insurance Limited (in liq) at 194-195). Equally, the discretion could be exercised against an applicant who unreasonably refused to accept the proper tender of the debt where the tender was accompanied by a payment into Court. I prefer the view that, if a person has standing as a creditor at the time the application is made, the question whether a winding up order will be made if the plaintiff is not a creditor at the time of the hearing is a matter of discretion rather than power.
His Honour concluded that an application for summary dismissal of the proceedings is not an appropriate vehicle for determining whether the plaintiff’s winding up application should be dismissed on the ground that there had been a proper tender and payment into Court. I do not take his Honour to be stating that in all circumstances such a determination may not be made on a summary application. It is at least implicit from his Honour’s examination of the facts at the commencement of his reasons that there were factual matters relating to service and the effectiveness of an assignment which should be determined before there could be a proper exercise of the discretion either to dismiss the winding up proceedings or to refuse the application to dismiss the winding up proceedings.
His Honour’s summary cited above deals with applications based on a deemed insolvency and those applications which do not rely on a presumption of insolvency. In relation to the former, he cited with approval the approach taken by Needham J in De Montfort. I take the effect of his Honour’s reasoning to be that in the circumstances referred to by Needham J, the proper exercise of the discretion whether or not to grant a winding up order is to refuse to do so. In other words, if the questions at issue on an application summarily to dismiss a winding up application may be dealt within a summary manner, and if the circumstances are as stated by Needham J in De Montfort, the summary application for the dismissal of the winding up proceedings should be granted. I touched upon this question earlier in my reasons when I referred to the question of whether or not the payment of the amount of the statutory demand before a winding up order is made is to be equated with the payment of the amount of the statutory demand into Court coupled with a continued willingness to pay the same in discharge of the indebtedness. In my opinion, there is no valid point of distinction between the two. It is for that reason that I consider that the facts of this case are not materially different from the situation referred to by Needham J in De Montfort.
I accept that, on an application such as this, the determination depends on the exercise of the discretion rather than solely on a finding that the relationship of debtor and creditor has ceased to exist. In other words, even if such a finding were made, there remains a discretion, pursuant to s 467(a)(a) of the Act, either to permit the proceedings to be continued or to dismiss them. The only basis upon which it might be said that the defendant company should be wound up arises from the uncertainty surrounding the company’s solvency referred to earlier in these reasons. Given that there are no other creditors pressing for a winding up order, the approach taken by Needham J in De Montfort is applicable to the circumstances of this case. Accordingly, the plaintiff’s application to wind up the defendant should be dismissed. The order dismissing the winding up application is conditional upon the payment to the Child Support Agency the sum of $8,447,86 out of the funds held in Court within 14 days of delivery of these reasons. I propose to direct the Registrar of this Court to pay that sum to the defendant’s solicitors who, in turn, within the time stipulated, will pay that sum to the Registrar of the Agency, in fulfilment of the defendant’s obligations under the notice. The balance of the funds will remain with the Court until further order. The parties are to have liberty to apply generally, including for an extension of the 14-day period if unforeseen circumstances give rise to that requirement.
I will hear the parties as to costs.