Wily v Terra - [2008] NSWSC 805

No judgment structure available for this case.

CITATION: Wily v Terra [2008] NSWSC 805

HEARING DATE(S): 28/07/08, 31/07/08, 01/08/08, 04/08/08

JUDGMENT DATE :
31 July 2008

JURISDICTION: Equity Division

JUDGMENT OF: Macready AsJ at 1

EX TEMPORE JUDGMENT DATE: 31 July 2008

CATCHWORDS: Corporations. Winding up of company in insolvency. Whether statutory demand was validly served by leaving it at the building in which the registgered office was situated. Held it was validly served. Order for winding up.

PARTIES: Andrew Hugh Jenner Wily as Liquidator of Business Australia Capital Mortgage Pty Limited & Business Australia Capital Finance Pty Limited v Terra Cresta Business Solutions Pty Limited

FILE NUMBER(S): SC 3493/08

COUNSEL: Mr RD Marshall for plaintiff

SOLICITORS: MD Nikolaidis for plaintiff
Mr D Gasic, Deacons for defendant

- 1 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

THURSDAY 31 JULY 2008

3493/08 - ANDREW HUGH JENNER WILY AS LIQUIDATOR OF BUSINESS AUSTRALIA CAPITAL MORTGAGE PTY LIMITED AND BUSINESS AUSTRALIA CAPITAL FINANCE PTY LIMITED v TERRA CRESTA BUSINESS SOLUTIONS PTY LIMITED

JUDGMENT

1 HIS HONOUR: This is the hearing of an application that the defendant be wound up in insolvency. The plaintiff relied upon the failure to comply with the statutory demand said to have been served on 5 June 2008. The demand was for the sum of $90,928 12 plus interest and was in respect of a costs order made in other litigation between the same parties in this Court.

2 The defendant raised the following matters during the hearing:

Defect in the demand

3 The demand was for $90,928 12 and a perusal of the orders upon which it founds shows that the correct amount is $87,944 37. Whoever issued the demand did not take into account the credit in order 3.2 in arriving at the correct amount due under the orders.

4 This misstatement constitutes a defect in the demand. A demand can be set aside under s 459J(1)(a) of the Corporations Act 2001 for such a defect if the Court is satisfied that substantial injustice will be served unless the demand is set aside. No such injustice was identified in the evidence or submissions. Given that the demand as served attached a copy of the Court order relied upon the mistake was plain on the face of the document. There is, thus, no substantial injustice. In any event such a point can only be taken in proceedings to set aside the demand and no proceedings were taken (see Nay’s Works v Allcast (2006) 24 ACLC 41.

Service of the demand

5 The affidavit of service was by Mr Opit, a process server, in this form:

6 Mr Salmon, the director of the plaintiff, gave the following evidence:

"34. I check the defendant's mail twice a week and say that from 5 June 2008 to the date of swearing this affidavit and on each occasion when I attended to the defendant's mailbox there was no letter, envelope or other document that contained or had attached to it any statutory demand or affidavit left in the defendant's mailbox for Suite 245 as deposed to by Mr Opit."

7 Consequently no application to set aside the demand was made. The records of ASIC show the registered office as “Suite 245, 91-93 Longueville Road, Lane Cove West". That was also shown as the address of Mr Salmon in the ASIC records, he being the only director of the defendant. It was also the address used by Mr Salmon in his affidavit, as he declined to give his residential address. He described in evidence the company is only receiving mail via this box.

8 The defendant's submissions on this aspect were:

"14. There is no evidence of:

15. By the plaintiff's own evidence the statutory demand was required to be placed in the defendant's mailbox.

16. The statutory demand was not posted to the defendant's registered office.

17. There is no proof that statutory demand was left at the defendant's registered office as required by s 109X(2).

18. There is evidence from the sole director of the defendant that the statutory demand did not come to his attention (see affidavit of Owen Salmon sworn 21 July 2008 at paragraph 33 to paragraph 36 inclusive.)”

9 Section 109X(2) requires that in this instance the demand be served by "leaving it at the company's registered office".

10 That evidence as to the shops at 91-93 Longueville Road is limited to the fact that the MBE business centre is at that address. The evidence of the person served demonstrates that there was a connection between shop 2 and box number 245, which was the description adopted by Mr Salmon in answer to questions in cross-examination. Accepting as I do Mr Salmon's evidence, then in the absence of evidence from the person in the shop that said he would put the document in the box, I would conclude that he did not do so. It may have been put in a wrong box or simply not processed. Given that the documents were not put in the box the next question is whether leaving them at the premises was sufficient.

11 Section 100 of the Act provides as follows:

"100(1) [Contents of notice] Where a provision of this Act requires a notice to be lodged of, or information in an application to specify:

(a) the address of an office, or of a proposed office, of a body corporate or other person; or

(b) a change in the situation of an office of a body corporate or other person; the notice:

12 In Golden Orchard v Connor 17 ACSR 442 Shepherd J had to deal with a situation where there had not been compliance with s 100(1)(c) so that ASIC’s records do not truly identify the registered office. At 446 he said the following:

"The real complaint of the company in this case is that the demand was left in a shop not bearing the name of the company in an office building having a number of businesses. But the demand was nevertheless left at the company's registered office notified by it in the records kept by the Australian Securities Commission. The provisions of s100 of the Law obliged the company to be specific about its location in the building which it occupied. It was required to designate the number of the room and of the floor or level of the building on which the office was situated. This was not done. It chose to specify only the fact that its office was to be found somewhere within the building.

There is no evidence that there was a directory at the entrance to or in the vestibule of the building, and no precise evidence of how easy or difficult it was to find the office referred to in Mr Lee’s affidavit. Mr Szittner took steps to see to it that he did leave the demand with someone in the building who knew of the company. It did in fact come to Mr Lee’s knowledge although some two weeks after service. He may have believed that the documents had only just been served -- he does not say this is expressly -- but there is no evidence whether he made any enquiries about the matter. In the result I am satisfied that the demand was served on 14 February 1995."

13 I infer from the evidence that there are at least two shops at 91-93 Longueville Road and that there are boxes for the receipt of the mail in shop 2 in which is located the MBE business centre. The evidence also suggests that there is no suite 245. These matters were not otherwise explained in cross-examination. Here the defendant only specified a non-existent suite in a building. The person with whom the documents were left knew of the company and that it rented box number 245, wherever that box may be located in the shop. In my view given the limited specifications of the location of the office in ASIC's records it has been served by leaving it at the building, thus, the presumption of insolvency does arise.

Abuse of process as a result of earlier proceedings to wind up

14 At the time these proceedings were commenced on 27 June 2008 there were already on foot proceedings number 1091 of 2008 seeking a winding up. They were dismissed on 14 July 2008. This type of abuse was discussed by Young J in Beneficial Finance Corporation Ltd v East Coast Printed Circuits Pty Limited 7 ACSR 79 in these terms:

"Generally speaking it is an abuse of process to have two claims before the court for the same relief. That principle is usually associated with the same person bringing more than one claim, but it seems to me that when one has a class right, such as the right to wind up a company for insolvency, it applies where there are two quasi representative actions to bring about the same result. Certainly over the years this court has never encouraged more than one petition and, indeed, the practice is that solicitors, before they filed a summons for winding up, should search to see whether there is an existing summons on file. If there is, the new summons should not be filed, but the solicitor should attend on the return date of the process that is already before the court, watch carefully those proceedings and seek to be substituted if some ‘deal’ is done with the petitioning creditor, or if otherwise the petition looks like it is going to fail".

15 In the case before him the company had already filed for its own winding up and had a provisional liquidator appointed. There were plainly good grounds for his Honour's concluding that the new proceedings were an abuse.

16 The general principle which his Honour referred to in the first sentence concerned the case where the earlier proceedings were not for a winding up application.

17 There are a number of cases that deal with the principles in this respect. Importantly in Portfolio Projects Pty Ltd. v Oakes Building Co Pty Ltd (1987) 5 ACLC Needham J said:

"It seems to me to be an abuse of the process of this Court to make a claim for that sum of money that is included in the Common Law claim and seek to wind up the company in parallel proceedings in the Equity Division because of the failure to pay the plaintiff.."

18 These comments were adopted by Santow J in Roy Morgan Research v Wilson Market Research (1996) 14 ACLC 925 at 929 where his Honour referred to what the late Master Adams said in Mala Pty Ltd v Johnston (1995) 13 ACLC 100 at 102, namely:

Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd

Re Bond Corporation Holdings Ltd

19 There was no explanation from the plaintiff as to why these proceedings were brought forward when the other proceedings were already in progress. If this application had been dealt with earlier it might have been possible in the absence of an explanation to have formed the view that there is an abuse. Given what has happened to the earlier proceedings, namely, their dismissal, I would not conclude that the continuance of the present proceedings is an abuse. Indeed, to now dismiss them because at their initiation it may have been an abuse denies the present proper purpose of this type of proceeding.

Abuse of process to obtained a collateral advantage

20 There are presently set down for hearing, on 18 August 2008, before Young CJ in Equity proceedings 4200 of 2006. It was in these proceedings the debt the subject of this application arose. In those proceedings the plaintiff is the same as in these proceedings and the defendant in these proceedings is the first defendant in those other proceedings. The plaintiff is the liquidator of two companies, Business Australia Capital Mortgage Pty Ltd (“BACM”) and Business Australia Capital Finance Pty Ltd (“BACF”). BACM and BACF each created charges on 18 March 2005 in favour of the first defendant. There are two sets of defendants to the 4200 of 2006 proceedings. The first defendant is Terra Cresta Business Solutions Pty Ltd, the second defendants are Messrs Albarran and McDonald of Hall Chadwick, who purport to be receivers of BACM and BACF appointed by the first defendant under charges the subject of this dispute. The plaintiff sought, in relation to BACM, a declaration that the charges were not binding against him, or, alternatively, a declaration as to the amount secured by the charge, and with respect to BACF, a declaration as to the amount secured by the charge. The challenge to the validity of the charge of BACF was given up in those proceedings.

21 The background to the proceedings which his Honour had expedited was described by him in these terms:

"20. The background facts, as asserted by the plaintiff, and established by evidence, can be summarised as follows: The defendant provides a business consultancy service and, among other things, provides professional advice to businesses and skilled personnel to keep, maintain, prepare financial accounting and business records. It, among other things, rendered invoices for bookkeeping for both companies.

21. On 18 March 2005 one Owen Salmon was a director of the defendant, and was also secretary of BACM, and also a director or secretary of HLBC Pty Ltd, a company associated with BACM and BACF, Numsbar Investments Pty Ltd, which is a company associated with the first defendant. Its principal appears to be a Mr Myers.

22. It would seem that there was an arrangement between Numsbar and the two companies that Numsbar would advance short term funding for a fixed interest free, which equates to about 30 percent for a loan of three months. The background material appears to suggest that the companies had a claim against Nauruan interests and they expected that that claim would bear fruit within the first three month period. However, that did not happen, and there were discussions between the various interested parties in January and February 2005 as to the ongoing funding. Numsbar appears to have been a little nervous about recovering moneys from Mr Lazar and his companies and a scheme (and I do not use that word in a pejorative sense) was worked out whereby the short-term funding was repaid, longer term funding was put in place and it was proposed that when the companies granted charges to the defendant, the defendant would repay Numsbar and would then re-lend the moneys to the companies which would be secured by the charge.

23. Unfortunately, the way in which the scheme was implemented was quite ineffective in the sense that there never was any assignment of debts, there never was any actual payment and repayment, it was just done by book entries. Indeed, there is a certain vagueness and nebulous flavour over the transactions, presumably because the defendant and Numsbar were fairly closely connected commercially."

22 After dealing with the evidence he concluded in these terms:

"78. Now, it seems to me that it would be wrong for me to make a conclusive declaration as to how much was owing under the charge, partly because the parties really gave secondary consideration to this matter being principally concerned with the main aspect, namely that the validity of the charge. I will stand the matter over for a couple of weeks so that short minutes can be brought in, but, in my view, I should make a declaration that the BACM charge is void against the plaintiff, and as to the BACF charge I would advise the liquidator under the Corporations Act (the section would have to be different because for one company he is a court liquidator and the other a voluntary liquidator) that he would be justified in treating the charge in favour of BACF as being security for no more than $177,902 66, unless he is convinced by material placed before him by the defendant that he should treat the charge as being for some higher amount.

79. The short minutes will also then have to deal with any outstanding issues that were not subject to the expedited hearing and what is to happen to the defendant's cross-claim.

80. So far as costs are concerned, it would seem to me that the defendant has basically failed and should pay the costs of this hearing. Again I will consider that when short minutes are brought in."

23 His Honour gave judgment on costs 19 October 2006 and in due course these were assessed and the judgment completed. They could be assessed as there was a discrete part of the proceedings which had already been completed and the cross-claims were still to be dealt with by the court.

24 Since then the defendant has lodged a proof of debt with Mr Wily for $1,023,522, which had been totally disallowed by him. This was pursuant to inter alia directions to give effect to what his Honour indicated in paragraph 78 of his Honour's judgment.

25 There is presently paid into court $1,625,000 to answer the charge if it is found to be effective for a particular amount.

26 The claim for an abuse of process to obtain a collateral advantage was not clearly articulated. One view of it was that the defendant was entitled to at least $177,902 66 under its charge and that such an amount would be able to be paid given that the sum of $1.6 million was paid into court. To persist with a claim for $90,928 12 in the face of such an entitlement was submitted to be a clear abuse.

27 On another level the abuse might be that the effect of a winding up order two weeks before the hearing would be to abort the hearing and prevent the defendant exercising its rights on its cross-claim which was still to be determined in that hearing.

28 On the first aspect it is plain from a consideration of paragraphs 78 of his Honour's judgement that what he has not done is determined whether the $177,902 66 is owing. His Honour expressly declined to do that and it has been left to be determined by the hearing of the defendant's cross-claim as to what amount is owing.

29 The advice given by his Honour was presumably to answer the urgent question of who could control the liquidation of BACM and BACF for the purposes of conduct of certain Federal Court proceedings.

30 The defendant only had limited success before the Chief Judge and has, as a result, suffered a costs penalty which the Court has already allowed to be enforced against him during the preparation of the cross-claim for hearing.

31 The prosecution of the collecting of that amount can be seen as enforcement of legitimate rights granted to the plaintiff and sanctioned by order of the Court. It may be that the purpose of Mr Wily in pursuing that approach was for the ulterior purpose of preventing the hearing going ahead, but the problem for the defendant is that it points to no evidence that could found such a conclusion. No relevant paperwork has been produced and Mr Wily gave no evidence and was not cross-examined. None of his staff who gave the formal evidence were cross-examined.

32 Given that his Honour, the Chief Judge, has not determined the amount owing and these considerations, the first form of possible abuse has not been made out. I earlier rejected some evidence at paragraphs 39-45 of Mr Salmon's. affidavit, inter alia, on the ground of privilege as this concerned settlement negotiations. That activity occurred in September 2006 at the time of the hearing before his Honour in proceedings 4200 of 2006. Having regard to the timing and their content they can have no relevance to Mr Wily's present conduct in bringing forward these proceedings.

33 On the second matter I identified I note that the costs assessment was made on 7 April 2008 and entered on 15 May 2008. The demand was dated 29 May 2008 and served on 5 June 2008. There is thus no suggestion that the claim was available for a time and now brought forward to thwart the proceedings 4200 of 2006. I am not satisfied that this ground is made out.

Solvency

34 The plaintiffs sought to rebut the presumption by advancing its accounts to the year ended 30 June 2008.

35 A useful summation of the principles to be applied was given in Southern Cross Interiors Pty Ltd and Anor v Deputy Commissioner of Taxation and Ors [2001] NSWLR 213 by Palmer J at 224-225 in these terms:

“In my opinion, the following propositions may now be drawn from the authorities:

(i) whether or not a company is insolvent for the purposes of CA ss.95A, 459B, 588FC or 588G(1)(b) is a question of fact to be ascertained from a consideration of the company’s financial position taken as a whole: Sandell v Porter, Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 and Powell v Fryer;
ii) in considering the company’s financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable: Sandell v. Porter, Taylor v. ANZ, Newark and Sheahan v. Hertz.
iii) in assessing whether a company’s position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency: Bank of Australasia v. Hall (1907) 4 CLR 1514, at 1528; Norfolk Plumbing at 615; Taylor v ANZ at 784; Guthrie v. Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572, at 575;
iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand: Antico at 331; Hall v Aust-Amec (supra); Melbase (supra) at 199; Carrier (supra) at 253; Cuthbertson & Richards Sawmills Pty Ltd v Thomas (supra) at 320; Lee Kong (supra) at 112;
v) in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court’s satisfaction, that:
• there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
• there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or
• there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors’ terms of trade or are payable only on demand:
Newark at 260; Antico (supra) at 331; Melbase (supra); Cuthbertson & Richards Sawmills Pty Ltd v Thomas (supra); Powell v Fryer (supra) at 600;
vi) it is for the party asserting that a company’s contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: Powell v Fryer (supra) at 600; Melbase (supra); Cuthbertson & Richards Sawmills Pty Ltd v Thomas (supra).”

36 The company had two sides to its business, bookkeeping and associated services and the other was its finance activities. The first part of its business ceased deceased prior to 1 July 2007 and it no longer employed any staff. To use the words of Mr Salmon, it halted its business until the court matters were finalised.

37 So far as income is concerned in the year to 30 June 2008 its only income was "interest received" of $887,871. Its only expenses in that year were bank fees of $90 and interest of $104,313. Mr Salmon conceded that it had not received the $888,871 and that was because "it had not been released by Mr Wily". I take it from this that it is the interest allegedly due on the loans said to be due by the two companies in liquidation, BACF and BACM.

38 Although the accounts thus show profits, none have been distributed because there is no resource available to allow any such distribution.

39 It is necessary to turn to the balance sheet to see if there are assets which can be realised or borrowed against for the purpose of meeting the company’s liabilities. The balance sheet shows two current assets. There are cash and cash equivalents of $12,500 and trade and other receivables of $4,503,178. The first is something which has apparently been forgotten and represents a bond paid to a landlord for a former lease. The evidence does not address its ability to be recovered.

40 The remarkable increase in trade and other receivables over the last year has been achieved by moving non-current assets to current assets. Note 4 to the accounts discloses that and that note is in these terms:

“TRADE AND OTHER RECEIVABLES
Current $ $
Trade Debtors 617,243 617,243
Less: Provision for Doubtful Debts (608.274) (608,274)
Loans TCBS Finance Pty Ltd 8.319 -
Loans TCBS SPV Tomaree Pty Ltd 395,840 -
Loans BACF 3,250,024 -
Loans BACM 666,018 -
Loans TCBS Property Pty Limited 159,648 -
4,503,178 8,969

41 The trade debtors have remained the same for 2007 and 2008. Mr Salmon could not say whether they could be got in quickly and claimed they were real.

42 Both BACF and BACM are in liquidation and in respect of BACF the liquidator does not accept that any money is owing. Given the liquidation they are obviously not readily available.

43 Mr Salmon did not know whether TCBS SPV Tomaree Pty Ltd was in a position to write out a cheque for $395,000. In respect of TCBS Property Pty Limited. Mr Salmon said that it has assets but it was possibly not in a position to write out a cheque for $159,000.

44 There is no suggestion that other assets such as plant and equipment of $50,053 or goodwill of $35,000 are available to meet debts due. Of importance in this area are the concessions made by Mr Salmon in cross-examination. The following evidence was given:

HIS HONOUR

45 So far as liabilities are concerned current liabilities are shown as:

46 The overdraft is one which is subject to an arrangement for repayment and that arrangement requires repayment of $100 per week to be made.

47 The provisions mainly relate to past tax matters, which include non-payment of PAYG withholding of $46,640, which has been overdue for at least a year. The accounts do not disclose the debts of $90,000 relied upon by the plaintiff in these proceedings, nor a charge of some $150,000 at least which is apparently due to a solicitor, Mr Lawson.

48 What all this shows is the company is not in receipt of any income on a cash flow basis and has no access to assets to readily realise them or borrow against them to pay its presence liabilities.

49 The evidence, apart from the rejection of proof, did not deal with the prospects of success on the cross-claim and the likelihood that some funds will be available in a definite period.

50 In my view, having regard to the evidence alone, the company is insolvent and taking into account the presumption the evidence does not displace that presumption.

51 Accordingly, the orders that I make are as follows:

Corporations Act

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Citations

Wily v Terra [2008] NSWSC 805

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CITATION:	Wily v Terra [2008] NSWSC 805
HEARING DATE(S):	28/07/08, 31/07/08, 01/08/08, 04/08/08
JUDGMENT DATE :	31 July 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
EX TEMPORE JUDGMENT DATE:	31 July 2008
CATCHWORDS:	Corporations. Winding up of company in insolvency. Whether statutory demand was validly served by leaving it at the building in which the registgered office was situated. Held it was validly served. Order for winding up.
PARTIES:	Andrew Hugh Jenner Wily as Liquidator of Business Australia Capital Mortgage Pty Limited & Business Australia Capital Finance Pty Limited v Terra Cresta Business Solutions Pty Limited
FILE NUMBER(S):	SC 3493/08
COUNSEL:	Mr RD Marshall for plaintiff
SOLICITORS:	MD Nikolaidis for plaintiff Mr D Gasic, Deacons for defendant