640 Esplanade Pty Ltd v Splash Bay Pty Ltd

Chronology of the proceedings and affidavit evidence

1. By Originating Process filed on 21 June 2023, the initial Plaintiff in these proceedings, Mr Cao, applied for the winding up of Parkmeng on the basis of a failure to comply with a creditor's statutory demand ("Initial Demand") served on Parkmeng on 24 April 2023, which related to an unpaid amount under a judgment of this Court in the amount of $1,259,355.20.
2. BECL reads Mr Cao's affidavit dated 21 June 2023, which confirmed that the amount of $1,259,355.20, being the judgment debt in his favour, was then unpaid. That affidavit also annexed a company search, which referred to the registered office address of Parkmeng, a matter to which I refer below.
3. BECL also reads an affidavit of service dated 21 June 2023 of Mr He the solicitor then acting for Mr Cao, which referred to service of the Initial Demand and accompanying documents, by express post, upon Parkmeng, showing a contact name of Mr Sam Fayed, and referred to an Australia Post tracking record indicating delivery on 24 April 2024 and recording that the document had been "left with concierge-reception". Mr He also referred to service of the Initial Demand and accompanying documents by post to Mr Fayed, who a company search indicated was then the director of Parkmeng. Again, a tracking record of Australia Post indicated delivery of those document, although it recorded the suburb of delivery rather than the particular street address to which the document had been delivered. Mr He also referred to sending the Initial Demand and accompanying documents to Mr Fayed and another person by email.
4. Mr He's affidavit also noted that, in mid-May 2023, he received the returned envelope in which the Initial Demand had been addressed to Parkmeng, which had a handwritten note which appeared to read "RTS left address". Parkmeng does not lead evidence in this application to indicate that the Initial Demand and supporting affidavit had not in fact been delivered to its registered office, on or about 24 April 2023, as recorded by the Australia Post tracking record, and it seems to me that the notation "RTS left address" supports an inference that those documents had in fact been delivered to that address, albeit that may not have been received by Parkmeng, if it had by that point left that address without notifying any change to its registered office address. It is, of course, well established that effective service of a creditor's statutory demand can be achieved by delivery to the registered office of a company which fails to notify a change of address of its registered office.
5. BECL in turn reads a second affidavit of Mr Cao dated 25 October 2023, sworn immediately prior to the date on which his winding up application was listed for hearing, which affirmed that he had not received any payment of the judgment debt by Parkmeng and that that debt was still outstanding.
6. BECL also reads Mr He's affidavit of service dated 25 October 2023, which deposes to service of the Originating Process by which Mr Cao sought to wind up Parkmeng and associated documents on Parkmeng, although little turns on proof of that matter where Parkmeng appeared, represented by solicitors, at the date of the hearing of Mr Cao's winding up application on 26 October 2023. BECL also reads a second affidavit of Mr He dated 25 October 2023, which proves the notification of the winding up application to ASIC in Form 519, and publication of notice of the winding up on ASIC's insolvency notices website, although Mr He's affidavit acknowledges a delay in lodging those notices and BECL seeks dispensation in that regard.
7. BECL also reads an affidavit dated 25 October 2023 of Mr Chia, who is a solicitor acting for BECL, which referred to a creditor's statutory demand dated 29 October 2023 issued by BECL("BECL Demand") claiming the substantial amount of $98,145,154 against Parkmeng, and referred to service of the BECL Demand and a supporting affidavit by email to two specified email addresses. Ms Gerges, who appears for Parkmeng, asserted in submissions, that those email addresses were no longer functional at that date, but that assertion was unsupported by evidence and I disregard it. Mr Chia's evidence was that those documents were served in that way, rather than by posting them to Parkmeng's registered office, because the building which was still recorded as Parkmeng's registered office had by that time been demolished as part of the Sydney Metro project. Mr Chia in turn referred to his understanding that no payments had been received by BECL from Parkmeng at the date of that affidavit.
8. An exhibit to Mr Chia's affidavit (Ex P1) included a Loan Note Subscription Agreement - Project Parkes and Rose, between another company, Berry park NSW Pty Ltd, certain guarantors which included (in respect of the Parkes Project) Parkmeng as trustee for a trust, and BECL. Mr Burnett draws attention to cl 26.2 of the Loan Note Subscription Agreement which relevantly provided that all notices "in connection with a Transaction Document" could be served by alternative means, including by email to the email addresses which were ultimately adopted by BECL to serve the BECL Demand, and provided (in CL 26.3) that communications took effect, if sent by email, when received. Mr Burnett relies on that provision for a submission that service of the BECL Demand was effected in a manner authorised by agreement between BECL and Parkmeng, but it will not be necessary to deal with that submission for the reasons noted below.
9. When Mr Cao's winding up application was listed before the Court on 26 October 2023, he did not proceed with that application, and the Court adjourned the winding up application pending BECL's foreshadowed substitution application. Ms Gerges submits, also without evidence, that Mr Cao did not proceed by reason of a compromise or agreement reached between him and Parkmeng, and I recognise that that would be a common situation in which a plaintiff would not pursue a winding up of proceedings, and also a common situation where, as here, another creditor may seek to be substituted in a winding up application.
10. Subsequently, by Interlocutory Process dated 9 November 2023, BECL sought to be substituted as creditor in the winding up proceedings. By orders made on 11 December 2023, Ball J made an order under s 465B of the Corporations Act 2001 (Cth) ("Act") that BECL be substituted as Plaintiff in the proceedings, and granted leave to BECL to file an Amended Originating Process in a specified form. Ultimately, that Amended Originating Process was filed in Court today. I pause to note, because it will be important to aspects of the determination of this application below, that s 465B of the Act relevantly provides that the Court may by order substitute an applicant in an application under s 459P for winding up, where that person might otherwise have applied for the company to be wound up and, relevantly, a winding up application, here that by brought by Mr Cao, has not proceeded with diligence. Importantly, s 465B(4) of the Act provides that, after a substitution order is made, the application may proceed as if the substituted applicant had been the original applicant. It is well established, of course, that a substituted creditor may rely on a presumption of insolvency that was available to the original creditor for which it has been substituted in the winding up application: Re C2C Investments Pty Ltd (No 9) [2013] NSWSC 269 at [4]; 640 Esplanade Pty Ltd v Splash Bay Pty Ltd (No 2) (2017) 247 FCR 519; [2017] FCA 89 at [96].
11. BECL also relies on an affidavit dated 9 November 2023 of Mr Le, who is a director of BECL, and refers to the circumstances in which the debt claimed by BECL arose, relying on the Loan Notes Subscription Agreement to which I referred above, and to Parkmeng's role as guarantor under that agreement. Mr Le there refers to the issue of the BECL Demand to Parkmeng and confirms that an amount guaranteed by Parkmeng, in excess of $102 million, inclusive of interest and costs, had not then been paid.
12. By a further affidavit dated 7 February 2024, shortly before the hearing of this winding up application, Mr Le confirmed that the amount due to BECL was then in excess of $107 million, again inclusive of interest and costs, and had not been paid. By an email dated 8 February 2024, Mr Previtera, who is a solicitor acting for BECL in respect of the winding up application, referred to service of the substitution application and other documents upon the solicitors acting for Parkmeng from time to time.
13. BECL also tenders a consent of liquidator of three persons who it seeks to have appointed as liquidators of Parkmeng (Ex P3). I note, for completeness, that BECL also relies on a short form bill of costs, claiming costs of $6,089, which is a modest amount in the context of this application, and I will return to that claim below.

The parties' submissions

1. Turning now to the parties' submissions, Mr Burnett identifies the evidence on which BECL relies on the application and submits that a presumption of insolvency here arises under s 459C of the Act from Parkmeng's failure to comply with the Initial Demand and the BECL Demand. I pause to note that, where BECL has been substituted for Mr Cao in respect of the winding up application, it is sufficient for it to rely on a presumption of insolvency which arises from Parkmeng's failure to comply with the Initial Demand. It is not necessary to address any question which arises from the BECL Demand, beyond noting that BECL was substituted by orders made by Ball J which recognise its status as a creditor of BECL entitled to be substituted, and that there is evidence that the debt owed to BECL remains unpaid so that it continues to have that standing as a creditor of Parkmeng.
2. Mr Burnett refers to Mr He's evidence as to the lateness of lodgement of the Form 519 and of the publication of notice of the winding up application with ASIC, in respect of Mr Cao's winding up application, and seeks an order dispensing with a giving of such notice under s 467(3)(b) of the Act, at least to the extent that such notices were given late. I accept that such orders have often been made, and that it is appropriate to make such an order here, given the time in which the winding up application has been on foot and the several occasions on which the proceedings have been listed in open Court.
3. Mr Burnett also refers to the evidence of service of the Initial Demand and Mr Cao's winding up proceedings on Parkmeng. I am satisfied that, here, service of the Initial Demand has been sufficiently proved, where there is evidence that it was delivered to Parkmeng's registered office, and, indeed, that proposition is implicit in the handwritten note on the envelope that it was returned to sender because Parkmeng was no longer at the relevant address. No evidence was led by Parkmeng establishes non-delivery of the Initial Demand to that registered office. I also find that service of the Initial Demand was also effected by delivery of that creditor's statutory demand to Mr Fayed, then Parkmeng's sole director, where, again, there is evidence that such delivery occurred, and no evidence has been led by Parkmeng at any stage of the proceedings to seek to contest that matter. It is plain enough that the documents relating to Mr Cao's winding up application have come to Parkmeng's attention, where it has appeared throughout the winding up application, both prior to and after the substitution application was deferred.
4. Mr Burnett in turn made elaborate oral submissions, as to the adequacy of service of the BECL Demand upon Parkmeng. Those submissions turned, first, upon the proposition that the parties, relevantly BECL and Parkmeng, had agreed to service in the manner specified in the Loan Note Subscription Agreement to which I referred above, and service in that manner, by email directed to the specified addresses, was effective in respect of the BECL Demand. Mr Burnett did not draw attention to any authority in which that proposition had been accepted, in respect of a service of a creditor's statutory demand, and there may be a question whether the service of a creditor's statutory demand can properly be characterised as a matter having sufficient connection with a Transaction Document (as defined), where delivered to Parkmeng as a guarantor, to fall within the scope of cl 26.1 of the Loan Note Subscription Agreement, and a further question whether service in accordance with an agreement between the parties, rather than by the means specified in s 109X of the Act or any other means recognised by the Act, should be accepted in respect of service of a creditor's statutory demand. It is not necessary to determine those questions here, where BECL has been substituted in the winding up application, and the Initial Demand had been served and not complied with, so as to give rise to a presumption of insolvency on which BECL now can and does rely.
5. Mr Burnett also advanced a submission directed to the application of Pt 1.2A Div 2 of the Act which deals with, inter alia, the technology neutral sending of the documents, to service of the BECL Demand. Mr Burnett contended that the BECL Demand was sufficiently served in accordance with those provisions, on the basis that the addresses to which that creditor's statutory demand was delivered were nominated electronic addresses for Parkmeng for the purposes of those provisions. Mr Burnett in turn referred to the review of the applicable provisions and their predecessor in s 600G of the Act by Derrington J in Sandy's Swim Pty Ltd v Morgan [2022] FCA 1574. It is again not necessary to address that question, where it is sufficient for BECL, as substituted creditor, to rely on the service of the Initial Demand and the presumption of insolvency which arises from non-compliance with that demand.
6. Mr Burnett in turn addresses BECL's compliance with the Supreme Court (Corporations) Rules in respect of this application, and I accept that the relevant provisions of the rules have been complied with. He notes that a notice of appearance filed by Parkmeng did not identify any grounds of opposition to Mr Cao's Originating Process, and that Parkmeng has not since filed or served any notice of opposition in respect of BECL's Amended Originating Process. I recognise, in fairness to Parkmeng, that BECL also did not file its Amended Originating Process until today. In any event, Parkmeng has not led any evidence, in opposition to the winding up application brought by Mr Cao, in circumstances that it sought, but did not obtain, a further extension of time to lead evidence as to solvency, where it previously had ample time to lead such evidence in the relatively long period in which this winding up applications has been on foot.
7. I note, for completeness, that Ms Gerges made submissions, largely unsupported by evidence, as to the position in respect of service of the creditor's statutory demands and I have addressed the matters raised by those submissions in dealing with the evidence above.

Determination

1. I am satisfied that the requirements in the Corporations Rules, and in the Act, in respect of a winding up application are satisfied. The principles which otherwise apply in an application of this kind are well established. This winding up application is brought by BECL, as substituted creditor, where a presumption of insolvency arises from Parkmeng's non-compliance with the Initial Demand. Where a debtor fails to comply with a creditor's statutory demand within the period specified in s 459F of the Act, that non-compliance gives rise to a presumption of insolvency. The effect of that presumption was described by the High Court of Australia in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18 at [28] where the Court observed that: "where a demand has not been complied with, a presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective by an order setting it aside, the company is required to prove to the contrary of the presumption."
2. Here, Parkmeng has not established its solvency, so as to negative the presumption of insolvency. That is sufficient basis for the winding up order that is sought by BECL as substituted creditor in reliance on Parkmeng's failure to comply with the Initial Demand.
3. As I have noted above, BECL seeks an order for costs, fixed in a specified amount, and reimbursed in accordance with s 466(2) of the Act as costs in the winding up. It is common practice to make such an order where there would be little utility in requiring an assessment of costs, given the likelihood that a company that is presumed insolvent will be unable to meet those costs in full or in substantial part. The amount claimed by BECL for costs is modest, given the complexities of the application, and I am satisfied that a costs order in that amount should be made.
4. I make orders in accordance with the short minutes of order initialled by me and placed in the file.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 February 2024