HER HONOUR: This is an application by originating process filed on 15 May 2018 for orders that the defendant company LCC F&B Pty Ltd ACN 612 804 038 be wound up pursuant to the provisions of the Corporations Act 2001 (Cth) and for an order that Michael John Morris Smith of Smith Hancock Chartered Accountants, an official liquidator, be appointed the liquidator of the corporation. Mr Smith has signed a consent dated 10 May 2018 to be appointed by the Court and to act as the liquidator of the company and has confirmed that he is not aware of any conflict of interest or duty that would make it improper for him to act as the liquidator of the company and is not aware of any relevant relationship mentioned in s 60(2) of the Corporations Act.
The application for winding up of the defendant company follows service of a statutory demand on the company on 11 April 2018. Evidence of service of the statutory demand is contained in affidavits that have been read on this application. In particular, I refer to the affidavit of Tien Herh Wong affirmed 21 June 2018 at [2]-[4]. The statutory demand is annexed to the affidavit affirmed 10 May 2018 of Fu Leung Cheng. Mr Cheng is the plaintiff in the proceedings. The debt claimed in the statutory demand is an amount of $500,000 said to be due and payable pursuant to a Deed of Guarantee and Indemnity of a loan between the creditor (Mr Cheng) as lender and the company (LCC F&B Pty Ltd) as borrower on or about 12 April 2017.
Annexed to the affidavit of the plaintiff's solicitor, Tien Herh Wong, affirmed 27 July 2018 are copies of various agreements and loan agreements entered into by Mr Cheng. The first of those is a Deed of Guarantee and Indemnity dated 12 April 2017 pursuant to which Mr Cheng lent the sum of $500,000 to the defendant company. This is the debt that is the subject of the statutory demand. A subsequent loan agreement was entered into extending the repayment date for the first loan to 16 October 2017. A copy of that deed is annexure B to Mr Wong's affidavit.
There were then a number of agreements entered into between the plaintiff and Mr Scott Chan who is the sole director and shareholder of the defendant company (and who appeared on behalf of the company, albeit without leave having formally been granted, at this hearing). Those agreements (annexures C, D and E to the affidavit of Mr Wong), made provision for advances of money to Mr Chan personally, repayable by him on particular dates.
Mr Wong's affidavit deposes (at [7]-[8]) to an agreement between the plaintiff and the debtor company to extend the repayment date of the first loan to 21 March 2018. That agreement is said to be recorded in an e-mail sent to Mr Chan on 1 March 2018 which email is initialled and dated 3 March 2018 by Mr Chan. Mr Chan denies that this represented an agreement to extend the loan made to the company. There is, however, a chain of subsequent e-mail communications in the period 9 March 2018 to 10 March 2018 (including an e-mail annexing a draft deed extending the term of the company's loan) which are consistent only with the parties' understanding at that stage being that the repayment date for the loan to the company had expired (and inconsistent with it already having been repaid).
There is evidence of payment of certain moneys by Mr Chan to Mr Cheng in February this year. In particular, there are letters dated 5 February 2018 and 9 February 2018 issued by Mr Cheng's solicitors acknowledging receipt of payment of amounts of $500,000 on each of 1 February 2018 and 6 February 2018. Those letters bear subject headings referring to two of the loans made to Mr Chan individually. Mr Chan does not point to any communications in response to those letters correcting or dissenting from the proposition that the payments made in February 2018 related to loans made to him personally (i.e., rather than being repayments on behalf of the company as he now asserts).
Mr Cheng in his affidavit affirmed 10 May 2018 deposed that the defendant company was on 10 April 2018 indebted to him in the sum of $500,000 for the funds advanced under the 12 April 2017 loan. Mr Cheng's solicitor in his affidavit affirmed 27 July 2018 has deposed to instructions from his client (who is currently overseas and only scheduled to return to Australia on 7 August 2018) to the effect that the defendant has not made any payments in respect of the statutory demand which was in respect of the first loan and to the receipt of instructions that the principal amount under both the first loan and the second loan remain unpaid.
As I have mentioned earlier, the originating process was filed on 15 May 2018. On 18 June 2018, Mr Chan sought an adjournment of the proceedings. The matter was before Registrar Walton on that occasion and orders were made for Mr Chan to serve any affidavit in support of a further adjournment by 29 June 2018. On 2 July 2018 the proceedings came before Registrar Walton again. There was no appearance on that occasion for the defendant and the matter was adjourned to 17 July 2018.
On 17 July 2018, the matter came before Senior Deputy Registrar Hedge. Mr Chan was present on that occasion. Orders were made on that occasion adjourning the matter until 9am on 30 July 2018; as well as orders that any further adjournment application or any ground of opposition to the application be supported by an affidavit to be served by 23 July 2018 and for the plaintiff to serve any affidavit in reply by 27 July 2018.
Mr Chan affirmed an affidavit on 23 July 2018, the original of which was filed in Court by leave yesterday. In Mr Chan's affidavit he deposes that he is the director and shareholder of the defendant in these proceedings and that he has already paid the amount of $500,000. Annexed to Mr Chan's affidavit are transaction details from a Westpac bank account showing withdrawals online of payments on 5 February 2018 in the sum of $390,000 and on 6 February 2018 in the sum of $125,612.68.
The transaction details disclose that those amounts have been paid from a general account with an account number ending in the last three digits 328 and were made to an account in the name of Mr Cheng. There is nothing on the transaction details to indicate that the accounts in question from which the payments were made were company accounts but Mr Chan informs me from the Bar table that they were company accounts. Mr Chan's affidavit (at [3]) also deposes to him having had discussions with the plaintiff on many occasions in relation to the repayment, payment extension and agreement and says "however it is for other matters". As I understand it, Mr Chan's position is that the discussions or communications in relation to the extension of time for payment of loans that took place in March 2018 related to extension of time for personal loans made to Mr Chan, not to the loan to the company, and that the amounts paid in February 2018 discharged the company's loan.
When the matter came before Registrar Walton on 30 July 2018 and the matter was referred to me then sitting as Corporations List Judge, Mr Chan sought an adjournment in order to have time to consider the affidavit that had been served, in accordance with Senior Deputy Registrar Hedge's orders, on 27 July 2018 and I stood the matter over to today to permit Mr Chan to do so.
Mr Chan has not sought legal advice. Mr Chan's position is that there have been a number of discussions with the plaintiff from which he understood that agreement would be reached and that the plaintiff would not proceed with the application to wind up the company; and he tells me quite candidly that he did not pay sufficient attention to the proceedings because of those discussions. There is, however, no evidence in relation to the contents of discussions nor anything from which I could reach the view that there was some form of binding agreement between the plaintiff and the defendant or even any representation by the plaintiff which would make it unconscionable for the plaintiff now to rely upon the statutory presumption of insolvency arising as a result of the failure by the company to comply with the statutory demand.
The application for an order for winding up of the defendant company is an application under s 459P of the Corporations Act relying on the failure of the company to comply with the statutory demand. There is no doubt in my view that the plaintiff has standing to make that application. The difficulty for the defendant company on the present application is the presumption of insolvency that arises if payment of the amount claimed in the statutory demand is not made within the three months period. There has been no application to set aside the statutory demand within the time required.
The matters raised today from the Bar table, and in the affidavit relied upon by Mr Chan for the defendant company, are matters that could have been put forward had the company sought to establish that there was a genuine dispute as to the existence of the debt on an application to set aside the statutory demand, hence the need to satisfy the test in s 459S of the Corporations Act.
In the circumstances the evidence relied upon by Mr Chan in relation to the assertion that the company has paid the amounts claimed in the statutory demand is one that turns on the characterisation of the Westpac banking transaction documents as being referable to a payment by the company in repayment of the company's debt. The e-mail correspondence is not consistent with that being the understanding of the parties at the time but, in any event, even if there were a serious question to be tried in respect of the first loan, there has been no explanation (and certainly not a sufficient explanation) as to why this could not have been raised on an application to set aside statutory demand and, more critically, there is no evidence before the Court as to the solvency of the defendant company. It has not been established that the company would be found to be solvent if the debt did not exist.
In Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, Weinberg J set out a series of propositions (at [44]) in relation to the authorities dealing with winding up applications of this kind. Those principles include that where there is a presumption of insolvency, as there is in this case, the debtor company bears the onus of proving its solvency; and in order to discharge that onus, the Court should ordinarily be presented with the fullest and best evidence of the financial position of the company. In this case there has been no evidence put forward as to the financial position of the defendant company. There were statements proffered from the Bar table by Mr Chan to the effect that the company would, if it were required to do so, be in a position to pay the $50,000 the subject of the statutory demand by selling other assets or by obtaining money from other companies, but that is unverified and not probative of solvency.
In the Ace Contractors case, Weinberg J said that bald assertions of solvency arising from a general view of the accounts, even if made by qualified accountants with detailed knowledge of how those accounts were prepared, would not ordinarily be probative of solvency. Still less are assertions from the director of the company from the Bar table as to the ability of the company to pay its debts as and when they fall due.
The question of solvency must be assessed as at the date of the hearing.
I also note that Weinberg J referred to authority for the proposition that it is not an abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with the statutory demand merely because that company contends that it is solvent or because there may be alternative means available to the applicant to vindicate its rights - referring there to Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235. The summary of principles in the Ace Contractors case has been cited with approval in winding up applications, such as in Cato Brand Partners Pty Ltd v Air India Limited [2016] VSC 28 at [61] and Commissioner for ACT Revenue v Highrise Concrete Contractors (Aust) Pty Ltd [2014] ACTSC 407 at [38].
In the submissions for the plaintiff reference is made to the decision of Black J in In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546, from which the plaintiff submits that there are three principles emerging in relation to s 459S(2).
First, that there must be determined whether the defendant has a seriously arguable case that the debt is the subject of a genuine dispute and does not require a final determination whether a genuine dispute exists.
Second, that there be a sufficient explanation as to why the relevant ground was not raised in an application to set aside the demand brought under s 459G; and that leave is less likely to be granted where there is some default on the part of the defendant or its advisors in that regard.
Third, as to the test for solvency (which is as set out in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37, which is said to be usually seen as the origin of the "strict or narrow" approach to solvency).
Those questions considered in In the matter of Vangory Holdings Pty Ltd arise in relation to s 459S of the Corporations Act which provides that a company cannot without the leave of the Court oppose an application for winding up on a ground that the company could have relied on but did not rely on in an application to set aside a statutory demand. Reference is made to subsection (2) of section 459S to the effect that the Court cannot grant such leave unless it is satisfied that the ground relied upon by the company is material to proving that the company is insolvent
In the circumstances I would not grant leave to the defendant company to seek to oppose the winding up on the basis of a ground that could have been but was not raised on an application to set aside the statutory demand; and I am not persuaded that the defendant company's evidence is sufficient to rebut the presumption of insolvency that arises from failure to comply with the statutory demand within the requisite period.
I will make orders as sought in the originating process as follows:
1. I order that LCC F&B Pty Ltd ACN 612 804 038 be wound up pursuant to section 459 of the Corporations Act 2001 (Cth).
2. I order that Michael John Morris Smith of Smith Hancock, an official liquidator, be appointed as liquidator of the company.
3. I order that the orders be entered forthwith.
4. Costs of the plaintiff, save as already ordered in these proceedings, be paid out of the assets of the company on the winding up.
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Decision last updated: 03 August 2018