Alternative Engine Technologies Pty Limited v Kruger Ventures Pty Limited

ASG's standing as a creditor

1. With that background, ASG contends that a presumption of insolvency has arisen from the service of the Demand, which has neither been complied with nor set aside, and that that presumption of insolvency has not been rebutted by the evidence led by NVW. It will be convenient now to deal with NVW's case, which is somewhat more complex. I have been assisted in this respect by helpful submissions in writing of Mr Finch, who appears for NVW, and of Mr Pearson, who appears for ASG, and each has elaborated efficiently upon those submissions in oral submissions.
2. The first proposition put by NVW, by Mr Finch in written and oral submissions, is that ASG does not have standing as a creditor to apply for the winding up of NVW. That proposition is put on the basis that ASG is a contingent creditor for the purposes of s 459P(1)(b) of the Corporations Act as the default judgment debt on which the Demand relied has been set aside. It seems to me that that proposition is plainly incorrect. First, the case law indicates that the question of standing would generally be determined at the time that the winding up application is commenced and at that time, as I have noted above, ASG had the benefit of a default judgment although that default judgment was later set aside. The authorities which deal with that matter include the judgment of Barrett J in Bidald Consulting Pty Limited v Miles Special Builders Pty Limited (2005) 54 ACSR 228; [2005] NSWSC 397; at [12]ff, where his Honour also noted, as Mr Pearson fairly recognised, that a winding up application would generally be dismissed if, at the time it came before the Court for determination, the original entity which pursued it was no longer a creditor, and no other creditors sought to be substituted in its place. That proposition does not arise here, where there is no suggestion that, to the extent that ASG was a creditor at the time it issued the Demand or at the time the winding up application was brought, that debt was subsequently paid so as to cause it to cease to become a creditor of NVW.
3. That highlights, in my view, the fundamental error in NVW's submission in that regard. ASG's status as a creditor, and its standing to bring this application, does not depend upon the existence of a default judgment but upon the existence of a debt that arises from the supply of goods which were invoiced to NVW. At its highest NVW contends that it has a claim that can be brought against ASG, presumably in the nature of a claim for unjust enrichment, in respect of amounts that were overpaid in respect of earlier supplies which it can set off against the amount of the debt claimed by ASG. That claim has not yet been determined on its merits. That does not have the consequence that ASG, which was a creditor of NVW from the supply of goods, then ceases to be a creditor and becomes a contingent creditor of NVW. To the contrary, all it establishes, at its highest, is that NVW may be a contingent creditor of ASG with a claim that it will seek to set off against the debt that it owes to ASG. Nothing in that proposition is capable of depriving ASG of the standing as creditor that arises from the debt owed to it, arising from the supply of goods, irrespective of whether that question is determined at the time the winding up application is commenced or at the time of this hearing.

Abuse of process

1. Second, NVW submits that the application is an abuse of process. NVW submits, and I accept, that the Court has a discretion to dismiss a winding up application where it has that character. Mr Finch emphasises the existence of the District Court proceedings and the proposition that the default judgment in those proceedings has been set aside, a matter to which I have referred above.
2. There are, it seems to me, several difficulties in the proposition that that gives rise to an abuse of process. The first is that the position where a winding up application has been brought, in reliance on a default judgment which has been set aside, has been considered twice in the case law. First, that position was addressed by Austin J in The Owners Strata Plan No 17572 v Nomak Holdings Pty Limited above, to which Mr Pearson drew attention, where his Honour considered a hypothetical position even more stark than that which arises in this case, if a default judgment were set aside immediately before his Honour made a decision in respect of a winding up application relying on that judgment. His Honour observed that, if that were the case: "The defendant would still have failed to seek to set aside the statutory demand and that the presumption of insolvency would still have arisen, even if the foundation of it had been undermined. Once the presumption of insolvency had arisen and the hearing of the winding up application had begun, the focus of the Court's attention must be one where the presumption of insolvency has been rebutted, that is whether it has been shown that the company is solvent." His Honour there went on to observe that the evidence in that case fell well short of showing that the company was solvent.
3. In a second decision, in Alternative Engine Technologies Pty Limited v Kruger Ventures Pty Limited (No 2) [2010] SASC 60, to which Ward J referred with apparent approval in Fitness First Australia Pty Limited v Dubow [2011] NSWSC 531 at [89], Judge Lunn, a Master of the Supreme Court of South Australia, reached a similar result by different reasoning. His Honour there observed that, where there was an issue as to the status of a debt, where an application was brought to set aside a default a judgment, a defendant could seek to have an application (presumably to set aside the creditor's demand relying on the default judgment) adjourned and, if it did not do so, it was precluded from relying on that ground upon which it could have relied had it made an application to set aside the demand. Judge Lunn there noted that the applicant in that case had not sought leave under s 459S(1) to rely on such a ground and that it could not subsequently do so in answer to the winding up application.
4. I would tend to prefer the reasoning of Austin J in that respect to the reasoning of Master Lunn. Although Austin J's observations are strictly obiter, I agree with his reasoning, and should generally follow principles set out in this Court's judgments unless persuaded they are incorrect. It seems to me that, where a winding up application is brought on the basis of a debt arising from the supply of goods or services, that debt is the subject of a default judgment, and that default judgment is later set aside, the presumption of insolvency has still arisen from a failure to comply with a creditor's statutory demand and the focus in the application should be on the company's solvency.
5. In any event, it seems to me that the abuse of process for which NVW contends would not be established for another reason. The focus in an allegation of abuse of process is whether the winding up application is brought for a purpose that is foreign to the statutory regime. I reviewed the relevant authorities, including the observations of Barrett J in TS Recoveries Pty Limited v Sea-Slip Marinas (Aust) Pty Limited [2007] NSWSC 1410, in my judgment in Re Gladstone Mortgagee No 1 Pty Limited [2015] NSWSC 1551 at [56]ff, and I need not repeat that review. Here, a proposition is faintly floated in affidavit evidence by NVW, that ASG brings the winding up application to avoid the need to defend the District Court proceedings. That proposition has not been established. It is plain enough that ASG brings the winding up proceedings because it contends that NVW owes a substantial debt to it, which has been due and payable to it for a substantial period and has not been paid, and it seeks to invoke the winding up regime by which NVW's activities will be ended, its assets marshalled and the claims of its creditors ascertained and payments made to creditors including ASG of what is available from the insolvent estate; compare TS Recoveries Pty Limited above at [17] and [19]. That, it seems to me, does not involve an abuse of process, but, instead, the use of the winding up regime for the purpose for which it exists. For these reasons, it seems to me that NVW's claim in respect of an abuse of process is not established.

Solvency

1. Third, NVW contends that it is solvent. It is well established that, in seeking to prove solvency in an application of this kind, unaudited accounts and unverified claims as to the value of assets will not ordinarily be sufficient, and that the best evidence of solvency will typically need to be led: Expile Pty Limited v Jabb's Excavations No 2 [2003] NSWCA 163 at [16]; Re Gladstone Mortgagee No 1 Pty Limited at [40]ff. Mr Finch rightly refers to the definition of solvency in section 95A of the Act and rightly recognises that, whether a company is insolvent for the purposes of that section is a question of fact to be ascertained from a consideration of its financial position as a whole. Mr Finch also submits, and I accept, that a determination of solvency can have regard to assets to which the company can have access, including by borrowing against the security of its assets or other reasonable means. It seems to me that the evidence on which NVW relies falls far short of establishing its solvency, even apart from the fact that it seeks to rebut a presumption of insolvency that has already arisen from its failure to comply with the Demand, a matter to which I will return.
2. NVW relies on the affidavit evidence of Mr Cartner, which refers to his ability to fund NVW, and tenders bank records which establish that, at least at late September 2020, Mr Cartner had substantial funds available to him in two Australian bank accounts. There are, of course, difficulties with reliance on that evidence. They include the fact that, to point to amounts held in two accounts at a point in time, over a month ago, establishes little about the overall financial position of Mr Cartner, since it does not disclose whether he also has debts that may exceed the amounts held in those accounts, nor does it disclose how his position has developed in the month or so since late September 2020 when the relevant bank statements were produced. Even putting aside that difficulty, Mr Cartner's evidence is that, while he contends he could provide support for NVW to discharge the debt claimed by ASG, he chooses not to do so. That choice emphasises the extent to which Mr Cartner's assets are not assets of NVW and are not available to meet its debts as and when they fall due. Mr Cartner has had, on his evidence, the opportunity to apply those assets to fund payment of that debt but has in fact chosen not to do so.
3. NVW also tenders a balance sheet as at August 2020, although that balance sheet is unsigned and unaudited. Even on the face of that balance sheet, NVW has current liabilities, including an amount of GST payable; has an admitted liability to ASG, which is characterised as a "long term" liability for reasons that are not explained; and owes a substantial debt to Mr Cartner. It has cash on hand of $0.35 and trade debtors, as to which there is no evidence of when they are due to be paid or whether they will be realisable. It seems to me that that balance sheet does not establish NVW's solvency on a balance sheet basis, still less on a cash flow basis which is the statutory test.
4. It is also important to recognise that this application arises where a presumption of insolvency has already arisen from NVW's non-compliance with the Demand. Where a debtor fails to comply with a creditor's statutory demand within the 21 day period specified in s 459G of the Act, (putting aside temporary relief which is presently available in respect of COVID-19, which is not available to NVW in these proceedings), that non-compliance gives rise to a presumption of insolvency. The effect of that presumption was discussed by the High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Limited (2011) 244 CLR 1; [2011] HCA 18; at [28], where the Court observed that: "Where a demand has not been complied with, the statutory 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 demand is rendered ineffective by an order sought setting it aside, the company is required to prove to the contrary of the presumption."
5. It seems to me that NVW has here not proved to the contrary of the presumption of insolvency on the balance of probabilities.

Discretionary factors

1. Mr Finch also refers to the suggested opposition of creditors to a winding up order, although it appears that that opposition is in fact only that of Mr Cartner as a director of NVW and the major creditor of NVW, at least on the face of the balance sheet that is in evidence. Mr Finch submits that the Court should have regard to the wishes of creditors in respect of a winding up order. The case law has, however, recognised that there is a public interest in the making of winding up orders, at least where a presumption of insolvency has arisen and not been set aside. I recognise that the Court has a discretion to defer the making of such an order. However, as Barrett J observed in TS Recoveries 2 at [118], that discretion will generally be exercised if only some good reason is shown for doing so, where its exercise would have the consequence that an admittedly insolvent company will continue in the mainstream of commercial life. His Honour there noted that that course may be indicated where winding up is opposed on rational grounds by other creditors, but all that is shown here is that a substantial creditor of NVW, who has other interests as a director of NVW, does not support the winding up. That is not necessarily surprising, but it is not sufficient reason to displace the proposition that a company that is here presumed to be insolvent, and where that presumption has not been rebutted, should be wound up.
2. Mr Finch also draws attention to other discretionary factors, including the Court's power under s 467 of the Act to adjourn a winding up hearing conditionally or unconditionally or make interim or other orders and points to the possibility that, for example, the Court could make an order adjourning the winding up or taking some other step on condition that NVW paid an amount into an account pending the determination of the District Court proceedings. It was not entirely clear to me, from Mr Finch's submissions, whether NVW was in fact committing to pay an amount into Court pending such a determination or wished to be given the option to do so, which it could then choose not to do. Nothing turns on that for present purposes because, it seems to me, NVW has had ample opportunity over the period of time in which this winding up application has been on foot, to pay an amount into Court if it wished to do so, so as to establish the basis for an exercise of discretion in its favour. It has not taken that course, just as Mr Cartner has not taken the course of funding it to discharge the debt claimed by ASG, even on the basis that reserved its right in respect of the amounts that it claimed to recover against ASG.
3. In these circumstances it seems to me that no basis is established to defer the winding up order, either on condition that NVW pay an amount into Court, and still less on a basis that that allowed it an option to do so.

Orders

1. For these reasons, I am satisfied that a winding up order should now be made. I note that a consent of liquidator Mr Robert Kite is in evidence. Accordingly I make the following orders:
2. The Defendant, New View Windows Pty Limited, be wound up in insolvency.
3. Mr Robert Kite be appointed as liquidator of New View Windows Pty Limited.
4. The Plaintiff's costs of the application, as agreed or assessed, be costs of the winding up.

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