[2018] FCAFC 189
BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227
(2016) 117 ACSR 18
(2016) 104 ATR 248
Source
Original judgment source is linked above.
Catchwords
(2018) 132 ACSR 1[2018] FCAFC 189
BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227(2016) 117 ACSR 18(2016) 104 ATR 248[2016] FCA 1351
George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464
Judgment (2 paragraphs)
[1]
Judgment
On 3 July 2023, this Court made orders winding up the defendant company - Australian Campus Management Group Pty Ltd (in liquidation) (receiver and manager appointed) ACN 640 939 046 - in insolvency on the application of The Owners - Strata Plan No. 67246 ABN 748 023 592 38 after the company failed to comply with or to apply to set aside a statutory demand in respect of a debt of $12,686.40.
Anchorage Capital Master Offshore Limited v Sparkes [2023] NSWSC 1070 | Case summary | Zoe
The defendant company did not appear in the proceedings, and the winding up order was therefore made in its absence. There is no suggestion that the winding up order was irregularly obtained.
By interlocutory process filed on 14 July 2023, the sole director and shareholder of the company - Mr Ashraful Haq - seeks an order under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) setting aside the orders winding up the company and appointing Mr Andrew John Scott as its liquidator. At the hearing of the interlocutory process on 4 September 2023, counsel appearing for Mr Haq did not press an alternative application for an order under s 482 of the Corporations Act 2001 (Cth) terminating the winding up of the company, in circumstances where notification of that application had not been given to the Australian Securities and Investments Commission and where counsel accepted that, if the evidence concerning the company's solvency was not sufficient to persuade the Court to set aside the winding up order, then it would not be sufficient to persuade the Court to terminate the winding up.
The principles that apply to the exercise of the Court's power to set aside a winding up order under r 36.16 are well known. [1]
A winding up order that has been made in the absence of the company may be set aside if:
1. the application to do so is made promptly, and with notice to the liquidator, to the plaintiff, and to any other creditor who appeared at the winding up hearing;
2. the evidence explains the company's failure to appear at the winding up hearing;
3. the evidence establishes that the company is solvent; and
4. the liquidator indicates that nothing in their investigations to date shows a reason why the company should be stopped from trading.
The evidence concerning solvency will preferably include accounting evidence as to the company's financial position, and should ordinarily be obtained from persons other than a single director or shareholder without external confirmation. It is incumbent on the applicant to lead the fullest and best evidence of the company's financial position.
It will also be relevant to the exercise of the Court's power to ascertain whether the plaintiff and the liquidator consent to, or do not oppose, the application to set aside the winding up order. That may depend on whether some provision has been made for both the plaintiff's costs and the liquidator's remuneration and costs.
In the present case, the petitioning creditor has informed the Court that the company has now paid the debt owing to it, and that it therefore does not oppose the application to set aside the winding up. The petitioning creditor was excused from appearing at the hearing of the interlocutory process.
The liquidator does not consent to the application, and submits that he has unresolved concerns about the solvency of the company in circumstances where the company did not keep books and records as required by s 286 of the Corporations Act and where Mr Haq has not responded to all of the liquidator's requests for information about the company, its financial position, and its assets and liabilities.
Mr Haq submits that the company is solvent, and that he has provided the information that the liquidator has requested in a timely manner. Mr Haq submits that the only information requests that remain outstanding are requests made by the liquidator very recently, and that he has had insufficient time to respond to them prior to the hearing of the application to set aside the winding up order on 4 September 2023.
Mr Haq relies on his affidavits affirmed on 14 July, 8 August, and 29 August 2023.
The liquidator relies on an affidavit of Mr Wil Honner sworn on 21 August 2023 and an affidavit of Mr Kieran Kelly affirmed on 1 September 2023. Mr Honner is a director employed by the liquidator's firm, PricewaterhouseCoopers. Mr Kelly is a director of the firm of solicitors acting for the liquidator.
The salient aspects of the evidence may be summarised as follows.
Mr Haq has given evidence that the company was established on 14 May 2020 for the purpose of buying a commercial property in the Sydney CBD as trustee for the Ashraf Education Trust, which was to be leased to commercial tenants to generate income for the trust. The trust deed establishing that trust as a discretionary trust is dated 11 May 2020. Mr Haq is named as one of the beneficiaries of the discretionary trust.
The company purchased the property - which is located at Suite 98, Level 3, 515 Kent Street, Sydney - on 21 July 2021. The purchase price was for $1,562,400. The company borrowed approximately $600,000 of that sum from a third-party lender, and currently owes approximately $570,500 under that loan. The liquidator has requested information about the source of funds used by the company to pay the balance of the purchase price, with a view to ascertaining whether the company also borrowed those funds. The only information provided by Mr Haq in response to that request is a Property Exchange Australia (PEXA) statement that shows that those funds were held in the trust account of the solicitors acting for the company on the purchase immediately prior to settlement of the transaction. The source of those funds remains unclear.
According to Mr Haq, the property is the company's only asset, and is held on trust for the Ashraf Education Trust. The company holds no other assets as trustee of the trust or otherwise. Mr Haq has deposed that the company has net assets of $950,000. I assume that he has arrived at that net asset figure by deducting the amount owing under the loan from the purchase price of the property. Mr Haq asserts that the value of the property remains approximately the same as the price for which it was purchased two years ago. There is no other evidence of the current value of the property.
Mr Haq has given evidence that the company presently has no income because the property is vacant. Indeed, the property has been vacant since about September 2021. In his affidavit affirmed on 14 July 2023, Mr Haq deposed that the company has been in negotiations with a prospective tenant to lease the premises for $50,000 (plus GST) per annum.
According to Mr Haq's evidence, all of the company's expenses relate to the property, and are incurred by the company in its capacity as trustee of the Ashraf Education Trust. The company's ordinary expenses are loan repayments in the amount of $4,208 per month, council rates of $1,817 per annum, and strata levies of $2,003 per quarter. I note that these expenses amount to approximately $60,775 per annum, and that the loan repayments alone amount to approximately $50,496 per annum.
Mr Haq's evidence that I have summarised above is the only evidence before the Court of the company's assets, liabilities, and expenses. Mr Haq did not adduce any evidence of any financial statement, tax return, or other financial records relating to the company. Correspondence between Mr Haq's solicitors and the liquidator's solicitors records that Mr Haq has instructed his solicitors that the company did not prepare financial reports or tax returns, or maintain any books and records. At the hearing of the application to set aside the winding up order, the Court was informed that there are also no financial records for the Ashraf Education Trust.
According to Mr Haq's evidence, he has been paying the company's expenses, and is prepared to undertake to the Court to continue to do so until such time as the company leases the property to a tenant.
The expenses that Mr Haq says that he has been paying include the loan repayments. Mr Haq annexed to his 8 August 2023 affidavit a loan statement for the period from 1 June 2022 to 11 July 2023, which shows that interest payments and some additional payments were made to the loan account during the period up to November 2022. Interest payments were missed in December 2022, February 2023, and April 2023. Interest payments were made in January, March, May, and June 2023.
In his affidavit affirmed on 8 August 2023, Mr Haq deposed that he currently has surplus funds to continue to pay the company's debts, and is confident that he will continue to be able to do so in the future. Mr Haq then set out the details of his financial capacity, being that he earns $79,306.50 gross per annum, has living expenses of approximately $2,000 per month, and has an unencumbered property worth approximately $1.22 million at Casula in New South Wales. There is no evidence of the value of the Casula property other than Mr Haq's assertion in his affidavit. Mr Haq's evidence that he holds the title to that property unencumbered was not supported by any title search or other documentary evidence.
Mr Haq's evidence did not suggest that he was willing and able to borrow against the equity that he says he has in the Casula property in order to fund the company's continuing expenses together with his own living expenses. Mr Haq's annual income disclosed in his 8 August 2023 affidavit, after allowing for income tax, would not be sufficient to meet the company's annual expenses and his own expenses. Mr Honner calculated a shortfall of $22,198 in his affidavit sworn on 21 August 2023:
In response to Mr Honner's affidavit, Mr Haq affirmed a further affidavit on 29 August 2023 in which he maintained that he does pay the company's expenses, that he has sufficient surplus funds to continue doing so, and that he will undertake to continue to do so until such time as the company has a rental income stream from the property. Mr Haq deposed that, in addition to the $79,306 wage disclosed in his 8 August 2023 affidavit, he is a "silent investor" in Study International Pty Ltd and earns dividends from those shares in an average amount of $50,000 per year.
Mr Haq has not adduced evidence of any tax returns or other documentary evidence of his income, including this additional source of income from dividends which was not disclosed in his earlier affidavits. On 31 August 2023, the liquidator's solicitor requested Mr Haq's solicitors to provide documents evidencing the dividend income that Mr Haq referred to in his most recent affidavit, including Mr Haq's bank statements and income tax returns. No such documents were provided to the liquidator or tendered at the hearing of Mr Haq's application to set aside the winding up order.
Mr Haq annexed to his 29 August 2023 affidavit a screen shot from an ANZ online banking platform showing a balance of approximately $84,020 in a particular account that the user of the platform has designated "Ashra 'Personal'". Mr Haq described the account as "my personal bank account" and described the funds as "surplus funds". As I have mentioned immediately above, the statements for that account, which would identify the name of the account holder, were not tendered. The income disclosed by Mr Haq in his 8 August and 29 August 2023 affidavits is, on the face of it, inconsistent with an ability to generate surplus funds of $84,020. Mr Haq's evidence that he has those surplus funds available to meet the company's expenses is also very difficult to reconcile with the missed interest payments referred to at [21] above. Mr Haq did not give any evidence addressing what (if any) other expenses or commitments he needs or intends to pay out of the "surplus funds" in the foreseeable future.
In his affidavit affirmed on 14 July 2023, Mr Haq gave evidence that the company was negotiating with a prospective tenant to lease the premises for $50,000 (plus GST) per annum. In his affidavit affirmed on 29 August 2023, Mr Haq deposed that there is an interested tenant "ready to move in". Mr Haq's affidavit is silent about the rent that the tenant has agreed to pay if they are able to move into the property. Mr Haq referred instead to a rental appraisal given by a real estate agent on 28 August 2023 that the likely rent would be in the order of $75,000 per annum (plus GST). As I have already mentioned, [2] the property has been vacant for two years.
In his affidavit affirmed on 8 August 2023, Mr Haq deposed that, if the company is wound up, there are no current debts for it to pay, other than the reasonable fees of the liquidator. As I have already mentioned, [3] Mr Haq's evidence is not corroborated by any financial statements or other financial records of the company. Mr Honner gave evidence that the liquidator's inquiries to date had identified a debt of $8,535 owing to Revenue NSW, approximately half of which related to the 2022 tax year. In response to Mr Honner's affidavit, Mr Haq deposed in his most recent affidavit affirmed on 29 August 2023 that he had "raised payment" of the amount that is due to Revenue NSW and that a land tax clearance certificate "can be provided if required". Mr Haq's affidavit did not annex or exhibit any documentary evidence of the payment that he had "raised", and it is not clear whether his evidence as to "raised payment" means that payment has in fact been made. Counsel appearing for Mr Haq at the hearing acknowledged that this is unclear from the affidavit, but informed the Court that he was instructed that the debt to Revenue NSW had been paid. Neither Mr Haq's 29 August 2023 affidavit, nor the submissions made on his behalf at the hearing, offered any explanation for Mr Haq failing to disclose the debt to Revenue NSW in his two earlier affidavits, and for his incorrect assertion in his 8 August 2023 that the company had no current debts. I also note that the interlocutory process filed by Mr Haq on 14 July 2023 described the Company as being in receivership as well as liquidation. The parties did not draw this to the attention of the Court during the hearing of the application to set aside the winding up order, and there is no evidence before the Court about whether a receiver has been appointed and, if so, by whom and in what circumstances.
Mr Haq has given evidence that the company's failure to pay the strata levies that were the subject of the statutory demand issued by the petitioning creditor was an inadvertent error because Mr Haq was "not previously aware" of the outstanding rates. Mr Haq's evidence does not identify the circumstances that caused him to be "not previously aware" of the strata rates payable by the company, and the fact that they had not been paid. It is very difficult to reconcile this lack of awareness with his evidence that he has been taking personal responsibility for paying the Company's debts.
Mr Haq has been travelling overseas for business purposes during the period from 17 February to 4 April 2023 and from 29 May 2023 to 27 August 2023.
During periods when he is travelling, Mr Haq arranges for his brother, when he has time to do so, to attend the company's registered office (which is also Mr Haq's home), collect mail, and send photographs of that mail to Mr Haq.
Mr Haq does not dispute that the petitioning creditor served the statutory demand at the company's registered office during his first overseas trip this year. However, the statutory demand did not come to Mr Haq's attention.
During Mr Haq's second overseas trip, the originating process in these winding up proceedings was served at the company's registered office. Mr Haq's brother did not retrieve this document from the office and send a photograph of it to Mr Haq until 3 July 2023. Mr Haq did not send it to his solicitors until approximately 4:00pm that afternoon. The winding up order had been made on that day.
Mr Haq has deposed that he and/or the company are prepared to pay the liquidator's reasonable remuneration and expenses if the winding up order is set aside. In an email to Mr Haq's solicitor dated 21 August 2023, the liquidator's solicitor advised that the liquidator's remuneration to date was $24,033, plus $7,700 in legal fees, and that further remuneration and legal fees totalling $11,000 would be incurred in the period up to the setting aside of the winding up order if Mr Haq's application succeeded. Mr Haq disputes the reasonableness of this amount, but his counsel informed the Court that Mr Haq undertakes to the Court to pay such amount as the Court determines for the liquidator's remuneration. The liquidator has not made any application for the Court to determine his remuneration in accordance with the Insolvency Practice Schedule (Corporations) [4] and Division 9 of the Supreme Court (Corporations) Rules 1999 (NSW), and I declined to permit the liquidator to incorporate an informal application for determination of his remuneration into the hearing of Mr Haq's application to set aside the winding up order by merely reading two affidavits that had been sworn on the Monday morning of the hearing and on the Sunday immediately prior to the hearing.
It is submitted on behalf of Mr Haq that the winding up order should be set aside because:
1. the winding up order was made in the absence of the company;
2. the company's failure to comply with the statutory demand and its subsequent failure to appear in the winding up proceedings was inadvertent rather than deliberate conduct;
3. the company does not presently have any outstanding debts or liabilities;
4. the company has net assets of close to $1 million;
5. while the company does not presently have an income stream, it has the ability to generate income in the near future if the relief is granted, and has access to unconditional external funding to ensure it meets its debts;
6. the owners' corporation consents to the application to set aside the winding up order;
7. Mr Haq promptly took steps to bring this application upon being made aware of the winding up order; and
8. there is no utility in the company being wound up given that no creditors are owed any outstanding debts. It would merely cause prejudice to the trust of which the company is the trustee, as the company's assets would be diminished during the winding up process.
In relation to (1), (2), and (7) above, the liquidator accepts that the winding up order was made in the absence of the company, that the company's non-appearance has been explained, and that this application has been brought promptly. I also accept those matters, subject to the caveat that the inadvertence that resulted in the company failing to appear at the winding up hearing was negligent. Mr Haq's reliance on his brother to collect correspondence from the company's registered office during Mr Haq's extended periods of absence overseas was plainly an inadequate arrangement to ensure that such correspondence came to his attention. It is incumbent on the sole director of a company to ensure that they are in a position to attend to correspondence served at the company's registered office, including court processes.
The matters in (3), (4), (5), and (6) go to the question of the company's solvency and the attitude of creditors to the setting aside of the winding up order.
As I have already mentioned, [5] it is incumbent on the applicant seeking to set aside the winding up order to lead the fullest and best evidence of the company's financial position.
As Gleeson J said in BCI Finances Pty Ltd (in liq) v Binetter (No 4): [6]
"All evidence 'is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted': Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 at [14]-[15], Hodgson JA (with whom Beazley JA agreed) said:
[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision …
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …"
The liquidator submitted that the company is balance sheet solvent. It is difficult to reconcile that submission with the liquidator's unresolved questions about the source of the funds used to purchase the property. [7] In my opinion, in the absence of any financial records for the company, Mr Haq's evidence that the company has net assets of $950,000 - based on his assertion about the value of the company's property - is not an appropriate basis for any finding about the company's assets or balance sheet solvency or insolvency. [8] That is all the more so having regard to the liquidator's unresolved questions, and the demonstrated unreliability of other assertions made by Mr Haq in his affidavits to the extent that those assertions have been able to be investigated by the liquidator. [9]
In any event, an assessment of the company's solvency (or insolvency) is directed to the company's ability (or inability) to pay its debts as and when they fall due, now and in the future. How far into the future the Court should look depends on the particular facts of each case. [10] In the present case, the company has generated no income for the past two years because the property has been vacant for the whole of that period. There is scant evidence about the company's prospects of leasing the property in the near future, and about the terms of any such lease (including as to the term of the lease, the rent payable and any initial rent-free period, landlord's fit out contribution, or any other incentive). There is an unexplained discrepancy between the rental appraisal and the rent that Mr Haq deposed in his first affidavit that the company had been negotiating with a prospective tenant, which would not cover the company's annual expenses identified by Mr Haq (assuming, without deciding, that the company has no other expenses). The rental appraisal was admitted without objection, but carries little weight in the absence of any evidence of the basis of the opinion expressed. [11] Taking all of those matters into account, it is my opinion that it is appropriate to consider the company's ability to pay its debts when they fall due for payment now and for approximately six months into the future.
In my opinion, the limited evidence adduced by Mr Haq does not provide an appropriate basis on which to reach a reasonable decision about the company's solvency or insolvency, or about Mr Haq's ability to comply with the undertaking that he offered to continue paying the company's expenses until such time as the property is leased. The company has not maintained any books and records, and has no income. The company's lack of income is attributable to the vacancy of the property for the past two years. The evidence does not disclose any reason why the property has been vacant for that extended period. In the absence of any such explanation, the evidence referred to immediately above does not support an inference that the company will have an income during the next six months. Mr Haq's contention that the company is solvent depends wholly on his evidence that he has the capacity and willingness to pay the company's debts as and when they fall due. Mr Haq's evidence was not corroborated by any documentary evidence of the kind that he would be expected to possess, such as his income tax returns and the statements for the bank account that he refers to as his personal account with a significant credit balance. I infer that such documentary evidence would have not assisted Mr Haq in this application. [12] It is not to the point that some of that documentary evidence has been requested by the liquidator only relatively recently. Mr Haq bears the onus of establishing that the winding up order should be set aside, and that includes proving his contention that the company is solvent with his financial support.
In addition to being uncorroborated by documentary evidence of the kind referred to above, Mr Haq's affidavit evidence about his capacity and willingness to provide financial support to the company is contradicted by the company's unexplained failure to pay the debt owed to Revenue NSW until Mr Honner's investigations identified this outstanding debt (assuming, without deciding, that the debt has now been paid), and by missed interest payments on the company's loan that is secured against the property during the period since December 2022. [13]
For those reasons, Mr Haq's willingness to offer an undertaking to the Court to pay the company's expenses until such time as the company leases the property to a tenant does not enable the Court to conclude that the company is solvent with Mr Haq's financial support.
As to (8), the utility in the company continuing to be wound up in circumstances where the evidence adduced on this application has not established its solvency, is to facilitate the payment of any remaining debts incurred by the company in its capacity as trustee, together with the liquidator's reasonable remuneration and expenses, out of the assets of the trust, and to avoid a situation whereby the company incurs further debts that it lacks the ability to pay as and when they become due and payable.
I make no finding about whether the amount of remuneration that the liquidator claims to have incurred to date is reasonable.
For all of those reasons, the order of the Court is that the interlocutory process filed by Mr Haq on 14 July 2023 is dismissed.
[2]
Endnotes
See George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464; (1989) 7 ACLC 838 (Hodgson J); In the matter of Teca Pty Ltd [2011] NSWSC 686 at [4] (White J); In the matter of WA Beard Pty Ltd [2017] FCA 964 at [17]-[20] (Lee J) and the authorities there referred to.
See [17] above.
See [25] above.
Corporations Act sch 2.
See [6] above.
(2016) 348 ALR 227; (2016) 117 ACSR 18; (2016) 104 ATR 248; [2016] FCA 1351 at [125]. Relevantly affirmed on appeal in BCI Finances Pty Ltd (in liq) v Binetter (2018) 362 ALR 597; (2018) 132 ACSR 1; [2018] FCAFC 189 (Allsop CJ, Moshinsky and Colvin JJ).
See [15] above.
See [16] above.
See [28] above.
Anchorage Capital Master Offshore Limited v Sparkes [2023] NSWCA 88 at [244] (Ward P, Brereton JA, and Griffiths AJA).
See [17]-[18] and [27] above.
In the matter of ZH International Pty Ltd (in liquidation) [2022] NSWSC 2 at [24] (Rees J), and the authorities there referred to.
See [21] and [28] above.
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Decision last updated: 07 September 2023