APPEAL - Appeal from decision of an Associate Justice to dismiss an application for winding up of defendant company in insolvency under Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 77.06 - House v The King

1. This is an appeal from the decision of Associate Justice Gardiner to dismiss the plaintiff's application to wind up the defendant. On 19 April 2024, his Honour exercised his discretion under ss 459A and 467 of the Corporations Act 2001 (Cth) (Act) to dismiss the application, notwithstanding that the presumption of insolvency had not been rebutted.
2. The plaintiff appeals under rule 77.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules).

1. The Perry family operate Brooklyn Park Farm, a cattle farm in Lake Mundi, on the Victorian and South Australian border. The land on which the farm is operated is owned by the Perry family but the farm itself is conducted by the defendant. As at 23 June 2022, the property held some 4,000 head of cattle, with approximately 350 to 400 being sold each week.
2. On 17 August 2023, the plaintiff filed a writ and statement of claim against the defendant in the County Court of Victoria in connection with purported unpaid invoices for stock feed.
3. On 14 September 2023, the plaintiff obtained judgment in default of appearance against the defendant for the sum of $466,013.46. On 19 October 2023, the plaintiff served a statutory demand for payment of the judgment debt. The defendant failed to apply to set aside that statutory demand pursuant to s 459G of the Act within the statutory period for its compliance.
4. On 7 December 2023, this proceeding was commenced when the plaintiff filed an application to wind up the defendant in insolvency. The following day, the defendant filed a Notice of Appearance stating that it intended to oppose the winding up application on the grounds that the defendant is solvent, that it will file an application to set aside the default judgment, and that the debt claimed by the plaintiff is disputed.
5. On 20 December 2023, the defendant filed an application in the County Court to set aside the default judgment.
6. On 20 March 2024, the defendant filed an interlocutory process in this proceeding seeking leave under s 459S of the Act to oppose the plaintiff's winding up application on the ground that there was a genuine dispute in relation to the debt claimed in the statutory demand. That application was listed for hearing at the same time as the plaintiff's winding up application.
7. At trial, the plaintiff relied on the following evidence:

(a) an affidavit in Support of Dominic Hogan made on 6 December 2023. Mr Hogan is a director of the plaintiff;

(b) an affidavit of Brian Norman Jones made on 11 April 2024 and exhibited report dated 10 April 2024. Mr Jones is a forensic accountant retained by the plaintiff's solicitors to provide an expert report as to the defendant's solvency; and

(c) a further affidavit of Mr Jones made on 18 April 2024 and exhibited supplementary report.

1. At trial, the defendant relied on the following evidence:

(a) an affidavit of Christopher Perry made on 23 January 2024. Mr Perry is a director of the defendant;

(b) an affidavit of Kerry Mickan made on 19 February 2024. Ms Mickan is an accountant at Business Initiatives and has been the accountant for the defendant since November 2023;

(c) an affidavit of Michael Smith made on 20 February 2024 and exhibited expert report dated 20 February 2024. Mr Smith is a chartered accountant and was retained by the defendant's solicitor to provide an expert report as to the defendant's solvency;

(d) two further affidavits of Mr Perry made on 20 February 2024 and 20 March 2024;

(e) a further affidavit of Mr Smith made on 20 March 2024 and exhibited supplementary report; and

(f) an affidavit of Omar El-Hissi made on 18 April 2024. Mr El-Hissi is a principal of NOH Legal, the defendant's solicitors.

1. On 20 March 2024, the defendant filed an amended Notice of Appearance in this proceeding adding to the grounds of opposition to winding up that the application is an abuse of process and that the default judgment obtained by the plaintiff in the County Court is irregular.
2. On 9 April 2024, the defendant's application in the County Court to set aside the default judgment was heard by Judicial Registrar Bennett. The Judicial Registrar held that the plaintiff's statement of claim was vague, embarrassing and unparticularised, did not properly inform the defendant of the claim made and the facts on which the claim was based, and did not comply with rules 13.02 and 13.10 of the County Court Civil Procedure Rules 2018 (Vic). The Judicial Registrar ordered that the judgment entered in default of appearance be set aside on the ground that it was irregular, and that the plaintiff's statement of claim be struck out with liberty to replead.
3. On 19 April 2024, the trial of the proceeding occurred, at the conclusion of which the Associate Judge dismissed the proceeding. His Honour gave oral reasons on the day for his decision (Reasons).[1]
4. On 2 May 2024, the plaintiff filed an appeal from the decision of the Associate Judge.
5. On the appeal, the plaintiff and defendant each filed a written outline of submissions dated 20 August 2024 and 29 August 2024 respectively. Counsel also made oral submissions at the hearing of the appeal.

C Legal principles regarding appeals from an associate judge and of discretionary decisions

1. An appeal of this nature is governed by rule 16.5 of the Supreme Court (Corporations) Rules 2013 (Vic), which adopts rules 77.06.1 to 77.06.9 of the Rules with any necessary modifications.
2. The parties were in substantial agreement as to the applicable principles.
3. This appeal is to be conducted by way of rehearing, and the appellant is required to show error on the part of the Associate Judge before appellate power may be exercised.[2] The Court has the power to give any judgment or make any order which ought to have been given or made, or make any further or other order as the case may require.[3] In the absence of an error of principle in the exercise of discretion, consideration of irrelevant matters, or other relevant mistake, an appellate court will not interfere with the exercise of discretion.[4]
4. In respect of discretionary decisions made by the primary judge, the principles stated by Elliott J in Re IPO Wealth Holdings No 2 Pty Ltd (in liq); Mawhinney v Giasoumi[5] apply. In IPO Wealth, his Honour stated:[6]
   1. However, before a discretionary decision of a court may be overturned, the appellant must show an error of the kind identified in House v The King.[7] In that case, it was stated:[8]

It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if [she or] he allows extraneous or irrelevant matters to guide or affect [her or] him, if [she or] he mistakes the facts, if [she or] he does not take into account some material consideration, then [her or] his determination should be reviewed and the appellate court may exercise its own discretion in substitution for [her or] his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in [her or] his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.

1. In some instances, it may not be possible to identify with sufficient certainty the exact class of error made by the trial judge. Nevertheless, where the decision is so unreasonable or plainly unjust, the appellate court may infer that an error of the kind described in House v The King has occurred and that the decision should be overturned.
2. However, there is a strong presumption in favour of the correctness of a discretionary decision and the authorities make clear that the judgment the subject of rehearing should be overturned only if it is "clearly" or "plainly" wrong. In other words, an appellate court must be persuaded that the order stands outside the limits of "sound discretionary judgment" before it intervenes.
3. Indeed, insofar as the 4 classes of error identified in House v The King are concerned:

(1) Acting upon a wrong principle will only invalidate a decision where the principle is a "binding rule rather than a guideline". A failure to apply a guideline will not, of itself, amount to error. This is because there may be instances where it is inappropriate to follow a guideline or, regardless of the failure to apply it, the overall decision is still the product of a sound discretionary judgment.

(2) A mistake of fact must be "clearly wrong".

(3) Considering an irrelevant factor or failing to consider a relevant factor will only warrant setting aside a discretionary decision if it "really amounts to a failure to exercise the discretion actually entrusted to the court".

1. Further, the court will be slow to overturn a discretionary decision on the grounds that the primary judge failed to give appropriate weight to various factors. The "constant emphasis" of the authorities is that an appellate court should not overturn a decision merely because it would have accorded the factors different weight. This is especially so where the assessment of weight is likely to have been affected by seeing and hearing the parties at first instance, which only the primary judge has had the opportunity to witness. Although there has been no trial in this proceeding, this principle remains relevant to the extent that her Honour observed and then took into account Mawhinney's conduct during the previous examination hearings in arriving at the conclusions that she did on this particular issue.
2. In short, the onus borne by an appellant seeking to disturb a discretionary decision is heavy.

1. There was no dispute that this appeal, being from an exercise of discretion, has to meet the requirements in House v The King in order to be successful.

1. As noted earlier, the Associate Judge dismissed the plaintiff's application that the defendant be wound up.
2. The Associate Judge commenced his Reasons by outlining the procedural history, briefly summarising the matters I have described at paragraphs 4 to 8 and 11 to [9] above.9 The Associate Judge also noted that by its amended Notice of Appearance filed 20 March 2024, the defendant opposed the winding up application on the grounds that it is solvent, it would be filing an application to set aside the default judgment, the default judgment was irregular, and the winding up application was an abuse of process.
3. The Associate Judge held that there was no evidence of the winding up application being an abuse of process.
4. The Associate Judge noted that during the course of the trial, he had taken the parties to a number of relevant authorities. His Honour made particular reference to Braams Group Pty Ltd v Miric,[10] where Ipp JA of the New South Wales Court of Appeal surveyed the principles which apply where a judgment creditor seeks a winding up order when at the time of the hearing of the application that judgment has not been impeached. The Associate Judge noted that in the course of doing that survey, Ipp JA made several observations in respect of the position that applies where, between the filing of a winding up application and its return, the judgment the subject of the statutory demand giving rise to the presumption of insolvency under s 459C of the Act is set aside.
5. The Associate Judge then noted that Ipp JA quoted the decision of Needham J in De Montfort v Southern Cross Exploration NL,[11] a decision involving a notice under s 364 of the Companies (New South Wales) Code (then, the equivalent of a statutory demand). Ipp JA said (at [77]):

I should have thought that, while the effect of the s 364 notice undoubtedly continues so as to allow another creditor to become substituted for the original plaintiff, that principle could not possibly apply to a case where it is the plaintiff itself who claims to continue the proceedings after being paid out the only amount which he has claimed in those proceedings. It would, I think, be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice, then, when the debtor failed to comply with that notice, take proceedings, be paid the full amount claimed, and then seek to wind the defendant up nonetheless.

1. The Associate Judge also stated that Ipp JA went on to observe the following (at [79]):

Assume then, instead of subsequent payment in full, that - after the statutory period has expired and before the winding up application is made - a judgment is delivered that establishes that the defendant is not indebted to the purported creditor. In these circumstances, I think it readily arguable that it would be "quite unacceptable" for the winding up to proceed. That would be simply on the basis that there could be an abuse of the court in an applicant proceeding as a creditor when there is a judgment of the Court to the effect that it is not.

1. After citing this, the Associate Judge stated 'I infer at this point that it would appear to be completely on point with the scenario in this instance.'
2. The Associate Judge also made reference to Deputy Commissioner of Taxation v Guy Holdings Pty Ltd,[12] where Zeeman J of the Supreme Court of Tasmania said the following in reference to the Court's power to wind up a company in insolvency (citations omitted and emphasis added by the Associate Judge):

As the relief sought by the applicant is a discretionary remedy, there must be established some matter which makes it appropriate that the discretion be exercised in favour of granting that remedy [ie the winding up order] before it is appropriate to grant it. In the usual case, where the debt the subject of the statutory demand has not been paid at the time that the application is determined, the non-payment of that debt will be a sufficient basis to justify or even to require the making of the order, although even in such circumstances there may be countervailing considerations making it appropriate that the relief be refused.

1. The Associate Judge expressed the view that Ipp JA's argument in Braams was analogous to the scenario in the present case. The Associate Judge accepted that the plaintiff had been a creditor at the date it filed the winding up application by reason of the defendant's non-compliance with a statutory demand, and that the presumption against insolvency therefore applied, but stated that the position had changed by the time of ruling.[13]
2. The Associate Judge referred the parties to other passages of Needham J's judgment in De Montfort, where Needham J said that he knew of no case where a creditor who had issued a s 364 notice, but who had then been paid out during the proceedings, was still held to be entitled to continue the proceedings on the basis that the notice did not exhaust the debts owed by the defendant to the plaintiff. The Associate Judge expressed the view that the setting aside of the County Court judgment, and the removal of the plaintiff's status as a creditor by reason of the impeachment of the judgment, was analogous to the payment of a creditor in full.[14] His Honour took the view that the 'substratum' of the plaintiff's position as a creditor of the defendant company disappeared when the default judgment was set aside.[15]
3. The Associate Judge referred to Mutton v Living Australia Pty Ltd,[16] where White J of the Federal Court explained that a number of matters could support an exercise of the discretion to set aside a winding up order, including that the judgment debt on which the statutory demand was based has been set aside. Furthermore, according to White J and citing Hammerschlag J in TQM Design & Construct Pty Ltd,[17] '[i]t would be inimical to the policy lying behind the statutory scheme for the defendant to obtain the benefit of the statutory presumption of insolvency based on a judgment debt where the judgment has been set aside'.
4. His Honour accepted that if other creditors had also been pressing for the defendant to be wound up, then the situation may be different. However, that was not the case. The absence of any other supporting creditor was an 'overwhelming factor' in his Honour's decision to dismiss the plaintiff's application.[18] While the plaintiff was able to take the Associate Judge to evidence of certain trade creditor claims, his Honour stated that '[t]he meek do not inherit the earth. You've actually got to turn up and support.'[19]
5. The Associate Judge concluded his reasons by citing Guy Holdings, that:

It is implicit from De Montford that in a case such as the present there must be some positive reason for ordering that the respondent be wound up going beyond the mere deemed insolvency.[20]

1. The Associate Judge then went on to dismiss the application, stating:

Here, in the exercise of my discretion I am greatly influenced by the absence of supporting creditors, by the setting aside of the judgment and the various other factors which were mentioned in the course of the exchanges this morning, as being powerful discretionary factors, balanced against the presumed act of insolvency arising by reason of non-compliance with the demand.

1. In its notice of appeal dated 2 May 2024, the plaintiff stated three grounds for the appeal:
   1. The Associate Judge erred in concluding that the plaintiff's status as a creditor of the defendant was removed by reason of the default judgment being set aside on the ground of irregularity.
   2. The Associate Judge erred in concluding that the setting aside of the default judgment on the ground of irregularity, without any determination of the dispute on the merits, was analogous to the payment in full of the debt claimed in the statutory demand.
   3. The Associate Judge's discretion to dismiss the plaintiff's application to wind up the defendant on the ground of insolvency miscarried because there was no verification of the financial information relied on by the defendant's expert to prove solvency, the formula employed by the defendant's expert to prove solvency did not accord with the meaning of solvency under the Corporations Act 2001, the financial information relied on by the defendant's expert to prove solvency was not current but related to a date more than 9 months before the date of the hearing, and because the defendant was actually insolvent.
2. Neither party expressly directed their submissions to the three grounds of appeal. Rather, they made submissions about particular issues and left it to me to divine to which grounds each of those submissions was directed.

1. The plaintiff's core complaint is that the Associate Judge's decision was made on the basis that the plaintiff was not (or no longer) a creditor of the defendant and that this is not correct. The plaintiff says that its status as a creditor was not removed as a consequence of the default judgment being set aside.
2. The plaintiff submits that Ipp JA in Braams was not deciding that a judgment establishing that the defendant is not indebted to the plaintiff impeached the plaintiff's status as a creditor, and was merely providing an example of a ground that could be relied on by the defendant to oppose a winding up application without having to seek leave under s 459S of the Act. The plaintiff submits that Ipp JA said that such a ground would be 'readily arguable'.
3. The plaintiff submits that if a judgment by a court establishing that the defendant is not indebted to the plaintiff is a ground for refusing a winding up order, setting aside a default judgment for irregularity was not such a ground. In this case, the plaintiff submits, the Associate Judge equated the setting aside of the default judgment with a judgment establishing that the defendant is not indebted to the plaintiff. The setting aside of the default judgment did not establish that. Further, it was not analogous to payment of a creditor in full of the debt claimed in the statutory demand.
4. The plaintiff submits that if the defendant sought to oppose the making of a winding up order for failing to comply with the statutory demand, it could only do so by proving that it was solvent. Instead, the defendant sought to oppose the winding up application on the grounds that the debt claimed in the statutory demand is disputed and that the defendant intended to apply to set aside the default judgment. The plaintiff submits that these are grounds the defendant could have relied on in an application to set aside the statutory demand, but not to oppose the winding up application without leave of the Court.
5. The plaintiff submits that in Braams, Ipp JA expressed the view (at [82]) that a situation where there is a judgment that establishes (emphasis added by the plaintiff) that the defendant is not indebted to the creditor differs from one where there is no such decision setting aside the judgment.
6. According to the plaintiff, if no application to set aside the statutory demand is made within time, the defendant cannot dispute the plaintiff's standing as a creditor if the default judgment is later set aside.[21]
7. The plaintiff submits that in Wetherill Park Holdings Pty Ltd,[22] Rees J stated that the setting aside of a judgment on which the statutory demand is based will have no consequence for the winding up application unless leave is granted under s 459S of the Act to raise the contested nature of the underlying debt. The plaintiff submits that there are several cases where the subsequent setting aside of a default judgment was held to have no bearing on the question of whether the presumption of insolvency had been rebutted.
8. The plaintiff submits that the decision of the Associate Judge circumvents the provisions of s 459S(1) by enabling a defendant against whom a default judgment has been obtained to oppose a winding up application on a ground that could have been relied on in an application to aside the statutory demand. Instead of being limited by the strict statutory 21-day period for applying to set aside a statutory demand, the Associate Judge's decision enables a defendant to oppose the winding up application by setting aside the underlying default judgment.
9. The plaintiff submits that the defendant filed affidavit material which purported to establish a genuine dispute about the existence of the debt, or some other reason why the statutory demand should be set aside. The plaintiff submits that the defendant could have relied on these grounds in an application to set aside the statutory demand. The plaintiff submits that in Living Australia (at [92]), White J rejected a submission that the defendant could not, in an application to set aside the statutory demand, have challenged the plaintiff's status as a creditor because it was only upon the setting aside of the default judgment that the status of the plaintiff changed. White J said that the defendant could have applied to set aside the statutory demand on the basis that it was disputing its indebtedness to the plaintiff and was seeking to have the default judgment set aside.
10. The plaintiff submits that the Associate Judge therefore erred both in deciding that the setting aside of the default judgment removed the plaintiff as a creditor of the defendant, and also in allowing the defendant to rely on the setting aside of the judgment to oppose the winding up application without having given leave pursuant to s 459S. If the Associate Judge would have decided that the setting aside of the default judgment had no bearing on the plaintiff's status as a creditor, or could not be relied on by the defendant, he would not have dismissed the application but would have made a winding up order under s 459A, on the ground of the defendant's presumed insolvency.
11. The plaintiff submits that the evidence of the parties as to solvency was not examined in detail at trial. The plaintiff says that this was due to the decision of the Associate Judge as to the effect of the setting aside of the default judgment. The parties filed extensive reports by forensic accountants. The plaintiff submits that the Associate Judge did not accept that the defendant was solvent and the defendant did not argue with that finding, and that there were other statements by the defendant that the evidence of solvency was unsatisfactory. As the plaintiff submits, the onus of proving solvency lies with the defendant.[23]
12. The plaintiff submits that the main reasons the defendant's solvency evidence was deficient were that:

(a) the defendant's financial accounts were unaudited;[24]

(b) the financial information provided by the defendant was more than nine months out of date (being current only as at 30 June 2023);

(c) Mr Smith, the defendant's expert, disclaimed the accuracy and reliability of the financial information by the defendant and qualified his conclusions to the extent that the information provided was inaccurate;[25]

(d) the accounts are presented on the assumption that the debt does not exist;

(e) trade creditors are listed as $83,696, however, trade creditors (including the plaintiff) comprise at least $1.204 million;

(f) the defendant's income statement shows a net operating loss for 2023 of $658,670, before $1.1 million in management fees from related companies are added, however there is no information about the contractual arrangements supporting those alleged fees;

(g) as at 30 June 2023, the defendant had liquid assets of $31;

(h) the accounts do not state how stock has been valued, which is contrary to the accounting standards;

(i) it appears that the business is operated through the defendant's overdraft account which has an amount of $863,000 drawn whereas the limit is $700,000;

(j) the accounts state that the defendant is transitioning from off-balance sheet financing to on-balance sheet from June 2023, indicating that there is financing not disclosed on the balance sheet; and

(k) tax returns for 2022 and 2023 have not been lodged.

1. The plaintiff says that these deficiencies bring the accuracy of the defendant's solvency evidence and therefore the defendant's solvency into question.
2. In addition, the plaintiff makes submissions about the appropriate test for assessing solvency, as follows:

(a) in its written trial submissions, the defendant accepted that the test for solvency is the cash flow test, however, Mr Smith used the current asset ratio test in his report, which assumed the accuracy of the underlying financial records;

(b) Mr Smith used the wrong test. The current asset ratio test does not address the ability of a company to pay its debts as and when they fall due because it includes assets convertible to cash within a period of 12 months. The turnaround time for cattle is between six and nine months and they must be fed and maintained in the interim, whereas trade creditors must be paid in 30 days;

(c) stock-in-trade is not an available asset to meet current debts except in the ordinary course of business;[26] and

(d) Mr Smith should have used the cash flow test, which indicated that the defendant was unable to meet current obligations from operating cash flows.

1. The defendant submits that the power to wind up a company in insolvency is discretionary and that s 467(1)(a) of the Act provides that the Court may dismiss an application to wind up a company, even if it is insolvent. The discretion is unconfined by express statutory criteria and accordingly, the factors that may be taken into account are to be ascertained by reference to the subject matter, scope and purpose of the statutory provision.[27]
2. The defendant submits that an undisputed and unsatisfied creditor has a 'prima facie right' to a winding up order;[28] and in such situations, it is only in exceptional cases that the Court would refrain from making a winding up order.[29] However, where the application to wind up is based on a failure to comply with a statutory demand and the amount is paid, it is normally inappropriate for the Court to proceed to wind up the company.[30]
3. The defendant's primary submission is that the plaintiff's contention that the Associate Judge dismissed the winding up application on the ground that the plaintiff's status as a creditor was removed when the default judgment was set aside is wrong. The defendant says that the Associate Judge exercised his discretion to dismiss the application. The defendant did not dispute the plaintiff's standing to bring the winding up application and standing was not part of the Associate Judge's findings.
4. The defendant submits that:

(a) the approach taken by Needham J in De Montfort is not a principle of universal application, but rather it is an example of the exercise of discretion and the need for some positive reason to wind up a company beyond the statutory presumption of insolvency in the circumstances of those cases;[31] and

(b) the fact that the judgment on which a statutory demand is based has been set aside is also a factor that, in an appropriate case, might be relevant to the exercise of the Court's discretion to refuse a winding up order.[32]

1. The defendant submits that to succeed on appeal, it is incumbent on the plaintiff to show error in the approach adopted by the Associate Judge. The defendant submits that the plaintiff has failed to do so for the following reasons:

(a) First, in stating that that the impeachment of the default judgment removed the plaintiff's status as creditor, it is clear that his Honour accepted that the plaintiff may in fact be a contingent creditor but that in light of the default judgment being set aside, the plaintiff might face considerable difficulty in establishing that claim. I note in respect of this submission that at no stage did the Associate Judge state that the plaintiff may be a contingent creditor. Rather, his Honour took the view that the plaintiff was no longer a judgment creditor and was now a creditor whose debt was disputed.

(b) Second, no creditor other than the plaintiff appeared before his Honour in support of the winding up application.

(c) Third, his Honour's decision, properly analysed, did not treat the setting aside of the default judgment as removing the plaintiff as a creditor of the defendant. Rather, his Honour acknowledged the existence of the plaintiff's claim, but said that it may need to be litigated. The defendant submits that the fact that the default judgment had been set aside was a relevant factor for his Honour to take into consideration and the plaintiff has not identified any appellable error in his Honour doing so.

(d) Fourth, the plaintiff's submission that his Honour allowed the defendant to rely on the setting aside of the default judgment without first obtaining leave under s 459S mischaracterises what occurred at the hearing. While an interlocutory process for leave under s 459S was filed, it was not ultimately decided because of the way in which the trial unfolded and in which the Associate Judge exercised his discretion. The status of the judgment was simply a matter that his Honour took into account in exercising his discretion. The defendant accepts that absent leave being granted under s 459S, it could not rely on a dispute about the debt as a basis for its solvency. However, the defendant submits that it does not fallow that the Associate Judge could not rely on the debt being disputed in exercising his discretion. If it did follow, then that would fetter the discretion.

(e) Fifth, while the plaintiff submits that the evidence as to solvency was not examined in detail during the hearing, the extent to which the solvency evidence was the subject of oral argument is not a relevant consideration.

1. I have set out my consideration of the issues as they were articulated by the parties, and will come back to the grounds of appeal at the end of this section.

H.1 The Associate Judge's reliance on Braams, the setting aside of the default judgment and whether the plaintiff was a creditor

1. A core aspect of the plaintiff's appeal is its submission that the Associate Judge made an appellable error when relying on Braams to dismiss the plaintiff's winding up application. The plaintiff's primary argument is that the Associate Judge's decision to dismiss the winding up application was made on the basis that the plaintiff's status as a creditor of the defendant had been removed, and that this was not the case.
2. According to the plaintiff, Ipp JA in Braams was not deciding a situation where a judgment had been delivered that established that the defendant was not indebted to the purported creditor. Instead, (at [79]) his Honour was merely providing an example of a ground that could be relied on by a defendant to oppose a winding up application without having to seek leave; a ground his Honour said would be 'readily arguable'.
3. The plaintiff is correct that Ipp JA (at [79]) was merely providing an example to illustrate his point rather than addressing the substance of the matter before him; that example being an alternative to a situation where a plaintiff-creditor had received a 'payment in full' after the filing of a winding up application.[33] However, to the extent that the plaintiff makes the following criticism (and I am unsure if it does), I do not consider the fact that Ipp JA was providing obiter dicta undermines the Associate Judge's reliance on his Honour's line of reasoning. Braams is a decision of the New South Wales Court of Appeal. As such, Ipp JA's dicta, while not binding on this Court, should be considered highly persuasive.
4. Further interrogating the Associate Judge's reliance on Ipp JA's example in Braams, the plaintiff submits that the setting aside of a default judgment for irregularity (as occurred in the present case) does not classify as a judgment that establishes that the defendant is not indebted to the purported creditor. There is merit in the plaintiff's criticism of the comparison drawn by the Associate Judge. On the one hand, the example provided by Ipp JA of a judgment that establishes that the defendant is not indebted to the purported creditor would result from an adjudication on the merits and would provide a high degree of finality. On the other hand, setting aside a default judgment for irregularity would usually leave a plaintiff with their statement of claim and a need to restart the litigation process. In the present case, the County Court Judicial Registrar held that the plaintiff's statement of claim was vague, embarrassing and unparticularised, did not properly inform the defendant of the claim made and the facts on which the claim was based, and did not comply with rules 13.02 and 13.10 of the County Court Civil Procedure Rules 2018 (Vic). The default judgement was set aside and the plaintiff's statement of claim was struck out, however, with liberty for the plaintiff to replead. This can be distinguished from a judgment that establishes that there is no debt. While the comparison drawn by the Associate Justice is imperfect, I do not consider that reliance upon this comparison led his Honour into error. A comparison does not need to be exact to be instructive or useful. The key factor is that in both situations the plaintiff's status as a judgment creditor has been extinguished.
5. During the hearing, the Associate Judge noted that the status upon which the plaintiff commenced the winding up proceeding was that of a judgment creditor. This was not contested by the plaintiff.[34] His Honour then stated that the plaintiff's status as a judgment creditor had been 'expunged' by the setting aside of the default judgment due to irregularity. This was also not contested by the plaintiff.[35]
6. The Associate Judge went on to describe a hypothetical situation where, if the defendant was wound up and placed into liquidation, a liquidator would likely not accept the plaintiff's claim in a proof of debt, because the default judgment which formed the basis of the statutory demand had been set aside.[36] His Honour expressed the view that the liquidator in such a situation might make the plaintiff litigate its claim. To my mind, this was an implicit acknowledgment by his Honour that the plaintiff might still have a valid debt, despite the setting aside of the default judgment.
7. The Associate Judge agreed with the plaintiff's submission that the setting aside of the judgment debt did not dispose of the merits of the debt, but pointed out that the status relied upon by the plaintiff when commencing the winding up proceeding was as a judgment creditor, which status has now been expunged.[37] The Associate Judge placed some emphasis on the fact that the default judgment was set aside not because the debt was disputed and the defendant had an arguable defence, but because the default judgment was irregularly obtained and the statement of claim was struck out with a right to re-plead.
8. At one point during the hearing, the Associate Judge referred to the statement by Ipp JA in Braams set out at paragraph 26 above, and said to counsel for the plaintiff '[n]ow, that's your case. That's the position of your client.' Counsel responded to this by saying that the plaintiff's position following the default judgment being set aside was that it was 'relegated to the position of a normal creditor' who does not have a judgment, and the Associate Judge agreed with th[38] response.38 It is clear from this exchange that despite the way some of the Associate Judge's comments were framed, he did not regard the plaintiff as no longer being a creditor.
9. Accordingly, when one reviews the totality of the transcript, not just of the Ruling, it is tolerably clear that the Associate Judge did not treat the plaintiff as no longer being a creditor. Rather, his Honour treated the plaintiff as no longer being a judgment creditor and instead one whose debt had the status of a claim against the defendant. In other words, the plaintiff was a creditor who no longer had a judgment debt. Thus, the error complained of by the plaintiff, being that the Associate Judge treated the plaintiff as no longer being a creditor, has not been established.
10. Further, there is no error in the Associate Judge's comparison between the setting aside of the default judgment and the payment of a creditor in full. In both situations, it can be said that the 'substratum' of the relevant statutory demand has fallen away. In these circumstances, it was open to the Associate Judge, in the exercise of his discretion, to dismiss the application, given that the basis for the statutory demand upon which the plaintiff brought its application had evaporated.
11. Ultimately, the setting aside of the default judgment was a relevant factor for his Honour to take into consideration. I accept the defendant's submission that the plaintiff has not identified any appellable error in his Honour's approach in this regard.

H.2 The discretion under s 459A and the need for leave under s 459S

1. The power to wind up a company in insolvency is discretionary and s 467(1)(a) of the Act provides that the Court may dismiss an application to wind up a company, even if it is insolvent.[39]
2. The plaintiff submits that the setting aside of a judgment upon which a statutory demand is based will have no consequence for a winding up application unless leave is granted under s 459S to raise the contested nature of the underlying debt.
3. Section 459S of the Act states the following:

(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

1. I note here that asking for the Court to exercise its discretion to refuse to grant a winding up order classifies as 'opposing the application'.[40] As such, a defendant cannot do so on a ground prohibited by s 459S without obtaining leave.
2. The plaintiff submits that the defendant opposed the winding up application on the grounds that the debt claimed in the statutory demand is disputed and that the defendant intends to apply to set aside the default judgment. The plaintiff submits that these were grounds the defendant could have relied on in an application to set aside the statutory demand. The plaintiff submits that, therefore, the defendant was precluded from opposing the application on these grounds without the grant of leave under s 459S, and that leave was not granted by the Associate Judge.
3. The plaintiff points me to the case of Living Australia in support of this submission. In that case, the defendant company made the submission that, if it had brought an application to set aside a statutory demand, it would not have been able to challenge the original plaintiff's status as a creditor because it was, at the relevant times, a judgment creditor. The defendant company argued that it was only on the setting aside of the default judgment on appeal that the plaintiff's status changed. White J rejected this submission, stating that the defendant company could have applied to set aside the statutory demand on the basis that it was disputing its indebtedness and was seeking to have the default judgment set aside.
4. Here, the defendant submits that the plaintiff's submissions on this topic mischaracterise what occurred at trial because while an interlocutory process for leave under s 459S was filed, it was not pressed because of the manner in which the Associate Judge exercised his discretion. The defendant submits that the status of the judgment was simply a matter that his Honour took into account in exercising his discretion.
5. I prefer the submissions of the defendant on the issue of s 459S. A grant of leave under this section was not required as the setting aside of the County Court default judgment was simply a discretionary consideration.
6. After delivering his ruling, the Associate Judge said the following to counsel for the defendant:

... your clients succeed in this application because of what I consider to be the analysis of the authorities and the exercise of the discretion, rather than, for example, going down the 459S track.[41]

1. This statement is reflective of the approach taken by his Honour in dismissing the plaintiff's application.
2. As was noted by the Associate Judge, White J in Living Australia was of the view that one of a number of factors that could support an exercise of the discretion to set aside a winding up order was the setting aside of the judgment debt upon which the relevant statutory demand was based.[42] Although White J ultimately decided that this factor, which was present in the case before him, did not justify declining to wind up the defendant company, this was in circumstances where another creditor had sought to be substituted as petitioning creditor.
3. It should be noted at this juncture that ss 459A and 467(1)(a) confer a broad discretion upon the Court when deciding whether or not to wind up a company. Even if insolvency is proved or the presumption not rebutted, the Court still has the discretion not to order a winding up.[43] In this regard, I do not accept the plaintiff's submission that whatever the discretionary matters may be, the defendant has to prove solvency. In stating this, the plaintiff referred to Living Australia (at [95]) where White J stated that 'the presumption of insolvency does apply and Living Australia is required to prove the contrary of the presumption'. This statement is not authority for the proposition put by the plaintiff. Rather, it is nothing more than another explication of the orthodox principle that if the defendant opposes the winding up on the grounds of solvency then if the presumption of insolvency applies it is for the defendant to rebut it by proving solvency.
4. According to Jacobson J in Federal Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd,[44] the statements made by Needham J in De Montfort as to the proper exercise of the discretion do not establish a principle of universal application. Rather, in cases where the basis for the winding up application has evaporated, there must be some positive reason for ordering a company to be wound up beyond the mere presumption of insolvency.
5. In Structural Projects,[45] Black J considered but did not determine the question of whether s 459S affects the Court's discretion under s 467. At [19], his Honour went on to say:

There may be an open question whether s 459S, in referring to a "ground" that the company could have relied on in an application to set aside the demand, but did not rely on, is referring to the particular sections of the Corporations Act, or using the concept of "ground" in a wider sense, to embrace, for example, factual or legal propositions. It also seems to me that it would be a surprising result if the Corporations Act, on the one hand, conferred an express statutory jurisdiction on the Court to decline to make a winding up order under s 467 of the Act and, on the other, deprived the Court of that jurisdiction because the matters which could have been raised in support of its exercise could also have been raised at an earlier stage in respect of the creditor's statutory demand.

1. Applying Black J's comments to the present case, it would be somewhat contradictory for the Act to prevent the Associate Judge from considering the setting aside of the default judgment when exercising his discretion to dismiss the winding up application because such a matter could have been used by the defendant as grounds to oppose the statutory demand. As such, I consider that it was open to the Associate Judge to consider this factor when exercising his discretion under ss 459A and 467.

1. Another factor that was open for the Associate Judge to consider in exercising his discretion was the absence of any other creditor in support of the winding up application and I can see no error in the Associate Judge's use of this as a factor impacting upon the exercise of his discretion.
2. While some evidence was adduced at trial of correspondence between the plaintiff and other trade creditors of the defendant, I make the following observations:

(a) It is common for businesses to owe debts to trade creditors.

(b) None of the creditors contacted by the plaintiff had issued a statutory demand against the defendant for payment of the relevant debt.

(c) The plaintiff's winding up application would have appeared on the defendant's ASIC listing, making it simple enough for a creditor interested in a winding up to become aware of the plaintiff's application.

(d) Any creditor with an interest in a winding up application could have supported the plaintiff's application. In this regard, I agree with the Associate Judge that 'it's a pretty cheap shout to support a winding up application'.[46]

1. The plaintiff refers the Court to several cases where the subsequent setting aside of a default judgment was held to have no bearing on the question of whether the presumption of insolvency has been rebutted. However, I do not consider that these authorities assist me at all, since the Associate Judge did not find that this rebutted the presumption of insolvency. Indeed, his Honour expressly acknowledged that it had not. Further, the Associate Judge acknowledged that the presumption against insolvency had likely not been rebutted on the facts,[47] as there were issues with the quality of the defendant's solvency material.[48]
2. It is therefore tolerably clear that the Associate Judge proceeded to exercise his discretion on the basis that the defendant was insolvent. Indeed, had his Honour not done so, he would not even have come to the point of exercising his discretion, since the defendant's solvency would have required the dismissal of the winding up application without any further consideration of it. This is because s 459A permits the Court to wind up an insolvent company on the ground of insolvency. There is no error in the way the Associate Judge dealt with the question of the defendant's solvency, be it presumed or actual.
3. Ultimately, the Associate Judge considered the absence of any supporting creditors and the setting aside of the default judgment to be powerful discretionary factors favouring dismissal of the winding up application. His Honour acknowledged that this was to be balanced against the defendant's presumed insolvency arising by reason of non-compliance with the demand.

H.5 The grounds of appeal and establishing relevant error

1. While some of the Associate Judge's comments refer to the plaintiff's status as a creditor of the defendant being removed by reason of the default judgment having been set aside on the ground of irregularity, as I have set out above, it is clear from reading the entirety of the transcript and a proper analysis of the Associate Judge's decision that he did still regard the plaintiff as a creditor of the defendant.
2. Therefore, I do not accept Ground 1 in the notice of appeal, because I do not accept that, on proper analysis, the Associate Judge concluded that the plaintiff was not a creditor of the defendant. As a consequence, I am not persuaded that Ground 1 establishes that the Associate Judge's decision is clearly or plainly wrong.[49]
3. Insofar as Ground 2 is concerned, the plaintiff has not expressed, within the ground or any submissions, that establish this alleged error resulted in the Associate Judge's decision being wrong.
4. For the plaintiff to succeed on the appeal, it must establish that the Associate Judge has made an error of the specified type in exercising his discretion to dismiss the winding up application.[50] In this instance, the Associate Judge took into account, as relevant factors to the exercise of his discretion, the setting aside of the default judgment and the absence of supporting creditors. His Honour balanced these against the presumed insolvency of the defendant. For the reasons already expressed, there was no error in the Associate Judge taking these three factors into account. If the plaintiff's complaint is that the Associate Judge erred by giving more weight to the first and second factor and insufficient weight to the third factor, then the plaintiff has not persuaded me that I should overturn a discretionary decision on this basis.[51]
5. The onus borne by the plaintiff in seeking to overturn a discretionary decision is heavy,[52] and the plaintiff has not met that onus in this case.
6. By Ground 3 in the notice of appeal, the plaintiff is contending that the Associate Judge's exercise of his discretion miscarried because the defendant's solvency material was defective and because it was actually insolvent. It is difficult to discern what error the plaintiff complains of in Ground 3. The plaintiff's submissions unhelpfully do not shed any light on this.
7. If the complaint is that the Associate Judge ought to have found that the evidence established that the defendant was actually (as compared with presumed to be) insolvent and that the discretion to dismiss the application miscarried as a result, then that is what the plaintiff ought to have stated. If the complaint is that by reason of the defects in the defendant's solvency material and because of its actual insolvency the Associate Judge ought to have found that the defendant had not rebutted the presumption of insolvency, then again that ought to have been clearly stated.
8. Either way, the lack of clarity regarding Ground 3 is not decisive in this case. This is because Ground 3 is in truth a complaint that the defendant's solvency material being defective and it actually being insolvent means that the Associate Judge ought not to have dismissed the application for winding up.
9. Whichever way you look at Ground 3, it does not assist the plaintiff. It is apparent that the Associate Judge did not disregard the defendant's insolvency when determining whether to wind up the defendant. The Associate Judge accepted that the presumption of insolvency applied and acknowledged defects in the defendant's solvency material. His Honour expressly proceeded, as I stated earlier, on the basis that the presumption of insolvency applied and had not been rebutted.
10. Therefore, Ground 3 does not identify any appellable error by the Associate Judge.

1. It follows from the above that the plaintiff has not established an error in the Associate Judge's decision of the type referred to in House v The King. The plaintiff has not established that the exercise of the Associate Judge's discretion miscarried due to error.
2. The appeal must therefore be dismissed.
3. That being the case, there is no need for me to consider the plaintiff's submission that if the appeal is allowed, then I should set aside the Associate Judge's decision and make orders that the defendant be wound up. There is also no need for me to determine whether such a winding up order should be made based on the evidence before the Associate Judge or whether to allow the defendant to adduce fresh evidence as to solvency, as it wishes to do.
4. My preliminary view is that the usual course of costs following the event should be followed, such that the plaintiff should be ordered to pay the defendant's costs of and incidental to the appeal, however, that is subject to any matters which either party wishes to raise.
5. By 2:00pm on 10 October 2024:

(a) the parties are to confer and provide my Chambers with a proposed form of order to give effect to these reasons, including as to costs; or

(b) if the parties are not able to agree on the form of order, then each party is to provide their preferred form of order to my Chambers.

1. If paragraph 102(b) applies, then the proceeding will be listed for 10:00am on 11 November 2024 for the making of final orders, including as to costs.

[1] The Reasons are set out in Transcript of Proceedings, Outlook Commodities Pty Ltd (ACN 622 415 178) v Brooklyn Park & Co Pty Ltd (ACN 626 057 681) (Victorian Supreme Court, S ECI 2023 05779, Associate Justice Gardiner, 19 April 2024), 36-41 (Transcript).

[2] Oswal v Carson [2013] VSC 355, [11]; Re AXF Group [2019] VSC 671; (2019) 348 FLR 391, [37].

[4] A G Blondell & Associates Pty Ltd v Illouri Nominees Pty Ltd [2008] VSC 358, [14]; Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd [2013] VSC 92, [29]).

[5] [2022] VSC 199 (IPO Wealth).

[6] IPO Wealth, [54]-[59] (citations omitted, excepting House v the King).

[7] (1936) 55 CLR 499 (Starke, Dixon, Evatt and McTiernan JJ).

[8] Ibid, 504.9-505.4 (Dixon, Evatt and McTiernan JJ).

[10] [2002] NSWCA 417; (2002) 44 ACSR 124 (Braams).

[11] (1987) 17 NSWLR 468 (De Montfort), 471.

[12] [1994] TASSC 126; (1994) 14 ACSR 580, 584 (Guy Holdings).

[16] (2020) 145 ACSR 82; [2020] FCA 739, [94] (Living Australia).

[17] [2011] NSWSC 800, [6].

[21] Relying on Living Australia, [83]-[84].

[22] [2021] NSWSC 282, [9] (Wetherill Park).

[23] Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, [44] (Ace Contractors).

[24] Unaudited accounts are not ordinarily probative of solvency: Ace Contractors, [44].

[25] I note here that this is not what Mr Smith said. Rather, he said that he could not warrant the accuracy of the accounts.

[26] Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210, 218 (Barwick CJ).

[27] Re CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; ZYX Learning Centres Ltd (recs and mgrs apptd) (in liq) [2013] FCAFC 74; (2013) 212 FCR 444, [41]-[43].

[28] Deputy Commissioner of Taxation v NRA Engineering Pty Ltd (in liq) (No 2) [2019] FCA 1755.

[29] Deputy Commissioner of Taxation v Huon Foam Pty Ltd [2000] TASSC 99, [8].

[30] De Montfort; Guy Holdings; Braams.

[31] Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd [2014] FCA 73, [11].

[32] Living Australia, [93]-[113]; Wetherill Park, [7]-[15].

[39] ASIC v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1.

[40] TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074; (2007) 25 ACLC 1,371.

[43] Hamilhall Pty Ltd (in liq) v AT Phillips Pty Ltd [1994] FCA 1446; (1994) 54 FCR 173; 15 ACSR 247; 12 ACLC 1065; Re Epic Mining Pty Ltd [2019] NSWSC 890, [10] (Black J); Re Structural Projects Pty Ltd [2015] NSWSC 1859, [12] (Black J) (Structural Projects).

[44] [2014] FCA 73, [12].

[49] IPO Wealth, [56]: see paragraph 19 above.

[50] House v The King, 504.9 - 505.4: see paragraph 19 above.

[51] IPO Wealth, [58]: see paragraph 19 above.

[52] IPO Wealth, [59]: see paragraph 19 above.