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[1987] NTSC 64
General information, not legal advice.
Supreme Court of the NT
1987-09-28
Original judgment source is linked above.
COURT IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA Muirhead A.J.(1) CWDS Companies - Winding-up - Order - Stay - Appeal against order - Principles applicable to granting a stay. Cases considered: Re A and BC Chewing Gum Ltd : Topps Chewing Gum Inc. v. Coakley and Ors (1975) 1 All ER 1017 Alexander and Ors v. Cambridge Credit Corporation Ltd (Receivers appointed) and Anor 10 ACLR Brinds Ltd and Ors v. Offshore Oil NL and Ors (No. 2) [1986] VicRp 63; 10 ACLR 242 Federal Commissioner of Taxation v. Myer Emporium Ltd [1986] HCA 13; 64 ALR 325 Thrifty Rent-a-Car Pty Ltd v. Darwin Marketing Services Pty Ltd and Ors (unreported decision of Supreme Court of the Northern Territory - 12 March 1987) Cases referred to: In re Diamond Fuel Company Jennings Constructions Ltd v. Burgundy Royale Investments Pty Ltd ; Joskovitz v. Bonnick ; Robert H.Barber and Co Ltd v. Simon ; HRNG DARWIN #DATE 28:9:1987 Counsel for Plaintiff: T.J. Riley Solicitors for Plaintiff: Philip and Mitaros Counsel for Defendant: D. Mildren QC Solicitors for Defendant: Loftus and Cameron ORDER Application refused. JUDGE1 In this matter the plaintiff company sought an order for the winding-up of the defendant company. The application was resisted. On 3 September I delivered reasons in which, to put it concisely, I determined an order should be made notwithstanding that I was not satisfied that the total sum specified in the Section 364(2) notice was due. I found that at least $36,798.19 was then due. I adjourned the matter to 17 September to give the defendant the opportunity of paying that sum and intimated that if payment was not effected the order would be made. On that date the matter was called on and Mr Mildren QC for the defendant intimated the sum had not been paid and he advised me his instructing solicitors proposed to institute an appeal. As counsel for the plaintiff was not present I adjourned the matter until 22 September. On that day I made the order sought. Mr Mildren then sought a stay of proceedings on the basis that an appeal was being immediately instituted, an application strongly resisted by the plaintiff. No affidavit in support of the application has been filed, no monies paid into Court to abide the result. I have little evidence of the situation of the defendant, although I accept without hesitation those few matters put to me for my information by Mr Mildren. I understand the defendant is not actively trading and its main asset may indeed be an option to purchase, or a proprietary right in shares of another company, a matter which I understand may be the subject of some other litigation. 2. It is now about 4 months since the application for winding-up was lodged. As my reasons for judgment indicate, there is undoubtedly a divergence of judicial views as to the course to adopt where the Section 364(2) notice requires payment of an amount in excess of the sum proved to be due. I accept the fact that there is a bona fide issue to be determined on appeal. It is probable that further months will elapse before the appeal is determined. Meanwhile, the administration of the company's affairs will remain in the hands of the present directors. The material examined by me when determining whether a winding-up order should be made causes me to hold some anxiety as to whether the interests of creditors or contributories will be preserved or heeded, should the liquidator not take control. 3. As far as I can see, the Code makes no specific reference to a stay of the winding-up order after it has been made, and I have some doubts as to whether O.43 R.16 of Rules of Supreme Court (NT) which empowers the Court to grant a stay of execution after judgment is applicable. Joskovitz v. Bonnick ; is authority for the proposition that the Court's discretion under this Rule is a wide one. Section 372(2) contemplates the appointment of a provisional liquidator where there is an appeal against a winding up order until the appeal is determined. Mr Riley concedes I have the power to grant a stay within the general exercise of the inherent powers of the Court and I am satisfied that such power exists. The authorities suggest an application for a stay may properly be made upon the motion of the directors exercising their residuary powers despite a winding-up order. (See Re Union Accident Insurance Co Ltd per Plowman J. at 1113). 4. In Re Diamond Fuel Company is authority for the proposition that despite the fact a liquidator has been appointed, a residual power of appeal remains vested in the directors. This decision is also some authority for the proposition that a company appealing against a winding-up order may well be directed to provide security for costs, a matter adverted to by Mr Riley in his submissions. (See also Robert H. Barber and Co Ltd v. Simon ; at 28). 5. A very restrictive approach to the granting of a stay in winding-up proceedings was enunciated by Plowman J. in Re A and BC Chewing Gum Ltd : Topps Chewing Gum Inc v. Coakley and Ors at 1029. That case involved a dispute between directors of a company which was apparently trading profitably, the order for winding-up being made on the 'just and equitable' grounds. His Honour apparently following the English practice at the time stated: "But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding-up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of s.227 of the 1948 Act; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors. Supposing there is an appeal and the winding-up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered; it makes it
very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously. But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, really no additional harm has been done once the winding-up order has been made by refusing a stay" (at p 1029). 6. He thus found that the fortunes of the company were not likely to be jeopardized, bearing in mind the liquidator's right of carrying on the business, and his principal concern related to the liquidator's opportunity of ascertaining the assets and protecting the situation of creditors. A more liberal approach was adopted by the Court of Appeal in New South Wales in Alexander and Ors v. Cambridge Credit Corporation Ltd (Receivers appointed) and Anor 10 ACLR 42. There the Court referred to earlier authorities (notably Victorian) where it had been held that a "judgment creditor is entitled to the 'fruits of his victory' unless the appellant can show 'special' or 'exceptional' circumstances which warrant the imposition of a stay". The Court reconsidered the principles and concluded (at p 50) "In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour". 7. Shortly after Alexander (supra) the Victorian Full Court considered the situation in Brinds Ltd and Ors v. Offshore Oil N.L. and Ors (No. 2) [1986] VicRp 63; 10 ACLR 242. It affirmed the inherent jurisdiction to grant a stay, the locus standi of the company to seek a stay without the liquidator's consent and dealt with matters which went to the exercise of the discretion (see p 245). 8. In Federal Commissioner of Taxation v. Myer Emporium Ltd [1986] HCA 13; 64 ALR 325, Dawson J. referred to applicable principles including the necessity that the applicant for a stay should demonstrate 'special circumstances'. He said (p 327): "It is well established by authority that the discretion which it confers to order a stay of proceedings is only to be exercised where special circumstances exist which justify departure from the ordinary rule that a successful litigant is entitled to the fruits of his litigation pending the determination of any appeal: see, eg, The Annot Lyle (1886) 11 PD 114 at 116; Scarborough v. Lew's Junction Stores Pty Ltd [1963] VicRp 20; (1963) VR 129 at 130. Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory: see Wilson v. Church (No. 2) (1879) 12 Ch D 454 at 458; Klinker Knitting Mills Pty Ltd v. L'Union Fire Accident and General Insurance Co Ltd [1937] VicLawRp 28; (1937) VLR 142. Generally that will occur when, because of the respondent's financial state, there is no reasonable prospect of recovering moneys paid pursuant to the judgment at first instance. However, special circumstances are not limited to that situation and will, I think, exist where, for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed: see McBride v. Sandland (No. 2) [1918] HCA 59; (1918) 25 CLR 369 at 375." 9. In Jennings Constructions Ltd v. Burgundy Royale Investments Pty Ltd [1986] HCA 84; 69 ALR 265, Brennan J. stated (at p 267): "In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this court's discretion. In each case when the court is satisfied a stay is required to preserve the subject matter of the litigation, it is relevant to consider - first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies." 10. Asche J. (as he then was) examined and applied the remarks of Brennan J. in Jennings Constructions (supra) in this Court in Thrifty Rent-a-Car Pty Ltd v. Darwin Marketing Services Pty Ltd and Ors (unreported decision of Supreme Court of the Northern Territory - 12.3.87) and appears to have placed considerable emphasis upon the 'balance of convenience' test. 11. Various principles (some in apparent conflict) emerge from these authorities - the manner in which they are expressed inevitably being governed to some extent by the nature of litigation in issue and the factual and historical background to the application for stay. I accept that the restricted approach of Plowman J. referred to earlier in these reasons has not been adhered to in this country, albeit I consider there are sound reasons for cautious examination of such applications in liquidation matters. 12. I have already stated that it cannot be said that the appeal has no merit but many other matters concern me. (1) The evidence tendered upon the application to wind up satisfied me that Kooba Pty Ltd is in considerable difficulty. (2) The defendant did not pay the sum of $36,798.19 to the petitioning creditor within the 14 day span I allowed, having been informed that in that event a winding-up order would be made. (3) No affidavit material has been tendered as to the assets or debts of the company nor have the directors deposed that the company is in fact able to pay its debts. (4) The company is not trading. Prior to the winding up no steps were taken to prevent advertising of the petition. The reputation and the fortunes of the company are unlikely to be prejudiced. (5) The directors have the right, if they see fit to do so, to prosecute the appeal. (6) The liquidator essentially acts subject to directions of the Court. His appointment will serve to ascertain and preserve assets (contingent or otherwise) for the benefit of the creditors. If the assets consist of options, they may in the liquidator's discretion be exercised if such exercise is to the benefit of the company and its creditors. (7) A stay will involve further substantial delay and am not satisfied the creditors' interests will be protected during this time. (8) It is unlikely that the assumption by the liquidator of his duties and responsibilities will deprive the company of the benefit of a successful appeal. 13. However one approaches the matter i.e. by applying the test of the applicant establishing special or exceptional circumstances, or demonstrating appropriate reasons to warrant the stay, or by applying the balance of convenience test, I am satisfied the stay must be refused. I regard it as important that the liquidation proceed; the creditors are thereby likely to benefit and the fortunes of the company are unlikely to suffer. 14. The application for a stay of proceedings is refused. I will hear counsel as to costs.
Arafura Finance Corporation
Kooba Pty Ltd [1987] NTSC 64
(1914) 19 CLR 24
(1918) 25 CLR 369