Artistic Builders Pty Ltd v Elliot & Tuthill [2012] NSWSC 1443 | Case summary

Judgment 1By Interlocutory Process filed on 20 September 2012, the Applicant, C2C Investments Pty Limited ("C2C") applies for an order, pursuant to r 49.19 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), setting aside a decision of Senior Deputy Registrar Howard on 12 September 2012 substituting the Commonwealth Bank of Australia ("CBA") for Community Association DP No 270158 ("Community Association") as the applicant in a winding up application in respect of C2C. (I have disregarded an apparent error by which the parties were inverted in that Interlocutory Process.) C2C also seeks an order pursuant to r 13.4 of the UCPR that the proceedings be dismissed. 2Rule 49.19 of the UCPR provides that, if a Registrar makes an order or decision, the Court may, on application by any party, review that decision and make such order, by way of confirmation, variation, discharge or otherwise as it thinks fit. A review under this provision is not an appeal and is not subject to the restrictions that apply to an appeal, although something less than a complete hearing de novo is involved; nonetheless, the Court may intervene where a decision finally determines a party's rights or where error in the decision under review is demonstrated: Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 at [6], [10], [50]-[52]. Rule 13.4 in turn provides for the Court to order that proceedings be dismissed generally if, relevantly, no reasonable cause of action is disclosed. Factual background 3I should first set out something of the factual background to the application. CBA extended a consumer credit facility to C2C on 22 October 2004 and, following default under the facility, commenced proceedings against C2C on 24 November 2009. On 28 September 2010, a consent judgment was entered in favour of CBA against C2C in the amount of $419,386.46 and an order was made giving CBA possession of a property at [number omitted] Chapmans Road, Tuncurry, New South Wales. 4On 24 February 2012, Community Association applied for the winding up of C2C under s 459P of the Corporations Act 2001 (Cth), relying on a failure by C2C to comply with a creditor's statutory demand dated 1 December 2011. It appears that C2C then settled the debt that was the subject of that application. On 26 June 2012, the Court granted leave to Community Association to withdraw from the winding up proceedings and made orders granting leave for CBA to file any application to be substituted for Community Association in the winding up proceedings. 5The next day, on 27 June 2012, Mr Shannon, the sole director of C2C, lodged a complaint on behalf of C2C with the Financial Ombudsman Service, which was later closed on the basis that the relevant matters were properly to be resolved in the existing Court proceedings. 6By Interlocutory Process filed on 11 July 2012, CBA sought orders under ss 459P and 465B of the Corporations Act that leave be granted to it to be substituted as plaintiff for Community Association. That Interlocutory Process was supported by an affidavit sworn 10 July 2012 by Mr Robert Rolston, which relied on a consent judgment and orders made on 28 September 2010 to which I referred in paragraph 3 above. There is evidence, admitted without objection, that the balance of the judgment in favour of CBA against C2C as at 9 July 2012, taking into account payments received and interest accrued, was $174,452.59. There is also evidence that the two Taree properties owned by another entity, C2C Developments Pty Limited ("C2C Developments") were sold for sale prices of $260,000 and $410,000 respectively, and the Harrington property owned by C2C Developments was sold for a sale price of $85,000, and the total sale proceeds of the properties owned by C2C Developments were less than the amount owed by it to CBA. 7Shortly before the hearing of CBA's substitution application, on 20 July 2012, C2C Developments filed proceedings seeking an order for an accounting by CBA in respect of three properties sold by it. Those proceedings were later dismissed by Macready AsJ. 8CBA's application to be substituted in the winding up application was heard before Senior Deputy Registrar Howard on 24 July 2012. C2C resisted CBA's application to be substituted as plaintiff in the winding up application on the basis that, inter alia: "The statutory demand was not effective to support the winding up proceedings, because C2C Investments had paid its debt to Community Association: DMK was not authority for the proposition that CBA could apply for a winding up where it had not issued a statutory demand itself; CBA had not established the grounds for winding up under s 461 of the Corporations Act; CBA was not a creditor of C2C Investments and had no standing to seek its winding up because nothing was owed to it. It was "agreed and understood" that all the properties of C2C Investments and C2C Developments would be sold and would have been enough to "satisfy the entire debt". The fact that CBA had not accounted to C2C Developments for the sale of its security properties was a discretionary factor tending against its substitution in the winding up proceedings." 9On 12 September 2012, Senior Deputy Registrar Howard made an order under s 465B of the Corporations Act substituting CBA in place of Community Association in the winding up application. Senior Deputy Registrar Howard focused on several key issues in his decision in respect of that order, although C2C's criticisms of the Senior Deputy Registrar's decision cover a wider field. Senior Deputy Registrar Howard reviewed the evidence before him and noted affidavits of Mr Shannon, filed on behalf of C2C, relating to circumstances in which the judgment by consent was obtained by CBA; the form of an arrangement reached by C2C and C2C Developments with CBA that contemplated that the properties referred to in those consent judgments were to be sold and the proceeds put toward the payment of outstanding debts to CBA; and that a dispute had arisen over the valuation of the properties, the amounts for which they were sold and the accounting of the proceeds of those sales. 10Senior Deputy Registrar Howard also noted that there was no dispute as to the debt that was the subject of the application, arising from the consent judgment that had not been sought to be set aside. He noted that the evidence before him did not sufficiently set out the suggested arrangement between C2C and CBA. He held that a statutory demand had been served by Community Association on C2C and the failure to comply with that statutory demand raised the presumption of insolvency; that CBA had established that a debt was owed to it and it was therefore a creditor of C2C; and that a genuine dispute as to the debt had not been established. Whether CBA is a creditor of C2C 11Section 465B of the Corporations Act relevantly provides that: "(1) The Court may by order substitute, as applicant or applicants in an application under s 459P, 462 or 464 for a company to be wound up, a person or persons who might otherwise have so applied for the company to be wound up. (2) The Court may only make an order if the Court thinks it appropriate to do so: (a) because the application is not being proceeded with diligently enough; or (b) for some other reason." There is a difference between s 465B of the Corporations Act and its predecessor in the Companies Code, so far as standing to make an application for substitution under s 465B is conferred on a person or persons "who might otherwise have so applied for the company to be wound up". Section 459P(1) of the Corporations Act in turn provides that, inter alia, a creditor of a company may apply to the Court for it to be wound up in insolvency. Section 462 provides that specified persons may apply for an order to wind up a company on the grounds provided by s 461 of the Corporations Act, which are not relied upon by CBA. 12The first question in dispute in this application was whether CBA was a person who might otherwise have applied for C2C to be wound up for the purposes of s 465B(1) of the Corporations Act. CBA contends that, at the time the winding up proceedings were commenced, it was (and remains) a creditor of C2C pursuant to the consent judgment and therefore it could have commenced the winding up proceedings. CBA contends that, once C2C failed to comply with the statutory demand served by Community Association, a presumption of insolvency arose under s 459C(2)(a) of the Corporations Act, which was not displaced when C2C paid out the debt the subject of the statutory demand owed to Community Association, and CBA is entitled to rely on that presumption of insolvency in pursuing an application under s 459P of the Corporations Act. CBA relies on Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694 in that regard, and CBA identifies the purpose of s 465B of the Corporations Act as being, relevantly, to avoid the need, where there are a number of creditors, for the winding up process to start again if one of the creditors is paid out. 13C2C contends that, on the basis of the "undisputed" evidence before the Senior Deputy Registrar, CBA did not establish it was a creditor of C2C, and it therefore had no standing to move for an order for substitution or for winding up or was precluded by s 465B(2) of the Corporations Act from moving for the winding up of C2C. C2C summarised its submissions before the Senior Deputy Registrar as that, absent a statutory demand served by CBA under s 459E of the Corporations Act, CBA (as an applicant for substitution) had to prove, on the balance of probabilities, one of the grounds for winding up in s 461 of the Corporations Act; CBA had not issued a statutory demand and could not rely on the statutory demand issued by Community Association, as the debt owed to Community Association had been satisfied; and CBA did not qualify under any one of the other grounds for winding up as set out in s 461 of the Corporations Act. 14C2C seeks to distinguish the decision in DMK Building Materials Pty Ltd v CB Baker Timbers Pty Ltd (1985) 2 NSWLR 711; 10 ACLR 16 on the basis that that decision was directed to s 364 of the Companies Code and contends that Senior Deputy Registrar Howard misdirected himself in not holding that DMK did not concern the true construction of s 465B of the Corporations Act and particularly the words "who might otherwise have so applied for the company to be wound up" in s 465B of the Corporations Act, which did not appear in s 364 of the Companies Code. C2C also submits that Senior Deputy Registrar Howard misdirected himself in holding that the decision in Earthwave Corp Pty Ltd v Starcom Group Pty Ltd was of relevance to the application for substitution under the provisions of the Corporations Act. 15It is appropriate first to refer to the earlier case law considering the provision for substitution in the predecessor sections to s 465B of the Corporations Act. In Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177 at 194-195, to which reference was made by Needham J in DMK Building Materials Pty Ltd v CB Baker Timbers Pty Ltd above, Menzies J observed that: "In the course of argument upon this appeal, reference was made to the consequence of a petitioning creditor being paid off between the presentation of the petition and the making of an order. That circumstance would not, in my opinion, put an end to the petition nor would it affect the jurisdiction of the court to hear and determine the petition although, of course, in such circumstances proceedings might not be continued and, if they were, the court could, in the exercise of its discretion, refuse to make a winding up order upon the petition of a person not then a creditor." 16In DMK Building Materials, the defendant contended that, where a debt claimed by a notice under s 364 of the Companies Code was paid after the expiry of the 3 week period referred to in that notice but before the hearing of a winding up summons, there could be no substitution of another plaintiff because the presumption of insolvency ceased upon payment of the debt. Needham J rejected that contention and noted that Menzies J's observation in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) above indicated that the mere fact that a debtor, being the defendant in a summons to a winding up, had paid off the debt does not mean the summons should necessarily be dismissed. His Honour noted that the submission made before him was also contrary to the view expressed by McLelland J in Deputy Commissioner of Taxation v Sun Heating Pty Ltd [1983] 2 NSWLR 78; (1983) 8 ACLR 314. 17I accept that Needham J in DMK Building Materials also relied on Pt 80 r 21 of the Supreme Court Rules 1970 (NSW) which, his Honour noted, conferred a right to have the original proceedings continue so that all creditors could take advantage of the defendant's failure to comply with the notice of demand under s 364 of the Companies Code. That rule provided that, relevantly, where a plaintiff withdrew a winding up petition, the Court may, on terms, and subject to the Companies Code, on application of any person, make orders for the further conduct of the proceedings including an order substituting that person for the former plaintiff. His Honour also noted that: "Whilst it is not conclusive, it is not without interest to note that if a defendant company could, by paying off its creditors one by one, ensure that no winding up order was made on or about the date of the first filing of the summons, the question of preferences to creditors would be in a very confused and unjust position. The purpose of substitution, in my opinion, is to ensure that once a prima facie right to the winding up of a company has arisen, the company should not escape from that position except upon the basis of fair dealing with all its creditors, not merely by paying off the particular plaintiff." His Honour also pointed to the general experience that substitution applications are made principally where a debtor has paid off the original plaintiff but has failed to pay off all its creditors. 18In my view, it was not necessary for CBA to have served a statutory demand or to establish one of the other grounds specified in s 461 of the Corporations Act to establish that it "might otherwise have applied" for C2C to be wound up so as to have standing for the purposes of a substitution application under s 465B of the Corporations Act, and Senior Deputy Registrar Howard was correct in rejecting C2C's submission to the contrary. Subject to the factual matters raised by C2C, which I will address below, CBA was a creditor of C2C by reason of the consent judgment in its favour and the evidence of the unpaid balance due to it. Because CBA was a creditor of C2C, it had standing to apply for C2C to be wound up in insolvency under s 459P(1)(b) of the Corporations Act and was therefore a person who might otherwise have applied for C2C to be wound up under s 465B(1) of the Corporations Act. CBA did not need to have issued a statutory demand to have that capacity, since reliance on an unsatisfied statutory demand under s 459Q of the Corporations Act to give rise to a presumption of insolvency is merely one means of establishing insolvency in such an application. It would, for example, have been open to CBA to bring an application to wind up C2C in insolvency under s 459P of the Corporations Act by leading evidence of C2C's insolvency without relying on a statutory demand or that presumption. The standing requirement in s 465B of the Corporations Act requires only that CBA could otherwise have applied for C2C to have been wound up and it could have done so in that manner. 19Moreover, it was also open to CBA to rely on the presumption of insolvency in an application under s 465B of the Corporations Act for the reasons identified by White J in Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd above. His Honour there observed that the presumption of insolvency arising on non-compliance with a statutory demand applies to the extent provided for in s 459C(1) of the Corporations Act, which provides that that section has effect for the purposes of, inter alia, s 459P or an application for leave to make an application under s 459P. His Honour accepted (at [11]) that, notwithstanding that s 459C(1) does not refer to an application under s 465B, it has effect for the purposes of an application under s 459P, and an applicant for substitution can rely on the presumption where the question is whether the applicant is a person who might otherwise have so applied under s 459P for the company to be wound up. Mr Jacobs QC, who appears for C2C, made a formal submission that his Honour's decision was incorrect. I would adopt the same approach as his Honour, both for reasons of comity and because I consider his Honour's view is correct, as a matter of construction of s 459C(1) of the Corporations Act. 20There is also, in my view, no reason to think that the introduction of the Corporations Law, the Corporations Act or the present form of the Supreme Court (Corporations) Rules was intended to bring about a radical change in the circumstances in which substitution should be permitted, a fortiori where that change would be adverse to the policy sought to be implemented by those provisions and recognised in the authorities to which I have referred above. The policy underlying the substitution provisions includes that, where one creditor has issued a statutory demand, other creditors should not need to issue such a statutory demand but, if the debt of the first creditor is paid out after a presumption of insolvency has arisen, those other creditors may rely on that presumption of insolvency in a subsequent winding up application. That purpose would be wholly defeated by C2C's submission which would, in the ordinary case, require other creditors of an insolvent company to issue their own statutory demands, in order to later substitute for the creditor which issued the demand; potentially require the company and the Court to deal with multiple parallel applications to wind up the company; encourage a process by which petitioning creditors would be paid out, potentially to the detriment of other creditors, after a presumption of insolvency had arisen so as to seek to avoid companies being wound up; and give rise to the difficulty as to preferences identified by Needham J in DMK Building Materials above. Whether CBA's debt is genuinely disputed 21C2C also contends that Senior Deputy Registrar Howard should have found on the evidence before him that the debt claimed by CBA was bona fide disputed by C2C. C2C identified a further ground of review, which appears to be the same in substance, that there is a bona fide dispute concerning the debt alleged by CBA and no order of substitution should have been made. C2C contended that Senior Deputy Registrar Howard misdirected himself in holding there was no genuine dispute, and should have held that there was a genuine dispute in relation to the alleged debt, on the basis of evidence of Mr Shannon (as noted above, the sole director of C2C) and Mr Gillroy (C2C's former solicitor) on which C2C relied in the application before Senior Deputy Registrar Howard and in this application. 22It is well established that the Court should decline to permit substitution if it finds that the applicant's alleged debt is the subject of a bona fide dispute upon substantial grounds: CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295; 7 ACLC 1218. In Beverage Holdings Pty Ltd v Greater Pacific Investments Pty Ltd (1990) 3 ACSR 743 at 749, the Full Court of the Supreme Court of Western Australia observed that, to show there is a bona fide dispute about the debt claimed by the applicant for substitution, the onus is on the company to show that there are clear and persuasive grounds or substantial grounds for the dispute and that observation was applied by White J in Earthwave above at [22]. In South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465, Ryan J declined to make an order for substitution where an applicant for substitution claimed to be a creditor but the company demonstrated a genuine dispute with respect to the debt. In Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 at [66]-[68], White J noted that the Court had power, under s 459P of the Corporations Act, to order that a company be wound up in insolvency where a creditor's debt was disputed, if the Court determined the disputed question and held the applicant was a creditor, but would not ordinarily entertain an application for winding up where the applicant's standing was disputed, as a matter of discretion; see also JPQS Pty Ltd v Redpen Developments Pty Ltd [2009] NSWSC 687. In Menzies v Paccar Financial Pty Ltd [2011] FCA 460 at [40], Bromberg J noted that the standard of satisfaction as to a disputed debt has often been expressed, for the purposes of s 465B of the Corporations Act, as to whether a "genuine dispute" as to the debt existed, and noted that term may well have been borrowed from s 459H of the Corporations Act which deals with the standard of satisfaction in relation to a disputed debt in the context of an application to set aside a statutory demand served on a company. 23The authorities concerning the concept of "genuine dispute" used in s 459H of the Corporations Act are well known. This formulation focuses not only upon whether a dispute exists in good faith, but also whether the dispute exists upon grounds that have some substance, in that it is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation": John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787-788; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17]; Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [9] per Murphy JA (with whom Buss JA agreed). However, as McLelland CJ in Eq noted in Eyota Pty Ltd v Hanave Pty Ltd above at 787, the fact that a genuine dispute is established where there is a "plausible contention requiring investigation": "...does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' ... or 'a patently feeble legal argument or an assertion of facts unsupported by evidence'." Similarly, in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J observed that: "The notion of a 'genuine dispute' ... suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime." 24It is therefore necessary for C2C to show that the dispute for which it contends raises a plausible contention requiring further investigation or, to put it another way, is not spurious, illusory or misconceived. Whether CBA's entire debt was settled 25C2C initially contended that Senior Deputy Registrar Howard addressed an incorrect question, in that the question before him was whether, having regard to the purchase prices that were or should have been obtained by CBA for four properties handed to them for sale, C2C's entire debt was settled, although that contention may have shifted somewhat in the course of the oral submissions made by Mr Jacobs for C2C. C2C also contends that Senior Deputy Registrar Howard was incorrect in holding that the existence of the debt had not been displaced by any of the evidence. C2C points out that it relied before Senior Deputy Registrar Howard on evidence of Mr Shannon, in his affidavit dated 20 July 2012, that the one property of C2C and three properties of C2C Developments mortgaged to CBA as security for their respective facilities were "handed over" to CBA, which would sell them as mortgagee in possession, and that the proceeds should have been sufficient to cover the entire debts of C2C Developments and C2C. C2C also contends that Senior Deputy Registrar Howard misdirected himself in holding that there were issues in relation to the accounting and perhaps the understanding of the arrangement in relation to the sale of the properties between the parties, but that the actual arrangement was not sufficiently set out in evidence before him, and should have held that the evidence of Mr Shannon and C2C's former solicitor Mr Gillroy had proved the relevant agreement. 26The first step in C2C's argument requires that, notwithstanding only one property was owned by C2C, the sale proceeds from other properties owned by C2C Developments should be treated as relevant to the discharge of C2C's debt, or at least that the debts of C2C and C2C Developments and the sale proceeds of properties owned by them should be pooled. The second step in that argument involves the proposition that the four properties together had a value exceeding the amount of the debts of C2C and C2C Developments, or alternatively that the property owned by C2C had a value exceeding the value of its debt. The third step involves a further proposition that that value could have been realised in full by a sale process undertaken by CBA, acting in accordance with any obligations applicable to it as a mortgagee in possession. 27CBA points out that there was no evidence as to the value of the security property of C2C or the properties of C2C Developments capable of supporting any assertion that the security properties were sold at undervalue. I note that Mr Shannon sought to give evidence as to the value of the three properties owned by C2C Developments, which I rejected on the basis that neither his expertise nor the reasoning process to support such evidence had been established. C2C also sought to lead expert evidence of a valuer as to those properties, but that evidence was led so late that it could not have been admitted without adjourning the proceedings to give CBA an opportunity to lead evidence in response, and I held that such an adjournment would not be consistent with the requirements of ss 56-58 of the Civil Procedure Act 2005 (NSW) and therefore rejected that evidence. 28C2C also contends that Senior Deputy Registrar Howard should have considered whether the "entire debt was settled". CBA contends, as Senior Deputy Registrar Howard had found, that the evidence relied on by C2C as supporting any "agreement" that the prices achieved by the sale of the properties of C2C and C2C Developments would settle both debts could be read as no more than evidence of Mr Shannon's belief in that regard. 29In his affidavit dated 20 July 2012, Mr Shannon gives evidence that: "I state that it was on the basis that the four properties would be sold and the proceeds employed to settle all of the indebtedness referred to in the matter, both in regard to C2C Investments and C2C Developments, that the consents to judgment were signed." There is difficulty with the form of this paragraph, although no objection to it was taken by CBA. It is unclear from that paragraph whether Mr Shannon is asserting an agreement with CBA that the proceeds of sale of the properties, whatever their amount, would be sufficient to discharge the debt or merely an expectation, on his part, that the proceeds of sale of the properties would be sufficient to discharge that debt. 30By a complaint against CBA lodged with the Financial Ombudsman Service, which is annexed to his affidavit dated 20 July 2012, Mr Shannon expressly asserted that: "Previously it was agreed that [t]he bank walk away from any shortfalls if there were any." However, this proposition was inconsistent with the contemporaneous correspondence between C2C's solicitors and CBA's solicitors, which expressly recognised C2C's liability for any shortfall on the sale of the properties; was not supported by evidence of CBA's former solicitor, Mr Gillroy; and Mr Jacobs does not seem to have ultimately pressed this proposition in oral submissions. 31Mr Gillroy gives evidence in his affidavit dated 20 September 2012 of a counter-offer made by CBA's solicitors dated 22 September 2010. That letter provided that the judgments to be entered against C2C, C2C Developments and Mr Shannon would not be enforced on certain conditions. CBA later contended that one of the conditions to the settlement, namely the exchange of contracts for the sale of the Chapmans Road property on terms and at a price acceptable to it, was not satisfied. There is no ambiguity in that letter as to whether the proceeds of sale of properties would extinguish C2C's debt, since it expressly provides that: "Following the sale of the property at [number omitted] Chapmans Road, Tuncurry New South Wales and [number omitted] Manning River Drive, Taree NSW, your clients are to pay any shortfall in respect of accounts [number omitted] and [number omitted] within three months." 32Mr Gillroy's evidence is that he accepted CBA's offer on behalf of C2C, C2C Developments and Mr and Mrs Shannon on 27 September 2010. Mr Gillroy's evidence is consistent with an exchange of emails between CBA's solicitors and Mr Gillroy on that day. By email sent at 6.08pm, CBA's solicitors observed that: "We confirm your clients have accepted the terms of the offer set out in our correspondence dated 22 September 2010." An email sent by Mr Gillroy to CBA's solicitors at 7.15pm also confirmed acceptance of the offer of settlement, stating that: "As discussed we are instructed to agree to the proposal put by the Bank in the letter of the 22 September, 2010. Please accent [sic] this as informal acceptance. I will get signed copies of the consent orders to you as soon as I can get them printed." At 10.04pm on 27 September 2010, Mr Gillroy sent signed consent orders in respect of proceedings involving C2C Developments and C2C to CBA's solicitors. C2C itself relies on the letter dated 22 September 2010 as recording the terms of the settlement between CBA and it, in its Statement of Claim filed on 20 September 2012 commencing further proceedings against CBA. 33By his affidavit dated 20 September 2012, Mr Shannon gives evidence of a conversation on 28 September 2010, the next day, with Mr Gillroy in which Mr Gillroy reported on his conversation with a solicitor representing CBA, and told Mr Shannon that he had told CBA's solicitor that: "[t]he proceeds of the sale of the properties are to cover the indebtedness of both C2C Investments and C2C Developments to [CBA]" and CBA's solicitor had replied: "That's understood and agreed". Mr Shannon then gives evidence that he said to Mr Gillroy that: "On that basis, you have my authority to sign the consent judgments based on what [CBA's solicitors] have agreed to do." 34It should be noted here that C2C had, through Mr Gillroy, accepted the settlement offer made by CBA in its solicitor's letter dated 22 September 2010 and returned consent orders the night before the conversations to which Mr Shannon refers. There is also a further ambiguity in the conversation between the solicitors, as relayed by Mr Gillroy to Mr Shannon, as to whether it reflects merely an acknowledgement that the proceeds of sale of the properties would be applied separately to reduce the indebtedness of C2C and C2C Developments respectively, or that they would be pooled and applied to reduce the indebtedness of both C2C and C2C Developments, or a suggestion that it was agreed they would extinguish that liability irrespective of their amount. As I noted above, Mr Jacobs did not seem to press the third construction in oral submissions. 35In summary, the difficulty faced by C2C at this point is that an expectation, on Mr Shannon's part, that the proceeds of sale of the properties would be sufficient to discharge the indebtedness would not be sufficient to give rise to a genuine dispute as to the balance of the debt remaining after the sale proceeds, even if Mr Shannon's expectation that those proceeds would be sufficient to extinguish the debt was disappointed. An agreement that the proceeds of the sale of the properties would be applied to reduce the debt would not be sufficient to create such a dispute since there is no suggestion that they were not applied in that manner. An agreement that CBA would accept the amount of the proceeds in satisfaction of the debt was inconsistent with the evidence and not pressed by Mr Jacobs in submissions. 36As I noted above, C2C also criticises the sale process adopted by CBA. Mr Shannon refers to a letter dated 21 January 2011 sent by C2C Developments' solicitor to CBA's solicitor advising that there was a buyer for the Manning River property (which was a property owned by C2C Developments) in the sum of $560,000, and requesting CBA to authorise C2C Developments' lawyers to act for C2C Developments on the sale of that property, and a follow up letter dated 31 January 2011, and his evidence is that there was no reply to either of those letters. Mr Shannon's evidence in that regard appears to be mistaken. By letter dated 15 February 2011, CBA's solicitors requested C2C Developments' solicitor to provide a copy of the contract for sale of land for their review, along with evidence that the purchaser had its finance approved and that the offer was in fact a genuine offer. CBA's solicitors followed up that request, noting that they had not received a response, by a further letter dated 2 March 2011, again requesting a copy of the contract for sale of land for their review together with evidence of the purchaser's finance approval. No such information seems to have been provided by C2C Developments or its solicitors to CBA or its solicitors. 37C2C contended before me that there was "no evidence to the contrary" of the propositions which it advanced before Senior Deputy Registrar Howard; however, an anterior question is whether these matters were sufficiently established to give rise to a genuine dispute as to the debt arising from the consent judgment, since CBA had no need to disprove what had not been established even to that relatively undemanding standard. In my view, there was no error in Senior Deputy Registrar Howard's findings in this regard. Notwithstanding Mr Shannon's belief that the sale of the properties would extinguish the debt, and even if he entered the arrangement on the basis of that belief, a sufficient basis for a dispute as to the debt has not been shown to prevent an order for substitution of CBA in the winding up application. C2C's further proceedings 38C2C contends that the Registrar also overlooked "undisputed evidence" before him that CBA's claim was being disputed in separate proceedings in the Supreme Court and should have dismissed or adjourned the proceedings until those proceedings were determined. At the time of the hearing before the Registrar, those proceedings were brought by C2C Developments rather than C2C against CBA and sought an accounting in respect of the three properties owned by C2C Developments at Taree and Harrington. The Registrar did not overlook the claim brought by C2C Developments in his decision, but referred to it, and Macready AsJ dismissed that claim as disclosing no reasonable cause of action on 11 October 2012. In my view, a claim for an accounting brought by another entity, which was in due course dismissed, does not establish a genuine dispute as to the debt owed by C2C to CBA. No attempt was made by C2C to seek to establish that the result of that accounting would demonstrate, for example, that the debt was not established. 39On 20 September 2012, the same date as the application for review of Senior Deputy Registrar Howard's decision was filed, C2C, C2C Developments and Mr and Mrs Shannon commenced further proceedings seeking an account in respect of sales achieved by CBA in respect of the one property owned by C2C and again seeking an account in respect of the three properties owned by C2C Developments. Those further proceedings also seek damages against CBA in favour of C2C and C2C Developments and a stay of judgments against all plaintiffs pending that accounting and the determination of the action for damages. The Statement of Claim contends that CBA is subject to the obligations under s 420A of the Corporations Act in respect of a sale of the relevant properties; it pleads the sale price for the Chapmans Road property and the alleged market value of three other properties and pleads that, had CBA taken all reasonable care when exercising the power of sale, it would have achieved the market value of the properties, or alternatively the best price that was reasonably available and a price that was not less than that market value, and CBA would have received more for all the properties than the combined amount owing by C2C and C2C Developments to it in respect of the relevant facility. 40The pleading in these further proceedings is not itself proof of the facts asserted in it and an affidavit verifying that pleading is not capable, by itself, of giving rise to a serious question to be tried as to the relevant claim, for the reasons identified by White J in Earthwave above at [24]-[25]. As I have noted above, Mr Shannon's evidence intended to support a claim that the properties were sold at undervalue was not in admissible form and a valuer's evidence was served too late to be admitted in these proceedings in the circumstances to which I have referred above. 41Even if that evidence had been admitted, it would have gone no further than to show that the sale of the relevant properties had not achieved their full market value. In my view, even if that proposition were established, it would not be sufficient to show clear and persuasive or substantial grounds for an allegation of breach of the duty imposed on a controller under s 420A of the Corporations Act. A determination whether that section is breached requires examination of the process adopted by the controller to sell the relevant property and a breach of that section is not established merely because a controller does not obtain the market value of property in exercising a power of sale, but only if the controller failed to take all reasonable care to sell the property for not less than market value: Artistic Builders Pty Ltd v Elliott & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16; (2002) 10 BPR 19,565 at [126]; Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; (2004) 60 NSWLR 646; 22 ACLC 423 at [69]; Florgale Uniforms Pty Ltd v Orders [2004] VSC 65; (2004) 11 VR 54; 51 ACSR 699 at [410], [416]-[419]; Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684 at [17]-[18]. While it would be open to a company to identify, without having to establish to the standard required at a final hearing, deficiencies in the sale process adopted by a controller so as to show clear and persuasive or substantial grounds for an allegation of breach of the duty imposed on a controller under s 420A of the Corporations Act, I do not consider that C2C has done so in this application. 42While the further proceedings brought by C2C at the time it commenced this application no doubt demonstrate that C2C disputes the debt owed to CBA as a matter of fact, they do not show clear and persuasive grounds or substantial grounds for a dispute as to the debt to prevent an order for substitution of CBA in the winding up application. I also agree with the observation of White J in Earthwave that the fact of a claim brought in such proceedings is not itself sufficient reason to exercise the discretion under s 465B of the Corporations Act adversely to CBA as the applicant for substitution. C2C's claim against BankWest 43C2C also contends that, by reason that CBA has assumed the liabilities of another entity, Bank of Western Australia Limited ("BankWest"), it has assumed a liability in respect of a claim for damages in a cross-claim brought by, inter alia, C2C in proceedings brought by BankWest against it in other proceedings commenced in 2009 in this Court. Orders have been made by consent that Commonwealth Bank be substituted as the first cross-defendant in the proceedings in place of BankWest and it appears the proceedings have been listed for hearing for three weeks commencing on 20 May 2013. CBA accepted, in submissions, that it had assumed any liability of BankWest in those proceedings. 44By an Amended Cross-Claim brought against BankWest in those proceedings, 33 Electra Pty Limited ("33 Electra") and C2C seek a declaration that BankWest wrongly appointed receivers, damages and other relief. The Cross-Claim alleges that conduct of BankWest in breach of financing facilities granted to 33 Electra led to the withdrawal of funding for a partly completed project and the "financial collapse" of 33 Electra. The Cross-Claim also alleges that C2C was paid $16,000 per month by 33 Electra pursuant to a Management and Marketing Agreement and that, with the "financial collapse" of 33 Electra, it could no longer continue to pay C2C which in turn led to the "financial collapse" of C2C, which in turn claims the amount of its loss from BankWest. The pleading does not identify the date of or any particular terms of the alleged Management and Marketing Agreement or the services that C2C was providing in consideration for the relevant payment or the costs that might have been incurred by C2C in providing those services. There is no more than an assertion in the pleading as to the causal relationship between the withdrawal of funding to 33 Electra, the non-payment by 33 Electra and the "financial collapse" of C2C. An extract of an affidavit of Mr Shannon dated 13 June 2012 in support of the Cross-Claim in the BankWest proceedings was also tendered before me, where Mr Shannon states that: "When BankWest withdrew its funding for the project, 33 Electra could no longer pay C2C Investments its management fee of $16,000 per month." This statement is, obviously, conclusory in character and would be inadmissible if read at a final hearing. Mr Shannon's assertion as to this matter in an affidavit, without further exposure of the basis of the conclusion, takes the matter no further. 45The Cross-Claim also brings claims against BankWest in respect of a facility provided to C2C, which refers to other properties alleged to have been owned by C2C. Allegations are made as to the sale process for those properties in the Cross-Claim, including allegations that C2C has suffered loss by reason of non-compliance by BankWest with the duties implied under s 420A of the Corporations Act. My attention was not drawn to any evidence led before me to indicate clear and persuasive grounds or substantial grounds for those allegations. The pleading of this cross-claim itself does not in itself show a serious dispute as to the debt for the reasons noted above. As I noted above, I also agree with the observation of White J in Earthwave that the fact of a claim brought in such proceedings is not itself sufficient reason to exercise the discretion under s 465B of the Corporations Act adversely to CBA as the applicant for substitution. CBA's failure to "account" on sale of the properties 46C2C contended before Senior Deputy Registrar Howard that no accounting had been given by CBA in relation to the sale of the properties owned by either C2C and/or C2C Developments. C2C contended that it was only within the context of an account and a "debatement thereof" that final figures could be struck and those figures were not presently known to C2C. I do not understand that proposition to be directed to showing a genuine dispute as to the debt claimed by CBA and founded in the judgment debt against C2C; indeed, C2C appears to accept that it is presently unable to establish that some different amount is owed to CBA. As I understand Mr Jacobs' oral submissions, C2C relies on this matter to establish a discretionary basis for not permitting substitution. 47Matters relevant to the exercise of discretion whether to permit substitution under s 465B of the Corporations Act were identified in South East Water Ltd v Kitoria Pty Ltd above at 472, where Ryan J observed that: "In my view, the proper exercise of the discretion conferred by s 465B of the Law requires the court to weigh in the balance two competing policies. The first is that an insolvent company should not be permitted to continue to trade to the detriment of its existing and future creditors but should be wound up as expeditiously as possible. If the achievement of that objective is jeopardised by the inaction or lack of diligence of the petitioning creditor, another creditor should be substituted as contemplated by s 465B(1)(a) to allow the winding up proceedings to continue in the interests of the generality of creditors, some of whom may have refrained from initiating their own proceedings in the knowledge that the original petition had been instituted. On the other hand, the court should not allow winding up proceedings to be used as a debt-collecting mechanism or an instrument of oppression to be held over the head of a company otherwise trading satisfactorily by a creditor whose debt is the subject of a genuine dispute. " These factors were in turn applied in Deputy Commissioner of Taxation v Rural and General Insurance Broking Pty Ltd [2011] FCA 683; (2011) 84 ACSR 555, where Jagot J declined to make an order for substitution on the particular facts. 48In this case, it seems to me that relevant factors to the exercise of the discretion include that the consent judgement founding the debt is based on an agreement formed between the solicitors for the parties in the circumstances to which I have referred above and has not been set aside in over two years since its entry; for the reasons set out above, I do not consider that C2C has showed persuasive grounds for the alleged dispute of its debt owed to CBA; and the multiplication of proceedings in respect of that dispute is not, in itself, a matter which supports of the exercise of discretion against substitution. The ultimate question in the winding up application is whether C2C should be wound up on the ground of insolvency, and there is a public interest in winding up insolvent companies rather than permitting them to continue to trade. Where CBA has established its status as a creditor, and otherwise established the requirements for substitution, I do not consider the numerous other disputes between C2C and CBA, including in relation to the accounting, should cause the Court to decline to order substitution. Orders and costs 49I order that the Interlocutory Process filed by the Defendant/Applicant on 20 September 2012 be dismissed with costs. The order for substitution of CBA in the winding up application made by Senior Deputy Registrar Howard therefore remains in effect. I have previously made directions for the filing of any further evidence and the winding up application will be heard on 28 February 2013.

(1989) 18 NSWLR 295

Artistic Builders Pty Ltd v Elliot & Tuthill

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