Solicitors:
Henry Davis York (Plaintiff)
File Number(s): 2016/113846
[2]
Judgment - ex tempore
By Originating Process filed 13 April 2016 the Plaintiff, Westpac Banking Corporation ("Westpac"), seeks on order for the winding up of Arora Supermarkets Pty Limited ("Company") under s 459P of the Corporations Act 2001 (Cth) by reason of a failure to comply with a creditor's statutory demand ("Demand") served on 29 February 2016. Westpac also seeks an order that a liquidator be appointed to the Company and an order that its costs of the application be paid out of the Company's assets.
I should first refer to the nature of the Demand and the applicable evidence before addressing a legal issue which arises from the application. The Demand required the payment of an amount of $762,216.29 referable to the debts described in the schedule to that Demand. The schedule in turn described that amount as:
"Amount owing to the creditor in respect of Bank Bill Business Loan facility being Account No [omitted] as at 18 February 2016 and under Fully Interlocking Guarantee Indemnity dated 11 April 2012 given by the company in respect of the obligations of Arora Markets Pty Limited."
I will note below that there appears to have been an error in an account number referred to in that description, but also a more substantial error, at least in money terms, as to the amount of the debt as at that date. The Demand was supported by an affidavit of Mr Krise, a senior relationship manager of Westpac, which indicated that the amount of the debts claimed in the Demand was due and payable by the Company.
There is evidence of service of the Demand upon the Company, by the affidavit of Ms Talysha Sabatino dated 6 March 2016.
As I noted above, Westpac subsequently moved to wind up the Company on the basis of a failure to comply with the Demand. By affidavit dated 13 April 2016, Mr Krise referred to service of the Demand and the associated affidavit and gave evidence that the Company had failed to comply with the Demand and that the full debt to which the Demand related remained due and payable by the Company to Westpac. There is also evidence of service of the Originating Process seeking the winding up order and associated documents upon the Company, by an affidavit of Mr Fahd dated 3 May 2016. There is evidence of notification of the winding up application to the Australian Securities and Investments Commission ("ASIC") and of publication of the winding up application on ASIC's insolvency notices website by an affidavit of Mr Loughlin dated 25 May 2016. There is also evidence that the Company was advised of the time, date and location of the listing of this matter, although the Company has not appeared.
A difficulty arises, however, because it appears that the Demand overstated the amount due by the Company to Westpac as at the date specified in the Demand. By his affidavit dated 30 May 2016, Mr Krise notes that the correct amount which was due and payable by the Company to Westpac as at that date was $412,196.31 comprised of an amount referable to a Bank Bill Business Loan facility and an amount owing under the Fully Interlocking Guarantee and Indemnity given in respect of the obligations of Arora Markets Pty Limited. The amount of the overstatement was not small, in monetary terms, since the amount referred to in the Demand was $762,216.29, as distinct from the amount now accepted to be due and payable, which was in the order of $350,000 less than the amounts specified in the Demand. Mr Krise's evidence is that, as at 30 May 2016, the Company remains indebted to Westpac in the amount of $419,460.81.
The application therefore raises a question, which Ms Ensor who appears for Westpac has properly drawn to the Court's attention, as to the effect of that overstatement on Westpac's ability to move to a winding up founded on the Demand. Ms Ensor in turn made comprehensive submissions as to that question. Ms Ensor's primary submission is that, notwithstanding the overstatement of the amount claimed in the Demand, a presumption of insolvency nonetheless arises in respect of noncompliance with the Demand. Ms Ensor draws attention to the definition of "statutory demand" in s 9 of the Corporations Act, which extends not only to a document that is a demand served under s 459E of the Corporations Act but also to a document that purports to be such a demand. In the present case, the Demand served on the Company either was, or at least purported to be, such a demand. Ms Ensor in turn points out that s 459F of the Corporations Act provides that, where a statutory demand has been served, and at the end of the period for compliance, the creditor's statutory demand is still in effect and has not been complied with, the company is taken to fail to comply with the creditor's statutory demand at the end of the period and the failure to comply with the creditor's statutory demand in turn gives rise to a presumption of insolvency, on which the creditor can rely in order to bring a winding up application.
It seems to me that, as a matter of statutory construction, Ms Ensor is correct in her reading of the sections and that result is consistent with the structure of the legislative provisions. As Ms Ensor recognises in her submissions, the Corporations Act contemplates a particular procedure by which a creditor's statutory demand may be set aside, and limits the circumstances in which an application to wind up a company may be opposed on the basis of grounds that could have been raised in respect of an application to set aside that demand. In the present case, and in any case in which an overstatement of a debt exists, whether that overstatement is small or large, it is possible that a creditor's statutory demand may be varied, on application by the company under s 459G of the Corporations Act, or may be set aside under s 459J of the Corporations Act if the overstatement of the creditor's statutory demand is such as to give rise to some other reason to set aside that demand. However, where, as here, a company has not applied to set aside the creditor's statutory demand, then the grounds on which it may oppose a winding up application are limited by s 459S of the Corporations Act. In particular, the company may only oppose the application that it be wound up in insolvency, relying on a failure to comply with the creditor's statutory demand, with the leave of the Court, where it seeks to rely on a ground on which it had relied, or could have but failed to rely, in an application to set aside the creditor's statutory demand. The Court may only grant such leave if it is satisfied that the ground is material to proving that the company is solvent.
It seems me that a company which does not appear in respect of a winding up application is in no stronger a position than a company which did appear in respect of the winding up application. Had the Company today appeared and sought to oppose the winding up application, on the basis that the Demand overstated the amount of the debt that was owed to it, it would have needed to establish that that matter was material to its solvency before it would be permitted to do so. In the present case, it seems to me that that matter would not be material to the Company's solvency, unless there was any suggestion, which is not made in the Company's absence, that it was in a position to comply with a requirement to pay the lesser amount but not in a position to pay the overstated amount. It seems to me that, had the Company appeared, it would therefore not have been granted leave to oppose the winding up application, absent evidence that has not been led in this application.
It also seems to me that the legislative structure contemplates that, where the Company was not granted leave to oppose the winding up application on that basis, it would be wound up unless it affirmatively established its solvency. That result is not a surprising one, since it gives effect to the policy of the Pt 5.4 Corporations Act, to which the High Court referred in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9; (2008) 232 CLR 314 at [14] and again in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [15], where the Court observed that the purpose of Pt 5.4 of the Corporations Act was to bring about speedy resolution of applications to wind up companies in insolvency, by focussing attention at the hearing of the winding up application upon whether the company was insolvent rather than upon defects in the procedures that preceded the institution of the application for the winding up, and that s 459S of the Corporations Act was directed to facilitating that outcome.
Ms Ensor fairly drew attention to several decisions, prior to the institution of the present provisions in the Corporations Act which had dealt with the question whether an overstatement of an amount claimed in a creditor's statutory demand would invalidate the demand. An early decision of this Court in Processed Sand Pty Ltd v Thiess Contractors Pty Ltd [1983] 1 NSWLR 384 took the view that an overstatement did affect the validity of a statutory demand and rendered it ineffective. A contrary view was taken by the Full Court of the Supreme Court of Victoria in Re Fabo Pty Ltd [1989] VR 432; (1988) 14 ACLR 518 and subsequent decisions of the Federal Court of Australia appeared to have taken the view that, if a creditor's statutory demand overstated the amount owing, it was nonetheless relevant to look at the surrounding circumstances, to determine whether or not the company was able to pay its debts: Dikwa Holdings Pty Ltd v Oakbury Pty Ltd (1992) 8 ACSR 53; Commonwealth Bank of Australia v Individual Homes Pty Ltd (1994) 119 ACTR 1 at 8. It seems to me that those authorities may be of lesser assistance, given the present structure of the Corporations Act, and Ms Ensor's researches had not identified any decision which addresses this question in respect of the present provisions in the Corporations Act. It may be that, for the reasons that I have noted above, this issue is to be resolved simply as a matter of construction of the relevant provisions as they now appear in the Corporations Act.
For these reasons, it seems me that Ms Ensor is right to submit that, as a matter of construction, the presumption of insolvency arises from the Company's failure to comply with the Demand, notwithstanding the overstatement of the amount claimed in the Demand. If I were incorrect in that view, I would in any event have accepted Ms Ensor's submission, consistent with the earlier case law to which I referred, that the circumstances in which the Demand was served, the fact that the Company made no attempt to set it aside, and the fact that the Company has now not appeared to contest a winding up application, provide a strong basis for an inference that the Company is in fact unable to pay the debt it owes to Westpac, albeit in the amount that is properly due rather than the larger amount claimed in the Demand. To put that proposition another way, it seems inconceivable that a company that was in fact solvent and in fact able to pay its debts as and when they fell due, when faced with a creditor's statutory demand that significantly exceeded the amount that was owed, would not draw that matter to Westpac's attention or, if Westpac failed to respond to such advice, then draw it to the Court's attention and seek an order that the Demand be set aside, or appear in the winding up application to seek to establish its solvency on the basis that it could pay the amount that was properly due to Westpac. For that reason, even if I am incorrect in the view that I take as to the application of the statutory provisions, I would nonetheless be satisfied that the Company's insolvency has been established as a matter of fact, by reason of the service of the Demand and the Company's failure to respond to it.
In these circumstances, it is not necessary to consider Westpac's alternative claim that the Court should be satisfied that it is just and equitable that the Company be wound up under s 461(1)(k) of the Corporations Act.
I should note, for completeness, that Westpac seeks an order, in a common form, that the Court dispense with the requirements of s 465A(c) of the Corporations Act and reg 5.4.01A of the Corporations Regulations 2001 (Cth) and r 5.6 of the Supreme Court (Corporations) Rules 1999 (NSW) in respect of publication of the advertisement, where notice of the application has been published on the insolvency website maintained by the Australian Securities and Investments Commission in the ordinary way. Such an order should be made to the extent that it is necessary.
I make orders in accordance with the short minutes of order initialled by me and placed in the file.
[3]
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Decision last updated: 06 July 2016