By Originating Process filed on 2 March 2021, the Plaintiff, Mr Paul Fordyce trading as PMF Legal applies for an order for the winding up of Bright Star Laundry Pty Limited ("Bright Star") in insolvency under the provisions of the Corporations Act 2001 (Cth). The winding up application relies on Bright Star's failure to comply with a creditor's statutory demand ("Demand") which is annexed and marked "A" to the Originating Process. The Demand claims the amount of $63,389.40, being the amount of the debt claimed in the schedule. The schedule in turn refers to a judgment in the Local Court made on 10 July 2017 and entered on 20 July 2017 in the amount of $63,389.40 and refers to a subsequent variation of those orders made by the Supreme Court on 12 April 2019 to extend the judgment to Bright Star and another company.
By Notice of Appearance filed on 29 June 2021, Bright Star opposed the winding up application on several grounds, including that the winding up application is an abuse of process where the debt was the subject of garnishee orders in unrelated District Court proceedings; Mr Fordyce has subsequently assigned the debt on 8 April 2021 to Mrs Fordyce, although I will note below that that appears to be the date of a notice of the assignment for the purposes of s 12 of the Conveyancing Act 1919 (NSW) rather than the date of the assignment; and Mr Fordyce has commenced multiple proceedings in relation to the same debt. Ultimately, it will not be necessary to address all of those matters in respect to this application.
Mr Fordyce relies on his affidavit dated 28 July 2021. His evidence is that Bright Star is indebted to him in the amount of $63,389.40 and he refers to his cross-appeal to the Supreme Court in which judgment was entered against Bright Star, presumably bringing about the result that Bright Star was then indebted to him. He also refers to the fact that an amount equivalent to the amount of the judgment debt was paid into the District Court by Bright Star in other proceedings between Mr Fordyce and third parties, which he describes as the "garnishee proceedings". His evidence is that the garnishee order was addressed to Ms Slattery, a director of Bright Star, rather than on its face being addressed to Bright Star.
He contends that the judgment debt owed to him by Bright Star remains wholly due and unpaid to him. That statement requires qualification for the fact that, by the time it was made, notice addressed to Bright Star of an assignment to Mrs Fordyce of the judgment debt, being the amount claimed in the Demand, had been given to Ms Slattery. Mr Fordyce in turn notes that the amount of the judgment debt was paid into this Court in other proceedings involving Ms Slattery, Bright Star or an associated company and Mr Fordyce. His evidence is that the interest is also owed to him by Bright Star and remains wholly due and unpaid, although that neglects the fact that the interest is itself the subject of the earlier assignment to Mrs Fordyce, although there is an ambiguity in the notice addressed to Bright Star as to whether it extends to the amount of the interest as well as the principal of that debt. Mr Fordyce also refers to an application for assessment of costs, which is presumably relied on to establish the insolvency of Bright Star.
Mr Fordyce refers to the fact that Bright Star brought proceedings to set aside the Demand under s 459J of the Act, and to the fact that I dismissed those proceedings on 3 May 2021, with an order that Bright Star pay Mr Fordyce's costs. That application was dismissed on the basis that it had been filed out of time, and without any consideration of whether grounds to set aside the Demand would otherwise be established under s 459J of the Act.
Mr Fordyce then indicates that, on 15 March 2019, he entered into a Deed of Assignment in favour of Mrs Fordyce, which assignment included the assignment of the judgment debt and the interest on the judgment debt, and he refers to notice of the assignment given on 8 April 2021 under s 12 of the Conveyancing Act. Mr Fordyce refers to having emailed the notice to Ms Slattery and the other company associated to her, although it is addressed to each of Ms Slattery, that other company and Bright Star and I infer that it would have come to Bright Star's attention when emailed to its director Ms Slattery.
By an affidavit dated 29 July 2021, Mrs Fordyce refers to Mr Fordyce having entered into a Deed of Assignment with her on 15 March 2019, consistent with Mr Fordyce's evidence, and also refers to Mr Fordyce's evidence as to the notice given under s 12 of the Conveyancing Act on 8 April 2021. Mrs Fordyce refers to information provided by Mr Fordyce that no such notice was sent in respect of interest accrued on the judgment debt, which Mr Fordyce says is the amount of $12,882.54. Mrs Fordyce's evidence in that respect overlaps with Mr Fordyce's reference to interest in that amount. Mrs Fordyce consents to Mr Fordyce proceeding to wind up Bright Star, if the Court should so order, and indicates that, if Bright Star pays the amount of principal and interest to Mr Fordyce, he will account to her for those moneys in accordance with the Deed of Assignment. That proposition neglects the fact that, if a winding up occurs, a liquidator would be appointed to Bright Star, and would be required to deal with the claims of all creditors of Bright Star.
Ms Slattery in turn relies on her affidavit dated 29 June 2021, which contends that Bright Star is solvent, but does not lead, in my view, sufficient evidence to establish that matter. It is not necessary to deal with that question given the conclusion that I have reached on other grounds. Ms Slattery also refers to the debt on which Mr Fordyce relies, and to the steps which she claims to have taken toward payment of that debt, involving drawing a bank cheque for payment of that debt, which she contends was interrupted by the receipt of the garnishee order and the payment into Court. She also refers to the somewhat complex proceedings which appear to have occurred in the District Court in respect of the garnishee order, and to the receipt of the notice of assignment of the amount of $63,389.40 to Mrs Fordyce, being the principal amount of the debt claimed in the Demand. She also refers to other proceedings brought by Mr Fordyce in respect of the amount of the judgment debt.
[3]
Whether Mr Fordyce is a creditor of Bright Star
Section 459A of the Corporations Act specifies the persons who can apply for a company to be wound up in insolvency under s 459 of the Act, which include a creditor of the company. With hesitation, I will proceed on the basis that Mr Fordyce is a creditor of Bright Star, although it seems to me there is uncertainty as to whether the amount of interest on the judgment debt has been assigned, in law under s 12 of the Conveyancing Act as well as in equity, to Mrs Fordyce. As I have noted above, the Deed of Assignment dated 15 March 2019 expressly assigned (in paragraph 1(a)) the debts owed by the "Slattery companies" (defined in recital to include Bright Star), including but not limited to the judgment amount awarded on 10 July 2017 and (in paragraph 1(e)) all assets owned by Mr Fordyce to Mrs Fordyce. By clause 2, Mr Fordyce agreed to promptly execute a notice of assignment in a specified form. Mr Fordyce accepts that the Deed of Assignment was at least effective, in equity, to bring about the assignment of the debt and any interest on it from Mr Fordyce to Mrs Fordyce.
The uncertainty as to whether the interest on that debt was assigned, in law, arises because the notice of assignment dated 8 April 2021 addressed to Bright Star recorded, in its introductory words, that Mr Fordyce has assigned to Mrs Fordyce "absolutely the whole of the debt due and owing" by, inter alia, Bright Star to Mr Fordyce, but then went on to state that that debt is in two orders, one being the order made by the Local Court and the other being the order made in the Supreme Court in respect of the relevant proceedings. The concluding sentence of the notice of assignment directs Bright Star to pay the debt of $63,389.40 owed by Bright Star (being the principal amount and not the interest) to Mrs Fordyce or as Mrs Fordyce may direct.
That notice is ambiguous, depending on whether priority should be given to the reference to assigning "the whole of the debt" (which is, of course, a necessary aspect of an assignment under s 12 of the Conveyancing Act, which cannot occur in respect of part of a debt) or whether priority should be given to the statement of the particular components of the debt, which include the principal but not the interest accrued upon it. It is ultimately not necessary to determine the proper construction of the notice of assignment, for the purposes of this application, since the ambiguity arising from that notice is sufficient to support the conclusion that I have reached below.
[4]
Abuse of process and s 467 of the Act
Bright Star's Grounds of Opposition to the winding up raises the issue of abuse of process, and Bright Star there refers to the garnishee orders in the District Court proceedings, the assignment of the debt (putting aside whether the principal and interest, or only the principal, were the subject of the notice of assignment) to Mrs Fordyce and the commencement of multiple proceedings by Mr Fordyce. A further and overlapping issue arises as to the Court's discretion in respect of a winding up application, under s 467 of the Corporations Act which provides that, on hearing a winding up application, the Court may dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application.
The case law has considered the concept of abuse of process in respect of winding up applications. I will here expand the reference to the authorities, beyond those addressed in my oral judgment, drawing on my observations in Re Gladstone Mortgagee (No 1) Pty Ltd [2015] NSWSC 1551 at [56]ff and Re Huizhong Investment Group Pty Ltd [2018] NSWSC 390 at [27]ff. The concept of abuse of process has a wider scope, in respect of a winding up application, than the concept of bringing proceedings for an improper purpose adopted in Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34; Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd (2007) 213 FLR 450 at [36]; [2007] NSWSC 966 (White J). (An appeal from the decision of White J in Australian Beverage Distributors above was allowed in part, and dismissed in part, in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 69 NSWLR 374; (2007) 61 ACSR 441; [2007] NSWCA 57).
In TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd (2007) 25 ACLC 1371; [2007] NSWSC 1074, Barrett J noted that a claim that the pursuit of a winding up application was an abuse of process involved wider issues than an attack upon a creditor's statutory demand and was not excluded by s 459S of the Corporations Act and identified relevant matters to such an attack, observing (at [17], [19]) that:
"Abuse of process is concerned predominantly with propriety of purpose. That issue must be judged according to the legitimate objectives of the particular process. A challenge under s 459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand, whereas an abuse of process allegation in relation to the pressing of winding up proceedings would pay attention to the objectives for which winding up proceedings are properly pursued. …"
In his subsequent decision in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 at [91], Barrett J in turn noted that, in the ordinary course, insolvent companies should be wound up and that the scope for the application of principles of abuse of process in such a case must be limited, but indicated that such principles could not be entirely discarded in that context.
Returning now to my oral judgment, I also reviewed the relevant authorities in my decision in Re Ryals Hotel Pty Ltd (2020) 149 ACSR 626; [2020] NSWSC 1906. I there referred to L & D Audio Acoustics v Pioneer Electronic (Australia) Pty Ltd (1982) 7 ACLR 180, where McLelland J observed three forms of abuse of process in respect of a winding up, one of which involved the application being brought for an improper purpose, but another of which involved an application which would raise matters which were inappropriate for a determination in a winding up proceeding, for example, where there was a substantial contest as to the existence or enforceability of a debt. I accept that the latter form of abuse of process has been substantially displaced following the introduction of Pt 5.4 of the Act, because winding up proceedings now normally take place following the issue of a creditor's statutory demand, or any genuine dispute as to the debt would be addressed. That did not occur here because Bright Star filed its application to set aside the Demand out of time.
In Ryals Hotel, above, I also referred to s 467 of the Act, which establishes the discretion to dismiss a winding up application. I noted that, prior to the introduction of that section by the Corporate Law Reform Act 1992 (Cth), the general law recognised that a finding of insolvency can result in there being an entitlement to a winding up, but nonetheless recognised a corresponding discretion to decline to make a winding up order: FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1998) 14 NSWLR 643 at 660; and see my review of the authorities in Re Gladstone Mortgagee No 1 Pty Ltd above.
[5]
Determination
I am comfortably satisfied that, here, Mr Fordyce's pursuit of the winding up application does involve an abuse of process, having regard to the circumstances that have arisen from the assignment of the whole of the debt and interest to Mrs Fordyce, the giving of a notice of assignment that is ambiguous as to whether only the principal or both the principal and interest were assigned, the multiple proceedings brought by Mr Fordyce and the issue of the garnishee order to Ms Slattery which would together make it impossible for Bright Star, as the recipient of the Demand, to know who is to be paid and in what amount to avoid any presumption of insolvency arising and a consequential winding up order being made. I am also satisfied that, for the purposes of s 467 of the Act, the confusion surrounding those matters is such that the Court would not properly exercise its discretion to wind up Bright Star, given the invidious position in which it has found itself.
I bear in mind that, first, it appears that the judgment against Bright Star overlaps with a judgment against Ms Slattery and a judgment against another associated company, and attempts are being made by Mr Fordyce, in parallel and at the same time, to enforce the judgment against at least Ms Slattery and Bright Star. Second, the Deed of Assignment of the debt from Mr Fordyce to Mrs Fordyce on its face seems to have the effect that the whole of the debt, including any interest in it, is assigned by Mr Fordyce to Mrs Fordyce, and requires Mr Fordyce at that time to give notice of the assignment to Bright Star, and Mr Fordyce accepts it took effect in equity. Third, notice of the assignment is then given by Mr Fordyce to Bright Star, but sent to Ms Slattery and not to Bright Star. That notice is ambiguous in its terms, and at one point refers to the assignment of the whole of the debt which would apparently include interest, and then proceeds to specify parts of the debt, with the apparent intent, or at least with the result for which Mr Fordyce now contends, that part of the debt is transferred in law to Mrs Fordyce, and part remains with Mr Fordyce, inconsistent with the proposition that the whole of the debt has been assigned. The position is then further complicated by the garnishee order, which appears to have intervened between the issue of the Demand and the commencement of the winding up application, and while Bright Star's application to set aside the Demand was pending, so that Ms Slattery and Bright Star were on notice at once of the requirements of that order, the claim by Mr Fordyce to be paid under the Demand and the instruction to pay the same amount to Mrs Fordyce under the notice of the assignment.
It seems to me that these matters, together, have the result that Mr Fordyce proceeding to a winding up of Bright Star would give effect to an abuse of process and that a winding up order would also not be a proper exercise of the Court's discretion under s 467 of the Act. That result largely arises from the convoluted steps taken by Mr Fordyce in the period prior to this application.
For these reasons, the Originating Process filed 2 March 2021 is dismissed with costs.
[6]
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Decision last updated: 31 August 2021