By Originating Process filed on 13 November 2017, the Plaintiffs, Mr Ozem Kassem as liquidator of BMS Group Investments (NSW-VIC) Pty Limited (in Liq) ("BMS") and BMS, seek an order winding up Mazu Alliance Limited ("Mazu") in insolvency. They also seek an order that Mr Domenic Calabretta be appointed as liquidator of Mazu.
The application is founded on a creditor's statutory demand for payment of a debt ("Demand") dated 1 August 2017, in respect of a claim for the amount of $66,709.11 described in the Schedule to the Demand as:
"Moneys owing to [BMS] pursuant to clause 9.2 of the Security Agreement entered into between [Mazu] and [BMS] dated 25 May 2017."
The Demand was verified by an affidavit of Mr Gino Tabila dated 1 August 2017, by which Mr Tabila indicated that he was an associate director in the employ of Mr Kassem, and was authorised to make the affidavit on the liquidator's and BMS's behalf, that he inspected BMS's business records in relation to the amount claimed, and that the total amount of $66,709.11 was due and payable by Mazu. The source of that debt, by reference to the relevant Security Agreement, was in turn identified, and a copy of that Security Agreement was annexed.
By notice of appearance filed on 4 December 2017, Mazu appeared in the proceedings. At various times, there has been a suggestion that Mazu would seek to establish its solvency in the proceedings, or would take a point as to whether Mr Tabila had authority to execute the affidavit accompanying the Demand on behalf of the liquidator or BMS. In the event, no evidence has been led to seek to establish solvency, and the point as to Mr Tabila's authority has not been taken. With respect, it seems to me that the decision not to take that point was plainly correct, having regard to the observations of Barrett J in Standard Commodities Pty Limited v Société Socinter Department Centragel [2005] NSWSC 294; (2005) 54 ACSR 489 at [5]ff, to which Mr Cheshire, who appears for the Plaintiffs, draws attention.
A Consent of Liquidator of Mr Calabretta has been tendered. By affidavit dated 13 November 2017, Mr Tabila leads evidence of the indebtedness of Mazu to BMS in the amount claimed in the Demand as at the date on which the Demand was issued, of service of the Demand and confirms that the amount demanded remained due and payable by Mazu to the liquidator and BMS.
By a further affidavit dated 10 November 2017, Mr Danyal Ibrahim, a solicitor employed in the firm which acts on behalf of the Plaintiffs, confirms the service of the Demand, by posting by express post. By a further affidavit dated 12 December 2017, Mr Ibrahim led evidence of publication of notice of the winding up application on Australian Securities and Investments Commission's ("ASIC") Insolvency Notices website, and of the lodgement of a Form 519 Notice with the ASIC in respect of the winding up application. By a further affidavit also dated 12 December 2017, Mr Ibrahim proved the service of the Originating Process with associated documents upon Mazu, by sending it by express post addressed to its directors at its registered office, at the premises of its accountant. In any event, as I have noted above, Mazu has appeared in the application and, until today, opposed that application.
By a further affidavit dated 28 March 2018, Mr Kassem confirms that Mazu has failed to pay the amount claimed to BMS, and remains indebted to BMS at that amount, as at the date of that affidavit, the day before this application is heard.
The principles applicable to a winding up application in these circumstances are straightforward. As Mr Cheshire points out in submissions, the service of, and failure to meet, a creditor's statutory demand within the specified 21 day period, gives rise to a presumption of insolvency. In Re Gladstone Mortgagee (No 1) Pty Ltd [2015] NSWSC 1551 at [38], I referred to the High Court's decision in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1 at [28] as to the effect of that presumption, as to which the High Court observed that:
"…where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption".
In this case, a presumption of insolvency arises. No evidence has been led to seek to displace that presumption of insolvency. The relevant requirements in terms of notice of the application to the ASIC, publication of the application, and proof that the debt remains unpaid as at the date of the hearing have been satisfied. Accordingly, the bases for a winding up order is established. I therefore make the following orders:
The Defendant, Mazu Alliance Limited ACN 077 226 183, be wound up in Insolvency under the provisions of the Corporations Act 2001 (Cth).
Mr Domenic Calabretta be appointed as liquidator of the Defendant.
I will hear the parties as to costs.
[3]
Costs
The Plaintiffs seek an order for indemnity costs in respect of the winding up application, where the opposition to the winding up application was ultimately not pressed. Mr Cheshire identifies at least two matters which he contends support an application for indemnity costs, being first, the defence of the winding up application on the basis of solvency was supported by an affidavit that was not read at the final hearing, and which annexed financial statements of Mazu for the year ending June 2015 and draft financial statements for the year ending 2017, which Mr Cheshire submits could not have established solvency in any event. Mr Cheshire also points to the circumstances in which Mazu raised a defence as to the authority of a manager within the liquidator's firm to verify the original creditor's statutory demand, then it appears indicated that defence would not be pressed, then pressed that defence in submissions, and ultimately did not press it today. Mr Cheshire submits that that defence raised legal issues which in turn required significant additional work on the part of Counsel.
Ms Castle, who was only recently briefed in the matter on behalf of Mazu, submits that the defence of solvency could properly be raised where the earlier affidavit, now not read, had referred to a capital raising which, if successful, was hoped to establish Mazu's solvency, although there is now no evidence to be led in that respect. Ms Castle also pointed to the legal issue raised by Mazu, which she contends was properly raised, although it has not been pressed today. Again, of course, I recognise that Ms Castle has only recently been briefed, and was not briefed in the matter at the time that issue was initially raised.
The principles applicable to an award of indemnity costs are well established, and I draw upon my summary of them in Re Australasian Barrister Chambers Pty Ltd (in liq) [2017] NSWSC 695. Section 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the Court and s 98(1)(c) permits the Court to order costs on an ordinary or an indemnity basis. Uniform Civil Procedure Rules 2005 (NSW) r 42.1 provides for an order that costs follow the event, unless it appears to the Court that some other order should be made and r 42.2 in turn provides that, unless the Court otherwise orders or the Rules otherwise provide, costs are to be assessed on an ordinary basis. Rule 42.5 deals with an order for costs on an indemnity basis.
Whether an order for costs should be made on an indemnity basis depends, in part, on whether there was a relevant delinquency or unreasonable conduct on the part of the unsuccessful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24], McDougall J observed that there must be some special or unusual feature to justify an order for indemnity costs, and that delinquency is not necessary for such an order, but is relevant to whether it should be made. In Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6], the Court observed that an order for indemnity costs may be made where conduct in proceedings is plainly unreasonable or involves an element of delinquency.
In this case, it seems to me that the question is ultimately straightforward. Taking Mazu's case at its highest, it raised a defence of solvency, at a time that what it had was, at best, a hope that if events fell in its favour, in the future, by way of its capital raising, it might be solvent. In doing so, it exposed the Plaintiffs to the risk that significant costs would be wasted, if its hope of a successful capital raising and the hope of an ability to establish solvency did not come home. It is not necessary in these circumstances to determine whether the legal issue raised had substance, although plainly that proposition is undermined by the fact that it was ultimately not pressed today, as well as its potential inconsistency with at least the case law to which I have referred above. Although delinquency is a matter that is relevant to an order for indemnity costs, it is not essential to an order for indemnity costs, and an order of that nature can be made where conduct is unreasonable. It seems to me that unreasonable conduct is established, so far as the solvency defence could only succeed if events moved in Mazu's favour, and they did not, and the Plaintiffs were put to significant additional costs, and significant delay, by the pursuit of that defence, exacerbated by Mazu's raising and then abandoning its defence based as to authority to verify the creditor's statutory demand.
For these reasons, I make a further order that the Defendant pay the Plaintiffs' costs of and incidental to the winding up application on an indemnity basis.
[4]
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Decision last updated: 18 October 2018