Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2022] NSWSC 54 | Case summary

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2022] NSWSC 54 | Case summary | Zoe

Nature of the application and evidence

By Originating Process filed on 26 October 2021, the Plaintiffs, Mr and Mrs Pham apply to wind up ENA Development Pty Ltd ("ENA"). Although a substantial amount of evidence has been led, and other evidence was sought to be led by ENA in breach of qualified guillotine orders made by the Court, and was not permitted to be led, the application is ultimately in narrow scope and raises issues which are ordinarily raised in winding up applications based on a failure to comply with a creditor's statutory demand giving rise to a presumption of insolvency.
The Plaintiffs' application to wind up ENA is founded on a creditor's statutory demand ("Demand") and the Plaintiffs read the affidavit dated 26 October 2021 of Mr Pham in support of the application. The Demand annexed to that affidavit referred to a debt of $46,164 owed by ENA to Mr Pham and Mrs Pham arising from an order of the Supreme Court in proceedings 2015/325044 relating to costs. Although there has been reference to an application to set aside that order to which I will refer below, no order has been made to set it aside and there is no room to dispute its binding and operative character and effect. In any event, no application was made to set aside the Demand on the basis that the debt was disputed and no dispute as to the costs liability reflected in that costs order can now be raised in a winding up application, absent leave under s 459S of the Corporations Act 2001 (Cth) ("Act"), which was not sought by ENA and would likely not have been granted. By his affidavit dated 26 October 2021, Mr Pham also referred to ENA's indebtedness to the Plaintiffs in that amount arising from the costs order and to the issue of and service of the Demand.
The Plaintiffs also read an affidavit dated 10 November 2021 of Mr Treseder which refers to service of the statutory demand at an address in The Entrance North in New South Wales. There have been suggestions, in the course of the application, that that address may not have been the address of ENA's registered office, by reason of a suggested change in its registered office, or possibly that service might not have been effective because the document was left in the mailbox of the unit, in accordance with the occupant's instructions. However, Mr Dobbs, who appears for ENA, did not rely on those matters in closing submissions and it is not necessary to address them further.
By a further affidavit dated 24 November 2021, Mr Pham refers to service of the Originating Process seeking the winding up of ENA and of his supporting affidavit by post. He refers to notification of the winding up application given to the Australian Securities & Investments Commission ("ASIC") by lodgement of a Form 519 and to publication of notice of the winding up application. He confirms that the debt was still due and payable as at 24 November 2021 when that affidavit was sworn. While there is no updating affidavit to confirm that position as at the date of this hearing, the fact that the debt claimed in the Demand is still unpaid is common ground. That is plain, not least, because Mr Dobbs, in closing submissions, indicated that ENA's directors were "confident" that the debt could be paid within 24 hours and that submission is only consistent with the debt being unpaid as at the date of this hearing. For that reason, I would dispense under s 467 of the Act with formal proof of the fact that the debt remains unpaid, if it were necessary to do so, where that is common ground between the parties.
By a further affidavit dated 10 December 2021, Mr Pham addresses the position in certain proceedings in the Expedition List ("Expedition List Proceedings") and in respect of earlier stages of these proceedings, but it is not necessary to address those matters to determine this application. The Plaintiffs tender a consent of Mr Krejci of BRI Ferrier to his appointment as liquidator of ENA and he confirms that he is not aware of any conflict of interest or duty that would make it improper for him to act as liquidator of ENA, that he is not aware of any relevant relationship mentioned in s 60(2) of the Act and indicates the time costing rates ordinarily charged by his firm.
ENA in turn relied on an affidavit of Mr Ronald Jemmott dated 10 June 2021, but not filed until 3 December 2021, when this application was pending before me. It appears that affidavit largely relates to the position in respect of an earlier creditor's statutory demand, rather than the Demand that founds this application, since it was sworn prior to the date of the Demand. It nonetheless raises matters which appear to be relied on, at least to some extent, in respect of this application. Mr Jemmott indicates that he is an alternate director of ENA, and claims that his role is to assist an elderly person who is the director of ENA. I will assume, without deciding, the correctness of that proposition, which appears to have been in dispute in other proceedings in the Court, and which it is not necessary to determine for the purposes of this application.
Mr Jemmott also refers to an "active" Statement of Claim in 2015 proceedings claiming an amount against the Plaintiffs of $3,852,002, in evidence admitted with a limiting order under s 136 of the Evidence Act 19995 (NSW) as a submission only and not as proof of the fact. An Amended Statement of Claim, said to have been filed in those proceedings on 26 June 2019 which joins Mr and Mrs Pham as parties and seeks orders against them was exhibited to Mr Jemmott's affidavit. However, he gives no evidence of any further conduct of the proceedings since that occurred and the last activity recorded in those proceedings on Justicelink is consent orders made in July 2015, when the only parties to the proceedings were ENA and a Mr Sebie and not the Plaintiffs. Whatever the position as to the filing of any such claim in those proceedings, there is no suggestion that it has been determined in favour of ENA as against the Plaintiffs. Plainly, any such undetermined claim is not capable of establishing solvency on the part of ENA. It is also not capable of establishing a genuine dispute in respect of the Demand or an offsetting claim in respect of the Demand, because those could have been raised in an application to set aside the Demand and cannot now be raised in opposition to a winding up application without leave under s 459S of the Act. It also does not support any exercise of any discretion not to wind up ENA, for the reasons noted below.
Mr Jemmott in turn refers to the common ground that the winding up application refers to a costs order made in respect of proceedings in respect of a property which has been in dispute between the parties and makes various assertions as to the status of an appeal brought by ENA or associated parties, which broadly relate to ENA's confidence that its appeal would succeed, and appear to be directed to establishing its solvency, or reason not to wind it up, on that basis. That evidence, given when the affidavit was sworn in June 2021, points to the difficulty of evidence as to confidence in the future result of legal proceedings, because ENA's appeal was subsequently dismissed.
Mr Jemmott then refers to a claim that ENA should be protected under what he describes as "ASIC's Temporary Restructuring Relief" and he attaches forms which he contends have been filed with ASIC in that respect. ENA's claimed reliance on temporary restructuring relief as a basis for not proceeding with the winding up was entirely consistent with its claim that it was solvent, with substantial assets and no liabilities, which I note below, and it is obvious enough that it could not both be eligible for temporary restructuring relief and also solvent with no liabilities. Putting that aside, the difficulties with ENA's reliance on temporary restructuring relief, as Mr Zipser submits, include the absence of any real analysis of the requirements for eligibility for that relief or any evidence that those requirements are satisfied by ENA, beyond the tender of documents that are claimed to have been lodged with ASIC in which ENA seeks to assert that matter.
I recognise, first, that reg 5.4.01AAA of the Corporations Regulations 2001 (Cth) extends the statutory period to satisfy a creditor's statutory demand to six months for a company eligible for temporary restructuring relief. However, the requirements for eligibility to rely on temporary restructuring relief are set out in s 458E of the Act, there is here no satisfactory evidence to indicate that ENA meets those requirements and ENA's mere lodgement of a notice with ASIC asserting eligibility for that relief does not establish it as a matter of fact or law. Second, any eligibility of ENA for that relief and any application of reg 5.4.01AAA is also a matter that could have been raised in an application to set aside the Demand and, where it was not, cannot be raised to oppose a winding up application without leave under s 459S of the Act. Third, so far as the fact that a company is under restructuring can provide a basis not to make a winding up order under Pt 5.3B Div 2E of the Act, it only does so if the Court is satisfied it is in the interests of the company's creditors for the company to continue under restructuring: Re Dessco Pty Ltd [2021] VSC 94; Re DST Project Management and Construction Pty Ltd [2021] VSC 108. Here, it has not been established that ENA is presently under restructuring as a matter of fact and, if it had been, the evidence would not establish that it is in ENA's creditors' interests for any restructuring to continue.
Mr Pham, in an affidavit in reply, refers to additional debts and liabilities of ENA, including debts owed to an owners corporation and other liabilities claimed to be owed to the Plaintiffs. It is not necessary to reach any determination as to those matters in order to determine this application. Mr Pham also there refers to the status of the Expedition List Proceedings but it is neither possible nor appropriate for me to reach any assessment as to the prospects of those proceedings in order to determine this application.
ENA also sent other documents to the Court in the course of this hearing, but did not tender them, including a document which was said to amount to a notice of motion seeking review of the Registrar's order for costs against ENA which was the subject of the Demand. I observed in my oral ex tempore judgment that one notice of motion contained in that bundle did not, on its face, seek review of that order. I should add to that oral judgment that a second notice of motion, which was not filed until 12.09pm on the day of this hearing, did address that matter. That application is not in evidence, but even if it had been, that costs order was still in place and no application had been made to set aside the Demand, as a result of which a presumption of insolvency has already arisen.

[3]

The parties' submissions

With that background, Mr Zipser appropriately limited his closing submissions to the matters relevant to establish a presumption of insolvency, where any other issues would only have arisen in reply, and it was not necessary to hear Mr Zipser in reply in respect of any other issues. Mr Zipser points to the evidence relevant to a winding up application arising from a presumption of insolvency, including evidence as to the underlying costs order; the fact that the debt was not paid by ENA and the Demand was subsequently issued in respect of it; ENA did not apply to set aside the Demand and failed to pay the amount claimed in the Demand within the statutory period; the service of the winding up application and supporting affidavit on ENA; the publication of notice of the winding up application and the lodgement of a Form 519 with ASIC; and the provision of a consent of liquidator, to which I have referred above. It is common ground that the debt was unpaid as at the date of the winding up application as I have noted above. In supplementary submissions Mr Zipser also addressed the position in respect of ENA's reliance on temporary restructuring relief, and I have addressed that question above and noted that the evidence does not establish that ENA is eligible to rely on that relief, and that matter could have been but was not raised in any application to set aside the Demand and leave was not sought or granted under s 459S of the Act to rely on it in this application.
Mr Dobbs in turn puts several submissions, which were appropriately measured, on behalf of ENA. The first is that Mr Dobbs is instructed to submit that the directors believe that ENA is not insolvent and is capable of paying the debt claimed in the Demand. I will refer below to the function of the presumption of insolvency in an application of this kind, but it is plain that ENA has not sought to establish, nor has it established, that it is cashflow solvent. Any claim that it is now capable of paying the one debt claimed in the Demand does not establish its solvency in respect of its debts generally, still less where a presumption of insolvency has arisen in circumstances that it has not, in fact, paid the debt claimed in the Demand over a considerable period.
Second, Mr Dobbs recognises that certain evidence on which ENA sought to rely was excluded by reason of its non-compliance with the Court's orders for the filing of that evidence, although I observe that substantially similar evidence was in fact led in Mr Jemmott's earlier affidavit. Mr Dobbs submits that the Court will be cautious in making a winding up order where it may be the case that a company is solvent. The premise of that submission is not established. Mr Dobbs also referred to the notice of motion said to be filed by the Plaintiffs (although, I add to my oral judgment, only at 12.09pm on the day of this hearing) seeking review of the costs order. That does not have any effect upon the fact that the costs order remains in place, the Demand has not been set aside and a presumption of insolvency has arisen.
Next, Mr Dobbs referred to ENA's directors' asserted confidence that ENA could pay the debt within 24 hours, but that would not establish ENA's solvency, as I noted above. Mr Dobbs also referred to ENA's belief that it was entitled to a payment of funds out of Court, a matter which appears to have been agitated in several earlier proceedings and may also be raised in the Expedition List Proceedings. A liquidator of ENA may or may not pursue such a claim on behalf of ENA, but a future entitlement of that kind does not establish ENA's present solvency. Mr Dobbs also indicated, on instructions, that the other debts on which the Plaintiffs had relied in reply were disputed, although he fairly acknowledged there was no evidence as to that matter. It is not necessary to address that question where it is not necessary to determine the status of the other debts to which the Plaintiffs referred in reply in order to determine this application.

[4]

Determination

Turning now to the well-established principles that apply in an application of this kind, a presumption of insolvency arises from a creditor's statutory demand that is unsatisfied. In Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] 244 CLR 1; [2011] 277 ALR 243; [2011] 83 ACSR 126; [2011] HCA 18 at [28], the High Court described the effect of that presumption as follows: "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."
That presumption has been frequently applied to found a winding up order in decisions in this Court: see, for example Re Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) [2015] NSWSC 771; Re Sails Corp Pty Ltd [2021] NSWSC 1046 at [15]; Re Wyse Accounting Pty Ltd [2021] NSWSC 1171 at [11]. Whether a company has in turn established its solvency, in the face of that presumption, is to be determined by reference to the statutory test in s 95A of the Act which has the effect that a company is solvent if and only if it is able to pay its debts as and when they become due and payable. That test adopts a cashflow test of insolvency, although a balance sheet can provide context for its application: Re Wyse Accounting Pty Ltd above at [13].
Here, notwithstanding the orders made by the Court, ENA did not file Grounds of Opposition to give any indication that seeks to establish solvency. There is no evidence that is capable of establishing ENA's solvency, notwithstanding the time which has been allowed by the Court for the filing of that evidence. In particular, there is no evidence that would establish, on a cashflow test of solvency, that ENA can pay its debts as and when they fall due. A balance sheet on which ENA sought to rely to establish a claim that it had substantial assets did not record any liabilities was not admitted in evidence and was in any event inconsistent with both the fact that there was at least one such liability, the costs order made by the Court, and with its reliance on temporary restructuring relief. In these circumstances, the presumption of insolvency subsists and has not been rebutted.
I note, for completeness, that Mr Dobbs' closing submissions did not put any real weight on any proposition that the Court should defer making a winding up order by reason of the existence of the Expedition List Proceedings. I have referred above to his submissions in respect of the exercise of the Court's discretion, which turned on somewhat different grounds. I recognise, for completeness, that the Court has a discretion whether to make a winding up order under s 467(3) of the Act, and, in an appropriate case, can either adjourn the winding up application, or decline to make that order. However, the case law also recognises that, where a presumption of insolvency arises and is not rebutted, a winding up order will generally be made unless some good reason is shown to exercise the discretion not to do so: TS Recoveries Pty Ltd v Sea-Slop Mammas Pty Ltd [2007] NSWSC 1410 at [18]; Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 at [66]ff; GW Wulff Nominees Pty Ltd v QSmart Securities Pty Ltd [2021] NSWSC 1687 at [20]ff.
Given the history of the proceedings between the parties, and the fact that the Expedition List Proceedings appear, on one view, to overlap with issues which have been raised in various contexts at various times in earlier proceedings, it seems to me that here there is no good reason to exercise a discretion to defer a winding up order to allow ENA to maintain claims in the Expedition List Proceedings to continue, without a liquidator's involvement in assessing their merit and determining whether they warrant further pursuit by ENA. To the contrary, the continuing conduct of those proceedings will expose ENA to further potential costs orders, if it is unsuccessful, and erode the position of creditors in any winding up based on its insolvency. There is also good reason to think that the community's interests will be served by the independence of mind that a liquidator will bring to the assessment of the prospects of those proceedings, so that they will only be pursued if a liquidator has formed an affirmative view of their merit. I bear in mind that a liquidator will likely only pursue the proceedings if funded to do so, as well as satisfied of their merit, but there is no reason to think that interested persons would not fund a liquidator, if the proceedings have sufficient merit to be pursued on ENA's behalf.
For all these reasons, I am satisfied that the presumption of insolvency has arisen and has not been displaced by ENA and that discretionary reasons do not support deferring a winding up order. I make the following orders:
ENA Development Pty Ltd be wound up in insolvency.
Mr Peter Krejci be appointed as liquidator of ENA Development Pty Ltd.
The Plaintiff's costs of and incidental to the winding up application be costs in the winding up.

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd

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