Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd

Proceedings 2023/357328 King & Wood Mallesons (Plaintiff) Pope & Spinks (Defendant) Arnold Bloch Leibler (Interested Party) File Number(s): 2023/357323 2023/357328

Application for the winding up of Mentmore 313 Pty Limited

1. By Originating Process filed on 10 November 2023 the Plaintiff, BECL Strategy Holding Ltd ("BECL") applies for an order that the Defendant, Mentmore 313 Pty Ltd ("Mentmore 313") be wound up on the ground of insolvency, and orders appointing joint and several liquidators to Mentmore 313. The application is founded on a creditor's statutory demand ("Demand") for payment of a debt dated 29 August 2013, in the amount of $83,045,900, where no application was made by Mentmore 313 to set aside that Demand and it was unsatisfied. I will refer below to the circumstances in which a presumption of insolvency is capable of arising from those matters.
2. Mentmore 313 served a Notice of Appearance indicating the grounds of its opposition to a winding up on or about 6 December 2023, which indicated that the grounds of opposition were that BECL was not a creditor of Mentmore 313 and BECL was aware that Mentmore 313 disputed the alleged debt and that there was a genuine dispute about the existence of that debt. Mr McDonald, who appears for Mentmore 313 in the winding up application, fairly indicated in submissions that these grounds are not pressed. Instead, although without a formal amendment of the grounds of opposition, Mentmore 313 now opposes the winding up, essentially, on the basis that the Court should not be satisfied that the Demand was served, so that the presumption of insolvency is not available to BECL; or, alternatively, Mentmore 313 has established its solvency by expert evidence. There seems to me to be no practical difficulty with dealing with this application on the basis that these are the grounds on which Mentmore 313 now opposes the winding up, and both BECL and Mentmore 313 have led evidence and made submissions that address these matters.

Affidavit evidence

1. I now turn to the affidavit and other evidence in respect of the winding up application, before addressing the parties' submissions in respect of the issues on which BECL relied for the winding up and Mentmore 313 relied to oppose the winding up application.
2. BECL reads the affidavit dated 9 November 2023 of Mr Le, who is a director of BECL, which is in the nature of an affidavit of debt and refers to an indebtedness of $83,045,900, consistent with the amount referred to in the Demand, arising from a guarantee and indemnity given by Mentmore 313 pursuant to a Loan Note Subscription Agreement between BECL and another entity. Mr McDonald refers, in submissions which I will note below, to a contest as to the amount of that debt, but the evidence does not develop the basis upon which that contest exists, other than for reference to proceedings elsewhere in the Court. For reasons that I will note below, such a contest will not now assists Mentmore 313 in respect of the issues that arise in this hearing.
3. By an affidavit dated 9 November 2023, Mr Chia, who is a solicitor employed by BECL's solicitors, refers to the process which was adopted to serve the Demand, and describes the process by which he gave instructions to Ms Bryan, a practice assistant in the firm, to arrange for the documents to be "posted" to the registered office of Mentmore 313 at Suite 204, 460 Church Street, Parramatta, NSW. Mr Chia exhibits a company search for Mentmore 313 which establishes the address of its registered office, and there was no contest as to that address in this application. I pause to note that although that affidavit refers to the documents to be "posted", the evidence establishes that the solicitors of BECL do not use Australia Post, for posting, but instead use a third-party mail services provider, Mail-Plus, and there is evidence in respect of delivery by that mail services provider. Mr Chia also exhibits a document of a kind that has frequently been before the Courts when issued by Australia Post, which records the process of delivery of the relevant documents, from the point at which they were ready for collection at the solicitor's offices in Brisbane on September 19 2023 to the point at which they are recorded as delivered in Parramatta at 11.21am on 21 September 2023. I will refer below to further evidence that goes to the question of delivery.
4. BECL also relies on an affidavit dated 13 November 2023 of Mr Zadravec, a process server, which relates to service of the documents relating to the winding up proceedings. There appears to be no contest that those documents were effectively served and Mentmore 313 has appeared in these proceedings to oppose the winding up orders. BECL, by its counsel Mr Burnett, also relies on that affidavit for the proposition that there was signage for "Ellerson Property" at the registered office, at least in early November 2023 when the delivery of the documents relating to the winding up occurred. Little turns on that proposition for the purposes of this application.
5. BECL relies on a second affidavit of Mr Chia dated 30 November 2023, which relates to notification to the Australian Securities and Investments Commission ("ASIC") of the winding up proceedings and to publication of the application for the winding up order on the insolvency notices page of ASIC's website. There was no contest as to BECL's compliance with those formal steps in respect of the winding up application in these proceedings. I note that those steps appear to have been effective to bring the winding up application to the attention of a supporting creditor, the Deputy Commissioner of Taxation, which is present, but rightly has not sought to be heard where BECL is pursuing the winding up application with diligence.
6. By a further affidavit dated 7 February 2024, Mr Le confirms that the debt then claimed by BECL remained unpaid and that additional interest has been incurred so as to increase the amount due. Again, there is not contest in the proceedings as to the fact that the debt claimed by BECL is at this point unpaid.
7. By an affidavit dated 9 February 2024, Ms Bryan, who is the practice assistant in the firm of BECL's solicitors to whom reference was made in Mr Chia's first affidavit, explains the circumstances in which she was instructed by Mr Chia to arrange for the Demand and associated documents to be posted (by Mail Plus) to the registered office of Mentmore 313, and explains the process by which that occurred. I bear in mind that Ms Bryan's evidence was given in February 2024 in respect of events which took place in September 2023, and there is plainly a possibility that her evidence reflects the usual practice in respect of instructions for the posting of documents, rather than a specific recollection of this matter. Her evidence is no less credible by reason of the fact that it may be evidence of practice, where there is no reason to think that the practice ordinarily adopted in respect of such matters would not have been adopted in this case. Ms Bryan also refers, in hearsay evidence which I admitted, dispensing with the hearsay rule under s 190 of the Evidence Act 2005 (NSW), as to the practice of Mr Kane Liu (who it appears is also known as Mr "Henry" Liu), a business services clerk, in respect of the posting of documents by Mail Plus. In the event, Mr Liu also gave affidavit evidence in the proceedings.
8. By his affidavit dated 8 March 2024, Mr Liu referred to the process adopted for the posting of the relevant documents by Mail Plus, involving obtaining at tracking number for the envelope from the Mail Plus portal, taking further steps, and then affixing the label with a barcode to an envelope and placing the documents in a designated area for connection by a Mail Plus representative. Again, it is plain from Mr Liu's evidence, and he fairly accepts, that he has no specific recollection of the particular circumstances of the posting of this envelope, some months before he gave his affidavit dated 8 March 2024. Again, his evidence of practice is no less credible by reason of that matter, and there is again no reason to think that practice was not followed here. Mr McDonald, in submissions, raised a number of questions as to this practice and it is plain that it is not as simple as the practice for posting of documents adopted in less sophisticated times, but it did not seem to me that this practice, or the questions raised by Mr McDonald, raised any real question as to the fact that what was ultimately posted was the documents intended to be posted, in accordance with the process described in the evidence to which I have referred above.
9. Mr Liu also, importantly, exhibited a series of contemporaneous documents. The first is a requisition dated 19 September 2023, consistent with the timing on the tracking records to which I have referred above, which was directed to the posting, by MailPlus, of two envelopes, one of which was addressed to Mentmore 313 at the address recorded for its registered office at Suite 204, 460 Church Street, Parramatta and another to a second Company, NR Pendle Pty Ltd ("NR Pendle") also at that address. A further document contains information referable to the tracking code for that document, and another document, and erroneously refers to the receiver as "Mentmore Pty Ltd". Mr McDonald fairly accepted that nothing turns on that error, where there is no suggestion that another entity, Mentmore Pty Ltd rather than Mentmore 313, has any role in this matter.
10. Mr McDonald also pointed to the fact that the information describes as "receiver email" and "receiver phone" plainly contained information as to BECL's solicitors, rather than Mentmore 313, but it seems to me that that would likely reflect no more than the sensible view of the BECL's solicitors that any queries relating to the delivery of the document should be directed by MailPlus to them rather than to Mentmore 313. The delivery address there correctly records the address of the registered office of Mentmore 313 as 204/460 Church Street, although it omits the reference to Parramatta but includes the postcode for Parramatta. Mr McDonald, also sought to make something of the absence of a reference to "suite" in that delivery address, but it seems to me that plainly nothing turned on that, having regard to the other evidence of delivery. That affidavit also exhibits an email dated 8 March 2024, by which MailPlus confirmed delivery of the relevant Demand and other documents, and noted that they were delivered and received by "Deanna" and attached a proof of delivery report. The proof of delivery report again contained the erroneous reference to "Mentmore Pty Ltd" rather than Mentmore 313, but correctly recorded the delivery address as 204 of 460 Church Street, and in this case included the reference to Parramatta and the postcode, and recorded receipt of the delivered documents by "Deanna".
11. BECL tenders a document recording the fact that a person named "Deanna" is employed at Ellerson Property in the role of accounts clerk and also points to evidence led by Mentmore 313 in its expert report as to solvency that Mentmore 313 is now part of the Ellerson Property group. I accept that it is possible that the person named Deanna who works in accounts at Ellerson Property received the relevant document but I also recognise that it is possible that more than one person named Deanna works at the registered office and that another Deanna received delivery of the document at that office. It seems to me for relevant purposes that it is sufficient that the evidence to which I have referred records delivery of the document to the registered office and it is not necessary to identify which person named "Deanna" received the document at the registered office. I should note, for completeness, that I do not accept a submission that was at one point put by Mr McDonald in written submissions that a passer-by, presumably also named "Deanna", might have kindly accepted delivery of the document at the registered office of Mentmore 313 notwithstanding that she had nothing to do with Mentmore 313.
12. For completeness BECL also tenders consents of the three liquidators which it seeks to have appointed and relies on a short form bill of costs which claims a relatively modest amount in respect of the costs of what are plainly quite complex proceedings.
13. Mentmore 313 reads the affidavit dated 9 February 2024 of its director. Mr Spiteri. Mr Spiteri's evidence, admitted with a limiting order under s 136 of the Evidence Act as submission and not proof of the fact, was that Mentmore 313 was solvent although he did not explain the matters which led him to form that view. He referred, again in evidence partly admitted as his understanding and not proof of the fact, to the timetable for the construction of a property development being undertaken by Mentmore 313 in Rosebery, New South Wales and when that project was expected to complete and when contracts for sale were expected to take place and as to the gross realisations expected from that property by comparison with the existing debt amount. It was notable, however, that Mr Spiteri did not address the issue of whether Mentmore 313 was now able to meet its debts as and when they fall due. The proposition that significant payments may be received in October 2024 does not establish that a company is now in a position to meet debts which fall due prior to October 2024. Mr Spiteri also referred, in evidence admitted as a submission with a limiting order under s 136 of the Evidence Act, to a dispute with BECL which was the subject of other proceedings in the Court and asserted that the amount claimed in the Demand was not due and payable. That submission is not open to Mentmore 313 in these proceedings for the reasons that I will note below.
14. Mentmore 313 also relies on the affidavit dated 7 March 2024 of Mr Trafford-Jones who is an accounting expert and to the expert solvency report prepared by him. Mr Trafford-Jones was not cross examined but numerous criticisms were made of his report and, substantially, the question whether assumptions that he had made were proved or provable. Ultimately little turns on that matter, for reasons that I will note below, although I will address those criticisms for completeness below.

Whether the Demand was served and whether the presumption of insolvency arises

1. The first of the issues which arises in this application is whether a presumption of insolvency arises from a failure to comply with the Demand that BECL claims to have served upon Mentmore 313. This depends in part on whether BECL has established service of the Demand, a matter which Mentmore 313 has put in issue although it does not seek to prove to the contrary.
2. Mr Burnett, who as I noted above appears for BECL, submits that the Demand was served by delivery to Mentmore 313's registered office on 21 September 2023 and summarises the evidence for that service. Mr Burnett in turn relies on the presumption of insolvency which arises from service of a creditor's statutory demand and a failure to set aside that creditor's statutory demand and non-compliance with that creditor's statutory demand within the period provided by s 459G of the Corporations Act 2001 (Cth) ("Corporations Act"). He draws attention to the observations of the High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1 at [28] as to the effect of that presumption of insolvency, namely that: "Under the present statutory scheme, 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."
3. Mr McDonald, who as I noted above appears for Mentmore 313, understandably does not contest that a presumption of insolvency arises from a failure to set aside or comply with a creditor's statutory demand if that creditor's statutory demand is served upon the relevant company. Instead, Mentmore 313 here puts BECL to proof of service of the Demand and accepts that, if BECL proves the Demand was delivered to its registered office in accordance with the requirements for service under s 109X of the Corporations Act by leaving it at the registered office, then a presumption of insolvency arises and it is a matter for Mentmore 313 to establish its solvency in this application.
4. I am here comfortably satisfied that, notwithstanding the submissions put by Mr McDonald, the evidence is sufficient to establish delivery of the Demand by leaving it at the registered office of Mentmore 313. I have referred to the relevant evidence above which includes evidence of the practice of BECL's solicitors for posting of documents. I reach that finding upon the inferences that are properly drawn from the affidavit evidence and the contemporaneous documents. I have referred above to the fact that there is a tracking record which tracks the progress of the relevant documents from the point that they were ready for collection at BECL's solicitors' office in Brisbane to the point at which they were delivered at Parramatta and I will refer below to case law which has found that such tracking records are, absent reason to doubt their correctness, sufficient to prove service at the time recorded in such tracking records. Here the evidence goes beyond the existence of that tracking record to include a contemporaneous record of the delivery of the documents, albeit with the erroneous reference to "Mentmore Pty Ltd" which Mr McDonald accepts is of no significance, and records delivery to the correct address of Mentmore 313's registered office.
5. Mr Burnett submits and I accept that this is a straightforward case where the evidence permits the inference on the balance of probabilities that delivery occurred by leaving the relevant documents at Mentmore 313's registered office. In those circumstances nothing turns on any further inference which may be available from the fact that Mentmore 313 itself led no evidence to call into question the delivery of the relevant documents by leaving them at its registered office.
6. While that finding is one of fact and does not depend upon the case law, I will briefly refer to the applicable authorities for completeness, drawing upon my review of the case law in Re Dyldam Developments Pty Limited [2019] NSWSC 1518 at [10]ff ("Dyldam Developments"). In Re Futre Developments Pty Ltd (2014) 292 FLR 256; [2014] NSWSC 1712, Robb J reviewed the weight that can be given to a tracking record issued by Australia Post. It seems to me that there is no reason to treat tracking records by a third party delivery service such as Mail Plus differently from the tracking records that are prepared by Australia Post. His Honour there accepted, as I have accepted here, that the tracking record was sufficient in the context of the totality of the evidence before him to establish service on a particular date. All that is necessary here is to establish the fact of service where there is no contest as to the date on which it occurred. I followed that decision in Re Shaolin Temple Foundation (Australia) Ltd [2016] NSWSC 804 and Re Edifice Australia Pty Ltd [2017] NSWSC 1620, although I reached a different result on the particular facts of those cases.
7. I also followed that decision in Dyldam Developments where I found that the tracking record and the probabilities established by the evidence left no real room for doubt that delivery occurred to the registered office of that company on a particular date. Mr Burnett points out and I accept that BECL's case for delivery is here stronger than that which existed in Dyldam Developments because here there is a tracking record which records delivery as well as additional documents that record delivery to a particular person namely Deanna in circumstances that leave no room for any realistic possibility other than that delivery at the registered office occurred as recorded in all of the contemporaneous documents that refer to delivery. In particular, here there is no alternative candidate for a delivery location in Parramatta other than Mentmore 313's registered office and there is no room for a hypothesis that delivery occurred elsewhere where the delivery records record the address of the registered office. There is here no evidence from any staff of Mentmore 313 whether the owner, Deanna, Mr Spiteri or anyone else as to how the relevant documents were treated upon their delivery to Mentmore 313's registered office. That is relevant for present purposes not because it gives rise to any inference that is adverse to Mentmore 313 but simply because there is no evidence led by Mentmore 313 which is capable of raising doubt as to the inference which would otherwise be drawn from the documents that are in evidence. It is therefore not necessary to infer that the absence of evidence by Mentmore 313 as to those matters indicates that its evidence would not assist it in displacing the inferences that could otherwise be drawn from the tracking receipt and evidence of delivery to Mentmore 313's registered office address although it seems to me that such an inference would in fact be available although it is not necessary to rely on it here: Gerard Cassegrain & Co Pty Limited v Felicity Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [26] applying principles deriving from Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970; Dyldam Developments at [14].
8. For these reasons I am satisfied that BECL has established that the Demand and associated documents were delivered to and left at the registered office of Mentmore 313 and that is sufficient to give rise to the inference of insolvency that arises on a failure to either set aside or comply with the Demand within the 21-day period that runs from the date of delivery of those documents. There is no suggestion that Mentmore 313 either moved to set aside or complied with the Demand in that period.

The debts which are to be taken into account in determining Mentmore 313's Solvency

1. The next question which arises in the application is the debts which are to be taken into account in establishing Mentmore 313's solvency. I have referred above to the fact that Mentmore 313 seeks to establish its solvency in reliance on the expert report of Mr Trafford-Jones. However, Mr McDonald fairly and properly concedes in submissions that Mr Trafford-Jones' evidence is not sufficient to establish Mentmore 313's solvency if Mentmore 313 cannot contest the amount of the debt on which BECL relies in respect of the creditor's statutory demand and to support this winding up application.
2. Mr Burnett draws attention to several cases on which he relies for the proposition that Mentmore 313 cannot now raise a contention that the amount of the debt claimed by BECL is not due and payable or is genuinely disputed where it did not do so in any application to set aside the Demand and has not obtained leave under s 459S of the Corporations Act to do so. Mr Burnett refers, in that regard, to observations of Windeyer J in McGill v Minskie Holdings Pty Ltd [2000] NSWSC 909 at [16]; of Ball J in Re Pegasus Capital Management Pty Ltd [2011] NSWSC 570 ("Pegasus") at [13]; and of Brereton J in Re Vangory Holdings Pty Ltd [2015] NSWSC 1809. Each of those decisions establish a proposition that, in a winding up application, the amount that is the subject of the demand is presumed to be owing by the company and the person to whom it is owed is presumed to be a creditor of the company, and that cannot be contested in respect of an application of this kind. Mr McDonald fairly accepts that, in order to succeed in the contention that Mentmore 313 may raise a contest as to the amount of the debt owed by it to BECL, in order to establish its solvency, it would be necessary to establish that at least the decision of Ball J in Pegasus was wrong.
3. I should add, to the decisions to which Counsel have referred, that I considered this question at some length in my decision in Re Fitzgerald Housing Ltd (Restructuring Practitioner apptd) [2023] NSWSC 1481 ("Fitzgerald Housing") and, more briefly, in my unreported decision in Re Catalina Genetics Pty Ltd (18 March 2024). In Fitzgerald Housing, I referred to several cases which dealt with the application of s 459S of the Act, and to the observations of Ball J in Pegasus, including his Honour's analysis of the effect of the contention for which Pegasus there contended, and which Mr McDonald now advances for Mentmore 313. His Honour there observed that to accept that contention would render the structure created by Pt 5.4, and s 459S in particular, "pointless", since it would always be open to a company to resist a winding up application on the basis that the application was brought by a person who was not a creditor or, in Mr McDonald's version of the argument, a person who was not a creditor for the amount claimed, notwithstanding that the creditor's statutory demand had not been challenged and leave had not been sought to challenge it under s 459S of the Corporations Act.
4. In Fitzgerald Housing, I also referred (at [36]) to the importance of consistent decision making in respect of the national scheme of corporations legislation, and observed that I should not depart from a decision reached by another judge in respect of that legislation unless I consider that decision is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 (dealing with decisions of intermediate appellate courts); Ming Tian Real Property Pty Ltd v SGS Platinum Pty Ltd (2020) 145 ACSR 329; [2020] NSWSC 212 at [38]. I there explained that I was not satisfied that the decision of Ball J in Pegasus was plainly wrong, and I observed that it seemed to me to be "plainly right, and consistent with preserving the statutory policy that disputes in respect of a debt should be addressed in an application to set aside a creditor's statutory demand, or by leave under s 459S where it is properly granted, and not in a winding up application." I also there observed (at [41]), also referring to the observations of Ball J in Pegasus, that the position there put in Fitzgerald Housing, which would apply equally to the position now put by Mr McDonald for Mentmore 313, would undermine, in a fundamental way, the structure of Pt 5.4 of the Corporations Act, and particularly s 459S of the Corporations Act, and that: "that approach is inconsistent with the structure of the [Corporations] Act, which creates a presumption of insolvency arising from a failure to set aside or comply with a creditor's statutory demand; allows a mechanism for leave to rely on matters which could have been relied on to set aside a demand under s 459S of the [Corporations] Act…; and otherwise permits opposition to the winding up application only on the basis that a company is solvent…"
5. I recognise that Mr McDonald here points to the terms of s 459S of the Corporations Act, in order to support a contention that that section does not preclude Mentmore 313, in a winding up application, from opposing the winding up application on the basis that the amount of the debt owed by Mentmore 313 to BECL is less than the amount claimed, although Mentmore 313 does not here seek to quantify the amount that is properly owed. It seems to me, however, that that proposition is not tenable, having regard to the terms of s 459S(1), because the proposition that the amount of the debt claimed was overstated is a ground on which Mentmore 313 could have relied, but did not rely, to set aside the Demand, whether an application to set aside the Demand was made or not, and so falls within s 459S(1)(b) of the Corporations Act. That conclusion is reinforced by the fact that, as Mr McDonald fairly accepted, the result of Mr McDonald's submission would be that, in any case where the company owed one major debt which would make it insolvent, and other debts which would not establish insolvency, then that company to deny the amount owed in that larger debt, in a winding up application, notwithstanding it had not sought to challenge it in a creditor's statutory demand and not sought leave under s 459S of the Corporations Act. That proposition emphasises the extent to which, as the case law to which I referred above has recognised, that proposition would undermine the proper operation of Pt 5.4 and s 459S in particular.
6. Mr Burnett also points out that s 459S(2) itself contemplates that leave would be required under s 459S to challenge a debt that is material to proving that a company is solvent, because the Court may not grant leave under that section unless it is satisfied that the debt was material to proving that the company is solvent. I should recognise, in fairness to Mr McDonald, that he treated this alternative ground relatively briefly in submissions, and it was plainly a subordinate point to his primary point that the Demand had not been served upon Mentmore 313.
7. For the reasons noted above, I am not satisfied that the view taken in earlier cases is plainly wrong, so as to depart from it, and I am in fact satisfied that the view taken in those earlier cases is plainly right, so that it should be applied. In the present circumstances, it follows that Mentmore 313 is unable, not having sought to set aside the statutory demand or obtained leave under s 459S of the Corporations Act, either to contest the fact that a debt is due at all, which it does not seek to do, or to raise a contention that the debt is not due in the amount claimed in the Demand, on a basis which it could have, but did not, rely to set aside the Demand.

Expert evidence as to solvency

1. I have noted above that the question of the expert evidence as to solvency does not need to be determined in this case, because Mr McDonald has fairly conceded that, if Mentmore 313 was not successful in establishing its entitlement to disregard the amount of the debt claimed by BECL in assessing its solvency, then the expert evidence on which it relies would not be sufficient to establish its solvency. To put that proposition another way, Mr McDonald, in effect, accepts that even if the views expressed by Mr Trafford Jones - which do not take into account the debt owed to Mentmore 313 - were accepted, that would not establish that Mentmore 313 were solvent where that debt was owed.
2. I will, however, for completeness, deal briefly with the matters which arise from that expert solvency report. The question whether Mentmore 313 is solvent, or insolvent, is to be determined by reference to s 95A of the Corporations Act, which has the effect that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. Section 95A(2) has effect that a person who is not solvent is insolvent. As I observed in Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724, by reference to authority, that definition adopts a cash flow test of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test. The case law has recognised, in Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123, that a number of matters may provide indicia of insolvency, including several matters which are addressed by Mr Trafford Jones in his solvency report.
3. I have pointed above to Mr Trafford Jones' conclusion that, if a significant number of assumptions are made and without regard to the debt owed by Mentmore 313 to BECL, then Mentmore 313 would be solvent. Mr McDonald relied on that report, without elaborating on its conclusions at any substantial length. Mr Burnett in turn referred to several difficulties with that report. The first, which he unsurprisingly emphasises and Mr McDonald accepted, was that the report does not have regard to the debt owed to BECL and, as I noted above, is of no assistance where Mentmore 313 cannot disregard that debt in this application. The second is that several assumptions in that report are not proved by admissible evidence, and there seems to me to be substantial force in Sch 1 of Mr Burnett's submissions which involve criticisms of that report. Third, Mr Burnett refers to the limitations which Mr Trafford Jones has recognised in respect of the information provided to him, which plainly undermine the weight that can be given to the conclusions that he reached. I have regard, here, to the well-established requirement in the case law, at least since Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711 at [16], to which Mr Burnett refers, for a party that seeks to establish its solvency to lead the fullest and best evidence of its financial position and to provide something more than unverified claims in support of its solvency.
4. Fourth, and significantly, it seems to me that Mr Trafford Jones' report, as Mr Burnett submits, involves a fundamental error of approach. Mr Trafford Jones, in effect, takes the Plymin test, and seeks to establish that Mentmore 313 is not insolvent, because he cannot find that a number of the indicia of insolvency identified in Plymin are present, in part, because he does not have access to documents which indicate whether those indicia are present. This, it seems to me, erroneous. As I have noted above, the question of solvency is to be established by reference to the cash flow of Mentmore 313, and, in some circumstances, the indicia in Plymin can be used to support an inference of insolvency, generally consistently with an analysis of cash flow which will show that a company is unable to pay its debts as and when they fall due. It is, however, not logically possible to invert that process and find that, because an expert does not have access to sufficient documents that establish the indicia of insolvency identified in Plymin, a company is solvent, without regard to its cash flow. The error in that approach is obvious, since it has the consequence that a company which could not, on a timely basis, meet any of its debts, but does not maintain sufficient records to allow a conclusion to be reached as to whether the indicia of insolvency in Plymin are established, would be solvent rather than insolvent. The nonsense of that finding indicates why that reasoning cannot be accepted.
5. For those reasons, had it been necessary to have regard to Mr Trafford Jones' report, which it is not given the concession properly made by Mr McDonald and the findings which I have reached above, then I would have given little weight to that report. It does not provide any basis on which to find that, even disregarding the debt owed to BECL, Mentmore 313 is solvent on a cash flow basis, in the sense that it is able to meet its debts as and when they fall due.

Conclusion as to the winding up of Mentmore 313

1. For these reasons, I am comfortably satisfied that the basis of the winding up application sought by BECL has been established. I am satisfied that the amount of costs claimed on a short form basis by BECL should be allowed in this matter, recognising that those costs likely fall well short of the costs actually incurred in the matter. I make orders in accordance with the short minutes of order as proposed by the plaintiffs, initialled by me and placed in the file.

Application for the winding up of NR Pendle Pty Limited

1. By Originating Process also filed on 10 November 2023, BECL applies to wind up NR Pendle. BECL reads affidavit evidence which is the same, in all material respects, as the evidence led in its application to wind up Mentmore 313, in which I made a winding up order, although, obviously enough, the evidence here relates to NR Pendle rather than Mentmore 313. NR Pendle in turn reads the affidavit dated 9 February 2024 of Mr Spiteri and relies on an expert report dated 7 March 2024 of Mr Trafford-Jones.
2. Each of the parties accepted that the evidence in this proceeding should be read subject to the same objections and subject to the same rulings on objections as in the Mentmore 313 proceedings, while reserving their position as to the correctness of those rulings, if there is a contest about them. Each of Mr Burnett, who appears for BECL, and Mr McDonald, who appears for NR Pendle, also accept that the reasoning adopted in the Mentmore 313 judgment would equally apply in this case, again while reserving any dispute they may have, or any right of appeal they may have, in respect of the correctness of that reasoning. To put that proposition differently, each party accepts, and that acceptance is adverse to interest so far as NR Pendle is concerned, that, if my earlier judgment is correct and Mentmore 313 should be wound up, then NR Pendle should be wound up on the same basis, so far as the evidence is materially identical in these proceedings.
3. In those circumstances, I need not repeat the reasoning in the Mentmore 313 judgment and would, subject to one additional point made by Mr McDonald for NR Pendle, and to submissions and evidence led by Win Senior No 324 Pty Ltd ("Win Senior"), an intervening party, proceed to make a winding up order in respect of NR Pendle. That additional point is that, Mr McDonald adopts submissions made by Win Senior, as an intervening party heard under r 2.13 of the Supreme Court (Corporations) Rules, as to why a winding up order should be adjourned or deferred. I now turn to Win Senior's position.

Win Senior's position

1. Win Senior in turn reads the affidavit evidence of Mr Nathan, who is a director of Win Senior and the Head of Property, Analysis and Risk of the Wingate Group. It appears that at least parts of Mr Nathan's affidavit are hearsay, although it is not possible to identify those parts, so far as he refers to conversations with other persons on which his affidavit evidence is based. Nonetheless, that affidavit evidence has generally been admitted, subject to rulings on particular objections, and otherwise subject to weight.
2. Mr Nathan refers to the fact that Win Senior is a lender to NR Pendle under a secured facility agreement, with a facility limit of $30 million, and the amount that it has lent to NR Pendle, as evidenced by a schedule of advances set out in an exhibit to Mr Nathan's affidavit, is now in excess of $27.8 million. Mr Nathan notes that Win Senior holds security over NR Pendle's personal and real property, and there has been no contest in this application as to the status of that security or its registered status. Mr Nathan makes several comments, largely in the nature of assertion, which were admitted with a limiting order under s 136 of the Evidence Act as submission and not proof of the fact, as to Win Senior's support for NR Pendle to complete the construction of the development by providing ongoing financial accommodation. I recognise, as a matter of the evidence and common sense, that it is likely that Win Senior has in fact supported NR Pendle in respect of the construction of the development to date, since it is apparent that it has advanced in excess of $27.8 million to NR Pendle as I noted above. As I will note below, the difficulty with past support is, however, that it is only useful so long as it continues, and is no guarantee of future support. Mr Nathan also refers to Win Senior's "supportive role" in the finalisation of the development, again in evidence admitted as submission and not proof of the fact. Mr Nathan refers to Win Senior's intention or "present intention" to continue to make funding available to NR Pendle for use in connection with the completion of the development until it has been completed, which is currently expected to occur in late 2024. Like all statements of intention or "present intention", that statement is helpful until the point that Win Senior ceases to hold that intention or "present intention".
3. Mr Nathan's evidence is that NR Pendle's only business activity is to conduct the relevant development, and there appears to be no substantial contest as to that matter. Mr Nathan outlines the status of the development, and indicates that the construction of the development is "largely complete" subject to defect rectification works which are required before NR Pendle can apply for an occupancy certificate. There is no evidence as to the extent of those defect rectification works, in specific terms, although there is some evidence as to the steps that will be taken to address them. Mr Nathan refers to the process to be adopted to obtain a building information certificate issued by the council, which is apparently required before rectification works can be completed, and to the steps which Win Senior has taken to progress the obtaining of such a certificate. The exhibit to Mr Nathan's affidavit, to which I have been taken, indicates the timeframe for those works. Mr Nathan in turn outlines the steps to be taken before a building information certificate can be lodged with council, leading toward a sale process for units in the development late in the year.
4. Mr Nathan, to his credit, fairly acknowledges difficulties with the assumptions made in Mr Trafford-Jones's expert report on which NR Pendle relies, including as to the date on which the marketing program for the development would commence, and indicates that he does not consider that could commence until late October 2024. He also does not accept the statement in that report that NR Pendle is not trading, and points to the fact that NR Pendle continues to issue utilisation requests to Win Senior to draw down on the facility; subcontractors on the development are engaged by NR Pendle and issue their invoices to NR Pendle, although Win Senior, as Mr Nathan says, "generally" pays them; and he refers to the fact that NR Pendle is represented at the weekly project payment meetings to which he has referred in his affidavit evidence. I will return to the significance of continued trading by NR Pendle below.
5. Mr Nathan in turn addresses the present value of the development and indicates Win Senior's "strong preference" that NR Pendle "remains a going concern entity" and is not placed into liquidation. I proceed on the basis that it is Win Senior's strong preference that NR Pendle is not placed in liquidation. The further proposition that NR Pendle will be a "going concern" can only be described as nonsensical, after a presumption of insolvency has arisen and has not been displaced. An insolvent entity is not a "going concern", but instead, an entity that is trading in contravention of the obligations of directors in the Corporations Act that it should not do so while it is insolvent. Mr Nathan also refers to the fact that Win Senior does not presently propose to appoint receivers to NR Pendle, implicitly because it does not consider it is in its commercial interests to do so, but will immediately appoint receivers to NR Pendle if the company is placed in liquidation. That, of course, is its prerogative, assuming the validity of its right to do so, which is not a matter that is in issue before me. Mr Nathan also expresses concern, which is entirely plausible, that Win Senior will incur higher costs if NR Pendle is placed in receivership, and will then receive a smaller return on its debt than if NR Pendle remains in control of the development and, implicitly, continues to incur debts notwithstanding that it does not have the capacity to pay them as and when they fall due. Mr Nathan expresses plausible reasons for that preference of Win Senior, and I recognise that those reasons would be given substantial weight, if one had regard only to the interests of Win Senior and not to the interests of the community or to third parties who may deal with NR Pendle as an insolvent company.
6. Mr Nathan expresses the view that BECL and other creditors will be no better off in a liquidation, in which a receivership takes place, because Win Senior will not guarantee that it will be in a position to fund the development to completion in a liquidation. However, I must recognise that BECL apparently prefers a liquidation, since that is the order that it seeks, and there is no reason to think that it is not acting rationally in doing so; and that other creditors may prefer that NR Pendle's affairs be administered by an independent insolvency practitioner, appointed by the Court, who will have the duties of a liquidator in respect of a liquidation. Importantly, however, there is another constituency here, which Mr Nathan does not address, namely future creditors of NR Pendle, who would be permitted to trade with it in circumstances where it is, ex hypothesi, insolvent, if a winding up order is not made.
7. I recognise that Mr Nathan gives evidence, of a somewhat general character, of Win Senior's practice of "usually" meeting debts incurred by NR Pendle, although much turns on the qualification "usually" in that regard. I also recognise that, in the course of submissions, Win Senior indicated that it could provide some further comfort, presently undocumented and put in the most general of terms, that it would meet payments to creditors, at least within the limit of headroom under the present facility, and to the extent of the costs of rectification of known defects in the property, but, reasonably enough, not extending to funding rectification of defects of which it is not presently aware. There is nothing unreasonable about Win Senior's position in that respect, but it emphasises the extent to which leaving NR Pendle free to trade will expose other contractors, who may in fact be retained by it to address defects of which Win Senior is not presently aware, to the risk that their debts will not be met.
8. Win Senior seeks to have the Court defer, or not make, a winding up order, under s 467 of the Corporations Act. I reviewed the circumstances in which the Court may take that course in Re Gladstone Mortgagee (No 1) Pty Ltd [2015] NSWSC 1551 at [66]ff. I recognise that there exist cases where the Court has taken that course, although a presumption of insolvency arising from an unsatisfied creditor's statutory demand has not been rebutted, and I have regard to the decision in Lechmere Financial Corp v Aspermont Ltd [2003] FCA 1138 in that respect. However, those cases generally involve short adjournments, where a company would shortly receive funds which would allow payment of the relevant debt, and there is no suggestion here that funding provided by Win Senior will allow BECL's debt to be paid, or will guarantee the payment of other debts which may be in future incurred by other creditors, particularly contractors, in dealing with NR Pendle. I also recognise that, as Barrett J noted in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 at [118], where insolvency is established, the discretion to dismiss a winding up application would only be exercised if some good reason were shown for doing so.
9. I recognise that, here, from Win Senior's point of view, it would be more convenient for it if NR Pendle was permitted to continue to trade, with such financial support as Win Senior chooses to provide, and meet the debts of such contractors as NR Pendle chooses to pay, or Win Senior chooses to cause it to pay, or chooses to pay directly. However, the fundamental problem with that proposition, is, first, that it does not avoid the fact that NR Pendle would continue to trade while insolvent, and its directors would continue to contravene the Corporations Act, where Win Senior's affirmations of qualified support for NR Pendle, sometimes expressed as its "present intention" and necessarily subject to change, fall well short of a guarantee to meet all debts that are incurred by NR Pendle as and when they fall due. Second, and importantly, the Court's decision here must have regard, not only to what is best for Win Senior, but what is best for the community, which includes contractors, third parties, and others who may deal with NR Pendle, and would necessarily be exposed to the risk of dealing with an insolvent company, and being left to prove in a liquidation if Win Senior withdrew such support as it presently provides, if the winding up is deferred. It seems to me that, in the present circumstances, the interests of the community and those who may deal with NR Pendle in the future, in circumstances that it is not in fact able to pay its debts as and when they fall due, and even Win Senior does not contend that the support which it will give has that consequence, must prevail over the interests of Win Senior.
10. For these reasons, I am not persuaded that the Court should exercise any discretion to withhold a winding up order. If a liquidator is appointed by the Court, and Win Senior chooses to appoint a receiver to the relevant assets, and is entitled to do so, then that is a proper application of the applicable principles in the relevant circumstances. For these reasons, I make orders in accordance with the short minutes of order in the form proposed by BECL in these proceedings, noting that NR Pendle will be wound up in insolvency and liquidators will be appointed.

Costs in respect of NR Pendle proceedings

1. I am satisfied that, in the present case, the costs of the NR Pendle proceedings sought by the Plaintiffs, on a short form basis, are well short of those that they will have in fact incurred in the conduct of the proceedings. Although Win Senior's intervention has lengthened the hearing of the NR Pendle proceedings today, to some extent, my preliminary view is that it has not extended it to the point that I should make an order for costs against Win Senior in respect of its intervention. I note that the Court less readily makes costs orders against a person who is heard under r 2.13 of the Supreme Court (Corporations) Rules. However, if any party considers that those costs are sufficiently material to require that question to be further agitated, I will make orders for submissions and for a relisting of that matter to agitate it. At BECL's request, I reserve liberty to any party to apply within seven days as to any claim for costs against Win Senior.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 April 2024