The Plaintiff, Action Motor Group Pty Limited (in liquidation) ("Action Motor Group") seeks an order winding up the Defendant, ACN 151 738 135 Pty Limited ("Company") under s 459P of the Corporations Act 2001 (Cth). The Company, by interlocutory process filed on 29 June 2015, applies for leave under s 459S of the Corporations Act to challenge the standing of Action Motor Group as a creditor. That application is brought on the basis, to which Mr Johnson who appears for the Company refers in submissions, that such a challenge would not be open in a winding up application, if such an order is not made under s 459S of the Corporations Act. There is at least some authority to support that proposition, although it is not necessary to determine that proposition at this point, so far as it would arise in a winding up application, and not at the point at which leave is sought under s 459S of the Corporations Act.
Section 459S of the Act relevantly provides that:
"(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not)
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent."
In the present case, the Company made no application to set aside the creditor's statutory demand, to which I will refer shortly, and in those circumstances any question as to the standing of Action Motor Group is a ground that the Company could have relied on, but did not rely on, so as to set aside the demand.
I should refer to the evidence which is led in support of the application, before turning to the relevant legal principles and their application in the particular facts. The winding up application is based on an unsatisfied creditor's statutory demand dated 24 March 2014 served by Action Motor Group, which was then in liquidation. The description of the relevant debt was:
"Payment of $223,800 [from Action Motor Group] [from its NAB cheque account]...on 31 December 2013 to the Company to pay out the financing facilities of the Company."
The amount of the debt claimed was $223,800. The creditor's statutory demand was verified by an affidavit sworn by the liquidator of Action Motor Group, Mr Hayes, which indicated that he had inspected the limited amount of the business records of Action Motor Group in relation to the Company's debt with Action Motor Group; verified that the total of $223,800 being the amount specified in the demand was due and payable by the Company; and indicated that the debt was due because Action Motor Group paid that amount to National Australia Bank on 31 December 2013 in order to repay a debt of the Company due to National Australia Bank. Mr Hayes in turn expressed the belief that there was no genuine dispute about the existence or amount of the debt. As I noted, no application to set aside the creditor's statutory demand was made. In those circumstances, a presumption of insolvency arises, of the kind identified by a unanimous High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Limited (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1 at [28].
So far as leave is now sought under s 459S of the Corporations Act to contest the winding up application, on the basis that Action Motor Group is not a creditor of the Company, the application is supported by an affidavit of Mr Rodney Hunwick dated 20 June 2015. It appears that Mr Hunwick is a former director of Action Motor Group, but is not a director of the Company, and is the husband of its present director. The director of the Company does not give evidence. Some parts of Mr Hunwick's affidavit were admitted with limitations under s 136 of the Evidence Act 2005 (NSW).
Mr Hunwick refers to the entry into a contract for sale of the Company's business including stock in August 2014. It is not presently clear that that agreement has immediate relevance to the application under s 459S of the Corporations Act, and there appears to be no suggestion that the amount of the sale proceeds would be of an order of magnitude that would allow the Company to meet the debts to which reference is made in evidence, whether they are owed to Action Motor Group or others. In any event, as I will note below, there is no wider evidence of the Company's solvency, which would allow any sale proceeds and any other assets and liabilities of the Company to be assessed, to determine its ability to meet its debts as and when they fall due.
Mr Hunwick's affidavit then states, in a passage which was admitted as a submission with a limiting order under s 136 of the Evidence Act that:
"The debt claimed by [Action Motor Group] in the creditors statutory demand is not owed by the Company to [Action Motor Group]. The debts [sic] were assigned to me [i.e. Mr Hunwick] by [Action Motor Group] in payment of money owed by [Action Motor Group] to me."
I should pause there to note that there is something of an elision in that paragraph, so far as it contains an assertion that the Company does not owe a particular debt claimed by Action Group, then refers to assignment of several debts by Action Motor Group to Mr Hunwick. The affidavit in turn attaches several Deeds of Assignment of Debt, which, as Mr Johnson points out, appear to occur at regular intervals. They have the broad effect that, at quarterly intervals, Action Motor Group assigns debts owed to it by an entity then known as Gasoline Pty Limited to Mr Hunwick, in specified amounts. Here, the creditor's statutory demand relates to a debt which is said to have arisen in December 2013. That debt was, as I have noted, in the amount of $223,800 and is said to be referrable to Action Motor Group having paid out the financing facilities of the Company. The relevant deeds of assignment may only be those which occurred after that date, namely on 31 December 2013 in the amount of $137,237 described as "on account of unpaid consulting fees"; a further assignment dated 31 March 2014 in the amount of $119,868.63 described as "on account of unpaid consulting fees" and a further assignment dated 30 June 2014 in the amount of $234,865.32 described as "on account of unpaid consulting fees" in an amount of $229,630 plus a loan by Action Motor Group to the Company in the amount of $5,235.09.
Two things should be noted about these Deeds of Assignment. First, the amounts referred in them do not correspond to the amount referred to in the creditor's statutory demand, nor does the nature of the relevant debt, namely unpaid consulting fees and in one case a loan of $5,235, correspond to the nature of the claim specified in the creditor's statutory demand. Second, the assignment deeds appear to have a degree of specificity so that, on each occasion where a loan is assigned, it is described with specificity. Returning to Mr Hunwick's affidavit, he does not say anything to link the debt claimed by Action Motor Group which is the subject of the creditor's statutory demand with the assignment of the relevant debt, since that is the area where there is an elision between the first and second sentences in this paragraph of his affidavit.
Mr Johnson also places considerable weight on a Report as to Affairs completed by Mr Hunwick verified on 25 September 2014, which completes the section "sundry debtors (including loan debtors)" with the phrase "N/A". Two matters may be noted about that Report as to Affairs. The first is that whether "N/A" is intended to express a view that the relevant information is not applicable, for reasons that are unexplained, or that there are no such debtors, is unclear. Second, Mr Hunwick says nothing in his affidavit to explain the basis on which that document was completed, or to put his oath to the proposition that is stated in it. I recognise, of course, that the Report of Affairs was verified, for the purposes of the Corporations Act, in the statement verified in the report that is attached to it, but that is not the same thing as leading evidence, on oath, or on affidavit, in the course of these proceedings, and the omission of Mr Hunwick's affidavit evidence is notable.
Turning now to the applicable principles under s 459S of the Corporations Act, I have summarised those principles at some length in Re Vangory Holdings Pty Limited [2015] NSWSC 546, where I referred to the different tests which have been applied from time to time, and the different views taken as to the application of the Court of Appeal's judgment in Switz Pty Limited v Glowbind Pty Limited [2000] NSWCA 37; (2000) 48 NSWLR 661. It is not necessary to address that controversy in this application, nor is it necessary to summarise the legal principles at any length. Broadly, the matters relevant to an application for leave under this section are whether there is a serious question to be tried on the ground sought to be raised; the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor's statutory demand, involving an evaluation of the reasonableness of the debtor's conduct at that time; and whether the Court is satisfied that the relevant ground is material to proving that the debtor is solvent. The case law has also emphasised that the discretion conferred by this section is to be exercised cautiously and sparingly and with regard to the purpose of Part 5.4 of the Corporations Act to provide for determination of any objections to a creditor's statutory demand by an application under s 459G of the Corporations Act, rather than at the time of the winding up application: Switz Pty Limited v Glowbind Pty Limited above; Perpetual Nominee Limited v NA Investment Holdings Pty Limited [2011] NSWSC 282 at [34].
In the present case, I am not satisfied that a serious question to be tried as to the ground now sought to be raised by the Company is raised by the relevant evidence, even although I recognise that that is a relatively undemanding standard. The proposition that is sought to be established is that Action Motor Group is not a creditor of the Company. That proposition is sought to be established on the basis that whatever debt was once owed by Action Motor Group to the Company has been assigned to Mr Hunwick and, it appears, would now be vested in Mr Hunwick's trustee in bankruptcy. There seems to me to be two ways in which that proposition could be established. The first is to show that a particular debt had, at a particular time, been assigned by Action Motor Group to Mr Hunwick. There seems to me to be no evidence of that proposition. Mr Hunwick does not say that the particular debt was assigned to him in his affidavit. The Deeds of Assignment on which he relies appear to be to the contrary, so far as they indicate that what was in fact assigned to him was amounts owing by way of consulting fees, and one loan in the amount of $5,235.09.
The other possibility would be for the Company to establish that all loans owed by Action Motor Group from time to time had been assigned to the Company. Mr Johnson points out, rightly, that there appears to have been a practice of assignment of loans by Action Motor Group to Mr Hunwick at regular intervals. However, it does not follow from the proposition that some loans, for particular amounts, were assigned by the Company to Mr Hunwick at particular times, that all loans were assigned by the Company to Mr Hunwick, so as to establish an inference that the particular loan, being one of those loans, must have been assigned to Mr Hunwick. That proposition could not be established without showing that the amounts assigned by Action Motor Group to Mr Hunwick, at quarterly intervals, were all of the debts owed to it. There is no evidence to establish that proposition, and again, the terms of Deed of Assignments seem to be to the contrary, so far as they suggest that what was assigned from time to time was the amount of consulting fee obligations owed by Gasoline Pty Limited to Action Motor Group and the particular loan to which I referred above.
Second, the issue arises as to whether there is any explanation for the failure to raise the relevant ground in opposition to setting aside the creditor's statutory demand. The Company does not seek to advance any such explanation. There is no evidence as to why any application was not made to set aside the creditor's statutory demand. That seems to me to be enough, in itself, to suggest that the application should be dismissed. The Courts have emphasised the importance of maintaining the integrity of the regime complicated by s 459G of the Corporations Act, which was introduced in order to change the previous practice by which debates as to the existence of a debt were determined at the point of the winding up application, and require that such debates be determined at the point of an application to set aside the creditor's statutory demand. That policy objective would be significantly undermined, or entirely defeated, if winding up applications could be regularly resisted on the basis that no debt was said to be owed, where no application had been brought to set aside the creditor's statutory demand.
Third, s 459S(2) of the Act provides that the Court may only grant leave if it is satisfied that the relevant ground is material to proving that the debtor is solvent. The authorities, including the decision of Wigney J in Soundwave Festival Pty Limited v Altered State (W.A.) Pty Limited (No 1) [2014] FCA 466 and my decision in Re Vangory Holdings Pty Limited above indicate that evidence will not be material if it is not capable of establishing solvency, on any view of the evidence. It seems to me that, here, the evidence is not capable of establishing solvency, on any view, for at least two reasons. The first is that, as far as the evidence goes, it does not seek to deny the proposition that the debts which were owed to Action Motor Group by the Company still exist, but instead asserts that they have now been assigned to Mr Hunwick, or his trustee in bankruptcy, in a manner which means they are now owed to someone else. That does not establish solvency, although it may impugn Action Motor Group's status as a creditor. Second, there is no evidence to allow any broader assessment of the Company's solvency, whether these debts were included or excluded from its position. There is also no basis to infer, and no evidence to suggest, that these are the only debts owed by the Company, as of today, particularly given the limited weight that I would give to the Report of Affairs completed by Mr Hunwick, for the reasons noted above.
For all these reasons, I am not satisfied that the basis to grant an application under s 459S of the Act has been established. The Interlocutory Process dated 29 June 2015 brought by the Company should be dismissed with costs.
[3]
Winding up application
By Originating Process filed on 8 May 2015, Action Motor Group seeks an order that the Company be wound up on the grounds of insolvency. The first issue which arises is whether such an order should be made and, if that order is made, a second issue arises as to the identity of the liquidator to be appointed.
The application is supported by an affidavit of Mr Alan Hayes, the liquidator of Action Motor Group, dated 8 May 2015 and relies upon the service of a creditor's statutory demand upon the Company. I had previously dealt with an application for leave to oppose the winding up application, under s 459S of the Corporations Act, and had not granted such leave. The application is further supported by an affidavit of Mr James Laman dated 9 July 2015, which deals with a number of formal requirements for a winding up application, including the giving of notice of application to the Australian Securities and Investments Commission; the publication of notice of the winding up application on ASIC's published notices website; a current company search of the Company, which indicates that it has not presently been the subject of a winding up order; and a search of ASIC's publication website.
The first question is whether an order should be made for the winding up of the Company. The primary basis on which that order has been sought to be opposed by the Company is that Action Motor Group is not a creditor of the Company. That turns upon the proposition that Action Motor Group had assigned debts owed by a third party to Mr Rodney Hunwick a former director of the Company. I have dealt with the circumstances of those assignments above in respect of the application for leave under s 459S of the Corporations Act and it seems to me that, accepting for the purposes of this application that the assignments occurred, they do not establish that the particular debt which was the subject of the creditor's statutory demand was assigned, or that all debts owed by the Company to Action Motor Group, were assigned to Mr Hunwick.
Mr Dawson, who appears for Action Motor Group, draws attention to authority which indicates that a winding up based on a creditor's statutory demand, on the basis that the applicant is not a creditor, may only be opposed if leave is granted under s 459S of the Corporations Act: Chief Commissioner of Stamp Duty v Paliflex (1999) 47 NSWLR 382; Braams Group Pty Limited v Miric [2002] NSWCA 417 at [32]ff; Hopgood Ganim (a firm) v Tabtill Pty Limited [2012] QSC 204 at [26]. Mr Johnson also draws attention, fairly, to the possibility that principles of abuse of process may be applicable, notwithstanding that leave under s 459S of the Corporations Act was not granted, and that a winding up application may be set aside, or a winding up order not made, if the pursuit of that application would amount to an improper purpose which amounted to an abuse of process in the sense recognised by the High Court in Williams v Spautz (1992) 174 CLR 509 at 526. I accept that the decision in Braams Group Pty Limited v Miric to which I referred above suggests that principle may remain applicable, notwithstanding that leave has not been granted under s 459S of the Corporations Act.
However, I am satisfied on the evidence before me that there is no reason to think that Action Motor Group is not in fact a creditor of the Company. As I have noted above, a creditor's statutory demand was served, and not sought to be set aside, on the basis that it was a creditor and the claim to a debt was verified by the liquidator's affidavit. The underlying debt has not been contested by the evidence of Mr Hunwick, and the evidence of assignments to which I have referred above has not established, for the reasons noted in my judgment in respect of the application under s 459S of the Corporations Act, that the debt or all of the debts of the Company were assigned. For these reasons, I am not satisfied that an abuse of process is established, and I am satisfied that the Company has standing to bring a winding up application.
I am also satisfied that the presumption of insolvency, which arises from the issue of a creditor's statutory demand that has neither been set aside nor the debt paid, secured or compromised, has not been rebutted and that the formal requirements for a winding up order have been satisfied. Accordingly, a winding up order should be made.
A further question then arises as to who should be appointed as liquidator. Mr Hayes, who is the director of Action Motor Group, has given consent to appointment, which contains a detailed disclosure of matters which might affect his independence, in terms of previous dealings with the Company, and disputes as to ownership of assets of the Company. Mr Hayes has nonetheless formed the view, and I am satisfied that he has done so in good faith, that he could properly be appointed as liquidator, and his consent indicates that he is not aware of any conflict of interest or duty that would make it improper for him to act as liquidator.
Mr Hayes was cross-examined at some length to suggest that he may have dealt inappropriately with earlier issues as to the validity of sales contracts which had been entered into by the Company, by subsequently entering into a sales contract by Action Motor Group with the same purchaser to sell the same items. Mr Hayes' evidence in cross-examination suggested that he had formed the view that the earlier contract may not have proceeded, or did not proceed, and I am not privy to all the information which he had access to in forming that view, not least because evidence as to an earlier liquidator's examination of Mr Hunwick is not in evidence before me. Some criticism was advanced that Mr Hayes should not have proceeded to a sale of motor cycles by Action Motor Group, if they had previously been sold by the Company, although it seems to me that the substantial answer to that question may well be that which Mr Hayes put, namely that it was a pragmatic course to sell those motor cycles, rather than retain them, as long as the sale proceeds were quarantined as they have been by holding them in a solicitor's trust account, so that contested entitlements to them could be determined. Mr Hayes also rightly noted that, to the extent that a dispute as to ownership of the motor cycles or the sale proceeds arises, it could be determined, for example, by an application to the Court.
The Company in turn has provided a consent of another liquidator to appointment and, against the contingency that the Court does not consider it appropriate to appoint Mr Hayes, Action Motor Group has in turn provided a third consent to appointment. In circumstances that Action Motor Group has been successful in the winding up application, then there is a prima facie approach adopted by this Court that its nominee would be appointed, where there is no reason to doubt suitability of that nominee. The question then is whether there is any conflict of interest affecting Mr Hayes or risk to his independence such that it is preferable to appoint Mr Krejci, Action Motor Group's alternate nominee for appointment.
There are some circumstances in which it will be possible for a liquidator concurrently to hold appointments to related companies. It will often be the case that there are issues that need to be determined, as a matter of fact, as between related companies, including issues as to ownership of assets and intercompany debts. Mr Dawson, who appears for Action Motor Group, draws attention to the significance of seeking to limit the costs of a liquidation, which is to the benefit of all creditors, and the general rule would be that the Court would appoint a liquidator, to more than one company within a group, in order to seek to avoid unnecessary costs being incurred, if it were satisfied either that there was not a conflict that made such an appointment undesirable, or that such a conflict could be addressed by applications to the Court or other means. That course has the significant advantage that it seeks to minimise the waste of costs involved in multiple appointments of liquidators.
Nonetheless, the Court must recognise that there is an underlying principle that a liquidator should not be appointed, or should be removed, if he or she faces a significant conflict of interest which arises from his or her relationships with the Company, which may include, in an appropriate case, the fact of holding appointment as a liquidator to another entity in a different and contrary interest. I should emphasise that, in this case, there is not any reason, in my view, to consider that there has been any impropriety on the part of Mr Hayes. In particular, as I have noted above, it seems to me that steps to sell the motor cycles, where there was a dispute as to their ownership, and to quarantine the sale proceeds, may have been an entirely desirable and pragmatic approach, which will have advanced the interests of creditors in the relevant circumstances. It seems to me, however, that Mr Hayes does face a potential conflict of interest, not in his existing role, but if he were appointed as liquidator of the Company. The difficulty which then arises is that there does seem to be, at least, a potential for dispute as to ownership of the relevant motor cycles. Mr Hayes has recognised, very properly, that risk by quarantining the sale proceeds to take steps to determine the ownership of the motor cycles. It is true that Mr Hayes could make an application to the Court to determine that issue, although such an application itself will involve some costs. The difficulty seems to me, however, that once there is a real dispute as to that issue, Mr Hayes would face a real conflict of interest, where it is in the interests of Action Motor Group to seek to assert its ownership of the motor cycles and in the interests of the Company to seek to assert the contrary. Mr Hayes, I am sure, would act in good faith, but may be in a position where compromise is more attractive, because he is acting in both interests, in circumstances that one or other company ought properly to maintain its own position.
For this reason, without the slightest criticism of Mr Hayes, it seems to me preferable that another liquidator be appointed to the Company. I take that course with some reluctance, because it seems to me that Mr Hayes and Action Motor Group are entirely right in pointing to the risk that additional costs will be incurred in that situation. However, it is possible that those costs can be reduced by co-operation between the liquidators, and it may be that, if a view is formed between them as to the proper treatment of the motor cycles, a joint application for directions may be made in circumstances that will be little more costly than any application that could be made by Mr Hayes in his own right.
For that reason, albeit with hesitation, and recognising the force of the submissions which Action Motor Group and Mr Hayes have made as to the need to minimise costs in the liquidation, it does seem to me to be preferable that an alternate liquidator be appointed to the Company, so as to preserve both the appearance and the actuality of independence, in a dispute as to ownership of the motor cycles or the sale proceeds that resulted from their sale.
Accordingly, I make the following orders:
The Defendant, ACN 151 738 135 Pty Limited, be wound up in insolvency under the Corporations Act 2001 (Cth).
The Plaintiff's costs in the winding up application, including its costs of the s 459S application, be costs in the winding up.
Order that Mr Peter Krejci be appointed as liquidator of the Defendant, ACN 151 738 135 Pty Limited.
[4]
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Decision last updated: 04 September 2015