Australian Securities and Investments Commission v Plymin [2016] NSWSC 1907 | Case summary

Australian Securities and Investments Commission v Plymin [2016] NSWSC 1907 | Case summary | Zoe

By Originating Process filed on 13 September 2016 the Plaintiff, Mr Lee, seeks an order for the termination of the winding up of The Wills Group Pty Ltd (in liq) ("Company"). The Company has been wound up, plainly in unfortunate circumstances, on the basis of a judgment debt in a relatively small amount, in circumstances that it appears that neither the proceedings leading to the judgment, a subsequent creditor's statutory demand, or the winding up order, came to Mr Lee's attention although they were regularly served at the Company's registered office, in circumstances that the Company was then vacating that registered office. Mr Lee, fairly, does not take issue with the circumstances of the winding up orders, although he now seeks the termination of the winding up on the basis of a contention that the Company is solvent and the matters which led to its winding up are no longer continuing.
The application is supported by an affidavit of Mr Lee dated 12 September 2016 which deals with the circumstances in which the Company part paid an invoice to a creditor, in circumstances that it disputed an aspect of that invoice. That creditor subsequently commenced proceedings which led to a default judgment, issued a creditor's statutory demand based on that judgment and ultimately wound up the Company in the Supreme Court of Queensland. It appears that Mr Lee first became aware of the winding up order in mid-July 2016, when he was notified of that matter by the Company's home warranty insurer, and subsequently took steps to contact the liquidator and to apply for the termination of the winding up. Mr Lee also sets out his dealings with the liquidator, which have involved the provision of information to the liquidator, who has indicated that he does not oppose the termination of the winding up. There is also evidence that the creditor which brought about the winding up does not oppose the winding up, and steps have been taken to place Mr Lee's solicitors in funds, to be provided to the liquidator, which will allow all debts of the Company to be discharged.
Mr Lee also gives evidence of several current, and potential, residential building and construction projects to be undertaken by the Company. Those matters are of some significance because, as Mr Wiederman, who appears for Mr Lee, points out, each of the relevant contracts provide for deposits to be paid, before the Company commences work in respect of the building work. In circumstances that the Company's debts will have been discharged, in the manner proposed in this application, on termination of its winding up, it is to be anticipated that the payment of those deposits will contribute to the cash flow available to it to fund the relevant building works. I also note that each of those contracts provide for progressive payments as the building work continues.
The application is also supported by an affidavit of Mr Yoo, the Company's accountant, who indicates that he has been provided with and complied with the Expert Witness Code of Conduct. Mr Yoo indicates that he has reviewed, inter alia, the banking records of the Company, which are exhibited to his affidavit, and he also refers to the contracts for ongoing building projects to which I have referred above. He recognises the test for solvency in s 95A of the Corporations Act, and refers to the well-known indicators of insolvency in Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2013) 46 ACSR 126, and expresses the view that the Company is able to satisfy the cash flow test of solvency. Mr Lee appears to assume the continuance of an overdraft facility and Mr Wiederman has fairly pointed out that that facility was terminated on the Company's winding up, although the Company will seek to reinstate it following termination of the winding up. In the circumstances of this application, there may well be a reasonable prospect that it will be successful in doing so.
Mr Lee expresses the view, having regard to past and the likelihood of future contributions from the Company's director, and the Company's income from ongoing projects, that the Company will be able to meet its debts as and when they fall due. Although that opinion is not supported by a detailed cash flow analysis, which would generally be desirable in applications of this kind, it seems to me that that evidence may more readily be accepted given the particular circumstances of the winding up of an entity that apparently had significant funds in its bank account, over a relatively small debt, which it had the capacity to discharge but for the fact that it disputed the part it had not paid.
Mr Lee also relies on an affidavit of his solicitor, Ms Warren, dated 20 October 2016. Ms Warren's affidavit indicates that notice of the application has been given to the Australian Securities and Investments Commission, which has indicated its view that the matter is properly left for the determination of the Court and that it does not propose to intervene in the proceedings. There is also evidence, as I have noted above, that the creditor which moved for the winding up of the Company has no objection to the application to terminate the winding up.
As I noted above, the liquidator, Mr Cussen, does not oppose the winding up application, but has helpfully sworn an affidavit dated 20 October 2016 which records the work which he has done. Mr Cussen, in that affidavit, notes that he has received confirmation from Mr Lee's solicitors that moneys are held in trust by those solicitors for the purpose of paying creditors of the Company. He also indicates that he has reviewed Mr Lee's affidavit and Mr Yoo's affidavit and does not dissent from those affidavits. I infer from that indication that the liquidator has no reason to disagree, on the material known to him, with Mr Yoo's conclusion that the Company should be able to meet its debts as and when they fall due after a termination of the winding up. Mr Cussen also indicates the known creditor claims, following a proof of debt process, and that the monies which are proposed to be made available to the liquidator are sufficient to discharge those claims, including amounts due to the Australian Taxation Office.
Mr Cussen also sets out the amount which he claims by way of remuneration, costs and disbursements. In some circumstances, of course, a liquidator's claim for remuneration requires court approval, if it is not approved by creditors, under s 473 of the Corporations Act 2001 (Cth). In this case, there is no dispute between Mr Lee and the liquidator as to the amount of funds which should be made available to the liquidator by way of funding for remuneration, costs and disbursements. Mr Cussen sought to have the Court approve his remuneration in this application. It seems to me that, as a matter of practice, the court should ordinarily ensure that it is satisfied that a liquidator is placed in funds for his remuneration, as claimed or as agreed, in an application of this kind. However, I do not consider that an application of this kind is a proper forum for the determination of the amount of the liquidator's remuneration, if court approval for that remuneration is required. In particular, it does not seem to me that a contributory, who is seeking to terminate a winding up should have that application delayed if there are difficulties in determining, for example, the amount of remuneration to which the liquidator is properly entitled. If that cannot be agreed with creditors, or otherwise resolved, then the liquidator who will be in funds to discharge that remuneration may, of course, bring a separate application to the court for approval of that remuneration. No such approval is required for the discharge of costs and disbursements, which may be discharged as soon as the liquidator is in funds to pay them.
The matters which are relevant to an application of this kind are addressed in Mr Wiederman's submissions and are, of course, well established. Several factors were identified by the Supreme Court of Queensland in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533. Relevantly, it is desirable that there be evidence that all debts are discharged and the attitude of creditors, contributories and the liquidator is a relevant consideration. Here, Mr Lee supports the termination of the winding up, the creditor which brought it about does not oppose it and the liquidator also does not oppose it.
The current trading position and the general solvency of the relevant company should be demonstrated in an application of this kind. As I have noted above, in this case, there could be more detailed cash flow analysis, but it seems to me that the structure of the Company's business, including the deposits which it is likely to receive on the commencement of further construction projects, the fact that it was wound up over a small and disputed debt, and the fact that the experience of this application will no doubt have led its director to be conscious of issues of solvency, are such that I may be satisfied that the Company will be able to meet its debts as and when they fall due. In particular, I note that there is nothing in this matter that suggests any noncompliance by the director with his previous statutory duties, and the evidence suggests that the director has throughout been cooperative with the liquidator in respect of the liquidation, notwithstanding the unfortunate circumstances which brought it about. There is also no evidence which would suggest that the conduct of the Company's business was contrary to commercial morality or the public interest, and it appears to be that only the winding up has brought about the interruption of its arrangements with its bank and with its home building warranty insurer.
In Mercy & Sons Pty Ltd v Wanari Pty Ltd [2000] NSWSC 756; (2000) 35 ACSR 70 at [47]ff, Austin J in turn pointed to the various categories of interests which are relevant in an application of this kind, including the liquidator's interest in having his or her costs discharged, which will be satisfied in this case, the interests of creditors and contributories, and matters of public interest, including matters of commercial morality. In Re Glass Recycling Pty Ltd [2014] NSWSC 439 at [15]ff, Brereton J pointed to the fact that the court must be satisfied that the state of affairs that required the company be wound up no longer exists. In the present circumstances, it is easier to be satisfied of that matter, since, it is unlikely that a state of affairs existed that required the Company to be wound up in the first place. It was wound up, regrettably, because various opportunities to it to contest the claim against it in the Local Court, to contest the creditor's statutory demand, and to affirmatively establish its solvency at the point of the winding up application, were lost to it because of the fact that documents properly served upon it, did not come to Mr Lee's attention. His Honour (at [18]) also there referred to the observations of Bergin CJ in Eq in Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 which emphasised the importance of solvency in an application of this kind.
I note, for completeness, that Mr Wiederman also draws attention to the fact that the winding up application was made in the Supreme Court of Queensland. Mr Wiederman draws attention to authority that demonstrates, and I am satisfied that, there is no discourtesy to the Supreme Court of Queensland, within a national system of corporations law, in dealing with an application to terminate the winding up in this Court.
As a practical matter, the form of orders that are to be made has been agreed between the parties, and will provide for payment to the liquidator of the moneys currently held in Mr Lee's solicitors' trust account within a short period, and for the liquidator to then disburse those funds to provide for payment of creditors, and for his remuneration (subject to any necessary court approval), and for the costs and disbursements of the winding up. To the extent that court approval is required, and has not been obtained, for remuneration, then the liquidator can, of course, hold the funds that would have been paid to him in trust pending such approval. Those orders will practically bring about the discharge of the Company's debts, and, in those circumstances, I am satisfied that I may properly make an order terminating the winding up, which will be stayed for a short period to allow the liquidator to discharge the relevant debts.
I make orders in accordance with the short minutes of order initialled by me and placed in the file.

Australian Securities and Investments Commission v Plymin

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