- Australian Securities & Investments Commission v Lanepoint Enterprises Pty Ltd

Supreme Court of NSW|2023-11-28|Before: Black J

Solicitors: Eakin McCaffery Cox (Plaintiff) Taylor Rose (Defendant) File Number(s): 2023/216218

Adjournment application

By Interlocutory Process filed on 22 November 2023, the Defendant, Fitzgerald Housing Limited (formerly known as Kay Fitzgerald Housing Charity Limited) ("Company") applies under s 453Q(1) of the Corporations Act 2001 (Cth) ("Act") for the adjournment of a winding up application and to vacate the hearing date of the winding up which has been set, for some time, for today. The Company seeks an adjournment of the winding up proceedings to a date in early February 2024, to allow it to advance a restructuring under Pt 5.3B of the Act, and I will refer to the basis on which that application is made below. The Company recognises that this may require an extension of time for the determination of the winding up proceedings under s 459R of the Act and indicates that it will not oppose that extension of time.
The adjournment application is opposed by the Plaintiff, Mr Curran as the trustee for June Ellen Investment Trust ("Trust"), although it was ultimately not necessary for me to hear from Mr Boadle, who appears for the Plaintiff, in respect of the adjournment application.

Affidavit evidence

The Company reads two affidavits dated 20 and 22 November 2023 of Mr Trimboli, an insolvency practitioner, who has been appointed as a restructuring practitioner in respect of the Company under s 453B of the Act. In his first affidavit dated 20 November 2023, Mr Trimboli annexes the minutes of the Company's board which made that appointment. The minutes record that the Company, at the point of his appointment, had cash at bank of some $68,648.54, accounts payable of $14,500 and had a liability to the Australian Taxation Office to repay GST rebates of $506,655.47 that it had previously claimed, as well as current liabilities including for staff of $20,000. The Company there also recognised a contingent liability to the Trust, implicitly in respect of the debt that underpins the winding up application, of up to $390,000 and contingent liabilities for costs, including in respect of a previous costs order made against it of up to $50,000. The directors there recorded their belief that the eligibility criteria for a restructuring under Pt 5.3B of the Act were satisfied and their opinion that the Company was likely to become insolvent at some future time. That position was, perhaps, optimistic, where, on the same date as that resolution, the Australian Tax Office account for the company recorded that an activity statement had been successfully lodged, that the amount due by the Company to the Australian Taxation Office was $506,655 and that it was due in six days' time to minimise possible interest charges. Plainly, so far as the information disclosed by the minutes were concerned, the Company did not then have cash on hand that would allow it to pay the Australian Taxation Office $506,655 in six days' time.
Returning to Mr Trimboli's affidavit, he then sets out the steps which would be involved in a restructure of the Company pursuant to Pt 5.3B of the Act, which involved the Company, with his assistance, preparing a restructuring plan proposal in the period to 12 December 2023; then sending that restructuring plan proposal to creditors; and creditors then considering and voting on the restructuring plan proposal by 8 January 2024. Presumably, the adjournment of the winding up to February 2024 sought by the Company reflects that process, and possibly also an assumption that the Court would not hear the winding up application in the Court vacation, which may or may not be correct.
Mr Trimboli then undertakes a comparison of the potential outcomes of liquidation and restructuring of the Company, and estimates the dividend payable to unsecured creditors if the Company is wound up as 2 cents in the dollar, on the basis of an assumption, which is not established, that there would be no voidable recoveries and no recoveries for insolvent trading in a liquidation, and on the basis of his estimate of liquidator's fees and expenses of $75,000. He compares that position with an estimated recovery of 27 cents in the dollar under a restructuring plan, on the basis that there is no means to recover voidable transactions or for insolvent trading in a restructuring and assumes a contribution from the directors of $60,000 which he describes as the "SVR plan". In both estimates, he assumes contingent creditors claims of $10,000, which plainly does not allow for the debt relied upon by the Trust in respect of the winding up application, other than in respect of an estimate of the Company's liability for costs.
Mr Trimboli there notes that the key differences in the estimated outcomes for a restructuring and liquidation involve a waiver of a related party debt in the sum of $38,000 and a cash contribution in the sum of $60,000 in a restructuring. Mr Vernier, who appears for the Company, draws attention to an email sent from Mr Fitzgerald, a director of the Company, to Mr Trimboli dated 17 November 2023 which confirms that he and another person will waive debts owed to them by the Company of approximately $38,000 to support a restructuring plan and will contribute the sum of $60,000 over 12 months to support a restructuring plan. That email goes on to note that they would facilitate, support and execute a "trade on" strategy with forbearance from creditors for a period of 12 months, which would see all creditors paid close to one hundred cents on each dollar of debt, but Mr Trimboli wisely does not proceed on that basis for the purposes of his assessment.
It will immediately be noted that, as Mr Vernier fairly accepts, there is no evidence that Mr Trimboli has made any inquiry to determine whether a debt of $38,000 is in fact owed by the Company to the directors, to support any value in the suggested surrender of that debt; and there is no evidence that he has made any inquiry as to whether the directors have or can raise $60,000, now or over a 12 month period, to contribute to the restructuring plan. Notably, the Company leads evidence from neither of the directors in support of the adjournment application, either to support the proposition that the debt to them exists or that they are capable of making the contribution which Mr Trimboli assumes that they will make. I proceed on the basis that their evidence in respect of those matters would not have assisted the Company in establishing the correctness of the assumptions which Mr Trimboli has made.
On the basis of these assumptions, Mr Trimboli then indicates that he believes it is in the best interests of unsecured creditors to allow the Company to propose a restructuring plan. That proposition is derivative of the assumptions which he has made and the calculation which he has performed on the basis of those assumptions. Mr Trimboli goes on to recognise that his conclusion partly depends on the directors making a cash contribution, and refers to the email by which they have offered that contribution, but says nothing further as to any verification of their capacity to make it. He notes that his estimates include the liability to the Australian Taxation Office in the sum of $506,655 to which I have referred above.
By his second affidavit dated 22 November 2023, Mr Trimboli expands on the basis on which he has treated the debt owed to the Trust, which underpins the winding up application, as having a value of $10,000. He notes that that is the Company's estimate of the value of that claim, which comprises $10,000 for a previous costs order and nil for the relevant debt. Again, there is no suggestion that he has made any inquiry to verify that estimate. Mr Vernier submits, and I am content to assume for present purposes, that it is not necessary for a restructuring practitioner to make such an inquiry, in order to determine with certainty the amount of claims for debt in the winding up, at this early stage in a restructuring. Mr Trimboli notes that, if there is a disagreement between the Company and the Plaintiff as to the amount of the liability, then he will determine it with the assistance of independent legal advice. Mr Trimboli there recognises that, if that debt were included in full, the return to creditors in both a liquidation and a restructuring plan would be reduced, but the return in the latter case depends on the assumptions which I have noted above.
The Plaintiff in turn tendered two affidavits dated 2 August and 18 August 2023 of Mr Fitzgerald, who as I noted above is a director of the Company, and an affidavit dated 2 August 2023 of Mr Maconachie, who is the company secretary and accountant of the Company. Those affidavits were tendered by the Plaintiff, where the Company did not lead evidence from their deponents, to seek to establish that the Company's business model was to acquire properties, which would in turn be made available to third parties for housing, and to rely on the tax advantages of being a charity to perform that activity. In particular, Mr Maconachie's affidavit dated 2 August 2023 referred to the Company's function as a "charity" that aims to provide vulnerable Australian workers, veterans and single parent families access to affordable and secure housing, and to its use of the tax advantages of being a charity to perform that role. I note, although it is only relevant as background to the winding up application, that there are some unusual features of the Company's business model. While the Company functions as a charity, it appears to pay very substantial salaries to Mr Fitzgerald and Mr Burgoyne, which are multiples of the salaries paid to its other employees. It is apparent that those associated with the Company derive significant benefits from it by way of salary, notwithstanding Mr Maconachie's evidence that, as a charity, the Company does not aim to make a profit, and will not distribute profits to its shareholders.
The Plaintiff in turn contends that there are risks in the Company's business model, and that that is a reason not to grant the adjournment of the winding up, and in particular points to the risk which has apparently now come home, so as to prompt the proposed restructuring, that claims for GST reimbursement may result in substantial debts owed to the Australian Taxation Office, if the Company's activities do not justify those claims. It is not necessary to determine that matter in order to determine the adjournment application.

Applicable principles and determination

The Company here relies on s 453Q(1) of the Act which relevantly provides that: "The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under restructuring and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under restructuring rather than be wound up."
Mr Vernier rightly points out that that section is mandatory, and requires the Court to adjourn the hearing of the application, where the Court is satisfied of the relevant matter, namely that it is in the interests of the Company's creditors for the Company to continue under restructuring.
Mr Vernier also rightly recognises that the case law has generally proceeded on the basis that the principles applicable under s 440A(2) of the Act relating to an adjournment of a winding up in a voluntary administration provide guidance as to the approach which the Court will adopt in respect of the broadly corresponding provision in s 453Q of the Act. The latter section was considered in early case law, which left open the question whether the level of investigation required of a restructuring practitioner in respect of a company's affairs might be less than was required in a voluntary administration: Re Dessco Pty Ltd [2021] VSC 94; Re DST Project Management and Construction Pty Ltd [2021] VSC 108. However, in Deputy Commissioner of Taxation v Pope Joan Hospitality Pty Ltd (Restructuring Practitioner Apptd) [2023] FCA 872, Derrington J doubted (at [57]) that s 453Q, dealing with the adjournment of a winding up while a restructuring was on foot, should be applied differently from s 440A of the Act. Her Honour observed (at [59]) that the Court's concern must be directed to a state of satisfaction as to whether continuing under restructuring or under administration is in the interests of a company's creditors. I should indicate my agreement with her Honour's approach. I can see no reason why an adjournment of a winding up application should be more readily granted in respect of a restructuring under Pt 5.3B of the Act than it would be in respect of a voluntary administration under Pt 5.3A of the Act.
The relevant principles in respect of an adjournment of a voluntary administration under s 440A of the Act are well-established and Mr Vernier referred to my summary of them in Re Brew Still Pty Ltd (admin apptd) [2023] NSWSC 256 ("Brew Still"). I adopt, without repeating, my review of the authorities in that case. Broadly, in adjourning a winding up in a voluntary administration, and similarly in adjourning a winding up in a restructuring, the Court will have regard to the risk that a voluntary administration or a restructuring may be embarked upon as a "last resort" in response to a winding up proceeding and will exercise a degree of caution where, as here, an application to adjourn a winding up is brought relatively late. I recognise that, here, there is some explanation for that development, where a substantial amount owing to the Australian Taxation Office arose on the date the Company entered into restructuring. However, it would be surprising if the Company had no expectation, prior to the liability arising, that it would arise.
Returning to the relevant principles, Mr Vernier rightly accepted that the Company bears the onus of persuading the Court that it should be satisfied of the matters specified in s 453Q(1) of the Act, namely that it is in the interests of the Company's creditors for the Company to continue in restructuring rather than be wound up, and the case law indicates that question is closely related to the financial benefit to be obtained from a restructuring as opposed to a winding up. I recognise that the Company has addressed that question, to some extent, by leading Mr Trimboli's evidence in that respect. I also recognise that, here, the application to adjourn the winding up is brought at a relatively early point in the restructuring, when Mr Trimboli may have relatively limited information about the Company, and the Court will have regard to that matter in exercising its discretion whether to adjourn the winding up, generally for a relatively short period at an earlier stage to allow further investigations to be made. I also recognise that, here, Mr Trimboli has found it possible to express the view as to the likely outcome of a restructuring on the one hand, and a liquidation on the other. The difficulty which arises is less one of his calculations, than of the lack of any evidentiary support for the assumptions which he has made, and that is not a consequence of the limited period in which he has been in office.
Turning now to the Company's submissions in support of the adjournment of the winding up, Mr Vernier rightly refers to the principles which the court has adopted in dealing with similar applications under s 440A of the Act, including the observations of Griffiths J in Deputy Commissioner of Taxation v Fyna Construction (Hire & Sales) Pty Ltd (admins apptd) [2019] FCA 578 and my review of the relevant authorities in Brew Still, to which I referred above. Mr Vernier refers to the chronology of matters relating to the restructuring, and to Mr Trimboli's evidence as to the better return that is to be anticipated in a restructuring rather than in a liquidation. He submits that Mr Trimboli's evidence discloses a sufficient possibility that a restructuring plan can be proposed, which if accepted by creditors would significantly improve the dividend that each creditor would receive compared to what they would receive under a winding up. He submits that, taking into account the short time that Mr Trimboli has been in office, that evidence is sufficient to show that it is in the interests of the Company's creditors for it to continue under restructuring rather than face the risk of winding up.
Mr Boadle, who as I noted above appears for the Plaintiff, points to the absence of evidence from any of the Company's directors or officers to support the application for an adjournment of the winding up, and points to difficulties with Mr Trimboli's calculation of the result of a restructuring plan, both by reason that it does not include the debt that is the basis of the winding up application, and by reason of the fact that there is no evidence to support the assumption of the additional contribution of $60,000 to be made by the directors, to which I referred above in noting that Mr Trimboli had assumed that contribution in his calculation of the outcome of a restructuring plan. Mr Boadle also points to the affidavits of Mr Fitzgerald and Mr Maconachie, which as I noted above, were tendered by the Plaintiff to seek to establish the dependence of the Company's business on the receipt of income from the Australian Taxation Office by way of GST refunds. He points to the risk attached to that business model that any income it claims, in the form of GST refunds, may be repayable if the relevant property transactions do not proceed. I noted above that, first, that risk now appears to have come home and, second, it is not necessary to reach any further findings as to this matter in order to determine the adjournment application. Mr Boadle submits that the evidence led by the Company rises no higher than optimistic speculation that creditors' interests will be served if a restructuring continues and the Company is not wound up, and that that is insufficient to allow any state of satisfaction that it is in the interests of the Company's creditors for it to continue under restructuring rather than be wound up.
Here, I have had regard to Mr Trimboli's analysis, and to the key features which he identifies as supporting the continuance of the restructuring rather than a winding up. I am not left in any state of satisfaction that it is in the interests of the Company's creditors to continue in a restructuring rather than be wound up, because it seems to me that each of the critical elements of Mr Trimboli's analysis lacks evidentiary support. The first relates to the waiver of the related party debt in the amount of $38,000, and I have pointed above to the absence of investigation by Mr Trimboli as to the existence of that debt, and the absence of evidence led by the Company's directors or officers to seek to establish its existence, and to the inference that I can properly draw that their evidence would not have assisted in establishing that that debt exists.
Second, Mr Trimboli refers to the contribution in the sum of $60,000, but he has similarly not established that the directors have the capacity to make such a contribution, and they have led no evidence to establish such capacity, and I can infer that their evidence would not have assisted the Company in establishing that capacity. He also refers to the lesser costs of a restructuring than a liquidation, but that analysis takes account of only one side of the ledger, because it has no regard to the prospect of recoveries in a liquidation, which may well be achieved by the additional work done by a liquidator. I have noted above that Mr Trimboli has made no effort to seek to validate the assumption that he has made that there will be nil recoveries in a liquidation, which is a matter of fact, although that position is inevitable in a restructuring.
In these circumstances, I am not satisfied that Mr Trimboli's calculation rises beyond speculation, so far as the result of a restructuring plan is concerned; I am not satisfied, given the extent of the debt owed to the Australian Taxation Office, and the absence of evidence of the Company's directors or officers to support the adjournment application or the assumptions upon which it is based, that an adjournment, even for a short period to permit the development of a restructuring plan, has any advantage for creditors; and I am not persuaded that the Court can be satisfied of the matters set out in s 453Q of the Act. For these reasons, I decline to adjourn the winding up application.

Application for leave, nunc pro tunc, to file Further Amended Notice of Appearance and Grounds of Opposition ("Further Amended Grounds")

As I noted above, the Plaintiff seeks an order winding up the Company on the ground of insolvency, or on an alternative ground which it is not presently necessary to address. That application relies on a presumption of insolvency arising from the issue of the creditor's statutory demand issued by the Plaintiff ("Demand") and the Company's failure to apply to set aside that Demand or satisfy it within the 21 day period specified in the Act.
By Interlocutory Process filed on 4 August 2023, the Company sought leave under s 459S of the Act to oppose the winding up application on a ground that the Company could have relied on in an application to set aside the Demand, where it had not brought that application. That Interlocutory Process described that ground in somewhat general terms, namely that the existence and amount that was the subject of the Demand is disputed. The primary ground that the Company then sought to advance was a proposition that the Plaintiff, Mr Curran, purportedly as trustee for the Trust, was not a creditor of the Company and did not have standing to bring the application.
I addressed the evidence on which the Company relied for this application under s 459S of the Act in my judgment delivered on 12 September 2023 ("459S Judgment") and declined such leave under s 459S of the Act, for the reasons set out in that judgment. I there noted that much of the case that the Company sought to raise by the leave sought under s 459S of the Act was directed to the proposition that Mr Curran, as trustee of the Trust, was not a creditor of the Company and did not have standing to bring a winding up application. I also noted that: "That is a matter that may be available to the Company, in defence of the winding up application, irrespective of whether leave under s 459S of the Act is granted. I should add to my oral ex tempore judgment that the brief decision of Ball J in Re Pegasus Capital Management Pty Limited [2011] NSWSC 570 is to the contrary but may not finally determine that question. It is not necessary or appropriate for me to determine that question in this application."
On dismissing the Company's application under s 459S of the Act, I made an order permitting the Company to file and serve an Amended Notice of Grounds of Opposition by 26 September 2023. The 459S judgment left open the possibility that the Company could seek to oppose the winding up order by contesting the Plaintiff's standing to bring it, and the Company took that course in its Amended Notice of Appearance and Grounds of Opposition filed on 21 September 2023 ("Amended Grounds"). The Company there contended that the Demand was signed by Mr Curran in his capacity of trustee of the Trust and that his appointment as trustee of the Trust was not valid. That proposition was in turn relied on to support a contention that Mr Curran, as trustee of the Trust, had no standing to commence the proceedings; had no authority to sign the demand on behalf of the Trust; the alleged debt described in the Demand did not vest in Mr Curran, or possibly in the Trust; the Demand was invalid or a nullity; and Mr Curran, or possibly the Trust, was not a creditor of the Company. A further point was raised as to whether, if Mr Curran had been validly appointed as trustee of the Trust when the Demand was issued, the alleged debt had vested in him as trustee at that time.
Subsequently, on 15 November 2023, without making any application for leave and without leave, the Company filed the Further Amended Grounds, which maintained the earlier grounds of opposition, but abandoned a contention that the Company was solvent and could disprove any presumption of insolvency under s 459C(2) of the Act. The Further Amended Grounds also introduced a further contention that Mr Curran as trustee of the Trust was not entitled to bring the proceedings, because, by reason of s 8(2)(a) of the Property and Stock Agents Act 2002 (NSW) ("PSA Act"), an individual who did not hold a real estate agent's licence could not bring proceedings to recover any commission, fee, gain or reward for service performed as a real estate agent unless he or she held a real estate agent's licence and, at least implicitly, Mr Curran or the Trust was required to hold such a licence for the services he had performed for the Company.
I allowed the Company the opportunity to seek leave, nunc pro tunc, to file the Further Amended Grounds and Mr Vernier has taken up that opportunity. The application for leave raises significant issues, since the Court would not grant leave for the filing of that document if the claims that it seeks to bring could not succeed as a matter of law. That in turn raises two questions, which have now been addressed in Mr Vernier's submissions. I note, for completeness, that the Plaintiff neither consented nor opposed the grant of leave to file the Further Amended Grounds and I did not hear Mr Boadle in this regard.

The first issue - whether it is open to the Company now to contest the debt so as to deny the Plaintiff's standing to bring the winding up application

The first issue is whether it is open to the Company now to agitate matters on which it could have relied to set aside the Demand, and unsuccessfully sought leave to rely on under s 459S of the Act, in denying the Plaintiff's standing to bring the winding up application. That issue primarily depends on the correctness of the decision of Ball J in Re Pegasus Capital Management Pty Limited [2011] NSWSC 570 ("Pegasus Capital Management"), a question that I had left open in the 459S Judgment. It is appropriate that I should determine that question, since, if Pegasus Capital Management is correct, there is no utility in admitting or addressing the voluminous evidence led by the parties in reagitating matters which go to the existence of the debt on which the Demand relied, or more precisely whether it was owed to Mr Curran as trustee of the Trust. While the Company was declined leave to oppose the winding up application in reliance on those matters under s 459S of the Act, it now seeks to rely on them in support of a contention that Mr Curran or the Trust does not have standing to bring the winding up application.
I have pointed above to the fact that the Further Amended Grounds seeks, in large part, to challenge the standing of Mr Curran as trustee of the Trust to bring the winding up application on the basis that the debt was not owed to him, either because his appointment as trustee of the Trust was not valid, or because the debt had not vested in him as trustee of the Trust at the time the Demand was served. Each of those matters are plainly matters on which the Company could have relied to set aside the Demand, so far as they have the consequence that the debt could be genuinely disputed on the basis that it was not owed by the Company to Mr Curran as trustee of the Trust. Each of those matters were not matters on which the Company relied to set aside the Demand, because it brought no application to set aside the Demand; and they were matters which the Company sought, but failed, to rely on to oppose the winding up application, by its application filed under s 459S of the Act.

The applicable case law

I should add to the observations that I made, in my oral ex tempore judgment, that issues of this character have been considered in case law addressing the scope of the leave requirement under s 459S of the Act. Mr Assaf has noted in his text, Assaf's Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) at [11.21]) that there are divergences in the case law as to the interpretation and operation of s 459S(1)(b) of the Act, which prevents a company relying, without leave, on a ground that the company "could have relied on", but did not rely on, to set aside the relevant creditor's statutory demand. It is not necessary to determine those differences in this application.
Several cases have accepted that a defendant may raise matters in opposition to a winding up, without leave under s 459S of the Act, where it had no opportunity to raise them in setting aside a statutory demand because it did not receive that demand, or because the matter only arose after the 21 day period to file that application had expired: Biron Capital Ltd v Velowing [2003] NSWSC 1181 ("Biron"); Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719 ("Masri"), where Austin J noted (at [12]) the legislative policy that disputes relating to statutory demands were not intended to be heard at the hearing of the winding up application and observed there that "that policy assumes that the debtor company has the opportunity to make an application, within the prescribed time limit, to set the demand aside. Such an opportunity will exist if the statutory demand is both properly served and comes to the notice of the company's directors in a timely fashion"; see also Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 at [14]; Re Tomic Industries Pty Ltd [2012] NSWSC 1478.
That wider approach would not assist the Company here, because there is no dispute that the Demand was properly served and received by the Company and the matters on which the Company seeks to rely existed at that time. As I note below, the Company here contends that it should be able to rely on those matters to oppose the winding up because it did not then know of them. Mr Vernier identifies no case that has permitted that course and I address the reasons it should not be permitted below.
In Re Kornucopia Pty Ltd [2020] VSC 7 ("Kornucopia"), Sifris J declined to follow Masri and observed, inter alia, that the approach taken in Masri was not consistent with the High Court's decision in Australian Securities & Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18 ("Lanepoint") to the effect that, where the statutory presumption of insolvency had arisen, it was not open to a company to dispute the existence of the debt (at [172]-[174]); that the approach in Masri would permit a "collateral attack" on the plaintiff's standing as a creditor without first requiring the company to rebut the presumption of insolvency (at [175]); and a ground which "could" have been relied upon is one for which the relevant facts were in existence at the time that the company could have applied to set aside the Demand under s 459G of the Act (at [178]). The approach that the Company takes here is plainly inconsistent with that decision.
Returning now to my oral reasons for judgment, in Pegasus Capital Management, Ball J addressed the position where a defendant had sought, but failed, to obtain leave under s 459S to rely on certain matters to set aside a creditor's statutory demand. Having failed to obtain that leave, the defendant there contended that it was entitled to rely on the same matters to deny the plaintiff's standing under s 459P of the Act to make an application to wind up the defendant, where the plaintiff must establish that it was a creditor of the defendant in order to do so. Ball J held that that approach was not available to the defendant in that case. His Honour observed (at 13) that: "Section 459C(2)(a) of the Act provides that the court must presume that a company is insolvent if, during or after the 3 months ending on the day when the application to wind up the company is made, the company failed to comply with a statutory demand. The presumption operates "except so far as the contrary is proved for the purposes of the application": s 459C(3). Clearly, the presumed insolvency arises from the failure to pay the debt the subject of the demand. Section 459H gives a court power to set aside a statutory demand if there is a genuine dispute concerning the debt to which the demand relates or the company has a (genuine) offsetting claim. If no application is made, and subject to the operation of s 459S, the presumption created by s 459C(2)(a) applies. It must follow that the amount that is the subject of the demand is presumed to be owing by the company and the person to whom it is owing is presumed to be a creditor of the company. If it were otherwise, the structure created by Part 5.4, and s 459S in particular, would be pointless, for it would always be open to a company to resist a wind-up application on the basis that that application was brought by a person who was not a creditor, even if that person had served a statutory demand which had not been set aside. That is clearly not what the legislature intended in creating the presumption in s 459C(2) and in including s 459S in the Act."
The question whether I should grant leave to file the Further Amended Grounds depends, in large part, on whether I should follow that judgment, where the effect of that judgment would be to shut out a large part of the matters raised in the Further Amended Grounds by the Company, and indeed all of the matters raised in the Amended Notice of Appearance and Grounds of Opposition previously filed by the Company other than its contention that it was solvent, which has now been abandoned.
I bear in mind, in that regard, the importance of consistent decision making in respect of the national scheme of corporations legislation, and I should not depart from a decision reached by another judge in respect of that legislation unless I consider that that decision is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 (dealing with decisions of intermediate appellate courts); BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) 162 FCR 234; [2007] FCAFC 157 at [83]-[89]; Frugtniet v Australian Securities and Investments Commission (2017) 255 FCR 96; [2017] FCAFC 162 at [93]; Ming Tian Real Property Pty Limited v SGS Platinum Pty Limited (2020) 145 ACSR 329; [2020] NSWSC 212 at [38]. For the reasons that I will explain below, I am not satisfied that the decision of Ball J is plainly wrong, and, indeed, it seems to me that the way in which these proceedings have developed indicates why it is 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 should, however, address Mr Vernier's submissions in that respect, again noting that I have not heard submissions in response from Mr Boadle where the Plaintiff neither consented to nor opposed the application for leave to file the Further Amended Grounds. Mr Vernier submits that Ball J's reasoning may have the consequence that, where a matter is not known to a defendant company within the 21 day period, the defendant company cannot then raise that matter in opposition to the winding up application. He gives the example that a plaintiff's licence may have been cancelled, in a way which affects its ability to recover a debt, and that information may not have been available to the defendant within the 21 day period available to set aside a creditor's statutory demand.
There seem to me to be several difficulties with that proposition, beyond its inconsistency with Kornucopia and Pegasus Capital Management. The first is that it turns on the question of what is "known" to the defendant company within the 21 day period and, at least in its widest form, would allow a defendant who made no inquiry or limited inquiry to identify grounds to set aside the creditor's statutory demand within that 21 day period to rely on the matters which it failed to identify in opposition to a winding up application, reversing the approach which is now adopted in s 459S of the Act.
Mr Vernier was conscious of that difficulty, and qualified that position in his submissions, to indicate that matters on which a defendant company should be able to rely in a winding up application as those which were not knowable to it, as distinct from not "known" to it, because for example, the information was not publicly available, without access to Court processes. The difficulty with that proposition, however, is that it is open to a party to bring an application under s 459S of the Act to rely on matters, in opposition to the winding up, which it did not rely on to set aside a creditor's statutory demand, and to invoke the Court's compulsory processes in such an application. The Company here did so, but failed in its application under s 459S of the Act, by reason of the matters to which I referred in the 459S Judgment. The evidence which is now sought to be led by the Company highlights the extent to which the position for which Mr Vernier contends subverts s 459S of the Act, and would allow a defendant company which brought an unsuccessful application under s 459S of the Act to then rely on the very matters that it was not permitted to rely on under s 459S of the Act in order to oppose the winding up. That has the practical consequence, to which Ball J adverted and which this case well illustrates, that a substantial volume of evidence may then be sought to be led at the point of the winding up application to establish the matters which the Company was declined leave to rely on in its application under s 459S of the Act.
A further difficulty arises because, here, the premise of the Company's lack of knowledge of matters at the time the Demand was served, and within the 21 days in which it failed to set it aside is not established, and it is apparent it had that knowledge when it tried but failed to obtain leave to rely on such matters under s 459S of the Act. Mr Vernier puts, by assertion from the bar table, that the Company did not know and could not know of the circumstances surrounding the appointment of Mr Curran as trustee of the Trust. That, however, is not self-evident. The Company has not established the premise of the narrower basis on which Mr Vernier puts the application, namely that the ground was not available to it at an earlier time, using the language of Biron at [10], because it was not known or knowable to the Company. This submission also highlights the extent to which the position put by the Company would create a collateral issue, involving an inquiry as to what was known or knowable to the Company, either within the 21 day period in which it could have applied to set aside the Demand or by the time at which it brought any application under s 459S of the Act for leave to rely on matters to set aside the demand.
It seems to me, that as Ball J noted in Pegasus Capital Management at [13], the effect of the position put by the Company is to undermine, in a fundamental way, the structure of Pt 5.4 of the Act, and particularly s 459S of the Act, by leaving it open to a defendant company to resist a winding up application, where it contends that it did not know particular matters at an earlier stage, whether because it had not made inquiries about them, or because the relevant information was not or not readily available to it. That approach is inconsistent with the structure of the 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 Act, which the Company sought to invoke, but was unsuccessful in invoking; and otherwise permits opposition to the winding up application only on the basis that a company is solvent, a matter which the Company no longer seeks to establish. The conclusion that I have reached is consistent with the approach taken in each of Lanepoint, Kornucopia and Pegasus Capital Management.

The second issue - reliance on the PSA Act

The Further Amended Grounds also add a further claim under s 8(2)(a) of the PSA Act, to which I have referred above, that the Company is not entitled to bring the winding up proceedings because it was, implicitly, required to hold a real estate agent's licence under the PSA Act and, explicitly, did not do so; and is not entitled to bring any proceedings in any Court to recover any commission, fee, gain or reward for any services performed as a real estate agent unless it is the holder of a real estate agent's licence at the time of performing the service, by reason of s 8(2)(a) of the PSA Act. Counsel did not draw my attention to any authorities concerning the application of this section in respect of a winding up application.
It seems to me that the reliance on that section is untenable on two alternative bases. The first is that, if s 8(2)(a) of the PSA Act may provide a basis on which the Company could have, but did not, apply to set aside the Demand (see for example the decision of White J (as his Honour then was) in Remuneration Data Base Pty Limited v Pauline Goodyer Real Estate Pty Limited [2007] NSWSC 59, dealing with a section in the Property, Stock and Business Agents Act 2002 (NSW)), then the Company has here not sought nor obtained leave under s 459S of the Act to rely on that ground. There is no suggestion that the Company lacked any information relevant to this ground in the 21 day period that was available to it to set aside the Demand.
The second and alternative basis on which the reliance on that ground is not tenable is that a winding up proceeding is not a proceeding to recover a commission, fee, gain or reward for service within the scope of the relevant section, because the consequence of a winding up is not the recovery of any such commission, fee, gain or reward, and indeed, not any monetary judgment in favour of the Plaintiff. Instead, in a winding up, a presumption of insolvency has the consequence that a winding up order is made, and any debts which are owed to particular creditors are provable in the winding up, which effects a distribution of the Company's remaining assets to its creditors and, in respect of any surplus, its contributories. On that basis, s 8(2)(a) of the PSA Act would have no application to a winding up.
It seems to me the consequence of those two alternative analyses is that there is no tenable basis on which that section could here support opposition to a winding up.

Determination as to leave to rely on Further Amended Grounds

For these reasons, I decline leave to file the Further Amended Grounds, nunc pro tunc, and I order that that document be struck from the Court file. I recognise that the findings that I have reached, particularly in respect of the application of the decision of Ball J in Pegasus Capital Management, have the consequence that much of the grounds raised by the Company in respect of its previous Amended Notice of Appearance and Grounds of Opposition, filed on 21 September 2023, are also not tenable. It will be matter for the Company and its legal representatives, having regard to their obligations under s 56 of the Civil Procedure Act 2005 (NSW) to promote the just, quick and cheap resolution of the real issues in the proceedings, to have regard to this aspect of this judgment in determining which grounds of opposition to the winding up are now pressed, and which evidence is led in opposition to the winding up.

Winding up application

As I noted above, by Originating Process filed on 6 July 2023, the Plaintiff seeks an order winding up the Company. By the 459S Judgment delivered on 12 September 2023, I determined an application brought by the Company under s 459S of the Act for leave to rely on grounds which could have been, but were not, relied on in an application to set aside the Demand. In my judgment set out above, I declined leave for the Company, nunc pro tunc, to file the Further Amended Grounds. The matters addressed in that judgment had the consequence that a number of the grounds raised in the Company's Amended Notice of Appearance and Grounds of Opposition to the winding up filed on 21 September 2023 were also untenable. That was properly recognised by Mr Vernier and the Company therefore did not press its opposition to the winding up order, or lead evidence in opposition to the winding up order, and Mr Vernier was excused from further attendance when the proceedings resumed after the lunch adjournment.
Mr Boadle, who as mentioned above appears for the Plaintiff, reads the affidavit evidence on which the Plaintiff relies in respect of the winding up application. By an affidavit dated 19 May 2023, accompanying the Demand on which the Plaintiff relies, Mr Curran gave evidence that he was the trustee of the Trust and as to his belief that the amount of $396,000, being the debt claimed in the Demand, was due and payable by the Company to Mr Curran as trustee of the Trust, and that he believed there was no genuine dispute about the existence of the amount of the debt.
By a second affidavit dated 6 July 2023, in support of the winding up application, Mr Curran gave evidence of service of the Demand on the Company and of the Company's failure to comply with the Demand, a matter which was common ground in this hearing. A consent of liquidators of Messrs Brereton and Wengel of the firm of William Buck dated 4 July 2023 is in evidence.
The Plaintiff also reads an affidavit dated 2 June 2023 of Mr Preac, a process server, who gives evidence of service of the Demand at the registered office of the Company, and there has again been no dispute as to service of the Demand in this hearing. By a further affidavit of service dated 13 July 2023, Mr Preac gives evidence of service of the Originating Process filed in these proceedings, a notice to the Defendant under the Service and Execution of Process Act 1992 (Cth), where the proceedings were served outside New South Wales, and of service of the affidavit in support of the winding up and of the consent of liquidators.
By an affidavit dated 20 July 2023, Ms Williamson, who is a solicitor in the firm that acts for the Plaintiff, gives evidence of lodgement of a Form 519 notification of court action relating to winding up with the Australian Securities and Investments Commission ("ASIC"). By a further affidavit dated 9 August 2023, Ms Williamson gives evidence of publication of notice of the application of the winding up order on ASIC's insolvency notices website.
By his affidavit dated 26 October 2023, Mr Curran gives evidence that the amount of the debt claimed in the Demand had not been paid. That affidavit would preferably have been updated by a current affidavit of debt, but I may properly proceed on the basis that the debt has not been paid, where the Company appeared for a large part of the hearing today, before Mr Vernier was granted leave to withdraw, and no suggestion was made in the course of the hearing that the debt claimed in the Demand had been paid. The Plaintiff tenders a company search which records the commencement of the winding up proceedings, and the appointment of a restructuring practitioner, which was a matter that I addressed in an earlier judgment, and indicates that no winding up order has been made by another Court in respect of the Company.
The principles that arise in an application of this kind are well established. This winding up application relies on a presumption of insolvency resulting from non-compliance with the Demand. The effect of that presumption was described by the High Court of Australia in Lanepoint, where Gummow, Heydon, Crennan, Kiefel and Bell JJ observed (at [28]) that: "where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order sought setting it aside, the company is required to prove to the contrary of the presumption."
The Company has not established the contrary of the presumption of insolvency. Indeed, it abandoned any contention that it was solvent in its proposed Further Amended Grounds, although it was not ultimately granted leave to rely on that document, and has not led any evidence to seek to establish its solvency. The presumption of insolvency has not been displaced in those circumstances, and I am satisfied that I should make a winding up order. I will, in the ordinary course, appoint the Plaintiff's nominee as liquidator of the Company.

Orders

Accordingly, I make the following orders:
Order pursuant to s 459A of the Corporations Act 2001 (Cth) that the Defendant, Fitzgerald Housing Ltd be wound up in insolvency.
Order that Michael Brereton and Sean Wengel of William Buck be appointed as joint and several liquidators of the Defendant.
Order that the Plaintiff's costs (including reserved costs, if any) be reimbursed out of the property of the Defendant pursuant to s 466(2) of the Corporations Act 2001 (Cth).

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: 01 December 2023

Property, Stock and Business Agents Act 2002(NSW)

Corporations Act 2001(Cth)s 453Q, s 459S

At a glance

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Judgment (12 paragraphs)

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Legislation Cited (5)

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