Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 397 | Case summary

JUDGMENT 1 Almost a year ago, on 13 May 2004, the plaintiff filed an originating process seeking an order for the winding up of the defendant. The plaintiff proceeds under Division 4 of Part 5.4 of the Corporations Act 2001 (Cth) alleging insolvency of the defendant and relying on non-compliance with a statutory demand. When the proceedings came before Gzell J for hearing on 1 March 2005, it emerged that the directors of the defendant had, on the preceding evening, resolved to appoint administrators under Part 5.3A of the Corporations Act 2001 (Cth). The winding up application was thereupon adjourned to 11 April 2005. 2 By the time the winding up application came back before the court on 11 April 2005, the defendant had executed a deed of company arrangement. This occurred on 6 April 2005. The deed contains a provision as follows: "6. DEBTS OR CLAIMS EXTINGUISHED The Creditors must accept their entitlements under this Deed in full satisfaction and complete discharge of all debts or claims present or future, actual or contingent which they claim to have against the Company as at the Commencement Date and each claim against the Company before the Commencement Date is extinguished." 3 There is a definition of "Creditor" as follows: " 'Creditor' means any person whose claim against the Company would have been a provable debt if the Company had been wound up and its executors, administrators, heirs, transferees, and assignees, other than Associated Creditors." 4 When the matter came before the court on 11 April 2005, the plaintiff foreshadowed an application for an order that the deed of company arrangement be set aside and sought further adjournment of the winding up application. The defendant said that, because of the deed of company arrangement, the plaintiff no longer had standing to seek a winding up order, that the court no longer had jurisdiction to make that order and that the winding up application must therefore be dismissed. I directed the filing of written submissions on this last issue and stood the matter over for further argument on 26 April 2005. The written submissions were supplemented orally on that occasion. The plaintiff's application for an order setting aside the deed of company arrangement was duly filed on 22 April 2005 in separate proceedings 2583/05. 5 I proceed to deal now with the defendant's submission that there is no jurisdiction to order further adjournment of the winding up application and that the application must be dismissed. The defendant contends that, because of clause 6 of the deed of company arrangement and ss.444D(1) and 444H of the Corporations Act, the plaintiff is no longer a creditor of the defendant in respect of its original debt; also that it is not a contingent or prospective creditor (whether by reason of the original debt or of any prospective costs order). The defendant also says that, in any event, s.444E(2)(b) precludes the plaintiff's application for an adjournment of the winding up application. 6 It is convenient to deal with the second contention first. Section 444E(1) says that, until a deed of company arrangement terminates, s.444E applies to a person bound by the deed. Section 444E(2)(b) then says that such a person "cannot … proceed with" an application for an order to wind up the company made before the deed became binding on the person. The plaintiff accepts that, until the deed of company arrangement dated 6 April 2005 terminates, it is affected by this prohibition. But it does not accept that the making of an application for further adjournment of its pre-existing winding up application is to "proceed with" that application contrary to s.444E(2)(b). I agree. A person can be said to "proceed with" an application only if the person takes some positive step that causes the application to be progressed towards its adjudication. An application for adjournment of a winding up application is not within this concept. The adjournment application contributes in no way to the determination of the winding up application. 7 In my opinion, the moratorium imposed by s.444E(2)(b) by means of the words "cannot … proceed with" is to be understood in the same way as provisions of long standing precluding the taking of any "further step in" a proceeding. That brings into play concepts recently referred to by Evans J of the Supreme Court of Tasmania in Percey v Calvert [2004] TASSC 115: "A step in a proceeding is a procedural step … to carry the action forward to final judgment. An application for a stay of proceedings, like an application to strike out a statement of claim, is not a means of carrying the proceedings forward to judgment but a means of barring its progress and is accordingly not a step in the proceedings for the purposes of r 56(1), Argo Pty Ltd v Attorney-General (No 3) [2004] TASSC 51 [18 - 27]." 8 An application for an adjournment neither carries the proceedings forward towards judgment nor bars their progress. It is neutral, so far as both carrying forward and barring are concerned. Thought of in terms of steps, adjournment is merely marking time. Section 444E(2)(b) does not preclude the plaintiff's adjournment application. 9 I turn therefore to the defendant's alternative submission. The defendant does not dispute that, at the time of filing of the originating process on 13 May 2004, the plaintiff was a creditor of the defendant and therefore had standing under s. 459P(2) to seek an order for winding up in insolvency. The defendant says, however, that the plaintiff has been deprived of this standing by the combined operation of clause 6 of the deed and ss.444D(1) and 444H of the Corporations Act. It follows, in the defendant's submission, that the winding up application must now be dismissed. 10 That submission is advanced on the footing that, leaving aside the possibility that the plaintiff may now be a contingent or prospective creditor (which, I might say, the defendant also denies), the position of the plaintiff today is the same as if its debt had been paid in full. In those circumstances, the defendant says, the plaintiff cannot maintain its application and it will make no difference if the deed of company arrangement is in due course set aside. 11 I have previously expressed an opinion, by way of obiter dictum, that a plaintiff whose debt has been paid after the time for challenging a s.459E demand based on the debt has expired and before the hearing of the winding up application is no longer able to maintain and pursue that application: see Roberts v Wayne Roberts Concrete Constructions Pty Ltd (2004) 50 ACSR 204 at p.208. That proposition is, on reflection, too broadly expressed. It does not cater for the possibility that the plaintiff may have re-captured the status of creditor by the time the winding up application is heard. 12 I was referred by counsel to the decision of McLelland J in Deputy Commissioner of Taxation v Sun Heating Pty Ltd [1983] 2 NSWLR 78 and that of Needham J in De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468. There was reference in both those cases to the following passage in the judgment of Menzies J in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177 at pp.194-5: "In the course of argument upon this appeal, reference was made to the consequence of a petitioning creditor being paid off between the presentation of the petition and the making of an order. That circumstance would not, in my opinion, put an end to the petition nor would it affect the jurisdiction of the court to hear and determine the petition although, of course, in such circumstances proceedings might not be continued and, if they were, the court could, in the exercise of its discretion, refuse to make a winding up order upon the petition of a person not then a creditor." 13 In the Sun Heating case, McLelland J held that the mere circumstance of change of identity of the debt owing to a plaintiff is no bar to a winding up order or, therefore, to an application for substitution of an applicant for the original plaintiff. In the De Montfort case, Needham J accepted that winding up proceedings might be continued despite payment in full of the plaintiff's debt - but only, it seems, for the purpose of determining an application for substitution of another creditor as plaintiff. The decision of Needham J was the subject of the following comment by Zeeman J in Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 14 ACSR 580 at p.585: "I would not wish to be taken as necessarily agreeing that a creditor, who has served a statutory demand under the Law and who has been paid the debt the subject of that demand, ordinarily ought not to be granted an order for the winding up of the company even though it establishes that the company is indebted to it in some other amount. Particularly if such other debt arose after the service of the statutory demand, its existence, in the absence of other relevant considerations, might well be sufficient reason to make the order." 14 Zeeman J then adopted the principle "that, in the case of an application under s.459P where the debt the subject of the statutory demand has been paid after the filing of the application, the application ought to be dismissed unless there is established some positive reason that a winding up order ought to be made". The observations of Zeeman J in Guy Holdings were referred to with apparent approval by Young J in Deputy Commissioner of Taxation v Barroleg Pty Ltd (1997) 25 ACSR 167 at p.172. 15 The important point, it seems to me, is that, in a case such as this involving a presumption of insolvency because of non-compliance with a statutory demand, the matter of standing as such is to be judged at the time the winding up application is initiated: Re William Hockley Ltd [1962] 1 WLR 555. Thereafter, the proceeding remains extant for the benefit of any creditor the court sees fit to allow to pursue it. If the only person seeking to pursue it by the time it eventually comes before the court for determination is the original plaintiff but that plaintiff is not then a creditor, the application will be dismissed. If any person who is a creditor at that time (whether the plaintiff or someone else) then has the ability and standing to press for the making of a winding up order, the court will entertain the application and may make the order. But that outcome will not be capable of being seen to be the correct outcome until the time fixed for determination of the winding up application has arrived. 16 Implicit in the approach the defendant takes is the proposition that the time for hearing this winding up application has now arrived. Since, at this point, the plaintiff is not a creditor (because of the deed of company arrangement), it must follow, according to the defendant, that the application ought to be dismissed because of lack of standing on the plaintiff's part. 17 It cannot be the case that the time for hearing the winding up application has arrived. As already noted, s.444E(2)(b) prevents the plaintiff proceeding with it. If it cannot be progressed by the party bringing it, it cannot be determined. The effect of s.444E(2)(b) is to require that, unless the plaintiff discontinues or seeks dismissal, the application remain in a state of suspension until the deed of company arrangement terminates. Only after that termination can the plaintiff proceed with the application. And only when the application can be proceeded with can the proper time for entertaining and disposing of it be said to have arrived. 18 Whether the plaintiff is today a creditor - actual, contingent or prospective - is unimportant, so far as the issue before me is concerned. That question will be of significance when the plaintiff is permitted by the Act to proceed with the existing winding up application and actually takes steps to do so. The considerations discussed in Sun Heating, De Montfort and Guy Holdings will then need to be addressed. In the meantime, the need to consider them does not arise. 19 The Corporations Act proceeds, in Division 11 of Part 5.3A, on the basis that a deed of company arrangement cannot be perpetual and must, at some point, terminate. The message conveyed by s.444E(2)(b) is that a pending winding up application, unless abandoned, should be left for consideration until after termination has occurred. 20 Because the plaintiff is not precluded by s.444E(2)(b) from seeking adjournment of its winding up application, the adjournment application should be entertained. And because the plaintiff is, for the time being, precluded by s.444E(2)(b) from pressing for a winding up order on the basis of that application and has taken steps to have the court set aside the deed of company arrangement, an adjournment should be granted so that the application is kept alive (but deferred) pending determination of the status and fate of the deed (and therefore of the plaintiff's creditor status). The winding up application, if then still pressed, can be dealt with on its merits in the light of circumstances prevailing at that time. 21 Mr Aldridge SC, who appeared for the plaintiff, made it clear that if the position I have just outlined was reached, the plaintiff would wish to have a further extension of the life of the winding up application under s.459R. The period applicable for the purposes of that section, as most recently extended, will expire on 16 May 2005. 22 Mr Lucarelli of counsel, who appeared for the defendant, could not say that, if he was unsuccessful in opposing the adjournment, he could resist a further application for extension under s.459R. The impact of s.444E(2)(b) and the steps the plaintiff has now taken to challenge the deed of company arrangement represent, in my opinion, "special circumstances" for the purposes of s.459R(2)(a). 23 The orders of the court are as follows: 1. Order that the originating process filed on 13 May 2004 be stood over to the Corporations List Judge at 10 am on 25 July 2005. 2. Order that the period within which the application for winding up in insolvency contained in that originating process must be determined be extended so as to expire on 26 July 2005. 3. Grant liberty to either party to have the originating process restored to the list before the Corporations List Judge earlier than 25 July 2005 if the originating process in proceedings 2583/05 is determined before that date. 4. Order that costs of the plaintiff's adjournment and s.459R applications be reserved. **********

Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd

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