By Originating Process filed on 7 August 2020, the Plaintiff, Zhaos Pty Ltd ("Zhaos"), applies to wind up the Defendant, Ryals Hotel Pty Ltd ("Ryals Hotel"), in insolvency, or alternatively on the basis that it is just and equitable to do so. I delivered an oral judgment at the conclusion of the hearing and have revised that judgment to reduce a degree of repetition and to provide a more extended summary of the parties' submissions than was possible in delivering an oral judgment.
Zhaos is the owner and lessor of a commercial property located at Broadway in Glebe NSW and Ryals Hotel is the lessee of those premises. The lease is for a term commencing on 7 June 2018 and terminating on 7 January 2028, with four options to renew, each for a further term of 5 years. The premises are primarily used for the operation of a hotel, known as Ryals Hotel Broadway.
It should be noted, first, that this application is brought by Zhaos, as the lessor of premises used as a hotel, part of which is used for student accommodation, in the midst of the COVID 19 pandemic, to wind up Ryals Hotel, the lessee, which unsurprisingly has little student or other occupancy in the midst of a pandemic. Second, Zhaos does not rely on the service of a creditor's statutory demand to establish a presumption of insolvency, and has instead proceeded directly to a winding up application, presumably anticipating that, by doing so, it may avoid the limitations which have been imposed upon the creditor's statutory demand regime in the midst of the COVID-19 pandemic, particularly by the amendments made by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).
Putting these matters of context aside, I will deal with the matters that arise in this application, applying traditional principles, including as to the proof of solvency, abuse of process and the exercise of the Court's discretion under s 467 of the Corporations Act 2001 (Cth), in the factual and legal context created by the COVID-19 pandemic.
The parties have led extensive evidence. Zhaos relies on an affidavit dated 5 August 2020 of its manager, Mr Huang, which indicates that he has been responsible for dealings between Zhaos and Ryals Hotel. He refers to the lease in respect of the premises, to which I have been taken by Mr Johnson, who appears for Zhaos, in submissions, and to correspondence between Zhaos' solicitors and Ryals Hotel and its solicitor during the relevant period. Mr Huang acknowledged that, in earlier proceedings brought by Ryals Hotel against Zhaos, damages were ordered against Zhaos (which has not paid them) and that costs were also ordered against Zhaos, which have not yet been assessed and have also not been paid by Zhaos. Mr Huang contended (in evidence admitted with a limiting order under s 136 of the Evidence Act) that Zhaos was a creditor of Ryals Hotel in respect of outstanding rent, after a set-off of the damages ordered against it, but disregarding the unquantified costs awarded against it
Mr Huang referred to correspondence between the parties' directors in which Zhaos referred, inter alia, to a 3% annual escalation in the rent for the premises, to a shortfall in payment of that escalation from January 2018, and to non-payment of rent in March-May 2020, and raised a concern as to Ryals Hotel's solvency and sought documentation in that regard. By a letter dated 25 June 2020, Zhaos' solicitors claimed a substantial amount was due, including four months' rent, although Mr Johnson now accepts that two months of that rent were within the scope of the regulations made under the Retail Leases Act 1994 prescribing regulations ("COVID-19 Regulation") in respect of commercial leases under the Conveyancing Act 1919 (NSW), initially being the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and subsequently supplemented by the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 operating under the Mandatory Code of Conduct: SME Commercial Leasing Principles ("Code of Conduct") adopted by National Cabinet on 7 April 2020. The application of the COVID-19 Regulation was raised by Ryals Hotel's solicitors by a letter dated 5 July 2020. Mr Huang's evidence (again admitted with a limiting order under s 136 of the Evidence Act as submission) was also that rental that was due in the amount of $136,148.83 on a monthly basis extending into the months of 1 June 2020 and 1 July 2020 remain unpaid. That period was also within the scope of the COVID-19 Regulation.
Mr Huang then recognised, implicitly, a difficulty with the amount of rent claimed by Zhaos in that correspondence, acknowledging that, to the extent that it may be asserted that the lease of the premises may be subject to the provisions of the COVID-19 Regulation to bring into play the Code of Conduct directed to the conduct of lessors during the pandemic, that would not operate in relation to rent that fell due by Ryals Hotel to Zhaos in the period prior to 23 March 2020. It should be noted, in that regard, that the fact that Zhaos is bound by the COVID-19 Regulation is not a matter of mere assertion, but of legal obligation, and its solicitors had acknowledged in correspondence the matters which could cause the COVID-19 Regulation to apply to it in its dealings with Ryals Hotel. Mr Huang's evidence also exposes a degree of inconsistency between, on the one hand, the case maintained by Zhaos in correspondence with Ryals Hotel over an extended period and in its evidence initially led in these proceedings; and the narrower case now put by Mr Johnson, which seeks to focus upon matters arising before the COVID-19 Regulation took effect. The case which Zhaos originally put had disregarded the application of the COVID-19 Regulation and the mandatory form of offer that it was required to make but had not made to Ryals Hotel, where Zhaos had purported to offer a different and (Mr Huang claimed, more attractive) offer, that would have required Ryals Hotel to undertake substantial building works and incur substantial costs to obtain any benefit from it. I return to that matter below.
By a second affidavit dated 4 December 2020, Mr Huang refers to rental invoices that he had sent to Zhaos, although it appears there is a dispute as to the extent to which they had been provided to it on a contemporaneous basis. In any event, for a significant part of that period, those invoices are inconsistent with the obligations imposed upon Zhaos by the COVID-19 Regulation, where Zhaos had not offered Ryals Hotel the proportionate reduction in rent in the manner required by that Regulation. Mr Huang also refers to having noted that equipment and furniture was removed from the front desk of the hotel, when he inspected it in November 2020, and that furniture in the breakfast dining area had been removed and there was no sign of restaurant activities. That would be consistent, one might have thought, with what one would expect to have observed in a hotel servicing the student market in the midst of a pandemic and restrictions on entry by overseas students, and Mr Ryals responded to the evidence in cross-examination. It says little as to the capacity of Ryals Hotel to meet its debts as and when they fell due, since the absence of revenue, or a reduction in revenue or trade, will not necessarily deprive a company of solvency if it can correspondingly reduce its costs including, as the COVID-19 Regulation contemplated, its lease expenses.
By his further affidavit dated 19 December 2020, Mr Huang gave evidence (admitted only as submission) that Ryals Hotel was indebted to Zhaos in an amount calculated at $1,428,463.04, comprising rental unpaid and claims by way of interest. The bulk of the claim again related to a period in which the COVID-19 Regulation applied, but no offer in accordance with it had been made by Zhaos to Ryals Hotels. A portion, as I noted above, appears to relate to the earlier period and Mr Johnson has focused on that portion in the course of his submissions. By a second affidavit also dated 19 December 2020, Mr Huang referred to a garage sale at the hotel premises, and there has been some exploration of the scope of that sale in cross examination.
An affidavit, dated 8 October 2020, of Mr Guo, the solicitor acting for Zhaos, addressed the commencement of the proceedings, the service of the Court documents, and notification of the proceeding to the Australian Securities and Investments Commission, and the circumstances in which Ryals Hotel had not produced unmasked financial records in response to a notice to produce. I will assume, without deciding, that the formal requirements for a winding-up application are satisfied in the relevant circumstances, on the basis of that affidavit. It is not necessary to decide that matter given the conclusions that I have reached on other grounds. Zhaos also tendered a consent of liquidator, Mr Darin, dated 27 November 2020.
Ryals Hotel relies on Mr Ryals' first affidavit dated 9 October 2020 which refers to proceedings between the parties heard before Darke J, which resulted in a substantial judgment in favour of Ryals Hotel against Zhaos, which has not been satisfied by Zhaos, but which Zhaos has accepted in correspondence should be set off against the amount of rental it claims is due by Ryals Hotel to Zhaos. He also refers to the position as to unpaid rent in respect of March 2020 to date, and to the matters which go to establishing Ryals Hotel's apparent entitlement to relief in respect of lease payments under the COVID-19 Regulation and the Code of Conduct. In particular, Mr Ryals there refers to principles 3-5 of the Code of Conduct, which contemplate that landlords must offer tenants proportionate reductions, in the form of waivers and deferrals, and how that reduction is to be made up. Mr Ryals also sets out, and the evidence supports, the extent of the reduction in Ryals Hotel's turnover in the relevant period to support such reductions. Mr Huang in turn accepted that he had knowledge of that reduction in turnover in the course of his cross examination.
Ryals Hotel also relies on Mr Ryals' affidavit dated 14 December 2020. He denies that the hotel has ceased operating, although his position is, in that affidavit, that it has limited hotel bookings, and the position that emerged from cross examination, and also from evidence on which Ryals Hotels relies as to the extent of its decline in revenue, indicates that the decline has been drastic. Mr Ryals there notes that Ryals Hotel has ceased to advertise on online travel booking websites and also notes the decline in its business as a result of its location, servicing a student market near the universities in Broadway. Mr Ryals also addresses a conversation with Mr Huang, which appears to have addressed the circumstances in which the parties may cease their relationship, although agreement was not reached. By a further affidavit, dated 21 December 2020, Mr Ryals addressed the position in respect of rent payable from September 2018 to February 2019 and from March 2020 to December 2020 and, in particular, a dispute as to the extent to which he received invoices in the latter period.
[3]
Whether Zhaos has established that Ryals Hotel is insolvent
With that background, essentially three issues arise in this application. The first is whether Zhaos has established that Ryals Hotel is insolvent, for the purposes of establishing a winding up on that basis, or could otherwise establish a winding up on the just and equitable ground. In its grounds of opposition in its Notice of Appearance, Ryals Hotels contended it is solvent. The second, which is also raised by the Notice of Appearance filed by Ryals Hotel, is whether the proceedings are an abuse of process, either in the usual sense of that term, or in the specific sense which that term has in winding up proceedings. The third is whether, irrespective of the position in respect of the first and the second issues, whether the Court would exercise its discretion, which both parties accept exists, under s 467 of the Corporations Act either to dismiss the winding up application, or to adjourn it for a significant period, given the circumstances to which I referred above and Zhaos' non-compliance with the COVID-19 Regulations to which I have referred above.
I deal first with the question whether Zhaos has established that Ryals Hotel is insolvent in fact. In his opening submissions, Mr Johnson submits that there have been ongoing disputes as to the non-payment of rent falling due under the terms of the lease, and acknowledges that Zhaos does not rely upon any presumption of insolvency arising from non-satisfaction of a creditor's statutory demand issued pursuant to the provisions of s 459E of the Corporations Act. Mr Johnson submits that, in circumstances of the grounds of opposition raised by Ryals Hotel there is an obligation to provide the "fullest and best" evidence of its financial position; avoid making bald assertions of solvency arising from unaudited uncertified or incomplete financial statements; and disclose details of outstanding assets and liabilities in a manner capable of proper verification. I remind myself that Zhaos must establish the factual and legal basis of the case for which it contends, notwithstanding that Ryals Hotels advances the contrary proposition.
Mr Johnson submits, uncontroversially, that s 459A of the Corporations Act permits the Court to wind up a company in insolvency, insolvency being defined in s 95A of the Corporations Act and is generally to be determined on a cash flow test rather than an asset test. Mr Johnson submits that there are ongoing obligations under the terms of the lease for Ryals Hotel to make rental payments, although he fairly acknowledges the impact of the COVID-19 Regulation which, as I noted above, he submits does not extend to obligations that arose prior to 24 March 2020. Mr Johnson in turn emphasises the limited evidence led by Ryals Hotel to seek affirmatively to establish its solvency and contends that, on the balance of probabilities, Zhaos has established Ryals Hotel's inability to pay debts as and when they fall due.
Mr Elliott in turn submits that s 95A(1) of the Corporations Act has the effect that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable and refers to my summary of the applicable principles in Re Humur Pty Limited [2020] NSWSC 1759 at [17] - [18]. He submits that whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621 at [54]. Mr Elliott points out that surmountable temporary illiquidity is insufficient to establish insolvency. He also recognises that a failure to pay an undisputed debt may in limited circumstances of itself provide a foundation for an inference that a company cannot pay its debts from any source available to it: Cornhill Insurance Plc v Improvement Services Ltd [1986] 1 WLR 114; Taylor Industrial Flooring Ltd v M&H Plant Hire (Manchester) Pty Ltd [1990] BCLC 216; Just Juice Corporation Pty Ltd v Murrayland Fruit Juice Pty Ltd (1990) 2 ACSR 541 at 546; Re Plutus Payroll Pty Limited [2017] NSWSC 1360 at [30] - [31].
Mr Elliott submits that, here there is a genuine dispute as to whether and/or to what extent rent is due and payable under the Ryals' lease as a consequence of the operation of the COVID-19 Regulation. He submits, by reference to the evidence and I accept that, Ryals Hotel is an "impacted lessee" (COVID-19 Regulation, cl 4) because it qualifies for the JobKeeper program and its turnover is less than $50M; the expression "COVID-19 pandemic period" in the Code of Conduct is in turn the "period during which the JobKeeper program is operational", and that program commenced operation on 1 April 2020, and the COVID-19 Regulation had retrospective effect to 1 April 2020 in relation to rent and outgoings for the period from that date; on 22 May 2020, Ryals Hotel requested that Zhaos renegotiate the rent payable under its lease, and Zhaos then recognised that Ryals Hotel was an "impacted lessee"; Zhaos was obliged to renegotiate in "good faith" the rent payable under the impacted lease, having regard to the economic impacts of the COVID-19 pandemic and the leasing principles set out in the Code pf Conduct; Zhaos "was required to offer Ryals Hotel proportionate reductions in rent payable in the specified form; and, to put it shortly, Zhaos did not do so and that issue was not resolved by mediation.
Mr Elliott also submits that:
"… in light of the uncertain effect of the Covid-19 Regulations on the obligation to pay rent, an inference cannot be drawn that Ryals Hotel's omission to pay full rent during the 'COVID-19 pandemic period' is indicative of insolvency. Moreover, to identify an undisputed component would require the Court to undertake a notional renegotiation of the Ryals Lease, which Zhaos has not attempted to undertake."
Mr Johnson in turn submitted that any outstanding rental accruing prior to the date of commencement of the COVID-19 Regulation is unaffected as to obligation to make any payment by the regulation. He also submitted that the presentation of a winding up summons is not "prescribed action" in terms of the COVID-19 Regulation, a matter that I need not address.
I accept that it is possible, although rare, for a party to establish the basis for a winding up in insolvency, without relying on a presumption of insolvency established under the creditor's statutory demand regime. The circumstances in which that might arise are illustrated in the judgment of Brereton J in Re Plutus Payroll Pty Ltd above and more recently in the judgment of Matthews JR in Re MSB Capital Holdings Pty Ltd [2020] VSC 775. Matthews JR there undertook a comprehensive review of the matters which may be necessary to establish insolvency, particularly in circumstances where that insolvency is said to arise from the failure to pay an undisputed debt. Matthews JR also there referred to circumstances in which the English courts have been prepared to accept that, in some circumstances, the non-payment of an undisputed debt will support a finding of insolvency. The position in that respect has been left open in New South Wales, at least in the decision of Just Juice Corp Pty Ltd v Murrayland Fruit Juice Pty Ltd above. The position does not seem to have arisen squarely thereafter, so far as a number of later cases, including Re Plutus Payroll Pty Ltd above, involve elements where the failure to pay a debt is simply one of a number of indicators of insolvency. There is also no suggestion, in the English case law or in the Australian case law, including MSB Capital Holdings Pty Ltd above, that a failure to pay a disputed debt will provide significant support for an inference of insolvency, at least if not combined with other indicators of insolvency.
It does not seem to me that this case involves an undisputed debt. Instead, it involves amounts that (although this ignores the application of the COVID-19 Regulation for a large part of the period) fell due by way of rent on a regular basis, in circumstances where the parties had been for some time in dispute. That dispute involved at least the proceedings before Darke J; the unsatisfied judgment in favour of Ryals Hotel in those proceedings; the costs which would arise from those proceedings, which had been ordered in Ryals Hotel's favour but not yet assessed or paid; and the further issues which arose in respect of Ryals Hotel's request for a reduction in rental during the COVID-19 pandemic, the unsuccessful mediation that sought to resolve that question and Zhaos' failure to provide any rent reduction notwithstanding the COVID-19 Regulation.
In MSB Capital Holdings Pty Ltd above, Matthews JR also referred to a number of indicators of insolvency, noted by Brereton J in Plutus Payroll, which turn upon a close analysis of the financial position of the relevant company, including matters such as liquidity ratios, overdue taxes, access to alternative finance, the ability to raise capital, and other matters. There has been some exploration of those issues in cross-examination of Mr Ryals in this case, but there is, for example, here no expert evidence that seeks to address those issues, either led by Zhaos, or led by Ryals Hotel to seek to affirmatively establish its financial position. I give less weight to the absence of evidence as to that matter led by Ryals Hotel than would ordinarily be the case; given the shift in Zhaos' case in the hearing from that which it had previously put in correspondence, to focus not on the entirety of the rent claimed to fall due over the last 12 months, but on the period prior to the commencement of the Code of Conduct and the COVID-19 Regulation. Mr Johnson submits, in a way which had not previously been articulated by Zhaos, that having regard to the rent which fell due in the earlier period, allowing a set-off of the amount of the judgment in favour of Ryals Hotel in the proceedings before Darke J, but disregarding the contingent liability of Zhaos to pay costs to Ryals Hotel in respect of those proceedings, then an amount is due and payable by Ryals Hotel for rent payable in early 2020, prior to the pandemic. I recognise that the evidence, at least so far as it relates to the single bank account of Ryals Hotel, which addressed by the evidence, does not suggest that there is presently enough held in that account to meet the amount of rental falling due in that earlier period.
I am not persuaded that it has been established that Ryals Hotel is insolvent by reason of any inability to pay that amount from cash at hand in its bank account. No doubt, many companies in the hospitality and hotel industry could not establish solvency on such am exacting test, as is indeed implicit in the legislative intervention to introduce the COVID-19 Regulation and the Code of Conduct. It is apparent from Mr Ryals' evidence on cross-examination that he has at least some capacity to raise funds from friends and relatives in respect of expenditures, including the costs of the earlier proceedings between the parties. I am not persuaded that Zhaos has established insolvency, upon the test set out on the case law, where that would depend upon its showing not only that Ryals Hotel could not fund the amounts due in the earlier periods from the money it held at bank, but also that it could not meet that amount, as and when it fell due, from other funds, including funds which it may borrow over a longer period or which Mr Ryals could raise, from friends and relatives. The evidence led by Zhaos did not exclude that possibility. For these reasons, Zhaos has not established Ryals Hotel's insolvency, even on the narrower case which it ultimately advanced.
[4]
Winding up on just and equitable ground
Mr Johnson also submitted that Ryals Hotel has for a prolonged period of time continued to operate the premises the subject of the lease in circumstances where it failed, neglected or refused to pay accruing liabilities as and when they fell due, in particular, prior to 24 March 2020 and thereafter both in respect of those amounts and amounts subsequently accruing. He submits that there is no proper evidence of engagement of the COVID-19 Regulation, a proposition which I have not accepted. Mr Elliott responds that the principles to be applied were summarised by Brereton J In the matter of Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]-[20] and that Zhaos has not, and cannot, discharge the onus of establishing this ground. Where Zhaos has not established Ryals Hotel's insolvency in fact, or that the suggested failure to pay rent is inconsistent with the position which would exist had Zhaos complied with the COVID-19 Regulation, it has also not established any basis for winding up on the just and equitable ground.
[5]
Abuse of process
Mr Elliott submitted that this application amounts to an abuse of process based on two grounds. First, he submits that there is a genuine dispute about the debt said to be due; that Zhaos has not proceeded by a means appropriate for the determination of the issue of indebtedness; and that the COVID-19 Regulation and the Code of Conduct provide the mechanism for dealing with a rent dispute and enforcement during the COVID-19 pandemic period. Second, he submits that the proceedings are being brought for an improper purpose, namely to exert pressure to pay on Ryals Hotel, and to bring about an "Insolvency Event" under the lease which will permit Zhaos to terminate the lease and re-take possession without complying with the requirements of the COVID-19 Regulation. He submits that, by relying solely on a failure to pay rent to bring the winding up action, Zhaos is by these proceedings attempting to subvert the COVID-19 Regulation.
In opening submissions, Mr Johnson pointed to the absence of a response from Ryals Hotel's solicitors to a letter dated 3 September 2020 from Zhaos' solicitors seeking further information as to the basis of this ground of opposition. He noted that the principles upon which the Court would normally act in connection with an argument in connection with "abuse of process" in the commencement and maintenance of winding up proceedings are substantially settled and referred to Williams v Spautz (1992) 174 CLR 509; (1992) 107 ALR 635; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270; (1995) 18 ACSR 225; [1992] HCA 34 and Braams Group Pty Ltd v Miric (2002) 44 ACSR 124; [2002] NSWCA 417. He submitted that the assertion of "abuse of process" has not been made out.
I am satisfied, for the reasons put by Mr Elliott in written submissions, that Ryals Hotel fell within the scope of the COVID-19 Regulation during the relevant period. That regulation imposed an obligation on Zhaos to renegotiate the rental payable in good faith and in accordance with the requirement for proportionate reduction in the rent payable in the form of waivers and deferrals of up to 100% of amount ordinarily payable on a case-by-case basis. I have also referred about to the evidence, summarised by Mr Elliott in submissions, of the substantial decline in Ryals Hotel's revenues over the relevant period. I am comfortably satisfied that Zhaos did not comply with that obligation, by putting an offer of occupancy for a rent free period, subject to a condition that Ryals Hotels incur substantial expenditure to expand is accommodation (by introducing campsite accommodation in its basement) at a time that student and other demand was reduced by the COVID-19 pandemic.
I recognise that, as Robb J observed in Sneakerboy Retail Pty Ltd t/as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 at [79], there may be uncertainty as to the extent of the consequences of non-compliance with a lessor's obligation to re-negotiate the lease, or to do so in good faith under the COVID-19 Regulation. However, any uncertainty to those consequences does not have the result that that matter should be disregarded by the Court, when it comes to dealing with an application to wind up a company in the hospitality or hotel industry, in the midst of a global pandemic, that has sidestepped the limitations on creditor's statutory demands by seeking to establish insolvency in fact, and in circumstances where the amount of the debt is itself disputed because it would only be established by compliance, at least in respect of the large part of the period, with the COVID-19 Regulation.
Turning now to the scope of concept of abuse of process, Mr Elliott helpfully draws attention to the decision in L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd [1982] 7 ACLR 180 at 183, where McLelland J observed three forms of abuse of process in respect of a winding up, one of which involved the application being brought for an improper purpose, but another of which involved an application which would raise matters that were inappropriate for determination in such a proceeding, for example, where there was a substantial contest as to the existence or enforceability of a debt. Mr Elliott rightly recognises that that category of abuse of process has, at least to a substantial extent, been displaced following the introduction of Part 5.4 of the Act, largely because winding up proceedings normally now take place following the issuance of a creditor's statutory demand where any genuine dispute as to the debt or off-setting claim would be addressed. Here, however, the creditor's statutory demand process has not been invoked by Zhaos; Ryals Hotel has never had the opportunity to assert, in response to a creditor's statutory demand, that the claim was brought in respect of a disputed debt, or to have the amount that was properly the subject of such a demand determined in such proceedings; and, in those circumstances, it seems to me that there is continuing room for the wider principle of abuse of process, particularly when combined with the other matters to which I have referred above.
It seems to me, the winding up application, even when narrowed in the way that Mr Johnson sought to narrow to avoid reliance on the debt for the period after the COVID-19 Regulation applied, necessarily places in issue the wider dispute between the parties, and that dispute cannot properly be resolved in an application of this kind. It also seems to me that, where Zhaos has, in correspondence, asserted an entitlement to payment of substantially larger amounts, not having regard to the effect of a renegotiation under the COVID-19 Regulation, then there would be an abuse of process in the relevant sense in seeking to put a case that would require determination of the amount payable following the renegotiation, which had never occurred, and that that abuse of process is not avoided by seeking at the last moment to rely on a narrower portion of the rent claimed.
I do not find on the relevant facts that Ryals Hotel has established its alternative claim that the winding up application is brought for an ulterior purpose, in order to seek to terminate the lease, potentially in connection with an ongoing sale process in respect to the property. It does not seem to me that the evidence today goes far enough to establish that proposition on the balance of probabilities, although one certainly could not exclude that possibility on the relevant facts.
[6]
Section 467 of the Act
In any event, had I found that insolvency had been established, which I have not, and had I not found that the element of abuse of process was present in the way in which the application was formulated and pursued until today, I would have exercised the Court's discretion under s 467 of the Act to dismiss the winding up application, or otherwise to adjourn it for a significant period, likely 12 months, as Mr Elliott has submitted the Court should. Section 467(1) of the Act permits the Court to stay or dismiss winding up proceedings with or without costs, even if a ground has been proved on which the Court may order the company be wound up on the application. Prior to the introduction of that section by the Corporate Law Reform Act 1992 (Cth), the general law recognised that a finding of insolvency can result in there being an entitlement to a winding up, but nonetheless recognised a corresponding discretion to decline to make a winding up order: FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) [1988] 14 NSWLR 643 at 660 and see my review of the authorities in Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551.
It seems to me that this winding up application is brought in circumstances that the legislature has sought to narrow the circumstances in which a creditor's statutory demand may be brought, and to defer the point at which a basis for winding up may arise under a creditor's statutory demand, in order to avoid the result Zhaos here seeks to achieve, that a company that is significantly impacted by the circumstances of the COVID-19 pandemic should be wound up in the midst of that pandemic, with adverse consequences to its employees, or, here, its single remaining employee. As I have noted above, Zhaos seeks to side-step that narrowing by bringing the winding up application on the basis of insolvency in fact, and Mr Johnson sought, as I have also noted above, to seek to focus on the prior period to support that application in the course of the hearing. It seems to me that there is a strong basis, given the legislative approach to the COVID-19 pandemic which is reflected in the creditor's statutory demand provisions, and in the COVID-19 Regulations to which I have referred, for exercising the Court's discretion under s 467 of the Act to dismiss or adjourn this application.
I would therefore have dismissed the application under s 467 of the Act, or at least adjourned it for a 12-month period to allow Ryals Hotels an opportunity to seek to recover its fortunes, hopefully with the advantage of proper compliance with the COVID-19 Regulation by Zhaos, had I not determined that it should be dismissed on other grounds.
[7]
Orders
For these reasons, the winding up application is dismissed with costs. I noted that Mr Elliott has indicated that Ryals Hotel will, having regard to this judgment, be seeking a special order as to costs, or a gross sum costs order. I will make orders for the filing of evidence and submissions and for the parties to advise whether that application can be determined on the papers or they seek an oral hearing.
[8]
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: 29 December 2020
Parties
Applicant/Plaintiff:
- Braams Group Pty Ltd
Respondent/Defendant:
Miric
Legislation Cited (6)
Coronavirus Economic Response Package Omnibus Act 2020(Cth)
Corporations Law Reform Act 1992(Cth)
Retail and Other Commercial Leases (COVID-19) Regulation 2020(NSW)