Chief Commissioner of State Revenue v Boss Constructions

Judgment (9 paragraphs)

[1]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[2]

[This headnote is not to be read as part of the judgment] Boss Constructions (NSW) Pty Ltd owed a debt of $489,069 to the Chief Commissioner of State Revenue in respect of unpaid payroll tax and interest. At some time near the end of June 2017, the Chief Commissioner served a statutory demand on Boss Constructions requiring payment of that amount under s 459E(1) of the Corporations Act 2001 (Cth). On 20 July 2017, Boss Constructions made an application to set aside the statutory demand under s 459G(1) of the Corporations Act 2001 (Cth) to the Supreme Court of New South Wales. The Chief Commissioner contended that the statutory demand had been served on 27 June 2017, and thus, that Boss Constructions had failed to make an application to set aside the statutory demand within the time prescribed by s 459G(2). After a separate hearing of this issue, the primary judge found that the statutory demand had been served on 27 June 2017. However, the primary judge also found that the Chief Commissioner was estopped from denying that the statutory demand was served on 29 June 2017 and therefore that the time prescribed by s 459G(2) did not expire until 20 July 2017. The Chief Commissioner appealed from that decision. The main issue on the appeal was whether an estoppel could operate in the manner found by the primary judge. The Court held that an estoppel could not operate to effectively extend the time limitation imposed by s 459G(2). The requirement that an application under s 459G(1) be made within the time prescribed defined the jurisdiction of the court to entertain such an application, and neither the agreement of the parties nor the operation of an estoppel could confer jurisdiction which was withheld by the section. Both the text of s 459G and the policy behind the legislation supported this conclusion: [25]-[27] (Bathurst CJ); [37] (Leeming JA); [38] (Sackville AJA). David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; [1995] HCA 43; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314; [2008] HCA 9; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18, considered. However, the Court also held that the parties should be directed to provide further submissions on whether leave to appeal should be revoked because the proceedings where hypothetical. The Court noted that s 459C(2) provided that a statutory demand only created a presumption of insolvency in proceedings for the winding up of a company within three months after the company had failed to comply with the statutory demand, and that this time had elapsed by the time of the hearing of the appeal: [33]-[36] (Bathurst CJ); [37] (Leeming JA); [38] (Sackville AJA).

The relevant statutory provisions

Part 5.4 of the Act deals with winding up a company in insolvency. Section 459A empowers the court, on an application under s 459P, to wind up an insolvent company. Section 459C provides for circumstances in which a court must presume insolvency for the purposes of several types of application, including an application under s 459P. Section 459C(2) provides that such a presumption must be made when a company has "failed (as defined by s 459F) to comply" with a statutory demand. It is in the following terms: "459C Presumptions to be made in certain proceedings … (2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a) the company failed (as defined by section 459F) to comply with a statutory demand; or (b) execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied; or (c) a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a circulating security interest in such property; or (d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a security interest; or (e) a person entered into possession, or assumed control, of such property for such a purpose; or (f) a person was appointed so to enter into possession or assume control (whether as agent for the secured party or for the company)."
Section 459E(1) of the Act confers on a creditor an entitlement to serve a statutory demand and s 459E(2) prescribes the form of the demand. It relevantly provides that such a demand must "require the company to pay the amount of the debt … within 21 days after the demand is served on the company".
Section 459F deals with the time in which a company is taken to have "failed to comply" with a statutory demand. It provides as follows: "459F When company taken to fail to comply with statutory demand (1) If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. (2) The period for compliance with a statutory demand is: (a) if the company applies in accordance with section 459G for an order setting aside the demand: (i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand - the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or (ii) otherwise - the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or (b) otherwise - 21 days after the demand is served."
Section 459G provides for applications to set aside a statutory demand. It is in the following terms: "459G Company may apply (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company."
Section 459H deals with the setting aside of a statutory demand in circumstances where there is a dispute as to the existence or amount of the debt or where an offsetting claim exists. So far as it is relevant, it provides as follows: "459H Determination of application where there is a dispute or offsetting claim (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total where: admitted total means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates. offsetting total means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. (3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand. (4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. (5) In this section: admitted amount, in relation to a debt, means: (a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or (b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or (c) otherwise - the amount of the debt. offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). respondent means the person who served the demand on the company. (6) This section has effect subject to section 459J."
Section 459J empowers the court to set aside a statutory demand on an application under s 459G on certain other grounds. It is unnecessary to set out this provision.
Section 459Q deals with applications to wind up a company in insolvency for a failure to comply with a statutory demand, s 459R limits the time in which such an application is to be determined, while s 459S limits the bases on which such an application can be opposed by the company. The provisions are in the following terms: "459Q Application relying on failure to comply with statutory demand If an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the application: (a) must set out particulars of service of the demand on the company and of the failure to comply with the demand; and (b) must have attached to it: (i) a copy of the demand; and (ii) if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and (c) unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that: (i) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (ii) complies with the rules." 459R Period within which application must be determined (1) An application for a company to be wound up in insolvency is to be determined within 6 months after it is made. (2) The Court may by order extend the period within which an application must be determined, but only if: (a) the Court is satisfied that special circumstances justify the extension; and (b) the order is made within that period as prescribed by subsection (1), or as last extended under this subsection, as the case requires. (3) An application is, because of this subsection, dismissed if it is not determined as required by this section. (4) An order under subsection (2) may be made subject to conditions. 459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent."
The practical effect of these provisions is that, where a statutory demand has been served, a company which has not availed itself of the procedure in s 459G to set aside the statutory demand is not entitled to oppose the winding up application on a ground which could have been raised to set aside the demand, such as by disputing the existence of the debt, unless a court grants leave to do so. The power to grant such leave was described by Hayne J in Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298 at 300 as "a safety net" in the sense that there are "cases in which a dispute as to the existence of the debt may be litigated at the time of the application for winding up in insolvency, even if there has been no application under s 459G".
The statutory demand regime to which I have referred was described by Spigelman CJ, with whom Hodgson and Macfarlan JJA agreed, in TQM Design & Construct Pty Ltd v Golden Plantation Pty Ltd [2011] NSWCA 7 at [29] as constituting "a carefully formulated series of interlocked steps which have substantial consequences and the objects of which require precise compliance for their attainment". I would respectfully adopt that description. It is neither necessary nor desirable to describe the provisions relating to statutory demands as a "code", as distinct from focusing on the actual statutory provisions and what they are intended to achieve.
The provisions were inserted into the Act by the Corporate Law Reform Act 1992 (Cth). This followed the Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) (the Harmer Report). Paragraphs 685, 688, 689 and 690 of the Explanatory Memorandum to the Bill for the Corporate Law Reform Act 1992 (Cth) explained the purpose of the introduction of the provisions in the following terms: "685. This Division will implement the Harmer Report's recommendations in connection with the setting aside of statutory demands. The Harmer Report considered that the existing, largely unregulated, procedure in relation to notices of demand too often produces disputes about the debt at the hearing of a winding up application. The Report further noted that companies presently often need to bring injunction proceedings where a debt claimed in a demand is disputed. The Report took the view that the legislation should specifically provide for the determination of disputed debt issues and other disputes in respect of a statutory demand. … 688. The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies. In particular it is intended to remove the present difficulties which are experienced where difficulties in estimating the extent of the debt may lead to an invalidating of the statutory demand on the basis of a minor overstatement of the amount due … 689. This proposed Division [ss 459G-459N], together with proposed Division 4 [ss 459P-459T], also provides a means of dealing with statutory demand disputes in such a way that an alleged defect in the statutory demand does not have the effect of prolonging proceedings leading to the commencement of a winding up, by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding up proceedings have commenced. Proposed section 459G - Company may apply 690. A company may apply to the Court for an order setting aside a statutory demand served on the company (proposed subsection (1)). The application may only be made within 21 days after the demand is served (proposed subsection (2)). For the application to be effective, an affidavit supporting the application must be filed with the Court within those 21 days, and a copy of the application and the supporting affidavit served on the person who originally served the demand on the company (proposed subsection (3))."
In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270; [1995] HCA 43 (David Grant), Gummow J, with whom the other members of the Court agreed, after referring to these paragraphs from the Explanatory Memorandum, described the provisions relating to statutory demands as constituting "a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts unless they are raised promptly".

Consideration

The proposition that a court could extend the time prescribed in s 459G(2) of the Act by an order under s 1322(4)(d) was rejected in David Grant. In David Grant at 277, Gummow J described the time limitations and the other requirements in s 459G as "a limitation or condition upon the authority of the court to set aside the demand", indicating that the "force of the term 'may only' is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G".
Subsequent authorities have adopted a similar approach. In Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314; [2008] HCA 9, the majority held that an order could not be made under s 459F(2)(a) extending the time for compliance with a statutory demand after the period for compliance had expired. The majority stated at [14] that the "evident purposes of [Part 5.4 of the Act] include speedy resolution of applications to wind up companies in insolvency". Their Honours stated at [19] that it would be "sharply at odds with the purposes revealed by the provisions of [Part 5.4] to read the power to extend time for compliance with a statutory demand as capable of exercise after the time has expired". Their Honours also emphasised at [26] that the provisions did no more than create a presumption of insolvency and that "denying the power of a Court to extend time for compliance with a statutory demand after the time has already expired determines no right or liability of the company".
In Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; [2011] HCA 18 at [27], the Court again pointed out that the "evident policy of [Part 5.4 of the Act] is that there be a speedy resolution of applications to wind up in insolvency" and, to that end, "a challenge to a statutory demand is to be made promptly".
As Basten JA pointed out in Tudor Developments Pty Ltd v Makeig (2008) 72 NSWLR 624; [2008] NSWCA 263 at [71], the question of whether an estoppel can arise in the face of a statutory provision is ultimately "a question of statutory construction". His Honour, with respect, also correctly pointed out at [51] that what was described by Viscount Radcliffe in considering this issue in Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 as the "general social policy" of a statute might today "be encompassed within the principle of purposive construction".
In the present case, it seems to me plain that an estoppel cannot operate to effectively extend the time limitation imposed by s 459G(2). This is for a number of reasons. First, as was pointed out in David Grant at 277, the requirement as to time defines "the jurisdiction of the court" by imposing the requirement as "an essential condition of the new right conferred by s 459G". Just as the time could not be extended by an order under s 1322(4)(d) of the Act so as to confer jurisdiction, it cannot be extended either by agreement of the parties or by the operation of an estoppel.
Second, the text of the legislation supports this conclusion. The expression "may only" in s 459G(2) tells against any variation in the time limit as a result of an agreement of the parties or an estoppel. Further, the other detailed requirements in Part 5.4 of the Act relating to the form of the application to set aside a demand under s 459G and the limited power to extend the time in s 459F(2)(a)(i), coupled with the wording of s 459G itself, suggest that the statutory time limits cannot be varied.
Third, the policy behind Part 5.4 of the Act tends against the suggestion that time limits can be varied as a result of the operation of an estoppel. I have already set out the history of the legislation and what has been said by the High Court concerning the policy behind it. In summary, the object of the legislation was to provide a mechanism by which applications to wind up potentially insolvent companies could be dealt with promptly, with an application required to be finally determined within 6 months in accordance with s 459R(1). It did this, in the case of the statutory demand procedure, by providing detailed steps to be taken with precise time limits. It can readily be seen why the legislature regarded this policy to be in the public interest, and this provides a further powerful reason why the time limits should not be able to be varied by the application of doctrines such as estoppel.
To the extent that such a conclusion may produce harsh results, this must be balanced against the public interest in determining applications to wind up insolvent companies promptly and avoid injustices that may be caused by the continued trading of such companies: see David Grant at 279; Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661; [2000] NSWCA 37 at [50]. Further, the provisions of s 459S, which confer on a court the power to grant leave to raise matters which could have been raised in an application under s 459G if relevant to the question of solvency, can alleviate any hard result: see MGM Bailey Enterprises v Austin Australia [2002] NSWSC 259 at [15]-[16], in which Austin J held, in factual circumstances somewhat similar to the present case, that to allow an estoppel to operate would be contrary to the legislative policy behind Part 5.4 of the Act.
The respondent, while not appearing to dispute the proposition that an estoppel could not operate to extend the 21-day period in s 459G(2), submitted that the effect of the conclusion of the primary judge was that the appellant was estopped from denying that the 21-day period expired on 29 June 2017 rather than 27 June 2017.
I do not think that this formulation of the estoppel affects the position. Regardless of how the estoppel is expressed, its effect is to prevent the appellant from asserting that the time limit imposed by s 459G(2) has expired, and thus, to confer jurisdiction on a court to hear an application which it otherwise would not have. Both the text of the relevant legislative provisions and the policy issues to which I have referred lead to the rejection of that proposition.
In addition, the proposition fails to take account of the provisions of s 459F(1), which provides that a company has "failed to comply" with a statutory demand if the demand is still in effect and the company has not complied with it within the defined period, which is, relevantly, 21 days after the demand has been served, and the provisions of s 459Q(a), which provides that a creditor who seeks to rely on a demand is to set out the "particulars of service of the demand". These subsections provide further support for the conclusion that the estoppel contended for cannot operate in the face of the legislative scheme of Part 5.4 of the Act.

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Judgment (9 paragraphs)

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