CMA Corporation Ltd v SNL Group Pty Ltd [2009] NSWSC 1452 | Case summary

3719/09 CMA CORPORATION LTD V SNL GROUP PTY LTD JUDGMENT (On application for winding up order; ex tempore, revised 18 December 2009) 1 HIS HONOUR: This is an application for the winding up of the defendant company on the ground of insolvency. The plaintiff served a statutory demand on the defendant on 9 April 2009 for USD525,888.38. The defendant did not pay the amount claimed or make an application to set the statutory demand aside within the prescribed time. Consequently, a presumption of insolvency has arisen against the defendant. 2 In the present winding up proceedings, the plaintiff wishes to take advantage of that presumption of insolvency. The defendant has provided notice of grounds of opposition to the winding up application, dated today's date, which identify four grounds. 3 The first ground is that the affidavit in support of the originating process does not comply with the Corporations Act and the rules of Court. That ground is explained in the defendant's written submissions, paragraphs 1 - 5. In those submissions the defendant relies on the Supreme Court Rules chapter 80A in various respects. The Supreme Court Rules Pt 80A, rule 2, says: Subject to any order of the Court, this Part applies to: (a) proceedings under the Corporations Law or the ASC Law commenced in the Court after 30 January 1994 and before the Supreme Court (Corporations) Rules 1999 commence; and (b) applications made under the Corporations Law or the ASC law after 30 January 1994 in proceedings in the Court commenced before the Supreme Court (Corporations) Rules 1999 commence. 4 According to rule 1.2 of the Supreme Court (Corporations) Rules 1999, those Rules commenced on 1 March 2000. Since the winding up application in the present case was filed on 16 July 2009, it follows that by virtue of rule 2 of Pt 80.A, Pt 80.A has nothing to do with this case. The proceedings presently before the Court are governed by the Supreme Court (Corporations) Rules 1999. That is confirmed by rule 1.3 of those rules according to which the rules apply to a proceeding in Court under the Corporations Act commenced after the commencement of the rules. The requirements of the 1999 rules for an affidavit in support of an application for winding up are set out in rule 5.4. It has not been submitted that the plaintiff has failed to comply with the requirements of rule 5.4 in any respect. Consequently, the first ground of opposition to the winding up application fails. 5 The second ground of opposition to the winding up application is that a copy of the notice of making of the plaintiff's application was not served on the defendant within 14 days after the application was made, or at all, in breach of s 465A of the Corporations Act. In my view, this ground of opposition is based on misreading of that section. 6 Section 465A is as follows: A person who applies under section 459P, 462 or 464 for a company to be wound up must: (a) lodge notice in the prescribed form that the application has been made; and (b) within 14 days after the application is made, serve a copy of it on the company; and (c) advertise the application as described by the rules. 7 The defendant's submission is that sub-paragraph (b) of that section requires that a copy of the notice in the prescribed form, referred to in sub-paragraph (a), be served on the company within 14 days after the making of the application. But as a matter of syntax that seems to me to be wrong. Sub-paragraph (a) deals with the notice that is required to be lodged with ASIC. Sub-paragraph (b) requires something to be done within 14 days after the application is made, and the thing to be done is to "serve a copy of it on the company". The word "it" naturally refers to the word "application" which appears just before that word in sub-paragraph (b), rather than to the notice lodged with ASIC, which is identified in the sub-paragraph (a). Therefore, the second ground of opposition fails. 8 I should add that if I had construed s 465A differently, I would have been inclined to treat non-compliance with it as a defect or irregularity in connection with the application which, according to s 467A, is not to be the basis for dismissing the application unless the Court is satisfied that substantial injustice has been caused that could not otherwise be remedied. It seems to me that the defendant became aware of the making of the winding up application reasonably promptly after it was made by virtue of the service of the application on it, and in those circumstances, no substantial injustice would have been caused by non-service of the ASIC notice. 9 The third ground in the notice of grounds of opposition to the winding up application is that the statutory demand upon which the plaintiff relies had a defect or defects within the meaning of s 9 of the Corporations Act, in consequence of which the defendant did not and could not know the amount in Australian dollars alleged to be owed by the defendant to the plaintiff. The defect reportedly identified is that the statutory demand requires payment of an amount expressed in US dollars and on its proper construction, so the submission goes, the demand does not expressly or impliedly indicate the date upon which the conversion of the US dollar amount to Australian dollars should be made. 10 I was referred to my earlier decision in Daewoo Australia Pty Limited v Suncorp Metway Limited (2000) 48 NSWLR 692; (2000) 33 ACSR 481, in which I upheld a statutory demand made in foreign currency. I have not carefully considered whether that decision is distinguishable. It seems to me that even if there was defect in the statutory demand along the lines alleged, the defendant is not in a position to raise that matter in answer to the winding up application. This is because s 459S(1) says that insofar as an application for a company to be wound up in insolvency relies on the failure by the company to comply with a statutory demand (as does the present application), the company may not without the leave of the Court oppose the application on a ground that the company could have relied on for the purposes of an application to set aside the demand, whether or not such an application was made. In fact, as I have said, no timely application was made, but it seems to me that the defect of denomination of the amount demanded in a foreign currency (if it is a defect) could have been agitated in such an application. The defendant could not raise that matter at the winding up hearing, therefore, without the leave of the Court. 11 Section 459S(2) says that the Court is not to grant leave under ss (1) unless it is satisfied that the ground is material to proving that the company is solvent. As far as I can see from the evidence before me today, the evidence does not establish that the "defect" ground would be material to proving that the company is solvent. Indeed, my understanding of the submissions made on behalf of the defendant is that this deficiency in the evidence was conceded. Consequently, the Court is not in a position to grant the leave that the defendant would need in order to run the defect point. 12 Again, if I had reached a different view than I have just stated, I would have been inclined to apply 467A, according to which an application for winding up such as the one before me is not to be dismissed merely because of a defect in the statutory demand, unless the Court is satisfied that substantial justice has been caused that cannot otherwise be remedied. I am not persuaded that substantial injustice is caused to the defendant by failure to specify the conversion date of the amount demanded, because the defendant would be able to identify a reasonably close range of dates and conversion rates, and tender either an average amount or else an amount on the date within the range when the exchange rate is at its most favourable to the defendant and that might crystallise the issue. 13 Finally, the notice of grounds of opposition to winding up asserts that the defendant company is and was at all material times solvent. The evidence of solvency is essentially a report by Mr Lo Pilato to which I have referred in my judgment on the adjournment application. It suffers from the deficiencies that Mr Lo Pilato was not provided with certain material information and there was no proper verification and validation of the financial statements. I do not regard the report as adequate to discharge the onus to prove solvency that is cast upon the defendant. Moreover, as I understood the submissions made by counsel for the defendant, the defendant concedes that the evidence before the Court today is not sufficient to prove solvency as required. 14 The result is that none of the grounds of opposition to the winding up application succeeds. The plaintiff's evidence establishes that the presumption of insolvency has arisen and, therefore, the ground for winding up has been made out. The formal requirements have been attended to. 15 Section 467(1) gives the court discretion to dismiss the winding up application even if a ground for winding up has been established. In my view, there is no basis for exercising that discretion favourably to the defendant in this case. This is a case where the application is brought precisely in the circumstances that the policy underlying Pt 5.4 of the Corporations Act envisages, namely, non-compliance with a statutory demand leading to a presumption of insolvency facilitating proof of the ground for winding up and casting the onus of proving solvency on the defendant. The fact that the statutory demand was made in US dollars does not, in my view, supply a sufficient basis for exercising the discretion under s 467, given the circumstances I have described in my earlier judgment on the application for an adjournment. No other plausible ground for exercising the discretion favourably to the defendant has been advanced. 16 I shall, therefore, order that the defendant company be wound up under s 459A and that the liquidator who has consented to appointment, Mr Quentin Olde of Taylor Woodings, be appointed liquidator.

CMA Corporation Ltd v SNL Group Pty Ltd

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