Commonwealth of Australia v MacLean Bay Pty Ltd

REASONS FOR JUDGMENT 1 In this proceeding, the Commonwealth of Australia (the Commonwealth) seeks to wind up the defendant, MacLean Bay Pty Ltd (MacLean Bay), following failure by MacLean Bay to comply with a statutory demand. MacLean Bay seeks an adjournment of that winding up application, pending the hearing and determination of an appeal from the orders of Marshall J in TAD 33 of 2010, which are the subject of the statutory demand and form the basis of the application for winding up. The Commonwealth resisted this application for an adjournment, and wished to proceed, forthwith, before me today with their application to wind up MacLean Bay. 2 These are my reasons for refusing the adjournment sought and ordering the winding up of MacLean Bay. 3 Section 467 of the Corporations Act 2001 (Cth) (the Act) provides that the Court's powers, on the hearing of a winding up application, include a power to adjourn the hearing conditionally or unconditionally. 4 I observe that the power of the Court to adjourn a winding up application is wide. Section 467 makes it clear that, even though a creditor may otherwise generally expect to obtain a winding up order upon the failure to comply with a statutory demand, the Court retains a discretion whether to make such a winding up order even in circumstances where insolvency is established. 5 There are a wide variety of circumstances where the Court may, in the appropriate case, adjourn an application to wind up. There are very good reasons, however, for that not to be done unless there is a proper basis to do so upon evidentiary material put before the Court. When I say upon evidentiary material before the Court, this can be done in a number of ways, including by way of hearsay evidence. However, there must be some evidentiary material before the Court which persuades it to grant an adjournment application. 6 A number of matters can be stated in this proceeding which are not in contention: (1) It seems to be accepted that MacLean Bay has arguable grounds in relation to the appeal to be brought from the orders of Marshall J in TAD 33 of 2010. (2) However, to date, no stay of his Honour's orders has been sought, nor has any explanation been given as to why such an application has not been made. It was indicated by MacLean Bay that it may be thought that staying the orders would not prevent the debt from being said to be due and payable, and hence would not prevent a statutory demand from being made and relied upon in a winding up application. However, I am not persuaded that this would be a reason for not making a stay application, even if only to serve as a basis for an argument that a statutory demand should not have been made or enforced. (3) MacLean Bay has failed to either comply with the statutory demand served by the Commonwealth or apply for it to be set aside within the timeframe prescribed by the legislation, and the resulting presumption is that MacLean Bay is insolvent. (4) The evidence before the Court does not indicate that MacLean Bay is solvent. In fact, it seems to be accepted (and in my view, upon the evidence before the Court, must be the case) that MacLean Bay, at this moment, is insolvent. (5) The general principle is that, whilst a creditor is not 'entitled' to a winding up order, normally a winding up order will be made if a statutory demand has not been complied with and there are no other circumstances that would favour the Court exercising its discretion not to grant such an order. (6) There is a public interest in the expeditious determination of winding up applications which has been recognised, for many years, by both the legislature and the courts. (7) The appeal in relation to the orders of Marshall J will proceed in any event, as the second appellant intends to prosecute the appeal. I have made orders in the callover of the appeal that the appeal by the second appellant be listed for hearing in Melbourne, on an estimate of one day, on a date to be fixed on or after 30 April 2013. 7 The way in which I have approached the adjournment application is to inquire whether an adjournment would be of any advantage from the point of view of MacLean Bay or its creditors (including the Commonwealth). 8 The Commonwealth relied on the decision in Braams Group Pty Ltd v Miric [2002] NSWCA 417, which resembles, in many ways, the facts that are before me. However, in the matter before me, an attempt has been made by MacLean Bay to persuade the Court that there is a substantial reason for postponing "the evil day" of making a winding up order, it being argued by MacLean Bay that, if time was given and the appeal was successful, then a winding up order would not be made in the circumstances. 9 In Braams Group [2002] NSWCA 417, heavy reliance was placed on s 459S of the Act. As its terms - and the authorities which deal with it - indicate, this provision makes the solvency of the company sought to be wound up the central inquiry. It is an important provision in that it underscores the importance of dealing with winding up applications expeditiously, and the importance of a company setting up, within a relatively confined period of time, its arguments in support of any basis for setting aside the statutory demand. The legislative command is clear and the question and presumption of insolvency is at the fore. 10 Having said all that, it seems to me that the starting point of my consideration must be the power given to the Court to adjourn a winding up application and the considerations prescribed under s 467(1) of the Act. This is a provision that does not seem to have had any mention that I can find in the decision of Braams Group [2002] NSWCA 417, although the application in that case seemed to be treated as an application for an adjournment. It seems trite law that if there is a statutory provision dealing with a matter in a particular statutory context, it is that provision that dictates the exercise of the discretion and not some general, inherent power of the Court. 11 In the case of Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd [2006] VSC 338, Dodds-Streeton J referred to the discretion set out in s 467 of the Act. At paragraph 168, her Honour said the following: Despite the general rule that a creditor will be entitled to a winding up order upon failure to comply with a statutory demand, the Court, even where insolvency is established, retains a discretion whether to make an order. The Court may, in the exercise of that discretion, adjourn the application when it is credibly asserted that the company has good prospects of recovery in order to allow time to elapse "for the aspirations of the company or its directors to be realised". 12 In the following paragraphs (169 to 172), her Honour went through other aspects of the discretion not to make a winding up order, and the discretion to grant an adjournment. It seems to me, as a matter of principle, and based upon what her Honour said, that in this proceeding, whether to grant an adjournment will depend upon the evidence before the Court as to whether there are good prospects of recovery. 13 In this proceeding, evidence was presented as to the current financial position of MacLean Bay and matters that were being negotiated in respect of certain debts. Principally, there was an affidavit of Jamie Charles Wells, sworn 30 January 2013, which set out a number of relevant matters. 14 MacLean Bay currently has no assets or income. It has ceased to trade, and current liabilities are of a substantial amount. On the basis of Mr Wells' evidence, I accept that, to a certain extent, some negotiations are going on in relation to some of the outstanding debts. 15 Whilst I accept this evidence and I have allowed some of it to be admitted over objection, it does not seem to me to be persuasive to demonstrate (or to enable me to have sufficient satisfaction as to) the future solvency of the company, even assuming that the Commonwealth ceases to be a debtor (i.e. assuming there is a successful appeal). I should interpolate that there is no doubt, at the moment, that the Commonwealth has standing and as I have said, MacLean Bay is insolvent and there is a proper basis for winding up the company. In those circumstances, it seems to me that there is simply no basis to grant the adjournment sought, and it would be wrong in principle to do so, having regard to the principles I have outlined. 16 I make one further observation in relation to a passage relied upon by MacLean Bay in the decision of Ipp JA in Braams Group [2002] NSWCA 417 at paras 77 and 78: [77] Take, for example, the situation that arises when a debtor pays a creditor in full after the expiry of the statutory 21 day period. In my view the following principles, enunciated by Needham J in De Montfort v Southern Cross Exploration NL (1987) 5 ACLC 709 ( at 711) must govern the position: I should have thought that, while the effect of the s364 notice undoubtedly continues so as to allow another creditor to become substituted for the original plaintiff, that principle could not possibly apply to a case where it is the plaintiff itself who claims to continue the proceedings after being paid out the only amount which he has claimed in those proceedings. It would, I think, be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice, then, when the debtor failed to comply with that notice, take proceedings, be paid the full amount claimed, and then seek to wind the defendant up nonetheless. [78] In the context of s495S, the payment of the judgment debt after the expiry of the statutory 21 day period would be a ground on which the defendant debtor could not have relied in attempting to set aside or stay the statutory demand. Hence, it seems to me, there would be no reason why the defendant could not rely on such payment in opposing the winding up. 17 His Honour's observation there, which I accept, was that (in the context of s 495S) if there was a payment of the judgment debt after the expiry of the statutory 21-day period, then undoubtedly, in the normal circumstances the Court would not be ordering a winding up of the company, and the company could rely on that payment in opposing the winding up. This is not the position I have before me. MacLean Bay is not offering to pay the debt now, out of time, so to speak. The position before me is one of ascertaining what evidence there is before the Court in relation to the future prospects of this company. 18 For these reasons, I have refused the adjournment. Proceeding then, as I did, to hear the winding up application, I was satisfied on the evidence before me that the winding up application should be successful, and hence made the orders concerning the winding up of MacLean Bay. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.