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[1996] FCA 951
Federal Court of Australia
1996-10-17
Spender J, Gummow J, Re J
Original judgment source is linked above.
Leisureport filed an application to set aside that statutory demand within 21 days but the demand was not served in accordance with s 459G(3) of the Corporations Law. It follows, having regard to the decision of the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, that Leisureport is precluded from making an application to set aside the statutory demand. It should be said that it appears that the failure by Leisureport to serve the application to set aside the demand is not something for which Leisureport was responsible, but was for reasons outside Leisureport's control, being delay by the court in processing the filing of the demand. That circumstance, however, and regrettably, cannot prevail over the absolute nature of the requirements of s 459G of the Corporations Law. The High Court concluded that s 459G of the Corporations Law defined the jurisdiction of the Court by imposing a time requirement as an essential condition to the right to apply to set aside a statutory demand. Section 459G of the Corporations Law was specific in its terms and was not supplemented or qualified in its construction or operation by, inter alia, s 1322 of the Corporations Law. Gummow J noted at 279: " No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz (1992) 174 CLR 509 at 518-522, 532-537. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction; Bryanston Finance v de Vries (No 2) [1976] Ch 63 at 78, 79-80; L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACKR 180 at 183; 1 ACLC 536 at 538; Pacific Communication Rentals Pty Ltd v Walker (1993) ACSR 287 at 289; 12 ACLC 5 at 6-7; Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541 at 547-548. " The other four Judges, Brennan CJ, Dawson, Gaudron, and McHugh JJ agreed with the judgment of Gummow J. Leisureport seeks an injunction and the basis for its application is that it is wholly solvent and consequently there is no basis to wind up the company. It is contended that, in those circumstances, an application to wind up a solvent company amounts to an abuse of process and that the Court would, in its inherent jurisdiction to prevent such an abuse, order injunctive relief. In my opinion, the basis on which the injunction is sought, having regard to the provisions of Pt 5.4 of the Corporations Law, would not amount to an abuse of process and consequently the Court declines to make any order to grant any injunction. A company can be wound up pursuant to ss 459A or 461 of the Corporations Law. Section 461 is not applicable in the present circumstances. The contentions for the applicant is that the debt claimed by the creditor of $50,000.00 pursuant to terms of settlement in earlier litigation in the Federal Court is a disputed debt, and further that the company Leisureport is solvent, that the sum of $50,000.00 is held by its solicitors, Messrs Baker and Johnson, and according to material (which seems to me to be of a hearsay kind and is the subject of objection about which something further must be said) Leisureport had an operating profit for the financial year ending 30 June 1996 of approximately $3.3 million and a surplus of assets over liabilities as at that date of approximately $8 million. Section 459A of the Corporations Law provides: " ...the Court may order that an insolvent company be wound up in insolvency. " By s 459C(2) of the Corporations Law, a company is presumed to be insolvent if, during or after the three months ending on the day when the winding up application was made, the company failed to comply with a statutory demand. This presumption can be rebutted by evidence from the company. Section 459C(3) provides: " A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application. " See also Hamilhall Proprietary Limited v A.T. Phillips Proprietary Limited (1994) 15 ACSR 247 at 252. The contentions advanced on behalf of Leisureport by Mr Martin of Counsel can be shortly stated. It is appropriate, it is said, for the Court to have regard to the material to which objection is taken in the present circumstances, as that material establishes that the company is clearly solvent. It would, it is said, be an abuse of process if, in those circumstances, an application for winding-up were to be made, and therefore the Court should restrain such an application by the granting of an injunction. It seems to me that it is unnecessary to determine whether I should receive the material relating to the solvency of the company because accepting, for present purposes, that the material did establish that the company was solvent, but that it had failed to comply with a statutory demand, it is not an abuse of process for the creditor to commence winding-up proceedings. It was further submitted on behalf of Leisureport that it was not appropriate to issue statutory demands pursuant to the Corporations Law, and therefore later to attempt to wind up solvent companies, where there are other means of execution available. This submission is derived by analogy from the observations in Re: Sarina; Ex parte: Wollondilly Shire Council (1980) 32 ALR 596. It may be doubted whether in fact other methods of enforcement are available. There is in this case no judgment debt.
In any event, this submission, and the submission based on abuse of process, in my opinion, misunderstands the nature of the provisions of Pt 5.4 of the Corporations Law dealing with external administration. There is no doubt that the Court has an inherent jurisdiction to prevent an abuse of its process. In Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287, Brownie J held, exercising that inherent jurisdiction, that the commencement of winding-up proceedings in the circumstances with which he was concerned amounted to an abuse of process calling for the grant of an injunction. His Honour said, at 288: " I accept that Div 3 of Pt 5.4 is a code, so far as concerns applications to set aside statutory demands: see Textel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535 at 538; 11 ACLC 1059 at 1062; and para 688 of the Explanatory Memorandum, but I do not think that this submission is an answer to the plaintiff's reliance on the inherent jurisdiction of the court to prevent an abuse of its process. Within Pt 5.4, s 459C provides that for certain purposes the court 'must presume' a company to be insolvent if it fails to comply with a statutory demand, although that presumption may be rebutted by evidence to the contrary. The company may apply to the court for an order setting aside the statutory demand, but only within 21 days after service of the demand, and only by fulfilling certain conditions: s 549G. The court might vary the statutory demand, having regard to the existence of a genuine dispute about the existence of the alleged debt, or the existence of an offsetting claim: s 459H, and may in certain limited circumstances set aside the demand: s 459J. An application to wind up the company in insolvency on the ground that the company failed to comply with a statutory demand may not be opposed on a ground not taken on an application to set aside the demand, whether or not such an application was in fact made, except with the leave of the court, and 'the court is not to grant [this] leave...unless it is satisfied that the ground is material to proving that the company is solvent': section 459S. His Honour later said: " The submissions for the plaintiff adopted the statement by McLelland J. as he then was, in L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 at 181; 1 ACLC 537 at 538, that proceedings by an alleged creditor to wind up a company on the ground that it is unable to pay its debts will ordinarily be an abuse of process in three types of cases: (1) if the proceedings will fail, because the applicant will not be able to prove that he is a creditor, or will not be able to prove that the company is insolvent; (2) if the application is made for some improper purpose, for example to coerce the company into paying the alleged debt, without affording the company a reasonable opportunity to ascertain or have it established that the debt is not properly payable; or (3) if issues will arise of a kind not appropriate to be determined in winding up proceedings, for example substantial issues as to the existence of the supposed debt. The submissions accepted that the intention of the drafters of Pt 5.4 was to establish a code, and that disputes in the first and third of these categories were not to be dealt with under Pt 5.4. However, the argument is that disputes, or at least some disputes in the second category are not covered by Pt 5.4. In Williams v Spautz (1992) 174 CLR 509, Mason CJ, Dawson, Toohey and McHugh JJ said (at 518) that Australian superior courts have inherent jurisdiction to stay proceedings which are an abuse of process; (at 520) that it is the duty of every court to protect itself against the abuse of process, first because of the need in the public interest to ensure that its processes are used fairly, and secondly, because the failure to do so will lead to the erosion of public confidence by reason of the concern that the court's processes may lend themselves to oppression and injustice; and (at 522) that the power must extend to the prevention of an abuse even if the moving party has a prima facie case. "
The essence of the applicant's case is that, relying on the first of the categories referred to by McClelland J in the L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) ACLC 537 on the financial material on which the applicant relies, the proceedings for a winding-up will fail because the applicant will not be able to prove that the company is insolvent. That case, of course, pre-dated the enactment of Pt 5.4 of the Corporations Law. Under that Part, however, there is a presumption of insolvency arising from a non-compliance of a statutory demand; it is not for the applicant to prove that the company is insolvent. Where there is the presumption of insolvency, it is for the company presumed insolvent to prove that it is solvent, so as to rebut the presumption which arises by virtue of the circumstance of non-compliance. If the applicant's submission be correct, it would mean that every creditor of a solvent company (being a company solvent in fact) would be liable to be enjoined from presenting a winding-up application after the company had failed to comply with the statutory demand, regardless of the knowledge of the creditor of the company's position so far as solvency is concerned. The regime established by Pt 5.4 is based on a presumption of insolvency in circumstances where a company has failed to comply with a statutory demand. Where there has been such non-compliance, it is competent for an application to be made under s 459P of the Corporations Law for an order that the company be wound up and, on such an application, it is competent for the company the subject of the winding-up application, to prove that it is solvent. In those circumstances, it seems to me clear that the question of solvency is a matter to be canvassed, should the debtor company wish to in those winding‑up proceedings, by the debtor company seeking to rebut the presumption of insolvency, pursuant to s 459(3) of the Corporations Law. In the present circumstances, it may be that Bremer is on notice as to the claim of solvency by Leisureport and were it to initiate winding-up proceedings and be unsuccessful because Bremer was able to establish its solvency on that application, it would be at risk of being ordered to pay the costs of Bremer on that application. It was decided by Lindgren J in Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 13 ACLC 229 that there is no provision for a statutory demand to be set aside on the ground of the company's solvency. His Honour said at 243: " Fourthly, para 459J(1)(b) was enacted against the background of the existence of the court's inherent jurisdiction to restrain, in an appropriate case, the commencement of winding up proceedings on the ground that they would constitute an abuse of the court's process. Like Brownie J in Pacific Communication, I see no reason to think that the jurisdiction has not survived the enactment of Pt 5.4 of the Law. An injunction could be sought, and in an appropriate case, granted, in proceedings brought for an order setting aside a statutory demand. Consequently, there would be no utility in a provision for a statutory demand to be set aside on the ground of the company's solvency. It should not be lightly accepted that Parliament has enacted a measure lacking utility. " In these circumstances, it seems to me that the question of the solvency of Leisureport may be canvassed by it, were a winding-up application to be made by Bremer. It is not an abuse of process, requiring the court to grant injunctive relief to restrain the presentation of any such winding‑up application, where a company, exposed to such an application by being in default under a statutory demand, asserts that it is solvent. The application for an injunction is refused, with the usual consequence as to costs. The applicant, Leisureport, is to pay the respondent's, Bremer's, costs of the application for the injunction, to be taxed if not agreed. I certify that this and the preceding nine (9) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender. Associate Date: 17 October 1996 Counsel for the applicant : Mr M D Martin instructed by : Baker Johnson Solicitors for the respondent : Purvis Duncan Date of Hearing : 17 October 1996
David Grant & Co Pty Ltd
Westpac Banking Corporation
(1995) 184 CLR 265
(1980) 32 ALR 596
(1992) 174 CLR 509
(1995) 36 NSWLR 541