Deputy Commissioner of Taxation v Burwood Retail Pty Ltd [2002] VSC 417

Supreme Court of Victoria|2002-09-13|Before: Hansen J

CORPORATIONS - statutory demand - application to set aside refused - time for compliance with demand expired - appeal to Court of Appeal against refusal to set aside - appeal pending - application to wind up based on non-compliance with statutory demand - application to adjourn a stay pending determination of appeal - refusal by Master - appeal by defendant company - Master of own motion adjourned winding up application on basis no power to grant approval under s 471A Corporations Act and to enable appeal against refusal to adjourn a stay - appeal by plaintiff - whether winding up to be ordered or adjourned - undertakings - limited stay of operation of order to wind up.

There are two companies, hence, there are two separate proceedings, each brought by a like originating process. The first in time is that relating to Burwood Retail Pty Ltd in proceeding No. 6161 of 2002, and the second concerns Scandi (QLD) Pty Ltd in proceeding 6162 of 2002. In each case the application to wind up was filed on 27 June this year. After coming on before the Senior Master on several occasions it finally came on for argument before him on 4 September, on which date he made the orders in question.

I mentioned that the application was made on the basis of statutory demands. The demands were dated 30 November 2001 and sent for service on or about that date. An application was made by each company to set aside each respective statutory demand. That application was made on 24 December 2001 and first came before the Senior Master on 27 February 2002. After several hearings, he heard argument upon the applications on 13 June 2002. He dismissed each application to set aside the statutory demand with costs. In the case of the statutory demand served upon Burwood Retail, the amount alleged to be owing was $19,119.25, and in the case of the statutory demand served on Scandi, the amount alleged to be owing was $14,810.43. In the case of Scandi, in dismissing the application to set aside the statutory demand, the Senior Master ordered that the demand be varied by reducing the sum demanded to $14,479.33 and declared that the demand had effect as so varied from the date of its service.

From the orders of the Senior Master dismissing the applications to set aside the statutory demands, each company appealed by notice dated 19 June 2002, returnable on 2 August. At the same time each company, by separate interlocutory process, made an application which came on before the judge in the Practice Court on 20 June 2002, to extend the time for compliance with the statutory demand. The importance of that application was that if that time was not extended then it elapsed on that day, 20 June 2002. The judge in the Practice Court refused to extend the time for compliance. Subsequently, on 2 August 2002, I heard argument on the appeals from the Senior Master's orders, and on 23 August 2002 I gave judgment in which I dismissed each appeal with costs.

Then, on 3 September 2002 each company filed and served a notice of appeal to the Court of Appeal against the orders which I made. The form of notice is an exhibit to an affidavit of Antony David Guss sworn 3 September and filed in each matter. I have been provided with a copy of the notice of appeal which I understand has been slightly varied, with the concurrence of the Deputy Commissioner, to correct some typographical errors. Essentially, the grounds of appeal challenge the correctness of my reasons for decision.

The particular point of the decision was that once the time for compliance with the statutory demands had expired there was no longer any subject matter left for consideration on the appeal. The conclusion which I expressed was based on a line of authority to which I referred in my judgment. It was a line of authority so clear and, in my view, correct, that consistently with the dicta of the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd, it was one that must be followed. I might say that prior to my consideration of the point upon which I based my decision there had been an earlier decision in this court, of Justice Warren, in Buckland Properties Pty Ltd v Deputy Commissioner of Taxation, in which Her Honour gave judgment on 16 August 2001, which applied the same authorities and reasoning as I did in my decision. An appeal was instituted against Her Honour's decision by a notice filed on 30 August 2001. Unfortunately, notwithstanding the lapse of time to the present, that appeal has not been heard by the Court of Appeal and there is no present indication as to when it might be heard.

Following the decision of the Senior Master to dismiss the applications to set aside the statutory demands, on 27 June, as mentioned earlier, the Deputy Commissioner filed originating processes to wind up Burwood Retail and Scandi on the ground of insolvency, based upon non compliance with the statutory demands. The hearing of the applications was stood over until I gave my decision on the appeals from the Senior Master's orders.

By the time the matter came on before the Senior Master five creditors had given notice of their intention to appear to support the application in Burwood. No such creditor gave notice in the Scandi matter. When the hearing took place before the Senior Master on 4 September the supporting creditors in Burwood Retail appeared by solicitors, and in one case by counsel, who also appeared for the Deputy Commissioner. This morning counsel for the Deputy Commissioner also appeared for the five supporting creditors.

When the matter came on before the Senior Master, Mr Guss who has appeared throughout for the companies and also appeared, as I understand it, in the Buckland matter seeking to set aside the stationary demand, sought an adjournment of the applications until the hearing and determination of the appeals from my orders dismissing the appeals from the Senior Master's refusal to set aside the stationary demands. The application was based on the usual ground that unless an adjournment was granted and a winding up order was made, the appeal might be rendered nugatory. Mr Guss submitted to the Senior Master, and to me, that the appeal was bona fide, not frivolous, and that it was based on reasonable grounds. It was submitted that the balance of convenience lay with the appellant companies.

Essentially, the position before the Senior Master was that the applicant Deputy Commissioner pressed for the usual orders for winding up and the appointment of a liquidator. The application was opposed by the companies on the basis that they had an appeal, which they genuinely wished to pursue, in which a point of practical importance as to the construction and operation of s.459F of the Corporations Act was raised. If an adjournment was not granted and the companies were ordered to be wound up, the appeal would be rendered nugatory.

The Senior Master did two things: in the first instance he ordered that the application for an adjournment or stay pending the determination of the appeal be refused. The defendant in each case appeals against that order. Then the Senior Master made a second order. He ordered that the further hearing of the proceeding be adjourned to 18 September 2002, and reserved the costs of the plaintiffs and the supporting creditors.

Why did he do that? The reason is exposed by lengthy statements in the "Other Matters" section of each order. In the first order, from which the defendant companies appeal, it is stated as follows: "Whether to order adjournment or stay being in the discretion of the Court (Ahern (1982) 76 A.L.R.137) the Court considers the exercise of the discretion to involve balancing the entitlement of the plaintiff to a winding up order (the defendant having failed to comply with the statutory demand after dismissal of its application to set aside the demand) and the effect which a winding up order would have on the defendant's appeal to the Court of Appeal of which notice was served yesterday (but is not yet filed). The Court is of the view that the appeal is not "based on genuine and arguable grounds" (Ahern at 148), because the judgment the subject of the appeal follows a line of authority as to the construction of s.459F, which has been accepted by the Full Court of the Federal Court (Equuscorp Pty Ltd v Perpetual Trustees WA Ltd[1]) and to which authority must be given on the basis set forth in A.S.C. v Marlborough Gold Mines Ltd[2]. In the view of the Court that construction could not be criticised as 'plainly wrong' unless the opposite construction (for which the defendant contends) were manifestly right. Further the Corporations Act has been passed without amendment of s.459F to 'correct' the construction uniformly given it by courts before July 2001. Accordingly, the balance of convenience lies with the plaintiff. Further: (a) the cases and the matters in paragraphs 8, 9, 11, 12 and 15 of the written submission of counsel for the plaintiff are adopted; (b) bankruptcy cases are distinguishable because there is no provision for separate proceeding to determine whether a debt is genuinely disputed in bankruptcy matters."

In the second order from which the Deputy Commissioner appeals, it is stated in the "Other Matters" section as follows: "The adjournment is ordered of the Court's own motion to enable the defendant as expeditiously as possible to appeal against the order made this day refusing an adjournment or stay pending the hearing of the appeal from the Honourable Justice Hansen. The Court constituted by a Master has no power under s.471A to approve an appeal by a director after a winding up order is made or provisional liquidator appointed. But for that, the Court would this day have ordered the winding up of the defendant and the appointment of the liquidator and given such approval. It is considered that, save in exceptional cases, there ought be such a right of appeal against an order changing a company's status and conducing to its ultimate dissolution. Accordingly, since the substance of any such appeal against winding up would be the correctness or otherwise of the refusal of the adjournment or stay, this adjournment is ordered to enable such an appeal to be heard and determined."

So, while there are two orders, it is seen that in fact there is the one disposition by the same orders in each case. The process was first to refuse the defendant's application for an adjournment, but then, secondly, and of the Court's own motion, to adjourn the application, notwithstanding the fact that the case for winding up was established, because the Senior Master had no power under s.471A to approve an appeal by a director after a winding up order had been made.

The result of the appeals brought by both parties is that as the hearing is by re-hearing de novo, the matter is before me afresh for consideration.

I observe, at the outset, that the Senior Master was correct in stating that a Master has no power under s.471A to approve an appeal by a director after a winding up order has been made. However, it is another thing altogether to hold that that lack of power warrants a refusal to order that a company be wound up. It is sufficient, I think, to observe that if a winding up order had been made (as in my view it should have been) the procedure available to each defendant company was to apply by interlocutory process for leave nunc pro tunc under the section, or to institute an appeal within time and on the return of the appeal seek such leave. See Rockbottom Fashion Market Pty Ltd v Griffiths Pty Ltd[3]; Victorian Work Cover Authority v Burroghan Pty Ltd[4]; Walker v Midlink Nominees Pty Ltd[5]; Rodgers v CJS Panels Pty Ltd[6].

Before me, Mr Guss has in his usual thorough way said all that could be said in support of the application for an adjournment or stay of the winding up proceedings until the hearing and determination by the Court of Appeal of the appeals from my decision refusing to set aside the statutory demands.

Before dealing with the contentions, I should say that, in my opinion, I am satisfied, as clearly the Senior Master was, that the ground of the application to wind up is established and, all things being equal, it is appropriate to make the usual orders for winding up and the appointment of a liquidator. The question is whether the making of such orders is to be held off pending the determination of the appeals.

I do not know when the appeals might come on, I have already pointed to the very long period of time that has now elapsed since the appeal in Buckland was commenced. Expedition in that matter is entirely out of my control. It is clear that, at least to the present time, neither Burwood Retail nor Scandi, nor, for that matter it would seem, the appellant, Buckland, or the Deputy Commissioner, has taken any step in the Court of Appeal to expedite the hearing of the appeals.

In the course of the submissions this morning I have been referred to a great many cases. It is not necessary, I think, to engage in an excursus in this case upon them. Insofar as this Court is concerned I have been referred to the decision in Cellante v G. Kallis Industries Pty Ltd[7] and to a number of other cases in this Court, in the High Court, to cases dealing with questions of stay, in the Federal Court, to cases dealing with like questions, particularly in the bankruptcy jurisdiction, and to cases specifically dealing with winding up: re Roma Industries Pty Ltd[8] and Ataxtin Pty Ltd v Gordon Pacific Developments Pty Ltd[9].

There was naturally an emphasis in the argument on the existence of genuine grounds of appeal. They are appeals, Mr Guss submitted, that are to be regarded as bona fide, not frivolous, raising, as I have said, an important point concerning the construction and operation of s.459F of the Corporations Act. That some consideration of the merits of an appeal is appropriate is clear on the authorities, in my view, but that is not to say that I am to engage in an elaborate excursus. The situation here is that the appeals in question seek to raise for review, as it were, and overturning, a line of authority which, as I said in my judgment, and Justice Warren said in hers in Buckland, is clear and leads to only one conclusion. I think, myself, that the appeals (including the appeal in Buckland) are untenable. That is not to say, as Mr Guss pointed out, that something may not happen on appeal that one does not expect or anticipate, it can. However, looking at it as I do and having regard to the well established authority that the appeals seek to challenge, I think the prospect of success must be so slim as to be negligible, so unlikely to succeed that as a matter of substance I regard the appeals as untenable. The sooner the appeals are determined, the better, in my view. It is unsatisfactory that they remain unresolved and, so long as they do, provide a ground on which the appellants rely to avoid a winding up.

I do think that is a factor to be considered in determining whether to stand over these applications pending the determination of the appeals. I cannot consider whether the appeals are not bona fide in the sense of bona fides of the person bringing them. Ms Mavroudis did not challenge bona fides in that sense. I think what we are concerned with is substance, and I have said all that I can say on that.

There has been, I think, when one regards the matter overall, a considerable delay since the initial service of the statutory demands in late 2001. Notwithstanding that the defendants' filed their applications to set aside the statutory demands late in December, they were not determined by the Senior Master until 13 June this year, I assume that the elapse of such a period was exceptional. As I have said, I heard argument in early August and following judgment later in August there is now to be an appeal to the Court of Appeal. It is correct that, as has been pointed out, in principle, applications for winding up in insolvency are meant to be determined within six months of the commencement of such applications.

I think that, having regard to all relevant matters, a winding up order should be made, but that does not dispose of the whole issue. In addressing his submissions, Mr Guss proffered an undertaking, that is to say, an undertaking in support of the application for a stay or adjournment, to take all reasonable steps to expedite the hearing of the appeals in the Court of Appeal. He also indicated a preparedness, if I considered it appropriate, to give undertakings of the nature specified in re Mosbert Finance (Aust) Pty Ltd[10].

I think that rather than require undertakings to be given by the companies, the appropriate course is to make the operation of the orders subject to a limited stay. That would have the effect of the defendants having to obtain an order of some sort from the Court of Appeal if they wish to avoid a winding up. That, in turn, might have the effect of expediting the resolution of the pending appeals and, thereby, the clarification of the point which Mr Guss wishes to argue.

These matters are a balancing matter in light of the relevant circumstances. A factor that weighs heavily on me is the need for expedition in the resolution of the appeals. I am also conscious of the matter raised by the Senior Master in the "Other Matters" section of one of his orders that a winding up affects the status of the company. I take that into account. I take into account the clearly established insolvency and the fact that the statutory demand was served as long ago as late last year. In the relative balancing of things, there is an interest not merely of the defendant companies but of those to whom money is owed, and, in a general sense, a concern as to the period of time during which an insolvent company is to be left at large in the community, so to speak. Furthermore, the longer a winding up order is delayed, the issue of the relation back date increases in significance.

For these reasons, which are not as elegantly expressed as they might be if I took time for consideration, I propose to make orders in the terms sought by the Deputy Commissioner, but providing, in addition, for the stay. It is convenient, I think, to have two separate orders. I will make orders in terms proposed by the Deputy Commissioner, but in the orders that deal with winding up there will be a further order in these terms: subject to further order the operation of these orders is stayed until 4 p.m. on 27 September 2002.

At a glance

Court

Decision date

Before

Source

Judgment (38 paragraphs)

Parties

Cases Cited (1)