Druin v Caporale Designs

Supreme Court of NSW|2009-07-06|Before: White J

CITATION : Druin v Caporale Designs [2009] NSWSC 739

DECISION : 1. Order that the interlocutory process filed on 1 June 2009 be dismissed. 2. Order that the applicant pay the liquidator's costs of the interlocutory process. 3. Otherwise make no order as to costs of the interlocutory process. 4. The exhibits may be returned after 28 days.

CATCHWORDS : CORPORATIONS - application to set aside order that company be wound up and that liquidator be appointed - order made in absence of company - failure to disclose order of Local Court for payment of judgment debt by instalments - no fundamental irregularity - presumption of insolvency due to failure to satisfy or set aside statutory demands - presumption not rebutted - application to terminate winding up under s 482 Corporations Act 2001 (Cth) - absence of evidence as to company's solvency - application dismissed

CASES CITED : Double Bay Newspapers Pty Limited & Ors v Fitness Lounge Pty Limited [2006] NSWSC 226; (2006) 57 ACSR 131

Druin Pty Ltd PARTIES : v Caporale Designs Pty Ltd

Plaintiff: J Papalia COUNSEL : Defendant: R Caporale (director) Liquidator: J Rozea Supporting Creditor (ATO): I Chan

Plaintiff: de Mestre & Company Solicitors SOLICITORS : Defendant: n/a Liquidator: Gray & Perkins Supporting Creditor: Australian Taxation Office

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2706/09 Druin Pty Ltd v Caporale Designs Pty Ltd JUDGMENT 1 HIS HONOUR: The applicant, Ms Rosa Caporale is a director of the defendant, Caporale Designs Pty Limited. On 28 May 2009 the court ordered that the defendant company be wound up and that Mr David Hurst be appointed liquidator. 2 Ms Caporale applies for an order: " 1. To set aside the matter and reinstate Caporale Designs back to normal status.

Request that the court's appointed liquidator be directed to cease all procedure pending the courts [sic] decision on the matter etc [sic]

Request that the courts [sic] direct the deletion of all judgments with respect to the matter. "

3 She also seeks costs. Ms Caporale has presented the application without the benefit of legal assistance. 4 I take the application to be brought on two grounds: first, for an order setting aside the winding up order pursuant to r 36.16(2)(b) being an order made in the absence of the defendant; and alternatively, an order under s 482 of the Corporations Act 2001 (Cth) terminating the winding-up. 5 There was no appearance for the defendant before the Registrar on 28 May 2009. 6 The plaintiff (petitioning creditor) relied on a presumption of insolvency arising from non-compliance with a statutory demand. The evidence showed that the statutory demand of the plaintiff had been served on 20 March 2009 for an amount of $13,148.38. The affidavit of final debt filed on 28 May 2009 included a statement from the Commercial Contracts Manager of the plaintiff that: " I believe that the amount of $12,684.38 being the debt of $13,184.38 specified in the originating process served on the defendant less payments totalling $500 was due and payable by the defendant to the plaintiff. "

That statement was inaccurate. 7 The debt for $13,184.38 set out in the statutory demand was a judgment debt of the Local Court at North Sydney. On 4 May 2009 the defendant applied ex parte to the Local Court for an order to be allowed to make payment of the judgment debt by instalments of $500 per month. On 5 May 2009 the Local Court made that order. On 8 May 2009 the defendant sent a facsimile to the offices of the solicitors acting for the plaintiff attaching a copy of the North Sydney Local Court Instalment Order and notice. In the usual course the Local Court will also have notified the plaintiff of the making of that order. 8 There was no evidence on this application that by 28 May 2009 the plaintiff had not been advised of the instalment order of the Local Court. To the contrary, there was tendered a facsimile sent to the plaintiff on 14 May 2009 of the application for payment by instalments the plaintiff had made to the Local Court. That document included a note by the Registrar dated 5 May 2009 that the application had been granted. 9 Thus, by 14 May 2009 the plaintiff was aware that the whole of the judgment debt was not due and payable, but was payable at the rate of $500 per month so long as the instalment order stood. 10 It is surprising that in those circumstances the Commercial Contracts Manager of the plaintiff should have sworn that the amount of $12,684.38 was due and payable as at 27 May 2009. 11 Prior to the return of the originating process for winding-up on 28 May, the Deputy Commissioner of Taxation had filed a notice of intention to appear. The notice of intention to appear asserted that the Deputy Commissioner was a creditor in the sum of $1,002,118.01. The evidence read on this application includes evidence from an officer of the Australian Taxation Office that on 6 May 2009 it served a statutory demand pursuant to s 459E of the Corporations Act claiming a debt in that sum. 12 No application was made by the defendant to set aside the statutory demand served by the plaintiff on 20 March 2009 or the statutory demand served by the Deputy Commission of Taxation on 9 May 2009. 13 I understand that the reason there was no appearance for the defendant on the return of the originating process for winding up is that Ms Caporale was advised by someone in the Local Court that if there were an instalment order in place, the plaintiff could not proceed with further action. If that meant further action to execute the judgment, the advice may well have been right. But it is not the case that the plaintiff ceased to be a creditor because the instalment order was made. The plaintiff continued to have standing to seek a winding-up order. Nor would the making of the instalment order displace the presumption of insolvency arising from the defendant's failure to satisfy the statutory demand. To the contrary, one might think that obtaining the instalment order would be evidence, or further evidence, of the defendant's inability to pay its debts as they became due and payable, at least up to the time the instalment order was made. 14 On this application evidence has been adduced by the Australian Taxation Office and Mr Hurst as liquidator as to the financial position and statement of affairs of the company. Mr Hurst deposes that on 28 May 2009 he sent to Ms Caporale a letter enclosing notices requiring her to submit a report as to the affairs of the company and a questionnaire in relation to the business of the company and its books, amongst other matters. The notice required Ms Caporale to deliver to the liquidator by 8 June 2009 all of the books and records of the company in her possession. That notice has not been complied with. The only explanation for non-compliance with that notice is the pendency of the interlocutory process filed on 1 June 2009 for orders setting aside the winding-up order or terminating the winding-up. 15 On 29 May 2009 Ms Caporale advised a Mr Hill from the liquidator's office that the defendant company: " (1) Does not own any assets.

(2) Will undertake to not trade presently until this matter has been rectified.

16 The evidence of the Australian Taxation Office is to the effect that the Deputy Commissioner's claim of $1,002,118 arises in respect of the defendant's self-assessed liability for GST from 2003 to 2007, plus general interest charges and penalties. There is evidence that the defendant is in dispute with the Australian Taxation Office in respect of other amounts alleged to be payable for GST. Apparently, proceedings have been brought in the Administrative Appeals Tribunal in respect of that matter, and a draft deed of settlement has been drafted in respect of that matter. Although the draft deed is before me, it is not obvious from the face of the document what additional amounts, if any, might be owing by the defendant to the Deputy Commissioner if the draft deed is finalised. 17 The defendant's failure to satisfy the statutory demands, or to have the demands set aside, gives rise to a presumption of insolvency. There is nothing in the materials before me to rebut that presumption. To the contrary, the presumption is confirmed by the materials provided by the Deputy Commissioner of Taxation and by the email from Ms Caporale to the liquidator asserting that the company has no assets. No application was made prior to 28 May 2009, or for that matter subsequently by the defendant, or now by Ms Caporale, to allow the company to rely in opposition to the winding-up application on a ground on which the company could have relied to set aside the demands (see s 459S). 18 The claim to terminate the winding-up under s 482 can be dealt with shortly. No order will be made under that section to terminate a winding-up unless the court is satisfied as to the company's solvency. That is the position even where there has been an irregularity in obtaining the winding-up order (see Double Bay Newspapers Pty Limited & Ors v Fitness Lounge Pty Limited [2006] NSWSC 226; (2006) 57 ACSR 131 at [16]). 19 Hence the question is whether the failure to disclose to the Registrar the instalment order of the Local Court, and the mis-statement to the Registrar of the amount of the plaintiff's debt which was due and payable, warrant the setting aside of the winding-up order. If the winding-up order is set aside leaving the plaintiff's application for winding-up pending, the question then arises whether a new winding-up order should be made either on the plaintiff's application or on the application of the Deputy Commissioner of Taxation. 20 In Double Bay Newspapers Pty Limited v Fitness Lounge Pty Limited I set aside a winding-up order pursuant to r 36.16(2)(b) notwithstanding the absence of evidence of solvency of the defendant company in circumstances where, by reason of a fundamental irregularity, the company was entitled to have the order set aside ex debito justitiae. In that case the winding-up order had been obtained in breach of an agreement between the petitioning creditor and the company. I do not think that the present issue raises such a fundamental irregularity. Because the application was heard ex parte, the plaintiff was required candidly to disclose to the court all material matters relevant to the making of a winding-up order. Whether a matter is material depends on whether there is a real possibility it could influence the court's determination (see Ritchie's Uniform Civil Procedure at [25.1.30]). 21 Had the making of the instalment order been drawn to the attention of the Registrar with the consequential correction of the amount of the plaintiff's debt which was then due and payable, I do not conceive that that disclosure would have been material to the Registrar's decision whether to make a winding-up order. Particularly is that so as any doubts as to the plaintiff's standing would have been resolved by making the order on the application of the Deputy Commissioner of Taxation as a substituted creditor. 22 In those circumstances whilst the court undoubtedly does have jurisdiction under r 36.16(2)(b) to set aside a winding-up order which was made in default of appearance by the defendant, that jurisdiction should not be exercised in the absence of evidence of the company's solvency (Double Bay Newspapers Pty Limited v Fitness Lounge Pty Limited at [19]-[24] and cases there cited). 23 In this case there are further discretionary considerations which would lead me in any event to refuse the orders sought. There is no proper explanation for the applicant's failure to comply with the liquidator's demand for the delivery up of books and records of the company. In the course of explaining her position, Ms Caporale, as I understood it, asserted that no financial records of the company were produced since about 2000, and that they would need to be finalised. If that is the position, it discloses a disgraceful state of affairs, and it would not be in the interests of the public to allow the company to continue to trade. 24 For these reasons, I order that the interlocutory process filed on 1 June 2009 be dismissed.

[Parties addressed on costs.] 25 For the reasons I have advanced in the course of hearing submissions on the question of costs from the liquidator's solicitor, I do not think this is an appropriate case for indemnity costs. Nor do I think that the plaintiff should have its costs of the present application. The present application would have been entirely unnecessary, or at least clearly hopeless, but for the deficiencies in the evidence before the Registrar. The Deputy Commissioner of Taxation does not seek costs. 26 I order that the applicant pay the liquidator's costs of the interlocutory process. Otherwise I make no order as to costs of the interlocutory process. 27 The exhibits may be returned after 28 days.

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