Solicitors:
KWS Legal (Defendant)
Mason Black Lawyers (Workers Compensation Nominal Insurer - Supporting Creditor)
Deputy Commissioner of Taxation (Supporting Creditor)
Moisson Lawyers (5G Capital SPV27 Pty Ltd - Interested Party)
Colin Biggers & Paisley (A Murray & Sons Pty Ltd - Applicant)
File Number(s): 2016/56330
[2]
Judgment - ex tempore
By Interlocutory Process filed on 30 May 2016, by leave, A Murray and Sons Pty Limited ("A Murray") seeks an order that it be substituted as applicant in these proceedings under s 465B of the Corporations Act 2001 (Cth).
Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2016] NSWSC 948 | Case summary | Zoe
The circumstances of that application have been canvassed in my earlier judgment delivered on 30 May 2016 ([2016] NSWSC 768). I will not seek to summarise those matters in full. I should, however, at least indicate something as to the background of the application. These proceedings were commenced by CSR Building Products Limited ("CSR") which originally applied for an order winding up Denham Constructions Pty Ltd ("Denham") under s 459P of the Corporations Act. It has become apparent that CSR does not wish to proceed with its application, apparently on the basis that it has been paid out, and A Murray now seeks to be substituted pursuant to s 465B of the Corporations Act. At various times in the course of the proceedings, several other parties had also indicated their interest in being substituted, and then withdrawn from the proceedings, in circumstances which are not the subject of evidence before the Court.
A supporting creditor, the Workers Compensation Nominal Insurer indicates that it supports A Murray's application but has not sought to be added as a substituted creditor in the winding up application, in the light of A Murray's application. The Deputy Commissioner of Taxation, it appears, has served a creditor's statutory demand upon Denham, but an application has been made to set aside that demand, and the Deputy Commissioner of Taxation which had originally indicated it sought to intervene in the proceedings, does not presently seek to be heard in it.
It is common ground that A Murray is a creditor of Denham pursuant to a judgment of the District Court of New South Wales dated on 17 February 2016. It is also common ground that that judgment arises in respect of an adjudication under the security for payments legislation. There has been reference, in the course of submissions, to the fact that, in some circumstances, a Court may be prepared to consider the basis of such an adjudication, in determining whether to set aside a creditor's statutory demand or, possibly, make a winding up order. In the present circumstances, it does not seem to me that matter goes very far, because no evidence has been led to identify any substantive dispute as to the adjudication which gave rise to the judgment or as to the judgment itself. I recognise that Denham today sought an adjournment, in order to lead further evidence, which was not granted, but it remains that that evidence has not been led in circumstances that this substitution application has now been on foot for several weeks, and was listed with a view to it being heard today.
The principles applicable to a substitution application and the relevant statutory provisions are clear, and I reviewed them at some length in my judgment in Re C2C Investments Pty Ltd [2012] NSWSC 1443; (2012) 92 ACSR 266 to which Ms Collins, who appears for A Murray, refers in submissions. Section 465B of the Corporations Act provides that the Court may by order substitute, as applicant, in an application under sections 459P, 462 or 464 of the Corporations Act for a company to be wound up, a person or persons who might otherwise have applied for the company to be wound up. The Court may only make such an order if it thinks it appropriate to do so because the application is not being proceeded with diligently enough or for some other reason. That latter requirement would plainly be satisfied here, so far as the application is now not being proceeded with by CSR.
The requirement in order to be substituted is that the applicant could have moved for a winding up of the company. Here, it seems to me that A Murray could plainly have moved for a winding up of Denham, so far as it was a creditor, with a judgment in its favour of the District Court of New South Wales, albeit that judgment, I infer, arose from an adjudication and was not, in that sense, a final determination of all issues on the merits. The effect of a substitution application was in turn considered by White J in Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694 ("Earthwave") to which Ms Collins also refers. His Honour there observed that a presumption of insolvency arose on noncompliance with a creditor's statutory demand and that it has effect for the purposes of an application under s 459P and an applicant for substitution can in turn rely on that presumption as long as that applicant is a person who might otherwise have applied under s 459P for the company to be wound up.
In Re C2C Investments Pty Ltd above, I in turn noted, in a passage to which Ms Collins refers, that:
"The policy underlying the substitution provisions includes that, where one creditor has issued a statutory demand, other creditors should not need to issue such a statutory demand but, if the debt of the first creditor is paid out after a presumption of insolvency has arisen, those other creditors may rely on that presumption of insolvency in a subsequent winding up application."
It seems to me that a basis for substitution would have been established in this case, subject to the matters which are raised by Denham in opposition to the substitution application, which I should now address. The first of those matters, to which Mr Katekar who appears for Denham refers, as a basis on which to decline a substitution application on discretionary grounds, is that A Murray needs to establish that it is a creditor or contingent creditor of Denham. Mr Katekar points out, as is the fact, that a secured creditor of Denham, 5G Capital SPV27 Pty Limited, has today tendered a cheque to A Murray, in payment of the amount of the District Court judgment, which A Murray has not accepted. Mr Katekar submits that the tender of that cheque is a matter relevant to the substitution application, at least on discretionary grounds, and also submits that it would have been to the advantage of A Murray and creditors for it to be have accepted that cheque, where it would have brought an additional amount into the amount available for distribution, even if Denham were ultimately wound up and it was set aside as a preference.
I do not understand Mr Katekar to submit, in the careful way in which he put that submission, that the tender and refusal of the cheque deprives A Murray of the status of a creditor necessary for a substitution application. At the highest, it seems to me that a discretionary basis would be established for declining to make a substitution order if, on the one hand, it could be said that A Murray had acted unreasonably in refusing the tender of the cheque, or if it could be said, as Mr Katekar at one point suggested, that an inference should be drawn from the refusal of the cheque that A Murray had a collateral purpose in pursuing the winding up. It does not seem to me that that those propositions are established. The difficulty with them is immediately apparent. It seems to me that the history of this matter, and the number of parties which have appeared as potential substituted creditors, although they have ultimately not pressed their substitution applications, the fact that Workers Compensation Nominal Insurer has indicated that it remains a supporting creditor, and the Australian Taxation Office has apparently served a creditor's statutory demand, albeit that I recognise that an application to set aside that demand has been made, indicates that A Murray could reasonably have concern that, if it were today to accept the cheque, Denham might nonetheless be wound up within the period in which a voidable transaction could be set aside.
It seems to me that the tender of the payment by the secured creditor would very likely amount to a transaction which falls within the unfair preference provisions which extend to a transaction between a company and a creditor of the company if, and only if, the company and the creditor are parties to the transaction, even if someone else, relevantly the secured creditor, is also a party. In this case, it seems to me that Denham is necessarily party to the transaction, because it could only benefit from the transaction if the transaction is treated as reducing the debt owed by it, so that it is treated as a beneficiary of a payment made by the secured creditor, implicitly on its behalf. If the transaction is not treated as though Denham were party to it, then it would have no effect on the debt owed by it to A Murray and would not impact upon A Murray's standing. It therefore seems to me that, either, on the one hand, as Mr Katekar at one point submitted, the transaction has nothing to do with Denham, in which case it does not affect A Murray's standing as a creditor or, on the other hand, if it does have something to do with Denham, so as to potentially extinguish or reduce its debt owed to A Murray, then the unfair preference provisions can potentially apply to it. It does not seem to me that it could be suggested that A Murray was unreasonably concerned as to the application of those provisions, or was acting unreasonably in considering, for example, that it may not wish to be drawn into a later application to set aside a voidable transaction against it.
I also do not accept Mr Katekar's submission that the payment would necessarily have been to the advantage of either A Murray, or creditors generally where, as Ms Collins points out, that depends on the basis on which the secured creditor has tendered it. In particular, if the secured creditor has advanced the amount of that payment, subject to its security, then in fact it would be to the disadvantage of unsecured creditors generally, so far as an additional amount would be treated as secured debt, and a lesser amount may be available to unsecured creditors generally on a winding up. In these circumstances, the tender does not seem to me to either deprive A Murray of its status as a creditor, or to provide any discretionary basis on which not to make an order for substitution.
Mr Katekar also submits that there is no evidence that Denham is insolvent, although he fairly acknowledges that there do appear to have been a number of creditors pressing for payment. There are, it seems to me, two difficulties with that submission so far as it is put in opposition to an application for substitution. The first is that a presumption of insolvency arises from the fact that CSR served a creditor's statutory demand which was not complied with, which is, as White J noted in Earthwave above and I noted in Re C2C Investments Pty Ltd above, available in the application for substitution. The second is that, to the extent that Denham seeks to establish its solvency, it will have the opportunity to do so in a winding up application. That question should not be determined, at the point of substitution, when it can properly be determined when the substituted creditor proceeds to seek a winding up order.
For these reasons, I am satisfied that this is a proper case in which to make an order for substitution. I am satisfied that A Murray is a creditor for the purposes of s 465B of the Corporations Act, arising from the judgment debt in its favour. An application for winding up is already on foot, and it is apparent that application is not being proceeded with, by CSR. No evidence has been led before me which establishes the basis for any dispute as to the underlying debt in respect of A Murray, notwithstanding the reference in submissions to the fact that it arises from an adjudication. None of the matters to which reference has been made in submissions provide a discretionary basis on which not to make an order for substitution.
Accordingly, I make orders as sought in the interlocutory process, namely that:
A Murray and Sons Pty Limited be substituted as applicant in these proceedings pursuant to s 465B of the Corporations Act 2001 (Cth).
Costs of and incidental to this application be reserved.
Note that, from the date of the substitution order made today, A Murray and Sons Pty Limited is to be treated as a person who applies under s 459P of the Corporations Act for Denham Constructions Pty Limited to be wound up, for the purposes of s 465A of the Corporations Act.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 08 July 2016