By Originating Process filed on 26 November 2020 the Plaintiff, Goodman Fielder Consumer Foods Pty Ltd ("Goodman Fielder") applies to wind up the First Defendant, GT's Cooking Oils Pty Ltd ("GT's") trading as Filtafry Newcastle. The stated grounds of the application indicate that Goodman Fielder relies on a presumption of insolvency said to arise from GT's failure to comply with a Creditor's Statutory Demand served on 18 May 2020 ("Demand"). Mr Basta, solicitor, who appeared for Goodman Fielder in the application, also attempted to expand the grounds relied on in the application in oral submissions, with limited evidentiary support and without amending it, to raise the possible insolvency of GT as a matter of fact. I will return to that attempted reformulation of the application below.
The Originating Process annexed the Demand, which was for an amount of $41,471.99, referable to a default judgment of the Local Court of New South Wales at Penrith given on 12 May 2020. The Demand stated, in paragraph 3, that Goodman Fielder required GT's within 21 days after service to pay the total of the amount of the debt or to secure or compound it for the total of the amount of the debt to Goodman Fielder's reasonable satisfaction. Paragraph 5 in turn stated that s 459G of the Corporations Act 2001 (Cth) allowed an application to set aside a creditor's statutory demand to be brought within 21 days after the Demand was served. There was an immediate and obvious difficulty with the terms of the Demand, although Mr Basta indicated in the course of submissions, unsupported by evidence, that that difficulty first came to Goodman Fielder's attention in the course of this winding up application, when Registrar Walton drew it to his attention. That difficulty is that, with effect from 25 March 2020, the provisions of the Corporations Act dealing with creditor's statutory demands were amended by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) ("Omnibus Act") to introduce a reference to "statutory period" in s 9 of the Act, and to extend the period for compliance with a creditors statutory demand to a period longer than 21 days, if prescribed. Regulation 5.4.01AA, introduced at that time, increased the statutory minimum amount for a creditor's statutory demand to $20,000 (which is satisfied here) and increased the statutory period for compliance with a creditor's statutory demand from 21 days to six months. That longer period was not specified in the Demand, which incorrectly allowed GT's a period of 21 days to comply with the Demand. I will return to the case law dealing with that question, in respect of an application to set aside a creditor's statutory demand, below. I note, however, that no application to set aside the Demand was brought by GT's, and this is Goodman Fielder's application to wind up GT's relying on a presumption of insolvency arising from non-compliance with the Demand, not an application to set aside the Demand.
Returning to the evidence, Goodman Fielder relied, in support of the winding up application, on an affidavit dated November 2020 of Mr Kearney, who is an Accounts Receivable Manager of Goodman Fielder, which referred to GT's indebtedness to Goodman Fielder pursuant to the Local Court judgment and to the fact that the sum demanded in the Demand then remained due and payable to Goodman Fielder.
By an affidavit of service dated 3 December 2020, Mr Stephenson, a process server, refers to service of the documents relating to the winding up application on GT's at its registered office, at the office of an accounting firm. By an affidavit dated 7 December 2020, Mr Basta refers to publication of a notice of the winding up application on ASIC's Insolvency Notices Website and to lodgement of notice of the winding up application in Form 519 with ASIC. By an affidavit dated 10 February 2021 Mr Basta also states that, appropriately, the firm by which he is employed gave notice of the hearing of the winding up application to GT's, albeit it misstated the company name as "Filtafry Newcastle Pty Ltd", incorrectly adding the words "Pty Ltd" to the business name under which GT's trades, at the office of its accountant. That notice referred to the listing of the matter before the Registrar at 9am today, although the matter was transferred to and heard in the Corporations Judge's List. By a further affidavit dated 12 February 2021, Mr Kearney of Goodman Fielder confirmed that the Demand was served on 14 May 2020, that no payments had been received from GT's since that time, and that the amount owing, including judgment interest, is now claimed to be $43,447.88.
An affidavit dated 12 February 2021 of Mr Basta in turn annexes an extract from ASIC's records, which refers to a strike off action in progress against GT's since 9 July 2009, which would ultimately lead to its deregistration. Mr Basta indicated, in submissions, that that strike off application had been paused by ASIC pending the determination of this application. A credit report, which seems not to be part of ASIC's records, but to have been provided by the commercial search provider, refers to several default judgments against GT's of which Goodman Fielder's is the earliest. There are three further judgments in amounts of $2,944 on 31 July 2020, $15,079 on 30 November 2020 and $12,643 on 12 January 2021. Goodman Fielder also tenders a consent of liquidator, who it seeks to have appointed to GT's, and a bill of costs in relation to the winding up order, and it seeks a lump sum cost order if it is successful in the winding up application.
[3]
Legal issues raised by the application
Turning now to the legal issues raised by this application, Registrar Walton rightly drew to Mr Basta's attention, when the matter was first listed in the Registrar's List, the fact that the Demand did not comply with the Omnibus Act and supporting regulations. This application raises the wider question of how the Court should approach a winding up application, as distinct from an application to set aside a creditor's statutory demand, brought in those circumstances.
I should first address Mr Basta's written and oral submissions, before turning to the applicable case law. Mr Basta accepts that the Demand did not comply with the Omnibus Act, and accepts that the changes made by that Act were in effect when the Demand was served, and that the effect of those changes was to extend the statutory period of compliance with a creditor's statutory demand from 21 days to six months, a matter which was not reflected in the terms of the Demand. Mr Basta submits that the Demand contained what he characterised as a "typographical error", so far as it required compliance within 21 days rather than six months. It seems to me that that is not a "typographical error" in the sense that that phrase is ordinarily understood. There can be no realistic suggestion, on the relevant facts, that a person intending to include a reference to "six months" in the Demand, in compliance with the Omnibus Act, accidently typed "21 days", being the period which applied prior to the commencement of the Omnibus Act. There is no other explanation of the misstatement of the period for compliance in the Demand, because Goodman Fielder led no evidence to explain how it came about.
Mr Basta submits that strict compliance with Form 509H in respect of the form for a creditor's statutory demand is not required, by reference to the decision of the Court of Appeal in Quitstar Pty Ltd v Cooline Pacific Pty Ltd (2003) 48 ACSR 222; [2003] NSWCA 359. I proceed on that basis, but what is in issue here is not, it seems to me, a lack of strict compliance with the form of a creditor's statutory demand, but a substantive requirement in the Demand that the debtor pay an amount within 21 days, in order to avoid a presumption of insolvency arising, where, by reason of the Omnibus Act, the debtor in fact had six months to pay that amount, to avoid that presumption of insolvency arising from its non-payment. Mr Basta also submits that the Demand was defective, for the purposes of the s 459J(1)(a) of the Act, and the Court could not set aside the Demand where it misstated the period for compliance in this way, unless substantial injustice would be caused unless the Demand were set aside. Mr Basta initially referred to earlier authority as to the circumstances in which a statutory demand could be set aside for a defect in that demand, including Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353 at 361. I will address that question, although I have noted above that this is not an application to set aside the Demand.
Prior to the hearing, my Associate, at my request, drew Mr Basta's attention to more recent decisions dealing with this issue, in respect of applications to set aside creditor's statutory demands for non-compliance with the Omnibus Act, including my unreported decision in Re Remolink Pty Ltd (19 October 2020) and the decision of the Supreme Court of Victoria in Re MHC Pathology Pty Ltd [2020] VSC 789. In the former decision, I set aside a creditor's statutory demand which did not comply with the requirements of the Omnibus Act. I there noted that those requirements were "an essential element of the statutory regime" and observed that:
"The legislature has drawn a balance, given the difficulties which companies faced in the period of the pandemic, and that balance may have the consequence a longer period must be allowed for payment of debts which would otherwise properly be the subject of a creditors statutory demand. The Court must give effect to that legislative balance".
A somewhat different approach was taken in Re MHC Pathology Pty Ltd above, where Hetyey AsJ referred to s 459J(1)(a) of the Act, on which Mr Basta relies, and held, in the particular case, that he was not convinced that the reference to a 21 day period rather than a six month period within a creditor's statutory demand "occasioned any substantial injustice". The Associate Justice there referred to the absence of evidence before him to suggest the debtor company would have acted any differently had the correct statutory period of six months been referred to in the statutory demand. Here, there is also no evidence that GT's would have acted differently had the Demand specified a period of six months rather than 21 days, because GT's did not apply to set aside the creditors statutory demand and did not appear to oppose the winding up application.
Although it is not necessary for me to reach a final decision in this matter, because this is not an application to set aside the Demand, I would be inclined to take a somewhat different view as to the Court's ability to draw an inference as to that matter, absent evidence of the debtor company. It seems to me that the Court might reasonably infer that, in the ordinary course of human experience, a demand to pay an amount of some $41,471.99 in 21 days in the midst of a global pandemic and economic recession likely has a significantly different character from a demand to pay that amount within six months. A debtor company which receives a demand for a large amount, payable within a short period in the midst of a global pandemic, might well consider that the task of raising those funds within that short time hopeless or not worth the attempt while its business is under pressure, whereas a claim for payment within a longer period would allow some prospect of recovery of the economy and that company's business within that longer period. That difference seems to me to be implicit in the approach taken by the Omnibus Act, since there would have been little point in extending the time for payment from 21 days to six months if the difference between the two was not a significant one. I would therefore be inclined to take the view that a Court might well infer that a misstatement that an amount was payable within 21 days rather than six months would often cause substantial injustice to a debtor company.
In Re MHC Pathology Pty Ltd above, Hetyey AsJ (rightly, in my view) also recognised that the increase of the statutory period to six months was an important amendment to the statutory demand regime and that it provided companies with a "regulatory safety net during a period of enormous economic and social disruption". The Associate Justice also there noted that a failure to refer to that extended period was undoubtedly a "significant defect" for the purposes of s 459J(1)(a) of the Act but observed that, where there was no substantial injustice, s 459J(2) of the Act made it clear that a creditor's statutory demand could not be set aside on that basis. For the reasons noted above, I am not persuaded of the premise that, as a general matter, a misstatement of the extended period for payment provided under the Omnibus Act would not give rise to substantial injustice. It also seems to me that the regulatory safety net to which the Associate Justice referred may well be undermined if a creditor could serve a creditor's statutory demand which did not fairly disclose the extended time available to pay the debt to the debtor company.
In any event, it is not necessary in this case to determine whether this Court would follow the approach adopted in Re MHC Pathology Pty Ltd, in an application to set aside a creditor's statutory demand. As I have noted above, this is not such an application, but a winding up application. In Re Ryals Hotel Pty Ltd [2020] NSWSC 1906, to which my Associate also drew Mr Basta's attention prior to the hearing, I observed that s 467 of the Corporations Act expressly confers a discretion upon the Court to dismiss a winding up application in an appropriate case, even if a ground has been proved on which a company might have been wound up. That provision is consistent with the position which existed prior to the Corporate Law Reform Act 1992 (Cth), where the general law recognised that a finding of insolvency can result in there being an entitlement to a winding up, but nonetheless recognised that the Court had a discretion to decline to make a winding up order: FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 at 660; Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551.
In Re Ryals Hotel Pty Ltd above, I addressed the position where a winding up application was brought in circumstances where the lessee's business had been adversely affected by the pandemic, and the lessor had not complied with the requirements of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) before seeking to rely on an unpaid rental debt in order to wind up the lessee. I there observed at [33] that, in respect of that application:
"It seems to me that this winding up application is brought in circumstances that the legislature has sought to narrow the circumstances in which a creditor's statutory demand may be brought, and to defer the point at which a bases for a winding up may arise under a creditor's statutory demand, in order to avoid the result...that a company that is significantly impacted by the circumstances of the Covid-19 pandemic should be wound up in the midst of the pandemic, with adverse consequences to its employees..."
Here, it is impossible to know whether GT's has been adversely affected by the pandemic, since it did not seek to set aside the Demand or lead evidence in opposition to the winding up application. It is, however, possible to know with certainty that the demand did not disclose, and indeed concealed, that, under the Omnibus Act and regulations, GT's had six months and not merely 21 days to pay the debt in order to avoid a presumption of insolvency arising, and that, in the ordinary course, the difference between the two periods of payment is likely to be substantial. It seems to me that it will often be preferable for the Court to exercise its discretion, where a significant misstatement of this kind occurs, inconsistent with the legislative policy reflected by the Omnibus Act and regulations, so as to decline a winding up order, rather than to wind up companies which have been potentially disadvantaged by that misstatement. I also bear in mind that a company which has in fact been misinformed in that way may well not wish to, or have the capacity to, incur the costs of seeking to set aside the creditor's statutory demand or oppose a winding up application, using funds which it could otherwise apply to maintaining its business in a pandemic. It also seems to me that it is hardly too much to expect that a creditor which seeks to invoke the statutory regime to give rise to a presumption of insolvency should comply, in a material matter, with the elements of that statutory regime that are intended to protect corporate debtors in a pandemic. I have not neglected Mr Basta's submission that Goodman Fielder did not commence the winding up application until 26 November 2020, more than six months after the date of the Demand; however, that seems to me to be not to the point, since that delay did not correct the misstatement in the Demand, to the effect that GT's had only 21 days and not six months to pay the debt to avoid a presumption of insolvency arising.
In reaching this result, I also bear in mind that it does not prevent Goodman Fielder from winding up GT's on a proper basis. Had Goodman Fielder promptly recognised its non-compliance with the Omnibus Act, it could have withdrawn the Demand and served a compliant demand, avoiding the delay and wasted costs of this application. When Registrar Walton drew the relevant matter to Mr Basta's attention, Goodman Fielder could then have determined not to press this winding up application, and served a further creditor's statutory demand, now that the extended period allowed by the Omnibus Act has ceased to have effect. It did neither, but instead pursued a winding up application, based on a presumption of insolvency, arising from a creditor's statutory demand which had significantly misstated the period which was available to the debtor company to pay the relevant debt under the Omnibus Act and regulations. Here, the balance seems to me to be in favour of exercising the Court's discretion to decline a winding up order, leaving Goodman Fielder to pursue a further winding up application, if so advised, based on a creditor's statutory demand that complies with the statutory regime as it now stands.
For completeness, I put aside any question whether the misstatement of the period for compliance with the Demand had any effect on when non-compliance occurred for the purposes of s 459F of the Act; or whether the presumption of insolvency is now stale under s 459C(2) of the Act, on the basis that more than three months have elapsed from the time for compliance stated in the Demand (as distinct from the statutory period for compliance); or whether the disconnect between the terms of the Demand and the statutory position in that respect provides a further reason to decline to make a winding up order. These matters were not addressed in Mr Basta's submissions or my oral ex tempore judgment and I have not relied on them to determine this application.
[4]
Insolvency in fact
Also for completeness, I should add that Mr Basta sought to establish, with limited evidentiary support and in a somewhat abbreviated way, that GT's was insolvent in fact. I am not prepared to wind up GT's on that basis. First, that claim was not identified as a ground of the winding up application in the Originating Process; second, there is no suggestion that GT's was given notice of Goodman Fielder's intent to rely on it; and, third, the fact of several default judgments against GT's in the midst of the pandemic plainly suggests that it may be suffering significant liquidity difficulties, in which it would not be alone in the commercial community, but that is not sufficient to establish insolvency without any evidence of GT's cashflow or capacity to raise funds to meet those judgments, albeit that it has not yet done so.
[5]
Orders
For these reasons, the Originating Process is dismissed. There will be no order as to costs, where Goodman Fielder has failed in its application to wind up GT's, but GT's has not appeared and there is no reason to think that it has incurred costs in opposition to the application.
[6]
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Decision last updated: 16 February 2021
Parties
Applicant/Plaintiff:
FAI Insurances Ltd
Respondent/Defendant:
Goldleaf Interior Decorators Pty Ltd
Legislation Cited (4)
Coronavirus Economic Response Package Omnibus Act 2020(Cth)
Retail and Other Commercial Leases (COVID-19) Regulation 2020(NSW)