Bingham v Iona Corporation Pty Ltd, unreported, 11 April 1995, Lindgren J, Federal Court of Australia

Melbase Corporation Pty Ltd v Segenhoe Ltd, unreported, 1 May 1995, Lindgren J, Federal Court of Australia

Solicitor for the Respondent: P.A. Somerset and Co.

2. The applicant pay the respondent's costs of the

application.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the

MOORE J This is an application made by Mr Frank Graf for leave pursuant to s459P of the Corporations Law ("the Law") to apply to have Auscan Timber Marketing Pty Limited ("Auscan") wound up in insolvency.

2. Leave is sought in circumstances where Graf has already instituted proceedings to have Auscan wound up. While it is not apparent on the face of the application, I was informed that the winding up order is presently sought on the just equitable ground: see s461(k), and the failure of Auscan to lodge statutory reports: see s461(b). There was no issue that Graf was a contributory and thus able to bring, with leave, an application under s459P: see s459P(1)(c).

3. Auscan commenced trading as a timber merchant in 1988 and Graf and Mr Michael Antoska were directors. While there appears to be an issue about the precise nature of the duties to be performed by Graf and Antoska in running the company, it is clear that generally Antoska was responsible for administration and maintaining the company's accounts while Graf was responsible for the trading operations as it bought and sold timber. While initially Graf bought and sold timber on the company's behalf, he later did so both on his own behalf and as agent for the company on a commission basis. An issue arose between the company and Graf as to whether Graf had accounted to Auscan for all sales Graf had effected on the company's behalf. This led to proceedings in the Local Court at Balmain and judgment being entered against Graf and his wife in the sum of $49,678.45. Evidence given by Antoska in those proceedings is relied upon by Graf in this application. I will return to this matter shortly.

4. Section 459P requires four of the seven classes of applicant under that section to obtain leave before seeking to have a company wound up in insolvency. A contributory is one of those four classes. Section 459P(3) provides:

"The Court may give leave if satisfied that there is a prima

facie case that the company is insolvent, but not

otherwise."

5. This provision has been considered by Lindgren J in Bingham v Iona Corporation Pty Ltd, unreported, 11 April 1995, Federal Court of Australia, and his Honour discusses the tests appropriate to determine whether a prima facie case is established and the existence of a residual discretion in the Court to refuse leave even if such a case is established: see also Melbase Corporation Pty Ltd v Segenhoe Ltd, unreported, 1 May 1995, Lindgren J, Federal Court of Australia.

6. Graf's application for leave is based, in large part, on admissions made by Antoska. In the proceedings in the Local Court, Antoska gave evidence about his role within Auscan and its trading position. He admitted that the company had not prepared and filed financial statements and his explanation was that his workload precluded it. At another point in the evidence he proffered the explanation that Graf retained documents necessary to produce those statements. It is clear from the 1991, 1992 and 1993 annual returns lodged by the Australian Securities Commission that key financial data has not been included. Antoska also admitted that the company was not in a healthy position over the period in question and then made the following admission during cross-examination:

"Q. So is it the case that you've got no idea whether this

company is solvent or not? A. I have an idea that the

company is in financial difficulties.

Q. Can it pay its debts as and when they fall due? A.

No Sir."

7. When this evidence was given the company was indebted to the National Australia Bank Ltd in the sum of approximately $425,000. That debt has been discharged by funds loaned to Auscan by Anikava Pty Limited which is a company controlled by Antoska and his family. Antoska says that Anikava Pty Ltd does not seek repayment of any monies by Auscan at this time.

8. The admission in the Local Court proceedings is sought to be answered by more contemporary evidence from Antoska. In an affidavit sworn 2 May 1995 Antoska annexes financial statements for Auscan prepared by him for the period 1 July 1994 to 23 March 1995. He does not, in the affidavit, express a view as to the correctness of those statements and indeed the statements themselves contain a disclaimer which includes the following:

"Accordingly we express no opinion on whether they present a

true and fair view of the position as at 23 March 1995 or of

the results for the year ended on that date and no warranty

of accuracy or reliability is given."

9. It is not clear why the disclaimer is in the plural given that in the affidavit Antoska says the statements were prepared by him though the explanation may lie in the fact that he signs the statement on behalf of Anikava Pty Ltd. The statements show an operating profit of $40,846.56 for the period 1 July 1994 to 23 March 1995. The principal source of income is identified in the accounts as interest received in the sum of $74,684.38. The financial statements provide no real indication of the circumstances in which that income is derived nor is any other explanation found in the evidence Auscan relies upon.

10. Counsel for Graf points to the fact that in September 1994 Antoska was saying that the annual returns did not disclose the financial affairs of the company because Graf did not provide documents necessary for their compilation. This reason is repeated in Antoska's affidavit of 30 March 1995. It is thus curious, it is submitted, that accounts can be prepared in April 1995 notwithstanding that the books that were earlier thought necessary to produce the accounts have still not been provided by Graf.

11. In Bingham, supra, Lindgren J approached the question of whether a prima facie case had been made out by reference to the tests annunciated in Beecham Group v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 and World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181. I adopt the same approach.

12. In the present case there is an admission by a director of Auscan that in September 1994 it was not able to pay its debts as they fell due. It was an admission made by a director who is a qualified accountant and I have no doubt that he understood the implications of both the question and his answer to it. In the absence of other evidence I could be satisfied that a prima facie case had been made out that Auscan was insolvent. I could do so on the basis that there was no evidence to suggest that the financial position of the company had altered since then. I could therefore infer that it remained unable to pay its debts as they fell due. The only evidence that might lead to a contrary conclusion is the payment of the debt owing to the National Australia Bank Ltd and the accounts prepared by Antoska in April 1995.

13. As to those accounts I do not accept them as evidence establishing the present position of Auscan. Antoska's affidavit of 2 May 1995 is simply a vehicle for putting those accounts before the Court and it contains no statement, either qualified or not, that the accounts are a true record of the company's position. Indeed Antoska does not say, as one would have expected him in the circumstances to say, that the company is able to pay its debts as they fall due with an explanation as to why that is so by reference to accounts that would be vouched for at least for that purpose. The accounts are nothing more than bare figures prepared by Antoska. The reservations I have about this evidence, based on the way the affidavit is framed, are reinforced by the disclaimer in the accounts, an extract of which I have already set out.

14. The evidence concerning the repayment of the loan to the National Australia Bank Ltd is in a slightly different position. The deed in evidence between National Australia Bank Ltd and Antoska which resulted in the discharge of Auscan's obligations to the bank, recite that Auscan has defaulted in its obligations to repay the monies outstanding under certain bill and overdraft facilities. It might be inferred that at the time Antoska gave his evidence in September 1994, Auscan was then obliged to make payments to the National Australia Bank Ltd which contributed to its overall incapacity to meet its debts when they fell due. Indeed the admission is made in the course of evidence in which Antoska makes a number of references to the bank pressing Auscan for payment. He also said that Auscan was not then trading. I refer to this further evidence to illustrate the context within which the admission was made.

15. As Lindgren observed in Bingham, supra, an applicant for leave under s459P(3) bears the onus of satisfying the Court that prima facie the company is not able to pay all its debts as and when they become due and payable. Section 459P(3) speaks of leave being granted if a prima facie case is made out "but not otherwise". While the threshold established is that of a prima facie case, the section takes the form of a statutory injunction and is cast in terms which suggest that a measure of rigour should be applied in determining the existence of such a case. There is evidence, in the form of an admission, that makes out a prima facie case that Auscan was insolvent in September 1994. The strength of that evidence is substantially weakened by evidence that the debt to the National Australia Bank Ltd has since been repaid. The admission was made when that debt was owing. I am, in substance, left not really knowing what the present position of Auscan is. Thus I am not, on all the material before the Court, satisfied that there is a prima facie case that the company is presently insolvent.

16. As s459P precludes the grant of leave it is unnecessary to address the discretionary considerations that would have arisen if a prima facie case had been made out. It is thus unnecessary to consider other evidence going to a range of matters including other claims being litigated by these or related parties in both the Supreme Court and District Court of New South Wales. However I observe in conclusion, as I observed during the hearing, it is highly undesirable for litigants to maintain proceedings in a number of courts notwithstanding that the proceedings are between the same parties or parties in the same interest and concern generally the same substratum of facts. I repeat the invitation I made to counsel in these proceedings to give consideration to consolidating, so far as practicable, these various proceedings.

17. I dismiss the application for leave with costs.