George Ward Steel Pty Ltd v Kizkot Pty Ltd

Circumstances of the application

1. In the present case the affidavit evidence of Mr Saad Malik, the sole director, sole shareholder and secretary of the company, establishes that as the controlling mind of the company he did not have notice of the hearing date in respect of the winding-up application. The evidence also establishes that Mr Malik did not have notice that a creditor's statutory demand for payment had earlier been served by post at the company's registered office.
2. Mr Malik explained in his affidavit that he was under the belief that the company's registered office had changed to the address of its current accountants when the company changed accountants in 2015. Unfortunately, the relevant notice that should have been lodged with ASIC to notify the change to the registered address of the company was not given to ASIC. That led to the circumstances that the company was unaware of both the statutory demand served at its registered office and the winding-up application served at the same office. Mr Malik deposed that on 2 May 2018, his staff enquired of the company's previous accountant whether he had received an application for winding-up, which he denied.
3. The winding-up order was made based on the presumption of insolvency arising from the failure by the company to comply with the statutory demand: Corporations Act 2001 (Cth), s 459C(2)(a). The debt to which the statutory demand related claimed an amount of $12,443.54 said to be owing by the company to the plaintiff, TollAust Pty Ltd, for unpaid tolls and fees in respect of motor vehicles travelling on various toll roads operated by the plaintiff. The company operates thirty-seven taxi motor vehicles. The evidence also indicates that the company engages about sixty taxi drivers who earn their living from driving the company's taxi vehicles in two shifts, being the regular day and night shifts common in the taxi industry. The interlocutory process filed on 4 May 2018 on behalf of the company sought relief pursuant to s 482(1) of the Corporations Act that the winding-up of the defendant company be terminated or stayed indefinitely. Relief was also sought pursuant to s 482(3) of the Corporations Act for resumption of the management and control of the company by its former officers. In addition, relief was sought pursuant to UCPR r 36.16 that the orders made on 1 May 2018 be set aside.
4. Notice of the application has been given to the liquidator and the plaintiff. They each took the position on the hearing that they neither consented to nor opposed the relief sought by the company.
5. Earlier on 16 May 2018, a consent order signed by the legal representatives of the plaintiff, the liquidator and the defendant company was filed in the Registry. The consent order provided for the relief sought pursuant to Corporations Act, s 482(1) and (3), that is, an order terminating the winding-up of the defendant company and for the resumption of the management and control of the company by its former officers.
6. The company now seeks to pursue the relief sought in par 3 of the interlocutory process, relying on UCPR r 36.16 to set aside the winding-up order made on 1 May 2018. That is the more appropriate course in a case such as the present where the company did not have notice of the hearing date in respect of the winding-up application and has moved promptly to set aside the winding-up order.

Relevant principles

1. In George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 (George Ward Steel) at 465, Hodgson J expressed the following view: In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order.
2. Subsequent authorities have expressed some qualifications with aspects of Hodgson J's statement in George Ward Steel. One qualification is that the reference by Hodgson J to there being some evidence which "indicates solvency" should not be understood as a requirement that there be "proof" of solvency in the sense that the company demonstrate it would be able to defeat the application for winding-up: see Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd [2010] FCA 755 at [12] (Finkelstein J) and the authorities there referred to; Deputy Commissioner of Taxation, in the matter of SMAR Nominees Pty Ltd (in liq) v SMAR Nominees Pty Ltd (in liq) [2017] FCA 1384 at [12] (White J).
3. Another qualification suggested by Finkelstein J in Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd at [13] is that it may be going too far to say that success of the application will depend upon there being consent by, or at least non-opposition from, the liquidator. Finkelstein J gave two reasons why that cannot be so. One is that whether or not the application to set aside a winding-up order is opposed is beside the point; what is important is that justice is done to the parties. The other matter is that Hodgson J's approach, if followed, would have the effect of converting the liquidator into a protagonist and that is most undesirable given the liquidator's duty to act impartially when dealing with persons interested in the liquidation.
4. Against this, Finkelstein J recognised that if the liquidator's investigation shows some reason why the winding-up should continue, for example if there has been misconduct on the part of the directors, he or she should inform the Judge because that would be a relevant matter to take into account: Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd at [13].
5. I agree with the remarks of Finkelstein J and have applied them in my approach to the present application.

Reasoning

1. The evidence establishes that the debt the subject of the statutory demand has been paid in full and the liquidator's fees and expenses including legal costs have also been paid in full, in the amounts claimed up until 17 May 2018. The liquidator has informed Mr Malik that there is a further claim for liquidator's fees in the order of $3,000 and legal expenses in the order of $2,500. Given the substantial amount of liquidator's fees and legal expenses which Mr Malik has already paid to date, Mr Malik has not agreed to the quantum of the most recent claims by the liquidator. The appropriate course is that the liquidator's fees and expenses, including legal costs, since 17 May 2018 be paid by the company as agreed or assessed.
2. The solicitor appearing for the liquidator informed the Court that although the director (Mr Malik) has not provided a report as to affairs, based on the liquidator's investigations the liquidator has not identified any debts owing by the company which are outstanding. Further, having examined the relevant ATO portal, the liquidator has determined that no amounts are owing by the company to the ATO.
3. The evidence in support of the application includes a letter from the company's accountant, Mr Hamid Saroha, chartered accountant, who expresses the opinion that the company is solvent and refers to a profit and loss statement attached to his letter. The profit and loss statement records that for the year ended 30 June 2017, the company achieved a net profit of $62,668. In the previous year ending 30 June 2016, the company's net profit is recorded as $55,622.
4. If the company was relying upon s 482 of the Corporations Act for an order terminating the winding-up, I would have some doubts given the state of the evidence that a positive conclusion of solvency could be reached by the Court. However, for the reasons identified earlier, it is not necessary for the company to go so far on the present application.
5. Given the small amount of the debt the subject of the statutory demand, which has since been paid; the fact that the liquidator's fees and expenses including legal costs up until 17 May 2018 have been paid; that the liquidator's investigations indicate that no amounts are owed to the ATO and that there are no debts outstanding beyond their due date; the explanation for the company's non-appearance; and the absence of any delay in making the application to set-aside the winding-up order, this is not a case in which the absence of positive proof of solvency would lead the Court to conclude that the discretion to set aside the judgment should not be exercised.

Can the director bring the application in the company's name?

1. One further matter should be mentioned and that relates to the identity of the applicant. As indicated, the interlocutory process was filed in the name of the company. It is plain that that application was filed on the instructions of the sole director and sole shareholder of the company. There is a question as to whether Mr Malik as the sole director can, following the making of the winding-up order, bring proceedings in the name of the company to set aside that order.
2. Corporations Act, s 198G(1) provides that while a company is under external administration, an officer of the company must not perform or exercise a function or power of that office. "External administration" in s 198G has the same meaning as in Sch 2 to the Corporations Act: s 198G(9). In Sch 2, being the Insolvency Practice Schedule, s 5-15 provides that "external administration" includes when a liquidator has been appointed in relation to a company.
3. The prohibition in s 198G(1) may be relaxed where, relevantly, the officer of the company obtains the written approval of the external administrator of the company or the Court: s 198G(3)(b).
4. Counsel for the company made an oral application during the course of the hearing for leave under s 198G(3)(b) for Mr Malik, in so far as it may be necessary, to bring this application in the name of the company. This is an appropriate case, to the extent that s 198G(1) applies, for the grant of leave.
5. I am also satisfied that this is an appropriate case in which to set aside the winding-up order relying upon the Court's power under UCPR r 36.16(2)(b).

Orders

1. For the above reasons the Court makes the following orders: 1. Pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 36.16(2)(b), the orders made on 1 May 2018 be set aside. 2. The defendant pay the liquidator's reasonable fees and expenses, including legal fees, from 17 May 2018 up to and including today, as assessed or agreed. 3. Grant leave, to the extent necessary, under s 198G(3)(b) of the Corporations Act 2001 (Cth) for Mr Saad Malik to exercise his power as sole director of the defendant to bring this application in the name of the defendant. 4. That these orders be entered forthwith.

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: 01 June 2018