HIS HONOUR: By originating process filed on 13 December 2019, Ms Maria Alexandrou sought an order, under s 63(1)(c) of the Associations Incorporation Act 2009 (NSW), for the winding up of the Order of AHEPA NSW Incorporated (the Association). The basis of Ms Alexandrou's application was that the Association was insolvent. Her claim that the Association was insolvent was based on a demand for payment of costs that the Association was ordered to pay to her in earlier proceedings in the Equity Division.
It is desirable to say something about the sequence of events that led to the filing of the originating process. On 10 December 2018, Black J ordered that the Association pay certain of the plaintiffs' costs of and incidental to certain prayers for relief sought in proceedings 2018/00262670. Some of those costs were ordered to be paid on the indemnity basis. Ms Alexandrou was one of those plaintiffs.
The costs ordered were duly assessed. A certificate was issued to the parties on 31 July 2019 for the costs of the assessment in the sum of $3,292.25. On 12 August 2019 an amended certificate of determination of costs was issued to the parties in the sum of $104,460.98. On 16 September 2019 judgments in respect of those amounts were entered in the District Court in favour of the plaintiffs against the Association.
By demand dated 9 October 2019, Ms Alexandrou required the Association, within three weeks after service of the demand, to pay the total amount of the judgment debts being $107,753.23. The demand was expressed incorrectly to be issued in accordance with Corporations Act 2001 (Cth), Pt 5.7, which had no application to the Association, which is incorporated under the Associations Incorporation Act 2009 (NSW).
On 31 October 2019 Ms Alexandrou's solicitors sent an email to the solicitors for the Association saying that, as a result of the Association's failure to comply with the demand, instructions had been received to file an application seeking orders that the Association be wound up. The email said that they were writing to the Association's solicitors as a courtesy to ascertain whether the Association had any intention of paying the amount set out in the demand. There was no response to that email.
On 9 November 2019, notice of the annual general meeting of the Association to be held on 8 December 2019 was dispatched to all members of the Association. Item 6 on the agenda for the meeting was a motion that the Association's Committee of Management be authorised to borrow $200,000 "in respect of legal costs". That item was prompted by a provision of the Constitution of the Association that says that the Association must not borrow or create any liability without a resolution of the members in a general meeting.
On 26 November 2019, Ms Alexandrou's solicitors wrote to the Association saying that they had been instructed to commence proceedings to wind up the Association on the basis of insolvency. The letter referred to the Association's notice of annual general meeting, which disclosed that approval was to be sought to allow the Association to borrow $200,000 "in respect of legal costs", and said that no explanation or documentation explaining the need for $200,000 was attached to the notice. The letter then said that, to avoid winding up proceedings and associated consequences, the Association was asked as a matter of urgency to advise whether it was contemplated that a portion of the $200,000 that it was seeking approval to borrow would be used to pay the full balance of the outstanding amount in respect of the demand made on behalf of Ms Alexandrou.
On 27 November 2019, Ms Alexandrou's solicitors sent a further email to the Association's solicitors, referring to the email of 31 October 2019 and saying that no response had been received to the email. The email asked when a response was likely to be received to the letter of 26 November 2019.
On 2 December 2019, Ms Alexandrou's solicitors sent an email to the solicitors for the Association referring to the letter of 26 November 2019 and noting that no response had yet been received. The email asked when a response would be provided or, at least, when the solicitors expected to be in a position to respond.
On 2 December 2019, the Association's solicitors wrote to Ms Alexandrou's solicitors with reference to the letter of 26 November 2019, saying that Ms Alexandrou had no reason to infer that the Association was unable to pay its debts and that she was well aware of the significant assets held by the Association. The letter referred to the audited 2019 financial statements indicating that there the Association had members' equity of some $12,426,460. The letter said that the Association would oppose any winding up application threatened by Ms Alexandrou.
Ms Alexandrou's solicitors responded on 3 December 2019, saying that it appeared that the entire basis upon which it was asserted that the Association was solvent was members' equity of $12,426,460. The letter asserted that the approach to the question of solvency was misconceived and that it was trite law that the test for insolvency was whether or not the Association was able to pay all its debts as and when they became due and payable. The letter referred to the fact that, in the accounts of the Association issued as at 30 June 2019. The only cash available to the Association was $13,634. The letter asserted that failure to comply with a judgment of a court to pay money, was, generally speaking, indicative of an inability to pay that money and supported an inference that such inability was the explanation for the judgment remaining unpaid. The letter said that the solicitors were instructed to proceed with the winding up and would rely on their letter in support of an application for indemnity costs.
Ms Alexandrou attended the meeting of the annual general meeting of the Association held on 8 December 2019. She is a member of the Association and is also a member of its Committee of Management. Mr Bill Skandalakis, who is the current President of the Association, presided at the annual meeting. The motion to authorise the Committee of Management to borrow monies was carried unanimously. Ms Alexandrou was excluded from voting on the motion. At the meeting, Ms Alexandrou asked whether part of the monies intended to be borrowed were "to pay our costs". Mr Skandalakis replied that he had excluded her from voting on the resolution because the money was "to pay your legal court costs".
Subsequently the Association borrowed sufficient money to discharge the judgment debts and post judgment interest on the debts and the debts were paid in full before the end of January 2020.
However, in the meantime further correspondence ensued. On 9 December 2019, Ms Alexandrou's solicitors sent an email to the Association's solicitors referring to the indication given at the annual meeting by Mr Skandalakis that the $200,000 that the Committee of Management sought authorisation to borrow was to pay Ms Alexandrou's legal costs, being the judgment debt total of $107,753.23. The email sought confirmation that the Association would pay that sum and sought advice as to when the payment would be received.
The email said that, if a reasonable response was not received by 12 noon on 11 December 2019, proceedings to wind up the Association would be commenced without further notice. A response on 16 December 2019 indicated that the Association's solicitors had not received specific instructions. On 6 January 2020, the solicitors wrote to Ms Alexandrou's solicitors saying that they were instructed that the Association would pay the full amount of the judgment debt on 9 January 2020.
In the meantime, however, on 13 December 2019, Ms Alexandrou commenced proceedings by filing the originating process seeking the winding up of the Association. The proceedings were dismissed by consent following the payment of the judgment debts.
It is against that background that the Court has now received applications by both Ms Alexandrou and the Association for orders for their respective costs of the proceedings. I have concluded that it is inappropriate that there be any order as to costs, for reasons that I shall now explain.
It is fair enough to say that, on one view, the Association was technically insolvent. There is no evidence it had in place any facility against which it intended to draw once it had obtained the approval of the meeting for the Committee of Management to borrow money. The financial evidence that is presently before the Court indicates that, while the Association has substantial assets in excess of its total liabilities in the amount that I have already indicated, its current assets were clearly inadequate to meet the judgment debts. On that basis there was material from which it could be concluded that the Association was insolvent.
On the other hand for reasons that are not entirely clear, the Association was not particularly forthcoming in responding to the inquiries on behalf of Ms Alexandrou. It is apparent that there is considerable acrimony within the Association, a situation that is much to be regretted. Nevertheless, that is the situation. Ms Alexandrou is a member of the Association's Committee of Management. One would expect that, in that capacity, she would intend and would probably have an obligation to ensure that she acquired any information that was necessary as to the financial position of the Association.
Although the Association was not forthcoming in its responses, it is clear enough that steps were being taken to borrow funds to meet the judgment debts that were outstanding. It is unfortunate no explanation was given as to why the steps that were taken were not taken earlier. It may be that an inference can be drawn that the Committee of Management decided to await the annual general meeting rather than convene an extraordinary general meeting for the purposes of authorising the borrowing. Be that as it may it is apparent that there is considerable antagonism within the Association.
I consider that the Association behaved to some extent unreasonably in not responding to emails and failing to indicate to Ms Alexandrou what steps were being taken to meet the judgment debts. On the other hand, it is not unfair to say that Ms Alexandrou was acting somewhat precipitously in commencing the proceedings in circumstances where she had been given an assurance at the meeting that money was going to be borrowed for the purpose of paying the outstanding legal costs. For those reasons I conclude that I should reject both applications for costs orders and direct there be no order as to costs.
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Decision last updated: 27 February 2020