In the matter of Anton Fabrications (NSW) Pty Ltd - Bentley Smythe Pty Ltd v Anton Fabrications

Hearing of application in absence of the defendant 6The chronology of the proceedings was set out in one of a number of affidavits by the solicitor with the conduct of this application (Mr Martin Garvin), that being his affidavit of 11 March 2011. 7As noted earlier, Anton Fabrications was represented in the proceedings up until 3 March 2011. The first directions hearing for the matter was listed on 22 March 2010. There was at that time an appearance for Anton Fabrications and orders were made, among other things, for it to file and serve its notice of opposition to winding up. I was handed by Mr Pritchard a copy of a document headed Amended Grounds of Opposition to Winding up, filed for Anton Fabrications on 19 November 2010 (the initial Grounds of Opposition having been filed in April 2010). 8The grounds of opposition to winding up stated in the document filed in November last year are, in summary, that: (1) Anton Fabrications is solvent; (2) the Court ought not in its discretion wind up Anton Fabrications on the basis that it has assets greater than any indebtedness; (3) the statutory demand was not served on Anton Fabrications; and (4) for discretionary reasons the Court should not wind up Anton Fabrications. 9Various assertions were made in relation to the last (discretionary) ground for opposing the winding up but, broadly, what seems to be suggested is that the plaintiff had adopted a method of service (namely placing the statutory demand in the letterbox located at the company's registered office) knowing that it would not thereby come to the attention of Anton Fabrications, its servants and agents (the basis for asserting such knowledge on the part of Bentley Smythe not made clear in the Notice) and knowing that the debt was disputed and that there were no reasonable grounds for claiming that amount. Similar assertions were made in relation to the service of the Originating Process in these proceedings. It was asserted that the plaintiff had knowingly refrained from informing Anton Fabrications' solicitor of the service of the Statutory Demand or Originating Process and that the filing, service and continuation of winding up proceedings were an abuse of process. 10There is no evidence before me on behalf of Anton Fabrications in relation to the matters going to the discretionary ground of opposition to the winding up. Mr Pritchard accepts, however, that he bears the onus in relation to the insolvency ground and to establish that there was service of the statutory demand insofar as he seeks to rely on a presumption of insolvency. 11Turning then to the issue as to whether the application should be heard in the absence of Anton Fabrications, Rule 29.7 of the Uniform Civil Procedure Rules 2005 (NSW) applies when a trial is called on and any party is absent. In those circumstances the Court may proceed with the trial generally, so far as concerns any claim for relief in the proceedings, or may adjourn the trial. If it is the defendant who fails to appear, then the plaintiff may prove its claim so far as the burden of proof lies upon it and if it proves its claim is entitled to the relief claimed and such other relief as is consistent therewith (see discussion in Ritchie's Uniform Civil Procedure (NSW), referring to Stone v Smith (1887) 35 Ch D 188 and Kingdon v Kirk (1887) 37 Ch D 141). 12As noted in the commentary in Ritchie's , a party fails to appear, for the purpose of the Rule 29.7, if that party fails to provide the Court with an apparently credible explanation, for that non-attendance. By way of example of a lack of credible explanation reference is made to Magjarraj v Asteron Life Ltd [2009] NSWSC 1433 at [22] where the court had been provided with an inadmissible doctor's certificate asserting incapacity resulting from an undisclosed medical condition. 13In the present case, there was no explanation for the defendant's non-attendance (credible or otherwise). Relevantly, in the week before the matter came before me, it had been listed before a Registrar of the Court on the defendant's application for the provision of security for costs by the plaintiff. That application was listed on 10 March 2011. Mr Garvin deposed to a conversation on 9 March 2011 with a solicitor (Mr Greg Leather) in which he says that Mr Leather told him he had received instructions to act for Anton Fabrications and did not know what the matter had been listed for the following day. Mr Garvin says that he informed Mr Leather that it was for the hearing of an application for security for costs by Anton Fabrications (and that he had noted that a controller had been appointed to the only asset of Anton Fabrications). According to Mr Garvin, Mr Leather asked him whether, if the security for costs application was dismissed, the winding up application would be dealt with on 10 March, and Mr Garvin said that he thought it would probably go over to the Corporations List Judge on the Monday (ie 14 March 2011). Mr Garvin deposed that he had had no further communication from Mr Leather. 14On 10 March 2011, there was no appearance for Anton Fabrications before the Registrar and its interlocutory process seeking security for costs was dismissed. The proceedings were, as Mr Garvin had surmised, adjourned to the Corporations List Judge on 14 March 2011. Mr Garvin then caused a number of communications to be sent in an evident attempt to ensure that Anton Fabrications was made aware of the plaintiff's intention to proceed to seek a winding up order when the matter came before the Court on 14 March 2011. Relevantly, a letter to that effect was sent not only to the addresses noted in the Notice of Ceasing to Act filed by Proctor Phair Lawyers (those two addresses being, first, the address of premises in Rosslyn Park, South Australia that the evidence disclosed comprises the main asset of Anton Fabrications, and is the subject of a mortgage in favour of Perpetual Trustee, and, secondly, care of a named individual at an office address in Rockdale of a company identified as Callanan Consulting) but also to the former lawyers for Anton Fabrications (Proctor Phair Lawyers) and to the solicitor who only last week had advised that he had received instructions from Anton Fabrications (Mr Greg Leather). The letters were sent variously by prepaid ordinary post and in some instances by facsimile transmission. 15I was satisfied that all reasonable attempts were taken to notify Anton Fabrications of the plaintiff's intention to seek to press for a winding up order when the matter was listed before me today and that there had been no explanation (let alone any credible explanation) advanced for the lack of any appearance by Anton Fabrications. I therefore considered it was appropriate to proceed to hear the application ex parte.

Presumed insolvency 16The first basis on which the winding up application is made is the presumed insolvency of Anton Fabrications by reference to its non-compliance with the statutory demand dated 1 February 2010. That statutory demand identifies the debt the subject of the demand as due in respect of a loan of $500,000 advanced to Anton Fabrications on 26 June 2008. The statutory demand was supported by an affidavit sworn by Mrs Kimberley McGurk, as executor of the estate of her late husband. Bentley Smythe is a company formerly controlled by the late Mr Michael McGurk. 17Mr Pritchard quite properly drew to my attention that Anton Fabrications had disputed the debt the subject of the demand. It had also asserted that Mrs McGurk was unable to verify the existence of the debt as she did not have the personal knowledge of the company's affairs (that knowledge presumably being said to have reposed with her late husband). As I understand it, there is no dispute that the sum in question was paid to Anton Fabrications. Annexed to Mr Garvin's 4 March 2010 affidavit was a copy of a bank account statement for the defendant's account with Westpac evidencing the payment. Rather, I was informed that the dispute initially raised was as to whether the payment was a loan to Anton Fabrications or was, instead, a sum in respect of the repayment on behalf of Mr McGurk of a debt that he had personally incurred to Mr Alec Backshall (the husband of Anton Fabrications' sole director) and/or for remuneration in respect of prostitution services allegedly provided. 18Mr Garvin has deposed to the fact that the defendant had served an affidavit sworn 23 June 2010 by Mr Backshall in which he asserted that the money was part repayment of debts due to him by Mr McGurk, using the defendant's bank account. No affidavit has been read in these proceedings on behalf of the defendant in relation to those assertions. Therefore, at this stage I can treat them only as assertions of matters in respect of which the defendant has chosen to proffer no evidence. 19The question whether reliance can be placed on the presumption of insolvency turns on whether the statutory demand was served on Anton Fabrications as required under the Act. In this regard, the onus rests on the plaintiff. 20The registered office of Anton Fabrications is noted in ASIC's records as being 1 Northbri Avenue, Salisbury East, South Australia, 5109. That is a residential address. Annexed to the affidavit of the process server who delivered the Statutory Demand to that address (Mr Dean Bowen) is a photograph of the house situated at that address (showing the location of the letterbox situated inside the fenced boundary of the property), together with an enlarged copy of the photograph from which it is evident that the letterbox is in fact wholly within the land inside the boundary fence. The gate to the driveway (next to which the letterbox stands) was open in the photograph. 21Mr Bowen, in his affidavit of 26 March 2010, gave evidence as to the manner in which he served the statutory demand and affidavit in support, namely that they were contained in a sealed envelope addressed to the company which he left in the letterbox situated inside the boundaries of the residential property. Mr Dean Bowen also explained the circumstances in which he attended the property on both 1 February 2010 (when he delivered the statutory demand) and 4 March 2010 (when he delivered the Originating Process). He said that he knocked on the door of the house, that nobody answered the door; that he observed that the gate to the right of the letterbox was open (through which presumably he had entered in order to knock on the door in the first place); that the curtains were not closed, that there was furniture in the house; that the letterbox was not overflowing with mail; and that the lawn and the garden were reasonably maintained and not overgrown. From that, one might reasonably conclude that the house was in occupation by someone - and hence it would seem to me not unreasonable to conclude that a document placed in the letterbox would in due course come to the attention of the occupant(s) of the house. That, however, is not the test. The test is whether the document was 'left at' the registered office. 22The question, therefore, is whether leaving the demand in a sealed envelope in a letterbox on the property known as 1 Northbri Avenue satisfies the requirement for service of the statutory demand for the purposes of reliance on the statutory presumption of insolvency contained in s 459C(2)(a) of the Corporations Act . As noted by Barrett J In James v Ash Electrical Services Pty Ltd [2008] NSWSC 1112, where a plaintiff is proceeding in reliance on a presumption of insolvency arising under s 459C(c)(2)(a) of the Corporations Act in consequence of the failure to comply with the statutory demand the plaintiff must prove that the statutory demand was served on the defendant, this being under s 459F an ingredient of proof of failure to comply with such demand. 23Section 109X(1)(a) of the Corporations Act 2001 (Cth) permits the service of a document, (including legal process) on companies by personal service on the company and provides that such service may be effected by " leaving it at , or posting it to, the company's registered office." 24The question whether a document has been left "at" the registered office, for the purposes of s 109X(1)(a), has been considered in various authorities, to which I was referred by Mr Pritchard, though most commonly this has been in the context of service on registered offices which form part of commercial not residential premises. 25So, for example, in James v Ash , his Honour had to determine whether a document had been served at the registered office of a company within the meaning of s 109X(1)(a) of the Corporations Act where the registered office was identified by reference to a particular suite number at an address on the Pacific Highway at Wyong and the document had been left in a letterbox on the outside wall of the office building in which that suite was located. His Honour held that this could not be regarded as part of the registered office. 26Barrett J referred to what was said in Polstar Pty Ltd v Agnew (2007) 208 FLR 226 at 230 [17]-[18] as to the meaning of "registered office", namely that: ... Provisions of the Corporations Act imposing requirements with respect to a company's 'registered office' elucidate the meaning of 'office' in the expression 'registered office'. Those provisions make it clear that such an office may only be at a location capable of being 'open to the public': see s 145(1). It must also be a location at which it is possible to display prominently the company's name (s 144(1)) and the words 'Registered Office' (s 144(2)). Furthermore, it is contemplated that there will be 'premises at the address of' the registered office (see s 143(1)) and that 'premises' will be used 'as the address of the company's registered office' (s 143(2)(a)). In short, the Corporations Act's concept of 'office', in the references to 'registered office', is one centred on a physical location in the nature of premises (that is, a building or a room in or section of a building) to which persons may go and which can be identified by prominent display as a company's registered office . I am of the opinion that the Acts Interpretation Act reflects a similar concept of "office" in its references to 'registered office', 'head office' and 'principal office'. (my emphasis) 27The concept of a physical location in the nature of premises open to the public is not one that lends itself readily to a building in the nature of residential premises, since ordinarily residential homes are not left open to the public to enter at will (albeit that there may be an implied invitation to enter the land on which the house stands and to approach the front door if (as was the case here) the entrance (by way of driveway or path) is left open or there is no sign indicating that entry is precluded). 28Furthermore, ordinarily, documents forwarded by mail to a residential house are left in the letterbox (if there is one), that being the receptacle for mail addressed to the occupants of the house. Therefore, it is by no means easy to apply the principles derived from cases looking at service of demands at registered offices located within multi-storey office blocks to the case of service at a residential home, at least where that home is the only dwelling on the block of land (and not, for example, an apartment within an apartment building). 29From a conveyancing point of view, 1 Northbri Ave would be regarded as the whole of the parcel of land, not solely the building standing on it (The Laws of Australia at [28.18.240]). Nevertheless, as noted in Polstar , the concept of leaving a document at a registered office suggests that there must be a physical place, which could be described as an office (and, in the case of a parcel of land on which there is only one residential home, that place could only logically be the house itself). One would not anticipate, for example, that the legislation contemplated leaving documents on the pathway or grounds of the parcel of land on which the physical structure stands. 30In James v Ash, his Honour considered and accepted the submission that the act of "leaving" a document "at" a company's registered office involves placing it inside the premises particularly designated as the registered office; and that leaving it in a letterbox outside those premises is something different. That submission had been made by reference to the decision in Jin Xin Investment & Trade (Australia) Pty Ltd v ISC Property Pty Ltd [2006] NSWSC 7; (2006) 196 FLR 350. In Jin Xin , the issue had arisen as to whether the placement of a document in a letterbox on the ground floor of a multi-storey office building at Pitt Street, Sydney amounted to service of that document at the requisite address for service which was designated as a firm of solicitors and migration agents at a particular suite number on the first level of the building. 31His Honour referred to what was said at paragraphs [16] to [24] of that judgment and I extract below part of those passages: [16] ... It is, of course, obvious that to leave documents in a letterbox on the ground floor of an office building is not to leave them at a particularly numbered suite on the first floor of that building. But it might nevertheless be the case that leaving them in that box is to be regarded as the equivalent of leaving them at that suite. [17] There is some broad similarity between the circumstances of this case and those considered by the Court of Appeal in Macrae v St Margaret's Hospital (1999) 19 NSWCCR 1. That case concerned a statutory provision under which service was taken to be effected if the relevant document was 'delivered or sent by post to ... any place of business' of an employer. The document in question was sent by post to the post office box of the employer hospital. This was held to amount to service in accordance with the provision. [Interposing there, almost by definition a post office box will not be located at the actual premises but in any event it seems to me that there is a clear distinction between a post office box and a letterbox on the site of the premises in question]. [20] Also instructive in a general sense is the decision of Cohen J in Swerus v Central Mortgage Registry of Australia Pty Ltd [1989] ANZ ConvR 169 which concerned a provision under which service might be effected by leaving the document at 'the last known place of abode' of the person to be served. The relevant person's abode was a flat on the upper floor of a strata title building. The relevant document was placed in a letterbox mounted on a brick wall at ground level outside the building but within the grounds. The letterbox was not part of the unit and was not included within the strata lot. Cohen J held that the letterbox formed part of the abode: '[I] t seems to me that if a mortgagor provides a means whereby mail may be left at his place of abode, that is to say by having a letterbox in close proximity to the building in which he abides, then he has provided an extension of his abode for the purpose of mail or other material being left at the home for him . This is not the same situation as might occur if a letter were merely left in a hallway which is common to the use of a number of occupiers of a building. Here unit 3 had its own locked letterbox identified as being appropriate to that unit. In my opinion it can properly be said that the specified letter box was incorporated in the use of the home unit as part of the ordinary living facilities of those who live in it Accordingly I regard the leaving of a notice in that designated letterbox as sufficiently complying with the means of service by leaving it at the place of abode.' (my emphasis) 32In Jin Xin , Barrett J accepted that a place of business or a place of abode may be taken to include or to be accessible by means of delivery facilities "not within its physical boundaries" but was not satisfied that leaving documents in a letterbox on the ground floor of an office building could be regarded as (or as the equivalent of) leaving them at a particular numbered suite on the first floor of the building (which was what was there required). A comparison was drawn with the situation in Derma Pharmaceuticals Pty Ltd v HSBC Bank Australia Ltd (2005) 188 FLR 373 where the question in issue was as to service at a registered office described as 'care of Luestner and Associates, 553 Magill Rd, Magill in the State of South Australia, 5072' without reference to floor number, suite number or room number. In Jin Xin his Honour went on to say at [22] - [24]: [22] Before the advent of the provision which is now s 100(1)(c) of the Corporations Act, there was reference in a number of cases to the need for a registered office within an office building to be identified by room number, floor number or other feature. In Re Alpina Pty Ltd (1977) SASR 528, for example, Hogarth J said that the relevant part of a multi-storey building should be described, in the specification of registered office, in a manner 'sufficient to enable any person wishing to serve a document on the company to identify it exactly'. Part and parcel of this thinking is the notion that persons serving documents by physical delivery should have the advantage of knowing with certainty where they are to go. As a corollary, someone armed with that certainty who chooses to leave the document at a place other than that specified with precision acts otherwise than in the way the specification of precise location is intended to ensure. [23] The risks to which Davies AJA referred in Macrae 's case as involved in methods of service other than post (for example, 'anything might happen to business letters put into a letterbox at the gate of the hospital') must be taken to have played a part in the specification of the address for service by means of express reference to a suite number and express reference to a floor number. If service by physical delivery was to be effected, the clear intention behind the express references meant that the person effecting delivery had to be physically present at Suite 103 on Level 1 of the building. [24] In this case, there was precise specification by reference to Suite 103 and Level 1. The documents put into the ground floor letterbox on 19 September 2005 were not delivered to Suite 103 on Level 1. Paragraph 6 of the statutory demands cannot be regarded as causing the issuers of the statutory demands to be bound by purported service by deposit in the ground floor letterbox. On this basis, I would hold that service of the copies of the originating processes and supporting affidavits did not take place on 19 September 2005, even if I were satisfied that Mr Lu senior had placed them in the letterbox on the ground floor on that day. 33Barrett J, in James v Ash , rejected the submission that a letterbox marked "1a" outside the building on the Pacific Highway could be regarded as part of suite 1A, having regard to the statutory scheme in relation to the requirement for nomination of a registered office and noting the reference in Polstar v Agnew to the concept of the "registered office" as being a place consisting of "premises" (such as a building or a room in a section of a building) and also that the registered office must be capable of being "open to the public". His Honour noted that s 145 sets times during which a registered office must be "open to the public" on "each business day" and that, if other hours are to be chosen by the company in accordance with that section, the chosen hours must be notified to ASIC (s 145(2)) and be available by means of a search of ASIC records. His Honour said at [22]: Section 109X(1)(a), to the extent that it contemplates the leaving of documents "at" the registered office, must be taken to recognise and have in contemplation the provisions about registered offices. The provisions make it clear that a registered office will be "open to the public" at certain times. A document will be regarded as left "at" the registered office if it is deposited at the premises that constitute the registered office by someone who enters the premises at a time when they are open to the public. I am prepared to think that a document would also be regarded as left "at" the registered office if, at a time when those premises were not open, it was deposited inside them by being slipped under the door, or put through a mail slot in the door, so that it came to rest inside. In this case, however, the actions taken on the plaintiff's behalf did not, of themselves, cause the statutory demand to be deposited inside the part of the building at 14 Pacific Highway, Wyong described as: "Berkman, Suite 1A, 14 Pacific Highway, Wyong, NSW 2259". 34Mr Pritchard also referred to his Honour's decision in Career Training On Line Pty Ltd v B E S Training Solutions Pty Ltd [2010] NSWSC 460, in which Barrett J noted that the cases to which he had there been referred ( Jin Xin, James v Ash and Re Emeritus Pty Ltd [1967] 1 NSWR 458) were all cases in which the identification of the location of the registered office included a particular room or suite on a particular floor (of the relevant building) and that in two of those cases the description also included the name of a practice or firm. 35Where the situation differed in Career Training was that there, while the name of a practice or firm was mentioned, there was no reference to a suite number or room number and merely a reference to the ground floor without identification of any part or section of it. Barrett J said at [21] that this made the circumstances of the case before him much more akin to those in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393, where the registered office was recorded as care of a particular firm on a particular floor of a building in North Sydney NSW 2060 and service by leaving the documents at the location of a sign on a desk on that floor (which identified the part of the floor at which contact could be made with the firm) was held to amount to good service within s 109X(1)(a) of the Act. 36In Career Training , the registered office was identified by reference to three characteristics: the street address of the relevant building; the particular level within the building (the ground floor); and the accounting practice. His Honour said (at [23]) that "A person who has located the building at 31 Egerton Street thus has the task of finding Watson & Proud on the ground floor". His Honour noted that anyone who went to the relevant street address on the date in question found the name of the accounting practice prominently displayed on a sign affixed to the locked doors at the street frontage and that the message conveyed by the sign was that the premises inside those doors were the premises of that accounting practice. His Honour said (at [24]) that The remainder of the sign's content, coupled with the fact that the outer doors were locked, indicated that anyone wishing to enter in order to visit Watson & Proud should call one of the telephone numbers. Someone who wished merely to deposit documents and not to visit had no need to enter if, as was the case, it was possible to cause the envelope to be placed inside the identified premises by sliding it under the locked door to which the identifying sign was attached. 37Barrett J said at [26] - [27]: Here, as in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (above), the real question is as to the identification of a place described as "Watson & Proud, Ground Floor, 31 Egerton Street, Silverwater NSW 2128". The answer is that there was a place so identifiable at 31 Egerton Street: that the sign affixed by Mr Watson to the locked doors at the building's street frontage identified the ground floor premises behind those doors as those of Watson & Proud. It follows that the action of Ms Buckland in depositing the envelope containing the two statutory demands under the glass doors at the street frontage so as to be wholly within the premises behind those doors constituted "leaving" each such document "at" the registered office of the plaintiff. Each statutory demand was therefore served on the plaintiff on 23 December 2009. 38This reinforces the conclusion that what is required in the present case is to determine what was the place identified as the registered office (at which documents could be left by way of service) and whether the statutory demand was left at that place. 39I am of the view that where the registered office specified in ASIC's records is a residential address (and is not a particular portion (i.e. suite or unit or room) of the building on the land denoted by that address, as would be the case if the address was a particular unit in an apartment building), then the place at which documents must be left is the house. Nevertheless, I also consider but that documents would be said to be left 'at' that house if left in a receptacle clearly intended for the purpose of receiving documents at that address (at least where, as here, the letterbox is wholly within the boundaries of the block of land and access to the letterbox is open to members of the public). 40While I have not been able to find an authority in which this issue was expressly addressed (and nor was Mr Pritchard), it seems to me that the situation where a residential home is nominated as the registered office is distinguishable from the situation considered in James v Ash and is closer to the situation in Career Training or Saferack (where service at the designated address and at the place indicated by reference to a sign at that address was sufficient to satisfy s 109X(1)(a)). (Simply leaving the document on the pathway inside the front gate would not, for example, be sufficient but, here, service was at a part of the nominated address that was clearly placed there for the receipt of written material delivered to the address.) 41This might be tested by asking what would have happened had the service been effected at the registered office by post. If the envelope had been correctly addressed to the company's registered office and sent pre-paid to that address, then the envelope would have been directed to precisely the same place where it was left by the process server - the letterbox inside the residential premises. A document so delivered to the company's letterbox would effect service under the Act ( Partners of Piper Alderman v Sharjade Pty Ltd [2011] NSWSC 6; Northumbrian Ice Cream Co Ltd v Breakaway Vending Pty Ltd [2006] NSWSC 1216; Dwyer v Canon Australia Pty Ltd [2007] SASC 100; (2007) 247 LSJS 438). 42I also note that In Re Spanbild New Zealand Ltd [2010] BCL 443, the High Court in New Zealand recently considered a case in which a not dissimilar issue arose (although there in the context that the creditor was seeking an order for substituted service of a statutory demand due to the difficulties that had been occasioned in relation to service at the company's registered office). There, the registered office was listed as a residential address. In that case, the process server had apparently visited the home several times without finding anyone at home and in circumstances where the property appeared to be unattended. A copy of the document was eventually affixed to the front door of the home. Attempts to find the company's director proved fruitless and the applicant then sought a direction that service of the demand be effected by delivering the demand to the solicitor who represented the company's director and by publication in the local newspaper. Associate Justice Osborne was of the view that, considering the circumstances, there was strength in the argument that affixing the document to the front door of the registered office (ie the residential home) constituted sufficient service for s 387(1)(c) of the Companies Act (NZ) (being the equivalent provision to s 109X(1)(a) of the Corporations Act ) but nevertheless was satisfied that it was appropriate to grant the request for directions in order to avoid any later argument as to service. 43For the reasons set out above, I am satisfied that service by leaving the statutory demand in the letterbox which was wholly inside the boundaries of the parcel of land identified as the registered office - that being a residential property - was validly effected (in circumstances where there was access to the public to the letterbox and the house itself was not open to the public). Accordingly, Bentley Smythe is able to rely upon the presumption of insolvency. However, I consider below what would have been the position had I not been so satisfied.

Actual Insolvency 44The second basis on which the application to wind up was made was on the basis of actual insolvency. 45Section 95A of the Corporations Act 2001 (Cth) defines solvency by reference to the test as to the ability to pay one's debts as and when they become due and payable. It has been noted that the test for insolvency relates to liquidity because the legislation is concerned with the failure of a unit in a trading environment and that the basic question as to whether the company's business is viable is not answered simply by reference to its balance sheet (see discussion in Ford's Principles of Corporations Law at [20.100]). 46A deficiency of total assets to total liabilities is not of itself conclusive as to insolvency (since a company with a deficiency of net assets may nevertheless be able to pay all its debts as and when they become due and payable by reference to its ability to realise profits out of its business - see Quick v Stoland Pty Ltd (1998) 157 ALR 615; (1998) 29 ACSR 130 per Emmett J at [139])). 47In Southern Cross Interiors Pty Ltd (in liq) v DCT (2001) 53 NSWLR 213, Palmer J undertook a review of the authorities on insolvency and identified the following six propositions with respect to the determination of insolvency (at [224-225]): (1) whether or not a company is insolvent for the purposes of ss 95A, 459B, 588FC or 588G(1)(b) is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole (citing Sandell v Porter (1966) 115 CLR 666; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; 15 ACLC 1,293; Fryer v Powell (2001) 159 FLR 433); (2) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable (citing Sandell v Porter (1966) 115 CLR 666; Taylor v Australian and New Zealand Banking Group Ltd (1988) 13 ACLR 780; 6 ACLC 808; Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409; Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765); (3) in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency (citing Bank of Australasia v Hall (1907) 4 CLR 1,514; Norfolk Plumbing Supplies Pty Ltd; Re Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601; 10 ACLC 158; Taylor v Australian and New Zealand Banking Group; ;Guthrie (as liq of ULT Ltd (rec apptd) (in liq)) v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572); (4) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand (citing Standard Chartered Bank of Australia Ltd v Antico (Nos 1 & 2) (1995) 38 NSWLR 290; Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; 13 ACLC 823; Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247; 11 ACLC 773; Cuthbertson v Thomas (1998) 28 ACSR 310; Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103; 15 ACLC 1); (5) in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court's satisfaction, that: (i) there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or (ii) there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or (iii) there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms or trade or are payable only on demand; (citing Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409; Standard Chartered Bank of Australia Ltd v Antico (Nos 1 & 2) (1995) 38 NSWLR 290; Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; 13 ACLC 823; Cuthbertson and Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; Fryer v Powell (2001) 159 FLR 433); (6) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence (citing Fryer v Powell (2001) 159 FLR 433; Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; 13 ACLC 823; Cuthbertson v Thomas (1998) 28 ACSR 310). 48Those six propositions were cited with approval in ASIC v Plymin (No 1) (2003) 175 FLR 124; Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd (2003) 178 FLR 1; Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501. In Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 70 ACSR 1; [2008] WASC 239 at [1087 - 1090], Owen J described Palmer J's analysis of the effect of s 95A as compelling, though he added (at [1090]) that: The word 'reality' in the phrase 'commercial reality' has a bite. Commercial reality dictates that the assessment of available funds is not confined to the company's cash resources. It is legitimate to take into account funds the company can, on a real and reasoned view, realised by sale of assets, borrowing against the security of its assets, or by other reasonable means (cited in Ford's Principles of Corporations Law at [20.100]). 49Accordingly, the s 95A test requires ascertainment of the company's existing debts, its debts within the near future, the date each will be due for payment, the company's present and expected case resources and the date each item will be received ( Ford's Principles of Corporations Law at [20.100]). The Court's task is to decide whether the company is suffering from a temporary lack of liquidity in which case, it is not insolvent ( Bank of Australasia v Hall (1907) 4 CLR 1514; Sandell v Porter (1966) 115 CLR 666) or an "endemic shortage of working capital" ( Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321). 50Here, it is relevant to note that, on 20 January 2011, Perpetual Trustee Co Ltd was appointed controller over Anton Fabrications' main asset, its real property situated at Rosslyn Park. (Apart from loans of $61,274.00 recorded in the books of the company as loans to its director, no other assets of the company had been identified by the expert whose evidence as to insolvency is relied upon by Bentley Smythe.) Perpetual's interest was disclosed in the title register search as the mortgagee of the security property. Mr Garvin's affidavit of 4 March 2011 deposed to correspondence with the solicitor for Perpetual that elicited a response to the effect that the loan to Anton Fabrications by Challenger, which was secured by the mortgage of the security property to Perpetual, expired on 1 July 2010 and that the balance of the loan outstanding as at 12 July 2010 was $1,520,378.19. 51Mr Garvin annexed a copy of a search of the South Australian Government property valuations website for the security property which disclosed a current capital value of the security property of $1.2m as at 1 January 2010. Therefore, on the evidence before me the Rosslyn Park property, if sold at the capital value so disclosed, would not extinguish the secured debt. 52The plaintiff's claim, as noted earlier, relates to a sum of $500,000 which it claims to have advanced to Anton Fabrications on 26 June 2008. Receipt of that sum by Anton Fabrications is evidenced by the bank account statement contained in the annexures to the affidavits. There is no evidence from Anton Fabrications to dispute the obligation to repay (although a dispute had been raised as to the indebtedness of the company in the Amended Notice of Grounds of Opposition to the winding up and my attention has fairly been drawn by Mr Pritchard to assertions made by Anton Fabrications to that effect.) 53By affidavit sworn 7 October 2010, Michael Jones, an official liquidator, has provided an expert report as to the solvency of Anton Fabrications. He explained the methodology he had used in paragraph 21 of his report. 54According to Mr Jones' report, from his review of the materials provided to him, Anton Fabrications does not trade and there is no source of regular company income apart from claimed rent received from the occupants of the property at Rosslyn Park. 55Mr Jones deposed to the issue of default notices in relation to the $1.5m Challenger loan (secured by the Perpetual mortgage) and to steps taken in respect of proceedings for possession of the property (though the outcome of those proceedings is not clear and the house has not yet been sold). 56Mr Jones reviewed the company's financial statements, books and records. He found no evidence regarding accrued company liabilities in relation to tax and outgoings for the Rosslyn Park property, including land tax, accrued council and water rates, accrued insurances liability; and property repairs and maintenance. 57Mr Jones calculated the land tax, penalty tax and interest that would have been incurred and accrued to 1 October 2010 assuming a land value of $640,000 and assuming that the land tax liabilities were not paid; and did so on three different scenarios. Mr Jones also expressed an opinion that the company's balance sheet for the year ending 30 June 2010 was not accurate and provided calculations based on a revised balance sheet. 58Mr Jones has concluded that, at least pending settlement of any sale of the Rosslyn Park property, Anton Fabrications has a cash flow problem as no assets or income are apparently available to pay its tax, outgoings, interest and other liabilities as they became due and payable. 59Mr Jones' conclusion was that, taking into account the Bentley Smythe loan, as at the date of his affidavit Anton Fabrications was "hopelessly insolvent" but that even if the Bentley Smythe loan (principal $500,000 with interest at 9% per annum from 26 November 2008 to 30 September 2010 being $82,991.75, thus totaling $582,991.75) is not taken into account Anton Fabrications was insolvent. He might perhaps be said to have qualified this somewhat by adding that, "at the very least", there was insufficient evidence to conclude that the company was solvent. Nevertheless, my reading of Mr Jones' conclusion, in light of the content of his report, is that his ultimate conclusion was that even if the company is not liable for the Bentley Smythe debt it would be unable (by reference to its lack of trading income and asset position) to pay its ongoing debts (such as land tax, council rates and the like) as and when they fell due. 60On that basis, I would be satisfied (even if, contrary to my finding above, Bentley Smythe were not able to rely upon the presumption of insolvency) that Anton Fabrications was actually insolvent.

Orders 61Accordingly, as noted earlier, on 14 March 2010 I made orders for the winding up of Anton Fabrications.

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: 21 March 2011