In the matter of Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551

Supreme Court of NSW|2015-09-03|Before: Black J

98 FCR 417 - Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 14 ACSR 580 - Expile Pty Ltd v Jabb's Excavations Pty Ltd (No 2) [2003] NSWCA 163 - Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699; (2003) 46 ACSR 446 - FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 - Forsayth NL v Juno Securities Ltd (1991) 4 ACSR 281 - Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 - Lechmer Financial Corp v Aspermount Ltd [2003] FCA 1138 - Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 - Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 - Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd [2006] NSWSC 1386; (2006) 60 ACSR 646 - Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719 - Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465 - Re Huon Foam Pty Ltd [2000] TASSC 99 - Repforce International v Master Lease Properties [2003] NSWSC 970 - Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204 - Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 - Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (No 4) [2014] WASC 405 - TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 - TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074; (2007) 25 ACLC 1371 - Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35 - Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 Category: Principal judgment Parties: Gladstone Industrial Pty Ltd and Dimitris Amargianitakis (Plaintiffs) Gladstone Mortgagee No 1 Pty Ltd (Defendant) Representation: Counsel: A Spencer (Plaintiffs) B Green (Defendant)

Judgment

By Originating Process filed on 28 April 2015, the Plaintiffs, Gladstone Industrial Pty Ltd ("GI") and Mr Dimitris Amargianitakis apply under s 459P of the Corporations Act 2001 (Cth) for an order that the Defendant, Gladstone Mortgagee No 1 Pty Limited ("GM1") be wound up in insolvency and that Mr Robert Kite and Mr Mark Hutchins be appointed joint and several liquidators of GM1. GM1 is the second plaintiff in proceedings in the Supreme Court of Queensland ("Queensland Proceedings"), GI is the second defendant in the Queensland Proceedings and Mr Amargianitakis was the sixth defendant in those proceedings, until they were recently discontinued against him. Those proceedings relate to a claim to set aside a sale by a first mortgagee of a property in Gladstone and it is alleged, in those proceedings, that GM1 acquired the second mortgage, or the rights in it, by assignment from the first plaintiff in those proceedings, Rockcliffe Limited, which acquired it from the original second mortgagee, Lawteal Seconds Pty Ltd. The proceedings have a long history and have generated a multitude of interlocutory applications.
The winding up application relies on a creditor's statutory demand ("Demand") under s 459E of the Corporations Act which was served on GM1 on 18 March 2015. The Demand identified the debt as a judgment issued out of the Supreme Court of Queensland in the amount of $5,500, being an order for costs in that amount made by AM Lyons J on 19 February 2015 ("February Costs Order") in the Queensland Proceedings. The February Costs Order was made as one of several orders on that date, including that applications filed by GM1 on 9 January 2015 and 9 February 2015 in the Queensland Proceedings be adjourned to 27 February 2015.
The Demand was verified by an affidavit of the solicitor acting on behalf of GI and Mr Amargianitakis in the Queensland Proceedings, who stated that he was authorised by them to make the affidavit on their behalf and referred to the February Costs Order. He stated that he was instructed that the order had not been satisfied by GM1; and deposed that that order (or, presumably, the amount specified in it) was due and payable by GM1 and that he believed there was no genuine dispute about the existence or amount of that order. The language of the affidavit verifying the Demand was, at best, imprecise, referring to the amount of the order rather than the amount of the debt. No application was made to set aside the Demand and no point was originally taken as to that matter in this application. I invited supplementary submissions as to that matter after reserving judgment, to which I will refer below.
By letter dated 9 July 2015, GM1's solicitors wrote to the solicitors for GI and Mr Amargianitakis identifying the facts on which GM1 relied in opposing the winding up application, and also noting that s 467(1)(a) of the Corporations Act permitted the Court to dismiss a winding up application even if a ground has been proved on which the Court might order that the company be wound up. By its Notice of Appearance dated 14 July 2015, GM1 in turn identified the grounds on which it opposed the winding up application, namely that: "1 The [Demand] was complied with on 30 March 2015 because the sum of $5,500 was secured or compounded to the reasonable satisfaction of [GI] by which date [GM1] had demonstrated a 'continued willingness to pay coupled with an actual payment into Court' of the sum demanded; or alternatively 2. [GI and Mr Amargianitakis] has not had standing to proceed with the application since at least 26 May 2015 and there are no other creditors with any interest in being substituted; or alternatively 3. The application is for an improper purpose and/or is a collateral attack on orders of the Supreme Court of Queensland made in [the Queensland Proceedings] on 17 March 2015 and 26 May 2015; or alternatively 4. [GM1] is solvent and able to pay all its debts as they fall due from its own money."
I will deal with each of these grounds of opposition below. At the commencement of the hearing on 28 August 2015, Mr Green, who appears for GM1, made but was not successful in an oral application under s 459S of the Corporations Act for leave to rely on grounds of opposition to the winding up application which could have been but were not relied upon in an application to set aside the Demand. However, several of the matters on which GM1 relied could nonetheless be raised in opposition to the winding up application without such leave, since they could not have been raised within the 21 day period for an application to set aside the Demand. As Mr Green points out, the words "on a ground … that the company could have so relied on" in s 459S of the Corporations Act refer to a ground that was actually available to be asserted by it, in the facts and circumstances that existed at the relevant time: Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719. The events which occurred in the Queensland Proceedings after 8 April 2015, when the 21 day period for compliance with the Demand expired, were not available to be relied on by GM1 in an application to set aside that Demand within that period. That included, in particular, an order made by McMurdo J on 26 May 2015 (to which I will refer below) that the amount of $5,500, which was the subject of the Demand, be paid from funds held in Court.
Mr Spencer, who appears for GI and Mr Amargianitakis, submits that several of Mr Green's submissions, including that Flanagan J's order of 17 March 2015 in the Queensland Proceedings (to which I will also refer below) imposed a stay of the February Costs Order; that the debt was not enforceable; and that there was a failure to disclose the fact of Flanagan J's order in the affidavit in support of the Demand, cannot be raised by reason of s 459S of the Corporations Act. Given the findings I reach on other grounds, it seems to me to be preferable to express no view as to whether it would be open to GM1, without such leave, to raise matters relevant to whether GM1 owes any debt to GI and Mr Amargianitakis; while such a claim may be relevant to whether GM1 has standing to bring the winding up application, it would not succeed on its merits. It may also be that the matters raised by GM1 concerning the orders made by Flanagan J could only be raised, by reason of s 459S of the Corporations Act, so far as they are relevant to other matters that arose after the expiry of the 21 day period in which application could have been made to set aside the Demand, which can be raised without leave, or to an abuse of process claim in respect of the winding up application. I do not consider it necessary or desirable to express a final view as to that question, where the matters concerning Flanagan J's orders appear to be relevant on either or both of those bases and both parties addressed those matters on their merits. I have addressed those matters below.
The Plaintiffs rely on the affidavit of Mr Amargianitakis sworn 27 April 2015, which deposes that the claimed debt is due and payable by GM1, and an affidavit of Ms Amargianitakis sworn 27 April 2015 on behalf of GI which is in substantially the same form as Mr Amargianitakis' affidavit. The Plaintiffs also rely on an affidavit of Ms Barker dated 22 April 2015 which referred to service of the Demand at the registered office of GM1, being the office of an accountant, by post; an affidavit of Ms Thomas sworn 30 April 2015, which led evidence of posting the Originating Process in respect of the winding up and affidavits in support of the application sworn by Mr and Ms Amargianitakis, a consent of liquidators filed on 28 April 2015 and an affidavit of service of the Demand; and an affidavit of Ms Mahasay dated 30 April 2015 which led evidence of lodgement of a notification of court action relating to a winding up, in Form 519, with the Australian Securities and Investments Commission ("ASIC"). GI and Mr Amargianitakis also rely on an affidavit of Ms Barker sworn 18 May 2015 which refers to publication of the winding up application.
GM1 relied, in opposition to the winding up application, on an affidavit of its sole director and shareholder, Mr Gregory Huxley, dated 26 May 2015. I will refer to Mr Huxley's evidence as to GM1's financial position below in dealing with the question of its solvency. GM1 also relied on an affidavit of its accountant, Mr Michael Unicomb dated 26 August 2015. Mr Unicomb's evidence is that his firm had an association with GM1 since its incorporation and had acted as its accountants since October 2014; that one of his senior accounting associates had previously done accounting work for GM1 on his own account, while working as a consultant for the group of companies with which GM1 was associated; and that when, on an unidentified date, Mr Unicomb's firm took on the accounting role, he reviewed the ledgers of GM1 and prepared financial statements for GM1 for the year ending 30 June 2015. GM1 also relied on an affidavit of Mr Norman Hilton dated 29 July 2015, which annexed a report dated 23 July 2015 dealing with GM1's solvency. I will address that evidence in respect of that question below. Mr Hilton's further affidavit dated 26 August 2015 annexed the documents which he had reviewed in the course of preparing his report, other than Mr Huxley's affidavit dated 26 May 2015 which, as I noted above, was read in the proceedings.
GM1 also relied on an affidavit of Ms Reid dated 27 May 2015. Ms Reid was a legal assistant employed with the firm which previously acted for GM1 in the Queensland Proceedings and set out a lengthy history of those proceedings, dating back to November 2013, including the circumstances in which an order for security for costs was made against the then Plaintiff in the Queensland Proceedings, Rockcliffe Ltd, the order for joinder of GM1 as second plaintiff in the Queensland Proceedings in February 2015 and other subsequent events to which I will refer below. The Defendants also rely on an affidavit of their current solicitor, Mr James Loel dated 13 July 2015 which refers to issues in respect of obtaining delivery of the file in the Queensland Proceedings from its former solicitors in those proceedings. GM1 also relied on Mr Loel's further affidavits dated 27 July 2015 and 26 and 27 August 2015 which annexed further correspondence and referred to further orders made by the Supreme Court of Queensland, identified additional documents which had been received in respect of those proceedings and also referred to matters in relation to the Queensland Proceedings, the change of solicitors in the Queensland Proceedings by which his firm assumed carriage of those proceedings and to his receipt of the Court file in those proceedings. GM1 also relied on a further affidavit of Mr Isaac dated 26 August 2015, who is a solicitor employed by GM1's solicitors, which referred to a payment that had been made to GM1's former solicitors in the Queensland Proceedings and to the identification of documents in those proceedings.
The extent of affidavit evidence relied on in this application, particularly by GM1, was not consistent with the parties' advice to the Court that the matter would require a half day hearing, on the basis of which it was listed for that time, and the proceedings therefore ran over to a second hearing day. Several of the affidavits on which GM1 relied were also served out of time, a matter which GM1 explained by reference to difficulty in obtaining the file in the Queensland Proceedings from its former solicitors. Counsel agreed between themselves that the proceedings should be conducted on the basis that GI and Mr Amargianitakis had established all matters that would entitle them to a winding up order, if it was established that the amount payable to GI and Mr Amargianitakis had not been received by them; that I should grant leave to read all of the late affidavits, reserving the right to object to them at the point at which reliance was placed on a particular aspect of them; that all material not objected to would be admitted, but that I should only have regard to the evidence to which I was referred in the course of the hearing (T11-12); and that there would be no cross-examination on the affidavits and no submission about a failure to cross-examine.

Chronology of events

I should set out a chronology of events, including events in the Queensland Proceedings to which the parties gave significant attention, and in doing so I will reach findings as to several submissions by the parties as to the significance of those events.
It appears that orders for security for costs were made by Wilson J on 13 November 2013 and Boddice J on 3 February 2014 in the Queensland Proceedings and that, on 4 February 2015, an amount of $160,000 as security for costs was paid into Court in those proceedings, whether by or on behalf of Rockcliffe Ltd or GM1.
On 9 February 2015, GM1 filed an application in respect of the assignment of the Gladstone mortgage, or rights under it, from Rockcliffe Ltd to it, which did not proceed on 19 February 2015 because that assignment had not been completed. As I noted above, AM Lyons J made the February Costs Order and other orders on that date. Mr Green concedes that the debt of $5,500 arising from the February Costs Order was due and payable by GM1 from when that order was filed in the Supreme Court of Queensland, under r 661(4) of the Uniform Civil Procedure Rules 1999 (Qld), and he acknowledges that order was filed on 20 February 2015, when the Deputy Registrar signed and sealed it (Loel 27.7.15 Ex JBL 2, p 22). Mr Green also accepts that, between 20 February and 16 March 2015, until Flanagan J made the order to which I will refer below, GI and Mr Amargianitakis were at liberty to enforce the debt arising from the February Costs Order.
An order was made by Flanagan J on 17 March 2015 that, inter alia, GM1 pay $20,000 into Court as security for GI's and Mr Amargianitakis' costs of and incidental to applications filed on 9 February 2015, 12 February 2015 and 4 March 2015, by 31 March 2015, with such amount only to be paid out by agreement between GM1, GI and Mr Amargianitakis or by order of the Court. Mr Green fairly recognises that that order did not affect the order as to the costs of the 9 January application comprised in the February Costs Order, but points out that the amount of costs in that order was not divided between the 9 January and 9 February applications. By his judgment delivered on 17 March 2015 (Ex P1, p 11ff), Flanagan J described the purpose of ordering the payment of that additional amount by way of security for costs as follows: "Given that [GM1] seeks an indulgence, I am of the view that to address any prejudice caused by the delay in having the deed of assignment [from the existing plaintiff Rockcliffe Limited to GM1] executed as between the date of the adjournment by Applegarth J and the date by which [GM1] became the plaintiff in or about 27 [February] 2015, [GM1] should be ordered, as a condition of the grant of an extension of time, to pay a further $20,000 into Court whilst the cost of the applications of 9 January and 9 February 2015 are being assessed or otherwise agreed."
The parties are at issue as to the meaning of Flanagan J's order although, regrettably, they have not made any apparent attempt to clarify it in the Court in which it was made. A possible uncertainty as to the scope of the order arises because it refers to the costs of the application of 9 February 2015, which was one of the applications adjourned before AM Lyons J on 19 February 2015, but also refers to costs being assessed or agreed, which would not be necessary in respect of the February Costs Order which was a fixed sum costs order. Mr Spencer submits that the amount of security for costs that was ordered to be paid into Court by Flanagan J was directed to costs which remained to be assessed, rather than to the amount of the costs that had already been determined by the fixed costs order made by the February Costs Order. Mr Green submits that Flanagan J's order provided for the method of payment of the February Costs Order and contends that GI and Mr Amargianitakis could not, from that time forward, both pursue the amount ordered to be paid by way of costs thrown away for the adjournment of the 9 February application and have the benefit of the amount to be lodged in Court to cover the costs of the application filed on 9 February 2015.
I accept that these matters are not entirely straightforward, and that the phrase "whilst the costs of the applications of 9 January and 9 February 2015 are being assessed or otherwise agreed" in Flanagan J's ex tempore judgment could be read as directed to a present or possibly also to an ongoing or future assessment process. However, it seems to me that a logical and coherent construction of both orders is available, by reading the February Costs Order as directed, as it said, to the costs thrown away by the adjournment of the applications listed before AM Lyons J on 19 February 2015, including that of the application of 9 February 2015, and reading the order for security for costs made by Flanagan J as directed to the costs of the application of 9 January (which was not dealt with by the February Costs Order) and those costs of the 9 February application which were not the subject of the February Costs Order. It is plain that such other costs existed or would exist, since GI's and Mr Amargianitakis' legal representatives would have had to take other steps in respect of that application (for example, to read it, consider it, take instructions about it and ultimately deal with it) before and after it was adjourned on 19 February 2015, but only the costs of that adjournment were the subject of the February Costs Order.
I do not consider that I should accept GM1's submission that Flanagan J simply failed to recognise the February Costs Order at the point of making this order. It would, with respect, have been both logical and practical for the Supreme Court of Queensland to order both (by the February Costs Order) that the costs thrown away by an adjournment application be paid in the amount of a fixed sum, and (by Flanagan J's order) that the other costs of that application be secured pending further assessment or agreement about them, and there was no overlap or inconsistency in orders to that effect. I see no reason why I should not read those orders as having that logical and practical effect, where the parties have not suggested the contrary to the Court that made them. It follows that I also do not accept Mr Green's further submission that the February Costs Orders were impliedly stayed or vacated by Flanagan J's order of 17 March 2015. On the reading of the orders made by Flanagan J which I have adopted above, they addressed costs of the 9 February application other than those addressed by the February Costs Order, had no impact upon the continuing effect of the February Costs Order and, contrary to GM1's submission, they did not suspend the continuing operation of that order or prohibit GI or Mr Amargianitakis taking steps to enforce the February Costs Order, because the limitation on dealing with monies paid into Court by way of security for costs was not directed to the February Costs Order.
As I noted above, the Demand was issued on 18 March 2015. GM1 criticised the terms of the affidavit of GI's and Mr Amargianitakis' solicitor in support of the Demand, on the basis that Flanagan J had ordered security to be lodged "which covered the subject debt" on the day before. Given the findings that I have reached above, that criticism was not well-founded, because the order of Flanagan J was not directed to the costs that were the subject of the February Costs Order and was not referable to the debt the subject of the Demand.
On 19 March 2015, GM1 paid $47,783.77 into Court as security for GI's costs, which it claims complied with earlier orders as to security for costs made by Applegarth J on 12 January 2015 in the Queensland Proceedings. On 31 March 2015, GM1 paid $20,000 into Court as security for GI's and Mr Amargianitakis' costs of the applications, which it claims complied with Flanagan J's order made on 17 March 2015 in the Queensland Proceedings. On 28 April 2015, GI and Mr Amargianitakis commenced the winding-up application in this Court.
A further order was made by McMurdo J on 26 May 2015, in the Queensland Proceedings, granting leave for GM1 to discontinue proceedings against Mr Amargianitakis. His Honour also ordered that the amount which was the subject of the Demand be paid from the amount previously paid into Court by Rockcliffe Ltd or GM1 in the Queensland Proceedings pursuant to orders made on 13 November 2013 and 12 January 2015. There is a dispute between the parties as to who was the moving party on the application before McMurdo J, which is a matter which ought to have been objectively determinable and ought not to have been the subject of dispute, and which it is not possible to resolve on the evidence before me. It appears that those orders were made by consent and the form of those orders was drafted and filed by solicitors acting for GI and Mr Amargianitakis (Loel 27.7.15, Ex JBL 2, pp 26-27).
Mr Spencer submits, and I accept, that the effect of the orders made by McMurdo J was to allow an amount which had previously been available for security for the costs of GI to be applied to the payment of the February Costs Order in favour of GI and also in favour of Mr Amargianitakis. However, those orders were not made until well after the 21 day period for compliance with the Demand expired on 8 April 2015. Those orders were also made after these proceedings had been commenced and before the first return date of the proceedings in this Court. At that point, it seems to me that GI and Mr Amargianitakis were likely keeping open two options, namely the ability to have the relevant monies paid out of Court in the Supreme Court of Queensland, or the pursuit of the winding up proceedings in this Court, although they have ultimately taken the second and not the first of those approaches. The payment ordered by the orders made by McMurdo J has not occurred, because neither GI and Mr Amargianitakis, who have the benefit of that order, nor GM1 which is subject to it, have taken steps to implement that order.

Whether the sum was paid or secured to GI's reasonable satisfaction in response to the Demand

In his opening submissions, Mr Spencer, who appears for GI and Mr Amargianitakis, relies on the proposition that GM1 made no payment in response to the February Costs Order, or within 21 days of service of the Demand, and he contends the amount of $5,500 due under the February Costs Order remains unpaid. Mr Spencer submits that GI and Mr Amargianitakis are entitled to rely on a presumption of insolvency by reason of a failure to comply with the Demand. GM1 resists a winding up order based on the proposition that the Demand was complied with because the sum of $5,500 was paid (or at least tendered for payment), secured or compounded to the reasonable satisfaction of the GI and Mr Amargianitakis. I have set out the relevant steps in the Queensland Proceedings that are relied on for that proposition above.
First, as I noted above, GM1 submits that the Demand was complied with on 31 March 2015, when GM1 paid the amount of $20,000 into Court pursuant to Flanagan J's order, because the sum of $5,500 was then paid (or at least tendered for payment), secured or compounded to the reasonable satisfaction of GI and Mr Amargianitakis. GM1 contends that, by that date, it had demonstrated a continued willingness to pay coupled with an actual payment into Court of the sum demanded. Given the construction of Flanagan J's order which I have set out above, the amount of $20,000 paid into Court on 31 March 2015, within the 21 day period after the Demand, did not relate to the amount which was the subject of the February Costs Order, so a payment, securing or compounding of the debt claimed in the Demand within that period is not established.
As I noted above, a further order was made by McMurdo J on 27 May 2015 that the sum which is the subject of the Demand be paid from an amount of $160,000 paid into the Supreme Court of Queensland, which was previously security for the costs of GI in the Queensland Proceedings. Mr Green submits that GI and Mr Amargianitakis have refused a tender of the full amount of the debt subject to the February Costs Order, treating the order made by McMurdo J on 27 May 2015 as though it were the tender of that amount. It does not seem to me that the making of a Court order which, if further steps had been taken, would bring about payment of an amount, is sufficient to constitute a tender of that amount where no such steps were taken. GM1 itself took no steps to bring about a payment out of Court which would have given GI and Mr Amargianitakis the economic benefit of a payment. Even if the order made by McMurdo J could, without being implemented, be treated as a tender of the amount by GM1 to GI and Mr Amargianitakis, that would not assist GM1 in establishing the Demand was complied with, since it occurred outside the 21 day period for compliance with the Demand. It would, at most, also be relevant to the exercise of the Court's discretion whether to proceed to a winding up of GM1.
Mr Spencer contends, and I accept, that there were several factors which would justify GI and Mr Amargianitakis exercising caution in accepting a tender of the $5,500 made by GM1 even if, contrary to the fact, GM1 had taken any step to bring about a payment of that amount out of Court. These included not only the presumption of insolvency arising from failure to comply with the Demand but also the existence of previous costs orders made against GM1 in the Queensland Proceedings which, when assessed, would give rise to further liabilities; previous delays in the provision of security for costs ordered in the Queensland Proceedings; GM1's not having provided security for Mr Amargianitakis' costs of the proceedings after it was ordered to do so on 19 February 2015, until orders were made by McMurdo J in May applying security previously provided in favour of GI to that purpose; and the fact that GM1 had not paid the $5,500 which was the subject of the February Costs Orders even after the receipt of the Demand. Mr Spencer submits that GI and Mr Amargianitakis would have sound reasons for rejecting the tender of monies that would probably have to be returned as a preference, implicitly on the basis that GM1 is insolvent and may be wound up within the relation-back period for a preference: Australian Mid-Eastern Club v Yassim (1989) 1 ACSR 399. There is some force in that submission, and one substantial difficulty with it to which I will return below, namely that GI and Mr Amargianitakis consented to orders made by McMurdo J which provided for the amount due to them under the February Costs Orders to be paid from the funds held in the Court, rather than, so far as the evidence goes, resisting such an order on the basis that such a payment would constitute a preference.
Mr Green responds to the GI's and Mr Amargianitakis' submission that they are concerned that they would be classed as preferential creditors on the receipt of such a payment, by submitting that it is unlikely that a liquidator would pursue the Plaintiffs for $5,500 as a preferential payment, particularly where there are no supporting creditors and the payment into Court was made in March 2015. It seems to me that the fact that there are no supporting creditors in this application, where GM1 has recently reached agreement with two potential supporting creditors, and has an obvious interest in avoiding insolvency so far as it seeks to continue the Queensland Proceedings, suggests that GM1 will seek to avoid a winding up in the near future. It does not follow that it will succeed in doing so, given the unsatisfactory evidence as to its solvency to which I refer below. I also do not accept Mr Green's further submission that there is any inconsistency between the Plaintiffs wishing to be paid in the 21 day period following service of the Demand and expressing concern as to their position after the 21 day period specified in the Demand had expired. The matter which obviously changed in that period was that a presumption of insolvency arose from non-compliance with the Demand.
Mr Spencer submits that a securing or compounding of the debt, for the purposes of s 459E(2)(c) of the Corporations Act, could only occur after service of the Demand and must be unconditional and unequivocal: Forsayth NL v Juno Securities Ltd (1991) 4 ACSR 281; Repforce International v Master Lease Properties [2003] NSWSC 970. He submits that the payment by GM1 into Court of other sums required of it in compliance with Court orders cannot be said to be securing or compounding the debt. Even if the order made by McMurdo J could, without being implemented, be treated as a compounding or securing for the amount by GM1 to GI and Mr Amargianitakis, that would also not assist GM1 in establishing the Demand was complied with, since it again occurred outside the 21 day period for compliance with the Demand. It would, at most, also be relevant to the exercise of the Court's discretion whether to proceed to a winding up of GM1.
The question whether any securing or compounding of the debt arising from the February Costs Orders was to GI's and Mr Amargianitakis' reasonable satisfaction does not strictly need to be determined where that did not occur within the 21 day period permitted for compliance with the Demand. However, I will say something further as to that question in case an appellate Court takes a different view to that which I have reached. The question whether the debt was secured or compounded to GI's and Mr Amargianitakis' reasonable satisfaction is determined on an objective test: Commonwealth Bank of Australia v Parform Pty Ltd (1995) 13 ACLC 1309 at 1311; Deputy Commissioner of Taxation v Commercial and General Law (SA) Pty Ltd [2011] FCA 1269; (2011) 198 FCR 417 at [123]. I have referred above to matters to which Mr Spencer refers as justifying GI and Amargianitakis in exercising caution in any acceptance of a tender of payment by GM1. GI and Mr Amargianitakis similarly contend that payment out of Court would be a preference if, as they contend, GM1 is insolvent and, presumably, that proposition is relied upon as providing a basis on which the debt, if secured or compounded by a payment into Court, was not secured or compounded to GI's and Mr Amargianitakis' reasonable satisfaction.
There is a real question on the authorities, to which Counsel did not refer in submissions, as to whether a real risk of a preference arose in respect of any compounding or securing of the debt by a payment into Court, or a subsequent payment out of Court. The authorities as to whether a payment out of Court could be recoverable as a preference were reviewed by Allanson J in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (No 4) [2014] WASC 405, where his Honour considered the provisions for payment into Court in the Supreme Court of Western Australia, where his Honour did not accept an argument that a payment out of Court would constitute a potential preference in respect of a company that had been placed in administration on the basis that it was insolvent or likely to be insolvent. His Honour observed that a transaction may be an unfair preference under s 588FE of the Corporations Act even if it is given effect to because of an order of a court (s 588FA(1)) but that a threshold question arose whether a payment out of Court is a transaction as defined in s 9 of the Corporations Act. His Honour noted (at [19]-[26]) that: "The authorities on the effect of payment into court were extensively reviewed by Mullighan J in Pilmer v HIH Casualty & General Insurance Ltd (No 2) [2004] SASC 389; (2004) 90 SASR 465 [62]-[115]. That case concerned a payment into court of the incontestable part of a judgment, as a condition of pursuing an appeal. Mullighan J held that the party who made the payment into court did not retain any legal or equitable interest in the money, and it was not property of the company for the purposes of s 468 of the Corporations Act. His Honour followed the English Court of Appeal in WA Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038. In Michell Sillar McPhee (A Firm) v First Industries Corp [2006] WASCA 24; (2006) 32 WAR 1 [67], Pullin JA (Steytler P and Wheeler JA agreeing) referred with approval to both Sherratt and Pilmer. The court was not, however, concerned with a payment made as security for costs. In Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank Ltd [2006] SASC 239; (2006) 95 SASR 208, decided some months after Michell Sillar Mcphee, the South Australian Full Court disagreed with Pilmer as to the breadth of the proposition that a person paying money into court may never have an equitable interest in the money until the order for payment out is made. White JA, with whom Vanstone and Layton JJ agreed, gave the example of a person providing security for costs as a circumstance where the person paying money into court does retain an interest in it [46]. … I accept that, on the authorities, a person paying money into court retains an interest in it. It seems to be settled that the party paying money into court appropriates that money to meet the other party's claim, if that claim is made good. The party paying in gives security in the form of a charge over that money in favour of the other party: see MSPR Pty Ltd v Advanced Braking Technology Ltd (No 2) [2014] NSWCA 283 [10]; Gunns Ltd v Tasmanian Conservation Trust Inc [2012] TASSC 51 [28]; Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm) [2006] VSCA 123 [22]; Dwight v Cmr of Taxation [1992] FCA 178; (1992) 37 FCR 178. The result, in my opinion, is that on the entry of judgment in January 2013, at the latest, the money in court was charged in favour of the defendants. [The party who paid money into Court] had an interest that the money should be held and paid out only in accordance with the orders made by the court. But it had no right to the money itself, and could not call for it to be paid to it or at its direction. I doubt that, in those circumstances, the money could be regarded as the property of the company so that payment out would be a transfer or other disposition of its property, or would be a payment made by it. I need not go into the other questions which arise from the definition of unfair preference in s 588FA of the Corporations Act and the extent to which the defendants were secured creditors. … I also take into account that should [the party which paid money into Court] go into liquidation and the liquidator claim the payment is an unfair preference, there is no reason to believe that an order that the money held as security be paid to the defendants would prejudice proceedings that might be brought by a liquidator under s 588FF of the Corporations Act."
I recognise that his Honour did not there need to express a concluded view as to this issue, both because he was concerned only with where the interests of justice lay in ordering the payment out of Court, and he left open the possibility of proceedings brought by a liquidator in the last paragraph noted above. For the reasons noted above, it seems to me that the constraints imposed on the monies paid by GM1 into Court in the Queensland Proceedings, including that it may not be dealt with except by an order of the Court, are such that it is at least arguable that the monies were no longer GM1's property and a payment out of them out of Court to GI or Mr Amargianitakis would not be either a transaction, as defined in s 9 of the Corporations Act, or would fall outside the preference regime by reason that GI and Mr Amargianitakis were secured creditors in respect of the amount held in Court. However, I do not determine that question, which does not arise on the findings I have reached and where the parties did not address submissions to the relevant case law.
Had it been necessary to determine the question whether any payment into Court secured GI and Mr Amargianitakis to their reasonable satisfaction, on an objective test, I would have held that it did not on the practical basis that they were left exposed to the risk that a liquidator may pursue proceedings in respect of that amount, in the event of the winding up of GM1 in insolvency, a possibility left open in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (No 4) above. The prospect of the winding up of GM1 is not remote, not only because of the presumption of insolvency arising from the failure to comply with the Demand, but also because of the evidence as to its solvency to which I refer below. However, I will return to the complexity arising from the fact that GI and Mr Amargianitakis are bound by, and consented to, the orders made by McMurdo J below.

GI's and Mr Amargianitakis' standing

The second basis on which GM1 resists a winding up order is the proposition that GI and Mr Amargianitakis have not had standing to proceed with the application since at least 26 May 2015 and there are no other creditors with any interest in being substituted.
Mr Spencer responds that GI's and Mr Amargianitakis' standing to bring the winding up application is to be determined as at the time the winding up application was commenced: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 397; (2005) 54 ACSR 228 at [12]ff, where Barrett J qualified the different view that he had previously expressed in Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734; (2004) 50 ACSR 204 at 208. While that proposition is strictly correct, in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd above at [15], Barrett J also noted that a winding up application would generally be dismissed if, at the time it came before the Court for determination, the original plaintiff which pursued it was no longer a creditor, and no other creditor sought to be substituted in its place; see also Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 14 ACSR 580 at 585; Deputy Commissioner of Taxation v Barroleg Pty Ltd (1997) 25 ACSR 167 at 172; Braams Group Pty Ltd v Miric [2002] NSWCA 417 at [77]-[79].
It does not seem to me that it has been established that GI and Mr Amargianitakis were no longer creditors of GM1 when this matter was heard before me. As I noted above, by the letter dated 14 July 2015, GM1's solicitor contended that the sum of $5,500 the subject of the Demand was "effectively paid" to GI and Mr Amargianitakis by not later than 28 May 2015, presumably by reason of McMurdo J's order. Mr Green advanced the same submission. I do not accept the proposition that, because an amount was payable by order, it was in fact paid. In order for GM1 to pay, or GI and Mr Amargianitakis to receive, the amount that was referred to in that order, it or they had to take some further step to give effect to that order, such that the amount that was subject to it was in fact paid. It and they did not do so, so far as the evidence goes.
Mr Green also submits that, from 26 May 2015, the debt was no longer payable by GM1, because it was to be paid from the fund within the Court. I also do not accept that proposition. It seems to me that the relevant debt remained due by GM1, notwithstanding that the orders made by McMurdo J would have allowed, and possibly required, GM1, GI and Mr Amargianitakis to take steps to have monies paid out of Court to discharge that debt, which it and they did not take. I find it difficult to see that an order for payment of an amount made by a Court could extinguish a debt to which that order relates unless and until that amount is paid. The contrary view would lead to the odd result that if, for example, that order for payment were later vacated by the Court, that debt would either no longer exist, notwithstanding it was never paid, or would have to be treated as notionally revived, notwithstanding it had previously been extinguished. It seems to me that the order made by McMurdo J provided a mechanism for payment of that debt which, if implemented, would discharge it, but it was not discharged unless and until that order was implemented.
Accordingly, GI and Mr Amargianitakis continue to have standing to bring the application, notwithstanding that the orders made by McMurdo J would have provided a mechanism for payment of the debt, had any of GM1, GI or Mr Amargianitakis acted in accordance with them.

Solvency

It will be convenient to deal next with the last of the four bases on which GM1 resists the winding up application, namely its claim that it is solvent. My findings as to that matter have relevance to whether GI and Mr Amargianitakis are entitled to be concerned that a payment out of Court to them could be set aside as a preference, a matter that I addressed above, and to the exercise of the Court's discretion whether to dismiss or stay the application for a winding up order, which I will address below.
Where I have held that the amount claimed by the Demand was not paid or secured to GI's and Mr Amargianitakis' reasonable satisfaction within 21 days of the Demand, they are entitled to rely in this application on a presumption of insolvency created by the failure to comply with the Demand. The effect of that presumption was summarised by a unanimous High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1 at [28], observing that: "...where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption."
The principles applicable to a determination of GM1's solvency are well-established. Section 95A(1) of the Corporations Act has effect that, relevantly, GM1 is solvent if and only if it is able to pay all its debts as and when they become due and payable. Section 95A(2) has effect that a person who is not solvent is insolvent. That definition adopts a cashflow test of insolvency which turns upon the income sources available to GM1 and the expenditure obligations that it has to meet, rather than a balance sheet test which focuses on the value of its assets and liabilities reflected in its books, although a balance sheet test can provide context for the application of the cashflow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 at [370]ff; Campbell Street Theatre Pty Ltd (recs and mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669. Whether GM1 is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [93]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49].
Mr Spencer drew attention to authority that, in order to displace the presumption of insolvency arising from non-compliance with the Demand, it is necessary for GM1 to put the "fullest and best" evidence as to its financial position before the Court, that unaudited accounts and unverified claims of ownership or the value of assets will not ordinarily be sufficient for that purpose, and bald assertions of solvency made by an accountant from a general review of the company's accounts will not be sufficient to establish solvency, even if the relevant accountant has knowledge of how those accounts were prepared: Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463; Ace Contractors and Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728; Expile Pty Ltd v Jabb's Excavations Pty Ltd (No 2) [2003] NSWCA 163 at [16].
Mr Green in turn drew attention to the observation of White J in Commonwealth Broadcasting Corporation Pty Ltd v Pacific Mobile Phones Pty Ltd [2008] QSC 210; (2008) 219 FLR 422 that audited accounts and significant inquiries would not necessarily be required in dealing with a simple company. In that case, his Honour distinguished Expile Pty Ltd v Jabb's Excavations Pty Ltd, on the basis that the company in issue in the latter case had significant indebtedness, deficiencies in its account and lack of evidence of realistic borrowing capacity to refund repayments of short term liabilities, and distinguished the position of a small and viable company with no creditors. It seems to me that approach would not be appropriate in this case, because, although GM1 may be a special purpose company, its affairs are by no means simple or straightforward, so far as they involve the valuation of mortgages that are the subject of substantial proceedings that have been on foot for a long period. In those circumstances, it seems to me that there is strong reason to apply the usual approach of looking for more than unverified assertions of solvency by a director of the company or, indeed, an accountant who has recently prepared its financial statements. In fairness to GM1, it has sought, at least to some extent, to lead such evidence, including by Mr Hilton's report.
By letter dated 13 July 2015 (Loel 27.7.15, Ex JBL 2, p 1ff), GM1's solicitors advised the solicitors for GI and Mr Amargianitakis, presumably on instructions, that tax returns, balance sheets and profit and loss statements would be provided promptly and that GM1's affidavit of solvency would reveal that it had no creditors and was able to pay its debts from its own money as they fell due. In the event, no tax returns have been led in evidence, and the affidavit evidence and expert report now led by GM1 do not establish either that GM1 had no creditors (at least at the relevant time) or that GM1 is able to pay debts from its own money, at least without Mr Huxley's financial support.
GM1 relies on the affidavit evidence of its director, Mr Huxley, its accountant, Mr Unicomb, and the expert report of Mr Hilton to seek to establish solvency. Mr Huxley states that GM1's "sole purpose" was to support a caveat over certain land, which is the subject of the Queensland Proceedings. He states that: "[GM1] does not file Tax Returns or accounts to secure money being paid for the Queensland Proceedings. [GM1] has paid $227,783.77 to secure litigation funds. It currently holds $227,783.77 in Court for the benefit of [GI] and $20,000.00 for the benefit of [Mr Amargianitakis]." Mr Huxley also states that GM1 "has no other debts or expenses" and that it "does not trade other than for the purposes of the Queensland Proceedings". Mr Huxley also stated, and I admitted over objection, but subject to weight, that: "Further funds can be raised and I have personal funds and equity of over $100,000.00 which I can use to satisfy any further costs orders that would be the subject to any other security for costs orders."
I referred to Mr Unicomb's affidavit above. The financial statements prepared by Mr Unicomb included a director's report signed by Mr Huxley dated 21 July 2015, well after the commencement of these proceedings, and a compilation report signed by Mr Unicomb which stated that the directors of GM1 are solely responsible for the information contained in the special purpose financial statement. That compilation report also stated that the special purpose financial statement had been prepared on the basis of information provided by the directors and their procedures used accounting expertise to collect information provided by the directors, and did not include verification or validation procedures, and no audit or review had been performed and no assurance was expressed. These are significant qualifications, so far as Mr Hilton in turn relied on Mr Unicomb's financial report for the purposes of his report. Mr Unicomb's affidavit also refers to MYOB ledgers of GM1, which include numerous adjustments made by journal entry including, for example, a journal entry which apparently reduces trade creditors by $30,000 by adjustment. That MYOB ledger was also produced, or at least adjusted, when the proceedings were under way, so far as it records entries made after 30 June 2015.
As I noted above, GM1 also relied on an affidavit of Mr Norman Hilton dated 29 July 2015, which annexed a letter dated 23 July 2015 dealing with GM1's solvency. Mr Hilton is a chartered accountant and a partner of Jirsch Sutherland and I accept that he is qualified to provide an opinion as to solvency, and he indicated that he had read and complied with the expert witness code of conduct contained in Schedule 7 of the Uniform Civil Procedure Rules 2005 (NSW). Mr Hilton's report set out a statement of financial position of GM1 as at 30 June 2015 and an estimated market value of assets and liabilities, on low and high estimates, together with explanatory notes, and recorded the range of value of GM1's assets as between, $16,671 and $1,744,171. I admitted that report subject to a limitation under s 136 of the Evidence Act 1995 (NSW) that it was not proof of the facts asserted in it, with the intent that the facts relied upon in it must be proved by other admissible evidence. As I noted above, Mr Hilton's affidavit dated 26 August 2015 annexed the documents which he relied on in preparing his report. Several documents on which Mr Hilton relied were admitted with a limitation under s 136 of the Evidence Act that they were not proof of the asserted facts, or subject to weight.
Mr Hilton's report in turn relies on financial statements prepared by Mr Unicomb and signed on 21 July 2015 by Mr Huxley. Mr Spencer points out that the financial records relied upon by GM1 in these proceedings were produced after the commencement of the proceedings and that GM1 has not produced primary documents such as business activity statements. I have also referred above to the breadth of the disclaimer of any review of those reports by Mr Unicomb.
The notes to a balance sheet prepared by Mr Hilton indicated that he had treated $227,500 paid into Court by or on behalf of GM1 as an asset of GM1 and had assumed that, on a worst case scenario, that amount would be required to meet (and, implicitly, would be sufficient to meet) any ultimate costs order against GM1. Mr Spencer submits, and I accept, that Mr Hilton has overstated the amount lodged with the Supreme Court of Queensland as security for costs and that there is no basis to assume that that amount will be sufficient to meet adverse costs orders in the proceedings generally, given their history and the uncertainty as to their outcome.
Mr Hilton's report identified non-current assets of GM1 including two mortgages with a value of $684,290. There is no admissible evidence to support the valuation of a mortgage described as "Gladstone Vista" in Mr Hilton's report, which appears to have been held on GM1's balance sheet prior to the assignment of the chose in action which is the subject of the Queensland Proceedings to it in February 2015. It appears that the other mortgage addressed in that report is the Lawteal mortgage, the subject of the claim in the Queensland Proceedings. The balance sheet attached to Mr Hilton's report disclosed the book value of the Lawteal Mortgage as $382,086, its low market value as $684,290 and its high market value as $1,500,000, referred to the amount of the mortgage and the nature of the development subject to it, and observed that: "I have not endeavoured to, nor do I consider it necessary to assess the likely net realisations from the project, but to portray the prospects for GM's future net asset position if its litigation is successful, I have allowed $1.5 million for the future realisable value of its mortgage assets." With respect to Mr Hilton, it seems to me impossible to undertake any meaningful assessment of GM 1's ability to pay its debts as and when they fall due, by reference to assumptions as to its future success in litigation. I recognise, of course, that the low market value attributed to that mortgage does not expressly depend upon that assumption, but the way in which the latter figure was derived was not explained.
Mr Spencer points out, and I accept, that there is also no admissible evidence to support the value attributed to the Lawteal mortgage in Mr Hilton's report. Mr Spencer also points to the fact that the opening balance and closing balance attributed to that mortgage in GM1's ledgers are not readily reconciled to the amount paid as consideration of the assignment for the chose in action which is the subject of the Queensland Proceedings. Mr Hilton also referred to trade creditors, including a debt owed to a firm of lawyers for legal services. Mr Spencer also points to an unexplained adjustment to reduce trade creditors in the amount of $30,874.38 in GM1's MYOB ledgers, which is in turn reflected in Mr Hilton's report.
The slight positive value attributed to GM 1's assets in Mr Hilton's report in turn assumes that substantial loans made by Dawson Group, Vangory Holdings and Vangory Services to GM1 will not be called upon, on the basis of written confirmations from those parties that they would not call the loans and that they were subordinated to claims by bona fide creditors. The letters recording the suggested subordination of debts owed by GM1, were not business records because they were plainly prepared for the purposes of the proceedings, each being dated 21 July 2015. Indeed, it appears those letters were prepared following a request by Mr Hilton to GM1's solicitor, made on that date, for "simple confirmation of amounts owing to Dawson, Vangory and their willingness to subordinate their loans" (Hilton, 26.8.15, Ex NAH-1). I admitted those letters with a limitation under s 136 of the Evidence Act that they were not proof of the asserted facts.
The notes to the balance sheet prepared by Mr Hilton states that he has treated those loans as "quasi capital" and has excluded them for the purpose of determining GM 1's solvency. Such confirmations do not in fact convert the relevant debts to equity and, second, there is no indication on the face of those letters that they are enforceable by GM1, or could not be withdrawn by the creditors, at least after giving reasonable notice to GM 1. The Courts have rightly been cautious about the acceptance of contractual undertakings to support a company's solvency, particularly where the other party to such an undertaking is not at arm's length: see, for example, Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd [2006] NSWSC 1386; (2006) 60 ACSR 646 at [27]; Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465 at [21]. In the present case, the confirmations given by Dawson Group, Vangory Holdings and Vangory Services fall short of having even contractual effect. Mr Hilton's report also seems to me, at best, to establish the balance sheet position of GM1, within the very wide range indicated by his report, and provides no real assistance as to its cashflow position.
Mr Spencer points to matters which he submits are indicia of insolvency in respect of GM1, including that it has no income and is reliant on the support of third parties to realise any value of its claim in the Queensland Proceedings, which have been continuing over a long period but are not well advanced, and on the delays in provision of security for costs ordered in early 2015 in those proceedings, and also points to a delay in payment of fees owed to another solicitor acting in respect of the assignment of the mortgage for more than two years and a dispute with its former solicitors in these proceedings. There is evidence that an issue arose between GM1 and its former solicitors as to payment of costs, but that issue was resolved by a deed of settlement, which provided for payment to those former solicitors on particular terms. An amount previously due to another firm of solicitors, which had apparently been involved in the assignment of the mortgage, had also been paid. I place little weight on the dispute with the former solicitors in these proceedings, which appears to raise other issues as between GM1, Mr Huxley and those solicitors, which are not appropriately determined in these proceedings.
Mr Green points out, and I accept, that GM1 is not a trading company and does not, so far as the evidence go, have staff or employees, although I infer that it is likely to incur further liabilities both to its own legal representatives and by way of costs orders in the Queensland Proceedings, given the history of costs orders made against it to date. Mr Green also refers to evidence that GM1 has met the security for costs orders made against it, although I interpolate that it has generally not done so within the time within which it was initially ordered to provide such security. It seems to me that that evidence has limited weight, in the present case. First, the fact that a company which is party to litigation meets an order for security for costs, where that litigation is otherwise likely to be stayed, or that persons associated with it provided funds to do so, provides little evidence of ongoing support by those associated with the company so as to meet other debts as and when they fall due.
Mr Green also relied on the availability of funds from those associated with, or supportive of, GM1 to support its solvency, and refers to Mr Huxley's evidence that he will fund GM1 into the future to meet any further security for costs orders. I accept that matter may often be relevant to the proof of solvency. However, as Mr Spencer points out, although GM1 relies on the financial support of third parties including Mr Huxley who contend for its solvency, no evidence of any substance as to their resources or ability to provide such support has been led. Mr Spencer submits, and I accept, that the Court should infer that evidence of that character would not have assisted GM1 in its defence of the application.
As I noted above, GI and Mr Amargianitakis are entitled to rely on the presumption of insolvency that arises from failure to comply with the Demand. GM1's special purpose financial reports are not supported by any substantive accounting review, given the extent of the qualifications made by Mr Unicomb; Mr Hilton has in turn relied on information provided by Mr Huxley and those financial reports; Mr Hilton's report in turn discloses that, even on that basis, GM1's assets have little value on the less optimistic basis; there is no evidence that GM1 itself has the capacity to meet future debts arising from the Queensland Proceedings, and its balance sheet suggests that it does not on the less optimistic basis; and Mr Huxley's claim that he will support GM1 is not supported by any evidence of substance as to his capacity to do so. I am not persuaded that the presumption of insolvency arising from failure to comply with the Demand has been rebutted by the evidence led by GM1.

Improper purpose and abuse of process

The third basis on which GM1 resists the winding up application is a claim that it is brought for an improper purpose and/or is a collateral attack on the orders made in the Queensland Proceedings on 17 March 2015 and 26 May 2015. In David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corp (1995) 184 CLR 265; 18 ACSR 225 at 234, Gummow J (with whom the other members of the Court agreed) observed that: "No doubt, in some circumstances, the new Pt 5.4 [of the Corporations Act] may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction." This comment is directed to the possibility that a winding up application may be an abuse of process where the company is solvent. It is not shown that GM1 is solvent for reasons that I have indicated above. In TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 ("TS Recoveries 2") at [91], Barrett J noted that, in the ordinary course, insolvent companies should be wound up and that the scope for the application of principles of abuse of process in such a case must be limited, but indicated that such principles could not be entirely discarded in that context. I would take the same approach.
In Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, the plurality of the High Court recognised that a legal proceeding brought with a predominant intent or purpose that is improper may be restrained or dismissed as an abuse of process, and summarised that principle (at 527) as follows: "The observations of the Privy Council in King v Henderson [1898] AC at p 731] and those of Isaacs J in Dowling [(1915) 20 CLR at pp 521-522] to which we referred earlier, represent an attempt to achieve a formulation which keeps the concept of abuse of process within reasonable bounds. To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event. … Thus, to take an example mentioned in argument, an alderman prosecutes another alderman who is a political opponent for failure to disclose a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent's conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices. The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor's favour. It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed [In re Majory [1955] Ch 600 at pp 623-624] or some collateral advantage beyond what the law offers [Goldsmith v Sperrings Ltd [1977] 1 WLR at pp 498-499; [1977] 2 All ER at pp 581-582; see also Varawa (1911) 13 CLR at p 91]. …
In Australian Beverage Distributor Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 61 ACSR 441, Beazley JA (with whom Hodgson and Santow JJA agreed) observed that the Court may dismiss proceedings or grant injunctions in respect of an abuse of process. In TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074; (2007) 25 ACLC 1371, Barrett J noted that a claim that the pursuit of a winding up application was an abuse of process involved wider issues than an attack upon a creditor's statutory demand and was not excluded by s 459S of the Corporations Act and identified relevant matters to such an attack, observing (at [17], [19]) that: "Abuse of process is concerned predominantly with propriety of purpose. That issue must be judged according to the legitimate objectives of the particular process. A challenge under s 459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand, whereas an abuse of process allegation in relation to the pressing of winding up proceedings would pay attention to the objectives for which winding up proceedings are properly pursued. … A winding up application is designed to serve a different purpose, at least where it is pursued in the present circumstances where a presumption of insolvency has arisen, and the defendant company, while conceding insolvency, consciously and deliberately chooses to defend. In those circumstances, proper pursuit of winding up proceedings entails the purpose of securing the imposition of a scheme of insolvent administration aimed at ending the company's activities, seeing assets marshalled and the claims of creditors ascertained and culminating in payment to creditors of whatever is available from the insolvent estate. The logical and expected outcome will be the imposition of that regime (for the benefit of all creditors), not payment of the plaintiff's debt."
In his subsequent decision in TS Recoveries 2, Barrett J declined to dismiss winding up proceedings that sought to replace current management with a liquidator who would likely not continue proceedings on the basis of abuse of process, observing (at [108]) that: "A purpose of seeing a liquidator supplant the incumbent management is a purpose entirely consistent with the proper pursuit of winding up proceedings. Appointment of a liquidator and cessation of business are results for which the law allows - more precisely, they are results that are part and parcel of the winding up regime."
Mr Green also relies on the Court's continuing ability, under s 467(1) of the Corporations Act, to stay or dismiss winding up proceedings which are, inter alia, an abuse of process or brought for an improper purpose. Section 467(1)(a) of the Corporations Act relevantly provides that the Court may, on hearing a winding up application, "dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application." Prior to the introduction of that section by the Corporate Law Reform Act 1992 (Cth), the general law recognised that a finding of insolvency can result (as I noted above) in there being an entitlement to a winding up order ex debito justitiae, but nonetheless recognised a corresponding 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 per McHugh JA; Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699; (2003) 46 ACSR 446 at [57]; TS Recoveries 2 at [114].
Mr Green relies on several matters as constituting an abuse of process such that the application for a winding up order should be dismissed. First, he refers to the signature on the Demand and the execution of an affidavit asserting that the amount of $5,500 was "due and payable" without disclosing the effect of the orders made by Flanagan J on 17 March 2015. (As I noted above, the affidavit in fact did not expressly assert that the amount of $5,500 was "due and payable", a matter to which I will return below.) I do not accept that any failure to refer to Flanagan J's orders gave rise to an abuse of process, since I have held above that those orders did not affect the obligation arising under the February Costs Order. Mr Green also criticises Mr Amargianitakis' affidavit of 27 April 2015 on the same basis. It does not seem to me that that affidavit was misleading, or gave rise to an abuse of process, for the same reasons.
Mr Green also submits that GI and Mr Amargianitakis are only concerned with winding up GM1 as an indirect means of defeating the Queensland Proceedings, rather than being concerned to prevent an insolvent company from continuing to trade. Mr Spencer responds that it is not an abuse of process for GI and Mr Amargianitakis to bring proceedings for the purpose of pursuing them to a conclusion to obtain an entitlement or benefit the law provides, if those proceedings terminate in their favour: Williams v Spautz above; Australian Beverage Distributors v Redrock [2007] NSWSC 966. He also submits that there is no abuse of process in GI and Mr Amargianitakis pressing the winding up application, so far as its outcome would be the appointment of a liquidator who would make an assessment of the prospects of the proceedings, even if the consequence is that he discontinued the proceedings on the basis that they were not conducive to GM1's orderly winding up or that he did not have funds to continue them. I accept that, consistent with the authorities on which Mr Spencer relies and TS Recoveries 2, those outcomes are not improper outcomes of a winding up order, at least so long as that winding up order is properly made, and the pursuit of a winding up order with those outcomes would not amount to an abuse of process.
Next, Mr Green relies on the fact that McMurdo J's order for payment of 26 May 2015 remains in force but has not been complied with and no attempt has been made to vacate or suspend its operation. The criticism that no attempt has been made to comply with that order can properly be directed both to GM1 and to GI and Mr Amargianitakis. There is little doubt that GI and Mr Amargianitakis have the right to recover the amount due to them by reason of the orders made by McMurdo J and could have taken steps to achieve that result. Mr Green refers to observations of Campbell J in Repforce International v Master Lease Properties above, dealing with the position where a landlord issued a creditor's statutory demand in respect of a debt claimed against a tenant rather than relying on the bond given by the tenant. That case seems to be distinguishable on the basis that a genuine dispute of the kind to which Campbell J there referred did not exist, in this case, within the 21 day period after the Demand was served, because McMurdo J's order had not been made in that period.
Nonetheless, I have been troubled by the fact that the order made by McMurdo J, apparently by consent of the parties, was mandatory in form and provided for payment of GI's and Mr Amargianitakis' debt in a particular way. It was not an option to be taken up by them if they chose or disregarded if the prospect of a winding up had greater appeal. The winding up order now sought seems to me to be at least potentially inconsistent with McMurdo J's order, so far as that order would be made on the basis a debt is unpaid while an order for its payment from monies in Court remains on foot and could be implemented at GI's and Mr Amargianitakis' choice. However, I am not satisfied that that is sufficient to permit the characterisation of these proceedings as an abuse of process, where they are pursued to obtain an entitlement or benefit the law provides, namely the winding up of GM1 if the presumption of insolvency arising from its failure to comply with the Demand is not displaced by proof of its solvency, as it has not been.
Mr Green also criticises GI and Mr Amargianitakis for their failure to send a letter of demand before the Originating Process was filed in the Court, after the time of expiry of the Demand was filed. It seems to me that that criticism is unfounded. Once the Demand was not complied with, and a presumption of insolvency arose, there would be little point in sending a letter of demand that, for example, invited a payment of debt which service of the Demand had not brought about, particularly where GI and Mr Amargianitakis would then be at risk of receiving a preference if they then accepted that payment.
Mr Green also pointed to several other cases, involving facts that are not analogous with the present facts, where the Court had exercised its discretion in favour of the defendant in a winding up application, notwithstanding that the presumption of insolvency arising from service of a creditor's statutory demand had not been rebutted: for example, Re Huon Foam Pty Ltd [2000] TASSC 99; Lechmer Financial Corp v Aspermount Ltd [2003] FCA 1138 at [93]. Those cases are generally distinguishable because they involve short adjournments, in circumstances that a company would shortly receive funds which would allow payment of the relevant debt. Mr Green also relies on the observations of Ipp J in Braams Group Pty Ltd v Miric above at [77]-[79] that a winding up order may not be made if, first, a debt had been paid in full after the expiry of the statutory 21 day period or, second, if a Court had subsequently held that the relevant debt did not exist. It does not seem to me that those observations assist GM1, where it has not in fact paid GI or Mr Amargianitakis, so far as monies remain in Court and have not been paid to GI and Mr Amargianitakis and the February Costs Order has not been set aside. Mr Spencer in turn submits that the discretion to refuse a winding up order would not ordinarily be exercised in favour of an insolvent company, although it may sparingly be exercised where the question of solvency is finely balanced.
In TS Recoveries 2, Barrett J observed (at [118]) that where insolvency is established (as it was in that case by concession, and in this case by the failure to rebut the presumption of insolvency arising from non-compliance with the Demand) then: "the discretion to dismiss the application will be exercised only if some good reason is shown for allowing the admittedly insolvent company to continue in the mainstream of commercial life. That course may be indicated where winding up is opposed on rational grounds by other creditors, or where the applicant's conduct precipitated the company's liability …." I would readily have declined to make the winding up order under s 467 of the Corporations Act and left GI and Mr Amargianitakis to their rights under the order made by McMurdo J, to which they consented, had there been evidence that displaced the presumption of GM1's insolvency, or potentially if that question had been finely balanced. However, that presumption has not been displaced, nor does the question seem to me to be finely balanced, for the reasons noted above. Although I have not found the question an easy one, I ultimately do not consider that the inconsistency of the application with the order made by McMurdo J, although at least regrettable, warrants an exercise of discretion that would leave an insolvent company free to trade, where an application has been brought by a creditor with standing to wind it up on the basis of an unsatisfied creditor's statutory demand.
For completeness, I should note that, after reserving the proceedings for judgment, I drew the parties' attention to the fact that the affidavit verifying the Demand did not expressly state that there was no genuine dispute as to the existence or amount of the debt, but rather that there was no genuine dispute about the existence or amount of the "order" (as defined in that affidavit), and also drew the parties' attention to the decision of the Court of Appeal in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262. In that case, the Court of Appeal (taking the same approach as the Court of Appeal of the Western Australian Supreme Court in Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35) held that the omission from an affidavit verifying a creditor's statutory demand, of a statement that the deponent believed there was no genuine dispute about the existence or amount of the debt, constituted some other reason why the demand should be set aside for the purposes of s 459J(1)(b) of the Corporations Act. I invited, and the parties made, further submissions as to those matters.
In those further submissions, Mr Green fairly acknowledged that GM1 had conceded that GI and Amargianitakis had proved necessary matters for the exercise of the Court's power to make a winding up order, subject to the matters that I have addressed above, but submitted that concession did not limit the exercise of the Court's discretion as to whether it should proceed to make the winding up order. Mr Green submitted that the affidavit verifying the Demand stated only that there was no genuine dispute about the existence or amount of the order (as defined in it) rather than that there was no genuine dispute as to the existence or amount of the debt, and verified that the order (as defined) rather than the debt was due and payable. Mr Green also submitted, rightly, that s 459E(3) of the Corporations Act requires that, unless a debt is a judgment debt, a creditor's statutory demand must be accompanied by an affidavit that verifies that the debt, or the total amount of the debts, is due and payable by the company. Mr Green also referred to the requirements of r 5.2 of the Supreme Court (Corporations) Rules 1999 (NSW) as to the form of an affidavit accompanying a creditor's statutory demand. Mr Green also pointed out that the affidavit in support of the Originating Process asserted that the amount of $5,500 remained due and payable, by reference to the order (as defined) rather than the debt. However, Mr Green fairly acknowledged that, had GI and Mr Amargianitakis treated the relevant debt as a judgment debt, it would not have been necessary to support the Demand with an accompanying affidavit, but submits that they did not treat the debt in that manner, at least so far as they provided such an accompanying affidavit.
Mr Spencer responded, with considerable force, that the debt on which the Demand was based was in fact a judgment debt and that the affidavit verifying it was not required under s 459E(3) of the Corporations Act. Mr Spencer points out that, under rr 660 and 687 of the Uniform Civil Procedure Rules 1999 (Qld), the Court could fix an amount for costs, as the February Costs Order did, and that, once fixed, the order for costs took effect from the date from which it was made, and submits that order for costs gave rise to a judgment debt once it was quantified. Mr Spencer's submission is also supported by the fact that the Demand itself described the debt by reference to the judgment issued out of the Supreme Court of Queensland. Mr Spencer also points out, and it is at least arguable that, the term "order" as defined in paragraph 1 of the verifying affidavit, when combined with paragraphs 3 and 5 of that affidavit, amounted to verification that the amount of $5,500, being the amount of the February Costs Order, remained outstanding in full and that there was no genuine dispute about it.
Mr Green submitted that in this case, as in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd above, no statement establishing that there is no genuine dispute about the existence or amount of the debt was made in the affidavit supporting the Demand. Mr Spencer distinguished Kisimul Holdings Pty Ltd v Clear Position Pty Ltd on the basis that no challenge had been brought in respect of the Demand, the affidavit verifying the Demand indicated that the deponent had turned his mind to the relevant question, or at least the question whether the amount due under the February Costs Order was due and payable, and that GM1 was demonstrably insolvent.
I have concluded that this matter does not support exercising the Court's power under s 467 of the Corporations Act to dismiss or stay the application to wind up GM1. First, it seems to me that the debt created by the February Costs Order was in fact a judgment debt, the Demand did not need to be accompanied by a verifying affidavit, and any deficiency in that affidavit is therefore of little weight. Second, the question was not raised in the course of the hearing before me, where Counsel for GM1 accepted that the requirements for a winding up order were satisfied, other than for the issues that I have addressed above. Third, the exercise of a discretion to dismiss or stay a winding up application on that basis, after a presumption of insolvency had arisen and in the absence of proof of GM1's solvency, seems to me to be inconsistent with the purpose of the statutory regime, so far as it would allow a company that is presumed to be insolvent a continued ability to incur debts which, on that unrebutted presumption, it could not pay as they fell due.

Orders and costs

I am satisfied that the presumption of insolvency that arose from the non-compliance with the Demand has not been rebutted and the matters to which I have referred above do not have the result that the Court should dismiss or stay the winding up order. Accordingly, I make the following orders:
The First Defendant, Gladstone Mortgagee No 1 Pty Ltd, be wound up in insolvency.
Robert Kite and Mark Hutchins be appointed joint and several liquidators of the First Defendant.
The Plaintiffs' costs of and incidental to the application, including any reserved costs, be assessed and reimbursed out of the Defendant's assets in accordance with s 466(2) of the Corporations Act.

Amendments 31 December 2015 - Decision - first page - "costs of an incidental" to "costs of and incidental". Para 29 quoting Allanson J (6th para) - "The party who paid money into Court]" to "[The party who paid money into Court]". Para 58 - line 3 - "Hodgson and Santow JJ" to "Hodgson and Santow JJA". 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: 31 December 2015

Corporations Act 2001(Cth)ss 9, 95A(1), 95A(2), 459E, 459E(2), 459E(3), 459J, 459P, 459S, 466(2), 467, 467(1), 588FE, 588FA(1)

Uniform Civil Procedure Rules 1999(Qld)rr 660, 661(4), 687

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