In the matter of Pretty Point (Aust) Pty Limited [2013] NSWSC 2013

Judgment - EX TEMPORE 1By Originating Process dated 28 June 2013 the plaintiff, The Owners Strata Plan 79749 ("Owners Corporation"), applies under s 459A of the Corporations Act 2001 (Cth) for an order that the defendant, Pretty Point (Aust) Pty Limited ("Company"), be wound up on the grounds of insolvency and that a liquidator be appointed. 2Section 459A of the Corporations Act provides that, in an application under s 459P of the Act, the Court may order that an insolvent company be wound up. Section 459P allows a creditor of a company to bring such an application. Section 459Q sets out the requirements for such an application, where the applicant relies on the company's failure to comply with a creditor's statutory demand. In accordance with that section, the Originating Process filed by the Owners Corporation, in the present case, sets out particulars of service of the creditor's statutory demand ("Demand") in the amount of $32,682.03 on 21 May 2013 on the Company and of the Company's failure to pay or secure or compound for the debt to the Owners Corporation's reasonable satisfaction. It also attaches a copy of the Demand as s 459Q of the Act requires. The Demand in turn claims an amount of $22,741.70, being the amount of a judgment debt in the Local Court of New South Wales, post judgment interest on that judgment debt, and further unpaid strata levies and interest in the period from 1 December 2012 to 1 March 2013, and expenses claimed in respect of the recovery of unpaid levies and contributions. 3Section 459S of the Corporations Act in turn provides that a company may not, without leave of the Court, oppose a winding up application relying on a failure to comply with a creditor's statutory demand on a ground that, relevantly, the company could have relied upon in an application to set aside the demand. 4The Originating Process is supported by an affidavit dated 26 June 2013 sworn by a director of the strata managing agent appointed by the Owners Corporation, who gives evidence of his belief that the amount claimed in the Demand was then due and payable and that no application to set aside the demand had been served by the Company. An affidavit of search dated 28 June 2013 sworn by the solicitor acting for the Owners Corporation is also relied upon. 5The Owners Corporation also relies on an affidavit of service dated 23 May 2013 sworn by a licensed process server, who gives evidence of service of the Demand at the Company's registered office, or, more precisely, at the address specified as the Company's registered office, which is in fact a mailbox at a mailbox operator who provides private mailbox services. I should pause here to note that a complexity might arise, and some reference to it was made in Mr Begley's affidavit to which I will refer below, as to the proof of service of a creditor's statutory demand where the company's registered office is in fact a mailbox provided by a private mailbox provider. It would be straightforward enough to establish, as the Owners Corporation does, delivery of the creditor's statutory demand to the address of the mailbox provider. It may be more difficult to establish the next step, that the mailbox provider in turn, delivered that envelope to the company's registered office, if (which it is not necessary to decide for the purposes of this application) that is to be treated as situated in a mailbox. In part, any such problem derives from the Company's failure to comply with the requirements for a registered office, which includes that it be open at specified hours, which could be scarcely said of a mailbox, as distinct from physical premises. The parties did not draw my attention to any authority dealing with this question and it is not necessary to address this question further, for reasons that will emerge below. 6The Owners Corporation relies on evidence of publication of the winding up application on ASIC's publication website, and a further affidavit demonstrates that a Form 519 Notification of Court Action relating to the winding up was filed with ASIC and an affidavit of search is also filed which records no change to the Company's registered address. 7There is evidence of service of the Originating Process, supporting affidavits and a consent of liquidator addressed to the Company at its registered office. That affidavit may again raise the question of proof of service to the mailbox which constitutes the Company's registered office, but there can be no doubt that the proceedings were served in circumstances that the Company, represented by its director, Mr Begley, in fact appears to oppose the application brought. A consent of liquidator has also been filed. 8Finally, I note that the application was first listed for hearing on 23 September 2013, but was adjourned to today to allow the Company an opportunity to retain solicitors, in circumstances that it was then put that the Company's solicitors had ceased to act immediately prior to that hearing. As I have noted above, the Company has in fact appeared by Mr Begley, its director, rather than by solicitors today and I have given leave to him to appear for the Company, to the extent necessary to do so. 9The Owners Corporation has filed updating material and certain additional evidence as to insolvency for the hearing today. In particular, it reads an affidavit of Ms Quang dated 3 September 2013, which indicates that the judgment in the Local Court on which it relies was given by consent, and annexes a copy of the relevant consent orders; that the Company filed a motion for payment by instalments supported by a financial statement indicating that it had no assets and no liabilities; and that that application was refused by the Local Court. 10The Owners Corporation also relies on an affidavit of Ms Smith dated 26 September 2013 indicating, based on information by and correspondence with lenders to the Company and their legal representatives, that a loan secured over three units in the relevant strata complex owned by the Company is currently in default and another lender has taken possession of a fourth unit owned by the Company in that complex. The Owners Corporation in turn relies on a further updating affidavit of debt dated 1 October 2012 which indicates that the relevant debt remains unpaid and a further affidavit of search dated 2 October 2013. 11I should add that the Owners Corporation served a notice to produce, requiring production of financial records which would have plainly been relevant to the proof of the Company's solvency by posting it to the Company's registered address. The Company, through Mr Begley, indicates that it was not received and the relevant documents were not produced. It is ultimately not necessary to determine the question whether and how it came to be that this document was also not received by the Company, although sent to its registered office, because no reliance needs to be placed on a failure to produce in response to the notice to produce. It is sufficient to note that the Company did not rely on such financial records, or any analysis of them, in any attempt to prove its solvency. To the extent that there was any dispute as to that question, and in truth there was not, the absence of those records would support an inference that they would not have assisted the Company in the proof of its solvency. 12I noted that there was, in truth, no real dispute as to the issue of the Company's solvency. The Company relies on the affidavit of Mr Peter Begley, its director, dated 27 September 2013. That affidavit provides a detailed explanation of the Company's involvement with the relevant body corporate, in circumstances that the Company was the developer of the relevant strata plan and a related company was the builder. Mr Begley claims that he did not receive the Demand purportedly served on the Company's registered office, proof of service of which was established by the earlier affidavit to which I referred. That might, in some circumstances, have led to the position that it was open to the Company, today, to raise challenges to the statutory demands which would otherwise have been precluded by s 459S of the Corporations Act, because it had not had the opportunity to raise them previously, if it were accepted that service of the demand required delivery to the mailbox and not only to the address of mailbox provider. Ultimately, because of the evidence which has emerged as to the Company's solvency, it is not necessary to determine that matter, because it is not necessary to the Owners Corporation to rely on the failure to comply with the Demand or any presumption of insolvency arising from it, where insolvency has been proved beyond doubt as matter of fact. 13Mr Begley's affidavit also indicates the circumstances in which the relevant units have come to experience problems with water penetration. His affidavit indicates his belief, which was repeated in submissions, that the water penetration results from the strata manager of the relevant property removing gutter guards which has in turn led to overflows of water during heavy rain. It is ultimately not necessary for me to determine the question of how that matter arose, which would no doubt be a matter which could be contested. It is not relevant because no submission was put before me that there was an offsetting claim, and it is unlikely that any submission would have been of any use to the Company, in circumstances that, as noted above, it was not necessary to the Owners Corporation to rely on the Demand when insolvency was established in fact. 14Critically, Mr Begley's affidavit makes clear that the company is in fact insolvent. He notes that, due to the water penetration issues and the asserted conduct of the strata manager, the units are not capable of being sold at any reasonable price. In submissions, the Company put that submission more strongly by contending that they were not presently saleable at all. Mr Begley's affidavit confirmed that the Company admitted that it owed the relevant strata levies to the Owners Corporation in the sum set out in the Demand, which admission confirms a finding that would otherwise have been inevitable given the Local Court's judgment, although it extends it to the later strata levies. Mr Begley also notes, in terms, that the Company "has been unable to pay the levies as a result of its inability to sell the units it owns in the strata plan." That statement, combined with the statement provided to the Local Court that the Company has no assets, combined with the action taken by lenders to the Company in respect of the units owned in the relevant property, and the Company's failure to produce any cashflows, financial records, or other documents which might establish an ability to meet its debts as and when they fell due or to produce such material in the Company's own case, makes a conclusion that the Company is presently insolvent inevitable. I did not understand Mr Begley ultimately to contest that proposition, and indeed, as I have noted, his affidavit essentially admits it. 15The thrust of the Company's submissions were instead directed to the proposition that the Company's present financial position arises from the default which it considers is the fault of the strata manager. It contends that, if it were permitted access to the premises, and were permitted to undertake rectification works which it has offered to undertake, and the water penetration issues were fixed, it would then be able to sell the units at significantly higher value and, presumably, would then be able to pay its strata levies. Accepting for the sake of argument, without reaching any finding, that all of those propositions were true, they only establish that, if certain things happened which may never happen, the Company might at some future time move from a position of present insolvency to solvency. 16It is important to recognise that the statutory jurisdiction conferred on the Court to wind up a company in a position of insolvency does not depend on whether the company has become insolvent by any fault on its part. It is commonplace that an application to wind up a company in insolvency is made, where in fact there has been no fault on the part of the company, which may be the victim of unfortunate circumstances or hard economic times. The jurisdiction is protective members of the public and creditors who might otherwise be led to deal within insolvent companies. Once it is established, as it has been, that the Company is in fact insolvent, however that came to be, an order that the Company should be wound up must be made. I am satisfied, for the reasons that I have indicated, that the Company is in fact insolvent and in those circumstances it must be wound up and a liquidator ought to be appointed. I noted above that a consent of liquidator has been provided. Costs 17In the ordinary course, an order will be made that the costs of the Plaintiff of and incidental to this application be paid out of the Company's assets. I note that Mr Begley, who has appeared for the Company in the course of the application today, has indicated that it was necessary for him to leave, by reason of another commitment interstate, a moment ago, and he therefore will not be present to be heard further in respect of the question of costs. I am nonetheless satisfied that an order should be made that the Plaintiff's costs of and incidental to this application be paid out of the Company's assets. 18I will hear the plaintiff to the extent that it may seek an order for lump sum costs, noting that a draft bill of costs that may support such an order has been filed with the Court. It will, however, be necessary to reserve liberty to Mr Begley to apply to set aside any further orders for lump sum costs that may be made, in circumstances that he will not have had an opportunity to be heard about them. In the event, Mr Radman, who appears for the Owners Corporation, indicated that it does not seek a lump sum costs order and seeks an order that costs be as agreed or as assessed. Orders 19I therefore order that: