Zoe will write a short plain-English summary of this judgment and email it to you for free: what it was about, what the court decided and why. It can take up to a minute.
HIS HONOUR: The defendant company We Will Pty Limited was wound up in insolvency by order of the Court made on 21 May 2015 and Mr Andrew Scott of PPB was appointed liquidator of the defendant. By interlocutory process filed on 4 June 2015, MFT Investment Group Pty Limited, the shareholder in the company, and Nader Mannoun, its director, apply for orders that the winding up order be set aside pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 36.16, and, alternatively, an order pursuant to (CTH) Corporations Act 2001, s 482, terminating the winding up of the company.
The evidence, in summary, establishes the following. The company ceased trading in about 2011 when it sold its business to a third party. Since then, it has not carried on business but simply collected debts previously generated from time to time. Over the financial years ending in 2012, 2013 and 2014, it accrued debts for notional tax payable to the Deputy Commissioner of Taxation by reason of its failure to lodge Business Activity Statements.
On 11 March 2015, the Deputy Commissioner of Taxation served on the company, by post to its registered office, a creditor's statutory demand for the running balance account deficit debt of $161,935.17. The company's accountants, whose office appears to have been the registered office, informed the director, Mr Mannoun, of the demand, and he instructed them to attend to and bring up to date the company's taxation affairs, and was told that they would sort matters out.
The company's Business Activity Statements for the period 26 November 2012 to 25 August 2014 were lodged on 15 and 16 April 2015. That resulted in a credit to the company's running balance deficit but, so far as I can tell, did not extinguish the debt.
On 20 April 2015, the Deputy Commissioner filed an originating process claiming an order that the defendant be wound up in insolvency. The originating process was served, again, at the registered office, but was not brought to the attention of Mr Mannoun, who was unaware of the pendency of the winding up proceedings and thus made no arrangements to have any appearance made to oppose the winding up application or to seek an adjournment while the position was sorted out.
The originating process was returnable on 21 May 2015. The affidavit of debt sworn on 19 May 2015 of Ronia El Dergham deposes to a debt of $215,256.57, comprising the original sum of $161,935.17, less credit received since that date in the sum of $40,000, plus interest of $13,000. So far as I can tell, the mathematics of that calculation are incorrect and the debt had been reduced below $161,000, rather than increased above it. But in terms of proving the presumption of insolvency and standing as a creditor, that makes no material difference, and the registrar was correctly satisfied on the evidence that the company was presumptively insolvent and made the winding up order.
Mr Mannoun became aware of the proceedings on 25 May 2015, when he received an email from the liquidator advising him that the company had been wound up in insolvency and a liquidator appointed. He immediately contacted the liquidator's office and informed the liquidator's officer that he wanted to apply to have the winding up terminated. On the following day he paid $10,000 into the company's liquidation account pursuant to the liquidator's demand for that sum as a condition of not proceeding with the liquidation while an application for termination was made. Also on 26 May, he paid $96,000 to the Deputy Commissioner of Taxation in respect of the outstanding taxation debt. He responded to requests from the liquidator for information, and provided documents as required by the liquidator and submitted a report as to affairs.
The evidence establishes that, the tax debt having been paid, the company has no further debts, is not trading and is not likely to trade for some time while Mr Mannoun is engaged in other activities. Mr Mannoun has by deed poll released any claim he might have against the company in respect of the sums he has paid on behalf of the company to the liquidator and to the Deputy Commissioner. The company has a small positive cash balance of about $650, and appears to be owed $21,455 by the Australian Taxation Office.
I am satisfied that the absence of representation when the winding up order was made has been satisfactorily explained.
The application is made alternatively under UCPR, r 36.16, and Corporations Act, s 482. It is normally appropriate to proceed under r 36.16 when it can be shown not only that there is a satisfactory explanation for the matter having been allowed to go in default of appearance but where it can also be shown that the company has an arguable defence to the winding up application. As it seems to me, at least when the winding up order was made, it did not have a defence to the winding up application. The presumption of insolvency was plainly established, and the very fact that the company had to call on Mr Mannoun's personal resources to pay its debts is further evidence that it was then insolvent. Accordingly, it seems to me that it is preferable in this case to proceed under s 482.
Under s 482, while one issue may be an explanation as to why there was no appearance when the order was made, the more important consideration is whether the condition that required that the company be wound up no longer exists, and whether it is commercially and morally safe to entrust the company once again to the management of its directors.
The condition that required the company to be wound up was its insolvency. As I have said, that has now been addressed; the company is no longer insolvent.
Judges, including I, have on a number of occasions emphasised that, on this type of application, it is insufficient to demonstrate bare solvency through a balance sheet, on which the assets barely exceed the liabilities; and the Court will require to be satisfied not only that for the moment the company is temporarily solvent, but that it can be expected that the company will continue to remain solvent in its future operations for the foreseeable future. That is perhaps more important where the company is going to continue to trade.
In this case, the assets of the company, which appear to be in excess of $20,000, are set against no remaining liabilities, and the company is not going to trade for the foreseeable future. In those circumstances, I am satisfied that the condition of insolvency that required the company to be wound up no longer exists, and that that is likely to remain the situation for the foreseeable future.
As to whether the company can safely be returned to the management of its director, there is nothing in the evidence to suggest that that would not be the case. Indeed, while it may be said that for a period of some years the director appears to have disregarded the obligation to lodge Business Activity Statements punctually, he has provided some explanation as to why he allowed that to come about, but, more significantly, attended very promptly to remedying the position once a winding up order was made.
The petitioning creditor, the Deputy Commissioner of Taxation, has been paid in full and has indicated to the Court that he does not oppose an order terminating the winding up. The petitioning creditor's costs have been paid by Mr Mannoun.
The liquidator, who has been served with notice of the application, has not appeared in the proceedings, but there is evidence in the form of a letter to the applicants' solicitors that he neither consents to nor opposes the application, although he says:
Based on costs incurred to date and anticipated to be incurred prior to finalisation, I will require a further $2,000 inclusive of GST to be paid prior to any termination hearing.
Although the Court has been informed that an officer of the liquidator is sitting in the Court, there has been no appearance on behalf of the liquidator and the liquidator has provided no evidence supporting a claim for a further $2,000.
In circumstances where the liquidator has taken no active step before the Court, and where the liquidator has been on notice from the outset that a termination application was to be made and has apparently indicated that he would not proceed to wind up the company while that was being considered if paid the $10,000 to which I have referred, I am not disposed to impose any condition concerning payment of the further $2,000. If the liquidator can make out a case for further remuneration then, no doubt, he can apply for that in the usual way.
The Court therefore orders that:
1. Pursuant to Corporations Act, s 482(1), the winding up of the defendant corporation We Will Pty Limited be terminated on this day.
[3]
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: 11 March 2016