Kelly v J Stockwell & Co Pty Ltd

Affidavit evidence

1. AHSR relies on the affidavit evidence dated 3 August 2021 of its sole director, Mr Claridge, which referred to a debt claimed to be owed by ASMI to AHSR pursuant to a licence agreement, in the amount of $181,923, and to the execution of the Demand by AHSR's solicitor, Mr Yazbeck. By a second affidavit dated 3 August 2021, Mr Yazbeck referred to service of the Demand, by post. By a third affidavit dated 27 August 2021, Mr Yazbeck referred to the lodgement of a notification of Court action relating to a winding up with the Australian Securities and Investments Commission ("ASIC"). By a fourth affidavit dated 27 August 2021, Mr Yazbeck gave evidence publication of notice of the application for the winding up order on ASIC's insolvency website. By a fifth affidavit dated 27 August 2021, Mr Yazbeck again addressed the service of the Demand, but I need not address that question further where the service of the Demand is no longer in dispute.
2. By his further affidavit dated 28 September 2021, Mr Claridge responded to ASMI's allegations of abuse of process, and in particular to a claim for abuse of process said to arise from the fact that there were proceedings on foot in the District Court, in which ASMI had filed a Defence and, after the Demand was served and a presumption of insolvency had arisen, had filed an Amended Defence and Cross Claim, which have not yet been determined in the District Court. Mr Claridge's evidence was that he had formed the view that the Amended Defence was not genuine, was seriously lacking in particulars and did not disclose an arguable defence, and that ASMI's conduct in the District Court proceedings was designed to cause delay to AHSR in recovering the debt due and payable to it. In effect, Mr Claridge's evidence was that, to the extent the debt was disputed by ASMI in the District Court proceedings, that dispute was not a genuine one.
3. A further affidavit of Mr Yazbeck also dated 28 September 2021 and an affidavit dated 28 September 2021 of Ms Efstathiou again addressed the question of service of the Demand, which it is no longer necessary to address where service is now conceded. By an affidavit dated 12 October 2021, Mr Yazbeck in turn addressed Australia Post's terms and conditions, which also relate to the question of service of the Demand. By an affidavit dated 14 October 2021, Mr Claridge confirmed that ASMI remains indebted to AHSR in the amount of $181,923, and annexed a current company search from the records maintained by ASIC which indicated that ASMI had not invoked the restructuring regime under Pt 5.3B of the Act so as to give rise to any restriction on AHSR's ability to proceed to a winding up.
4. ASMI in turn relied on two affidavits dated 1 September and 8 October 2021 of its director, Ms Qian. Those affidavits were largely directed to establishing that the Demand did not come to Ms Qian's personal attention, although some evidence was led, which was not admissible and was not admitted, that sought to establish that it did not come to the attention of other members of ASMI's staff. Little turns upon that evidence where it is now apparent that the Demand was served on ASMI at its registered office, by delivery to the relevant mailbox for the purposes of s 109X of the Act. Ms Qian also there stated that ASMI was solvent, in evidence admitted as a submission and not proof of the fact, but no serious attempt to prove its solvency was undertaken.
5. Ms Qian also referred to the fact that she personally had not attended her office, in the period that the Demand was served, by reason of New South Wales lockdown arising from the COVID-19 pandemic. It seems to me that that proposition does not go very far, where ASMI has not established that the Demand did not in fact come to the attention of other members of ASMI's staff at the time it was served, since the only evidence led to that effect was rejected as hearsay and not admissible; second, Ms Qian did not address other steps which might have been taken to obtain mail delivered to ASMI's registered office during the lockdown, including making mail forwarding arrangements if she was unable to attend that office; and, third, and perhaps most importantly, the legislature has not amended either s 109X of the Act or continued provisions that temporarily extended the time for compliance with a creditor's statutory demand, in respect of further lockdowns in 2021. Ms Qian also addressed matters that were in issue in the District Court proceedings, and identified contentions advanced by ASMI in those proceedings, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as matters of submission only.
6. By her second affidavit dated 8 October 2021, Ms Qian repeated the proposition that she was not in ASMI's office during the period the Demand was served, and again sought to establish, in evidence that was not admissible and was not admitted, that other members of staff were not in the office and implicitly that they had also not received the Demand when it was served. She again referred to the District Court proceedings. Her evidence that she would at some future date show that ASMI was solvent was not relevant and was not admitted where this was the final hearing of the winding up application.

The applicable legal principles

1. As I noted above, ASMI seeks to establish either an abuse of process in respect of the winding up application or a proposition that the Court should exercise its discretion not to wind up ASMI in the relevant circumstances. I now turn to the applicable case law, which, as Mr Nagle fairly accepted, provides limited support for those propositions in these circumstances. In State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702; [2002] NSWSC 20 at [12], Barrett J observed that the scheme of the legislation made it clear that a creditor who had duly served a statutory demand which remained unsatisfied for the relevant period had a right to seek winding up. His Honour distinguished the position from that which existed prior to the introduction of Pt 5.4 of the Corporations Act and observed that: "It is now abundantly clear that, unless the Div 3 process is employed by the company concerned to ventilate in advance, by way of proposition to the statutory demand, any claim it has about the existence or amount of the debt or any offsetting claim, it is perfectly legitimate for the creditor to proceed with a winding up application even though such a dispute...may in fact exist."
2. In Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214 at [5], in dealing with a claim for abuse of process as a reason not to wind up a company, Barrett J again observed that: "It can only in rare circumstances be an abuse of process for a creditor who has a presumption of insolvency operating in his favour to proceed with a winding up application. Such a creditor is entitled to a winding up order ex debito justitiae unless the presumption of insolvency is displaced by evidence of solvency... for an abuse of process allegation to defeat that entitlement, it would have to be shown that collateral purpose or untoward motive was at work in what the plaintiff was doing that is to say, something over and above the creditor's desire to resort to its entitlement to a winding up order in consequence of the presumption of insolvency...."
3. In Re New View Windows Pty Ltd trading as Narellan Windows & Glass [2020] NSWSC 1905 at [13], I in turn referred to the nature of an abuse of process, in respect of a winding up application, as involving that the application was brought for a purpose that was foreign to the statutory regime, and noted that abuse of process was not established in that case where a winding up application was brought by a party that contended that a substantial debt was owed to it, which had been due and payable for a substantial period and had not been paid, and sought to invoke the winding up regime by which the company's activities would be ended, its assets marshalled and the claims of its creditors ascertained and payments made to creditors of what was available from the insolvent estate. I observed that that was not an abuse of process, but instead, the use of the winding up regime for the purpose for which it exists.
4. In the second edition of his book, Statutory Demands and Winding Up in Insolvency, Mr Assaf in turn summarises the position as being that "only in rare circumstances will it be an abuse of process for a creditor which has a presumption of insolvency in its favour to proceed with a winding up application".

The parties' submissions

1. With that background, Mr McDonald, who appears for AHSR, advances a relatively narrow case in chief. He points to the fact that AHSR has the benefit of a presumption of insolvency arising from the service of and ASMI's noncompliance with the Demand, which has not been rebutted by evidence of ASMI's solvency; that there is evidence of service of the Originating Process for ASMI's winding up, not least from ASMI's appearance to oppose the application; that requirements as to giving of notice of the winding up application to ASIC and publication on ASIC's insolvency website are satisfied; that requirements as to the timing of the winding up application are satisfied; and that there is evidence, in Mr Claridge's latest affidavit, that the debt owed by ASMI to AHSR remains unpaid and that ASMI is not under any restructuring that would prevent a winding up order being made. Those matters are sufficient to support a winding up order, on the basis of the presumption of insolvency, subject to ASMI's defence in the nature of a claim for abuse of process.
2. Mr Nagle, who appears for ASMI, in turn made able submissions, doing the best he could with the evidence as it stood, in order to establish an abuse of process in respect of the winding up application. By supplementary written submissions dated 14 October 2021, he submitted that there existed a genuine dispute regarding the existence of the debt claimed by AHSR, having regard to the fact of the District Court proceedings. That proposition has the difficulty that the fact of those proceedings establishes that there is a dispute, but not its genuineness, and ASMI made no real attempt in these proceedings to engage in any merits analysis of the strength or otherwise of the matters it raised by way of defence in the District Court proceedings, as might have occurred in an application to set aside the Demand or with leave under s 459S of the Act. Mr Nagle also refers to the Cross Claim brought by ASMI in the District Court proceedings, but that has the difficulty that was filed only after a presumption of insolvency had already arisen by reason of ASMI's noncompliance with the Demand.
3. Mr Nagle also submits that Ms Qian was inhibited in her movements by reason of COVID 19 restrictions, and submits that AHSR would have been aware of that matter and that it could be unfair and not in the interests of justice that the Court permit the winding up of ASMI where, Mr Nagle submits, AHSR has sought to gain an advantage due to restrictions which were in place pursuant to relevant public health orders. I proceed on the basis that the Court should have regard to the fact of lockdowns imposed in respect of the COVID 19 pandemic and I proceed on the basis that Ms Qian was personally restricted by lockdown requirements and did not in fact attend ASMI's office, where she gives evidence to that effect. I bear in mind, as I noted above, that it does not follow that she could not have had access to documents served at ASMI's registered office, including by implementing mail forwarding arrangements, although I also bear in mind that many businesses have not in fact taken such cautious steps during the period of the lockdown. I also bear in mind that there is here no admissible evidence that other members of ASMI's staff did not attend its registered office in that period or did not receive the Demand when it was served in that period.
4. It seems to me that the proposition that AHSR was aware of that matter or took advantage of that matter is not persuasive, where there is no evidence that AHSR had reason to think that ASMI had not taken steps, where it maintained its registered office and the Act permitted service at the registered office to, for example, have mail forwarded so that important documents served at the registered office would come to its director's attention. I also bear in mind that, as I noted above, the legislature has not sought to restrict the provisions as to service in s 109X of the Act or to continue the temporary extension of the period for compliance with a statutory demand in response to lockdowns occurring in 2021.
5. In any event, it seems to me that these matters have less weight where ASMI leads no evidence to establish its solvency, or at least its solvency disregarding the debt claimed by AHSR. The absence of such evidence is a matter that is relevant to the exercise of the Court's discretion in respect of the winding up application.
6. Mr Nagle also submits that the solicitor acting for AHSR in the District Court proceedings did not bring the Demand or the winding up application to the notice of ASMI's solicitors, despite being in contact with them in relation to the District Court proceedings. The evidence in that regard is put in a somewhat general way and it is not entirely clear to me that there is evidence that any contact between the solicitors took place in the 21 days between when the Demand was served and when the presumption of insolvency arose. I would, in any event, give little weight to that matter, where AHSR was entitled to proceed by service of the Demand by post to ASMI's registered office, and there was no obligation upon it or upon its solicitors to do more than that.
7. In closing oral submissions, Mr Nagle again points to the existence of the dispute in the District Court, although I have noted above that that is evidence of the fact of the dispute, not of the genuine basis of the matters raised by ASMI in respect of that dispute. He refers to Mr Claridge's evidence as to the conduct of the District Court proceedings, and Mr Claridge was cross examined as to the fact of his knowledge of a defence filed in the District Court proceedings, but again that goes to the fact of the dispute, not the genuine character of the dispute. Mr Nagle submits that this is a rare circumstance where abuse of process is established, because of the combination of the dispute in the District Court proceedings, the service of the Demand in the period of lockdown, and the limitation on Ms Qian's movements in the period of lockdown. He again relies, in oral submissions, on the suggested failure of AHSR's solicitors to bring the Demand to ASMI's attention in the course of the District Court proceedings.

Determination and orders

1. I accept that matters of the kind addressed in this application may present differently, at least to some extent, during periods of lockdown in a COVID 19 pandemic. If there had been admissible evidence that the Demand had not in fact come to the attention of ASMI's staff, including not only Ms Qian but also other members of the staff, then ASMI would at least have been able to raise any matters that are said to give rise to a genuine dispute in support of a submission that the Court should not wind it up as a matter of discretion. That submission is not available here, and would also have been undermined by the absence of evidence, after a presumption of insolvency had arisen, that ASMI was able to pay its debts, or at least its debts other than that claimed by AHSR, as and when they fell due. As I noted above, a striking feature of this application was that ASMI did not seek to establish that it was solvent, even if the debt claimed by AHSR was treated as disputed and was disregarded.
2. In these circumstances, I am not satisfied that an abuse of process is established, and I am also not satisfied that the basis for the exercise of any discretion to withhold a winding up order is established. I may well have taken a different view if ASMI had at least established that, even if it could not pay the debt claimed by AHSR, it could pay its other debts as and when they fell due, but it has not established even that.
3. For these reasons, I make orders that:
4. Order that ASMI International Education Pty Ltd ("Company") be wound up under the Corporations Act 2001 (Cth).
5. Order that Ozem Kassem of Cor Cordis be appointed as liquidator of the Company.
6. The Plaintiff's costs of the winding up application be costs in the winding up.

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: 22 October 2021