Solicitors:
Savio Solicitors (Plaintiff)
AC Law Group (First Defendant)
Jackson Lalic (Second Defendant)
Lee & Lyons (Third Defendant)
File Number(s): 2014/360445
[2]
Judgment
By Notice of Motion filed on 18 June 2015, the Plaintiff, Mr Nelvin Lal, sought a range of relief against, relevantly, the First and Second Defendants, Mr Yashvir Singh and Eagle Investment Services Pty Ltd ("Company"). The only relief which was ultimately pressed was orders 1 and 2 in the Notice of Motion, namely an order granting leave to proceed against the Company under s 471B of the Corporations Act 2001 (Cth) (although it was common ground between the parties that the relevant order would in fact need to be sought under s 500(2) of the Corporations Act, so far as the Company is in voluntary winding up) and an order that the voluntary winding up of the Company be stayed under s 482 of the Corporations Act.
Before turning to the evidence led by the parties, I should note some aspects of the relevant chronology. Mr Lal claims that, in January 2014, he and Mr Singh entered a business relationship in relation to the purchase of two investment properties at Parramatta, one of which he would operate as an on-line hair salon supplier and the other of which would be used as a storage unit for the supplies. The Company was incorporated on 18 February 2014 and Mr Singh was its sole director and shareholder (Ex R2-1, pp 1-3), although it is common ground that Mr Lal was to be a silent partner in and had some form of half interest in the Company. The Company purchased a storage space in Parramatta on 5 May 2014 (Lal 6.5.15 [20]) and office space in Parramatta on 19 June 2014 (Lal 6.5.15 A3 (Exh 2)). The Company also entered a hire purchase agreement in respect of a Range Rover, purportedly for use in the Company's business.
Discussions took place between the parties in respect of Mr Singh's possible exit from the arrangements from July 2014 and Mr Lal contends that an agreement was reached as to the terms of that exit at a meeting on 2 September 2014. Mr Lal relies on that agreement as having the effect that Mr Singh would resign as a director and secretary of the Company; would transfer his shares in the Company to a party nominated by Mr Lal, Mr Lal's mother; Mr Singh would appoint Mr Lal's mother as sole director and shareholder of the Company; and Mr Lal would pay Mr Singh the amount of $30,000. It should be noted that there is no suggestion that any obligation under that agreement attached to the Company as distinct from Mr Singh. Mr McDonald, who appears for the liquidator who was subsequently appointed to the Company, also pointed out that the solicitor's file note of the relevant meeting suggested that Mr Singh's obligations under that agreement were qualified if he had given personal guarantees. Mr Gruzman, who appears for Mr Lal, responded that an alternative course was contemplated if that were the case and that Mr Singh reneged on the arrangement on the next day. It is ultimately not necessary to address that question, for the purposes of this application where the parties to the alleged agreement are Mr Lal and Mr Singh, and a breach of it does not support a claim against the Company. Mr Lal claims to have paid two amounts totalling $10,000 to Mr Singh in part performance of the 2 September 2014 agreement on 12 and 19 July 2014 (Lal 30.1.15 [38], [43]). I note, although it is not necessary to take further, that those payments are alleged to have taken place several months before the agreement they are alleged partly to perform.
On 2 February 2015, Mr Singh and the Company gave an undertaking to the Court that they would not, without giving twenty-one days prior notice to Mr Lal and subject to the Court's further order, sell or dispose of the two Parramatta properties and would pay or cause to be paid the mortgage payments for the properties and the Range Rover (Lal 6.5.15 [59], A3 (Ex 10)). Mr Lal contends that no notice was given under that undertaking and that Mr Singh failed to pay the relevant mortgage payments. It is not necessary or appropriate that I reach findings in that regard, particularly where Mr Lal has filed a separate Notice of Motion alleging contempt of Court by Mr Singh.
By a contract for sale of land dated 11 February 2015 ("February contract"), the Company purported to agree to sell the office space in Parramatta to a third party (Lal 18.8.15 [7]). On 18 February 2015, Mr Lal sought an injunction against Mr Singh and the Company in respect of the sale of the storage space and office space and McDougall J made interim orders restraining the exchange of contracts for the sale of the properties (Lal 18.8.15 [8], Annexure D). Those orders were extended on 23 February 2015 until further order, and an order was also made restraining, for a specified period, the sale, disposal of, charging or otherwise encumbering or dealing with, inter alia, the properties (Lal 18.8.15, Annexure E).
Mr Singh, the Company and the third party purchaser of the property in turn executed a deed of rescission rescinding the February contract on or about 9 March 2015, which provided for the Company to pay the third party purchaser the amount of $3,000 to cover its loss and costs associated with rescission (Lal 18.8.15 [13], Annexure F). Further orders were made by Slattery J on 20 March 2015 including that Mr Singh and the Company be restrained from selling, disposing of, charging or otherwise encumbering or dealing with the properties, except that Mr Lal be permitted to occupy part of one of those properties and the whole of the other (Lal 18.8.15, Annexure G).
On 29 May 2015, the Company was placed in voluntary liquidation by Mr Singh. On 17 July 2015, a secured lender, the ANZ Bank, claimed an outstanding amount of principal and interest in respect of the properties, by a notice issued under s 57(2)(b) of the Real Property Act 1900 (NSW), which indicated that, unless the amount claimed was paid within one month, ANZ Bank proposed to exercise its power of sale over the properties. It appears that the Range Rover has also been repossessed by the financier by reason of arrears of instalments.
The parties led voluminous evidence in respect of the application, much of which related to the substance of the dispute between Mr Lal and Mr Singh, rather than to the issues which need to be addressed in respect of the relief that was pressed in this application. Mr Lal relied, first, on his affidavit dated 30 January 2015, which identified the circumstances in which he claims to have entered a business relationship with Mr Singh as set out above. That affidavit acknowledges that Mr Lal was not a director or shareholder of the Company, apparently because he was a defendant in proceedings brought by a third party which could lead to his bankruptcy and the loss of his ability to be a director, if he was unsuccessful in the defence of those proceedings. Mr Lal's evidence is that he and Mr Singh agreed that he could be a "silent partner" in the business and he could become a shareholder and director after the proceedings brought by that third party were resolved. Mr Lal also gives evidence of the purchase of an office unit and storage unit at Parramatta and the entry into a hire purchase agreement for the Range Rover. Mr Lal also refers to discussions between the parties in respect of Mr Singh's possible exit from the arrangements from July 2014 and, as I noted above, Mr Lal contends that an agreement was reached as to the terms of that exit at a meeting on 2 September 2014. Mr Lal refers to steps subsequently taken by Mr Singh to list the office unit and storage unit for sale and his evidence is that he had contributed $136,509.69 to set up the Company, purchase the office unit, storage unit and lease the Range Rover and that Mr Singh had contributed $23,069.64.
Mr Lal relies on a further affidavit dated 19 March 2015 which refers to the orders made by McDougall J on 23 February 2015 and to other events in respect of a break-in to his home that are not relevant to this application. A third affidavit of Mr Lal dated 6 May 2015 provides further information as to the purchase of the storage unit and office unit, annexes documents relating to those transactions and sets out relevant correspondence and also deals with the purchase of the Range Rover. Mr Lal's further affidavit again deals with the meeting on 2 September 2014 and annexes voluminous subsequent correspondence. Mr Lal also refers to costs incurred in the subsequent, and successful, application to injuct the sale of the relevant properties which he quantifies as $33,852. An affidavit of Mr Savio dated 19 June 2015 set out steps taken in the conduct of the proceedings brought by Mr Lal against Mr Singh, to which I have referred above.
By a further affidavit dated 23 June 2015, Mr Lal referred to payments which he had made, since the orders made by the Court, in respect of the Parramatta properties and referred to outgoings of the properties. Another affidavit of Mr Lal dated 24 July 2015 referred to correspondence with the solicitors for the liquidator, after his appointment, and to the liquidator's disclaimer of the Range Rover and responded to aspects of Mr Singh's affidavit evidence. By another affidavit dated 18 August 2015, Mr Lal exhibited the Further Amended Statement of Claim in the proceedings, which identifies the relief which he seeks and pleads the facts on which that relief is based. I will refer further to those matters below.
Mr Lal contends that various steps taken by Mr Singh or the Company, including the entry into the contract for sale of the office property and the placing of the Company in voluntary liquidation, involved breaches of the orders made by the Court. It is not necessary for me to determine the correctness of that allegation for the purposes of this application. Mr Lal also contends that various amounts would not have been payable to creditors had the agreement of 2 September 2014 with Mr Singh been complied with. Mr Lal's affidavit evidence is that he will assume liability for payment of specified debts if shares in the Company are transferred to him or to a party nominated by him, although there is no evidence that the Company's creditors have accepted that position.
Mr Singh in turn relied on his affidavit dated 22 February 2015, by which he takes issue with the allegation made by Mr Lal that he had breached the Court's orders, and leads evidence that, in effect, the estate agent engaged to sell one of the Parramatta properties exchanged contracts contrary to his instructions. It is not necessary to reach any finding as to whether the sale of the properties was or was not with Mr Singh's authority for the purposes of this application. A further, lengthy affidavit of Mr Singh sworn 26 May 2015 deals with the history of his dealings with Mr Lal, including the purchase of the relevant properties and the Range Rover and the circumstances of the sale of the Parramatta property. Parts of that affidavit were rejected for relevance. Mr Singh's third affidavit dated 10 July 2015 alleges non-payment of rent by Mr Lal in respect of the properties and that Mr Lal had only made a small number of loan repayments in respect of the Range Rover and Mr Singh personally had otherwise been making those repayments.
The liquidator who has been appointed to the Company, Mr Calabretta, relied on the affidavit of Mr Jordan Welden-Iley dated 24 July 2015. Mr Welden-Iley is a senior analyst at the liquidator's firm and is assisting him in the carriage of the liquidation. He referred to dealings with Mr Lal in respect of a creditors' meeting to be held on 19 June 2015. The liquidator also relied on his affidavit dated 24 July 2015 which referred to his appointment as liquidator on 29 May 2015, an initial meeting of creditors held on 19 June 2015, confirmed that he was not aware of any reasons which would have prevented his appointment as liquidator and his ability to comply with his obligations associated with the liquidation in an objective and impartial manner, and set out information concerning the Company's business, primarily as holding real property assets for investment purposes, and its insolvency. I will refer to that evidence in respect of Mr Lal's application for a stay of the winding up below.
The liquidator also relied on several paragraphs of his further affidavit sworn 29 September 2015, which annexed correspondence from a person who had offered to purchase one of the Parramatta properties and to the receipt of a demand for payment from the financier of the Range Rover. He also refers to the receipt of a proof of debt in respect of unpaid strata levies, and his concerns as to Mr Lal's ability to assume the Company's liabilities, in circumstances that there are recent judgments against Mr Lal in the amount of $20,000 and an associated company in the amount of $80,000 in the Federal Circuit Court in respect of issues relating to the employment of staff in his hairdressing businesses.
[3]
Grant of leave to bring proceedings under s 500(2) of the Corporations Act
Mr Lal seeks leave to continue the proceedings against the Company which, as I noted above, would need to be sought under s 500(2) of the Corporations Act where the Company is in voluntary liquidation. That section provides that, after the passage of a resolution for voluntary winding up, no civil proceeding is to be proceeded with or commenced against a company except by leave of the Court and subject to such terms as the Court imposes. Mr Singh opposes the grant of leave for Mr Lal to continue the proceedings against the Company.
There was substantial common ground as to the circumstances in which leave would be granted to bring proceedings against the Company under s 500(2) of the Corporations Act. The purpose of the requirement for leave to proceed against a company in liquidation is well recognised, and includes ensuring that the assets of such a company are administered in accordance with the relevant statutory provisions, so that no creditor obtains an advantage through pursuing such proceedings, and also ensuring that a liquidator's efforts and the company's assets are not dissipated by the defence of a multiplicity of proceedings in a winding up. A grant of leave to commence proceedings requires that the Court be satisfied that the plaintiff has a prima facie case, in the sense that there is a real dispute between the parties, and there is good reason why it is not appropriate that the plaintiff should be left to prove its debt in the winding up in the ordinary course.
Mr Gruzman referred, in submissions, to the decision of the Federal Court of Australia in Baird v ACN 079 121 136 Pty Ltd (in liq) [2013] FCA 543, where the Court recognised the familiar principle that the requirement for leave was intended to prevent a corporation in liquidation being subjected to expensive Court action, dissipating the return to creditors; that the Court considers whether the balance of convenience lies in allowing the applicant to proceed to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator; that the onus is on the applicant to demonstrate why it is more appropriate to proceed by way of action in the particular claim; and it must be shown that there is a serious or substantial question to be tried and a real dispute between the parties.
Ms Lin, who appears for Mr Singh, submits that s 500(2) of the Corporations Act requires a claimant to adopt the course of lodging a proof of debt unless he can demonstrate there is good reason why a departure from that procedure is justified: Viscariello v Bernsteen Pty Ltd (in liq) [2004] SASC 266 at [21]. Ms Lin also points to the fact that a company's insolvency, and consequential inability to satisfy a judgment, is a factor against the grant of leave: Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318. As I will note below, the Company is plainly insolvent, with substantial claims by the lender on its properties and the Range Rover, and a significant risk that a deficiency will exist on sale of those assets. That matter tends against the grant of leave to pursue proceedings for damages against it. I also have regard to the fact that, as Ms Lin points out, the costs of defending the proceedings, if met by the Company, would in turn deplete the assets available to creditors. No party suggested that any insurance was likely to be available to assist the Company in meeting a claim for damages or its costs of the proceedings. Those factors tend against the grant of leave, notwithstanding that I do not accept Ms Lin's further submission that there is any risk of an avalanche of litigation, beyond the Cross-Claims which have been filed in the proceedings.
Mr McDonald, who (as I noted above) appears for the liquidator, rightly emphasises the fact that the Company is not alleged to be party to the September agreement. Mr McDonald also rightly emphasises that any claim for damages arising from the breach of the undertaking can readily be made through the proof of debt process.
It seems to me that, notwithstanding the voluminous evidence led by the parties, the question of the grant of leave in this case is straightforward. The relief sought in Mr Lal's Further Amended Statement of Claim seeks a declaration that Mr Lal, Mr Singh and the Company entered into a binding agreement on 2 September 2014. However, as Mr Gruzman fairly accepted in oral submissions, the pleading does not support that claim, pleading only an oral agreement between Mr Lal and Mr Singh. Ultimately, Mr Lal pleads only a straightforward claim against the Company, that it gave undertakings in the proceedings on 2 February 2015, together with Mr Singh; that Mr Singh and the Company breached those undertakings on or about 11 February 2015; and that Mr Lal has suffered loss and damage (Further Amended Statement of Claim [12]-[14]). That damage is particularised as the Company's liability incurred in rescinding the contract for sale and costs of rescinding the contract. Mr Gruzman rightly recognised that the proposition that the loss suffered by the Company was recoverable against the Company was, at best, circular. Mr Lal also seeks to recover legal costs incurred from 11 February 2015 to 20 March 2015 against the Company. That is, however, a straightforward money claim.
A breach of an undertaking given to the Court may, in some circumstances, be treated as a breach of contract which gives rise to a claim for damages. That is a matter which can readily be proved in a liquidation and there is no reason to think that the liquidator could not properly determine a claim put on that basis. If Mr Lal is dissatisfied with the liquidator's determination, he can bring an appeal against that determination under s 1321 of the Corporations Act, which appeal would likely be simpler and cheaper than the Company's participation in proceedings involving numerous allegations against Mr Singh in which it has no interest. The case for leave is not assisted by Mr Lal's claims for relief for the appointment of a receiver or for the Company to be wound up, because there is no need for such relief when the Company is already in winding up. In this case, it seems to me clear that it is proper that Mr Lal proceed by way of proof of debt, rather than being granted leave to continue to pursue the liquidation against the Company to establish this simple monetary claim.
Mr Gruzman raised one matter in oral submissions which, if it were a significant risk, would provide a reason for granting leave for Mr Lal to continue the proceedings against the Company, namely the possibility that Mr Singh might defend a claim for breach of the undertaking given to the Court on the basis that the Company rather than he was liable for it and the liquidator might reject a proof of debt on the basis that Mr Singh rather than the Company was liable for it. I do not consider that that risk is sufficiently realistic to warrant the grant of leave. As a matter of principle, where each of Mr Singh and the Company gave an undertaking, then it seems to me that their liability for any breach of it is likely to be joint and several and any defence to the contrary may have little prospect of success. Ms Lin fairly accepted, on behalf of Mr Singh, that that was the correct position. Mr McDonald, with perhaps a greater degree of qualification, did not contest that proposition on behalf of the liquidator. It seems to me unlikely that, in practice, either Mr Singh or the liquidator are likely to consider that defence has any real prospect of success, so as to give rise to the risk to which Mr Gruzman referred, that Mr Lal might "fall between two stools". Obviously, if that risk arises, it would be open to Mr Lal to renew his application for leave to bring proceedings at that point.
I note, for completeness, that Mr Singh has filed a Cross-Claim seeking damages against the Company. However, the existence of that Cross-Claim does not take matters further where it is presently stayed and Mr Singh has not applied to lift that stay. The Third Defendant, the real estate agent involved in the sale of the Parramatta property, also brings a Cross-Claim against the Company, albeit that Cross-Claim also seems to be in narrow scope. I declined to entertain an oral application for leave to bring that Cross-Claim, where other parties had not been given notice that it would be brought. That application may or may not be pursued having regard to the result of this judgment.
Accordingly, I am not satisfied that leave should be granted to continue the proceedings against the Company.
[4]
Application for a stay of the winding up
Mr Lal also seeks to stay the winding up. Although Mr Lal did not make it explicit, it appears that the application for a stay is brought under s 482 of the of the Corporations Act, as applied to a company in voluntary winding up by s 511 of the Act: Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369 at [3]. Mr Lal contends that he has standing to bring that application, on the basis that he is a creditor of the Company. I will assume, without deciding, that he may have standing in that way, notwithstanding that at least some parts of his claims depend on the outcome of the proceedings. Mr Lal contends that it is just and equitable for the Court to order a stay of the liquidation pending a final determination of the proceedings. That submission is, in one respect, an odd one, since Mr Lal's Further Amended Statement of Claim itself seeks (in the relief claimed in paragraphs 10 and 11) an order that a receiver be appointed and the Company be wound up. It seems odd, to say the least, that a winding up should be stayed in order that proceedings may be continued to obtain, inter alia, a winding up order.
Ms Lin rightly refers to the relevance of the principles noted in Re Warbler Pty Ltd (in liq) (1982) 6 ACLR 526 at 533, where Master Lee QC observed that:
"1. The granting of a stay [of a winding up] is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary and Edmonton Land Co Ltd (in liq) [1975] 1 WLR 355 at 358-9 per Megarry J. See also sec 243 of the Act [Companies Act 1961].
2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this; Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3. The nature and extent of the creditors must be shown, and whether or not all debts have been discharged: Krextile Holdings Pty Ltd v Widdows (above) [[1974] VR 689]]; Re Data Homes Pty Ltd (above) [[1971] 1 NSWLR 338], Law of Company Liquidation (above) at p 395.
4. The attitude of creditors, contributories and the liquidator is a relevant consideration: sec 243(1), Calgary and Edmonton Land Co Ltd (above).
5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at p 598.
6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd (above) [[1903] 2 Ch 174].
7. The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows (above).
8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile Holdings Pty Ltd v Widdows (above)."
Master Lee noted that this list was not intended to be exhaustive and should not be regarded as a series of rigid principles, and that proposition was subsequently emphasised in subsequent case law: Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 725; Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [5] and Von Risefer v Mainfreight International Pty Ltd [2009] VSCA 129; (2009) 73 ACSR 427 at 438.
Relevant factors to such an application were also summarised by Austin J in Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292; (2006) 57 ACSR 103 at [17] as including the interests of the Company's creditors, including future creditors; the interests of the liquidator, particularly with regard to costs; the interests of contributories and the interests of "the public", including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up. The cases have also emphasised the need for the Court to be satisfied that the state of affairs that required the Company to be wound up no longer exists and, in that respect, to demonstrate that the Company is no longer insolvent: Re Pine Forests of Australia (Canberra) Pty Ltd [2010] NSWSC 1127 at [3]; Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 at [24]. Mr McDonald in turn referred to the helpful summary of the relevant principles by Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439 at [15], where his Honour pointed to relevant factors including the attitude and interests of creditors; the interests of the liquidator, particularly with regard to remuneration; the public interest; the Company's trading position and general solvency; and the circumstances leading to the winding up.
Mr Lal contends that Mr Singh, in breach of the orders made on 18 February 2015 and 20 March 2015 placed the Company into voluntary liquidation without prior notification to Mr Lal (Lal 18.8.15 [16] (which was admitted with a limiting order under s 136 of the Evidence Act as a submission only)). It is by no means clear to me that the appointment of a liquidator to the Company, by Mr Singh in his capacity as shareholder, was in breach of those orders. The appointment of a liquidator, as distinct from a trustee in bankruptcy, does not bring about any disposition of the Company's property. The Company continues to own now the property which it owned before the liquidator was appointed. Mr Lal appeared to put his claim for a stay of the winding up on the basis that the liquidator would, absent the stay, dispose of the relevant properties, bringing Mr Singh's undertaking to make payments on them to an end. In oral submissions, Ms Lin indicated that Mr Singh denied that he placed the Company in liquidation in order to avoid the effect of the undertakings given to the Court, as distinct from by reason of its financial difficulties. It is not necessary to determine that matter because, as Ms Lin rightly points out, any suggestion that Mr Singh had an improper motive in putting the Company in liquidation would do little to answer the fact of the Company's actual insolvency, at least so far as an application for a stay of the winding up is concerned.
There is no immediate risk of the sale of the property occurring without the Court's approval since the Company is bound by an injunction preventing the disposition of the properties, and the liquidator is plainly on notice of that injunction. The liquidator has foreshadowed an application for release from the injunction, but that is an application that will be determined by the Court on its merits. In any event, the premise of Mr Lal's submissions seem to be that, notwithstanding the Company was insolvent and therefore properly placed in liquidation, the liquidation should be stayed if his contention as to a breach of the undertaking was correct. I do not accept that premise, both because it is my no means clear that a breach of the undertaking or orders has been established, and because I do not accept that the Court should reinstate an insolvent company rather than leaving Mr Lal to any personal remedies which he may have against Mr Singh in respect of any breach of the undertaking or injunction.
It seems to me plain that the Company is insolvent. The test for insolvency is well-established. 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 the Company 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. Whether the Company 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].
The liquidator's affidavit evidence, expresses the view that the Company was balance sheet insolvent and significantly so as at 31 May 2015, with a net asset deficiency exceeding $250,000 as at the date of his appointment, and indicated that he had been informed that the Company no longer had financial support from Mr Singh. The liquidator also expresses the view that the Company was insolvent on a cash flow basis, and that liabilities of $636,527.68 were due and payable as at the date of his appointment, with Mr Lal being in arrears of payment of rental as at the date of the appointment, and with the Company's cash flow being insufficient to meet its obligations on the properties and the Range Rover, irrespective of whether such rent was paid. It may be that position arose from, or was contributed to, by any breach of Mr Singh's undertaking to the Court, but it does not seem to me that that position would be any less the fact, if that were a cause of it.
The liquidator also expresses the view that the Company had failed to keep adequate financial records, although he acknowledged that it had maintained source documentation which could be used in preparing financial statements. I am not satisfied that the presumption of insolvency under s 286 of the Corporations Act arises in the circumstances. However, the liquidator also points to other matters supporting a conclusion of insolvency, including losses in the financial year to 30 June 2014 and the period to 31 May 2015; a liquidity ratio below 1; a lack of access to alternative finance; and numerous claims by creditors that were unpaid outside trading terms. The liquidator also set out the work which had been undertaken in the liquidation to date, and it is significant that Mr Lal, although he seeks to remove the liquidator, makes no offer to pay his remuneration in respect of that work. The liquidator also expresses the view that it is in creditors' best interests that the Company remains in liquidation, where, inter alia, it is insolvent; ANZ Bank is taking steps to take possession of all of its property assets, leaving the Company with no further assets and a shortfall to creditors; and there is no benefit to creditors in ending the liquidation. The liquidator was not cross-examined and no serious attempt was made to challenge his evidence as to the Company's current financial position.
It seems to me that the claim for a stay of the winding up cannot succeed. As Mr McDonald pointed out, there is no evidence that the Company's major creditors, namely ANZ Bank and the motor vehicle financier, support the application and it appears they may not have been given notice of it. The liquidator opposes the application, and no attempt has been made to protect his interests, including with regard to remuneration. The Company is plainly insolvent, having regard to the demands upon it by ANZ Bank in respect of the Parramatta properties and the vehicle financier in respect of the Range Rover. Those debts are presently due and payable and the Company has no capacity to pay them. The circumstances leading to the winding up indicate substantial disputes between Mr Singh, as the Company's director and shareholder and Mr Lal to the extent that he claims an interest in the Company, which are likely to continue if the winding up is stayed and, in consequence, the Company is returned to Mr Singh's control. These matters are sufficient, without more, to require that Mr Lal's application to stay the winding up be rejected.
[5]
Orders and costs
Accordingly, Mr Lal's applications for leave to continue the proceedings against the Company and to stay the winding up are dismissed. In the ordinary course, Mr Lal should pay Mr Singh's and the liquidator's costs of and incidental to the application. However, I will hear the parties if they seek to be further heard as to costs.
[6]
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Decision last updated: 03 November 2015