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Lemmen v Porcu

[2013] FCA 1056

Federal Court of Australia|2013-10-17|Before: Davies J

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Court

Federal Court of Australia

Decision date

2013-10-17

Before

Davies J

Source

Original judgment source is linked above.

Judgment (6 paragraphs)

[1]

REASONS FOR JUDGMENT 1 On 7 December 2011, Registrar Hedge made an order winding up American Gemstone Pty Ltd ("the company") in insolvency on the application of the respondent ("Mr Porcu"). The application relied on the failure of the company to comply with a statutory demand and the statutory presumption of insolvency under s 459C of the Corporations Act 2001 (Cth) ("the Corporations Act"). The applicant ("Mr Lemmen"), who was a director of the company at the time it was ordered to be wound up, has applied to the Court for an extension of time in which to apply for a review of the Registrar's order and, if granted, for the review of that order. The extension of time is required because the application should have been made within 21 days after 7 December 2011: Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act"), s 35A(5); Federal Court Rules 2011 (Cth), r 3.11. The Court can extend that time: Federal Court Act, s 35A(5) but, for the reasons that follow, Mr Lemmen's application for an extension of time is refused. 2 The principle matters that need to be taken into account in considering whether to grant Mr Lemmen an extension of time are: any explanation for the delay; whether there is an arguable case that the winding up order should not have been made; and the prejudice to the other parties: Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-9.

[2]

Delay 3 The period of delay, which is approximately 12 months, is significant. Mr Lemmen, who represented himself, explained that he had suffered a back injury in mid-2011 for which he was prescribed strong medication and that the medication, therapy and injury, for which he had surgery in April 2012, prevented him from attending to his business. He said that he tried to get the assistance of the liquidator to terminate the winding up of the company but, despite his pleas, the liquidator did not take action. In late 2012, he came to the realisation that the liquidator was not actually assisting him to terminate the winding up so he decided to make the application. He said that he attempted to file an application in November 2012 but it was rejected. The application that is before the Court was filed on 22 January 2013. 4 I do not accept that the delay in filing the application is properly or adequately explained by Mr Lemmen's back problems over that period. Mr Lemmen has not satisfactorily explained in his affidavits why his injury is the reason for his inaction in bringing the application. He gave only scant detail of his incapacity and the only medical evidence was a medical report of 1 July 2011 detailing the results of the images of his back injury. That evidence was an insufficient basis upon which to conclude that his back problems provide an acceptable reason for the delay. 5 Mr Lemmen's attempt "to pass the buck" to the liquidator for not assisting him to terminate the winding up the company was also unpersuasive as an explanation for the delay in filing the application. There was no suggestion in the evidence that Mr Lemmen was somehow misled by the liquidator into believing the liquidator would take the necessary steps to terminate the winding up or that he misunderstood this to be the case.

Is there an arguable case? 6 In support of his application for an extension of time, Mr Lemmen strenuously argued that the Registrar should not have ordered the winding up of the company because: The application for winding up was filed out of time in which to rely upon the presumption of insolvency by reason of non-compliance with the statutory demand. The company was short-served with the application to wind up. The Registrar, sitting in Sydney, did not have jurisdiction to make the winding up order because the debt that was the subject of the statutory demand related to a transaction between parties not incorporated in New South Wales, or alternatively, that New South Wales was not the appropriate jurisdiction because neither of the parties conducted business in New South Wales. There were defects and irregularities in the material before the Registrar. There were irregularities in the affidavit verifying the debt the subject of the statutory demand. The creditor, Mr Porcu, misrepresented in his affidavit verifying the debt that the debt was not disputed. There were defects in the statutory demand that caused substantial injustice. The statutory demand was an abuse of process because the demand was made to coerce payment of a disputed debt. The company does not owe the amount demanded in the statutory demand. 7 On a review of the Registrar's order, Mr Lemmen would have to obtain the leave of the Court to raise the arguments concerning the statutory demand. The reason is s 459S of the Corporations Act. By s 459S, where the application to wind up a company in insolvency is based on a failure by the company to comply with a statutory demand, as it was here, the company may not without the leave of the Court rely on any ground in opposition to the application that the company could have relied in an application to set aside the demand. Furthermore, by s 459S(2) the Court must not grant leave unless it is satisfied that the ground is material to proving that the company is solvent. Disputes about the existence of the debt demanded in the statutory demand may be raised if material to proving solvency but a grant of leave to rely on that ground would not remove the presumption of insolvency which must still be rebutted if the winding up order is to be set aside. In other words, in a review of the Registrar's winding up order, it would be solvency, not the statutory demand, that would be the core issue. 8 Mr Lemmen asserted that the company was solvent when it was placed in to liquidation and that it remains solvent. The evidence of solvency comprised a bank statement as at 16 December 2010 showing funds on deposit of $108,846.59, an unaudited statement of financial position for the company as at 23 May 2013 disclosing net assets of $43,500 and nil liabilities, and assertions by Mr Lemmen that he paid all outstanding liabilities following the winding up of the company, save for one liability where the debt had been forgiven. This evidence is insufficient to prove solvency. In order to discharge that onus the Court should be presented with the "fullest and best" evidence of the financial position of the company. Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency: Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728; and bald assertions of solvency will not be accepted by the Court. 9 The evidence relied on by Mr Lemmen falls far short of the evidence that the Court needs in order to be satisfied as to the solvency of the company. The financial statement constituted no more than mere assertion of the financial position of the company. There was no supporting documentation or material to support the statement, nor was there an explanation as to the purpose for, or basis upon, which it was prepared. The mere assertion of solvency and the mere assertion that the company's assets and liabilities were as represented in the financial statement does not establish solvency. The assertions, in any event, are contradicted by evidence adduced the liquidator. Based on the liquidator's review of the books and records of the company and of the information available to him, it is the liquidator's opinion that the company is insolvent. 10 The other matters raised by Mr Lemmen as to why the Registrar should not have made the order for winding up have no merit. It follows that there would be no utility in granting an extension of time in which to apply for a review in circumstances where there is no discernible merit in the claim that the order for winding up should not have been made.

Lemmen v Porcu

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