Leveraged Capital Pty Ltd v Modena Imports Pty Ltd

Leveraged Capital Pty Ltd v Modena Imports Pty Ltd - [2009] NSWSC 509 - NSWSC 2009 case summary — Zoe

[18]

6 In Gryst v Dromana Estate Ltd [2008] FCA 1148, Finn J considered circumstances in which no application to set aside the statutory demand had been filed within the relevant 21 day period. His Honour said: [11] It is now well settled that, if a s 459G application and affidavit are not filed and served within the time so specified, the Court has no power to extend the period for the making of such an application: see Aussie Vic Plant Hire at [3]; David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265. In the present matter, the statutory demand was served on Dromana on 29 November 2007. The application to set it aside was filed in the Supreme Court of Victoria on 20 December 2007. It was not served on Mr Gryst until 21 December 2007. In consequence, that application was not one made "in accordance with s 459G" of the Act. The emphatic language of s 459G(3) admits of no other conclusion: see Pinn v Barroleg Pty Ltd (1997) 138 FLR 417; Deputy Commissioner of Taxation v Tixana Pty Ltd (2003) 202 ALR 401; Hardel Property Holdings Pty Ltd v Allmark Property Management Pty Ltd (2008) 26 ACLC 122 at [1]. While counsel for the plaintiff has sought to avoid this conclusion by recourse to "purposive legislation", the Parliament, in my view, has spoken on this matter with unmistakeable clarity. [12] The consequence of no application having been made in accordance with s 459G is that the time for compliance with the statutory demand was the 21 days specified by s 459F(2)(b). The date for compliance was, thus, 20 December 2007. [13] The date the s 459P winding up application was made was 10 June 2008. For the purposes of s 459C(2)(a) the presumption of insolvency could only arise if in the period three months prior to that date, ie on or after 10 March 2008, Dromana failed to comply with a statutory demand. Dromana did not fail to comply with the statutory demand during that period. In consequence, Mr Gryst cannot rely on the presumption of insolvency in prosecuting his winding up application as s 459C(2)(a) has not been enlivened in the circumstances: see Pinn v Barroleg Pty Ltd and Deputy Commissioner of Taxation v Tixana Pty Ltd with which decisions I respectfully agree.

[24]

14 Ultimately, two matters tell against Mr Neal's construction of s 459S. The first is that it would be very curious if - which is obviously the case - a creditor could issue a fresh statutory demand for the same debt and the company would then be plainly entitled to make a new application under s 459G in respect of it, disputing the indebtedness; yet the creditor could propound for the lesser purpose of supporting an inference of insolvency the old statutory demand while the debtor was precluded from disputing it. 15 More significantly perhaps, the same formula of words - "relies on the failure by the company to comply with the statutory demand" also appear in s 459Q which prescribes particular requirements for a winding up liquidation which "relies on failure by the company to comply with the statutory demand". It is tolerably clear that s 459Q is directed to the common situation where a creditor applies to the Court for a winding up order in reliance on the statutory presumption of insolvency arising from a failure to comply. This is supported by the frequency and notoriety of such applications, which form the overwhelming bulk of winding up applications made to the Court. Section 459Q was intended to regulate applications of that type, that is to say, applications made in reliance on the presumption of insolvency arising from failure to comply with the statutory demand. 16 Accordingly, in my view s 459S properly construed is concerned with applications for a company to be wound up in insolvency that rely on the presumption of insolvency arising from the failure of the company to comply with a statutory demand. It does not apply where the application relies on the ground of insolvency; in fact, where part of the evidence in support of an inference of insolvency is non-compliance with a statutory demand the presumption of insolvency is not available. 17 Accordingly, as in these proceedings Leveraged is not entitled to rely on the presumption of insolvency arising from Modena's failure to comply, and Modena is not precluded by s 459S from disputing its indebtedness to Leveraged nor disputing Leveraged's status as a creditor in respect of that alleged debt.

[32]

33 In Lemery Holdings Pty Ltd v Reliance Finance Services Pty Ltd [2008] NSWSC 548, Palmer J said (at [11]): Those authorities establish that a clear case must be demonstrated that it is in the best interests of creditors for the administration to continue before the Court will adjourn a winding-up application in conformity with the directive in s 440A(2). The cases show that the mere possibility or hope of a better result for creditors under administration than in liquidation is not enough to justify an adjournment. If a company is insolvent and there is no realistic hope that it can be saved through an administration and Deed of Company Arrangement, then there are strong reasons why it should be wound up as soon as possible. One of those considerations is that the sooner that there is an investigation into matters such as whether there has been insolvent trading or dispositions of assets which may be avoided, the better it will be for creditors. 34 Mr Beazley did not apply for an adjournment under s 440A, but contended that, having regard to substantially the same considerations, the proceedings should be dismissed. If anything, the requirement for a dismissal would be stronger than that for an adjournment. 35 There is no evidence as to how long the prosecution of the cause of action against Mr Blumberg might take; how it will be funded (unless potentially out of the deed fund of $50,000, which would operate to the detriment of the participating creditors); its prospects of success; and whether the defendant - as plaintiff in those proceedings - would be able to provide security for costs, as it almost inevitably would be ordered to do so. The administrators are unable to say whether Mr Blumberg has any or sufficient assets to satisfy any judgment that might be obtained against him. Potential actions against the directors would not be investigated, and this is relevant in circumstances where the administrators have concluded that there is a prima facie case of presumed insolvency arising from the failure to keep adequate books and records, and Mr Trad would be returned to control the corporation - which the administrators opine would not be in the best interests of the creditors. 36 At the highest, the administrators express the view only that it may be in the interests of creditors to execute the proposed deed. That falls far short of a clear case that it is in the best interests of creditors for the administration to continue. In my view, a case for an adjournment, let alone dismissal, of the winding up application, based on the pendency of the administration, is not made out.

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