Missing Link Network Integration v Keene Consulting International

LEGISLATION CITED : Corporations Act 2001 (Cth) Evidence Act 1995 (NSW)

CASES CITED : Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 Pinn v Barroleg Pty Ltd (1997) 23 ACSR 541

The Missing Link Network Integration Pty Ltd PARTIES : v Keene Consulting International Pty Ltd

COUNSEL : Plaintiff: A C Casselden Defendant: C Keene (director of company)

SOLICITORS : Plaintiff: Raj Lawyers Defendant: N/A

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

4753/07 The Missing Link Network Integration Pty Ltd v Keene Consulting International Pty Ltd JUDGMENT 1 HIS HONOUR: In this application, the defendant seeks summary dismissal of a winding-up application brought by the plaintiff against it. 2 The originating process was filed by the plaintiff on 27 September 2007. It seeks an order that the defendant be wound up in insolvency. As well as, or alternatively to, seeking summary dismissal of the winding-up application the defendant seeks the following orders: " 2. A declaration that there is no presumption of insolvency pursuant to section 459C of the Corporations Act 2001 as the statutory demand was not served in accordance with section 109X of the Corporations Act.

3. The statutory demand dated 20 August 2007 in the originating process (sic) be set aside pursuant to section 459H or 459J of the Corporations Act or under any other power of the court. AND

4. Alternatively the defendant have leave to oppose the application for winding up pursuant to section 459S of the Corporations Act and thereby be given an opportunity of disputing the amount, or existence, of the debt claimed in the Statutory Demand attached to the originating process. "

3 The statutory demand claimed an amount of $15,964.52 alleged to be payable by the defendant to the plaintiff in respect of certain identified invoices. The plaintiff contends that the statutory demand was served by being posted in the ordinary course of post to the defendant's registered office at Archer Street, Chatswood. The plaintiff says that the demand was so posted on or shortly after 20 August 2007. 4 The defendant denies that the demand was so served. It contends that the demand was received by one of its directors, Ms Keene, at its office on York Street, Sydney on 18 September 2007, although the defendant accepts that it may have been received the previous day, 17 September 2007. 5 The defendant contends that it was not afforded a period of 21 days to comply with the demand, or in which to seek to have the demand set aside, before the winding-up application was filed. It contends that the debt demanded was genuinely in dispute and that it would have applied to have the demand set aside within 21 days of 17 September 2007 had the winding-up application not been filed. 6 The defendant's submissions assume that if the statutory demand were served after 6 September 2007, the plaintiff would not be entitled to rely on the presumption of insolvency under s 459C of the Corporations Act 2001 (Cth) and that the defendant would be entitled to dispute the plaintiff's standing as a creditor. 7 A number of the defendant's claims can be readily dealt with. The application to set aside the statutory demand was made by an amended interlocutory process filed in the winding-up proceedings. That amended interlocutory process was filed in Court on 16 November 2007. 8 Leaving aside questions as to whether or not an application to set aside the statutory demand must be made by an originating process it is clear that, as the statutory demand was admittedly served no later than 18 September 2007, the application to set it aside, under s 459G of the Corporations Act and following sections, is out of time. 9 The application for leave under s 459S to oppose the winding-up application, on a ground on which the defendant could have relied had it made an application to set aside the statutory demand, can also be dealt with summarily. 10 Section 459S(2) provides: " The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent. " 11 In Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661, Spigelman CJ, with whom Handley and Giles JJA agreed, said (at 674 [53]-[54]) that: " [53] ... s 459S(2) directs attention, in part, to what it is that the company intends to prove and how it intends to prove it. If the company is not prepared to contemplate the possibility that its assertion of solvency is subject to qualification, then the Court cannot be 'satisfied' of the mandatory pre-condition in s 459S(2). An objective element is introduced by the word 'material' but that can only be determined after identifying the company's contentions.

[54] If ... the company intends to prove that it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to it 'proving' its solvency, cannot be satisfied. "

12 Ms Keene, who appeared for the defendant, contended that the defendant was solvent, irrespective of whether or not it was found to owe the debt claimed in the statutory demand. The question of whether the defendant owed the debt claimed in the statutory demand was said not to be material to the company's solvency. Accordingly, s 459S(2) precludes the grant of leave under that section. 13 The substantial factual question arose under the application for summary dismissal and the claim for a declaration as to the presumption of insolvency. 14 There is a question as to whether it would be appropriate to make such a declaration on an interlocutory application, but it would not be appropriate to deal with the application on any such technical ground, as the question of the time of service of the statutory demand, and the question of whether the presumption of insolvency arises, were fully argued. 15 As I have said, the defendant's submissions assume that if the statutory demand was served less than 21 days before the filing of the originating process for winding-up, then no presumption of insolvency arises. 16 The plaintiff did not dispute that if the presumption of insolvency did not arise and if the defendant could contest the plaintiff's standing as a creditor, then the originating process should be dismissed. A winding-up application is not the occasion for determining a dispute as to the existence of a debt and the plaintiff made it clear that it relied on the presumption. 17 I do not accept the premise that if the statutory demand was not served until 17 or 18 September 2007, no presumption of insolvency arises. 18 Section 459C(2) provides relevantly: " (2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a) the company failed (as defined by section 459F) to comply with a statutory demand ... " (Emphasis added)

19 In other words, the presumption of insolvency for failure to comply with a statutory demand may arise after the day when the winding-up application is made. 20 In Pinn v Barroleg Pty Ltd (1997) 23 ACSR 541, Santow J (as His Honour then was) said (at 544): " ... despite its somewhat puzzling reference to the words 'or after', I am satisfied that the section means: (a) that the section 459C(2) event relied upon goes stale after three months as the basis for a winding up application; but (b) where the application is made at a date preceding the event, but based on it, it may still be granted, provided of course the event actually occurs before the winding up order is made; for example if the application were made before expiry of the 21 days after notice of demand.

Thus - giving practical effect to the words 'or after' - a concerned creditor may immediately lodge an application to wind up the company, knowing the 21 days for compliance with a statutory demand has still to expire, but on the basis that the 21 days will expire after (but before the application is heard). This would give a purpose to the words 'or after' in the clause above. Without those words, an application made before the s 459C(2) event could not satisfy the three months requirement, as it was not made during the three months. The sense of the section is seen more clearly when the syntax is therefore rearranged to read: 'during the three months ending on the date the application was made, or after [the day the application was made]'. "

21 Accordingly, I am of the view that, whether the statutory demand was served on 20 August 2007, or is taken to have been served four working days after 20 August 2007 (see s 160 of the Evidence Act 1995 (NSW)), or was served on 17 or 18 September 2007, is irrelevant to the question as to whether the winding-up application should be dismissed and to whether the presumption of insolvency arises. 22 No application was made to set aside the statutory demand within 21 days after its service, whenever the demand was served. Hence, the presumption of insolvency now arises even if that presumption had not arisen on the date the winding-up application was filed. 23 Contrary to the submission of Ms Keene, there was nothing to preclude the defendant from filing an originating process to set aside the statutory demand after the winding-up application was filed, if, as she contended, the demand was not served until 17 or 18 September 2007. 24 However, because the question of the time of service was fully argued, I will express my conclusions on that question, even though it is not strictly necessary to do so. 25 The evidence of Mr Deutsch, a solicitor employed by Raj Lawyers, the solicitors for the plaintiff, was that he prepared the statutory demand and a covering letter enclosing the statutory demand addressed to the defendant, care of its registered office at Archer Street, Chatswood. He left the letter in the mail box in which correspondence from Raj Lawyers was placed for it to be posted by the relevant clerk in that firm's mail room. He made a note by way of a post-it note sticker on the file copy of the letter that the letter and an accompanying demand had been placed in the mailbox on 20 August 2007 at 2pm. 26 The evidence of the practice in the office of Raj Lawyers was that, except in the case of certain large clients, the correspondence to be sent by ordinary post was folded and placed in envelopes with a clear window so that the address was showing. The practice of that firm was that this was done by the clerk in the mailroom responsible for despatching such correspondence by ordinary post. 27 No record of posting, such as a mail book, was kept by Raj Lawyers so that there is no contemporaneous business record showing the posting of the letter and the accompanying demand. Nevertheless, I can infer from the evidence of the practice in that firm's office that, in the ordinary course, a letter placed in the mailbox in the way Mr Deutsch deposed would be placed in an envelope with a clear window and despatched by ordinary post. 28 Section 109X of the Corporations Act permits documents to be served by, amongst other things, the document being posted to the company's registered office. The address shown on the covering letter, which would have appeared behind the clear window of the envelope, was the company's registered office. I infer that the document was so posted. Unless the contrary is proved, service is deemed to have been effected at the time the letter would have been delivered in the ordinary course of post. It is presumed, unless there is evidence sufficient to raise a doubt about the presumption, that the postal article sent by prepaid post to a person at a specified address in Australia is received on the fourth working day after having been posted (Evidence Act, s 160). 29 The defendant says that any such presumption that the ordinary course of practice was followed is rebutted. Two matters were relied upon. The first was that the defendant sought to tender correspondence from the firm of accountants at Archer Street, Chatswood. The defendant sought to tender correspondence from that firm in which a manager asserted that the firm had not been in receipt of any correspondence from Raj Lawyers during the months of August and September 2007. That evidence was not given on affidavit. It was hearsay, and accordingly I rejected it. 30 The other evidence relied upon by the defendant concerned a letter of 12 September 2007 received by the defendant on 26 September 2007. The letter in question was addressed to the defendant at Archer Street, Chatswood. The envelope in which it was contained included a sticker, addressed to Ms Keene at the defendant's address at York Street, Sydney, which was placed over the clear window on the envelope. 31 The defendant contended that it should be found that, although the letter was dated 12 September 2007 and was addressed to the defendant's registered office, Raj Lawyers did not post the letter until 25 September 2007, and that Raj Lawyers was responsible for placing the sticker containing the different address on the envelope. Hence, it was submitted that I should infer that the earlier statutory demand was dealt with in a similar way, so that although the demand is dated 20 August 2007, I should find that it was not served until 17 or 18 September 2007. Ms Keene deposed that, although she had not kept the envelope in which the statutory demand was contained, she recalled that it was addressed in a similar way to the letter of 12 September 2007. 32 The envelope in which the letter of 12 September 2007 was enclosed has only one stamp and there is no evidence, nor was it suggested, that a second stamp was placed on the envelope. 33 It has two date frankings. One of those frankings is partially obscured by the sticker. It is possible to read the franking, and it appears that it includes the letters and information "SWLF 12 Sep 07". 34 Another franking in the same form reading, relevantly, "SWLF 25 SEP 07", is placed over the stamp. 35 The envelope includes orange bar codes on the top and the bottom of both sides of the envelope. The sticker is of a typeface which is not the typeface used by Raj Lawyers, but is at least consistent with the typeface used on the correspondence from the defendant's accountants who occupy the registered office in Archer Street, Chatswood. 36 Contrary to the defendant's submissions, I think the most likely explanation for the letter of 12 September 2007 was that it was posted in an envelope with a clear window on 12 September 2007, notwithstanding that, at that point, the stamp was not crossed with the Australia Post franking showing the date of postage. 37 It was suggested that the franking may have been the franking of Raj Lawyers, but there was no evidence to that effect. 38 I think the more probable explanation of the correspondence is that it was received by the office of the defendant's accountants at Archer Street, Chatswood and was redirected by a new address label being placed on the envelope without a fresh stamp, and delivered to Ms Keene in York Street on 26 September 2007. 39 I do not accept that, in those circumstances, Australia Post could be expected not to deliver such redirected mail without insisting on a second stamp. There was no evidence about that subject one way or the other. 40 Accordingly, I do not consider the letter of 12 September 2007 as providing any rebuttal of the inference I draw, from the evidence as to the practice of the office of the plaintiff's solicitors, that the demand would have been served at the company's registered office within a few days of 20 August 2007. 41 That conclusion is corroborated by evidence of a conversation between Mr Deutsch and Mrs Keene on 30 August 2007. The subject matter of that conversation was a matter of keen contest. 42 Mr Deutsch deposed that, on 30 August 2007 when he was attending his firm's Brisbane office, he received a telephone call from Ms Keene. He deposed that Ms Keene said that she had received a letter from him dated 20 August 2007 which enclosed a demand. He deposed there was then a conversation about that matter. Ms Keene did not dispute that there was a conversation on 30 August 2007, but she denied that it concerned the statutory demand. 43 There was litigation pending between the plaintiff and the defendant in the Local Court. Mr Deutsch's firm had only recently received instructions to act for the plaintiff in those proceedings. Ms Keene said that the conversation concerned only the proceedings in the Local Court. 44 Mr Deutsch's letter of 12 September 2007 referred to having had a conversation with Ms Keene on 30 August 2007. In his letter of 12 September 2007, Mr Deutsch wrote that during that conversation, Ms Keene had confirmed to him that she had received the demand. The letter went on to say that no application had been made to set aside the demand within the statutory period of 21 days, and demanded payment. 45 Mr Deutsch also prepared a file note which now bears a date 30 August 2007, although that date clearly overlies an earlier date. Mr Deutsch said he believed the earlier date was 20 August 2007, but it appears, as Ms Keene submitted, that the earlier underlying date was 23 August 2007. 46 The file note deals with both the letter enclosing the statutory demand and pending proceedings in the Local Court. Included in the file note is the following: "* Rec'd letter from us ... * suggested that she see a lawyer about the demand. * She said she didn't want to see a lawyer. * Said the demand was a serious thing that she should not disregard. " 47 Unless this file note was a fabrication, it is strongly corroborative of Mr Deutsch's evidence of his conversation of 30 August 2007. The file note appears to have been prepared in two different blue pens. Mr Deutsch confirmed that that was so. His explanation for that was part of the file note was prepared at the Brisbane office during, or immediately after, his conversation with Ms Keene, and the balance was prepared when he was on a train from his firm's Brisbane office to the Brisbane airport on that same day. 48 Mr Deutsch was not cross-examined on the file note, and there is no warrant for a finding, which would be a very serious finding, that the document was fabricated for the purpose of putting false evidence about the conversation with Ms Keene before the Court. I do not so find. 49 Accordingly, on the balance of probabilities, I would find that the statutory demand was served at the company's registered office between 20 August and 30 August 2007. For the reasons I have given, the fate of the present application is not, however, dependent on that finding. 50 Accordingly, it will be necessary for the defendant, if it opposes the winding-up application, as Ms Keene has made clear that it does, to produce evidence to rebut the presumption of insolvency. 51 I order that the amended interlocutory process filed 16 November 2007 be dismissed with costs. 52 I will make orders for the filing and service of evidence on the winding-up application.

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.