[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment
WARD JA: Ms Penson is a director of the third respondent (Aquaqueen International Pty Ltd). Aquaqueen was placed in liquidation by orders of Black J made on 20 November 2014. The winding up orders were made on an application by the first and second respondents, as substituted creditors, made under s 459P of the Corporations Act 2001 (Cth). I will refer to the first and second respondents together as the "substituted creditors".
Penson v Titan National Pty Ltd [2015] NSWCA 165 | Case summary | Zoe
The winding up application by the substituted creditors was made in reliance on the presumption of insolvency arising from an unsatisfied creditor's statutory demand issued by the original petitioning creditor (Mr Wolfgang Weber). The debt the subject of that demand, as did the separate debts that the substituted creditors sought to recover from Aquaqueen, related to costs orders made against the company (for which Ms Penson was made jointly and severally liable) in unsuccessful District Court proceedings commenced by Aquaqueen in relation to a tenancy dispute. There has been protracted litigation over a number of years in relation to the assessment of those costs and the costs judgment arising from the costs assessment.
Black J was satisfied, for the reasons given in In the matter of Aquaqueen International Pty Ltd [2014] NSWSC 1645, that the presumption of insolvency was not rebutted and that Aquaqueen's insolvency had been established as a matter of fact. His Honour made orders on 20 November 2014 for the winding up of Aquaqueen but stayed the operation of those orders in order to permit the company, which had been represented by Ms Penson in the winding up proceedings, to consider its position and to make any application it might wish to make in this Court. There were successive stays of the winding up orders and the time for determination of the winding up application was also extended on successive occasions.
Ultimately, on 11 February 2015, McColl JA refused leave further to extend the stay of the winding up orders (Aquaqueen International Pty Ltd v Titan Nation Pty Ltd [2015] NSWCA 9). Hence Aquaqueen is now in liquidation. It has taken no part in the present proceedings and has not consented to Ms Penson making any application on its behalf. Leave to commence these proceedings against the company in liquidation has not been sought.
By further amended summons seeking leave to appeal dated 23 March 2015, Ms Penson now seeks leave to appeal from two decisions made in the Corporations List of the Equity Division: first, the decision of Black J on 20 November 2014 making the winding up orders in question (Aquaqueen International Pty Ltd [2014] NSWSC 1645) and, second, a decision by Brereton J on 2 March 2015 (In the matter of Aquaqueen International Pty Ltd [2015] NSWSC 212), dismissing Ms Penson's application, made in her capacity as a shareholder and/or director of Aquaqueen, in effect for orders bringing to an end the liquidation of the company. In her application before Brereton J, Ms Penson sought an order dismissing the substituted creditors' originating process and avoiding the appointment of the liquidator. A copy of the interlocutory process filed by Ms Penson has been admitted as Ex 2 on this hearing.
The basis of Ms Penson's application before Brereton J, and the principal basis on which she seeks leave to appeal from that decision, was that the time for determination of the originating process for the winding up of Aquaqueen was not further extended after 31 December 2014 and therefore, pursuant to s 459R(3) of the Corporations Act, the originating process was dismissed by operation of law before the orders made by Black J placing the company in liquidation came into effect. It is contended by Ms Penson that the orders made by Black J are therefore ultra vires.
Brereton J considered Ms Penson's application to be misconceived and one that could not possibly succeed.
Leave to appeal is required pursuant to s 101(2)(n) of the Supreme Court Act 1970 (NSW) from a judgment or order of the court in a division for the winding up of a corporation. Leave to appeal is required pursuant to s 101(2)(e) of that Act from an interlocutory judgment or order in proceedings in the court, as was the decision of Brereton J.
Leave is also necessary, pursuant to s 471(1A) (and, since it is in liquidation s 471B) of the Corporations Act for Ms Penson to commence these proceedings as an officer of the company. I note that the respondents submit that even had such an application been made in the present proceedings, it ought be refused, taking into account the matters considered in Binetter v Commissioner of Taxation [2011] FCA 1195.
[3]
Chronology
The background to the present application for leave to appeal has been summarised above. It is set out in the reasons of McColl JA when refusing leave further to extend the stay of the winding up orders (Aquaqueen International Pty Ltd v Titan Nation Pty Ltd [2015] NSWCA 9). However, it is necessary, given the basis on which Ms Penson contends that leave to appeal should be granted, to set out the chronology of events in relation to the winding up application.
On 2 October 2013, Mr Wolfgang Weber filed the initial originating process seeking an order under s 459P of the Corporations Act for the winding up of Aquaqueen. That application was founded on a statutory demand claiming the amount of $38,484.48, being a judgment debt arising from the assessment of the costs order in his favour in the District Court proceedings.
On 25 March 2014, Black J ordered that Aquaqueen be wound up but stayed the operation of the winding up orders to 11 April 2014, in order to provide the company with an opportunity to discharge its debt to Mr Weber. On that occasion, Black J also extended the time for determination of the winding up application to 30 April 2014, pursuant to s 459R.
On 9 April 2014, by consent, Brereton J set aside the orders made on 24 March 2014 for the winding up of Aquaqueen and the appointment of liquidators (the petitioning creditor having by then been paid out). On that occasion, his Honour granted leave for the substituted creditors to file an interlocutory process to be substituted as plaintiffs and listed the hearing of the interlocutory process on 28 April 2014.
On 30 April 2014, Brereton J made orders under s 465B of the Corporations Act that the substituted creditors be substituted as plaintiffs. His Honour extended the time for determination of the winding up application to 30 September 2014.
The hearing of the winding up application was listed on 8 September 2014 before Black J. On that occasion the hearing was adjourned to 26 September 2014. The time for determination of the winding up application under s 459R(2) was extended to 30 October 2014 and various procedural directions were made.
On 10 October 2014, Black J gave leave for Ms Penson to appear on behalf of Aquaqueen on an application to adjourn the winding up hearing and refused that application. The proceedings were adjourned to 21 October 2014 with a view to completion of the hearing of the winding up application on that date.
On 21 October 2014, the hearing of the winding up application concluded. Judgment was reserved and Black J made an order further extending the time for determination of the winding up application to 30 November 2014.
On the morning of 20 November 2014, Black J handed down his reasons for judgment, determining that the company be wound up and a liquidator appointed. His Honour made orders to that effect. As Aquaqueen was at that stage represented by Ms Penson, his Honour drew to its attention the fact that if it might wish to appeal from his decision it was likely to be necessary for it to seek a stay of that judgment for a short period to permit any application for a further stay and/or for leave to appeal to be considered by this Court. On Ms Penson's application, and noting an undertaking given by Aquaqueen by its director (Ms Penson) as to the non-disposal of its assets, his Honour then made orders granting a stay of the winding up orders he had earlier made to 10 December 2014. Subsequently that day, in chambers, his Honour extended the time for determining the winding up application under s 459R to 31 December 2014. His Honour published ex tempore reasons for the making of those additional orders.
There is a potential source of confusion in that, at [18] of the ex tempore reasons, his Honour refers to revoking the orders made earlier. Read in context that can only be a reference to revoking the first set of additional orders made on an ex tempore basis after delivery of his Honour's written judgment (as recorded at [10] of the ex tempore reasons). His Honour did not revoke the winding up orders (orders 1-3) pronounced in his written reasons for judgment on 20 November 2014. Rather, those were expressly made the subject of the stay order (recorded at [18] of the ex tempore reasons).
On 9 December 2014, an application was made by Aquaqueen in this Court for a stay of the winding up orders (i.e, orders 1-3 made on 20 November 2014). On a without admissions basis and upon the usual undertaking for damages given to the court by Ms Penson through the solicitor then appearing for Aquaqueen, Barrett JA granted a stay of the winding up orders to 17 December 2014.
On 17 December 2014, again by consent and on an undertaking given by Ms Penson not to transfer, dispose or otherwise encumber a property at Alexandria, Barrett JA further extended the stay of the winding up orders until 9 February 2015. On that occasion, his Honour noted that Aquaqueen acknowledged that the notice of appeal purportedly filed on 9 December 2014 had not been regularly filed and gave leave (without pre-empting the issue arising by reason of s 471A of the Corporations Act) to Aquaqueen to file in court a summons seeking leave to appeal, with the previously filed notice of appeal standing as the draft notice of appeal.
On 9 February 2015, McColl JA heard an application for a further extension of the stay. Judgment was reserved and a short extension to 11 February 2015 was granted, again on the giving of an undertaking by Ms Penson in the terms given by her in December 2014.
On 11 February 2015, McColl JA dismissed the application for a further extension of the stay and made an order discharging the stay granted by Black J on 20 November 2014 and extended by Barrett JA on 17 December 2014.
It was against that background that Ms Penson's application to dismiss the originating process (filed on 18 February 2015) came before Brereton J. His Honour noted that the time for the winding up application to be determined had been extended, on any view, to 31 December 2014. His Honour concluded that the winding up application was determined on 20 November 2014 when the winding up order was made, notwithstanding that a stay was granted, and accordingly Ms Penson's reliance on s 459R(3) was misconceived. His Honour dismissed Ms Penson's amended interlocutory process.
[4]
Proposed grounds of appeal
Ms Penson now seeks leave to appeal from the whole of the decisions of Black J (on 20 November 2014) and Brereton J (on 2 March 2015) respectively. In her submissions on this application, she identifies the question of law to be decided on the appeal as the meaning of the word "determined" in s 459R(1) of the Corporations Act, in particular whether, in circumstances where a stay has been granted and the orders have not come into effect, the originating process has been "determined" on the publication of the reasons for judgment or the date the orders were entered.
Ms Penson submits that leave is warranted because there is some apparent confusion in the court as to the meaning of "determined". She contends that orders need to come into effect for the originating process to be "determined" and that, in the present case, that did not occur until the lapse of the last stay orders on 11 February 2015. Hence it is submitted that the originating process was dismissed by operation of law pursuant to s 459R(3) and that the orders made by Black J placing the company into liquidation are ultra vires.
The draft notice of appeal sets out the grounds on which, if leave to appeal is granted, Ms Penson seeks to challenge the respective decisions. The first six grounds relate to the decision of Black J; the further unnumbered ground relates to the decision of Brereton J:
1. His Honour did not appreciate or give any weight to the fact that each pf [sic] the plaintiffs' judgements were joint and several with the director of the company, Shirley Penson;
2. His Honour erred in making a finding [29] that Ms Penson is unlikely to utilise personal funds to repay debts of the Company generally in circumstances where the debts were jointly owed by the director;
3. His Honour erred in giving weight to the submission of Ms Perry [solicitor appearing for the substituted creditors] at [40] in circumstances where the debts were jointly owed by the director.
4. His Honour erred in not giving proper weight to the evidence of Ms Penson at [28] that she will use the personal resources of her home to pay the company's debts in circumstances where the debts were jointly owed by the director;
5. His Honour erred in concluding at [21] that the winding up was being pursued for a proper purpose when the Respondents' [sic] knew the costs orders would also be recoverable from the Appellant's director, Ms Penson, personally;
6. His Honour accordingly miscarried in the exercise of his discretion when ordering that the Company be wound up.
In respect of the Judgment of Brereton J dated 3 March 2015, His Honour erred in not finding that the dated [sic] of determination to which section 459R relates is the date the order comes into effect and not the date the order is pronounced if stayed.
In the further amended summons seeking leave to appeal, Ms Penson seeks not only leave to appeal from the decisions at first instance but also an order that the liquidation of Aquaqueen be stayed and an order that the originating process (i.e., that of the substituted creditors) be dismissed pursuant to s 459R "the proceedings not having been determined within the time provided by that section". At least the last of those orders appears to be seeking, on this leave application, the final relief that would be sought in respect the decision of Brereton J if the leave were granted and the appeal were to be successful.
At the outset of this hearing, Counsel appearing for Ms Penson has drawn to the Court's attention a decision in Adams v Lambert [2006] FCA 623 which, if applied by way of analogy in the present case, he conceded would leave Ms Penson's proposed appeals "deal and buried".
[5]
Determination
I consider first the application for leave to appeal from the decision of Brereton J. On an application for leave to appeal from an interlocutory decision, the Court must consider whether substantial reasons have been shown to allow appellate review (Collier v Lancer (No 2) [2013] NSWCA 186). Leave to appeal will not be granted in respect of interlocutory decisions where the appeal is doomed to fail (Young v Hones (No 2) [2014] NSWCA 338 at [63]).
In the present case, the appeal from Brereton J's decision is in my opinion doomed to fail. Rule 36.4 of the Uniform Procedure Rules 2005 (NSW) makes clear that, unless the court orders that a judgment or order is not to take effect until it is entered, a judgment or order takes effect as of the date on which it is given or made.
The winding up orders were made on 20 November 2014. His Honour's ex tempore reasons on that date make that clear. There is some doubt as to when the orders were recorded on the JusticeLink system. Counsel for Ms Penson infers, from the terms in which his Honour's orders were expressed on 20 November 2014 and having regard to the additional orders made on that date, that the orders were not recorded or formally entered until after the refusal to grant a further stay in February 2015 by McColl JA was notified to his Honour.
It is not clear when the JusticeLink entry was formally made but it is not necessary to determine that issue. Whether the extension of time for the winding up application that was made by the additional orders on 20 November 2014 was superfluous or whether it was considered prudent, out of more abundant caution, to make such an order in order to deal with any matters that might arise from or in relation to the foreshadowed appeal, does not alter the fact that the order was made on 20 November 2014 and there was a determination of the winding up application in the relevant sense on that day. Similarly, the fact that the operation of the orders was stayed, by successive orders, until 11 February 2015 does not alter the fact that they were pronounced on 20 November 2014 and that is the date on which they were made.
Ms Penson relies on what was said by Perry J in Queensland Mining Corporation Ltd v Renshaw (No 2) [2014] FCA 438 (at [5]) when her Honour was considering whether an extension of time was required for the bringing of an appeal in that case. Perry J there had regard to r 36.03 of the Federal Court Rules 2011 (Cth), which provides that an appellant must file a notice of appeal within 21 days after "the date on which the judgment appealed from was pronounced or the order was made". In that case, her Honour had published reasons for judgment on a particular date but no final orders were made at that time. Her Honour concluded, in effect, that the time within which an appeal could be instituted without leave ran from the date on which final orders were made (on the basis that the term "judgment" in s 24(1)(a) of the Federal Court of Australia Act 1976 (Cth) refers to the formal order whereby the court disposes of the matter before it).
That authority does not assist Ms Penson. Here, Black J made the winding up orders in question at the time that he handed down his reasons for judgment and pronounced those orders. They took effect, subject to the operation of the subsequent stay orders, from that time. The orders had the effect of finally determining the winding up application. On the discharge of the stay on the operation of those orders on 11 February 2015 there was no winding up application still to be determined. It had already been determined as at 20 November 2014.
There are no prospects of a successful appeal from the decision of Brereton J. Leave to appeal should be refused.
It is therefore not necessary to deal with the issue raised in relation to the application of Adams v Lambert, which was not the subject of considered argument, the point having only been raised this morning (quite properly being drawn to the Court's attention by Counsel for Ms Penson).
As to the proposed appeal from the decision of Black J, the grounds of appeal identified by Ms Penson make clear that her complaint in substance is that his Honour concluded that Aquaqueen was in fact insolvent in circumstances where she had proffered an undertaking that she would satisfy the company's liability from her own resources by way of loan to the company and had resources from which she could do so.
His Honour noted at [29] that there are circumstances in which an undertaking, even if not legally enforceable, by a director or third party to provide financial support to a company may support its solvency. His Honour was not, however, satisfied that Ms Penson would take any steps to place the company in funds to pay the judgment debt or other debts owing to the substituted creditors, even if she has the personal means to do so, having concluded that she was unlikely to utilise her personal funds to pay the company debts generally as opposed to only such debts as she chose to pay ([29]-[30]). His Honour reached that conclusion having regard to the history of the matter and to the way in which her statements of intention were couched (see [28]).
No error of principle is apparent from the way in which his Honour approached the issue as to the company's solvency in this regard. Insofar as Ms Penson submits that his Honour should have attached greater weight to her undertaking to provide support to the company, the conclusion his Honour reached was open on the evidence.
As to the complaint that his Honour erred in concluding that the application was being pursued for a proper purpose, on the basis that Ms Penson asserts the substituted creditors knew that the judgment debt would also be recoverable from her personally, it is clear from [21] of his Honour's reasons that his Honour was addressing an issue not developed in oral submissions before him to the effect that the winding up proceedings were an abuse of process. The fact that a debt is owed jointly and severally does not of itself lead to the conclusion that it is an abuse of process for the creditor to enforce the whole of the debt against one or other of the joint and several debtors. The opposite is the case, as was recently reiterated in Lavin v Toppi [2015] HCA 4; 89 ALJR 305 (at [44]-[46]). There is no basis for concluding that an appeal on this ground would be likely to succeed.
Finally, insofar as the complaint is that his Honour miscarried in the exercise of his discretion, the difficulty for Ms Penson will be for her to establish that there was an error in the House v The King sense (House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504-5), namely that his Honour made an error of legal principle and/or a material error of fact, took into account an irrelevant consideration, failed to take into account, or give sufficient weight to, a relevant consideration or arrived at a result so unreasonable or unjust as to suggest such an error (see also Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45]). The fact, even were it to be the case (and I do not suggest that it is), that conclusions reached in the exercise of his Honour's discretion might arguably be wrong is not sufficient to warrant appellate intervention in relation to the exercise of that discretion (Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl [1995] NSWCA 69; Jaycar Pty Limited v Lombardo [2011] NSWCA 284 at [46]).
The other matter to take into account on this application is the public policy in relation to insolvent companies. In circumstances where his Honour's conclusion as to insolvency is challenged largely by reference to the import of the undertaking proffered by Ms Penson, to stay the ongoing liquidation of the company would be at the risk of permitting an insolvent company to continue to trade. That factor not only speaks against any further stay but against the grant of leave to appeal.
Leave to appeal from Black J's decision should also be refused.
In light of the above it is not necessary to deal with the standing issue raised by the substituted creditors. Prospects of success of the proposed appeal would be a factor to take into account on an application by Ms Penson for leave under s 471(1A). That would also have been a sufficient basis to refuse leave and the same is true for the necessary leave required under s 471B of the Corporations Act.
The orders I propose are that the further amended summons seeking leave to appeal be dismissed with costs.
LEEMING JA: I agree with Ward JA.
WARD JA: [Following a submission made by the legal representatives for the substituted creditors for a lump sum costs order] On the basis that such an order is not opposed, costs should be assessed on a lump sum basis at $8,000.
[6]
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Decision last updated: 16 June 2015