Plaintiff v Defendant

1 On 7 March 2019, the plaintiff, AXF Entertainment Pty Ltd (ACN 161 337 480) (in Liquidation), applied to the Court to wind-up the defendant, AXF Group Pty Ltd (ACN 116 258 130) on the grounds of presumed insolvency by virtue of an unsatisfied statutory demand.

2 By interlocutory process dated 13 June 2019 the defendant applied, pursuant to rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 ('the Rules'), for the Court to determine preliminary questions of whether the statutory demand upon which the wind up application is based was served on the defendant.

3 On 9 July 2019, the Court answered the preliminary questions:

(a) Was the creditor's statutory demand dated 16 January 2019 issued by the plaintiff and addressed to the defendant and served on the defendant at a date not less than 21 days before 7 March 2019? Yes.

(b) If the answer to (a) is Yes, did the statutory demand come to the notice of the defendant within 21 days after the date on which the demand was taken to have been served on the defendant? No.

(c) Was the creditor's statutory demand dated 16 January 2019 issued by Xiang Club Pty Ltd (in Liquidation) (ACN 602 074 144) and addressed to the defendant, served on the defendant at a date not less than 21 days before 7 March 2018? Yes.

(d) If the answer to (c) is Yes, did the statutory demand come to the notice of the defendant within 21 days after the date on which the demand is taken to have been served on the defendant? No.

4 On 14 August 2019 the defendant filed a notice of appeal on the question of service. On 11 October 2019 Sifris J dismissed the appeal.

5 The application to wind up the defendant was listed for hearing before me on Monday 14 October 2019. Orders have been made previously to allow the defendant to file and serve affidavits to demonstrate that it was solvent. It chose not to file any material relating to solvency and advised the Court that it would not be raising this ground in opposition to the application.

6 The defendant did not apply to set aside the statutory demand dated 16 January 2019 and is now presumed to be insolvent pursuant to s 459C of the Act. The defendant now submits that because the statutory demand did not come to its knowledge, it is entitled to assert the existence of a set off in respect of the debt in accordance with the principles enunciated by Austin J in Perpetual Nominees Ltd v Masri Apartments Pty Ltd[1] ('Perpetual Nominees'). The defendant also submits that if the principle in Perpetual Nominees is found not to apply, then the Court should exercise its discretion pursuant to s 467 of the Act and not wind up the defendant because it has an off-setting claim that exceeds the debt upon which the demand is based.

7 In Perpetual Nominees, statutory demands had been properly served by post on 10 March 2004 to the address of the registered office of Masri Apartments Pty Ltd and the registered office of another related company as recorded in the ASIC records. A resolution was passed by the directors of both companies to rectify ASIC's records of the registered offices of the companies on 20 February 2004. Notices of change of address of the registered offices were posted by one of the directors to ASIC on or about 1 March 2004. There was no evidence before the Court as to whether the directors made any arrangements for receipt of mail addressed to the old registered office after that time.

8 Austin J held that s 459S of the Act did not preclude the defendants to assert at the winding up hearing that the debt of a creditor was the subject of a genuine dispute, where:

- the creditor was relying upon failure by the defendant to comply with the statutory demand; and

- the defendant had not had the opportunity to make an application to set the statutory demand aside by reason of the demand not coming to its notice within 21 days after service,

S 459S Company may not oppose application on certain grounds

(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2) 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.

In my opinion, to construe s 459S(1)(b) in the way that I have outlined is not to contradict or undermine the legislative policy standing behind the section, as explained by Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265 ; 131 ALR 353 ; 18 ACSR 225 and by Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661 ; 33 ACSR 723 . The legislative policy is that the provisions relating to the setting aside of a statutory demand are to be a complete code for the resolution of disputes about the subject matter of the demand, thereby preventing disputes about the underlying debt from being contested at the hearing of the winding-up application: Switz, at NSWLR 672, [39]; ACSR 732-3. But that policy assumes that the debtor company has the opportunity to make an application, within the prescribed time limit, to set the demand aside. Such an opportunity will exist if the statutory demand is both properly served and comes to the notice of the company's directors in a timely fashion. Arguably, the opportunity will also exist if, although the directors did not in fact discover the existence of the statutory demand within the time limit, they would have done so if they had acted reasonably in the superintendence of the collection of mail from the company's registered office. Where, however, it is established on the evidence that the directors of the company did not become aware of the existence of the statutory demand until after the expiration of the 21-day period, and they have acted reasonably with respect to superintendence of the collection of mail from the company's registered office, the case is one where the company could not, in a factual sense, have relied on any of the grounds available to challenge the demand within the time period. In such a case, fairness requires that the company be permitted to raise those issues at the only hearing available to it, namely the final hearing of the application for winding up, even though to that extent one reverts to the old practice which the Harmer reforms were intended to reverse.

11 The Masri Principle will only apply if the directors of the company have 'acted reasonably with respect to superintendence of the collection of mail from the company's registered office'. This principle was approved in Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd ('Grant Thornton Services').[2]

12 In Grant Thornton Services, the defendant moved premises and did not notify ASIC of its change of address. It was alleged that an employee of the defendant was asked to change the address with ASIC and assented to that request. The employee denied he agreed to do so. There was no cross‑examination of witnesses regarding this allegation. A statutory demand was served but the defendant did not respond to the statutory demand and had no knowledge that the statutory demand had been served.

13 Perram J accepted the Masri Principle. However, his Honour rejected the submission that s 459S of the Act had no application to the proceedings before him because the defendant's conduct was such that the defendant itself moved from the registered office, did not change its registered office and did not go back and check that the registered office had been changed. His Honour appears to accept that the defendant did not act reasonably. His Honour said:

In terms, s 459S applies to prevent a party opposing a winding up application on a ground that the company could have relied upon for the purposes of setting aside a statutory demand but did not so rely. The meaning of that provision has been the subject of some consideration by the courts. Effectively, it has been interpreted to mean that the ground must be such that it was actually available to be asserted according to the facts and circumstances existing at the time of the winding up: see Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719 at 722-723 [9] per Austin J.

I accept that as a correct interpretation of s 459S(1). The question devolves therefore to one of whether it can be said as a matter of fact that the ground now sought to be relied upon by the defendant in opposing the winding up is a ground which was not, in fact, available. As Masri demonstrates at 723 [12], where there has been a change of premises without a corresponding alteration in the registered office, that test will ultimately require an examination of the issue of the reasonableness of the superintendence by the applicant of its registered office.

That is, one needs to ask whether the defendant applicant took reasonable steps to check its mail. Mr Stowe has submitted that the fact that the plaintiff was aware the defendant had moved its business premises is not material to what he submitted was an objective test. On the other hand, Mr Davidson submitted that knowledge by the plaintiff was significant for the purposes of the Masri test. I think that the submissions of Mr Stowe are to be preferred. The question posed by s 459S, it is to be borne constantly in mind, is a question of fact as to whether a particular ground was actually available. It seems to me that the subjective state of mind of the plaintiff, or its knowledge, simply does not go to that question.

Brought down to the level of how that applies when there has been a change of business premises without a corresponding alteration of a registered office, that seems to me to require an analysis which focuses simply on the reasonableness of the steps taken by the defendant company to check its mail. The knowledge of the plaintiff is irrelevant. That being so, it is pertinent to note that the evidence suggests that the defendant would have, if it had read its email, been aware that demands for moneys had been made upon the registered address. It certainly knew that after the statutory demand was served that the registered office still remained at its original location.

14 The plaintiff submits that Grant Thornton Services would support its position because the defendant acted unreasonably in that case, as has the defendant here.

15 In Willard King v CT Franchises Pty Ltd,[3] Barrett J at the hearing of an application to wind up a defendant, held that s 459S of the Act did not preclude the defendant from arguing that a statutory demand was defective. No evidence of solvency was required to invoke the operation of s 459S of the Act.

16 In that case, the registered office of the defendant was at all material times at the office of the firm of accountants. The statutory demand was sent by post to the registered office. Two employees of the accounting firm swore affidavits referring to the internal procedures for the receipt of mail and the initial perusal of incoming mail and its forwarding to whichever person in the office who was responsible for the client in question. That evidence indicated that no statutory demand addressed to the defendant was received at that premises. The general manager of the defendant gave evidence that he was not aware of the existence of the statutory demand until he received a bundle of papers including the originating process to wind up the Company.

17 Barrett J referred to Perpetual Nominees and noted that the reasoning was accepted by Perram J in Grant Thornton Services. His Honour also stated that the factual position in the case before him was different to that in the Grant Thornton Services case. He applied the Masri Principle.

18 The Masri Principle was also applied in Re Tomic Industries Pty Ltd.[4] In that case, the statutory demand was served by post to its registered office. The registered office was at the office of the defendant's accountant. The principal of the accounting firm gave evidence that he had never seen the statutory demand and it was not received by him. He gave evidence about the usual practice in respect of collection of mail addressed to his practice. He maintained a mail register for the practice, which was used to carry out the sorting process.

19 There was no entry in the mail register recording any document having been sent from the practice of the plaintiff in the relevant period. The question before White J was whether the evidence was sufficient to displace the presumption that the letter was delivered in the ordinary course of post. His Honour concluded that the statutory demand was validly served, but that it did not come to the notice of the defendant.

20 In Tomic Industries, the defendant decided not to rely on any evidence as to solvency and no application was made for grant of leave under s 459S of the Act. White J applied the Masri Principle and dismissed the application to wind up the company. His Honour said:

To put it shortly, the defendant could not have relied on the grounds that the plaintiff is not a creditor and that there is a genuine dispute about the asserted liability for the purposes of an application to set aside the statutory demand, because it had no opportunity to do so. That was because, through no fault of the defendant, it had not received a statutory demand and did not know or have the means of knowing that it needed to make the application to set the demand aside.[5]

21 His Honour appears to have distinguished Grant Thornton Services because it could not be said that the directors of the defendant in the case before him failed to act reasonably in the superintendence of the collection of mail from the company's registered office.

22 White J considered the position relating to standing to bring an application. His Honour said:

It follows that the defendant is entitled to contest the plaintiff's standing and is entitled to raise the ground that there is a genuine dispute as to the liability asserted by the plaintiff. Whilst this does not stop the presumption of insolvency from arising, as I have said earlier in my reasons, the court will not permit an alleged creditor, whose debt is genuinely disputed, to proceed with a winding-up application, if the circumstances are such that the company is entitled to raise such a dispute at the hearing of the winding-up application.

The court only has jurisdiction to wind up a company, relevantly for this case, on the application of a creditor. If the applicant for winding up has no standing to bring the application, then the court has no power to make the winding-up order even if the company is insolvent. The court will not permit the winding-up process to be...[6]

23 The plaintiff has submitted that this line of authority should not be followed due to the High Court decision in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd ('ASIC v Lanepoint').[7] In that case, the Australian Securities and Investments Commission ('ASIC') issued stop orders preventing the responsible entity of a management investment scheme from raising funds for the investment scheme. A property development company was financed in part by loans from the responsible entity of a managed investment scheme. Receivers and managers were appointed to the development company. ASIC applied for leave pursuant to s 459P to have the development company wound up in insolvency. ASIC relied on the presumption that insolvency under s 459C(2)(c) of the Act which provides that where a company is presumed insolvent if during or after three months, ending on the day when the application was made, a receiver or manager for property of the company was appointed under a power contained in an instrument relating to a floating charge on such property. The development company opposed the wind up on the grounds that it was solvent.

24 At first instance, it was held that the Company would be wound up as it had not rebutted the presumption of insolvency. The Full Court of the Federal Court allowed an appeal from the decision. It held that the general principle that a company would not be wound up over a disputed debt applied to ASIC.

25 The majority of the High Court (Gummow, Heydon, Crennan, Kiefel and Bell JJ) allowed an appeal by ASIC. The majority referred to the policy behind Part 5.4 of the Act (which relates to winding up and insolvency) and said:

[27] The evident policy of Pt 5.4 is that there be a speedy resolution of applications to wind up in insolvency. To that end, a challenge to a statutory demand is to be made promptly, before the application for the order for winding up in insolvency is determined and, where possible, disputes are to be resolved on the application to set aside the demand. Section 459S provides that where an application to wind up in insolvency relies upon a failure by the company to comply with a statutory demand, the company may not, without leave, oppose the making of an order on a ground which (a) it relied on in an application to set aside the demand or (b) it could have relied on but did not (whether or not it in fact made the application). That leave is not to be granted unless the court is satisfied that the ground is material to proving that the company is solvent. Thus if leave is sought on the basis that the debt is disputed, the existence or amount of that debt must be relevant to a conclusion as to the company's solvency. This requirement of s 459S is consistent with the operation of the presumption of insolvency under s 459C, which applies even if leave is granted to raise a ground of opposition. It applies because there has been a failure to comply with a demand which remains in effect.

[28] Under the present statutory scheme, where a demand has not been complied with, the statutory presumption of insolvency applies unless the demand is set aside in proceedings brought for that purpose prior to the hearing of the application for an order to wind up. Unless the demand is rendered ineffective, by an order setting it aside, the company is required to prove to the contrary of the presumption. This may be contrasted with the position which formerly pertained, where the presumption that a company was unable to pay its debts could not arise if the debt the subject of the demand was shown to be the subject of a genuine dispute of substance.[8]

26 The majority then referred to the policy of dealing with disputes concerning a statutory demand and said:

[32] There is a policy evident in the current statutory scheme that disputes concerning a statutory demand should, where possible, be determined prior to the determination of the winding up application and therefore separately from that application. The requirement of leave, to raise an objection at the hearing of that application which could have been taken in an application to set aside a demand, confirms this. But such a policy says nothing about what is to occur if there remains an issue about a debt at the time the application for an order for winding up in insolvency is heard. Sections 459A and 467(1)(c) make plain that the court retains a discretion to stay proceedings on an application to wind up a company in insolvency.

[33] What was said by Gibbs J in Re QBS about practical considerations, which may attend the resolution of a dispute about the existence or extent of a debt, remains relevant to applications for winding up, subject to some qualifications arising out of the present statutory scheme. The court may consider that although such a dispute may affect a conclusion as to solvency, the dispute may be more conveniently resolved in other proceedings which have been, or will be, brought for that purpose. Much may depend upon the nature of the dispute, and the extent to which it is removed from the central question of solvency. In this regard the court will bear in mind that the question of solvency, which it is required to determine upon an application for winding up in insolvency, is affected by the statutory presumption. The starting point, where the presumption operates, is that the onus is on the company to rebut the presumption, by proof of its solvency. And when considering whether to separate out a dispute from the winding up proceedings, the court will also bear in mind the statutory objective, that such applications are to be determined within 6 months, subject only to extensions granted in special circumstances.[9]

27 The plaintiff submits that the onus is on the defendant to rebut the presumption of insolvency and here it has not attempted to meet the starting point. It submits that ASIC in that case had the benefit of the presumption of insolvency, and the defendant, Lanepoint, was required to prove to the contrary. It could not point to any evidence necessary for that purpose. The plaintiff submits that the observations of the High Court make it clear that the principle in Perpetual Nominees, which was decided prior to ASIC v Lanepoint, should not be followed. The plaintiff also submits that the starting point is the presumption of insolvency, and where the defendant has not attempted to rebut the presumption, that creates a difficulty for the defendant.

As I have said, in the unusual circumstances of this case it is permissible for the defendants to raise at the hearing of the winding-up application matters which, in other cases, could only be raised in an application to set aside a statutory demand. They are therefore able to contend that there is a genuine dispute as to whether the amount claimed in the two statutory demands is due and payable. It is not necessary for the defendants to prove that the amount claimed by Perpetual is in fact due and payable, since there is a broad general principle that a winding up order will not, as a matter of discretion, been made on a debt which is bona fide disputed, provided that the dispute is based on some substantial ground: A Keay, McPherson's Law of Company Liquidation, 4th ed, LBC Information Services, Sydney, 1999, citing Mann v Goldstein [1968] 1 WLR 1091 ; [1968] 2 All ER 769 .

29 The plaintiff submits that Perpetual Nominees was decided before Lanepoint and refers to an old edition of to McPherson's Law of Company Liquidation[10] ('McPherson'). It relies on the recent edition of McPherson, which states:[11]

... There are three conflicting lines of cases,[12] though as discussed below the preferred approach under the present Australian provisions should be that the court should proceed to wind up an insolvent company even if the creditor's debt is disputed. That is because in the normal case where the company is presumed to be insolvent due to one or more of the presumptions contained in s 459C, the provisions, including the limitations on disputing the creditor's debt in s 459S, are focussed on whether the company can lead evidence to rebut the presumption of insolvency.[13]

30 McPherson refers to three conflicting lines of cases. The first line of cases take the view that insolvency is irrelevant if there is a bona fide dispute. In those cases, it appears that insolvency is irrelevant to the main issue of standing. Mann v Goldstein ('Mann'),[14] is in that category of cases. This is a case referred to and relied upon by Austin J in Perpetual Nominees.

31 The second line of cases, according to McPherson, adopts the position that if insolvency can be established unequivocally then the Court has a discretion to wind up the company even if the applicant creditor's debt is disputed. McPherson states that this line of cases is now to be preferred in Australia.[15]

32 The third line of cases adopt the position that insolvency is sufficient to wind up the company if the dispute is in relation to the amount of the debt and not in relation to the existence of the debt. This line of cases modifies the position in the first line of cases where a company is insolvent and there is genuine dispute.

33 McPherson considers the preferred approach to be applied: [16]

It is submitted that the approach taken by the cases that refuse to consider the issue of insolvency when a dispute as to the creditor's debt is proved overly focus on preventing creditors from using winding up as a debt collection procedure to the point of letting insolvent companies return to the marketplace and prejudice the positions of both existing and potential creditors. The actions of the legislature in enacting the 1992 reforms to the statutory demand and winding-up procedure to impose strict limits on when the company may raise disputes concerning the creditor's debt are consistent with this policy. The High Court's decision in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd... confirms that the focus of the present Australian legislative system is on the company's solvency, and that, where the applicant has the benefit of a presumption of insolvency under s 459C, the company is required to prove to the contrary, and should not be permitted to postpone or challenge the winding-up application on the ground that the debt was disputed unless it could lead evidence relevant to establishing solvency.

The approach taken in the first group of cases discussed above ignores the discretion which is granted to the courts to wind up a company which is unable to pay its debts. In contrast, the approach in the second set of cases fosters this discretion. Nevertheless, the preponderance of recent Australian judicial opinion appears to favour the views expressed in the first group of cases.

Even if an applicant for winding up does not have the necessary locus standi where there is a bona fide dispute over a debt founding the application, if the company is "insolvent" within the terms of s 95A, then there must by definition be other creditors in existence who could take proceedings for a winding-up order or be substantiated as the applicant for winding up, so if the application is struck out the inevitable is just probably being delayed, and, in any event, it will lead to extra and unnecessary costs...

34 The defendant submits that the general principle that a company would not be wound up over a disputed debt does not apply to ASIC. The defendant relies on the following paragraphs from ASIC v Lanepoint in support of the submission:

[13] It may be observed at once that their Honours do not appear to distinguish between ASIC and a creditor applying for an order to wind up in insolvency. Their Honours treat the question about the extent of Lanepoint's liability to the WIF as analogous to a dispute about the amount of a debt owed by a company to a creditor who is applying to wind up the company. The "policy" to which their Honours refer must therefore relate to the procedures provided by the 1993 amendments for the resolution of disputes concerning statutory demands by creditors. As will be explained in these reasons, the approach taken by their Honours to the status of ASIC and as to principles affecting the determination of its application is not correct. However, that approach necessitates consideration of the position of creditors as applicants for winding up in insolvency in the current statutory scheme. For present purposes it may be further observed that their Honours considered that the current statutory scheme does not inhibit the application of principles which informed the exercise of the court's discretion in the past. Attention is therefore directed to those principles and the statutory context in which they were applied.[17]

...

[29] More relevant to the reasons of the majority in the Full Court is the principle applied by the court in winding up proceedings brought under the former legislation, where the statutory demand process was not invoked. It will be recalled that the principle was based upon the potential abuse, by creditors, of the winding up process to compel a solvent company to pay a genuinely disputed debt. On that basis alone it could have no application to ASIC, which did not claim the status of creditor and did not seek winding up on the basis of a debt owed. It brought its application under the statutory entitlement given by s 459P and in reliance upon the presumption of insolvency in s 459C(2)(c), which operates on the fact of the appointment of receivers and managers. More fundamentally, because the principle has no application in the case of an insolvent company, it cannot apply in the context of the current Pt 5.4, where the statutory presumption of insolvency operates.[18]

35 Based on the above, the defendant submits there is nothing in the reasons of the High Court which amounts to a statement which excludes the Masri Principle. I disagree. In my view, the principles enunciated by the majority of the High Court apply not only to ASIC but also to creditors.

36 In my view, the Masri Principle should not be followed in view of the decision of ASIC v Lanepoint. I agree with McPherson that the preferred position in Australia is that the Court has a discretion to wind up a Company even if the debt is disputed. The focus of the present Australian legislative scheme is on a company's solvency. If a statutory demand has been served and not complied with, then a debt can only be challenged if a company demonstrates solvency in accordance with s 459S of the Act.

37 I note that in ASIC v Lanepoint, the majority said:

[16] Where a creditor sought to prove a company's insolvency by relying upon a debt owed by it, but without resort to the procedure of statutory demand, the court, as a general principle, would not order winding up where a debt was bona fide disputed upon some substantial ground. The principle informed the court's discretion whether to dismiss the application. McPherson says that, although the principle may have had some basis in the court's concerns as to the status of the applicant for winding up as a creditor where there was a genuine dispute about the debt, the principal reason for it was that the court would not permit an application for winding up to be used for the improper purpose of compelling a solvent company to pay a disputed debt. It followed that it had no application in the case of an insolvent company.[19]

38 That principle is the principle referred to in paragraph 29 by their Honours.[20] It is the principle applied by the Court in winding up proceedings brought under the former legislation where the statutory demand process was not invoked. It was based on an abuse of process where a debt was genuinely disputed and that a company should not be compelled to pay it. That principle, according to the High Court, has no application to an insolvent company. It cannot apply where there is a statutory presumption of insolvency.

39 Even though it is my view that the Masri Principle has no application due to the decision in ASIC v Lanepoint, I will consider what can be referred to as the second limb of the Masri Principle. For the Masri principle to apply, the defendant company must show that it has acted reasonably in the superintendence of the collection of mail from the registered office.

40 On 16 January 2019, a statutory demand was sent by post to the defendant's registered office at 60 Eastern Road, Melbourne, Victoria 3025. The defendant's solicitor, Vu Hoang Nguyen, deposed that although that address was listed as the defendant's registered company address, he had moved from that address on or about 11 September 2018. That address was the address of Mr Nguyen's legal practice and he was the solicitor of the defendant. He organised for Australia Post to redirect all the mail sent to that address to be forwarded to his new premises at 126 Heath Street, Port Melbourne. When Mr Nguyen redirected the mail, he listed five entities on the application to redirect mail. They did not include the defendant. The records with ASIC were not changed.

41 The defendant submits that the plaintiff should not be held responsible for the conduct of its solicitor in failing to change the registered office or failing to tell the defendant's director that the office had been changed. It submits that the defendant had no knowledge of the change.

42 When cross‑examined, Mr Nguyen, the solicitor for the plaintiff, gave the following evidence:

The sole director is Mr Gu, isn't he?---Ah, I believe so, I haven't checked for a while.

And you said earlier that you didn't tell him that your office had moved from 60 Eastern Road?---No.

Yes. But when did you tell him that the firm had moved; that Asia Pacific Lawyers had moved?---I might - I may have, ah - I may have told Robert Rafaniello, but not Richard. I haven't met him for a long time. I have - haven't had much contact with him at all.

Mr Gu gave evidence about an hour ago and said that it was in about June 2019, so only a few weeks ago, that you told him the firm had moved. Is that correct?---Ah, well, after all this happen, I've clearly, yeah - clearly, I might - I may have told him. Yes.

And he changed the registered address form with ASIC only last week?---I - I don't think I - I was involved in the change.[21]

43 Mr Nguyen deposed that he did not have any contact with the defendant or anyone on its behalf at any time that his legal practice moved out from the premises at 640 Eastern Road, South Melbourne regarding that fact, or to suggest that the defendant would change its registered office at any time.

44 The defendant submits that Mr Nguyen's affidavit should be acted upon, not the evidence given under cross‑examination by the plaintiff's counsel which, according to the defendant, is equivocal. The defendant says that if the plaintiff wanted to make something of the evidence, then Mr Nguyen's evidence should have been explored more carefully as to the time when those conversations with Mr Rafaniello may have occurred.

45 All I have before me is a statement that Mr Rafaniello may have been told that the office was changed. It was not explored, and not much can be made of that evidence.

46 I also have no evidence as to whether any of the letters or mail was received at the redirected address during the period from when the office changed and the statutory demand was served. I was informed that the defendant continued to trade. If it was trading, then there must have been some mail that had been received. If mail was to be received, then the address should have been changed.

47 The plaintiff submits that the defendant has not acted reasonably and relies on the decision by Sifris J regarding the appeal from the decision that the defendant had been served with the statutory demand.[22] His Honour said:

It is for a company or its agents to maintain adequate records with ASIC. Creditors are entitled to expect that documents posted to a company's registered office (and subject to any instances of misdelivery) have been effectively served on the company. Strangers to the company are not privy to information beyond that disclosed by the ASIC register and are not obliged to make further inquiries as to current addresses or mail redirections which have been arranged either by the company or its agents. This is the policy basis which underpins the ability for a person to serve a company pursuant to s 109X of the Act and upon which a presumption of service arises under s 29(1) of the AIA Act. It is also the reason why presumed service under s 29(1) is concerned with (and displaced by) delivery and not receipt of a document.

In von Risefer v Mainfreight International Pty Ltd (von Risefer) the Court of Appeal (Ashley JA and Beach AJA agreeing) said:[23]

It is important that a party wishing to serve a document on a company be able to rely upon details of the company's registered office in records maintained by ASIC. It is a company's obligation to maintain a satisfactory address. If things were otherwise, as Santow J stated in FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd -

... the evident legislative intent ... to provide an official public address for service would be defeated if a company could flout its obligations by simply failing to notify any change of that office. A resourceful and dishonest company could thus easily avoid service of documents and escape unwanted litigation by simply, "decamping" from the registered office without leaving a trail.

There is more than one way in which a company might fail to ensure that ASIC records of its registered office were up to date. It might simply move address and fail to keep ASIC informed - whether deliberately or carelessly. Again, as may well have occurred here, its directors might fail to keep themselves informed as to the registered office of the company's accountant, that address being in turn the registered office of the company.

Consistently with what Santow J said in FP Leonard, in any of those circumstances service of a document able to be served on the registered office of a company will be good service if service is averred - provided that the essential facts stated in the averment are not impugned.

However, the Court recognised that this overarching policy consideration does not transgress or overcome the essential question of fact relating to proof of non-delivery.[24] In the same vein, in Partners of Piper Alderman v Sharjade Pty Ltd, Barrett J said:[25]

Another relevant principle, however, is that stated with Basten JA with whom Ipp JA agreed in Deputy Commissioner of Taxation v Meredith (2007) NSWCA 354 ; (2007) 229 FLR 243. His Honour was discussing s 29 of the Acts Interpretation Act 1901 (Commonwealth), which is in relevant respects the same as s 109X(1)(a) of the Corporations Act . Basten JA said at [76]:

Section 29 in effect imposes on the intended recipient responsibility for ensuring that the document does not go astray after delivery to the postal address.

And I emphasise the words "after delivery to the postal address." (emphasis added)

In other words, a company cannot rely upon the fact that it has not received a statutory demand if it has moved addresses and the statutory demand has been delivered to its previous registered office, if that previous address remains on the ASIC register. It bears the consequences of non-receipt for it is the maker of its own misfortune. However, the company is still entitled to dispute whether the statutory demand was successfully delivered to its previous registered office. Failing to amend its registered office with ASIC, while imprudent, has no bearing on this factual issue. A document is either delivered to an address or it is not. This is the critical issue that his Honour was required to and did deal with.[26]

48 Here, it is the responsibility of the director to make sure that ASIC's records are updated at all times regarding the defendant's office, particularly when it has been trading. The director of the defendant should not be able to shift the blame onto his lawyer by saying that he was not told. The defendant was trading and the director had the responsibility of ensuring the registered office details were correct. I note that Mr Liu did not change the registered address until June 2018 some two months after the statutory demand came to his notice. I agree with Sifris J that it is for a company or its agents to maintain adequate records with ASIC. The agent of the defendant, being Mr Liu, has not acted reasonably.

49 The fact that mail was redirected does not release the defendant of its obligation to change the records in relation to the registered office. When Mr Nguyen redirected the mail, he filled out a form with five entities listed, but the defendant was not one of them. The redirection did not refer to the defendant.

50 The defendant has not established that it acted reasonably and in these circumstances even if the Masri Principle could apply it would not assist the defendant.

51 The defendant submits that the Court should exercise its discretion and stay the plaintiff's application pursuant to s 467 of the Act. Sections 467(1)-(2) of the Act provide:

S 467 Court's powers on hearing application

(1) Subject to subsection (2) and section 467A, on hearing a winding up application the Court may:

(a) dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application; or

(b) adjourn the hearing conditionally or unconditionally; or

(c) make any interim or other order that it thinks fit.

(2) The Court must not refuse to make a winding up order merely because:

(a) the total amount secured by one or more security interests in the property of the company is equal to or greater than the value of the property subject to the interest (or interests); or

(b) the company has no property.

52 The defendant submits that the Court should exercise its discretion and stay the plaintiff's application because the defendant has an off‑setting claim. For the purposes of the defendant's submissions, the Court was prepared to infer that the defendant's off‑setting claim would have resulted in the plaintiff having no standing to seek to wind up the defendant.

53 The defendant submits that the majority in ASIC v Lanepoint stated that there is a policy that disputes regarding statutory demands should, where possible, be determined prior to the determination of a winding up. Section 459S of the Act confirms this. The defendant submits that such a policy says nothing about what is to occur if there remains an issue about the debt at the time of the application. Here, the defendant raises two issues in support of its submission that the stay should be granted. First, because there was no prior opportunity to contest the debt, and second, that the defendant's off‑setting claim is a strong claim. For the purposes of the defendant's submissions I have assumed that there could not be any other offsetting claim that is stronger than the defendant's claim.

54 In the exercise of my discretion, I must look at what the interests of justice require. McPherson also considers public interest in the context of a wind-up and states:

It is submitted that where a company is shown to be insolvent, to refuse a winding-u order is to wrongly favour the company over the public interest. Rather, the courts should err on the side of the public and ensure that the company is not permitted to return to the market place and have the opportunity of running up further debts. If the company were permitted to trade on it is likely that it would increase its debts, and if a winding up occurred it would be the general body of unsecured creditors which would suffer as they would receive less than if a winding up had been ordered on the previous application.

The problem with the first approach is that it is limited to considering the issue of standing , which involves emphasising the relationship between the applicant for winding up and the company, that is, is there a debt owed to the applicant? But, as indicated above, the issue of whether a company should or should not be wound up can and usually does affect many parties, and considerations of public policy must not be ignored. In Re Western Welsh International System Buildings Ltd (1983) 1 BCC 296, Harman J said that it:

[M]ust always be remembered in winding-up proceedings in this court: that a winding-up is not a lis inter partes. The presentation of a petition is not a matter between the petitioner and the company alone. On the presentation of a petition all debts of the company then outstanding ought to be paid pari passu, if possible.[27]

55 Here, the defendant continues to trade and yet it is presumed insolvent and has not provided any evidence to demonstrate that it is solvent. There should have been at least an attempt to demonstrate solvency. It is clearly against the public interest that insolvent companies should continue trading and amassing debts. Even though this is not relevant to my discretion, I note that there have been three previous winding up applications within a short period of time against the defendant. This is the fourth. There were two supporting creditors in this application, but the plaintiff's Counsel advised that they have now decided to commence their own winding up applications.[28] There are, in my view, no grounds upon which a stay should be granted.

[1] [2004] NSWSC 551; (2004) 49 ACSR 719.

[2] [2008] FCA 1777.

[3] [2009] NSWSC 97.

[4] [2012] NSWSC 1478.

[7] [2011] HCA 18; [2011] 244 CLR 1 ('ASIC v Lanepoint').

[10] Thomson Reuters, Westlaw AU, McPhersons Law of Company Liquidation (at 9 April 2015) 3 Whether creditors' debt may be disputed if company insolvent anyway, [3,1260].

[12] The issue is discussed in relation to English law, but with reference to a significant number of Australian decision, in Keay, "Insolvent Companies Which are Able to Dispute Debts Owed to Petitioning Creditors: Should They be Wound Up?" [1998] 19 Co Law 230.

[13] Australia Securities and Investments Commissions v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1; 85 ALJR 654; [2011] HCA 18 at [30], [33], [52].

[14] [1968] 2 All ER 769.

[15] Thomson Reuters, Westlaw AU, McPhersons Law of Company Liquidation (at 9 April 2015) 3 Whether creditors' debt may be disputed if company insolvent anyway, [3,1260].

[16] Ibid, '3 Insolvency Sufficient if Dispute Only to Amount of Debt' [3.1260].

[21] Transcript 20 June 2019, T63.28-64.13.

[22] [2019] VSC 671.

[23] [2009] VSCA 179; (2009) 25 VR 366, 373 [21] (Ashely JA).

[25] [2011] NSWSC 6 [15] (Barrett J).

[26] Re AXF Group Pty Ltd [2019] VSC 671, [61]-[64].

[27] Thomson Reuters, Westlaw AU, McPhersons Law of Company Liquidation (at 9 April 2015) 3 Whether creditors' debt may be disputed if company insolvent anyway, '3 Insolvency Sufficient if Dispute Only to Amount of Debt' [3,1260].

[28] Transcript 14 October 2019, T106.28-29.