MATTER : Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)

BETWEEN : PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD (Administrator Appointed)

DONALD CAMPBELL-SMITH AS EXECUTOR OF THE ESTATE OF MARTIN BANNING

Corporations law - Application to wind-up company in provisional liquidation - Turns on own facts

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38

Re Union Accident Insurance Co Ltd [1972] 1 WLR 640

Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661

Woodhead Firth Lee Pty Ltd v Archer Pty Ltd (1995) 13 ACLC 883

1 MASTER SANDERSON: This is the return of an originating process pursuant to which the plaintiffs seek to wind up the defendant. On 21 January 2010 Simmonds J, on the plaintiffs' application, appointed a provisional liquidator to the defendant. His Honour published reasons for doing so: Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38. In the course of his reasons Simmonds J dealt with the evidence then before the court. Since that time a number of further affidavits have been lodged. In reaching my decision in this matter I have taken into account all of the affidavits lodged in relation to the application for winding up and for the appointment of a provisional liquidator together with subsequent affidavits.

2 At all material times the directors of the defendant have been Angela Cecilia Theresa Frigger and her husband Hartmut Frigger. Although no formal application was made by Mr and Mrs Frigger to be joined as parties to these proceedings they have consistently appeared by counsel to oppose the plaintiffs' application. Their position was that as directors of the company they retained residual powers including the right to oppose a winding-up order. In support of this proposition they relied on Re Union Accident Insurance Co Ltd [1972] 1 WLR 640. Counsel for the plaintiffs and for the provisional liquidator did not oppose Mr and Mrs Frigger being heard in opposition to the application. Therefore, and without determining their right to appear, I heard submissions on their behalf.

3 The application to wind-up the defendant is based on two separate but interrelated grounds. First, it is said there has been a failure by the defendant to comply with two statutory demands both served in December 2009. Second, it is said that the company should be wound-up on the just and equitable ground. For reasons which will become apparent, it is only necessary to deal with the first of these two grounds.

4 It is common ground that both demands were served, and that the company did not pay either debt the subject of the demands (in fact, the amount of the first demand was paid but it was not paid by the company). In neither case was there an application to set aside the demand. Accordingly, a statutory presumption of insolvency has arisen and on this application it falls to the defendant to establish that it is solvent.

5 The second of the two demands was for an amount of $800,917.08. That debt arose in this way. On 9 July 2008 in CIV 2265 of 2006, following an action for damages by the plaintiff (the present defendant) against the defendants (the present plaintiffs), Simmonds J ordered that the defendants pay damages to the plaintiff. In or about June 2009 the plaintiff was paid $1,165,661.54. The defendants appealed from that decision and the appeal was allowed. As a consequence of the successful appeal the plaintiff was ordered to repay certain amounts to the defendants. Nothing has been repaid and the statutory demands relate to the amount to which the plaintiffs (in this action) are entitled consequent upon the successful appeal.

6 Prior to the hearing of this matter the solicitors for Mr and Mrs Frigger wrote to the court foreshadowing an application for an adjournment. When the matter was called on the application for an adjournment was duly made. Counsel submitted four grounds which he said justified the grant of an adjournment. First, it was said that as an application for special leave to appeal had been lodged with the High Court in relation to the Court of Appeal decision which gave rise to the second of the statutory demands, the matter should be adjourned. In his written submissions counsel said (par 8):

A winding-up application should be adjourned if the debt is a judgment sum which is being appealed. The winding-up application should be adjourned pending outcome of the appeal, provided that the appeal has merit: Woodhead Firth Lee Pty Ltd v Archer Pty Ltd (1995) 13 ACLC 883.

7 That submission is misleading. In Woodhead Firth Lee Pty Ltd v Archer Pty Ltd (1995) 13 ACLC 883 the application to wind-up was based not on failure to comply with a statutory demand, but on the company's failure to pay a judgment debt. The debt had arisen as a consequence of a judgment in the District Court. That judgment was the subject of an appeal. Master Burley concluded that the question to be determined by the Court of Appeal was whether or not the plaintiff was in fact a creditor of the company. In those circumstances where the appeal was not without merit and was being pursued with due diligence, the application to wind-up ought was adjourned. But that situation is significantly different to the position in this case. The fact there is on foot an application for special leave could not, in my view, without much more, warrant a stay of execution.

8 Second, it was submitted that on an application to the Court of Appeal for a stay of execution of the Court of Appeal judgment the court had determined the stay application ought be determined after the application for special leave. In fact that was not the case at all. An urgent application was made by Mr and Mrs Frigger for a stay. When the matter was called on counsel for Mr and Mrs Frigger sought and were granted an adjournment. That adjournment had nothing to do with any view that the Court of Appeal may have taken as to the appropriate course of action. Put at its best the way this issue was raised in correspondence by Mr and Mrs Frigger's solicitor was apt to mislead.

9 Third, it was said that the application for special leave to appeal was listed before the High Court on 28 May. The implication was that only a short adjournment was necessary. In fact, the matter is not listed on 28 May at all. As I understand the position, there is a list of matters lodged in the Perth Registry which is to be determined on 28 May. It has not yet been decided whether the defendant's application will be included in the list. Once again the way this issue was raised was misleading.

10 Finally, it was said Mr and Mrs Frigger had recently changed solicitors and the counsel of their choice was not available. This matter came before me on 4 March 2010. On that date I ordered the filing of submissions and adjourned the matter to 16 March 2010. When the matter came on on that day it became apparent not enough time was available to hear the application. It was then adjourned for a period of just over six weeks. During that period Mr and Mrs Frigger changed solicitors. They were quite entitled to do so. However, they were aware of the plaintiffs' determination to press on with the application. Furthermore, they have changed solicitors numerous times in the past. This latest change of solicitor could not be allowed to stand in the way of the matter proceeding, nor could counsel's unavailability.

11 In my view, there was no justification whatever for adjourning this application. I therefore refused the application of Mr and Mrs Frigger and the matter proceeded accordingly.

12 In his written submissions counsel for Mr and Mrs Frigger sought to raise what was said to have been a failure to properly serve the statutory demand. Pursuant to s 459S of the Corporations Act 2001 (Cth) a company requires leave to oppose a winding-up application on a ground that could have been raised on an application to set aside a statutory demand. The operation of this section has been the subject of a number of decisions perhaps most importantly the decision of the Court of Appeal in New South Wales in Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661. It is unnecessary to review that decision in any detail. There was simply no real effort either in the evidence or in submissions made by Mr and Mrs Frigger to bring themselves within the terms of the section.

13 Accordingly, there having been no application to set aside the statutory demand and no compliance with the demand, there arises a presumption of insolvency.

14 In support of the application the plaintiffs relied upon three affidavits of the provisional liquidator Mervyn Jonathan Kitay, the first sworn 11 February 2010, the second sworn 26 February 2010, and the third sworn 27 April 2010. None of the material in these three affidavits was challenged by counsel for Mr and Mrs Frigger. Three points can be made about these affidavits.

15 First, Mr and Mrs Frigger have not co-operated with the provisional liquidator. Despite numerous attempts to obtain access to the books of the defendant they have not been provided to Mr Kitay. That is a clear breach by Mr and Mrs Frigger of their obligations under the Corporations Act.

16 Second, Mr and Mrs Frigger have not provided a verified report as to affairs. (In an affidavit sworn 8 February 2010 Mrs Frigger provides a signed report as to affairs; however the document is not properly verified.) Despite being invited to do so by the provisional liquidator she has not verified the report. Once again, this is a clear breach by Mr and Mrs Frigger of their obligations under the Corporations Act.

17 Thirdly, and perhaps most importantly, the investigations by Mr Kitay indicate the defendant is insolvent. No elaborate examination of Mr Kitay's evidence is necessary. The defendant is indebted to the plaintiffs in an amount of over $800,000. It does not have the capacity to make that payment. It is therefore not able to meet its debts as and when they fall due and it is prima facie insolvent.

18 In opposition to this application Mrs Frigger filed two affidavits, the first sworn 3 March 2010 and the second sworn 27 April 2010. In both affidavits Mrs Frigger pointedly fails to address Mr Kitay's claim she has refused to produce the books and records of the defendant and has failed to complete a report as to activities. That does not go to the question of whether or not the defendant company is insolvent. It does, however, raise questions as to Mrs Frigger's bona fides.

19 Given the position of the defendant the only way that Mrs Frigger's evidence could establish the defendant is solvent would be for her and her husband to personally undertake they would meet the debts of the defendant as and when they fell due. No such undertaking is found in either affidavit. Mrs Frigger does maintain she and her husband have sufficient assets to meet the debts of the defendant, but they do not undertake to make payment of those debts. For instance, par 28 of the affidavit of Mrs Frigger of 3 March 2010 is in the following terms:

My husband and I have instructed our solicitors, Clavey Legal, to undertake to this honourable court for us that sums payable to [the first plaintiff] ... pursuant to the Court of Appeal judgment, will be paid for [the defendant] by us out of the term deposit referred to in paragraph 27 above, if the High Court of Australia either declines [the defendant's] application for special leave to appeal from the Court of Appeal's judgment or alternatively dismisses [the defendant's] appeal.

That is not an undertaking to pay the defendant's debts as and when they fall due.

20 Much of the material in Mrs Frigger's affidavits is irrelevant to the questions at issue. It seems rather more directed to the question of what assets a liquidator may be able to recover from Mr and Mrs Frigger during the course of a liquidation. There is simply no evidence which would justify a conclusion the defendant can meet its debts as and when they fall due. The presumption of insolvency has not been displaced.

21 The defendant ought be wound-up. I will hear the parties as to the precise form of orders and as to costs.