QBE Workers Compensation v Wandiyali A.T.S.I. Incorporated; S E Kilroy - Applicant

CATCHWORDS : ASSOCIATIONS AND CLUBS - incorporated associations - winding up - order for winding up made by registrar ex parte on proof of non-compliance with statutory demand applicable to company - separate winding up jurisdiction under Associations Incorporation Act - Corporations Act not applicable to winding up application and order affecting incorporated association - no power of registrar to exercise Supreme Court's jurisdiction to make such order Assocations Incorporation Act 1984, s.51 Corporations Act 2001 (Cth), Part 5.7, s.5F LEGISLATION CITED : Corporations (Ancillary Provisions) Act 2001, ss.13, 15(1) Supreme Court Act, s.121 Supreme Court Rules 1970, Division 23 (rules 80 to 82) Cameron v Cole (1944) 68 CLR 571 Commonwealth v Emanuel Projects Pty Ltd (1996) 21 ACSR 36 Joye v Beach Pertoleum NL (1996) 20 ACSR 525 CASES CITED : Lunn v Cardiff Coal Company (2002) 43 ACSR 649 Re Crust'n'Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 QdR 76 Sandell v Porter (1966) 115 CLR 660 Taylor v Taylor (1979) 143 CLR 1 Webster v McIntosh (1980) 49 FLR 317 QBE Workers Compensation (NSW) Limited - Plaintiff PARTIES : Windiyali A.T.S.I. Incorporation (In liquidation) - Defendant Stephen Eric Kilroy - Applicant FILE NUMBER(S) : SC 3794/04 Mr B J Skinner - Plaintiff COUNSEL : Mr J T Johnson - Liquidator Mr S Agosta, Solicitor - Applicant SOLICITORS : Jones King Lawyers - Plaintiff Purcell Insolvency Lawyers - Applicant

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

3794/04 - QBE WORKERS COMPENSATION (NSW) LIMITED v WANDIYALI A.T.S.I. INCORPORATED (IN LIQUIDATION); STEPHEN ERIC KILROY - APPLICANT JUDGMENT 1 By an interlocutory process filed on 25 October 2004, Stephen Eric Kilroy applied for:

(a) an order pursuant to Part 40 rule 9 of the Supreme Court Rules that orders made on 12 August 2004 be set aside; or

(b) an order pursuant to s.482 of the Corporations Act 2001 (Cth) terminating the winding up of the defendant.

The orders of 12 August 2004 were made on the application of the plaintiff, QBE Workers Compensation (NSW) Limited. They were an order that the defendant, Wandiyali A.T.S.I. Incorporated, be wound up, an order that liquidators be appointed and an order as to the costs of the plaintiff. A registrar of the court made those orders in the absence of the defendant. 2 I heard Mr Kilroy's application on 25 October 2004. There was no appearance for the plaintiff on that occasion, its solicitors having informed Mr Kilroy's solicitors that there was no objection by the plaintiff to termination of the winding up provided its debt and costs were paid. I reserved judgment on Mr Kilroy's application. 3 In the course of considering the matter after judgment had been reserved, I formed certain tentative views pointing towards a conclusion that the orders of 12 August 2004 ought not have been made. Because I did not wish to express such a conclusion without the plaintiff having had an opportunity to make submissions to the contrary, I had my Associate write to Mr S P Agosta of Purcell Insolvency Lawyers, the solicitors for Mr Kilroy, on 27 October 2004 as follows: " Dear Mr Agosta Justice Barrett has asked me to inform you that he has formed a tentative view that (a) s.51 of the Associations Incorporation Act alone confers jurisdiction to make a winding up order in respect of an incorporated association; (b) neither s.459C nor s.585(a) of the Corporations Act can be the source of any presumption that an incorporated association is unable to pay its debts as referred to in s.51(1)(c) of the Associations Incorporation Act ; (c) a registrar of the court has no power to exercise the jurisdiction to make a winding up order under the Associations Incorporation Act ; and (d) there is accordingly a need for orders 1, 2 and 3 made on 12 August 2004 to be set aside. His Honour is, however, unwilling to come to any final conclusions on these matters in the absence of an opportunity for the plaintiff, QBE Workers Compensation (NSW) Pty Limited, to be heard on the question whether the orders made on its application should be set aside. He has therefore directed that your client's application be listed for further mention before him as Corporations List Judge on Monday next, 1 November 2004, and requests that you immediately notify the plaintiff's solicitors of the content of this letter so that the plaintiff may attend on that occasion if it wishes to do so." 4 Mr Kilroy's application was accordingly listed before me for mention in the Corporations List today. On that occasion, Mr Agosta again appeared for Mr Kilroy, Mr J T Johnson of counsel appeared for the liquidator appointed by one of the orders made on 12 August 2004 and Mr B J Skinner of counsel appeared for the plaintiff. Orders were made by consent of those parties, Mr Skinner saying that his client agreed with the observations in the Associate's letter. The first was an order for the payment of the plaintiff's debt (as well as the liquidator's fees) out of funds held by the liquidator. The others were an order that the winding up order and costs order made on 12 August 2004 be set aside, an order that the plaintiff's originating process seeking winding up be dismissed and an order that there be no order as to costs. 5 Although Mr Kilroy's application was eventually disposed of by consent in this way, it is desirable that I publish short reasons explaining the views expressed in the letter of 27 October 2004, particularly as those reasons may be relevant to the way in which any similar applications for winding up in the future are formulated and prosecuted. 6 The defendant operates an Aboriginal youth service providing low cost accommodation in the Newcastle-Hunter region to young, low-income Aboriginal families. It is an association incorporated as such under the Associations Incorporation Act 1984. Mr Kilroy, the present applicant, is a member of the defendant and its public officer. 7 Because of its particular form of organisation, the defendant is not a "company" as defined by s.9 of the Corporations Act. Nor is it a "Part 5.7 body" as defined by that section. The reasons for the latter conclusion correspond with those outlined at paragraphs [9] to [22] of the judgment in Lunn v Cardiff Coal Company (2002) 43 ACSR 649. These factors - coupled with the express stipulation in s.6 of the Associations Incorporation Act that an incorporated association is an "excluded matter" for the purposes of s.5F of the Corporations Act - mean that the Corporations Act creates no jurisdiction for a "Court", as defined by that Act, to make a winding up order in respect of the defendant. 8 Jurisdiction with respect to winding up of bodies of this kind is, however, conferred by State law. Section 51(1) of the Associations Incorporation Act empowers the "Court" (defined by s.3 to be the Supreme Court of New South Wales) to order the winding up of an incorporated association on any one of several specified grounds, including "if the incorporated association is unable to pay its debts" (s.51(1)(c)). Under s.51(2), application for an order for the winding up of an incorporated association may be made by the incorporated association or a member or creditor of the incorporated association or the Director-General of the Department of Fair Trading. The plaintiff in the present proceeding was a creditor of the defendant. Section 51(3) then provides: "The winding up of an incorporated association (other than by a voluntary winding up) by the Court in New South Wales is declared to be an applied Corporations legislation matter for the purposes of Part 3 of the Corporations (Ancillary Provisions) Act 2001 in relation to Part 5.7 (Winding up bodies other than companies) of the Corporations Act 2001 of the Commonwealth, subject to the following modifications: (a) the modifications referred to in section 52, (b) the provisions of the Part are to be read as if that Part extended to the winding up of the affairs of an incorporated association in New South Wales, (c) such other modifications (within the meaning of Part 3 of the Corporations (Ancillary Provisions) Act 2001 ) as may be prescribed by the regulations." 9 The consequences of the declaration thus made by s.51(3) are stated in s.14(1) of the Corporations (Ancillary Provisions) Act 2001, a New South Wales Act: "This Part applies to a provision of a law of the State if the provision declares a matter to be an applied Corporations legislation matter for the purposes of this Part in relation to any of the following (whether with or without modifications): (a) the whole of the Corporations legislation, (b) a specified Act, regulations or other instrument forming part of the Corporations legislation, (c) a specified provision or provisions of the Corporations legislation or of an Act, regulations or other instrument forming part of the Corporations legislation." 10 Section 51(3) of the Associations Incorporation Act is a provision of the kind thus mentioned, in that it declares the winding up of an unincorporated association (being a "matter", within the meaning of s.13 of the Corporations (Ancillary Provisions) Act) to be an "applied Corporations legislation matter" for the purposes of Part 3 of the Corporations (Ancillary) Provisions Act in relation to "a specified provision or provisions of the Corporations legislation", being Part 5.7 of the Corporations Act 2001 (Cth). That brings into play s.15(1)(c) of the Corporations (Ancillary Provisions) Act: "(1) Subject to this Part, a declaratory provision has effect in relation to a matter as follows: (a) … (b) … (c) if the declaratory provision is one to which section 14(1)(c) applies, the provision or provisions specified by the declaratory provision applies or apply in relation to the matter as if it or they were a law or laws of the State." 11 As a result, a combination of the Associations Incorporation Act of New South Wales and the Corporations (Ancillary Provisions) Act of New South Wales causes Part 5.7 of the Corporations Act of the Commonwealth to apply to "[t]he winding up of an incorporated association (other than by a voluntary winding up) by the Court in New South Wales" as if that Part 5.7 were a law of New South Wales. There is then a question as to the meaning of the quoted words. 12 The context indicates, in my opinion, that this reference to "winding up" is a reference to the process of winding up that is set in train by and follows on from an order made under s.51(1) of the Associations Incorporation Act. That section itself empowers the court to "order the winding up of an incorporated association". The order, if made, is an order directing winding up. It causes to begin the process of collection and realisation of assets and ascertainment and satisfaction of claims that leads to a situation where winding up is complete. The meaning of "winding up" in the expression "[t]he winding up of an incorporated association … by the Court in New South Wales" is to be understood in the way described by McPherson SPJ in Re Crust'n'Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 QdR 76 at p.78: "Winding up is a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled. It is a process, comparable to an administration in equity, that begins or 'starts' with an order of the court. However, it is not the court order itself that 'winds up' the company; the order does no more than direct that the company be wound up, which is then carried into effect by an officer of court, the liquidator, who does the things I have identified in order to liquidate the company's assets and wind up its affairs. In referring to 'winding up' or to the company being 'wound up', and to the manner and the incidents of doing so, s 601 therefore speaks not of proceedings aimed at obtaining an order of court to wind up the company but of the process that ensues from and follows such an order. Leaving aside the case of a successful appeal, winding up thus 'starts' when, and not before, an order to wind up is made appointing a liquidator."

See also Joye v Beach Pertoleum NL (1996) 20 ACSR 525; Commonwealth v Emanuel Projects Pty Ltd (1996) 21 ACSR 36. 13 With s.51(3) of the Associations Incorporation Act understood in this way, it is seen that the procedure for obtaining an order for winding up in respect of an incorporated association is that prescribed by ss.51(1) and (2) of the Associations Incorporation Act and that the applied provisions of Part 5.7 of the Corporations Act, while operating with the force of State law only upon and in relation to the process of winding up consequent upon an application under s.51(2) and an order under s.51(1), do not operate in relation to the actual making of the order . 14 It follows that so much of Part 5.7 of the Corporations Act as confers upon a "Court", as defined by that Act, jurisdiction to order that a body be wound up is not applied and does not operate in relation to an association incorporated under the Associations Incorporation Act. It is, to my mind, logical that that aspect of Part 5.7 should not be available in relation to such an association, given that it is quite at odds with s.51 of the Associations Incorporation Act. For example, the jurisdiction to make an order for winding up under Part 5.7 is exercisable not only by the Supreme Court of New South Wales but also by any of the several other Australian courts within the definition of "Court" in s.58AA, whereas the Associations Incorporation Act confines the winding up jurisdiction to this court (it is to be noted that the modifications in s.52 do not cause "Court" to be confined to the Supreme Court of New South Wales). Also, s.583 (within Part 5.7) allows the making of a winding up order on grounds not available under s.51(1) of the Associations Incorporation Act which, in turn, contemplates the making of an order on grounds not available under s.583. Furthermore, while, under each enactment, winding up may be ordered if the body is "unable to pay its debts": (Corporations Act, s.583(c); Associations Incorporation Act, s.51(1)(c)), the Corporations Act provision causes a presumption of inability to pay debts to arise in certain circumstances (see s.585(a), (b) and (c)) but there is no corresponding provision in the Associations Incorporation Act. 15 These differences between the two enactments (combined with the fact that the Associations Incorporation Act makes no provision with respect to the conduct of a winding up) confirm and consolidate the view that Part 5.7 of the Corporations Act, as applied, in the form of State law, by the Corporations (Ancillary Provisions) Act, is concerned only with the process of winding up of an incorporated association that is set in train as a consequence of the making of an order for winding up and that s.51 of the Associations Incorporation Act alone deals with the grounds on which the court may order winding up and the application for and making of such an order. 16 There is, however, one matter to which I need to refer specifically in this connection. There is some indication in the Associations Incorporation Regulation 1999 of an assumption that provisions in Part 5.7 of the Corporations Act 2001 (Cth) with respect to grounds for winding up are made applicable to incorporated associations. I refer to clause 15(f) of the regulation which purports to modify, among other provisions, ss.582(3) and 583(c)(iii) as they apply for the purposes of ss.50(2) and 51(3) of the Associations Incorporation Act. The appropriate course, however, is to leave those considerations to one side in accordance with the general rule that, as Brennan J said, with the concurrence of Deane and Kelly JJ, in Webster v McIntosh (1980) 49 FLR 317, "the intention of Parliament in enacting an Act is not to be ascertained by reference to the terms in which a delegated power to legislate has been exercised". 17 This leads me to a consideration of the circumstances in which an order purporting to be a winding up order was made in this case. The first order made by the court on 12 August 2004 was: "That the defendant company be wound up under the Corporations Act." 18 That order was made on the basis of affidavit evidence which, in relation to the question of inability to pay debts (the ground relied upon by the plaintiff in seeking a winding up order), proved service of and non-compliance with a form of demand prepared and served in accordance with Division 2 of Part 5.4 of the Corporations Act dealing with "companies" as defined by that Act. The demand referred expressly to provisions of that Act (ss.459E(1), 459F(2) and 459G) and was in the form prescribed for the purposes of its Part 5.4. The solicitors for the plaintiff proceeded on the basis that a presumption of insolvency in relation to an incorporated association could be obtained by this means and the registrar by whom the order was made must be taken to have done likewise. 19 In truth, it seems to me, the plaintiff could not obtain the benefit of a presumption of insolvency by reason of the defendant's failure to comply with the demand. Because the defendant is not a "company" as defined by the Corporations Act, s.459C could not apply to create a presumption of insolvency; nor, for reasons already canvassed, was there any basis for the operation of the analogous provision as to presumption of inability to pay debts in Part 5.7 (being s.585(a)). The only evidence before the court relevant to the question of inability to pay debts was evidence of failure to pay one particular debt, being the debt referred to in the demand served by the plaintiff. Proof of failure to pay one debt ordinarily does not prove insolvency, which, according to its normal meaning, signifies inability to pay all debts as and when they fall due. As Barwick CJ said (with the concurrence of McTiernan and Windeyer JJ) in Sandell v Porter (1966) 115 CLR 660: "But standing alone … the non-payment of the debt of 141 pounds 11 shilling and sixpence does not establish an inability to pay that debt at the relevant times. However much it may lead to a suspicion that the debtor is not merely unwilling but in fact unable to pay it, the continuance of the unpaid debt itself does not establish the fact of that inability." 20 The judicial officer who disposed of the plaintiff's originating process can thus be seen to have proceeded on an incorrect view of the applicable legislation and on the basis of evidence that, of itself, did not (and could not) prove inability to pay debts for the purposes of s.51(1)(c) of the Associations Incorporations Act. 21 In addition, that judicial officer had no power to order that the defendant be wound up. Section 51 of the Associations Incorporation Act vests the relevant jurisdiction in the Supreme Court of New South Wales. Section 40 of the Supreme Court Act 1970 is in the following terms: " Single Judge to constitute the Court

(1) All proceedings in any Division and all business arising out of proceedings in a Division shall be heard and disposed of before a Judge, who shall constitute the Court.

(2) Subsection (1) does not affect the provisions of this Act and the rules concerning the hearing and disposal of proceedings and business before a master or before a registrar or other officer of the Court." 22 It follows from s.40(2) that if the winding up order made in this case by a registrar is to be regarded as regularly and properly made, it is necessary to identify a provision of the Supreme Court Act itself (or of what it calls "the rules", being the rules of court referred to in the definition of "rules" in s.19(1)) that enables a registrar to hear and dispose of an application for an order for the winding up of an association incorporated under the Associations Incorporation Act. 23 Part 77 of the Supreme Court Rules 1970 contains, in its Division 23 (rules 80 to 82), provisions with respect to proceedings under the Associations Incorporations Act as follows: " 80 Assignment of business Proceedings under section 40, section 54, section 55B or section 58 of the Associations Incorporation Act 1984 (the subject Act ) shall be commenced in the Equity Division. 81 Winding up (cf Part 80 rule 57, Part 80A rule 38 and Supreme Court (Corporations) Rules 1999 rule 10.3) (1) The rules relating to the winding up of bodies other than companies (including, where applicable, the Supreme Court (Corporations) Rules 1999 ) apply, so far as applicable, to, and in relation to, the winding up by the Court of an incorporated association. (2) Part 80 rule 3 and Part 80A rule 3 (3) (which relate to additions to the title) and the instructions concerning the title of the corporation contained in Form 1 of the Supreme Court (Corporations) Rules 1999 shall not apply to proceedings under the subject Act. (3) Documents in proceedings for relief under section 50, section 51, section 53 or section 58 of the subject Act shall bear above the title, a reference to the name of the incorporated association to which the proceedings relate together with "the Corporations Act 2001 and the Associations Incorporation Act 1984 ". 82 Appeal from liquidator etc (s 58) Without limiting the generality of rule 80, a person mentioned in section 58 of the subject Act, may, on application in writing made to him before the expiration of the time limited by Part 51A rule 3 (1) (other than the time extended by the Court) for instituting an appeal from his act, omission or decision, grant, by notice in writing, an extension of that time and where he does so, he shall deliver the notice to the applicant who shall file the notice with the summons instituting the appeal." 24 For reasons I have stated at paragraph [12] above concerning the meaning of "winding up", I do not consider that Part 77 rule 81(1) stipulates that the rules with respect to applications for orders winding up "bodies other than companies" and the making of such orders are to apply in relation to incorporated associations. But even if, in the context, that were the true effect of Part 77 rule 81(1), it would not lead to any conclusion that the relevant jurisdiction is exercisable by a registrar. 25 There are two provisions of the Supreme Court Rules referring to "bodies other than companies". They are Part 80 rule 57 and Part 80A rule 38 which are concerned with, respectively, Part XII Division 6 of the Companies (New South Wales) Code and Part 5.7 of the Corporations Law (as distinct from the Corporations Act 2001(Cth)). Even if one of those provisions had any application (and I do not think either does), it would not follow that relevant power was conferred on a registrar. This is because the only provisions of the Supreme Court Rules enabling a judicial officer other than a judge to deal with "bodies other than companies" are found in Schedule D which is the schedule concerned with the powers of masters of the court. It refers to "Winding up: bodies other than companies" in two places (one in relation to the Companies (New South Wales) Code and the other in relation to the Corporations Act 2001 (Cth)) in the table setting out powers of masters. But there is no provision of the Supreme Court Rules 1970 which, either directly or indirectly, allows the jurisdiction under s.51(1) of the Associations Incorporation Act to be exercised by a registrar of the court. The only powers of a registrar to make a winding up order are the powers under paragraphs 14(c) and 28(ba) of Schedule E to make certain such orders under the Companies (New South Wales) Code or the Corporations Act 2001 (Cth). 26 The present case can thus be seen to be one in which, in the absence of the defendant, a judicial officer lacking the power to do so purportedly made an order for winding up in the apparent belief that a presumption of insolvency had arisen under statutory provisions having no application to the matter before him and without any positive proof of inability to pay debts generally or any other ground for winding up provided for in the legislation governing winding up of the relevant body. 27 Because the order in question is an order of a superior court and has been entered in accordance with Part 41 of the Supreme Court Rules, it cannot be regarded as a nullity and will stand unless and until set aside. As s.121(4) of the Supreme Court Act confirms, this is the case in relation to an order made by a registrar even if the registrar's powers have been exceeded: " Powers (1) In this section officer means a registrar, taxing officer, or other officer of the Court. (2) An officer may exercise such powers of the Court as are, by or under this or any other Act, conferred upon the officer.

(3) A judgment given or an order made by an officer may be set aside or varied by the Court.

(4) Subject to subsection (3), a judgment given or an order made or direction given by an officer shall have effect as a judgment or order or direction of the Court, whether or not the judgment, order or direction is within the powers mentioned in this section of the officer.

(5) An officer shall constitute the Court for the purpose of the exercise of the powers mentioned in subsection (2)." 28 But the circumstances I have mentioned make it clear that the winding up order was, in the words of Rich J in Cameron v Cole (1944) 68 CLR 571 at p.591, affected by "irregularities so fundamental as to create an unconditional right, ex debito justitiae" to have it set aside. The power to set a judgment or order aside in such a case is an inherent and discretionary power of the court not dependent on Part 40 rule 9 of the Supreme Court Rules: see Taylor v Taylor (1979) 143 CLR 1. Because the order in question is an order made by a registrar, there is also the specific statutory jurisdiction under s.121(3) of the Supreme Court Act, which jurisdiction may, in light of s.40, be exercised by the court constituted by a judge. 29 Because the orders by which this matter w as eventually disposed of today were made by consent, there is no need for me to canvass the question whether Mr Kilroy needs to be joined as a defendant in order to seek to have the orders of 12 August 2004 set aside. I am inclined to think that, because of the clear irregularity attending those orders, it would have been open to the court to set them aside of its own motion, either in exercise of its inherent jurisdiction or pursuant to s.121(3) of the Supreme Court Act.

Last Modified: 11/03/2004 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.