Randall Pty Ltd v Chepan Pty Ltd

CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside statutory demand dismissed - plaintiff seeks extension of time for compliance on basis of intention to appeal - whether arguable case on appeal shown - absence from demand of warning obviously addressed to recipient company and drawing attention to need to deal with statutory demand - particular demand dealt with by recipient company within time - argument that injustice will be occasioned to all companies if particular defective demand not set aside - no arguable case on appeal - extension of time for compliance refused

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 9, 459F(2)(a)(i), 459G, 459J(1)(a), 459S Corporations Amendment Regulations 2007 (No 13)

Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; (2004) 50 ACSR 544 CASES CITED : Jem Devlopments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1378; (2006) 60 ACSR 393 Randall Pty Ltd v Chapan Pty Ltd [2009] NSWSC 791 Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 783

Randall Pty Limited - Plaintiff PARTIES : Chepan Pty Limited - First Defendant Angela Kallinicos - Second Defendant

COUNSEL : Mr M R Pesman - Plaintiff Mr G K Burton SC - Defendant

SOLICITORS : Moloney Lawyers - Plaintiff Konstan Lawyers - Defendants

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

2219/09 RANDALL PTY LIMITED v CHEPAN PTY LIMITED & ANOR

1 I am dealing with the plaintiff's application under s 459F(2)(a)(i) of the Corporations Act 2001 (Cth) for an order extending the time for compliance with a statutory demand served on it by the defendant. A like application was made last Monday and resulted in an extension of time on a temporary basis up to today: Randall Pty Ltd v Chapan Pty Ltd [2009] NSWSC 791. 2 The renewed application now before me is advanced on the footing that the plaintiff intends to appeal against the order dismissing its s 459G application in respect of the statutory demand. That order was made by White J on 4 August 2009: Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 783. 3 Both parties have addressed the current application on the basis that the approach that the court should take is that indicated in Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd [2004] NSWSC 877; (2004) 50 ACSR 544 and Jem Devlopments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1378; (2006) 60 ACSR 393. 4 The first matter to consider, therefore, is the prospects of success in the proposed appeal and whether an arguable case has been shown. 5 In determining the plaintiff's s 459G application, White J dealt with two grounds of challenge. Only one of these is intended to become the subject of the appeal. The scope of the proposed appeal and the grounds of appeal appear from final draft documents prepared for filing in the Court of Appeal and put into evidence by the plaintiff upon the hearing of the present application. 6 The relevant ground relied on before White J was absence from the statutory demand of a form of words, by way of note, required by the amended prescribed form 509H to be included within paragraph 5 of a statutory demand. By virtue of the Corporations Amendment Regulations 2007 (No 13) made on 26 September 2007, the note is part of the required content of every statutory demand issued on or after 1 January 2009. The note (which must appear in bold type and in a box) is in these terms: "A failure to respond to a statutory demand can have serious consequences for a company. In particular it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company." 7 It is obvious that the warning intended to be conveyed by the note is a warning to the company on which the statutory demand is served. It encourages the subject company to respond to the statutory demand by pointing out the serious consequences that the company may otherwise suffer. Since the warning occurs immediately after paragraphs of the demand referring to twenty-one day time limits, it is to those time limits that the warning note necessarily directs particular attention. 8 It is not disputed that absence of the warning note from the particular statutory demand dated 17 March 2009 amounted to a "defect" in the demand (see the s 9 definition of "defect"). But White J held that the defect, by way of omission, was not of such a quality that, unless the demand was set aside, substantial injustice would be caused. Only if the defect had been of that quality would the power of the court under s 459J(1)(a) to set aside the demand have been activated. 9 White J noted that, according to the decided cases, the only species of injustice that is relevant to the operation of s 459J(1)(a) is that which affects the company on which the demand is served. His Honour noted, however, that a different approach was advocated by the plaintiff in respect of the particular form of defect before him, that is, a defect consisting of omission of the warning note. The plaintiff's argument was, in effect, that the purpose of the warning note is to alert all companies receiving statutory demands to the special significance of such a document, so that, in addressing the question of injustice, attention must be given to the interests of companies beyond the particular company on which a particular demand has been served. 10 His Honour went on to articulate and deal with this submission in the following way: "[15] … If the warning were omitted with the result that the officers of the recipient company did not take steps within 21 days to satisfy the demand or applied to have it set aside, it would be too late to do so ( David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265). No amendment was made to the Act to permit a company to apply to have a statutory demand set aside after 21 days after service on the ground that the required warning was omitted. But, counsel submitted, in every case where the application to set aside the demand is made within time, the applicant company will not have been prejudiced by the omission of the required warning. Counsel submitted that to ignore the defect because no substantial injustice was occasioned to the recipient would be to make the amendment a dead letter. That is, so counsel submitted, the creditor serving the demand could safely ignore the requirement of the amended form. If the company failed to apply to set aside the demand within 21 days it would be too late for it to do so later, even if it would have acted promptly had the warnings been made as required. But if the company moved within the required period, it could always be said that there was no substantial injustice if the need to prove substantial injustice required proving that the recipient of the demand was adversely affected by the omission.

[16] In my view, this submission overstates the position. If a company which receives a statutory demand genuinely disputes the claimed debt, and if the claimed debt is material to proving the company's solvency, then the company may seek leave of the Court to oppose a winding-up application on a ground on which the company could have relied to set aside the demand had the application been made within time (s 459S).

[17] It is true, as counsel for the plaintiff submitted, that it will be difficult for the company to show that the absence of the required warning was itself a sufficient ground on which it could have relied on an application to set aside the statutory demand had the application been made within time, because of the difficulty of proving in a case brought within time that the defect through the omission of the warning would occasion substantial injustice if the demand were not set aside. But where the company would have been entitled, had the application been made in time, to have the statutory demand set aside on the ground there was genuine dispute as to the debt, the absence of the prescribed warning might well be significant in persuading the court to exercise its discretion under s 459S to grant leave. One of the issues required to be taken into account in exercising the discretion to grant leave under s 459S(1) is the reason the issue of indebtedness was not raised in an application to set aside the demand ( Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179).

[18] It is also possible to envisage other instances where a recipient company which applies within time to set aside a statutory demand that omits the required warning, could establish substantial injustice within s 459J(1)(a) if the demand were not set aside. Thus, if the omission of the warning caused the officers or directors of the company to delay in obtaining legal advice such that a rushed application to set aside the statutory demand within time had to be made, and the supporting affidavit omitted grounds of genuine dispute such that the company was thereafter precluded from raising those grounds on the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, then it might well be found that the omission of the required warning was a basis for setting aside the demand pursuant to s 459J(1)(a).

[19] Thus, I do not accept that there would be no effective sanction against non-compliance with the 2007 Regulation if an applicant relying upon such a defect were required to prove that the defect had some effect, adverse to it, on the way it acted or omitted to act. However, even if there were no effective sanction against non-compliance with the form, it would not follow that the requirements of s 459J(1)(a) for establishing substantial injustice could be ignored. Whilst counsel for the plaintiff submitted that a different approach to assessing what is substantial injustice was required in the case of such a defect, I do not understand counsel to have identified with any particularity what injustice would be occasioned to the plaintiff if the demand were not set aside.

[20] Here, no injustice was occasioned by the defect, substantial or otherwise, and I do not see that any injustice will be caused to the plaintiff if the demand is not set aside." 11 Upon its proposed appeal, the plaintiff will again contend that "substantial injustice" within s 459J(1)(a) is not confined to injustice to the company on which the demand has been served. It will be argued that there is a wider concept of injustice at work - to the effect that, if the warning note is absent and the offending statutory demand served on the particular company is not set aside, then every company in existence will face a situation in which it could be exposed to winding up proceedings without having been given the essential warning. Furthermore, the argument runs, it will be cold comfort to the universe of companies that the defect by omission might, in a particular case, become the subject of an application for leave under s 459S since the defect, of itself, could never be material to proving solvency so that s 459S(2) could never be satisfied and, therefore, an order granting leave under s 459S(1) could never be made. 12 An appeal advanced on this basis would, in my opinion, enjoy no prospects of success. The purpose of the warning note is obvious. It exists in order to instil in the particular company receiving the particular statutory demand a sense of urgency so that that company acts, if it acts at all, within the statutory time limit. If an application is duly made under s 459G, the particular recipient company has, by definition, acted within the statutory time limit and avoided the dangers to which the warning note is directed; so that it is immaterial whether or not it was actually given the warning. 13 If the concept of injustice for which the plaintiff intends to argue were accepted, the result would be that every demand which omitted the warning note was ipso facto liable to be set aside. The wider concept of injustice to the universe of companies postulated by the plaintiff's submission would always operate regardless of the circumstances of the particular case based, as it is, on the susceptibility of that universe of companies to become subject to a presumption of insolvency at some point because of non-compliance with a defective demand. 14 It simply cannot be accepted that the regulation requiring the inclusion of the warning note was intended to operate in that way. Had there been an intention that a particular form of defect in a statutory demand should, of its very nature and regardless of surrounding circumstances, always be within s 459J(1)(a) and unquestionably cause, as it were, automatic injustice in every case regardless of circumstances, the law would have been changed to say, quite simply, that a statutory demand not carrying the warning note was void. 15 It is clear from the decided cases and, in my view, from the Act itself, that the question of substantial injustice posed by s 459J(1)(a) is to be addressed by reference to the circumstances of the particular case. The injustice that must be considered is any injustice that arises in the totality of the circumstances of the particular case. Submissions to the effect that injustice will be occasioned to the universe of companies in every case because of a defect in a statutory demand served on one particular company do not withstand scrutiny. 16 In addition, I consider that White J has demonstrated in paragraphs [16] to [20] of his judgment that the particular form of defect might, in certain circumstances, found an application under s 459S. The example his Honour gives in paragraph [18] deals sufficiently with the s 459S(2) point. 17 Where, as in this case, an application under s 459G is duly made, the situation is one in which the adverse contingency to which the warning note is directed simply has not eventuated. No one has been prejudiced by the absence of the note. That absence has produced no relevant injustice. 18 In summary, therefore, I am of the opinion that the proposed ground of appeal is unarguable and that the prospects of success on appeal or at the anterior stage, upon an application for leave to appeal, are zero. That being so, there is no need to consider the other questions arising upon an application such as this, namely, whether the appeal will be rendered nugatory unless an extension of time is granted and the question of the balance of hardship. 19 The plaintiff's interlocutory process styled "notice of motion" filed on 7 August 2009 seeking an extension of time under s 459F(2)(a)(i) is dismissed.

[Counsel addressed on costs] 20 I order that the plaintiff pay the defendant's costs of the interlocutory process, including reserved costs. **********

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