Sheslow v Diamond Rose NL

CATCHWORDS : CORPORATIONS - winding up - application based on alleged non-compliance with statutory demand - demand not stated to be under Corporations Act and omitting much required content - held not "statutory demand" - in any event served long before start of s.459C(2)(a) period

Corporations Act 2001 (Cth), ss.459C(2), 459E, 459Q LEGISLATION CITED : Corporations Regulations 2001 (Cth), Form 509H

Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 Pinn v Barrowleg Pty Ltd (1997) 23 ACSR 541 CASES CITED : Topfelt Pty Ltd v State Bank of New South Wales (1993) 47 FCR 226 Vicbar Pty Ltd v Development Constructions (Newcastle) Pty Ltd (1995) 13 ACLC 1220

Richard Myron Sheslow - Plaintiff PARTIES : Diamond Rose NL - Defendant

Plaintiff in person COUNSEL : Mr M.P. Cleary - Defendant

Plaintiff in person SOLICITORS : Corrs Chambers Westgarth - Defendant

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

JUDGMENT 1 The plaintiff seeks an order for the winding up of the defendant. His originating process is expressed to be based on s.459Q of the Corporations Act 2001 (Cth) and, by that reference and otherwise, makes it clear that winding up is sought on the ground of insolvency. The supporting affidavit shows that non-compliance with a supposed statutory demand is the sole basis on which the case of insolvency is advanced. 2 The defendant says that the application is devoid of merit and has filed an interlocutory process claiming an order that it be dismissed or struck out. The defendant makes two basic points: first, that the supposed statutory demand is not a statutory demand at all; and, second, that the timing specification in s.459C(2) of the Corporations Act is, in any event, not satisfied. 3 The so-called statutory demand is in evidence. I set it out in full: "Statutory Demand under section 123(1)(a) or 222(1)(A) of the Insolvency Act 1986 To: Diamond Rose NL ACN: 075 860 472 ABN: 30 075 860 472 Address: 69 Penkivil Street, Bondi, N.S.W.2026 This demand is served on you by the creditor: Name: Richard Myron Sheslow Address: 5/70 Campbell Parade, Bondi Beach, N.S.W.2026 The creditor claims that the company will owe the sum of $21,755.00, particulars of which are set out on page 2. The creditor demands that the company do pay the above debt or secure or compound for it to the creditor's satisfaction. Signature of individual: (sgd) Richard M. Sheslow Name (Block Letters): RICHARD MYRON SHESLOW Date: 26 August 2004 Page 2: The creditor is a Non-Executive Director of the debtor company, a position he has held for almost 7 years. The debt of $21,755.00 is the balance due as at the 31st of December 2003 on unpaid director's fees accumulated over several years. A photocopy of the relevant journal entry from the Company's financial accounts accompanies this Statutory Demand." A photocopy of what is said to be the relevant journal entry from the defendant's financial accounts accompanied the demand. 4 The originating process contains a statement by the plaintiff that the demand was served on the day it bears, that is, 26 August 2004, and that there was an acknowledgment of receipt by the secretary of the defendant at that time. The plaintiff also says that the demand was accompanied by an affidavit which is in evidence and appears to cover the essential matters set out in the form of s.459E(3) affidavit prescribed as Form 7 under the Supreme Court (Corporations) Rules 1999. 5 As to the form of the demand itself, however, the defendant says, quite simply, that it cannot possibly be regarded as a statutory demand for the purposes of the Corporations Act. This is because of gross deficiency in form and, fundamentally, because the demand does not, on its face, claim to be based on s.459E or, for that matter, any other provision of the Corporations Act. The defendant points to several specific deficiencies. First and as I have said, the document does not say that it is founded on the Corporations Act - it refers to the "Insolvency Act 1986". The plaintiff has said to me this afternoon that he obtained the form from the Lawlink New South Wales website and that he cannot be blamed if the wrong form is there. No evidence has been given about this and the matter is, in any event, irrelevant - although I must say that I find unbelievable the suggestion that a website of the New South Wales Attorney General's Department should have on it any form under the "Insolvency Act 1986" when there is no such enactment of either the New South Wales Parliament or the Commonwealth Parliament. 6 The second point of departure or non-compliance in the alleged statutory demand is that, while it demands payment or securing or compounding in terms generally similar to those of paragraph 3 of Form 509H as prescribed under the Corporations Regulations 2001 (Cth) (made applicable by s.459E(2)(e)), it does not specify any time for payment, securing or compounding. In particular, it does not specify the period of 21 days appearing in paragraph 3 of that form which is central and fundamental to the operation of Division 2 of Part 5.4 of the Corporations Act. The third matter to be mentioned is that the document upon which the plaintiff relies contains nothing in response to the requirements arising through paragraphs 4, 5 and 6 of Form 509H. The last feature I mention is that the statement about the debt in the document is that the creditor "claims that the company will owe the sum of $21,755 …", whereas the requirement under Form 509H is that a statutory demand state that "the company owes" the relevant amount - not "will owe". 7 The situation is one in which there has been no attempt at all to follow Form 509H. The minor coincidence between the plaintiff's document and Form 509H appears to be no more than fortuitous. Nor, importantly, does the document profess to be a document under or referring to the Corporations Act. It refers to the "Insolvency Act 1986". The document is accordingly, in terms of the s.9 definition of "statutory demand", neither "a document that is … a demand served under section 459E" nor "a document that … purports to be served under section 459E". Whatever meaning may be given to "purports" in the expression "purports to be served under s.459E" (see Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446; Vicbar Pty Ltd v Development Constructions (Newcastle) Pty Ltd (1995) 13 ACLC 1220), the concept cannot on any basis extend to a document that not only does not mention s.459E (or, for that matter, the Corporations Act itself) but also represents as its basis a provision of the "Insolvency Act 1986". Such a document "purports" to be a demand under the specified section ("section 123(1)(a) or 222(1)(A)") of the "Insolvency Act 1986". 8 In Topfelt Pty Ltd v State Bank of New South Wales (1993) 47 FCR 226, Lockhart J referred to the possibility that the deficiencies in form may in some cases mean that a document is not a "statutory demand". His Honour said: "There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law. This is a question to be decided in future cases."

The present is such a case. Lack of correspondence with the s.9 definition of "statutory demand", coupled with the gross deficiencies in content to which I have referred, leads to the clear conclusion that the demand in writing failure to comply with which lies at the heart of the plaintiff's case is not a "statutory demand" as defined by the Corporations Act, with the result that non-compliance with it had no effect whatsoever, so far as ss.459F and 459C(2)(a) are concerned. 9 Even if it the document were a "statutory demand" for the purposes of the Corporations Act, it would still not ground a presumption of insolvency upon which the plaintiff could rely in these winding up proceedings. This is because of s.459C(2)(a) which directs the court to presume that a company is insolvent if "during or after the 3 months ending on the day when the application was made", the company "failed (as defined by section 459F) to comply with" the demand. 10 The "day when the application was made" is, in this case, 17 May 2005, being the date of the filing of the plaintiff's originating process. The period of 3 months to which section 459C(2)(a) refers therefore began on 17 February 2005. Failure to comply with a statutory demand could therefore be relied upon for the purposes of the current winding up application only if the failure - that is, the elapsing of the period of 21 days after service without payment, securing or compounding in conformity with the demand - had occurred on or after 17 February 2005. This demand, as I have said, was served in August 2004 which is well outside the relevant period. The case is accordingly one in which comments by Santow J in Pinn v Barrowleg Pty Ltd (1997) 23 ACSR 541 apply. As his Honour there noted, s.459C is intended to confine the applicable time period for the winding up application so that the evidence relied upon for a presumption of insolvency "would not go stale". Statutory staleness of an unsatisfied statutory demand occurs, in this sense, after three months and 21 days have passed from its service. 11 Had the demand upon which the plaintiff relies been a "statutory demand" as defined by s.9 of the Corporations Act, non-compliance with it would, in light of s.459C(2)(a), have given rise to no presumption of insolvency. No attempt is made by the plaintiff to adduce any other evidence of insolvency. 12 For the reasons I have stated, the winding up application based on alleged insolvency is devoid of merit and must be dismissed. I so order.

(Submissions on costs) 13 The defendant seeks costs. The plaintiff says that he yesterday reached an in principle agreement to settle these proceedings with a person he described as the major shareholder in the holding company of the defendant, who, he says, is not a director of the defendant. Mr Cleary of counsel, who has appeared for the defendant, says that, according to his instructions, there is no such agreement in principle. There has been no basis shown on which the ordinary order as to costs should not be made. If the plaintiff indeed has reached some indirect accommodation with the defendant, one might expect that the consequences of the adverse costs order I am about to make will be sorted out consensually. 14 I order that the plaintiff pay the defendant's costs of the proceedings. **********

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