Simpson v CT Partners Australia Pty Ltd

Federal Court of Australia|2015-11-06|Before: Gilmour J

REASONS FOR JUDGMENT 1 I made orders on 30 July 2015 winding up the defendant CT Partners Australia Pty Ltd (CTP Australia). These are my reasons for doing so. 2 This is an application for the winding up of CTP Australia on the grounds that it is insolvent, or alternatively, that it is just and equitable to do so: Corporations Act 2001 (Cth) (the Act) s 461(k). CTP Australia has not entered an appearance. 3 The plaintiffs read the following affidavits: (a) affidavit of Colin John Boyd Simpson sworn 30 June 2015 (First Simpson Affidavit); (b) affidavit of Colin John Boyd Simpson also sworn 30 June 2015 (Second Simpson Affidavit); (c) affidavit of service of Sal Rapollo sworn 1 July 2015 (Affidavit of Service); (d) affidavit of Fei Fei Xue sworn 2 July 2015 (First Xue Affidavit); (e) affidavit of Colin John Boyd Simpson sworn 2 July 2015 (Third Simpson Affidavit); (f) affidavit of Debra Cozart sworn 2 July 2015 (Cozart Affidavit); (g) affidavit of Colin John Boyd Simpson sworn 29 July 2015 (Fourth Simpson Affidavit); (h) affidavit of Fei Fei Xue sworn 29 July 2015 (Second Xue Affidavit). 4 The plaintiffs, as creditors of CTP Australia, have standing: the Act ss 459P(1)(b) and 462(2)(b).

First plaintiff 5 The first plaintiff claims to be owed bonuses totalling $176,922.67 for the period from 1 July 2014 to 30 December 2014. They arise from an oral agreement, the calculation of which is confirmed in writing. 6 According to the evidence CTP Australia calculated the bonuses at $638,694, which for present purposes the first plaintiff accepts. He is entitled to one-third of the bonuses (being one of three partners entitled to bonuses), being $212,898. In June 2015, he received $35,975.33 in bonuses as a "good faith" payment by CTP Australia. The amount outstanding is therefore at least $176,922.67.

Second plaintiff 7 The second plaintiff claims that it is owed $867,539 - representing half of the unpaid purchase price pursuant to a share sale and purchase agreement entered into between, amongst others, CTP Australia and the first and second plaintiffs (Share Agreement). 8 Clause 4.14(b) of the Share Agreement provides that CTP Australia must pay to the second plaintiff half of the "Purchase Price", the amount payable for the shares the subject of the Share Agreement, if there is a "Simpson Termination". 9 "Simpson Termination" is defined as when CTP Australia terminates the first plaintiff's employment pursuant to the relevant employment agreement. In this case the first plaintiff's employment was terminated as of 30 June 2015. 10 The Purchase Price is, relevantly, defined as the sum of the: (a) Completion Payment Amount; (b) Net Working Capital Amount; (c) First Period Top-up Payment Amount; (d) First Period Payment Amount; (e) Second Period Payment Amount; and (f) Third Period Payment Amount. 11 Using the figures deposed in the First Simpson Affidavit and in the plaintiffs' submissions, I will set out how these amounts are calculated. 12 Item (a), the "Completion Payment Amount", is defined as $980,000 under the Share Agreement. Item (b), the "Net Working Capital Amount", is $809,859 as outlined in a copy of a calculation done by the first plaintiff, annexed to the First Simpson Affidavit. 13 Item (c), the "First Period Top-up Payment Amount", is defined as 50% of the "Initial Purchase Price Amount" less the "Completion Payment Amount". 14 The "Initial Purchase Price Amount" is defined as 70% of the "First Period Revenue Amount". On account of the "Simpson Termination" event, the "First Period Revenue Amount", under cl 4.14(b)(i), is equal to the fees that the relevant business invoiced in the "First Period", that is the period commencing on the Completion Date and ending on the first anniversary of that date: 1 July 2014 to 30 June 2015. A total of $3,878,688 in fees had been invoiced; this figure, deposed in the First Simpson Affidavit at [30], has been rounded up to the dollar. 15 Accordingly, the "Initial Purchase Price Amount" is $2,715,081 and, as a result, the "First Period Top-up Payment Amount" is $377,540. 16 Item (d), the "First Period Payment Amount", is defined as one-sixth of the "Initial Purchase Price Amount"; that is, $452,513. 17 By the operation of cl 4.14(b), items (e) and (f), the "Second Period Payment Amount" and the "Third Period Payment Amount", are equivalent to the "First Period Payment Amount". 18 Therefore, the Purchase Price is $3,524,938. The first plaintiff deposes that items (a) and (b) had already been paid leaving the sum of $1,735,078 as the balance of the Purchase Price due and payable. 19 The second plaintiff, under the Share Agreement, is entitled to half of this sum: $867,539.

Service 20 I am satisfied that there has been due service on 1 July 2015 of the application and all supporting affidavits on CTP Australia at its registered office. Copies of these have also been emailed to the directors of CTP Australia and the then solicitors acting for CTP Australia -Mr Ivan Rubinstein of Corrs Chambers Westgarth (Corrs). 21 On 16 July 2015, the directors of CTP Australia, Mr William Kenneally and Mr David Norcifora, as well as Mr Rubinstein and Mr Andrew Korpel of Corrs, were informed by email of the hearing on 30 July 2015. 22 On 28 July 2015, Mr Rubinstein advised Ms Fei Fei Xue of Gadens Lawyers that Corrs was not acting on behalf of CTP Australia but forwarded the email he received from Ms Xue to the directors of CTP Australia. 23 On 28 July 2015, Ms Xue notified Mr Kenneally and Mr Norcifora by email that a minute of proposed orders was required to be filed by 12.00 pm on 29 July 2015. 24 No communication was received by the plaintiffs or their solicitors regarding this application.

Applicable principles 25 Section 459A of the Act provides that the Court may order that an insolvent company be wound up in insolvency. 26 Section 459C(2) engages a rebuttable presumption of insolvency where, relevantly: (a) the company fails to comply with a statutory demand: s 459C(2)(a); or (b) a person (either personally or as agent) entered into possession, or assumed control of property of the company for the purpose of enforcing a circulating security interest: s 459C(2)(c) or (f); during or after the three months ending on the day when the application (for winding up) was made. 27 Upon a presumption of insolvency arising, the defendant is presumed to be insolvent and bears the onus of proving its solvency: s 459C(3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 at 237.

The facts 28 This winding up application was filed on 30 June 2015. 29 On or about 2 July 2015, JP Morgan Chase Bank N.A (JP Morgan) as a secured creditor pursuant to a general security deed dated 25 June 2015 (GSD), issued a notice of default and enforcement to CTP Australia at its registered address (Notice). In the letter attaching the Notice, JP Morgan advised that it had "exercised its power under the GSD to purchase and sell the Collateral (as defined in the GSD)" and had entered into an "Asset Purchase Agreement" with CTLiquidation LLC in respect of the "Collateral". 30 On 1 July 2015, in a letter to the "Former clients of CTPartners Executive Search, Inc." signed jointly by: (a) Mr Keneally as the CFO of CTPartners Executive Search, Inc; (b) Mr Glenn Pollack as the president of CTLiquidation LLC; and (c) Mr Geoffrey Hoffmann as the CEO of DHR Worldwide, Inc (DHR); the clients of CTP Australia were advised that on 1 July 2015, the secured lender of CTPartners Executive Search, Inc (and its subsidiaries) had sold the collateral (including the open and unpaid accounts receivable) to CTLiquidation LLC on 1 July 2015, and DHR is collecting the unpaid accounts receivable on behalf of CTLiquidation LLC. 31 On 8 July 2015, Johnson Executive Search Pty Ltd served a statutory demand for a debt of $1,973,695.20 (Statutory Demand) on CTP Australia at its registered address. The 21 day period expired on 29 July 2015.

Presumption of Insolvency 32 Two events have occurred which trigger, independently, the presumption of insolvency under s 459C(2). First, JP Morgan as the secured creditor has enforced its security interest pursuant to the GSD and entered into possession of CTP Australia's assets on 1 July 2015 as evidenced by: (a) the issue of the Notice; (b) the sale of CTP Australia's assets (which include at least unpaid accounts receivable) by JP Morgan to CTLiquidation LLC; (c) the redirecting of unpaid accounts receivable to DHR, 33 Second, CTP Australia failed to satisfy the Statutory Demand by 29 July 2015. 34 CTP Australia is therefore presumed to be insolvent pursuant to s 459C(2)(e) or (f) as from 1 July 2015, being the date when JP Morgan entered into possession of CTP Australia's assets and sold them to CTLiquidation LLC. It is also presumed to be insolvent by its failure to comply with the Statutory Demand by 29 July 2015: s 459C(2)(a). That this is so is, relevantly, because each of those events fell for the purposes of s 459C(2) "after the 3 months ending on the day when the application (for winding up) was made." 35 Differing judicial views have been expressed as to the effect of s 459C(2) so far as concerns events that occur "after the 3 months". 36 I respectfully agree with the analysis of Philip McMurdo J in Equititrust Limited v Willaire Pty Ltd [2012] QSC 206 at [83] and [90]: [83] Within paragraphs (a) through (f), several events are described as giving rise to the presumption. Those paragraphs are preceded within the subsection by the words which require the Court to presume the insolvency of the company if the relevant event occurred "during or after the 3 months ending on the day when the application was made". On the face of this provision, that same qualification as to timing of the event applies to each of the events specified within paragraphs (a) through (f). The event must occur during the three months ending on the day when the application is made or after that period. The words "or after" would seem to unambiguously permit an applicant to rely upon an event although it occurs after the application is made. In at least four decisions, it has been said that an applicant may rely upon a failure to comply with a statutory demand which postdated the commencement of the winding up proceedings. They are Pinn v Barroleg Pty Ltd; Sim v Ravenswood Resort Pty Ltd (receivers and managers appointed); Missing Link Network Integration Pty Ltd v Keene Consulting International Pty Ltd and Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd, although in that last decision, a qualification was added by Barrett J to which I will return. [84] The first three of those cases were not followed by Palmer J in his judgment in Woodgate v Garard Pty Ltd. The fourth case, Golden Plantation v TQM Design and Construct, was decided after his judgment. In obiter dicta, Palmer J interpreted s 459C(2) as meaning that although any of the events in paragraphs (b) through (f) might be relied upon if they occurred after the making of the application to wind up, but the event within (a), that is to say a failure to comply with a statutory demand, would not be relevant if it occurred after the winding up application was filed. He reached that conclusion effectively because of the requirements of s 459Q. It provides that if an application for a company to be wound up in insolvency relies upon a failure to comply with the statutory demand, the application must set out particulars of service of the demand and of the failure to comply with it, and have attached to it a copy of the demand, any order varying the demand and an affidavit which verifies the relevant debt. As he observed, it would be impossible to comply with s 459Q if the application when filed relied upon a failure to comply with the statutory demand, which was then an anticipated but not yet an actual failure. He observed that in those three cases, the relevance of s 459Q seemed to have been overlooked. [85] In Golden Plantation v TQM Design, Barrett J agreed with that analysis by Palmer J but added this: "As Palmer J also observed, a presumption of insolvency arising under s 459C(2)(a) from failure to comply with the statutory demand after filing of the winding up application is, however, available to the plaintiff in cases where the winding up application, when filed, is based otherwise than on such a failure." With respect, I am unable to identify that observation in the judgment of Palmer J. Still, Golden Plantation v TQM Design is an authority supporting this application by Equititrust, because when filed this application relied upon other events as giving rise to the presumption of insolvency. [86] In a recent decision in the Supreme Court of Victoria, Surdex Steel Pty Ltd v GB Manufacturing Pty Ltd, Gardiner AsJ preferred the analysis of Palmer J in Woodgate (which was said to be supported by Golden Plantation Pty Ltd v TQM Design) to that in Pinn v Barrowleg and Missing Link Network Integration Pty Ltd. But that judgment did not deal with the circumstance here, where there were other events which were relied upon within the application as filed. [87] In my opinion, the failure to comply with this statutory demand is within s 459C(2)(a) and requires a presumption of Willaire's insolvency. The first reason is that there is no authority for the proposition that in a case such as this, where the application is filed originally upon other events giving rise to the presumption, a subsequent failure to comply with the statutory demand must be disregarded. I agree with Barrett J that the effect of s 459Q is to make it "impermissible to file an originating process on (the basis of non-compliance with a statutory demand) until the failure has occurred and particulars of it can be stated", but that s 459Q does not preclude a reliance upon a failure to comply with a demand which occurs after an application is duly commenced. . . . [90] In a case such as the present, the result is thereby one which accords with the evident object of Part 5.4, which is that insolvent companies ought to be wound up. A failure to comply with a statutory demand should be more telling for being more recent at the time of the hearing. To exclude such an event would be anomalous. (Footnotes omitted.) 37 The plaintiffs' application relies not only upon the two events said to trigger the presumption but upon a claim that it is actually insolvent as well as the just and equitable ground. That being so I am satisfied firstly that the application was duly commenced and that the plaintiffs are able to rely upon the rebuttable presumption under s 459C(2)(a) based on the failure by CTP Australia to comply with the Statutory Demand which occurred after the relevant three month period ending on 30 June 2015 when the application under s 459P was made. 38 Second, independently and in any event, the plaintiffs are entitled to rely upon the rebuttable presumption under s 459C(2)(c) or (f) based on JP Morgan entering into possession of CTP Australia's assets. This basis is not affected by the considerations relevant to s 459C(2)(a) that emerge from cases such as Equititrust and others to which I have referred. 39 It is unnecessary, in these circumstances, for me to consider the just and equitable ground under s 461(k), although there is, on the material before the Court, as articulated in their written submissions, a sound basis for CTP Australia to be wound up on that ground. In any event the plaintiffs did not press this ground upon the basis that I otherwise accepted their application. 40 To date, the defendant has taken no steps in relation to this application or to rebut the presumption that it is insolvent, or to appoint an administrator. 41 Accordingly, I find, as I must, that CTP Australia is insolvent. I will make the following orders:

The defendant, CT Partners Australia Pty Ltd ACN 167 523 886, be wound up.
Robert Michael Kirman of McGrath Nicol, 17/37 St Georges Terrace, Perth, WA 6000 and Jason Preston of McGrath Nicol, Level 31, 60 Margaret Street, Sydney, NSW 2000 be appointed as liquidator to the defendant.
The plaintiffs' costs of this application be agreed or taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth). I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Corporations Act 2001(Cth)s 459C, ss 459C(2), (3), 459P(1)(b), 461(k), 462(2)(b), 466(2)

At a glance

Court

Decision date

Before

Source

Judgment (7 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)

Cited By (2)