99 A decision of particular relevance to the present case is that of White J in Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966 (31 August 2007). His Honour had before him an application for a stay or summary dismissal of winding up proceedings on the ground that they constituted an abuse of process. The facts were distinctly similar to those now before me. The plaintiff in that case ("ABD") had the same shareholders and directors of a company referred to as "Liquor National". The defendant ("Redrock") was also the defendant in quite separate proceedings, being proceedings brought by Liquor National in which it was alleged, in essence, that Redrock had misappropriated the goodwill and business name of Liquor National. An application for interlocutory orders restraining Redrock from continuing the relevant business was dismissed. One week later, ABD took an assignment of a small debt owed by Redrock to an unrelated party. ABD then gave notice of the assignment and immediately initiated winding up proceedings. Redrock tendered payment of the debt but the tender was refused on the ground that Redrock was insolvent. ABD then took steps to proceed with the winding up application in respect of Redrock.
100 White J made the following finding about the purpose for which the winding up application was initiated and pursued:
"I accept that it is Mr James' intention to pursue the winding-up application to a conclusion. One of his purposes is also to create difficulty for Redrock by embroiling it in litigation, thereby causing it to incur costs and use up executive time. Mr James is motivated to do that by the dispute between Redrock and Liquor National. However, I do not find that the dominant purpose of ABD's bringing the winding-up proceeding is to embroil Redrock in litigation. Mr James perceives that the dispute between Liquor National and Redrock will be resolved favourably to Liquor National if Redrock is wound up. In Mr James' view, this would ' protect my asset '. He did not elaborate on that evidence. I can infer that he considered that Liquor National's ' asset ' would be protected by Redrock being wound up because it would be required to cease to carry on the business to which Liquor National lays claim, except as may be necessary for the beneficial disposal of that business. Liquor National would also be in a good position to negotiate a resolution of the existing proceedings with a liquidator. It is consistent with this objective that Mr James wishes to pursue the winding-up proceedings to a conclusion.
101 Later (at [42]), White J reiterated that the predominant purpose of the controller of ABD was "to crush Redrock by putting it into liquidation". His Honour continued:
"If he is successful in that course, he considers that Liquor National will be able to achieve its goal of running the business currently being conducted by the defendant, but which Liquor National contends properly belongs to it. The company will not be able to continue in business and the liquidator may be unable or unwilling to continue to contest the proceedings against Liquor National. In this way, his ' asset ' will be secured."
102 Having isolated and identified, by reference to the two outcomes sought, the purpose of ABD in pursuing the winding up proceedings, White J said:
"43. The first of these outcomes, namely that Redrock cease to carry on its sales and distribution business, except so far as necessary for the beneficial disposal or winding-up of that business, would be the outcome which the law prescribes as a result of an order being made for the winding-up of a company ( Corporations Act , s 477(1)(a)). It is not an abuse of process to seek a winding-up order to achieve that outcome.
44. The second of these outcomes, namely that Redrock may cease to contest the proceedings against Liquor National, is not an outcome which a winding-up order is intended to secure. The practical effect of making a winding-up order may be to stultify a company's pursuit of an arguable claim, but that is not its purpose. If a winding-up order were made against Redrock, Liquor National's proceedings against it would be stayed unless leave to proceed were given. Without pre-empting any such application, it would be at least arguable that the nature of the proceeding, involving, as it does, a claim for a constructive trust over the business and assets of the company, may be a claim in respect of which a grant of leave is likely. Whether a liquidator could or would defend the proceedings is another matter. The tactical advantage which a winding-up order could give ABD is not within the intended scope of such an order. But Spautz v Williams and Dowling v Colonial Mutual Life Assurance Society Ltd show that that does not make the proceeding an abuse of process."
103 In the result, White J declined to order either a stay or summary dismissal.
Applying the principles in this case
104 The case that SSM advances is that SSM's lack of funds with which to pursue claims against APM, coupled with the nature and complexity of those claims, means that it is, in the words of SSM's counsel, already quoted (see paragraph [18] above), "extremely unlikely that any liquidator would do so, and thus the appointment of a liquidator to the defendant will stultify the pursuit by the defendant of its rights against [APM] and will relieve [APM] from any contractual liability which it owes to the defendant".
105 The submission is that, for this reason, the winding proceedings are an abuse of process. That submission cannot be accepted when one has regard to the legal principles.
106 As I have already said, supplanting of Mrs Brighton by a liquidator must be accepted as one of the results the plaintiff seeks through these proceedings. The rationale for desiring that result is that, because of lack of funds or the complexity of the matter or for some other reason, a liquidator will quite possibly not pursue attacks against APM that SSM might be minded to pursue under the auspices of Mrs Brighton. But the installation of a liquidator whose duty it is to discontinue SSM's business except to the extent conducive to its orderly winding up is a natural and legitimate outcome of winding up proceedings. The position must therefore be seen as one in which the plaintiff prosecutes the proceedings precisely in order to obtain the result the law awards to a successful plaintiff. True it may be that the result leads on to a situation of control and decision making within SSM with respect to APM that may be more favourable to APM. But that cannot change the fact that prosecution of the proceedings to a conclusion has been undertaken to obtain the very result that such prosecution is designed to produce.
107 Applicable to the present case, in my opinion, is the following observation of Gibbs J (with whom Stephen J and Jacobs J agreed) in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 49 ALJR 176 at 182:
"Nor is there any evidence that Mobil's decision to seek a winding-up order against the appellant was actuated by any motive other than a desire to avail itself of one of the remedies open to a creditor of a company which cannot pay its debts; if it be surmised that Mobil was pleased at the prospect that the appellant might have to cease business, that is immaterial, for it is not the law that only a creditor who feels goodwill towards his debtor is entitled to a winding-up order."
108 A purpose of seeing a liquidator supplant the incumbent management is a purpose entirely consistent with the proper pursuit of winding up proceedings. Appointment of a liquidator and cessation of business are results for which the law allows - more precisely, they are results that are part and parcel of the winding up regime. It follows that, even if supplanting of Mrs Brighton had been the plaintiff's sole or predominant purpose (I have found only that it was supplementary to the purpose of securing satisfaction of the assigned debt), the proceedings would not have been an abuse of process.
109 SSM's contention that the winding up application of the plaintiff is an abuse of process and ought to be dismissed accordingly cannot succeed.
The discretion to refuse a winding up order
110 In view of the conclusion just stated and the concession by SSM that it is insolvent, it is clearly open to the court to make the winding up order that the plaintiff seeks. The question is whether it should do so.
111 Mr Harris pointed out on behalf of SSM that the discretion to decline to make a winding up order is, in the present legislation, expressed to be available even where a ground for the making of an order has been established. Section 467(1)(a) says that, subject to qualifications not relevant to this case, the court may, on hearing a winding up application, "dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application" [emphasis added].
112 As Mr Harris observed, the italicised words are a relatively recent addition to the statutory language. They were included in the revised provision which resulted from the Corporate Law Reform Act 1992 (Cth). The relevant report of the Law Reform Commission (ALRC 45, General Insolvency Inquiry 1988) said (at Volume 1, Chapter 4, paragraph 178, page 82):
"The Commission does not recommend any significant changes to the existing powers of the court when hearing a winding up application. They should include:
- the power to make the order if the court is satisfied that the company is insolvent
- the requirement to appoint a registered insolvency practitioner as liquidator of the company
- the power to dismiss the application if it is satisfied that the company is not insolvent or that for some other sufficient reason an order for winding up ought not be made (for example, if the company has embarked upon a voluntary administration or abuse of the procedure by an applicant)
- the power to give all necessary directions as to the conduct of proceedings."
113 I do not think that the addition of the italicised words made any real change to the law. There was, at most, an explicit statement of that which had long been recognised in any event. In Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699; (2003) 46 ACSR 446, for example, Campbell J said (at [57]):
"It is well established that a finding of insolvency can result in there being an entitlement to a winding-up order ex debito justitiae: IOC Australia Pty Ltd v Mobil Oil (Aust) Ltd (1975) 11 ALR 417; 2 ACLR 122. There always has been, however, a residual discretion in the court. That discretion is one which is now found in s 467 of the Corporations Law …"
114 Campbell J's statement is consistent with authorities on the earlier legislation: see, for example, FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 at 660 per McHugh JA.
115 My finding of absence of abuse of process raises the question whether some negative - even malicious - motivation of a plaintiff, falling short of abuse of process warrants withholding of a winding up order where grounds for making the order exist. The answer must be "no". I quote again from the judgment of Gibbs J in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (above) at 182:
"[T]he question whether Mobil's treatment of the appellant was harsh or grievous is not material. The authorities show that as a general rule a creditor who cannot obtain payment is, as between himself and the company that owes the debt, entitled to a winding-up order as a matter of right: Re K L Tractors Ltd [1954] VLR 505 at 511-12; Re Leonard Spencer Pty Ltd [1963] Qd R 230 at 232-3 Halsbury 4th ed, vol 7, par 1033."
116 To the same effect are observations of Buckley LJ in Bryanston Finance Ltd v De Vries (No 2) [1976] Ch 63 at 75 :
"The judge, rightly in my opinion, thought that a petition could not be an abuse simply because the petitioner was actuated by malice. If a petitioner has a sufficient ground for petitioning, the fact that his motive for presenting a petition, or one of his motives, may be antagonism to some person or persons cannot, it seems to me, render that ground less sufficient."
117 The last part of the passage from Gibbs J's judgment in the IOC case just quoted emphasises the prima facie right of an undisputed and unsatisfied creditor to obtain a winding up order. I call it a "prima facie right" because of the need to accommodate the undoubted discretion now explicitly recognised in s 467(1)(a).
118 Where, as here, the application is advanced on the basis of insolvency and insolvency is conceded, the discretion to dismiss the application will be exercised only if some good reason is shown for allowing the admittedly insolvent company to continue in the mainstream of commercial life. That course may be indicated where winding up is opposed on rational grounds by other creditors, or where the applicant's conduct precipitated the company's liability: see, for example, Re Wildtrek Ltd (1987) 12 ACLR 398. No such factors are at work here.
119 Apart from the matters grounding the abuse of process allegation (and matters of animus which are irrelevant), the grounds put forward on behalf of SSM in support of the proposition that the court should not make a winding up order are:
(a) that SSM is not trading and has not traded since November 2006;
(b) that SSM is not incurring further debts;
(c) that SSM has proffered to the court an undertaking that it will not trade;
(d) that SSM has made a significant reduction in the amount of its unsecured debts over the last eleven months even though not trading (the funds have come mainly from associated entities);
(e) that, in the absence of winding up, it may be expected that unsecured debts will continue to be repaid within a further three months from these other sources;
(f) that SSM stands to recover substantial moneys from APM (see paragraph [15] above).
120 Mr R G Forster SC, in submissions advanced on behalf of the plaintiff, subjected each of these propositions to critical scrutiny. In relation to the related items (a) and (b), he referred to certain aspects of the documentary evidence and the evidence given by Mrs Brighton. At 15 June 2007, SSM's account with the ANZ Bank was $547,655.27 in debit. Mrs Brighton accepted that it is accruing interest at the rate of about $7,000.00 per month. Mrs Brighton also gave evidence that SSM and other entities controlled by her are parties to a cross-guarantee arrangement with the ANZ Bank. Full details of this were not given but the description Mrs Brighton provided was sufficient to make it clear that drawings by other entities on overdraft account will result in contingent liabilities of SSM. There is no assurance that those other entities will not make such drawings.
121 Mr Forster also pointed out, in relation to items (a) and (b), that SSM continues to be engaged in legal proceedings and that future proceedings in relation to the marina contract are contemplated. SSM cannot but incur debts for legal fees and related outgoings. In addition, Mrs Brighton said in evidence that SSM continues to employ internal and external accountants, as well as a financial planner and other consultants. It must be incurring debts for their fees.
122 In relation to items (d) and (e) and access by SSM to financial support provided by associated entities, the reality is, as Mr Forster pointed out, that recourse to that support necessarily increases the indebtedness of SSM, unless the support takes the form of subscripiton for share capital. There is no suggestion that that form of funding has been adopted or is intended. In any event and as the Court of Appeal emphasised in Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2005) 45 ACSR 711, contentions as to the availability of financial support from external sources need to be supported by evidence of what is actually available, rather than relying on assessment of what might be feasible. This led me to say recently in Leveraged Equities Ltd v Finance & Equity Pty Ltd [2007] NSWSC 1197 at [19]:
"The evidence does not refer to any contract, agreement or arrangement under which the defendant is entitled to financial support from other companies. Nor is there anything to indicate the form that any financial support might take. Even if it is accepted that the defendant is a member of a 'group' of companies (a concept which, in the particular context, is not elaborated or explained), the court could not accept as relevant to an assessment of the defendant's solvency 'support' by other members of the 'group' unless it had evidence of what the support entailed and precisely what financial resources were available to the defendant as a result of the 'support'."
123 In the present case, of course, SSM is not attempting to prove solvency. But, to the extent that it seeks to persuade the court to dismiss the application for reasons which include the availability of financial resources from other entities, the same requirement for proof arises. Proof has not been provided.
124 I consider next item (c) at paragraph [119] above, that is, the undertaking that SSM proffers to the court that it will not trade. Three things need to be said about that. First, the meaning of "trade" is not clear: a company which has (or considers itself to have) viable claims against others and, with the assistance of lawyers, pursues those claims seems to me to be one that "trades", unless that term is understood in its narrow and traditional sense of trafficking in commodities by way of sale or exchange: Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 139. Second, there is the point already noticed that SSM will in the ordinary course incur various expenses as it continues with litigation, so that the undertaking is, in a real sense, one that cannot be honoured. Third, an undertaking given to the court is, in general, not a satisfactory foundation upon which to allow an insolvent company to continue in operation. I need not repeat here the reasons for that view I stated in Owners of Strata Plan 70294 v LNL Global Enterprises Pty Ltd [2006] NSWSC 1386; (2006) 60 ACSR 646 at [21] - [27]; see also the observation of White J in Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783 at [18].
125 Remaining for consideration is item (f) at paragraph [119] above and the proposition that a winding up order should not be made because SSM has substantial claims against APM. It must be said at once that, according to the plaintiff, the claims are not clearcut. Mr Forster's submissions draw attention to several aspects of the evidence, including parts of Mrs Brighton's cross-examination, showing that some of the perceived claims have been denied in earlier adjudications under the Queensland security of payments legislation or withdrawn by SSM when pursuing those earlier adjudications. Mr Forster also pointed out that the court does not have evidence which would enable it to come to any reliable view whether the claims for damages for breach of contract that SSM considers itself to have against APM are sustainable. Mrs Brighton accepted in evidence that proceedings based on the breach of contract claims could take six months, nine months or five years.
126 Implicit in SSM's contentions based on item (f) is the proposition that SSM would be better placed to pursue its claims against APM if decision-making remained with Mrs Brighton rather than passing to a liquidator. There is, to my mind, no objective basis for any such finding. A liquidator will be duty bound to consider the strength and viability of every claim available to SSM. If reasonable prospects of success are seen, it might be expected that a liquidator would seek means to progress the claims. Because associated entities are creditors, Mrs Brighton might be minded to have them provide financial support or to do so herself. The possibility of arm's length litigation funding would no doubt also be considered.
127 I am of the opinion that none of the matters mentioned in items (a) to (f) at paragraph [119] above forms a basis for the exercise of the court's discretion to dismiss the winding up application advanced by the plaintiff in respect of SSM, an admittedly insolvent company. Nor does any combination of those matters warrant such a course. I have already referred to the "clear axiom that insolvent companies should be wound up and that they should stay in liquidation unless solvency can be demonstrated": see paragraph [91] above. That axiom applies here.
128 The subsidiary proposition advanced on behalf of SSM is that the winding up application should be adjourned for a substantial period. The aim would be to allow SSM, under its present controller, to pursue the various claims it considers itself to have, presumably with a view to re-capturing solvency by success in those endeavours. I am not persuaded that an adjournment to that end would serve any useful purpose. First and as already noted (see paragraph [125] above), the claims, to the extent assessable at this point on the evidence available, are by no means clear cut or assured of success, whether in the short term or at all. Second, pursuit of the claims would entail the incurring of debts and therefore an exacerbation of the admitted insolvency (see paragraph [121] above). Third, a liquidator can pursue any claims considered viable and likely to be fruitful (see paragraph [126] above).
Conclusion
129 SSM is an insolvent company. It has not succeeded in establishing any ground on which the making of a winding up order should be withheld or deferred. The orders of the court will therefore be as follows:
1. Order that Sea-Slip Marinas (Aust) Pty Ltd ACN 103 644 640 be wound up in insolvency.
2. Order that Geoffrey David McDonald of Level 29, 31 Market Street, Sydney, an official liquidator, be appointed liquidator of the said Sea-Slip Marinas (Aust) Pty Ltd.
3. Order that the defendant pay the plaintiff's costs of the proceedings.