Turner v Stylewise Security & Glass Pty Ltd

The background to the winding up order and appointment of a liquidator 3 Stylewise is a family owned business which was started by Mr Turner's parents. It carries on the business of manufacturing and installing security products such as security doors and screens. Mr and Mrs Turner (the Turners) are the directors and sole shareholders of the company, although Mrs Turner is not actively involved in the management and administration of the company. 4 On 13 January 2015, the Deputy Commissioner of Taxation applied to wind up Stylewise. The application was brought due to the inadequate response by Stylewise to a Statutory Demand by the Australian Taxation Office on 24 October 2014 for $262,938. Mr Turner says that the debt had built up over time and that with limited cash flow he had failed to take appropriate steps to address it earlier. Stylewise repaid some of the debt to the Australian Taxation Office between November 2014 and February 2015. 5 On 24 April 2015, an order was made to wind up Stylewise. A liquidator was appointed. Due to a genuine misunderstanding which I explain below, neither the Turners nor any representative of Stylewise appeared at the winding up application. The Turners have now made arrangements to pay all of Stylewise's debts that are due and payable. No creditor opposes the winding up order. Several suppliers have written letters of support indicating that they intend to continue supplying Stylewise if it is brought out of liquidation. 6 The liquidator has continued to carry on Stylewise's business since the date of the winding up order. He has had financial assistance of $55,000 from the Turners.

The Turners' application 7 In this application, the primary relief sought by the Turners is for the orders providing for the winding up to be set aside under r 39.05(a) of the Federal Court Rules 2011 (Cth). The alternative relief that they seek is an order terminating the winding up under s 482 of the Corporations Act 2001 (Cth). 8 The reason why the Turners prefer an order setting aside the winding up arises from practical considerations concerning the management of the company. In particular, the winding up has had the effect that (i) Stylewise's building licence, required by the Queensland Building and Construction Commission Act 1991 (Qld), was suspended by the Queensland Building and Construction Commission, and (ii) the Turners were suspended for 5 years from holding a licence or from being an "influential person" of another licenced company. The Turners have been advised by the Queensland Building and Construction Commission that if the winding up order is set aside rather than terminated then it will be far simpler for the building licence suspension to be lifted and for the Turners and their employees to continue to carry on the business. 9 For the reasons below I consider that the winding up orders should be set aside.

The factors to be considered for setting aside a winding up order 10 Rule 39.05(a) of the Federal Court Rules provides that the Court may vary or set aside a judgment or order after it has been entered if it was made in the absence of a party. An absent party includes a person whose interests are directly affected and who could have been joined to the proceeding. An order may be set aside under this rule on the application of any person whose interests are directly affected by the order: Nicholson v Nicholson [1974] 2 NSWLR 59, 64 (Jenkyn J). The Turners are persons whose interests are directly affected by the making of the winding up order. 11 In George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464, 465, Hodgson J in the Supreme Court of New South Wales, held that a court will normally set aside a winding up order if: (1) the order is made in the absence of the defendant company; (2) the evidence shows an explanation for the non-appearance; (3) an application is brought promptly by the company; (4) notice is given to the liquidator, to the person who sought to have the company wound up, and to any creditor who appeared at the hearing; (5) there is consent or at least no opposition to the setting aside; and (6) the liquidator shows there is nothing in their investigations to date showing a reason for the company to be stopped from trading. 12 The decision in George Ward has been followed or applied on many occasions: Deputy Commissioner of Taxation v Fairchild Development Pty Ltd (in liq) [2006] FCA 714 [3] (Gyles J); Deputy Commissioner of Taxation v JJ & Son Pty Ltd [2013] FCA 556 [4] (Dowsett J); Twin Peaks Leisure Pty Ltd (in liquidation) v Workers Compensation Nominal Insurer [2012] FCA 1501 [2] (Jacobson J). 13 The six considerations enunciated by Hodgson J are not exhaustive. They are simply some of the major factors to be weighed in the exercise of the discretion whether to set aside orders winding up the company. Further, the order might be set aside even if all the factors in this list are not satisfied or if there are doubts concerning some of the factors. In George Ward itself, Hodgson J remarked that the evidence of solvency was not as satisfactory as one would like. 14 As to (1) and (2), which are concerned with the non-appearance and explanation for a party's absence, this requires consideration of the fact intensive question of the satisfactory nature of the explanation. In this case, Mr Turner's affidavit evidence is that he had engaged Eagle Business Solutions to assist Stylewise to develop a plan to communicate with the Australian Taxation Office and to repay the debt. A plan was agreed in February 2015. Payments were made by Stylewise and the winding up application was adjourned to 10 April 2015. In the meantime, some confusion arose due to payments that were due in relation to outstanding business activity statements. The hearing was adjourned again to 24 April 2015. On 23 April 2015, in the afternoon, the solicitors for the Australian Taxation Office emailed Eagle Business Solutions saying that if the Turners did not wish the application to proceed then they needed to provide a payment plan. Later that evening, with instructions from the Turners, Eagle Business Solutions responded with the plan. Mr Turner did not realise that the Australian Taxation Office would then proceed with the winding up application. It appears that he had relied on Eagle Business Solutions to advise him whether the Australian Taxation Office would apply to wind up the company, and whether he should instruct solicitors, following the revised payment plan that had been sent. But, on 28 April 2015, he received a notice from Stylewise's accountant that the company had been placed into liquidation. 15 I am satisfied that the absence of the Turners at the winding up application (and the lack of representation of the company) resulted from Mr Turner's genuine misunderstanding. 16 As to (3), this application was brought promptly. After Mr Turner was informed of the winding up on 28 April 2015, he engaged solicitors, he gave instructions, and they prepared the application and the affidavits. The application was filed on 15 May 2015 and affidavits were filed between then and 26 May 2015. 17 As to (4) and (5), the application and accompanying affidavits have been served on the (i) Australian Taxation Office (which will consent to the application upon payment of its debt and costs), (ii) the Australian Securities and Investments Commission (which does not seek to be heard), (iii) the liquidator of Stylewise (who does not oppose the application), and (iv) the Queensland Building and Construction Commission (which does not seek to be heard). Mr Roberts' affidavit also deposes to the lack of opposition of the liquidator to orders setting aside the winding up order being dependent upon payment of the liquidator's fees, charges and expenses. Mr Roberts also explains that to his knowledge no other creditor opposes the application. 18 As to (6), the liquidator neither consents to nor opposes this application. The liquidator has not provided any evidence to suggest that he has any doubts about the solvency of Stylewise. Mr Turner has provided substantial affidavit evidence about the solvency of Stylewise. I have considered that material closely, in particular the affidavit of Ms Hancock whose firm has been the accountants for Stylewise since 1997. The evidence supports the conclusion that Stylewise is solvent and, if managed prudently, could continue to trade for many years. As to its current cash flow position, the total due to creditors (even including debts which are not due and payable) is $445,811. The largest creditor, by some way, is the Australian Taxation Office. The Australian Taxation Office claims a debt of $237,535 and also its costs of this application of $5,969. These costs can be met from funds which, after a contribution from Mr Turner's parents, stand at $609,667 including $440,000 held in the trust account of the Turners' solicitors. The assets of Stylewise also exceed its liabilities. 19 There are other matters that favour the exercise of my discretion to set aside the winding up order. Affidavit evidence has been provided by Mr Turner's parents explaining that they will provide any financial assistance needed to ensure that the debts of Stylewise are paid. They have already provided $55,000 to cover the liquidator's anticipated costs and, as I have mentioned, have made available significant funds for payment of creditors. They will also take an active involvement in the business by providing financial advice. The company's suppliers wish to continue to trade with it. And the Turners have taken significant steps to achieve cost savings and to return the business to profitability after losses suffered by the business since 2011. They also plan to sell a property that they own which could provide a source of funds for the company, if needed.

Conclusion 20 Stylewise has been part of the lives of the extended Turner family for 23 years. The company has sustained some losses, including after the 2011 Brisbane floods when there was a downturn in work, but the Turners ensured that they did not make any workers redundant. Steps have now been taken to arrest those losses and to return the company to profitability. Mr Turner is also in the process of undertaking substantial accounting and management training and professional development. On the evidence before me it appears that Stylewise has the potential to return to profitability and to continue to trade for many years if it is managed carefully and prudentially. 21 Orders were made winding up the company in the absence of Mr Turner, and as a result of his genuine misunderstanding. Mr Turner has taken substantial steps to ensure that the debts of Stylewise will be paid. No creditor opposes the application to set aside the winding up order. On the evidence before me, it is very likely that the company is solvent. 22 The winding up order should be set aside. I certify that the preceding twenty two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.