Corporations - Winding up - Whether application for the respondent to be wound up in insolvency is dismissed by operation of s.459R of the Corporations Law - whether application determined within 6 months of being made - Order 35 Rule 7 of the Federal Court Rules.

Mr A. C. Hogg of counsel instructed by Simon Beverley and Associates appeared for the Applicant.

Mr C. Stomo of counsel instructed by C. F. Shirley appeared for the Respondent.

Mr A. D. Seaton, of Potts Latimer, appeared for the liquidator.

1. ORDERS pursuant to Order 27 Rule 2 of the Federal Court Rules

that the following question be decided separately from any other

question in the proceedings:

"Has section 459R of the Corporations Law had the effect

that the application for the respondent to be wound up in

insolvency has been dismissed?

2. DECIDES that the answer to the question in 1 above is "Yes"

3. ORDERS that the applicant's motion insofar as it includes

paragraphs 2, 3 and 4 be dismissed.

4. ORDERS that the respondent's motion be dismissed.

5. RESERVES the question of costs.

6. RESERVES the question of the liquidator's claim.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

LINDGREN J By its application filed on 16 September 1993, the applicant sought, under section 459P of the Corporations Law, an order that the respondent be wound up. The application came before a Registrar on 12 November 1993 when both parties were represented. Directions were made for the filing of affidavits and the proceedings were stood over to 11 February 1994. On that date there was no appearance for the respondent, and orders were made by a Registrar of the Court that the respondent be wound up, that Geoffrey McDonald be appointed liquidator of the Respondent, and that the applicant's costs be taxed and reimbursed in accordance with sub-section 466(2) of the Corporations Law. Those orders were entered on 21 February 1994.

2. By notice of motion filed on 22 February 1994, the respondent sought orders that the winding up and ancillary orders be set aside and an interlocutory order that pending the hearing of that motion, the orders made on 11 February 1994 be stayed.

3. On 22 February 1994 Beazley J granted that interlocutory relief up to and including 25 February 1994 and directed that the time for service of the respondent's notice of motion be abridged to 4.00pm on 23 February 1994.

4. The motion came before her Honour for hearing on 25 February 1994. On this occasion there were appearances on behalf of both parties. There was affidavit evidence on behalf of the respondent directed to showing that the respondent disputed the existence of the indebtedness alleged by the applicant, and directed to explaining the respondent's non-appearance on 11 February. In relation to the latter, there was evidence that Neville Henry Russell, the managing director of the respondent, had travelled from Nowra to Sydney for the hearing and had attended at counsel's chambers to confer prior to the hearing, but that due to the fact that the proceedings did not appear in the published list of matters for hearing on the day and other circumstances, the respondent did not appear at the hearing.

5. Against that background, her Honour made certain orders and gave a direction as follows:

"1. The orders made on the 11th February 1994 be set aside.

2. The Liquidator's costs be reserved.

3. The costs of the Notice of Motion be costs in the

proceedings.

4. The application for winding up be made returnable before the

Registrar on 4th March 1994."

6. Jurisdiction to make Order 1 in the circumstances which prevailed was given by sub-rule 7(2)(a) of Order 35 of the Federal Court Rules.

7. Her Honour's orders and direction were entered on 4 March 1994.

8. On 4 March 1994 both parties appeared by their legal representatives before the Registrar. By consent directions were made for the filing of affidavits, leave was granted to the respondent to file a cross-application, and the proceedings were stood over to 22 April 1994. HEARING ON 29 JULY 1994

9. Before the Court on Friday 29 July 1994 were two motions. One was brought by the respondent and sought the following orders:

"1. The Application to wind up the Respondent filed in these

proceedings be dismissed.

2. The Application to wind up the Respondent filed in these

proceedings be stayed.

3. Costs."

10. The other motion was brought by the applicant and sought the following orders:

"1. The Respondent's Notice of Motion returnable on 4th May,

1994 be dismissed.

2. The orders made on 25th February, 1994 be vacated.

3. Orders made on 11th February, 1994 be reinstated.

alternatively

4. That the period which the Application of 16 September, 1993

is to be determined be extended."

11. Mr A. C. Hogg of counsel appeared for the applicant and Mr C. Stomo of counsel appeared for the respondent.

12. There was, according to both counsel, a "threshold point" calling for determination. This was whether section 459R of the Corporations Law has produced the effect that the application is dismissed, with the result that the Court no longer has jurisdiction to grant the application for an order that the respondent be wound up, and can make no further order in the proceedings save, perhaps, as to costs.

13. Section 459R of the Corporations Law is as follows:

"(1) An application for a company to be wound up in insolvency is

to be determined within 6 months after it is made.

(2) The Court may by order extend the period within which an

application must be determined, but only if:

(a) the Court is satisfied that special circumstances

justify the extension; and

(b) the order is made within that period as prescribed by

subsection (1), or as last extended under this

subsection, as the case requires.

(3) An application is, because of this subsection, dismissed if

it is not determined as required by this section."

(4) An order under subsection (2) may be made subject to

conditions."

14. The section raises for consideration the possibility that the application was, because of sub-section 459R(3), "dismissed" upon expiry of the period of six months after 16 September 1993, notwithstanding the fact that the applicant had obtained an order for the winding up of the respondent within that period (on 11 February 1994). No doubt on 4 March 1994 when the applicant consented to the adjournment of the proceedings to 22 April 1994, it was overlooked that the six-month period laid down in section 459R would shortly expire.

15. It should be remarked that the application for winding up is based on alleged insolvency to be established by non-compliance with a statutory demand for a sum as small as $8,455.61. A complication has been introduced by the fact that following the making of the order for winding up on 11 February last, the appointed liquidator, Mr McDonald, embarked upon the discharge of his duties, and this led to a claim by him for remuneration for work done in the period 11 February 1994 to 28 February 1994 in a total sum of $4,388.40. The liquidator appeared, through Mr Seaton, solicitor, before me on the hearing of the two motions.

16. At the hearing on 29 July 1994, affidavit evidence was read and it became clear that this would need to be supplemented by oral or further affidavit evidence. The legal representatives of the parties agreed that the most convenient course to follow would be for me to decide the issue under section 459R before hearing the remainder of the evidence on the two motions. I decided to follow that course and reserved my decision on the issue under section 459R.

17. Mr Stomo, for the respondent, submitted that for the purposes and within the meaning of section 459R, the application for an order that the respondent be wound up had not been "determined" within the six month period referred to in section 459R, that there was no provision for the extension of that period other than that contained in sub-section (2) of that section (which had not been availed of), and that sub-section 459R(3) of its own force caused the dismissal of the application.

18. Mr Hogg, for the applicant, submitted that for the purposes and within the meaning of section 459R, the application had been "determined" within the said period of six months when the Registrar, on 11 February 1994, made the orders for winding up and for the appointment of a liquidator referred to earlier. Mr Hogg further submitted that an order "vacating" the order made by Beazley J on 25 February would not be in the nature of a "determination" of the application for winding up for the purposes of section 459R.

19. This submission required that attention to be given to Rule 7 of Order 35 of the Federal Court Rules. Sub-Rule 7(1) gives the Court power to vary or set aside an order before it has been entered. Since the orders of Beazley J have been entered, that sub-section does not give the Court power to make the orders sought by the applicant in its motion. Sub-rule 7(2), however, is, relevantly, in the following terms:

"The Court, where it is not exercising its appellate or related

jurisdiction under Division 2 of Part III of the Act, may if it

thinks fit vary or set aside a judgment or order after the order

has been entered where:

(a)

(b)

(c) the order is interlocutory;

(d)

(e) the order does not reflect the intention of the Court;

(f) "

20. The applicant submitted that her Honour's order was "interlocutory" within the meaning of paragraph (c), or alternatively that it did not reflect the intention of the Court within the meaning of paragraph (e).

21. In my opinion, the orders made by Beazley J did reflect her Honour's intention, that is to say, an intention that the winding up order should be set aside and that the parties should be restored to the positions which they had respectively occupied immediately prior to the making of the winding up order. The fact that as at 25 February, the six month period referred to in section 459R would expire within 19 days and that this might happen before there was any further hearing of the matter is, in my view, beside the point. It was possible for the applicant to seek the order for winding up, or alternatively (under sub-section 459R(2)) an extension of the six month period within that time. I can discern no intention to which the terms of her Honour's orders did not conform.

22. However, in my opinion the orders made by Beazley J were interlocutory: they did not purport to dispose of the application for winding up finally, and on the contrary, contemplated that the proceedings remained to be dealt with further.

23. It follows that in terms sub-rule 7(2)(c) of Order 35 gives the Court power to set aside the orders made on 25 February 1994.

24. The effect of setting aside those orders would be to leave in place the Registrar's order made on 11 February 1994 for the winding up of the respondent - a final order. Thus, the effect of an order setting aside the orders of Beazley J dated 25 February would be to bring about again a situation in which the final determination of the application had occurred within the six month period referred to in section 459R.

25. Whether the Court should, in the exercise of discretion, make an order setting aside her Honour's order would have to be influenced by a consideration of the ultimate question in the proceedings, namely whether the respondent should or should not be wound up. It would not be possible to decide how to exercise the discretion given by sub-rule 7(2)(c) until all the evidence on that question was before the Court.

26. What I have just said highlights the question raised by the unusual circumstances of the case: Would an exercise of the discretionary power in favour of setting aside her Honour's order constitute a "determination" of the application for winding up outside the six month period referred to in section 459R? If so, that section precludes the exercise of discretion in that manner.

27. The requirement of sub-section 459R(1) is that the status of the company ("ordered to be wound up" or "application for winding up dismissed") be known finally by the end of the six month period. Section 459R is one of the provisions introduced into the Corporations Law as a result of the Australian Law Reform Commission's report on its General Insolvency Inquiry (ALRC 45) ("the Harmer report"). The Explanatory Memorandum which accompanied the bill which became the Corporate Law Reform Act 1992 (Act No. 210 of 1992) (which inserted the present Part 5.4 (ss 459A - 459T) in the Corporations Law) said this in relation to the then proposed section 459R:

"An application for a company to be wound up in insolvency is to

be determined within six months after it is made (proposed

sub-section(1)). This is designed to ensure that decisions on a

company's solvency are based on contemporaneous information. In

relation to a statutory demand, for example, it would be

inappropriate to order the winding up of a company on that basis

on (sic - of) non-compliance with a statutory demand made years

ago" (para 712).

28. The period of three months referred to in sub-section 459C(2) and the period of six months referred to in sub-section 459R(1) represent the legislature's definition of "contemporaneity" for this purpose. If I were to entertain the applicant's motion, final decision on the respondent's solvency would be made more than six months after the filing of the application on 16 September 1993. As I said earlier, the intention of her Honour's orders made on 25 February 1994 was to restore the parties to the positions which they respectively occupied immediately preceding the making of the winding up order by the Registrar on 11 February 1994. Her Honour's order achieved that result. Even though that order was interlocutory, and so was, generally speaking, susceptible to being set aside under sub-rule 7(2) of Order 35, it had not been set aside up to the time when the six-month period expired. At that time, the application for winding up was still pending. It is precisely in such circumstances that sub-section 459(3) reinforces the effect of sub-section 459(1), by providing that the application for winding up is dismissed.

29. The relationship between section 459R of the Corporations Law and the general power given by Rule 7 of Order 35 is analogous in some respects to the relationship between a limitation statute and general rules such as that found in Order 13 Rule 2 providing for the granting of leave to amend pleadings. In the absence of express provision to the contrary, the general power given by such a rule allowing for the amendment of pleadings cannot be exercised so as to allow an action to be brought outside the time laid down in the limitation statute: cf Weldon v Neal (1887) 19 QBD 394; Bradshaw v Hair Transplant Pty Ltd (1986) 13 FCR 1; Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 (see on appeal at (1990) ATPR 41-058); State of Western Australia v Bond Corporation Holdings Ltd and Ors (1991) ATPR 41-095; Chan Yee Kin v Minister for Immigration, Local Government and Ethnic Affairs and Anor [1991] FCA 358; (1991) 103 ALR 499; Wardley Australia Ltd and Anor v State of Western Australia [1991] FCA 314; (1991) 30 FCR 245 (FC Fed Ct); [1992] HCA 55; (1992) 175 CLR 514 (HC). In the present case, immediately following 16 March 1994 the respondent was entitled to the benefit of the statutory dismissal of the application brought about by sub-section 459R(3). Consistently with the general tenor of the cases to which I have referred, the respondent is not to be deprived of that benefit by a subsequent invocation of Order 35 Rule 7(2).

30. In the result, the relief sought in paragraphs 2, 3 and 4 of the applicant's notice of motion is refused. Since I have held that the application has been dismissed by the operation of sub-section 459R(3), the granting of the relief sought in the respondent's notice of motion is otiose and that motion is dismissed on that ground.

31. I will hear the parties on costs and in relation to the claim made by the liquidator.

32. The formal orders which I make at this stage are as follows:

1. ORDER pursuant to Order 27 Rule 2 of the Federal Court Rules that

the following question be decided separately from any other

question in the proceedings:

"Has section 459R of the Corporations Law had the effect that the

application for the respondent to be wound up in insolvency has

been dismissed?

2. DECIDE that the answer to the question in 1 above is "Yes"

3. ORDER that the applicant's motion insofar as it includes

paragraphs 2, 3 and 4 be dismissed

4. ORDER that the respondent's motion be dismissed.

5. RESERVE the question of costs.

6. RESERVE the question of the liquidator's claim.