5099/08 WILLARD KING ORGANISATION (1978) PTY LIMITED v CT FRANCHISES PTY LTD
JUDGMENT
1 These are proceedings under s 459P of the Corporations Act 2001 (Cth) in which winding up on the ground of insolvency is sought. I am, at this point, dealing with an interlocutory application.
2 In applying for a winding up order, the plaintiff maintains that it has the benefit of a presumption of insolvency under s 459C(2)(c) because of non-compliance by the defendant with a statutory demand posted to the defendant's registered office on 9 September 2008. The defendant's position is that no statutory demand has been received at the registered office.
3 By an interlocutory process filed on 12 December 2008, the defendant seeks, first, an order setting aside a subpoena, second, certain confidentiality orders and, third, an order allowing the defendant to file an amended appearance.
4 I shall deal with the last matter first. Section 465C of the Corporations Act is in these terms:
"On the hearing of an application under section 459P, 462 or 464, a person may not, without the leave of the Court, oppose the application unless, within the period prescribed by the rules, the person has filed, and served on the applicant:
(a) notice of the grounds on which the person opposes the application; and
(b) an affidavit verifying the matters stated in the notice."
5 The period prescribed by the Supreme Court (Corporations) Rules 1999, as contemplated by s 465C, is three days before the date fixed for the hearing: rule 2.9(3). The date fixed for the hearing is, in light of rule 2.3(a), the date for hearing fixed by the registrar and endorsed on the originating process following its receipt by the registrar in consequence of its filing. In the present case, the date so endorsed is 7 November 2008.
6 The defendant filed its notice of appearance on 3 November 2008. It contains seven grounds of opposition to the winding up application. The present application for leave to file an amended appearance is, in substance, an application for leave under s 465C to rely on additional grounds of defence not specified in the document filed on 3 November 2008. Those additional grounds are:
"8. The statutory demand is defective.
9. The affidavit under section 459E of the Corporations Act 2001 (Cth) of Tal Arieh Silberman sworn on 9 September 2008 in support of the statutory demand is defective."
7 At first blush and having regard to s 459J, one might think that these additional grounds are grounds that the defendant could have relied on for the purposes of an application by it under s 459G for an order setting aside the statutory demand. If the grounds are of that character, the defendant is precluded by s 459S from relying on them except with the leave of the court given under that section and the court, in turn, is precluded from granting that leave unless it is satisfied, in terms of
s 459S(2), that the grounds are material to proving the defendant's solvency. Leave under s 465C will not be granted where it is inconsistent with s 459S for the defendant to rely on the grounds in respect of which that leave is sought: Deputy Commissioner of Taxation v Katalina Park Pastoral Pty Ltd [2005] FCA 1800; (2005) 61 ATR 298.
8 Mr Cheshire of counsel, who appeared for the defendant, submitted that, while the foreshadowed grounds are, of their nature, grounds that can be relied upon by an applicant under s 459G, s 459S does not apply to them. This is, he says, because the defendant never received the statutory demand so that, as a matter of practical capability, it was unable to rely on those - or any other - grounds upon any s 459G made within the period required by that section.
9 This submission is based on the decision of Austin J in Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719. That was a case in which a statutory demand had been sent by post to an address which was, at the time of posting, the company's registered office. On the very next day, a change of address of registered office became effective. Austin J held that, having regard to s 109X of the Corporations Act and s 29 of the Acts Interpretation Act 1901 (Cth), in the form made applicable by s 5C of the Corporations Act, the statutory demand had been duly served. His Honour accepted unchallenged evidence that the statutory demand had never come to the notice of anyone connected with the defendant. That, while irrelevant to the question of due service, was seen as relevant to s 459S.
10 Referring, at the outset, to his earlier reasons on the question of service, Austin J said (at [7] to [9]):
"[7] … I expressed the opinion in my reasons for judgment (at [19]) that s 259S(1) did not apply so as to prevent the companies from complaining of improper service of the statutory demands. My reasoning took into account the fact that the companies and their directors did not receive or become aware of the statutory demands until service of the originating process for winding up, and the fact that they lodged notices of change of address of registered offices prior to 4 March 2004. In these circumstances, in my view, the defendant companies could not have made applications for winding up within the 21-day time period set by s 459G(2). A fortiori, in a factual sense they could not have raised the issue of incorrect service for the purposes of any such application.
[8] It follows from that reasoning that the defendant companies were equally unable, within the timeframe prescribed by s 459G, to establish a genuine dispute about the existence or amount of the debts claimed by Perpetual, or a genuine cross-claim, or to draw attention to any formal defects in the statutory demands. Therefore s 459S does not prevent the companies from raising these matters at the final hearing of the winding-up applications. Counsel for the defendants told the court that he had instructions to make an application under s 459S(1) for leave to contend that there was a genuine dispute about the debts claimed by Perpetual, and to contend that the statutory demands and the affidavits supporting them were not in proper form, but I ruled that, having regard to the reasoning in para [19] of my earlier judgment, such an application was unnecessary. I proceeded to hear evidence and submissions on those issues.
[9] My reasoning with respect to s 459S warrants some elaboration. The central proposition in my reasoning is that the words "a ground … that the company could have … relied on [in an application to set aside the statutory demand]" in s 459S(1)(b) direct the attention of the court to whether, having regard to the facts, the company was in a position, at any time during the 21-day period specified by s 459G(2), to raise the relevant grounds in an application to set aside the demand. In the present case, the evidence indicates that the demands, though properly served by posting, were not received until after service of the originating processes, well after the end of the 21-day period beginning at the time of service. The directors of the defendant companies passed resolutions to rectify ASIC's records of the registered offices of the companies, on 20 February 2004. Notices of change of addresses of registered offices were posted by one of the directors to ASIC on about 1 March 2004. There is no evidence as to whether the directors made any arrangements for receipt of mail addressed to the old registered offices after that time, but it seems to me implausible to contend in the present case that they were under any specific duty to do so. There is nothing in the facts to suggest, and it has not been submitted, that the directors of the defendants deliberately timed their notifications to ASIC so as to thwart Perpetual's attempts to serve the statutory demands. The problem that arose was essentially a problem caused by the transition from one registered office to another, and it is not to the point that the defendants might have been more prompt in notifying their change of registered office to ASIC."
11 This reasoning was recently accepted and applied by Perram J in Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777. After referring to Austin J's decision, his Honour made the following observation (at [14]):
"I accept that as a correct interpretation of s 459S(1). The question devolves therefore to one of whether it can be said as a matter of fact that the ground now sought to be relied upon by the defendant in opposing the winding up is a ground which was not, in fact, available. As Masri demonstrates at 723 [12], where there has been a change of premises without a corresponding alteration in the registered office, that test will ultimately require an examination of the issue of the reasonableness of the superintendence by the applicant of its registered office."
12 In the Grant Thornton case, as in the case before Austin J, the company concerned no longer maintained any form of presence at the premises at which the registered office was situated.
13 The factual position in the present case is different. The registered office of the defendant has been at all material times at the office of a firm of accountants in Pyrmont. Affidavit evidence to be relied on by the plaintiff refers to service by posting of the statutory demand to the Pyrmont address on 9 September 2008 (see s 109X(1)(a) of the Corporations Act). Two persons employed by the accounting firm have sworn affidavits, one an accountant (Mr Jennings) and the other a receptionist (Ms Taylor). Each gives evidence of internal procedures for the receipt and initial perusal of incoming mail and its forwarding to whichever person in the office is responsible for the client in question. That evidence indicates that no statutory demand addressed to the defendant was received at the Pyrmont premises in the period after 9 September 2008. Mr Boulden, the general manager of the defendant, says in his affidavit that he was not aware of the existence of the statutory demand until he received a bundle of papers that included the originating process filed on 9 October 2008. On 10 October 2008, he spoke to Mr Jennings and said that, as it appeared from those papers that a statutory demand had been served at the registered office, Mr Jennings should check whether any such document had been received.
14 I am thus in a position where, on the present interlocutory application, I have evidence that the document was posted to the Pyrmont address of the registered office and evidence that there is no record or recollection of its being received there. The latter evidence comes from two persons. The evidence of each of them tends to corroborate that of the other. And, of course, there is no necessary inconsistency between the fact of posting and the fact of non-receipt. Posted articles do occasionally become lost in the post.
15 I therefore accept that, purely on the facts as they appear at this interlocutory stage, the matters the defendant wishes to put forward by way of defects in the statutory demand and the accompanying affidavit are not matters on which the defendant "could have" relied upon a s 459G application for an order setting aside the statutory demand. The defendant was not able to initiate such an application within the time allowed by s 459G(3) because the statutory demand did not come to its notice within that time. It follows that, on the basis stated by Austin J and Perram J in the cases I have mentioned, s 459S will not preclude reliance by the defendant on those grounds upon the hearing of the winding up application.
16 I return, therefore, to the application before me which, as I have said, is, in substance, an application for leave under s 465C to rely on the additional grounds of defence. It is relevant to consider just what reliance on those grounds entails and what it might lead to.
17 The grounds entail alleged deficiencies in the statutory demand and in the affidavit accompanying it in conformity with s 459E(3). The alleged defect in the demand itself is that it did not include the four notes appearing at the foot of Form 509H which deal with the way in which the form should be completed. The alleged deficiency in the s 459E(3) affidavit is that the deponent did not depose that the debt was due and payable (this being a requirement arising through rule 5.2 of the Supreme Court (Corporations) Rules and Form 7).
18 It is clear beyond argument that neither of these deficiencies means that the statutory demand is not a statutory demand. The omission of the notes at the foot of Form 509H does not deprive a statutory demand of its character as such: Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525. And a defect in the accompanying affidavit cannot affect the character of the separately existing document it accompanies.
19 It follows that, even if the defendant is able, at the hearing of the winding up application, to rely on the alleged defect in the statutory demand and the alleged defect in the accompanying affidavit, it will not thereby displace the s 459C(2)(a) presumption, assuming that service of the statutory demand is proved. That presumption arises by reason of non-compliance with a statutory demand and it makes no difference that there is a defect in that statutory demand or in the accompanying affidavit; nor does it make any difference that the statutory demand would have been set aside had an application in that behalf been made within the strictly limited period allowed by s 459G(3).
20 Since, on this basis, the alleged defects, if established, will do nothing to undermine any statutory presumption of insolvency, one must address the only other conceivable relevance of the defects upon a final hearing, that is, that the defects, if established, will be material to the court's discretion whether or not to make a winding up order if insolvency is proved. As s 467(1) makes clear, there is a discretion to dismiss the application even if a ground for making a winding up order has been proved.
21 The omission of the notes from the statutory demand is, in context, a trifling matter. The notes have been described as "not important" from the perspective of the debtor on which the statutory demand is served since they "are for the assistance of the creditor, rather than telling the debtor of his rights": Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2001] WASC 216 per Bredmeyer M (reversed on other grounds: Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35. The possibility that absence of the notes will lead to a finding of "substantial injustice" (as would have been necessary under s 459J(1)(a) to warrant setting aside of the demand) is so remote as to cause it to be rejected as a realistic proposition: see the concession in Kalamunda Meat Wholesaling (above); see also Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (1994) 117 FLR 330 and Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 17 ACSR 662.
22 In relation to the absence from the s 459E(3) affidavit of a statement that the debt was due and payable, the case law suggests that this would in all likelihood have caused the statutory demand to be set aside under
s 459J(1)(b) had application been made under s 459G: see, for example, IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Co Ltd [2003] FCA 533; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393.
23 A deficiency in the accompanying affidavit of the kind to which these cases refer is relevant to an assessment of the overall context in which the demand comes to be considered by the company. If the statement that the debt is due and payable is not offered on oath by the creditor serving the statutory demand, the context is one in which important information is withheld from the company. The company is entitled to know that the creditor has satisfied itself that the debt is due and payable and is thus of the quality necessary to sustain a statutory demand. If that assurance is not given, the company cannot fairly be put to the choice of paying the claimed amount, seeking to have the demand set aside or suffering the imposition of a presumption of insolvency.
24 The facts on which I am working at this stage are that the defendant company did not receive the statutory demand. The company was thus never faced with that choice. If the demand was validly served, the presumption of insolvency has arisen.
25 In these circumstances, the lack of opportunity to seek to have the statutory demand set aside because of the deficiency in the accompanying affidavit and the distinct possibility that it might have been set aside if a
s 459G application had been made might very well become factors relevant to the discretion to make or withhold a winding up order, assuming the insolvency ground is ultimately established. That a statutory demand would (or would probably) have been set aside had an application under s 459G been made is a factor relevant to the exercise of the discretion if that matter is available to be relied upon at the final hearing despite s 459S and if the only real evidence of insolvency is the statutory presumption: Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728.
26 Because the second of the matters sought to be added to the notice of appearance (see paragraph [6] above) may potentially affect the discretion to make or withhold a winding up order if insolvency is proved by means of the s 459C(2)(a) presumption, it is appropriate that leave be granted under s 465C so that the defendant can rely on that ground - but in a limited form that confines the available ground to the particularly alleged deficiency in the affidavit.
27 I am bound to add, however, that the decision to grant leave under s 465C is based on the facts as they appear from the affidavits at this point, without the affidavit evidence of any witness having been tested by cross-examination. It may be that the ultimate findings upon a full hearing are inconsistent with the proposition that the statutory demand was not received by the defendant. Should that happen (and I cannot, of course, predict whether it will - or even whether the matter will come to be addressed upon a final hearing), s 459S will operate to preclude reliance on the added ground (there being no possibility of satisfying the test in s 459S(2)); and this will be so despite the prior grant of leave under s 465C, which leave would then appropriately be revoked.
28 I turn now to the subpoena question. The subpoena the defendant seeks to have set aside is a subpoena directed to CT Money Pty Ltd, the parent company of the defendant. CT Money also has a second subsidiary, CT Lending Pty Ltd. The subpoena extends to a number of financial documents of CT Money (the defendant's parent) and CT Lending (the other subsidiary of the defendant's parent), as well as the defendant itself, including documents going back to periods commencing in 2005.
29 Mr Cheshire makes two points: first, that, in general terms, the financial position of the parent and that of the co-subsidiary are irrelevant to the central question in the proceedings, that is, the question of the solvency of the defendant; and, second, that the requirement for the production of documents relating to the financial position of the parent and the co-subsidiary for financial years ending June 2006 and 2007 and their loan agreements and similar documents since 1 November 2005 cannot conceivably have anything to do with the present financial position of the defendant.
30 Mr Stevens of counsel, who appeared for the plaintiff, pointed to the fact that financial statements of the defendant alone record assets in the form of receivables owing by the parent and the co-subsidiary. There are also amounts recorded as owing by the defendant to those two entities. Mr Stevens said that perusal of the documents sought in relation to the other group companies "might show" a number of things - for example, incapacity of the parent or the co-subsidiary or both to pay the amounts recorded as receivable by the defendant, or "difficulties in either receiving moneys or paying moneys, of either CT Money or CT Lending".
31 Mr Cheshire's response on this matter was that Mr Stevens' submission itself shows that the purpose in seeking documents about the other two group companies is speculative.
32 Mr Stevens also made the point that the parent might reasonably be expected to have in its possession financial records and documents of its subsidiaries and that it is legitimate to seek such documents from it.
33 I am of the opinion that the holding company, if required to produce documents at all, should be required to produce only those which record its own transactions, financial position and performance. If the plaintiff seeks documents concerning the transactions, financial position and performance of the co-subsidiary, CT Lending, it should cause a subpoena directed to that company to be issued. And, if the plaintiff seeks documents concerning the transactions, financial position and performance of the defendant, it should do so by means of pre-trial processes for obtaining documents from a party.
34 I am also of the opinion that, given that the defendant's financial statements show as an asset an amount receivable from the parent, CT Money, it is legitimate for the plaintiff to seek from CT Money documents relevant to an assessment of that company's capacity to pay the relevant sum so that the quality of the defendant's asset may be judged. That, of necessity, will be confined to present financial capacity. Historical performance and other aspects of the wider affairs of CT Money will not be relevant.
35 The subpoena before me directed to CT Money is excessive in scope, given the opinions expressed in the two immediately preceding paragraphs. The subpoena will therefore be set aside. The question of confidentiality in respect of documents produced in answer to the subpoena therefore does not arise.
36 The final matter for consideration concerns an expert report of Mr Cavanagh on which the defendant intends to rely. The defendant seeks an order for restricted access to that report, so that it is available only to the plaintiff's legal advisers and any expert retained by the plaintiff to provide a report in these proceedings. The reason is that the plaintiff and the defendant are trade rivals and it is apprehended by the defendant that, if officers of the plaintiff see Mr Cavanagh's report, the plaintiff may thereby obtain insights into commercial matters of value confidential to the defendant.
37 There is merit in this view and an order will be made.
38 The orders of the court are:
1. Order pursuant to s 465C of the Corporations Act 2001 (Cth) that the defendant have leave to amend its notice of appearance filed on 3 November 2008 by adding the following ground of defence:
"8. The affidavit under section 459E of the Corporations Act 2001 (Cth) of Tal Arieh Silberman sworn on 9 September 2008 in support of the statutory demand is defective because it does not state that the alleged debt is due and payable."
2. Order that the subpoena issued on 13 November 2008 and directed to CT Money Pty Limited be set aside.
3. Order that access to the report of Shannon Cavanagh dated 3 December 2008 be limited to the plaintiff's legal representatives and to any qualified expert retained by the plaintiff to provide an expert report for use solely in these proceedings, being an expert who has given to the court an undertaking in terms of paragraphs 1, 2 and 3 of the annexure A to the interlocutory process filed on 12 December 2008.
39 If a party seeks an order for costs of the defendant's interlocutory process filed on 12 December 2008, that party must, within seven days, serve on the other party and deliver to my Associate the terms of the order sought and brief written submissions in support of the application for the order. A party on which a form of order and submissions is so served must, within seven days after service, serve on the other party and deliver to my Associate brief written submissions on the question whether the order should be made.
40 I direct that the proceedings be listed in the Registrar's Corporations List on Monday 9 March 2009 for directions.
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