WINDING UP - Appeal from decision of an Associate Justice to wind up the appellant and refuse application for adjournment of winding up application - Application to adjourn further hearing of an application to wind up the appellant for failing to comply with a statutory demand until hearing and determination of an appeal by the appellant - Statutory demand based on a debt due by the appellant to the second respondent - The debt due by the appellant challenged in an appeal to the Court of Appeal by the appellant - Principle in Adamopoulos v Olympic Airway applied - Consideration of where the interests of justice lie - No prejudice to creditor in granting the application - Prejudice to appellant - Application approved.

CORPORATIONS - Application for court approval to permit director to bring appeal on behalf of appellant - s 471A(2A)(d) Corporations Act 2001.

1 MIG Property Services Pty Ltd (MIG), is a company controlled by Mr Mond, an accountant. In September 2006, MIG took a transfer of a mortgage that had been granted by S&D International Pty Ltd (S&D) over a retail shopping premises in Footscray of which S&D was the registered proprietor.

2 In June 2007, S&D was placed in liquidation. Mr Handberg was appointed the liquidator.

3 In August 2007, MIG appointed Mr Vartelas as agent for the mortgagee in possession in respect of the Footscray property.

4 On 19 September 2007, the mortgaged Footscray property was sold by the agent in possession and a settlement of the sale took place on 19 October 2007. It was sold for $1,360,000.

5 In October and November 2007, Mr Mond transferred $410,000 of the settlement proceeds to Israel to be used in the acquisition of a house for himself and Mrs Mond. At or after settlement, no moneys were paid to S&D or to subsequent claimants. MIG claimed the right to retain all the moneys pending the determination of the respective claimants' entitlement to those moneys despite all subsequent claimants agreeing moneys should be paid into court.

6 In August 2008, Mr Handberg, as the liquidator of S&D took proceedings in this court against MIG and other parties alleging, in part, that that MIG should be ordered to pay S&D or into court the moneys received by MIG from the sale of the shop premises that S&D alleged were surplus to the amount secured by MIG's mortgage.

7 In the proceeding, on 9 June 2009, this Court ordered that there be an inquiry into the amounts and sums that should have been paid by MIG to S&D as mortgagor on the sale of the Footscray property.

8 On 5 October 2009, as a result of that order, this Court ordered by consent that MIG pay S&D the amount of $164,994 and interest of $35,139.52 which remains outstanding and unpaid by MIG to S&D.

9 Previously on 3 July 2009, MIG commenced an appeal in respect of the orders made against it in the proceeding.

10 On 13 July 2011, Mr Handberg as liquidator served on MIG a statutory demand requiring MIG to pay the judgment debt.

11 On 4 August 2011, MIG applied to have the statutory demand set aside. The application was heard by an Associate Justice on 26 August 2011.

12 Prior to the hearing, on 24 August 2011, MIG applied to the Court of Appeal for orders that:

(a) until [the appeal proceeding] has been heard and determined there is a stay on the order made by the Supreme Court on 19 June 2009 in the proceeding against MIG; and

(b) until further order Mr Handberg be restrained from taking any further steps in the winding up of MIG.

13 On 30 September 2011, the Associate Justice dismissed MIG's application to set aside the statutory demand.

14 On 13 October 2011, the stay application was heard by the Court of Appeal and was dismissed.

15 On 29 February 2012, an application for an adjournment of the application to have MIG wound up, until such time as an appeal against the judgment upon which the application is based was heard and determined by the Court of Appeal, was made to the Associate Justice and rejected. The Associate Justice ordered that MIG be wound up in insolvency under the provisions of the Corporations Act 2001.

16 His Honour found that MIG is not a trading company and is continuing to operate solely for the purpose of prosecuting the appeal before the Court of Appeal. MIG's counsel informed the Associate Justice that all steps in the appeal had been completed by MIG and the matter was waiting for a hearing date of the appeal.

17 His Honour found that Mr Mond had personally guaranteed the sum of $70,000 for security for costs. Mr Mond had deposed that he had personally incurred approximately $250,000 in costs to fund the appeal.

18 On 16 March 2012, MIG filed a notice of appeal against the order of the Associate Justice winding up MIG. The fact findings of the Associate Justice were not challenged on the appeal.

19 MIG says that three issues are raised by this appeal. Firstly, Mr Mond applies for the approval of the court to bring the appeal in the name of MIG. Secondly, MIG seeks leave to appeal out of time. Thirdly, MIG seeks an order that the application for winding up be adjourned pending the hearing and determination of the appeal.

20 I shall deal with the second ground first. If Mr Mond is given the approval sought to bring the appeal, then I will grant the extension of time. The application was, by mistake, made some nine days late. S&D concedes that it has suffered no prejudice through the delay.

21 As to the issue of seeking approval, I think it is appropriate to consider that application in light of the merits of the application for the adjournment of the winding up application.

22 The approach of the Court to an application for an adjournment of the winding up application is dealt with in principle in Adamopoulos v Olympic Airway,[1] a decision of the Full Bench of the Federal Court of Australia constituted by Pincus, Burchett and Gummow JJ. Burchett and Gummow JJ, in their joint judgment, say:

... the first question to be answered is, what is the effect of the appeal? The learned judge said: 'I do not think that it would be a correct exercise of discretion for this court to refuse a sequestration order upon the basis that a judgment entered after a contested hearing before a Supreme Court judge is subject to an appeal, particularly with a history of dilatoriness in prosecuting an appeal from that decision. If a sequestration order is made it will be a matter for the trustee of the bankrupt estates to determine whether to pursue the appeal. One may be confident that, if there is any substantial merit in the appeal, this step will be taken.

With respect, we do not think this view of the matter is consistent with authority. An appeal against the very judgment which founds the bankruptcy notice is a matter of significance requiring advertence to the possibility that the appeal may be justified. Nor is it realistic to entertain any confidence, in any other than a special case, that a trustee in bankruptcy will decide to pursue an appeal with merit. The extremely experienced counsel who appeared for the respondents was unable to recall any instance where such a thing had happened. A much more likely consequence of a sequestration order is the abandonment of the appeal, whatever its merits, and its dismissal for non-prosecution.

24 In Ahern v. The Deputy Commissioner of Taxation Queensland,[2] the joint judgment of Davies, Lockhart and Neaves JJ, laid down the governing principle in the following terms:

It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds.

These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.

26 Gardiner AsJ has held in this Court that the same principles apply to a winding up.[3] So far as the principles laid down in Adamopoulos are concerned, I find that the appeal does raise genuine and arguable grounds. I do not consider it necessary to examine these. The proposition was not seriously challenged by S&D.

27 According to Mr Mond, MIG has no assets and in substance no liabilities, save for the judgment debt. If the adjournment is not granted, then MIG implicitly concedes that it has no answer to the winding up order being made.

29 If an adjournment is given, and if the appeal is successful, the liquidator will be spared the expense of pursuing the moneys that have been transferred to Israel, as there will be no creditors (save for his own fees) that will need to be paid.

30 If an adjournment is given, and if the appeal is unsuccessful, then the liquidator may have been delayed in pursuing the moneys that have been transferred to Israel. I do not consider that a great prejudice in view of the fact that four or so years have already elapsed since the moneys were transferred.

31 If an adjournment is not given, and MIG is ordered to be wound up, it may well be the case that the liquidator will not proceed with the appeal. If the liquidator did proceed with the appeal, the liquidator may hold his hand on pursuing moneys transferred to Israel until he saw how the appeal was decided.

32 In any event I do not see any material prejudice to MIG's sole creditor by reason of the adjournment.

33 I accept that there is a public interest that must be considered. Applications to wind up on the grounds of insolvency are taken in the interest of all creditors. In this case, however, there is in effect only one creditor.

34 This brings me to the decision of the Court of Appeal.

35 I consider that the decision as to whether there should be a stay of execution of a judgment debt raises different issues to whether a winding up application should be adjourned. A stay raises the issue of whether the appeal would be rendered nugatory if the stay were not granted. In this case, the Court of Appeal was also asked to restrain Mr Handberg from taking any further steps to wind up MIG. I accept the submission of MIG that that application was not a true alternative but an adjunct to the application for a stay.

36 S&D contends that the application was, in substance, an application for an adjournment of the winding up application. In the absence of reasons by the Court of Appeal that is not an inference I am prepared to draw. Accordingly, in my view, I see no reason why the usual principle referred to in Adamopoulos should not apply.

37 This brings me back to the application of Mr Mond to bring the appeal before me in the name of MIG. In the unusual circumstances of this case, where the MIG is not trading and has no liabilities other than the judgment debt, I consider that leave should be granted for Mr Mond to make the application in MIG's name.

38 I will give approval on condition that Mr Mond undertakes to indemnify MIG in relation to any costs order that may be made against it hereafter or until MIG be wound up on the application of S&D on the present application (if that be the case).

[1] [1990] FCA 280; (1990) 95 ALR 525, 531.

[2] [1987] FCA 312; (1987) 76 ALR 137, 148.

[3] See Shmee Pty Ltd & Anor v Bresam Investments Pty Ltd [2009] VSC 657.