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[2010] NSWSC 508
Supreme Court of NSW
2010-03-01
Palmer J, Chernov J
Original judgment source is linked above.
78 ACSR 468 239 FLR 339 Reported Decision : [2010] ALMD 6244 [2010] ALMD 6246 [2010] ALMD 6234
CITATION : Woodgate v Garard Pty Ltd [2010] NSWSC 508 This decision has been amended. Please see the end of the judgment for a list of the amendments.
JURISDICTION : Equity Division Corporations List
DECISION : Declaration that Statutory Demand validly served on 13 August 2009 - further argument necessary as to whether leave to prove solvency should be granted.
CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - "SERVICE" - Statutory Demand not served in manner prescribed by s 109X Corporations Act - whether informal but effective service - consideration of "informal effective service rule". - PRESUMPTION OF INSOLVENCY - Whether presumption arises if time for compliance with Statutory Demand expires after winding up application is filed - construction of s 459C(2) and s 459Q - authorities and principles considered - earlier authorities not followed.
Acts Interpretation Act 1901 (Cth) - s 28A LEGISLATION CITED : Corporations Act 2001 (Cth) - s 109X, s 234, s 459A, s 459C, s 459E(1), s 459F(2), s 459G, s 459P, s 459R, s 459Q, s 459S, s 461, s 462, s 464 Corporations Law 1996 (Cth) - s 109X, s 220, s 459G
TEXTS CITED : Harmer Report (Law Reform Commission, Report No 45, General Insolvency Inquiry)
PARTIES : Giles Geoffrey Woodgate a.t.f. bankrupt estate Athol Albert Fenton (Plaintiff) Garard Pty Ltd (Defendant)
S. Golledge (Plaintiff) COUNSEL : A. Crossland (Defendant) C. Stapley (Sol) (Deputy Commissioner of Taxation, Supporting Creditor)
Turks Legal (Plaintiff) SOLICITORS : Dennis James, Director, Garard Pty Ltd (Defendant) C. Stapley (ATO - Supporting Creditor)
1 This is an application to wind up the Defendant ("Garard") in insolvency pursuant to s 459A, s 459C and s 459P of the Corporations Act 2001 (Cth) ("Corporations Act"). The Plaintiff, Mr Woodgate, relies upon the presumption of insolvency arising under s 459C(2)(a) consequent upon the failure of Garard to comply with a Statutory Demand. 2 The application raises a number of points of law as to the service of a document on a company and as to the construction of those sections of the Corporations Act which afford a presumption of insolvency. 3 Mr Woodgate is the trustee of Mr Athol Fenton's bankrupt estate. Mr Fenton was an electrical contractor who carried out work for Garard. 4 On 31 July 2009 Mr Woodgate sent to Garard a Statutory Demand claiming a debt of $15,400 in respect of work which had been carried out by Mr Fenton. The Demand was sent by registered post to an address which, only a month before, had ceased to be Garard's registered office. Mr Woodgate, apparently, was unaware of the change. One of Garard's two directors, Mr Szkirpan, collected the registered letter containing the Demand from an Australia Post Office and, by letter to Mr Woodgate dated 14 August 2009, he acknowledged that he had received the Demand on 13 August. 5 Mr Woodgate concedes that the Demand has never been served at Garard's registered office or in any other manner authorised by s 109X for service of documents upon a company. Nevertheless, he says that the Demand was served upon Garard, within the meaning and for the purpose of s 459E(1) and s 459F(2)(b), because it was actually and effectively received by Garard. 6 Garard did not file and serve an application under s 459G to set aside the Demand within twenty-one days from 13 August 2009. At some time between 24 and 30 September 2009, Mr Szkirpan asked his co-director, Mr James, to take over dealing with the Demand. There is no evidence that Mr James was aware of the Demand before that time. 7 Mr Woodgate filed an Originating Process to wind up Garard on 13 October 2009. Mr Szkirpan had pointed out to Mr Woodgate that the Demand had not been served at Garard's registered office. Accordingly, Mr Woodgate's Originating Process sought, in addition to an order for the winding up of Garard, "a declaration pursuant to s 109X(6)(b) of the Corporations Act that Garard is deemed served with the [Demand] … on 13 August 2009". 8 On 2 December 2009, Garard filed an Interlocutory Process seeking leave, pursuant to s 459S, to oppose the Originating Process, presumably upon the ground that the debt was genuinely disputed: s 459S(1)(b). The application came before Austin J on 7 December 2009. Mr James appeared, unrepresented, and tendered evidence as to solvency. Austin J rejected the evidence as inadmissible and adjourned Mr Woodgate's winding up application and Garard's s 459S application to 1 March 2010. His Honour directed Garard to file and serve on or before 29 January 2010 the evidence upon which it wished to rely in support of its s 459S application and in opposition to the winding up application. Such evidence should have included admissible evidence of solvency, if Garard wished to oppose the winding up application on the ground that it was solvent. 9 Garard filed and served no evidence in compliance with his Honour's direction. Instead, when the winding up application came on for hearing on 1 March 2010, Garard filed in Court an Amended Interlocutory Process which abandoned the application for leave under s 459S and sought only a declaration that Garard was not duly served with the Statutory Demand and a consequential order that the winding up application be dismissed. At the conclusion of argument, Mr Crossland of Counsel, who appeared for Garard, informed me that he had to obtain Garard's instructions as to whether to seek leave to file evidence of solvency if his submissions as to invalid service of the Demand failed. Leave to file that evidence would be required because Garard had failed to comply with the directions of Austin J in that regard. On 3 March, Mr Crossland gave notice that he was instructed to seek leave to file evidence of solvency. That application remains to be determined. Issues
11 On 19 January 2009, Mr Szkirpan wrote to Mr Woodgate, who had by then been appointed trustee of Mr Fenton's bankrupt estate, disputing that Garard was indebted to Mr Fenton's estate for $15,400 and asserting that, in fact, Garard was a creditor of Mr Fenton's estate in the sum of $39,450, being the cost of rectification of faulty electrical work. 12 On 31 July 2009, an employee of Mr Woodgate sent the Demand by registered post in an envelope addressed "D. James, Garard Pty Ltd" at the former address of Garard's registered office. 13 On 14 August 2009, Mr Szkirpan wrote to Mr Woodgate as follows: "We refer to your statutory demand dated 31st July, 2009 received by us on Thursday 13th August, 2009. This debt is disputed, our previous correspondence dated 19th January 2009 indicated the nature of the dispute and provided you with supporting documentation. Your office has spoken to the electrician who conducted the rectification work.
We require you to advise us forthwith that the statutory demand is withdrawn. If you have not confirmed by Monday 17th August 2009 we are forced to instruct our lawyer to institute proceedings under Section 459G. We will claim for such application against you." 14 By letter dated 19 August, Mr Woodgate responded to Mr Szkirpan, saying that he had not received sufficient evidence that there was a genuine dispute as to the existence of the debt claimed by the Demand "served on you on 13 August 2009". Mr Woodgate requested specified evidence of the dispute by 24 August 2009. 15 By letter dated 24 August to Mr Woodgate, Mr Szkirpan supplied certain documentation said to evidence the dispute. He signed the letter as "DIRECTOR For and on behalf of Garard Pty Ltd". 16 By letter dated 27 August, Mr Woodgate sought further information from Mr Szkirpan by 4pm the next day. By letter dated 28 August Mr Szkirpan responded, providing certain information. Again, he signed the letter as "DIRECTOR For and on behalf of Garard Pty Ltd". 17 By letter dated 28 August, Mr Woodgate sought more information by 31 August 2009. Mr Szkirpan responded by letter dated 31 August, signed by him on behalf of Garard, as before. 18 If the Demand had been served on 13 August, time for the making of an application to set it aside under s 459G expired on 4 September. There is no evidence that Mr Woodgate informed Mr Szkirpan prior to 4 September that, despite the continuing correspondence, he would file an application to wind up Garard for non-compliance with the Demand unless a s 459G application was made within time. 19 On 24 September, Mr Szkirpan wrote to Mr Woodgate as follows: "I refer to my letter 31 st August, 2009 and phone conversation yesterday 23 rd September, 2009 with yourself.
Our position is clearly outlined in the correspondence in that Mr Fenton's work was defective and he was not prepared to carry out any rectification work.
The debt is clearly disputed. Hence, any proceedings commenced by you will be vigorously defended. 20 On 13 October 2009, Mr Woodgate filed the present winding up application, relying upon presumed insolvency pursuant to s 459C(2)(a). 21 On 6 November 2009, the other director of Garard, Mr D. James, filed an affidavit alleging that the debt claimed in the Demand was genuinely disputed. He annexed the correspondence between Mr Woodgate and Mr Szkirpan and concluded: "This debt has always been disputed since it came to the attention of Garard Pty Limited that the work undertaken was defective. All questions asked by the Trustee have been answered." 22 On 24 November 2009, Mr D. James swore another affidavit in which he said: "The correspondence from Garard Pty Ltd to Woodgate & Co annexed to my earlier affidavit was written by Mr Szkirpan, a director of the defendant company. Mr Szkirpan gave me the correspondence in September 2009 and asked me to deal with it." 23 There is no evidence that Mr James was actually aware of receipt of the Demand by Mr Szkirpan until Mr Szkirpan asked him to take over dealing with it. I infer that Mr Szkirpan made that request after he had written the letter dated 24 September, i.e. at some time between 24 and 30 September. Can a declaration be made "pursuant to s 109X(6)(b)"
24 Section 109X provides: " Service of documents
(1) For the purposes of any law, a document may be served on a company by: (a) leaving it at, or posting it to, the company's registered office; or (b) delivering a copy of the document personally to a director of the company who resides in Australia or in an external Territory; or (c) if a liquidator of the company has been appointed - leaving it at, or posting it to, the address of the liquidator's office in the most recent notice of that address lodged with ASIC; or (d) if an administrator of the company has been appointed - leaving it at, or posting it to, the address of the administrator in the most recent notice of that address lodged with ASIC.
(2) For the purposes of any law, a document may be served on a director or company secretary by leaving it at, or posting it to, the alternative address notified to ASIC under subsection 5H(2), 117(2), 205B(1) or (4) or 601BC(2). However, this only applies to service on the director or company secretary: (a) in their capacity as a director or company secretary; or (b for the purposes of a proceeding in respect of conduct they engaged in as a director or company secretary.
(3) Subsections (1) and (2) do not apply to a process, order or document that may be served under section 9 of the Service and Execution of Process Act 1992.
(6) This section does not affect: (a) any other provision of this Act, or any provision of another law, that permits; or (b) the power of a court to authorise; a document to be served in a different way.
(7) This section applies to provisions of a law dealing with service whether it uses the expression "serve" or uses any other similar expression such as 'give' or 'send'." 25 Mr Crossland submits that a declaration as to service of the Demand cannot be made "pursuant to s 109X(6)(b)", as sought by the Originating Process, because that provision permits the Court to authorise only the manner in which a document, not yet served, is to be served on a company - it does not enable the Court to validate irregular service already made. 26 Mr Golledge of Counsel, who appears for Mr Woodgate, does not urge that s 109X(6)(b) can support the declaration sought but, as he does not expressly abandon a declaration in those terms, I will express my conclusions. 27 I accept Mr Crossland's submission that s 109X(6)(b) operates prospectively so that it cannot be used to validate service which has already been effected irregularly. That proposition is supported by unchallenged authority: see Emhill Pty Ltd v Bonsoc Pty Ltd (2004) 50 ACSR 305 at [14] per Mandie J; Racecourse Totalisators Pty Ltd v Hartley Cyber Engineering Pty Ltd (1989) 15 ACLR 457, at 459 per O'Bryan J; Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 143 ALR 648, at 668 and 670 per Beaumont J. Service on a company
28 The contest between the parties has focussed on whether the Court should hold that receipt of the Demand by Mr Szkirpan on 13 August 2009 was, although informal, nevertheless good service on Garard. Mr Crossland, in submitting that it was not, relies heavily on the decision of the Full Federal Court in Rochester Communications (supra) and upon the authorities discussed therein by Beaumont J. For the contrary proposition, Mr Golledge relies upon the decision of Young J (as his Honour then was) in Howship Holdings Pty Ltd v Leslie (No 2) (1996) 41 NSWLR 542, and upon later cases which have followed that decision. 29 In Rochester Communications, the creditor had served a Statutory Demand in which, in accordance with the prescribed form, it had given its solicitors' office address as the address for service of "any application". The debtor filed a s 459G application within the prescribed time but did not serve it either at the address stated in the Statutory Demand or at the creditor's registered office. Rather, the application was served at the office of one of the directors of the creditor. The primary judge held that the application had not been served on the creditor within the prescribed time so that the Court had no jurisdiction to entertain it. 30 The debtor appealed. Section 220 of the Corporations Law 1996 (Cth), which then applied, provided that a company "may be served" by leaving the document at, or sending it to, the registered office of the company. The debtor submitted that s 220 was facultative, not mandatory, and that, in the particular circumstances of the case, service on the director of the creditor was effective to bring the application to the attention of the creditor itself. 31 The principal judgment was given by Beaumont J. His Honour reviewed a number of English cases in which it was held that the precursor of s 220 was, in fact, mandatory and that service other than at the registered office of a company was not valid. His Honour also referred to Eagles v Eagles [1960] VR 400 in which Pape J had held that a writ delivered to a bank at one of its branch offices, rather than at its registered office, was not validly served even though the branch manager had brought the writ to the attention of the bank's head office. 32 His Honour noted that Eagles had been distinguished in Peters v Oscar Mayer Pty Ltd [1963] VR 390, at 395, on the ground that service of the writ in Eagles had to be effected in accordance with the rules of court, whereas service of a document on a company generally could be effected in accordance with the precursor of s 220 although that provision was not "an exclusive mode of effecting service on a company. It provides what will be sufficient leaving other methods open of proving effective service". However, Beaumont J distinguished Peters on the ground that it was concerned with proceedings under the Health Act 1958. 33 At 670, Beaumont J referred to the observations of Young J in Howship, upon which Mr Golledge now relies, to the effect that s 109X is facultative, not mandatory. Beaumont J said, by way of distinction, that those observations "were made in the context of service on an individual". He continued: "…the later course of authority previously mentioned now makes it clear that the 'actual notice' principle must be viewed in the light of specific statutory provision to the contrary, in particular the relevant provisions of the Law, and regulations, viz s 220(1) and the 'address for service' provisions of Form 509H …" 34 Beaumont J was of the view that, as the s 459G application had not been served in accordance with the statutory provisions, there was no valid service and the appeal should be dismissed. Whitlam and Moore JJ agreed in that result but gave their own reasons. 35 The reasoning of Whitlam J seems to be that:
If this were not so, one would get the absurd situation referred to by McInerney J in Pino v Prosser (at 837), that the conclusion would be one which is: ' … remarkable to the point of seeming absurdity, in that the defendant who, on his own affidavit admits that he received the writ … should be held not to have been served.' " 42 His Honour's pragmatic approach - what might be called "the effective informal service rule" - has been applied in many subsequent decisions concerning service of a Statutory Demand and other documents on a company, even though Howship was concerned only with service of a s 459G application on natural persons: see e.g. Seventh Cameo Nominees Pty Ltd v Holdway Pty Ltd (unrep VSC, Chernov J, 24 April 1998); Players Pty Ltd v Interior Projects (1996) 20 ACSR 189, at 193 per Lander J; Ketrim Pty Ltd v AS&L Pty Ltd (2004) 52 ACSR 252; Parklands Blue Metal Pty Ltd v Kowari Motors Pty Ltd [2004] 1 Qd R 140, at 143 per Helman J; Condor Asset Management Ltd v Excelsior Eastern Ltd [2005] NSWSC 1139, at [6]-[13] per Barrett J; Emhill Pty Ltd v Bonsoc Pty Ltd (supra) at 312 per Mandie J; Italiano v Carbone [2005] NSWCA 177, at [58]-[61] per Basten JA; Austar Finance Group Pty Ltd v Campbell [2007] NSWSC 1493, at [36] per Austin J; Dwyer v Canon Australia Pty Ltd [2007] SASC 100, at [27] per Debelle J; Polstar Pty Ltd v Agnew (2007) 208 FLR 226, at [24]-[25]; Pearlburst Pty Ltd v Summers Resort Group Pty Ltd [2007] NSWSC 1126 per Barrett J at [26]; James v Ash Electrical Services Pty Ltd (2008) 73 NSWLR 95, at [26] per Barrett J. 43 As I have noted, there is no authoritative decision of an appellate Court confirming the "effective informal service rule": the discussion of the point by Basten J in Italiano v Carbone (supra) was not referred to by the other members of the Court. Further, there is conflict in the first instance decisions as to whether particular modes of informal service on a company are valid even for the purpose of the "effective informal service rule": e.g. whether good service of a Statutory Demand or a s 459G application can ever be effected by e-mail or facsimile. 44 Inconsistency and uncertainty in an area of the law which is of everyday application merely multiply occasions for dispute. It may, therefore, be useful to summarise the principles which are supported by the preponderance of authority, as follows:
i) if a document required to be served on a company by the Corporations Act , whether or not it initiates proceedings, is served in accordance with any of the modes prescribed in s 109X Corporations Act and s 28A Acts Interpretation Act 1901 (Cth) or, in the case of a s 459G application, at an address for service nominated in the Statutory Demand (all of which are included in "a prescribed mode"), the document is validly served and once service in a prescribed mode is proved, a proceeding cannot be challenged on the basis that the document did not actually come to the attention of the company: Austar Finance Group Pty Ltd v Campbell (supra) at [40]; Allianz Australia Workers' Compensation (NSW) Ltd v Woodfast Joinery (Aust) Pty Ltd [2003] NSWSC 587; Rochester Communications (supra); James v Ash Electrical Services (supra) at [27]; Telstra Corporation Ltd v Ivory [2008] QSC 123, at [61] per Lyons J; Forza Finance Pty Ltd v Vergepoint Sales & Management Pty Ltd [2010] QSC 46, at [14]-[16] per Daubney J;
ii) where service is effected by leaving the document at the company's registered office in accordance with s 109X(1)(a), it makes no difference whether the document is left within or outside normal business hours or within or outside the hours at which that office is kept open, and the date of service is the date of leaving the document, not when it comes to someone's attention: Cornick Pty Ltd v Brains Master Corporation (1995) 60 FCR 565; SV Steel Supplies Pty Ltd v Palwizat [2009] QSC 24, at [30], [31]; Nutri-Care Ltd v ACN 080 633 754 Pty Ltd [2009] SASC 72; Career Training on Line Pty Ltd v BES Training Solutions Pty Ltd [2010] NSWSC 460, at [28], [29] per Barrett J.
iii) where a creditor serves a Statutory Demand in a prescribed mode and:
the Court may, in its discretion and in the interests of justice, set aside the Statutory Demand under s 459J(1)(b), not for want of good service but for want of fair notice: FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136, at 139 per Santow J; Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559, at 564F-565C per McLelland CJ in Eq; Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180, at [31] per Barrett J; Re Pacific Mobile Phones Pty Ltd [2008] QSC 210, at [21]-[24]; Joe Mangraviti Pty Ltd v Lumley Finance Ltd [2010] NSWSC 61, at [11]-[16];
iv) the prescribed modes are not exclusive of other modes of service: if some other mode of service is employed, whether it is good service depends upon whether the serving party can prove to the Court's satisfaction that the document actually came to the attention of an officer of the company who was either expressly or implicitly authorised by the company to deal directly and responsively with the document, or documents of that nature ("a responsible officer"): see the cases referred to in paragraph 42;
v) there is no special exception to the "effective informal service rule" in the case of service by e-mail or facsimile - the question remains whether that mode of service actually brought the document to the attention of a responsible officer: Austar Finance (supra) at [49]; Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531, at 550 per Lehane J; Millerview Constructions Pty Ltd v Palmer Plumbing Pty Ltd [2008] QSC 3, at [11]; Dwyer v Canon Australia (supra) at [7]; cf Fingalbay Pty Ltd v Rengay Nominees Pty Ltd (1997) 142 FLR 340; Griffith Producers Co-operative Co v Calabria (supra);
vi) where a document, not served in a prescribed mode, comes to the actual attention of the sole director of a company it will be presumed, unless a strong case to the contrary is shown, that the director is the responsible officer and that service is good: Emhill (supra) at [28]; Polstar (supra) at [24];
vii) a party invoking the effective informal service rule bears the onus of proving the time at which the document came to the actual attention of a responsible officer of the company and, in view of the serious consequences which may attend, the Court will not lightly draw inferences or make assumptions as to the time of service: Howship (supra) at 547C. When was service effected
45 I am satisfied that Mr Szkirpan was, at the relevant time, the director of Garard who was authorised to deal with the Statutory Demand directly and responsively - i.e. for the purposes of the effective informal service rule, he was Garard's responsible officer. My reason for so concluding is that he alone of Garard's two directors undertook correspondence with Mr Woodgate immediately on receipt of the Statutory Demand, expressly admitting receipt of the Demand and purporting to act on behalf of Garard in doing so. The other director, Mr James, in his evidence has adopted and confirmed what Mr Szkirpan did without comment, from which I draw the inference that Mr Szkirpan was expressly or implicitly authorised by Mr James to deal with the Statutory Demand, or with documents of that character, in the way that he did. 46 I am satisfied that the Statutory Demand actually came to the attention of the company, through Mr Szkirpan, on 13 August 2009 - the date on which Mr Szkirpan admits he received it. The Statutory Demand having validly been served on 13 August 2009, time for paying the debt or filing and serving a s 459G application expired on 4 September 2009. Accordingly, when Mr Woodgate filed his winding up application on 13 October 2009, he was entitled to rely upon the presumption of insolvency arising under s 459C(2)(a). The construction of s 459C(2) and s 459Q
47 A difficult question of law arose during the course of the hearing. It is not necessary to deal with it if I am correct in the conclusion I have reached above as to the time of service of the Statutory Demand. In case I am not correct, I should state my views for the assistance of the Court of Appeal. 48 I have found that the Statutory Demand was served on 13 August 2009 because I have drawn an inference that Mr Szkirpan was then the relevant responsible officer of Garard. If I am wrong in drawing this inference, it follows that good service of the Statutory Demand was not effected until Garard's other director also received actual notice of the Demand - which I have inferred to be some time between 24 and 30 September 2009: see [23]. 49 If service of the Demand was effected on Garard between 24 and 30 September, the twenty-one day period for compliance with it fixed by s 459F(b) had not expired by 13 October 2009, when Mr Garard filed his Originating Process to wind up Garard. The Originating Process expressly relies on Garard's failure to comply with the Statutory Demand, said to have been served on 13 August 2009, and upon the insolvency of Garard presumed to arise under s 459C(2)(a). Mr Woodgate has adduced no evidence to prove Garard's insolvency otherwise. 50 This raises an important question. Can the statutory presumption of insolvency be invoked if time for compliance with a Statutory Demand has not expired before a winding up application is filed, but has expired by the time the application comes on for final hearing? Mr Golledge submits that it can, and he rightly says that that proposition is supported by authority. However, I am respectfully of the opinion that I am not able to follow that authority. 51 Section 459C provides: " Presumptions to be made in certain proceedings
(1) This section has effect for the purposes of: (a) an application under section 234, 459P, 462 or 464; or
(b) an application for leave to make an application under section 459P.
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a) the company failed (as defined by section 459F) to comply with a statutory demand; or
(b) execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied; or
(c) a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a floating charge on such property; or
(d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a charge; or
(e) a person entered into possession, or assumed control, of such property for such a purpose; or
(f) a person was appointed so to enter into possession or assume control (whether as agent for the chargee or for the company).
(3) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application." 52 A difficult problem arises in applying to the provisions of subsection (2)(a) the introductory words of the subsection - "… if, during or after, the 3 months ending on the day when the [winding up] application was made …". There is no difficulty if the debtor has failed to comply with a Statutory Demand "during the three months ending on the day when the application was made": if the creditor serves a Statutory Demand, waits until time for payment or the making of a s 459G application has expired and then files a winding up application not later three months after the expiry date, it can rely on the presumption of insolvency. However, if the creditor waits longer than three months from the expiry date before making the winding up application, then the presumption grows "stale" and cannot be invoked. This is in accordance with the intention of the Harmer Report (Law Reform Commission, Report No 45, General Insolvency Inquiry). Volume 1, para 154 of the Report, which is the origin of s 459C, states: "The Commission proposed … that no presumption of insolvency should arise if more than three months has elapsed after the last day for compliance with a statutory demand and no application for the winding-up of the company based upon that non-compliance has been filed. … Views were put to the Commission that three months was too short … The Commission is not convinced that the time limits put forward in DP 32 should be changed. Non-compliance with a statutory demand is supposed to provide contemporaneous evidence of insolvency at the time of or within a reasonably short time after non-compliance - not up to six months after that event." 53 But how can the Court, consistently with the policy of the presumption of insolvency growing "stale" three months after non-compliance with a Statutory Demand, presume insolvency if non-compliance occurs "after the three months ending on the day when the application was made"? 54 In such a case, the three months "limitation period" has no meaning because nothing is required to happen within it and no specific consequence relating to a Statutory Demand or presumed insolvency will occur when the three month period ends. The whole phrase can, therefore, only mean "at any time after the application was made the company failed to comply with the Statutory Demand". Bearing in mind that, under s 459R(1) a winding up application can be heard up to six months after it is made - and even later if an extension of time is granted under s 459R(2) - one can see that a literal reading of s 459C(2)(a) could produce the result that a winding up application could be filed, the creditor could then serve a Statutory Demand and six months or more after the company fails to pay, the creditor can rely upon presumed insolvency at the hearing. 55 Such a result is inconsistent with the recommendations in the Harmer Report. Even more importantly, however, it is repugnant to s 459Q, which provides: " Application relying on failure to comply with statutory demand
If an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the application: (a) must set out particulars of service of the demand on the company and of the failure to comply with the demand; and
(b) must have attached to it: (i) a copy of the demand; and (ii) if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and
(c) unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that: (i) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (ii) complies with the rules." 56 The requirements of s 459Q are mandatory, not permissive, facultative or discretionary - "must" must mean "must". It is impossible for a creditor to file an application relying upon s 459C(2)(a) which complies with s 459Q(a) by setting out "particulars of the failure to comply with the demand" if the creditor serves the Demand after the winding up application is filed or if the time for compliance with the Demand has not already expired. 57 How, then, does one read s 459C(2), according to Lord Wensleydale's "golden rule", in a manner which is consistent with, rather than repugnant to, s 459Q: Grey v Pearson (1857) 6 HL Cas 61, at 106; 10 ER 1216, at 1234; R v Bolton; Ex parte Beane (1987) 162 CLR 514, at 546. 58 One can only make consistent sense of s 459C and s 459Q if one reads s 459C, which deals with an evidentiary presumption in a variety of different circumstances, as qualified by, and subject to, s 459Q, which deals with a particular matter of procedure in one of those circumstances. One then reads the phrase "during or after" in subsection (2) distributively amongst the six events that follow, so that "during or after" does not apply to all six events equally but, rather, "during" and "after" apply respectively only to such of those events as can be relied upon having regard to the provisions of s 459Q. 59 The result is that, consistently with s 459Q, one can rely upon failure to comply with a Statutory Demand only if time for compliance has expired during the three months ending on the day when the application was made, but one can rely on any one of the other five insolvency events specified in s 459C(2)(b)-(f) if the event has occurred either during the three month period before the winding up application is filed or after filing and before the hearing. 60 Such a result does no violence to the words of s 459C(2) and it is in conformity with the recommendations in the Harmer Report. Further, it avoids absurdity and inconvenience. If time for compliance with a Statutory Demand could expire after filing of the winding up application, a creditor who is "in a hurry" could first file a winding up application relying upon failure to comply with a Statutory Demand, then serve the Statutory Demand and set the twenty-one day period running, in the expectation that the winding up application would not come on for hearing in less than twenty-one days. The debtor would then immediately move to have the application summarily dismissed because, at the date of filing and at the date of hearing of the Motion, no presumption of insolvency could possibly be available. The creditor would respond with an application for an adjournment of the Motion to a day after the twenty-one day period had expired. This kind of manoeuvring - at great expense to the parties and placing pressure on the resources of the Court to deal with the spate of urgent applications - is inimical to the ordered and predictable regime of dealing with Statutory Demands contemplated in Pt 5.4: see generally David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd (2008) 243 ALR 207. 61 In support of the construction of s 459C(2) which I favour, I observe that the events of presumed insolvency stipulated in s 459C(2) can be relied upon in winding up applications made under s 234 (oppressive conduct), s 459P (general insolvency), s 462 (grounds under s 461 other than insolvency including the just and equitable ground) and s 464 (applications by ASIC under s 462): s 459C(1). Obviously, many of the grounds for winding up under those sections may have nothing to do with insolvency - e.g. s 234 or s 461(1)(a)-(g), (h)(ii), (k) - so that an application to wind up on those grounds would not be application "for a company to be wound up in insolvency" to which s 459Q applies. 62 In my opinion, s 459C is intended to operate so that if a person with standing under any of the sections stipulated in s 459C(1) files an application for winding up on any of the grounds of those sections - including the general insolvency ground in s 459P - that person may take advantage of the presumption of insolvency afforded by s 459C(2) if the insolvency event occurs within three months before the application. So, for example, if a member of a company files a winding up application on the ground of oppression or the just and equitable ground, he may also rely upon presumed insolvency in support of the discretionary remedy if any of the six presumed insolvency events in s 459C(2) occurs in the three months before the application is filed. If the insolvency event relied upon is failure to comply with a Statutory Demand, he will be able to, and must, include in his application at the time of filing the particulars and attachments required by s 459Q - which means that the time for compliance with the Statutory Demand must have expired before filing of the application. 63 However, if the presumed insolvency event is one specified in s 459C(2)(b)-(f) the applicant may rely upon it not only if it occurs during the three months before the winding up application is filed but also if it occurs after filing and before the hearing because the application, not relying upon non-compliance with the Statutory Demand, is not caught by s 459Q. A consideration of the authorities
64 I turn now to consider the authorities on which Mr Golledge relies to support the proposition that a creditor may rely upon the presumption of insolvency under s 459C(2)(a) if time for compliance with a Statutory Demand expires after the filing of the winding up application. There are five such authorities, none of them the decision of an appellate court. 65 The first reported decision concerning the construction of s 459C(2) is that of Santow J in Pinn v Barroleg Pty Ltd (1997) 23 ACSR 541. There, the creditor filed a winding up application relying upon the presumed insolvency arising from the company's failure to comply with a Statutory Demand. The application was filed more than three months after time for compliance with the Demand had expired. The issue before Santow J was whether non-compliance with the Statutory Demand had occurred "during or after the three months ending on the day when the application was made". 66 The creditor argued that the words "or after" meant that "the application could be made after three months from the relevant event (i.e. expiry of the Statutory Demand) - even though this might be years later": at 544. His Honour did not accept this construction. At 544, he said: "… despite its somewhat puzzling reference to the words 'or after', I am satisfied that the section means:
(a) that the s 459C(2) event relied upon goes stale after three months as the basis for a winding up application; but
(b) where the application is made at a date preceding the event, but based on it, it may still be granted, provided of course the event actually occurs before the winding up order is made; for example if the application were made before expiry of the 21 days after notice of demand.
Thus - giving practical effect to the words 'or after' - a concerned creditor may immediately lodge an application to wind up the company, knowing the 21 days for compliance with a statutory demand has still to expire, but on the basis that the 21 days will expire after (but before the application is heard). This would give a purpose to the words 'or after' in the clause above. Without those words, an application made before the s 459C(2) event could not satisfy the three months requirement, as it was not made during the three months. The sense of the section is seen more clearly when the syntax is therefore rearranged to read: 'during the three months ending on the date the application was made, or after [the day the application was made]'. Such an interpretation avoids patent absurdity because otherwise the words 'or after', would give no sense to the three months limitation. It would mean that in reality there was no time limitation at all - that a winding up application could be brought even years after the relevant event." 67 For convenience, I will refer to the two propositions advanced by his Honour in paragraphs (a) and (b) above as "proposition (a)" and "proposition (b)". 68 What is remarkable in the judgment is that his Honour's attention obviously was not drawn to s 459Q, which was in force at the time. His Honour does not refer to that section at all in the judgment. For the reasons given above, I am unable to see how his Honour could have reached the conclusion that he did in proposition (b), so far as it relates to reliance upon an unsatisfied Statutory Demand, if his Honour's attention had been drawn to s 459Q. Further, his Honour reaches his conclusions by "rearranging" the words of s 459C(2) in a way which, I would respectfully suggest, does violence to the words used. The construction which I favour does no violence to the words of subsection (2) but simply requires them to be read alongside, and consistently with, s 459Q. 69 The second decision is that of Newnes M in Sim v Ravenswood Resort Pty Ltd (Receivers and Managers Appointed) [2003] WASC 121. There, the creditor sought to wind up the company on two grounds - presumed insolvency under s 459C(2)(c) (appointment of a receiver) and actual insolvency. The receiver had been appointed some six months before the winding up application was filed. The company argued that the appointment could not be relied upon under s 459C(2)(c) because the appointment had not occurred "during" the three months ending on the day when the application was made. The creditor argued, relying upon Pinn, that s 459C(2) meant that the application could be made "after" the three month period had expired, so that the presumption of insolvency could be invoked. 70 The learned Master quoted from the judgment in Pinn the passage which I have set out above. He noted a submission of the company's counsel that Pinn was wrongly decided. However, the Master then, without further exposition of his own reasons, said that he agreed with the reasoning in Pinn and held that the presumption could be invoked in the case before him. 71 With great respect, I am unable to see how the facts of Sim could give rise to the presumption of insolvency under either proposition (a) or proposition (b) in Pinn, even if one accepts those propositions as correct. The appointment of the receiver would be "stale", in accordance with proposition (a) as having occurred more than three months before the winding up application was filed. That "staleness" could not be cured under proposition (b) because that proposition requires the "insolvency event" to occur after the application is filed - which, of course, did not happen in Sim. Accordingly, all one can say about the decision in Sim is that it approves, without discussion, the reasoning in Pinn but only as obiter, because the actual decision in Sim is not in conformity with the reasoning in Pinn. 72 The third decision is that of Barrett J in Sheslow v Diamond Rose NL (2005) 54 ACSR 376. There, the creditor served a document purporting to be a Statutory Demand. More than three months after the time for compliance had expired, he filed a winding up application founded solely upon the presumption of insolvency under s 459C(2)(a). The company argued that the document served was not a Statutory Demand within the meaning of s 459E and that, even if it were, time for compliance had not expired "during the three months" prior to filing of the application. 73 Barrett J held that the document was not, in truth, a Statutory Demand so that the winding up application had to be dismissed. His Honour went on to consider the consequences under s 459C(2)(a) if the document had been a Statutory Demand. His Honour said that the application was "made" - i.e. the Originating Process was filed - on 17 May 2005 so that the three month period referred to in s 459C(2) commenced on 17 February 2005. Time for compliance with the "Demand" - if it had been a Statutory Demand - expired in September 2004. His Honour said at [10]: "The 'day when the application was made' is, in this case, 17 May 2005, being the date of the filing of the plaintiff's originating process. The period of 3 months to which s 459C(2)(a) refers therefore began on 17 February 2005. Failure to comply with a statutory demand could therefore be relied upon for the purposes of the current winding-up application only if the failure - that is, the elapsing of the period of 21 days after service without payment, securing or compounding in conformity with the demand - had occurred on or after 17 February 2005. This demand, as I have said, was served in August 2004 which is well outside the relevant period. The case is accordingly one in which comments by Santow J in Pinn v Barroleg Pty Ltd (1997) 23 ACSR 541 apply. As his Honour there noted, s 459C is intended to confine the applicable time period for the winding-up application so that the evidence relied upon for a presumption of insolvency 'would not go stale'. Statutory staleness of an unsatisfied statutory demand occurs, in this sense, after 3 months and 21 days have passed from its service." 74 It will be seen that in Sheslow:
- if an insolvency event referred to in s 459C(2)(b)-(f) occurs between the filing date and the hearing date, it does not go "stale" if the hearing takes place more than three months after the occurrence of the event. 86 In the present case, if I had found that the Statutory Demand was served on Garard between 24 and 30 September 2009, time for compliance would not have expired by the time of filing of the winding up application and I would have dismissed the application on the ground that:
87 In the result, I have held that the Statutory Demand was served on Garard on 13 August 2009 and that Mr Woodgate is entitled to rely upon the presumption of insolvency in this application. Unless leave is granted to Garard to prove its solvency, the company must be wound up. 88 At this stage I will make a declaration as to the date of service of the Statutory Demand in the terms sought in paragraph 1 of Mr Woodgate's Originating Process. I will make the declaration, not "pursuant to s 109X(6)(b) of the Corporations Act" as sought, but, rather in exercise of the Court's declaratory jurisdiction. Such a declaration is in accordance with the procedure suggested by Mandie J in Emhill (supra) at [12]. 89 I will stand the proceedings over to a date to be fixed to enable the Plaintiff to bring in Short Minutes of Order as to the declaration to be made. I will then hear any application by Garard for leave to file evidence as to its solvency.
25/05/2010 - Error in date in Decision/Orders - date corrected to 13 August 2009. - Paragraph(s) Cover sheet, "Decision/Orders"
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Woodgate
Garard Pty Ltd
[2007] SASC 100
[2010] QSC 46
[2008] QSC 3
[2009] SASC 72
[2008] QSC 210
[2003] WASC 121
[2009] QSC 24
[2008] QSC 123
(2008) 243 ALR 207
(1996) 69 FCR 531
(1995) 60 FCR 565
(1995) 184 CLR 265
(1997) 142 FLR 340
(1994) 33 NSWLR 559
(1996) 41 NSWLR 542
(2008) 73 NSWLR 95
(2007) 208 FLR 226
(1987) 162 CLR 514
(1997) 143 ALR 648