Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd

Circumstances of the application

1. Nansut is an investment company which carries on business holding pastoral properties, shares in listed companies and cash deposits.
2. The winding up order was based on the presumption of insolvency arising from the failure by Nansut to comply with a statutory demand issued in respect of a judgment debt obtained by the Council in the amount of $25,467.75. The judgment debt was based on a costs assessment in proceedings in the Local Court at Waverley, in which the Council had separately obtained a judgment against Nansut for unpaid rates.
3. The affidavit evidence of Mr Monkton establishes that he received documents by post from the Council's solicitor in around October 2019, but was under the misunderstanding that they claimed an amount owing in respect of Council rates. He returned the bundle of documents to the Council's solicitors with a handwritten note to the effect that the amount was not payable because the land was not rateable and that no monies were owing to the Council.
4. Mr Monkton received notice of the Council's application for a winding up order shortly prior to 3 December 2019. He attended Court on that day and appeared unrepresented for the company before the Registrar. The matter was adjourned to 17 December 2019 on the application of the solicitor for the Council, but unfortunately it seems that Mr Monkton did not hear any date for the next court attendance, being stated either by the solicitor or the Registrar. Mr Monkton did not otherwise receive notice of the adjourned hearing date set for 17 December 2019 and did not appear on that date when the winding up order was made by the Registrar. Mr Monkton first became aware of the winding up order the following day when Mr Bowcher, one of the liquidators, telephoned him.
5. On 20 December 2019, Pembroke J made an order pursuant to s 482 of the Corporations Act that the winding up of Nansut be stayed until further order. His Honour also ordered Nansut to pay to Coonamble Shire Council (the Council) within 14 days the judgment sum of $25,416.57 and the amount of costs ordered by the Registrar on 17 December 2019 in the sum of $7,527. Those amounts were paid by Nansut on 6 January 2020.
6. Notice of this application has been given to the Council and the liquidators. Their respective legal representatives informed the Court that the Council's debt and costs had been paid and that the liquidators' remuneration, costs and disbursements had also been paid. The Council neither consented to nor opposed the relief sought by Nansut. The liquidators took a similar position.

Relevant principles

1. I summarised the principles applying in a case of the present sort in Re Day & Night On-line Transport Pty Ltd (in liq) [2018] NSWSC 796 at [9]-[13]. It is convenient to reproduce those paragraphs: [9] In George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 (George Ward Steel) at 465, Hodgson J expressed the following view: In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order. [10] Subsequent authorities have expressed some qualifications with aspects of Hodgson J's statement in George Ward Steel. One qualification is that the reference by Hodgson J to there being some evidence which "indicates solvency" should not be understood as a requirement that there be "proof" of solvency in the sense that the company demonstrate it would be able to defeat the application for winding-up: see Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd [2010] FCA 755 at [12] (Finkelstein J) and the authorities there referred to; Deputy Commissioner of Taxation, in the matter of SMAR Nominees Pty Ltd (in liq) v SMAR Nominees Pty Ltd (in liq) [2017] FCA 1384 at [12] (White J). [11] Another qualification suggested by Finkelstein J in Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd at [13] is that it may be going too far to say that success of the application will depend upon there being consent by, or at least non-opposition from, the liquidator. Finkelstein J gave two reasons why that cannot be so. One is that whether or not the application to set aside a winding-up order is opposed is beside the point; what is important is that justice is done to the parties. The other matter is that Hodgson J's approach, if followed, would have the effect of converting the liquidator into a protagonist and that is most undesirable given the liquidator's duty to act impartially when dealing with persons interested in the liquidation. [12] Against this, Finkelstein J recognised that if the liquidator's investigation shows some reason why the winding-up should continue, for example if there has been misconduct on the part of the directors, he or she should inform the Judge because that would be a relevant matter to take into account: Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd at [13]. [13] I agree with the remarks of Finkelstein J and have applied them in my approach to the present application.
2. Reference should also be made to the remarks of Barrett J in Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd [2010] NSWSC 1056; (2010) 80 ACSR 1 at [22]: The mere fact that the defendant was absent and took no part in the proceedings is, of itself, not sufficient to warrant the exercise of the discretion to set aside a winding up order. Exercise of the discretion will be appropriate only if some additional factor makes it unjust for the ordinary outcome of the litigation process to stand.

(1) Explanation for non-appearance

1. The circumstances in which Nansut failed to appear on the adjourned hearing of the winding up application have been referred to above. I accept the unchallenged evidence of Mr Monkton that he was not aware of the adjourned hearing date, even though he was present in court on 3 December 2019 on the first return of the winding up application.

(2) Solvency

1. Mr Monkton provided a report on company activities and property (ROCAP) to the liquidators dated 6 February 2020. According to the ROCAP, the only creditor of Nansut is the Council in an amount to be determined. The ROCAP states that the company has assets totalling $5,707,000 comprising real property with an estimated value of $2,000,000, a term deposit with Westpac in an amount of $900,000, a cheque account with a credit balance with Westpac in an amount of $57,000, and a share portfolio with an estimated value of $2,750,000. The ROCAP contained a detailed breakdown of the share portfolio.
2. The financial statements of Nansut for the year ended 30 June 2019 record a net profit of $27,289.66 and net assets of $2,379,277.90. The financial statements have been prepared on a historical costs basis; that is, the pastoral properties and the listed share investments are recorded at their cost price. According to the notes to the accounts, the main assets of the company correspond with those disclosed by Mr Monkton in the ROCAP, namely, pastoral properties, cash investments and share portfolio investments.
3. It is common ground that on 10 February 2020, Nansut paid to the Council the amount of $14,590.98, comprising $2,930.98 for Council rates and $11,660 (incl GST) for the Council's costs; and also paid to the liquidators' solicitor the sum of $39,789.00 comprising $13,500 (incl GST) for the liquidators remuneration and $26,289.90 (incl GST) for the liquidators' costs and other disbursements.
4. Mr Monkton's evidence discloses that Nansut had failed to lodge its tax returns over a considerable number of years. That situation has now been rectified and all outstanding tax returns have been lodged and tax paid by Nansut. Counsel for Nansut informed the Court that prosecution proceedings against the company for failing to lodge tax returns have been commenced and are listed for hearing in the Orange Local Court on 25 February 2020. There is no suggestion that any fine that might be imposed upon the company and payable by the company would affect its solvency.
5. Although it is not necessary for the company to prove that it would have been able to defeat the application for winding up (see Re Day & Night at [10]), I am satisfied that Nansut is solvent: Corporations Act, s 95A(1).

(3) Other matters

1. Mr Monkton deposed that he understands that it was unacceptable to have had tax returns for the company outstanding and that it will be important to continue to work with the company's external accountant and ensure that tax returns and statements are lodged on time in the future. Nansut has recently engaged a new accountant, Mr Walker, in July 2019. It would appear from the material before the Court that Mr Walker has been of significant assistance to the company in preparing its financial statements and bringing its tax affairs back into order in terms of the lodgment of tax returns and payment of amounts assessed.
2. The previous non-compliance by Nansut with its obligation to lodge tax returns is most regrettable. Nevertheless, I am satisfied that Mr Monkton, as the sole director of the company, has taken the necessary steps to rectify the position and has a proper understanding of the company's obligations in this regard and his obligations as a director to ensure that the company attends to those obligations.

(4) Relief

1. The liquidators did not suggest that there is any reason why Nansut should not be allowed to continue trading. Nansut has explained the reason for its non-attendance at the winding up hearing and has made out its case that the winding up order should be set aside, and those proceedings be dismissed, given that the Council's debt has been paid and there is no suggestion of any other creditors with outstanding debts. I am satisfied that the winding up order should not have been made taking into account the material now before the Court concerning solvency which was not adduced before the Registrar. Orders 1 and 2, but not Order 3 relating to costs, made by the Registrar on 17 December 2019, should be set aside. Since the company has demonstrated solvency, the originating process should be dismissed.

Orders

1. The Court makes the following orders: 1. Pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 36.16(2)(b) set aside orders 1 and 2 made by the Registrar on 17 December 2019. 2. The originating process filed on 1 November 2019 be dismissed. 3. Note that the defendant has paid: 1. to the plaintiff's solicitor the sum of $14,590.98, comprising $2,930.98 for Council rates and $11,660 (incl GST) for the plaintiff's costs; and 2. to the liquidators' solicitor the sum of $39,789.90 comprising $13,500.00 (incl GST) for the liquidators' remuneration and $26,289.90 (incl GST) for the liquidators' costs and other disbursements. 1. No order as to costs. 2. These orders be entered forthwith.

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