Commonwealth Bank of Australia v Individual Homes Pty Limited [1994] ACTSC 41; (1994) 119 ACTR 1 (4 May 1994)

SUPREME COURT OF THE ACT

COMMONWEALTH BANK OF AUSTRALIA v. INDIVIDUAL HOMES PTY LIMITED
No. SC150 of 1993
Number of pages - 6
Companies
[1994] ACTSC 41; (1994) 119 ACTR 1

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MILES CJ

CATCHWORDS

Companies - winding up - statutory notice of demand - dispute as to exact amount due - whether winding up order may still be made on the basis of failure to comply with notice - Corporations Law, s.460 - critical issue is whether or not the company is unable to pay its debts - procedural irregularity did not cause substantial injustice - proceedings for winding up valid.

Corporations Law, s.460

Molnar Engineering Pty Ltd v. The Herald and Weekly Times Ltd [1984] FCA 126; (1984) 1 FCR 455

Processed Sand Pty Ltd v. Thiess Contractors Pty Ltd (1983) 7 ACLR 956

Re Fabo Pty Ltd (1988) 14 ACLR 518

Ataxtin Pty Ltd v. Gordon Pacific Developments Pty Ltd (1991) 5 ACSR 10

Dikwa Holdings Pty Ltd v. Oakbury Pty Ltd (1992) 8 ACSR

HEARING

CANBERRA, 14, 22 and 29 April 1994
4:5:1994

Counsel for the applicant: Mr. I.J. Nicol and Ms. M. Brennan

Solicitors for the applicant: Blake Dawson Waldron

Mr. A.G. Martin represented the company in person, by leave

ORDER

THE COURT ORDERS THAT:
1. The company, Individual Homes Pty Limited, be wound up under the

provisions of the Corporations Law.
2. Barry Anthony Taylor of Ferrier Hodgson, 12 Moore Street,
Canberra City ACT, an official liquidator, be appointed
liquidator of the affairs of the said company.
3. There be a stay of proceedings for 21 days.
4. Leave to appear on behalf of the company granted to Anthony
Gilbert Martin be withdrawn.

DECISION

MASON CJ The applicant, the Commonwealth Bank of Australia, applies by application dated 4 March 1993 for an order that Individual Homes Pty. Limited (the company) be wound up under sub-s.460(1) and para.461(k) of the Corporations Law and for other consequential relief.

2. On 1 November 1993 a document headed "Notice of appearance" was filed in the Registry. It purported to be a notice of appearance to the application. Order 2A, r.14(2) of the Supreme Court Rules provides that:

"(2) Except as provided by or under any Act, a corporation may not,
without the leave of the Court, commence or carry on any proceeding
otherwise than by a solicitor."

3. This rule expressly reflects a long-standing practice in procedural law and it extends to the participation in any way by a corporation in a proceeding in the Court.

4. The document filed on 1 November 1993 appears to be under the seal of the company. It purports to be filed "by the Respondent, Individual Homes Pty. Ltd.". It states that the company appears, and gives the name and address of Mr. Anthony Gilbert Martin as an address for service. That address is the same as the stated registered office of the company.

5. This document should not have been filed without leave. However, after it was filed and before the hearing of the application Mr. Martin was granted leave to appear as advocate for the company and so it might be inferred that leave was given retrospectively for the filing of the notice of appearance notwithstanding the failure to comply with o.2A r.14(2).

6. On 2 November 1993 a document headed "Notice of Opposition to the Application" was filed, again under the seal of the company. Again this document should not have been filed without leave. It sought an order that the application be dismissed and that all proceedings be heard in open court. It was returnable on the same day as the application. In addition to the breach of o.2A r.14(2), this document was unnecessary. It added to the length and cost of the proceedings.

7. Apart from the obvious point that the very nature of incorporation prevents a company from acting for itself, there are serious issues raised when a company seeks to be represented in the Supreme Court by a person who is not a legal practitioner. They were examined and set out by the Full Court of the Supreme Court of Victoria in Hubbard Association of Scientologists International v. Anderson and Just (1972) VR 340 and by Northrop J in Molnar Engineering Pty Ltd v. The Herald and Weekly Times Ltd [1984] FCA 126; (1984) 1 FCR 455. In that case his Honour said at 458:

"When a company is a party to an action the court accepts the
authority of the legal practitioner appearing for that company.
Except in special circumstances, which are not relevant for present
purposes, the court does not inquire into the authority of the
legal practitioner who is acting for the company. The legal
practitioner has obligations to the court apart altogether from the
skills necessary to present his client's case. The legal
practitioner is bound by ethical principles in the conduct of the
case. Many of these features may be absent when the agent of the
company is not a legal practitioner. The extent of the agent's
authority is not always known. It might be unwise for the court to
assume an authority."

8. At 459-460 his Honour added:

"Impecuniosity of an applicant, being a company, may have effects
altogether different from the problem presently before the court.
Those effects are not relevant in the determination of the motion.
Nevertheless, it is fairly bold to assert that an agent, not being
a legally qualified practitioner, be granted leave to appear for a
company in legal proceedings in which it is an applicant and which
raise difficult and complex questions of fact and law and in which,
from what has occurred already, difficult questions of
admissibility of evidence will arise constantly."

9. I commend these words to all those who may be concerned with the representation of corporations in this Territory. I would add that, although I have not inquired into why Mr. Martin was granted leave to appear for the company, impecuniosity of the company can hardly be a reason when the company is denying the allegation that it is unable to pay its debts.

10. The application was eventually heard by me on 14, 22 and 29 April 1994. The winding-up order was sought under sub-s.460(1) on the ground that the company was unable to pay its debts, alternatively under para.461(k) on the ground that the court was of the opinion that it is just and equitable that the company be wound up.

11. The applicant relied upon a demand given under para.460(2)(a) of the Corporations Law which provides as follows:

"(2) For the purposes of an application that is made in
relation to a company on the ground provided for by
sub-section (1) the company shall be deemed to be unable to
pay its debts if:
(a) a creditor by assignment or otherwise to whom the
company is indebted in a sum exceeding $1,000 then
due has served on the company a demand, signed by or
on behalf of the creditor, requiring the company to
pay the sum so due and the company has, for 3 weeks
after the service of the demand, failed to pay the
sum or to secure or compound for it to the reasonable
satisfaction of the creditor;"

12. The notice was in the following terms:

"WHEREAS the debtor is indebted to COMMONWEALTH BANK OF AUSTRALIA
A.C.N. 123 123 124 (hereinafter called "the creditor") in a sum
exceeding one thousand dollars.
TAKE NOTICE that pursuant to Section 460(2)(a) of the Corporations
Law the creditor hereby demands and requests the debtor to pay the
creditor the sum so due, namely $193,077.10.
AND TAKE FURTHER NOTICE that in the event of the debtor failing to
pay the creditor the sum so due within a period of 21 days from the
date of service of this Notice upon the debtor or to secure or
compound the said debt as aforesaid to the reasonable satisfaction
of the creditor, the creditor will make an application to the Court
for the winding up of the debtor on the ground that it is unable to
pay its debts as provided by the said Section.
DATED this twenty-eighth day of January 1993."

13. Service of the demand was proved by an affidavit sworn by Bradley Thomas Griffin, on 4 March 1993. I am satisfied that service was effected by delivery of the demand to Mr. Martin at the registered office of the company, 8 Grund Place, Kambah, on 1 February 1993.

14. On 14 September 1993 Mr. Barry Anthony Taylor, an official liquidator under s.1283 of the Corporations Law, filed an acknowledgement of nomination by the Registrar and consented to act as the liquidator of the company.

15. The affidavit of Mary Margaret Brennan, sworn 28 October 1993, proves that in compliance with para.470(1)(a) of the Corporations Law a copy of the notice of application was lodged with the Australian Securities Commission on 4 March 1993, and further, that in compliance with o.75B r.37(5) a copy of the notice was published in The Canberra Times and in the Commonwealth of Australia Gazette on 12 October 1993.

16. In an affidavit sworn 4 March 1993 Bradley Thomas Griffin, senior recovery officer of the applicant, stated that he was authorised by the applicant to make the affidavit as a result of his knowledge of the applicant's dealings with the company. He further stated that at 3 March 1987 (sic) the books and records of the applicant indicated that the company owed the applicant $193,993.66 and that the debt was owed pursuant to a mortgage executed by the parties on 2 February 1984, being annexure A to the affidavit. Mr. Griffin further stated that the company had for a period of three weeks after service of the demand failed to pay the sum or secure it to the satisfaction of the applicant and that the company was still indebted to the applicant for the amount claimed.

17. In a further affidavit sworn 28 October 1993 Mr. Griffin swore that the amount owing at that date was $240,732.60. In yet a further affidavit sworn 4 February 1994, but not filed until leave was given to file it in court, the same deponent swore that the amount owing was then $231,699.30. He explained the difference between that amount and the amount sworn to in his affidavit of 28 October 1993 by saying that: "Interest has not been accruing on $141,084.74 that is owing by the respondent". In a final affidavit sworn by Mr. Griffin on 11 April 1984 he said that at that date the company remained indebted to the applicant in the sum of $233,961.87 and that it had failed to pay that sum or to secure or compound it to the satisfaction of the applicant.

18. Mr. Griffin was cross-examined by Mr. Martin. In cross-examination Mr. Griffin stated that he understood that in prior dealings between the parties in about 1983 concerning a loan secured by a mortgage over a farm at Tarago, New South Wales, the applicant and the company had agreed to execute a deed in which the company would covenant to pay a sum of $140,000 or thereabouts by way of a compromise of a dispute between them. Accordingly, on 3 October 1990 the sum of $141,084.74 owing by the company to the applicant was regarded thereafter as not attracting interest. When it eventuated that the deed was not executed, the applicant brought that sum back into account as part of the indebtedness of the company. These events, as I understand them, were offered to explain the error in Mr. Griffin's affidavit sworn on 28 October 1993 above referred to relating to the amount owing by the company to the applicant at that date.

19. Mr. Griffin also took the opportunity in cross-examination to correct an error in the date referred to in his affidavit sworn 4 March 1993. That error was in the year of the service of the notice of demand, which was 1993 and not 1987 as stated in the affidavit.

20. Mr. Martin filed affidavits disputing the debt on behalf of the company sworn 4 November 1993, 7 April 1994 and 11 April 1994. Much of the material in these affidavits was objected to. Some of what was objected to was struck out. Some which was strictly inadmissible was allowed in order to give form to the structure of Mr. Martin's argument and some was allowed as allegation.

21. In short, the factual basis of the company's resistance to the application appears to be as follows. In December 1983 a predecessor of the applicant, the Commonwealth Trading Bank of Australia, advanced some $95,000 to the company, repayment of which was secured by mortgage of a farm at Tarago. When approximately $120,000 was owing on that mortgage, the property was sold with the approval of the applicant and the proceeds accepted by the applicant in full discharge of the company's liability to it.

22. According to the general effect of the affidavit sworn by Mr. Martin on 4 November 1993, the company "signed" the mortgage, annexure A to Mr. Griffin's affidavit of 4 March 1993, in circumstances amounting to fraud on the part of the applicant. How those circumstances permit a conclusion that the applicant was guilty of fraud is, however, not apparent to me. I have to conclude that, whilst there is an allegation of fraud, no prima facie case is made out on the evidence and no arguable case emerges on the hypotheses established by the affidavit material. In a letter to the applicant dated 19 February 1993, in response to an earlier demand under para.460(2)(a) of the Corporations Law, Mr Martin asserted that, as a result of the transactions over the Tarago farm, nothing was owing by the company to the applicant and that Mr. Martin, his wife and the company had an action for damages against the applicant for well over $200,000. Mr. Martin also drew attention to a current action in this Court in which he and his wife and the company are the plaintiffs and the present applicant is the defendant (SC 72/94). He says that this is a claim that exceeds the amount claimed by the applicant in the winding-up application. In those proceedings the statement of claim endorsed on the writ was struck out as disclosing no cause of action, but leave was granted to file a fresh endorsement. Whether or not the fresh endorsement discloses a cause of action may need determination.

23. Mr. Martin raises by way of submission a number of matters in opposition to the application for winding up. There are objections as to the form and substance of the application.

24. It is sufficient to deal with the formal objections to say that none of them establishes any failure to comply with any formal requirement of s.460 or s.470 or of any other provision in the Corporations Law and that with respect to any failure to comply with formal requirements of the Rules, no prejudice has been shown to have been caused to the company.

25. Sub-s.1322(2) of the Corporations Law provides that a proceeding under the Corporations Law is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity is caused or may cause substantial injustice that cannot be remedied by any order of the Court and unless the Court by order declares the proceeding to be invalid. A reference to a procedural irregularity under sub-para.1322(1)(b)(ii) includes a defect, irregularity or deficiency of notice or time.

26. Section 60 of the Supreme Court Act 1933 provides that no proceedings in the Court shall be invalidated by any formal defect or by any irregularity, unless the Court is of opinion that substantial injustice has been caused thereby and that the injustice cannot be remedied by an order of the Court.

27. Order 69 of the Supreme Court Rules provides that non-compliance with any of the Rules, or with any rule of practice for the time being in force, shall not render any proceeding void, unless the Court so directs. But such proceedings may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with, in such a manner, and upon such terms as the Court thinks fit.

28. It is clear beyond doubt that by the time of the hearing of the application, the company had been given every opportunity to answer the allegations that the company was unable to pay its debts and that it was just and equitable that the company be wound up.

29. As to the substance of the application, Mr. Martin submits that the applicant has not shown that the company is unable to pay its debts or that it is just and equitable that the company be wound up. In particular he submits that the presumption of insolvency raised by sub- s.460(2) does not apply in the circumstances of the case, both because the applicant is not a creditor and because the debt claimed is the subject of a genuine dispute based on substantial grounds. The two questions are closely associated. The question whether there is such a dispute is a matter which goes to answer the question whether the applicant is a creditor and has the standing to bring the application and to serve the statutory demand.

30. The assertion in Mr. Martin's affidavits that there was a previous mortgage over the farm at Tarago and that there was a binding agreement that the applicant would receive a certain sum in full discharge of the company's indebtedness is not supported by any evidence apart from his somewhat generalised statements. Those statements are open to the objection that they consist substantially of conclusions and allegations. In particular his assertion is not supported by the documentary evidence that one would expect to be in existence or at least to have been in existence with an explanation if it were no longer available. On the other hand, the mortgage, annexure A to Mr. Griffin's affidavit of 4 March 1993, is clear evidence to support the applicant's claim that the company granted the encumbrance over the property in question in order to secure the payment of all moneys owing by the company to the applicant. The mortgage is unregistered and for that reason the property may not be the subject of the statutory power of sale under the Real Property Act. I do not assume however that the express power of sale in the unregistered mortgage may not be enforced by an order of the Court in its equitable jurisdiction. Whilst the mortgage remains undischarged it is some evidence of indebtedness by the company to the applicant. In the absence of anything positive to the contrary, the evidence of Mr. Griffin that on 3 March 1993 the books and records of the applicant showed the indebtedness to be $193,993.66 at that date remains without any effective challenge. The further evidence of Mr. Griffin that on 11 April 1994 the indebtedness was $231,699.30 requires explanation, but the explanation is given on oath and I find no reason to reject it. The applicant is required to prove its case on the balance of probabilities only.

31. Accordingly I find that the applicant was at the time of the service of the notice of demand a creditor of the company to whom the sum of $193,993.60 was owing at that date, and I further find that the company has failed to pay the sum demanded or to secure or compound for it to the reasonable satisfaction of the applicant for three weeks after service of demand. I am further satisfied that the indebtedness of the company at the present date is no less than it was at the date of the service of the notice of demand, that the failure to pay the sum demanded or to secure or compound for it continues. Accordingly the presumption under sub-s.460(2) that the company is unable to pay its debts has been raised.

32. I am not able to conclude that there is any dispute based on substantial grounds that would disentitle the applicant to rely on the statutory demand. It is not necessary for me to pass a view on whether the motivation or subjective belief of Mr. Martin is sufficient to constitute a genuine dispute on the part of the company, although I think that a genuine dispute on the part of a corporation is to be measured in objective and not subjective terms. In any event I do not think that the proceedings in SC72/94, brought by the company and by Mr. and Mrs. Martin, constitute a genuine dispute based on substantial grounds sufficient to resist the statutory demand. The amended endorsement filed in those proceedings by leave on 29 April 1994 appears to allege several causes of action upon which the various plaintiffs rely, in the nature of negligence, breach of trust, breach of good faith and breach of agreement. The facts asserted in support of the claim are not clear but they do not appear to be essentially different from those asserted by Mr. Martin in his various affidavits in the present application. The company does not appear to have obtained the leave of the Court to conduct those proceedings without a solicitor.

33. The final point is whether the Court should refuse a winding-up order because the amount claimed in the statutory demand, or at the present time, is incorrect or unclear. On the probabilities, I am quite satisfied that the company's indebtedness to the applicant is and was at all relevant times in excess of $1,000. As to the exact amount at the present time, the evidence has some unsatisfactory aspects. Although Mr. Griffin was ultimately firm and clear about the exact amount in dollars and cents, he was far from clear about exactly how it was made up or arrived at. If it is true, as it appears to me to be on the evidence, that the applicant has never presented a full set of figures to the company or to Mr. Martin or to the Court showing how the debt has grown from whatever it was on 2 February 1984, the date of the mortgage, and in particular how it jumped from $193,077.10 on 28 January 1993 to $240,732.60 on 28 October 1993, Mr. Martin's obvious sense of grievance is understandable.

34. Mr. Martin relied on the decision of Waddell J in Processed Sand Pty Ltd v. Thiess Contractors Pty Ltd (1983) 7 ACLR 956 where it was decided that the overstatement of an amount owing makes a demand ineffective. Although that decision has been followed in others, particularly in New South Wales, there is a contrary line of authority, illustrated if not led by the judgment of the Full Court of the Supreme Court of Victoria in Re Fabo Pty Ltd (1988) 14 ACLR 518, where the Court said at 522:

"Commercial reality demands that preference be given to an
interpretation that will remove from unmeritorious respondents the
temptation to undertake an investigation into the exactness of the
debt claimed to be owing on the relevant date in cases where
complicated accounts or running accounts with daily adjustments may
render probable the risk of some small errors having been made in
the course of ascertaining with precision the extent of the debt.
Indeed, the possibility exists that a contrary interpretation might
lead to the absurdity that an understatement of the debt in the
notice would prevent the making of an order where to do so was
clearly appropriate."

35. In the Federal Court there does not seem to be a firm concluded view. In Ataxtin Pty Ltd v. Gordon Pacific Developments Pty Ltd (1991) 5 ACSR 10, Heerey J did not favour the approach of the Supreme Court of Victoria. On the other hand in Dikwa Holdings Pty Ltd v. Oakbury Pty Ltd [1992] FCA 225; (1992) 8 ACSR 53, Wilcox J said that even if the notice overstated the amount owing, it is legitimate to look at the circumstances in order to determine the critical issue upon which the application depends, namely whether or not the company is unable to pay its debts. With respect, I think that this must be the correct approach. There is nothing before me in this case to indicate other than that the company owes a substantial amount to the applicant under the mortgage. There is no evidence that the company has any assets apart from the property the subject of the mortgage. There is no evidence as to that property's market value or net worth. The company has produced no evidence of any assets whatsoever. The inference is irresistible that the company is unable to pay its debts, and on the probabilities the debt owed to the applicant is well in excess of $1,000. I see no reason why, despite a claim asserted in other proceedings, the company should not be wound up. The liquidator can take advice about whether the other proceedings should continue on behalf of the company. It is unnecessary for me to decide whether the company should be wound up purely on the just and equitable ground.

36. I will hear the solicitor for the applicant and Mr. Martin on the terms of the order. I will also hear any argument Mr. Martin wishes to present on whether leave granted to him to represent the company should not now be withdrawn.