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High Court of Australia |
MOTOR TERMS CO. PTY. LTD. v. LIBERTY INSURANCE LTD. [1967] HCA 9; (1967) 116 CLR 177
Limitation of Actions - Companies
High Court of Australia
Barwick C.J.(1), Kitto(2), Taylor(3), Menzies(4) and Owen(5) JJ.
CATCHWORDS
Limitation of Actions - Debt - Acknowledgment in writing - Sufficiency - Implication of promise to pay.Companies - Winding up by the Court - Creditor - Who may petition - Debt becoming statute-barred between presentation of petition and making of winding up order - Provable debts - Companies Act, 1961 (N.S.W.), s. 221 (1) (b).*
HEARING
Sydney, 1967, March 14; April 21. 21:4:1967DECISION
April 21.KITTO J. This appeal depends upon the interpretation and application to the facts of the case of a provision of the Companies Act, 1961 (N.S.W.), which authorizes the winding up of a company under an order of the court, in certain circumstances, "on the petition of any creditor": s. 221 (1) (b). The respondent petitioned the Supreme Court for an order for the winding up of the appellant under this provision, claiming to be a creditor by virtue of a substantial debt for money lent and interest. The appellant opposed the petition on the ground that both at the date of the presentation of the petition and at the date of the hearing the debt was unenforceable at law by reason of the Statute of Limitations. The Chief Judge in Equity, who heard the petition, made an order for winding up, holding that by reason of acknowledgments the debt was not statute-barred at either date. An appeal to the Full Court was dismissed, the Court holding that the debt was not statute-barred when the petition was presented, and that thereafter the Statute did not run with respect to it. (at p179)
2. It is convenient to consider first the question of construction, whether s. 221 (1) (b) authorizes the making of an order where the petitioning creditor's debt, though not barred under the Statute when the petition was presented, is so barred by the time the petition comes on to be heard. It is a question as to whether the word "creditor" in the section excludes a statute-barred creditor, and, if so, as at what date the court must be satisfied that a petition upon which it is invited to make a winding up order is the petition of a "creditor" in the relevant sense of the word. The application of the word in its most general sense is not affected by the Statute of Limitations, for the operation of the Statute in respect of a debt is only to bar the remedy: it does not extinguish the debt. But in construing statutory provisions for the distribution of assets amongst creditors there is a natural presumption that the only creditors in contemplation are those who, by the operation of the relevant statute in the particular case, are denied a right they would otherwise have had to sue for their debts by action or suit under the general law and are given instead a right to participate in the distribution. In the case of a bankruptcy or the winding up of a company the event upon which the substitution takes place is not the event which the relevant legislation deems to be the "commencement" of the bankruptcy or of the winding up: it is the commencement of the administration, that is to say the adjudication in bankruptcy or the making of the order for winding up. Lord Eldon made the general principle clear when he said in Ex parte Dewdney [1809] EngR 57; (1809) 15 Ves Jun 479, at p 498 [1809] EngR 57; (33 ER 836, at p 843) that in the consideration of the old Bankruptcy Acts "a Commission of Bankruptcy is nothing more than a substitution of the authority of the Lord Chancellor enabling him to work out the payment of those creditors who could, by legal action or equitable suit, have compelled payment". Under the Bankruptcy Act 1924-1960 (Cth) a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration (s. 60, cf. s. 63) and the right of proof which he is given in its place is expressly limited to liabilities to which the bankrupt is subject at the date of the sequestration order (s. 81). Under the Companies Act, 1961 (N.S.W.) in the case of a compulsory winding up the more important provisions by which a right of participation in distributions under the authority of the court is substituted for a pre-existing right of suit are s. 233, placing all the company's property in the custody of the liquidator upon the making of the winding up order; s. 244, requiring the assets to be applied in discharge of the company's liabilities; s. 291, giving creditors their right of proof in the winding up; and s. 226 (3), which operates automatically on the making of a winding up order to prevent any action or proceeding from being proceeded with or commenced against the company, in contrast with s. 226 (1) which recognizes that prima facie the presentation of a petition is no bar to a creditor's pursuit of his remedies in the ordinary courts. (at p181)
3. The fundamental notion that special modes of administering assets are for the benefit of those creditors only whose ordinary rights of recovery are withdrawn from them upon the initiation of the special administration was applied by the Court of Chancery in relation not only to bankruptcies and insolvencies but to trusts for creditors and administration decrees in respect of deceased estates. It is a necessary corollary that a person is not a creditor in the relevant sense if, at the time when a right to come in to receive payments under an official administration of the debtor's assets supersedes an existing right of action or suit, his right of enforcement by action or suit is barred by the Statute of Limitations (if the debt is legal), or would be denied by a Court of Equity on the analogy of the Statute (if the debt is equitable). This was held to be so in bankruptcy in Ex parte Ross; Re Coles (1827) 2 G1 & J 330 , and in administration proceedings in In re Greaves; Bray v. Tofield (1881) 18 Ch D 551 . See also In re Benzon; Bower v. Chetwynd (1914) 2 Ch 68, at p 75 , where the reference to the commencement of the bankruptcy seems clearly to mean the commencement of the administration in bankruptcy. (The filing of the bill was referred to in the argument in that case, but that was in reference to a suit of administration. The reference could hardly have been made even in that connexion after In re Greaves (1881) 18 Ch D 551 ; it could never have been used in respect of a petition for the winding up of a company, as such a petition was never a proceeding on behalf of all creditors but was an exercise of the petitioning creditor's individual statutory right.) (at p181)
4. Accordingly in In re General Rolling Stock Co., Joint Stock Discount Co.'s Claim (1872) LR 7 Ch App 646 , (decided after, in England, equitable debts had been placed by the operation of the Judicature Acts in the same position as legal debts for the purposes of the Statute of Limitations: see In re Greaves (1881) 18 Ch D 551, at p 554 ), it was held that all debts not statute-barred at the time of an order for the winding up of a company are provable, notwithstanding that before actual proof the period has elapsed which would have made them irrecoverable by action; and the broad proposition was laid down that the liabilities in discharge of which the assets are to be applied are all those which existed (i.e. the payment of which could be compelled) at the time of the winding up order. This has been accepted as the law ever since, and its consequence, that a debt is not provable if it has become unenforceable by reason of the Statute of Limitations before the time of the winding up order, was held by Wynn-Parry J. in In re Art Reproduction Co. Ltd. (1952) Ch 89 not only to be settled with respect to a compulsory winding up but to extend in principle to a voluntary winding up. (The passing of the resolution for winding up was presumably regarded as the relevant event in place of the winding up order.) The case was later referred to by Viscount Simonds who, with the concurrence of Lord Morton and Lord Reid, described it as rightly decided: Government of India v. Taylor (1955) AC 491, at p 509 . (at p182)
5. The general conclusion is justified, I think, that wherever in winding up provisions a creditor is referred to, the reference is prima facie to one of those for whose benefit the winding up takes place, so that one whose debt was statute-barred at the time of the order or resolution which set the winding up in motion is excluded. There is nothing in the context of s. 221 (1) (b) to suggest that "creditor" is there used in any different sense, and all probability would seem to be against a construction which would enable a person to petition, under the description of a "creditor", for a winding up from which he himself would not be entitled to derive any benefit - though of course he might be given a benefit by the generous consent of the creditors with provable debts (and the contributories, if there be a surplus): see In re Art Reproduction Co. Ltd. (1952) Ch 89, at p 94 . Not only is there no indication of so unlikely an intention in s. 221 (1) (b), but the language strongly suggests the opposite: the provision is not expressed as authorizing a creditor to present a petition, but as authorizing the court to make an order on a petition of a particular description. The condition that that petition shall answer the description is a condition, therefore, of the court's jurisdiction, and the more natural interpretation is surely that which requires the condition to be satisfied at the moment when the court comes to the exercise of that jurisdiction. (at p182)
6. The respondent attacks the use above made of the decisions which fix the time of the winding up order as the time for deciding whether by the provisions or the analogy of the Statute of Limitations a debt is excluded from proof in a winding up by the court, and the argument submitted is that which, in the main, led the court below to uphold the winding up order in the present case. What is said is that though the general rule be as was laid down in In re General Rolling Stock Co., Joint Stock Discount Co.'s Claim (1872) LR 7 Ch App 646 , it should be held to be subject to an exception in favour of the debt upon which the petition for winding up was founded, and that there is therefore no reason for limiting the meaning of the word "creditor" in s. 221 (1) (b) so as to exclude a petitioner whose debt is statute-barred. It is pointed out that in In re General Rolling Stock Co. (1872) LR 7 Ch App 646 Mellish L.J. based his concurrence in the decision upon the view that the Companies Act intended the court to follow by analogy the rule which it had long applied in relation to bankruptcy, insolvency, trusts for creditors and administration decrees, that is to say that every creditor might prove who had a subsisting (i.e. an enforceable) claim at the time of the adjudication, the insolvency, the creation of the trust or the decree, and that the analogous time was the making of the winding up order. Then it is said that, in the case of administration decrees at least, the rule had long been subject to an exception in favour of the debt upon which the decree had been based, and that the adoption of the rule in construing the winding up legislation should logically have carried with it an adoption of the exception. In order to show that the exception was allowed in administrations, reference is made to cases such as Fuller v. Redman (No. 2) [1859] EngR 485; (1859) 26 Beav 614 (53 ER 1035) , but that case itself reveals what was the true nature of the exception and shows that reliance upon it in the present connexion is mistaken. The only case to which the exception applied was that in which a creditor whose debt was statute-barred had nevertheless succeeded in obtaining a decree because the defendant executors, who were not bound to plead the statute, had in fact not done so. In an administration thus brought about it was held, naturally enough, that no other creditor could object to the admission of the plaintiff's debt on the ground that it was statute-barred, because to do so would be to attack the foundation of the very decree under which the objecting creditor himself was claiming to come in. He would be attempting, in Sir John Romilly's words (1859) 26 Beav, at p 618 (53 ER, at p 1037) "to contest the propriety of the decree of which he obtains the benefit". But it is implicit in this that if the objection that the plaintiff's debt was statute-barred had been taken by the executors before the decree was made, the impropriety of making the decree would have been recognized and the suit would have been dismissed. Thus in Ex parte Dewdney [1809] EngR 57; [1809] EngR 57; (1809) 15 Ves Jun 479, at p 498 (33 ER 836, at p 843) , Lord Eldon, referring to the administration of assets under a creditor's bill, said that executors are not bound to plead the Statute of Limitations, and added: "if they do not, the creditor, filing the bill, will have a decree on behalf of himself and all other creditors; and will be paid". On the other hand, if they do, he will not have a decree at all. In the present case the appellant, being the party with the right to oppose the making of the winding up order, does plead the Statute of Limitations; and it is no answer for the respondent to say (even if it be true) that if the appellant had refrained from taking the point no one claiming to be interested in the winding up would have been allowed to raise it after the order had been made. (at p184)
7. A view which contributed to the decision of the Supreme Court in the present case was that the appellant's contention that the respondent's petition was not that of a "creditor" at the material time was to be determined by applying an analogy with the action at law in which the Statute of Limitations is pleaded. It was said that the presentation of a winding up petition corresponds with the commencement of an action, and that therefore time should not be held to run thereafter. With great respect, I must express my disagreement with this approach to the matter. The function of the court under s. 221 of the Companies Act is to construe and apply the words of the section. It has no authority to apply any actual or supposed analogy with proceedings of other kinds; see In re Art Reproduction Co. Ltd. (1952) Ch 89, at p 93 . The case of Sterndale v. Hankinson [1827] EngR 532; (1827) 1 Sim 393 (57 ER 625) is cited in one of the judgments below as authority for the proposition that "the Court will apply the Statute (of Limitations) in Equity by analogy, but where the circumstances make it against conscience to apply the rule founded on this analogy the Court will not enforce it". That is, and was laid down as, a principle of general Equity jurisprudence only. The judgment of Sir John Leach shows, and ample other authority for it might be cited, that the analogy of the statute is used in a suit for equitable relief as affording a prima facie proper standard by which to decide whether the relief should be refused on the ground of the staleness of the claim. In winding up proceedings under the Companies Act the analogy has no relevance, except that where a person claims to be a "creditor" in respect of an equitable debt it is necessary to consider at the hearing whether his petition is not that of a "creditor" because on ordinary equitable principles, including the analogy of the Statute, a Court of Equity would refuse him an order for payment. (at p185)
8. For these reasons I am of opinion that the propriety of the winding up order in this case depends upon the second question, whether the respondent's debt was statute-barred at the date of the order, 8th March 1965. It was a debt of 30,261 pounds, made up of 27,435 pounds for money lent up to 31st May 1962 and 2,826 pounds for interest at five per cent. The principal indebtedness arose more than six years before the date of the presentation of the petition, which was 22nd June 1964; but the learned primary judge held that by reason of an acknowledgment on 24th June 1958 it was not statute-barred on 22nd June 1964. In case he should be wrong in thinking that the date of presentation of the petition was the relevant date, however, his Honour went on to hold that the debt was taken out of the Statute by an acknowledgment to be found in a letter of 4th January 1961 and an accompanying balance sheet, or, failing that, in a letter dated 23rd May 1963. (at p185)
9. The earlier letter is not now relied upon, but the latter is. It was written by the appellant and addressed to a firm of accountants, a member of which, a Mr. Davidson, was one of the joint liquidators of the respondent. It began "Dear Sir" (in the singular) and referred to previous discussions which must have been with Mr. Davidson; it is clearly a letter to him as liquidator of the respondent. Whether as a matter of interpretation it acknowledged a then existing indebtedness is a question which cannot be answered without regard to the surrounding circumstances; for so far as its express terms are concerned it acknowledged only that an amount would be owing by the appellant to the respondent at a future date, namely 31st May 1963. The words used were: "As our financial year ends on 31st May, it would be very much appreciated if you would confirm the amount that will be owing by (the appel lant) to (the respondent) up to 31st May 1963". This of course implies that at the date of the letter there was between the parties a subsisting legal relationship of such a kind that the respondent was in a position to say at once how much would be owing on 31st May. This is consistent with the existence of a contractual relationship under which no debt was presently owing; but the letter commenced with a reference to "previous discussions and to your last letter and statement in connexion with Liberty". The letter and statement here referred to were not proved at the hearing, but the previous discussions were described by Mr. Davidson in an affidavit as "numerous conferences with Mr. Boris Ganke, the present Managing Director of the Company". "Our conversations with each other" he said, "always proceeded on the basis that the said debt (i.e. the relevant debt) was owing by the Company (the appellant)." Without reviewing the evidence in detail it may be said broadly that the making of the loans and the accrual of interest thereon were frequently referred to between the parties and in the appellant's own accounts, and that there is a complete absence of anything to suggest any other form of legal obligation which might have been the subject of the letter of 23rd May 1963. The appellant's reason for asking that the amount that would be owing at 31st May 1963 be confirmed is readily understood when it is found, as the evidence discloses, that the appellant's balance sheet for the previous year, i.e. as at 31st May 1962, had shown as a current liability a debt of 27,435 pounds to the respondent, but that the annexed auditors' report had stated that the auditors had "not been able to verify with (the respondents) the amount of 27,435 pounds stated to be owing to that Company". Read against this background, the letter seems plainly to have meant that the debt which had been under discussion with Mr. Ganke and to which the unverified entry in the previous year's balance sheet had referred was still owing and that interest was accruing upon it. (at p186)
10. There was a third paragraph in the letter stating that the appellant would like to have a statement from the respondent to the effect that it had been agreed to settle the total debt for 17,252 pounds, or, if the respondent could not commit itself to such a precise amount, then a statement to the effect that the appellant would not be required to pay "an amount exceeding, say, 18,000 pounds". It is impossible, I think, to read this paragraph either as qualifying the otherwise unequivocal acknowledgment of the indebtedness or as being in any way inconsistent with the promise to pay which the law imputes to a debtor who unconditionally acknowledges his debt: Spencer v. Hemmerde (1922) 2 AC 507 . It is a request to the respondent to agree to accept less than the whole debt in satisfaction of its admitted claim. It is a plea for leniency, and no more. In my opinion, therefore, the letter effectively meets the appellant's defence of the Statute of Limitations. (at p186)
11. For these reasons I would dismiss the appeal. (at p186)
TAYLOR J. On 22nd June 1964 the respondent presented a petition to the Supreme Court of New South Wales in its equitable jurisdiction seeking an order that the appellant company be wound up on the ground that it was unable to pay its debts. The petition alleged that the appellant was indebted to the respondent in the sum of 30,261 pounds 3s. 7d and that it had failed and neglected to comply with a notice requiring the payment of this sum. More than six years had elapsed at the time of the presentation of the petition since the appellant had incurred this debt but it is not contested that on 25th June 1958 the appellant paid to the respondent a sum of money on account of interest on the amount of its debt. (at p187)
2. It will be seen that a period of six years from the date of this payment expired a few days after the presentation of the petition but when this occurred the petition had not been heard and the winding up order had not then been made. The hearing of the petition took place on several occasions between July 1964 and December 1964 and the winding up order was made on 8th March 1965. In these circumstances the appellant contended that the Court had no jurisdiction to make the order because, in effect, at the times when the petition was heard and the order made the respondent's debt had become statute-barred. This contention was founded mainly upon the decisions in In re General Rolling Stock Co. (1872) LR 7 Ch App 646 and in In re Art Reproduction Co. Ltd. (1952) 1 Ch 89 and the approval given to the latter case by Viscount Simonds in Government of India v. Taylor (1955) AC 491, at p 509 . (at p187)
3. Before referring to these cases it should be pointed out that the respondent contended that the evidence showed that on 23rd May 1963 there had been a written acknowledgment by the appellant of the existence of the debt and that this acknowledgment was sufficient to delay the operation of the Statute of Limitations for a further period of six years from that date. Of course, if this were found to be so - and the learned judge of first instance found it to be so - no other question would arise in the case. The learned judge, however, went on to express the view that "if a petitioner on the hearing of a petition proved a debt not statute-barred at the date of the presentation of the petition the debt is finally proved on the petition and the petitioner can rank for payment in the distribution of assets". An appeal to the Full Court was dismissed but the members of that Court refrained from expressing any view concerning the acknowledgment alleged to have been made on 23rd May 1963 and dealt only with the interesting point whether, if the respondent's debt can be said to have become statute-barred a few days after the presentation of the petition, the respondent was nevertheless entitled to succeed on its petition and, subsequently, rank as a creditor in the winding up. For my part I propose, first of all, to examine the facts of the case and, having reached a conclusion on any preliminary problem which they raise, see if any residual problem remains. (at p188)
4. There is no doubt upon the evidence that on 23rd May 1963 the appellant was indebted to the respondent in the sum of 27,435 pounds for moneys advanced and that on this sum interest had accrued and was accruing from time to time. On that date the company wrote to the liquidator of the respondent (that company then being in voluntary liquidation) a letter in the following terms: (at p188)
5. "Re Liberty Insurance (In Liquidation). (at p188)
6. We refer to previous discussions and to your last letter and statement in connexion with Liberty. (at p188)
7. As our financial year ends on 31st May, it would be very much appreciated if you would confirm the amount that will be owing by Motor Terms to Liberty up to 31st May 1963. (at p188)
8. At the same time, we would like to have a statement to the effect that it was agreed to settle the total debt for 17,252 pounds or if you cannot commit yourself to such a precise amount, then a statement to the effect that Motor Terms will not be required to pay an amount exceeding, say, 18,000 pounds would be sufficient for our purposes. (at p188)
9. Please let us know if you require any further information." It is conceded that if the third paragraph were omitted from this letter it would constitute a sufficient acknowledgment for the purposes of the Statute of Limitations. But it is contended that the third paragraph introduced a condition which is inconsistent with the implication of a promise to pay. In my view this contention must be rejected. The letter makes a clear distinction between "the amount that will be owing by Motor Terms to Liberty up to 31st May 1963" and the amount or amounts referred to in the third paragraph. The reference in that paragraph to an agreement "to settle the total debt for 17,252 pounds" and the request for "a statement to the effect that Motor Terms will not be required to pay an amount exceeding, say, 18,000 pounds would be sufficient for our purposes" in no way disputes the appellant's liability for the full amount of an existing debt. Nor is it inconsistent with what has been called "the promise artificially implied as the result of the admission of the debt" ; it amounts to no more than a request to the respondent to intimate that it will not insist upon payment of the full amount. As Dixon J. (as he then was) said in Bucknell v. Commercial Banking Co. of Sydney Ltd. [1937] HCA 35; (1937) 58 CLR 155, at p 164 : "The law implies from an acknowledgment of the existence of the liability a promise to discharge it. Words clearly acknowledging that the writer is liable suffice to raise the implication. But although the promise is implied as an artificial legal consequence of the written admission of liability and is not the result of a search after the true meaning disclosed by the writing, yet if the document in which the admission occurs expresses an intention inconsistent with the making of such a promise or an intention consistent only with the making of a qualified promise, the implication will be rebutted or qualified accordingly". Later he said : "To control the promise artificially imputed as the result of the admission of the debt more is required than such a general intention gathered from the subject and purpose of the discussion in the course of which the admission is made. There must be a sufficient expression of a definite condition or limitation, and it must be attached to the acknowledgment or to some promise displacing the promise otherwise implied, or there must be a refusal to pay beyond or outside the qualification or condition, or in some other way payment beyond or outside the qualification or condition must be repudiated" (1937) 58 CLR, at pp 166, 167 . To my mind, the third paragraph of the letter in no way qualifies or otherwise attaches a condition to the clear admission of liability made by the second paragraph of the letter and the promise which is to be implied from its terms. In the circumstances, and having regard to the manner in which these two companies were associated, it amounted to no more than a request that the creditor would not claim its debt in full and that the appellant would "not be required to pay an amount" exceeding that specified. In the circumstances, I am of the opinion that the respondent's debt was not statute-barred at any material time and that the appeal should be dismissed on this ground. In these circumstances the question whether it was proper to make a winding up order on the petition does not arise but in deference to the reasons of the Full Court I propose to make some brief observations on the point. The resolution of this question does not necessarily involve the further question whether the respondent is entitled to rank for dividends in the winding up but, if it is, this would, in my view, be a complete answer to the objection raised by the appellant. (at p189)
10. I am of the opinion that the conclusion which the members of the Full Court reached was right ; my only misgiving is that the leading judgment is based upon reasons which may be thought to limit unduly the rights in a winding up of creditors other than the petitioning creditor or creditors. I commence my observations by saying that I do not regard the decision in In re General Rolling Stock Co. (1872) LR 7 Ch App 646 , as concluding the relevant question in the appellant's favour. The decision in that case was, simply, that a creditor whose debt was not statute-barred at the time when the winding up order was made, but was when he lodged his proof of debt, was entitled to prove ; it does not decide that a creditor whose debt was not statute-barred at the time of the presentation of the petition, but whose debt became statute-barred before the winding up order was made, was not entitled to prove. It is true that the decision in the case rests upon reasoning which, at first sight, would tend to confirm the affirmative of the latter proposition for it was pointed out that upon the making of a winding up order the effect of s. 98 of the Companies Act, 1862 was to create what was, in effect, described as a statutory trust for the administration of the company's assets. But the judgments were extemporary and no consideration was given to s. 84 of the Act which provided that a winding up of a company by the court should be deemed to commence at the time of the presentation of the petition for the winding up, or to s. 85 of the Act which provided that the court might, at any time after the presentation of a petition for winding up a company under the Act, and before making an order for winding up the company upon the application of the company . . . restrain further proceedings in any action, suit, or proceeding against the company, upon such terms as the court might think fit. Further, s. 153 provided that "Where any company is being wound up by the Court or subject to the supervision of the Court, all dispositions of the property, effects, and things in action of the company, and every transfer of shares, or alteration in the status of the members of the company, made between the commencement of the winding up and the order for winding up, shall, unless the Court otherwise orders, be void", whilst s. 163 provided that "Where any company is being wound up by the Court or subject to the supervision of the Court, any attachment, sequestration, distress, or execution put in force against the estate or effects of the company after the commencement of the winding up shall be void to all intents". These provisions seem to me to make it reasonably clear that the so-called statutory trust is to take effect retroactively to the commencement of the winding up and that the rights of the creditors are to be regarded as subject to the rights created by the statute as from the commencement of the winding up. It would be, at least, strange if a creditor, not being a petitioning creditor, whose debt was not statute-barred at the commencement of the winding up but who foresaw the possibility of it becoming statute-barred before the making of the order, would find it necessary to protect himself by commencing an action which was liable to be stayed under s. 143 and in the prosecution of which he could obtain no other benefit, or if a creditor, whose debt had been paid in full but the payment - made in circumstances not involving any written acknowledgment - was void under s. 153, would have no rights if before the winding up order was made the statutory period elapsed. These provisions are designed to make the statutory trust fully effective as from the commencement of the winding up and to ensure a fair and equitable distribution of the company's assets. (at p191)
11. There is nothing in In re Art Reproduction Co. Ltd. (1952) 1 Ch 89 , to cut across this view. In that case the winding up was pursuant to a resolution of the company and the commencement of the winding up and the occurrence of the event which brought the winding up into existence were contemporaneous. The situation in In re Fleetwood and District Electric Light and Power Syndicate (1915) 1 Ch 486 was the same, whilst in In re River Steamer Co. - Mitchell's Claim (1871) LR 6 Ch App 822 it seems that the debt in respect of which the creditor sought to prove was statute-barred before the presentation of the petition. (at p191)
12. I observe that in In re Benzon ; Bower v. Chetwynd (1914) 2 Ch 68 - a case which does not deal with the question under consideration here - the Court of Appeal said (1914) 2 Ch, at p 75 that : "As to the second point, cases were quoted beginning with Ex parte Ross (1827) 2 Gl & J 330 , which shew that in the bankruptcy a debt does not become barred by lapse of time if it was not so barred at the commencement of the bankruptcy, and of this there can be no doubt, but this is only in the bankruptcy." Unfortunately the case of Ex parte Ross (1827) 2 Gl & J 330 does not provide a foundation for the proposition as stated ; that case simply decided that the effect of a commission in bankruptcy in 1827 was to vest the property of the debtor in his assignees for the benefit of his creditors and that unless debts were already barred by the Statute of Limitations when the trust was created they could not subsequently be affected by a lapse of time. However, since that time there has been a marked change in the provisions of the bankruptcy legislation dealing with the relation back and the commencement of the bankruptcy (see note Williams on Bankruptcy, 16th ed. (1949), p. 243) and I can see no reason why, if a debtor's property is to be expropriated as from the commencement of the bankruptcy, whether it be found in the hands of the debtor or in the hands of persons to whom he has disposed of it after the commencement of the bankruptcy, it is not reasonable to conclude it was intended that the trustee should be bound to admit the claims of creditors whose debts were not statute-barred at that point of time. This would, of course, include the claims of creditors, whose debts having been paid in full after the commencement of the bankruptcy and before they had become statute-barred, have been compelled to make a refund to the trustee at a time when their debts had become statute-barred. It seems to me that having regard, particularly to ss. 223, 226, 227 and 228 of the Companies Act, 1961, the same considerations are applicable to a winding up and that a creditor whose debt has not become statute-barred at the commencement of the winding up may prove in the winding up, notwithstanding that at the time of the making of the order his debt has become statute-barred unless it appears that after the commencement of the winding up it has been validly discharged. I do not think there is anything in In re General Rolling Stock Co. (1872) LR 7 Ch App 646 to compel us to hold to the contrary and, accordingly, I agree that the order was properly made and that this appeal should be dismissed. (at p192)
MENZIES J. The Full Court of the Supreme Court of New South Wales, in dismissing an appeal from an order made on 8th March 1965 by the Chief Judge in Equity for the winding up of the appellant (which I shall call "the company"), relied upon two alternative grounds for the conclusion that the respondent was entitled, as a creditor, to petition for the winding up of the company notwithstanding that its debt had been incurred ten years before the making of the winding up order. The first ground was that there was a debt owing to the respondent both at the time of the presentation of the petition (viz. 22nd June 1964) and at the time of the making of the winding up order (viz. 8th March 1965), because the existence of a debt had been acknowledged by letter dated 23rd May 1963; the second ground was that even if the letter of 23rd May 1963 did not constitute the acknowledgment of a debt, there had been an admitted payment of interest on 24th June 1958 which, although made more than six years before 8th March 1965 - when the winding up order was made - had been made within six years from 22nd June 1964 - when the petition for winding up was presented. It will be observed that, if the letter of 23rd May 1963 did constitute an acknowledgment, it is immaterial whether the date of the commencement of the winding up or the date of the winding up order be regarded as the date of critical importance. This question must, however, be determined if the respondent must rely upon the payment of interest on 24th June 1958 to substantiate its claim to be a creditor entitled to petition for the winding up of the company. (at p193)
2. The decision of the Full Court, in either alternative, did proceed upon the footing that the petitioner could not be regarded as a creditor if, at the critical date, it could not have maintained an action for its debt. It was, I think, correctly assumed that a person whose debt is statute-barred is not a creditor for the purposes of s. 221 (1) (b) of the Companies Act, 1961 (N.S.W.). (at p193)
3. The letter of 23rd May 1963 from the appellant to the liquidator of the respondent was in these terms: - (at p193)
4. "Re Liberty Insurance (In Liquidation). (at p193)
5. We refer to previous discussions and to your last letter and statement in connexion with Liberty. (at p193)
6. As our financial year ends on 31st May, it would be very much appreciated if you would confirm the amount that will be owing by Motor Terms to Liberty up to 31st May 1963. (at p193)
7. At the same time, we would like to have a statement to the effect that it was agreed to settle the total debt for 17,252 pounds or if you cannot commit yourself to such a precise amount, then a statement to the effect that Motor Terms will not be required to pay an amount exceeding, say, 18,000 pounds would be sufficient for our purposes. (at p193)
8. Please let us know if you require any further information." (at p193)
9. I am satisfied that this letter did constitute an acknowledgment in writing of the appellant's debt to the respondent sufficient to take it outside the Statute of Limitations. The letter admitted the existence of a debt upon 23rd May 1963 by asking for the amount that would be owing - including, no doubt, accruing interest - on 31st May 1963. The relevant law is stated by Dixon J. (as he then was) in Bucknell v. Commercial Banking Co. of Sydney Ltd. (1937) 58 CLR 1559 in terms which I accept but do not repeat. Furthermore, in that case the law so stated was applied to a letter which was held to be an acknowledgment in writing sufficient to take the case out of the Statute of Limitations. The letter of 23rd May 1963 with which we are here concerned is of the same character as the letter so held to be an acknowledgment. The letter there was held to be an admission of liability in terms which were unqualified and did not contain anything inconsistent with the promise to pay implied by law from the admission, notwithstanding a statement therein to the effect that there were circumstances which would make the enforcement of the liability unjust. The letter here admits the existence of a debt. It goes on to suggest some earlier agreement on the part of the creditor to accept something less than the full amount owing and to request a statement from the creditor that the debtor will not be required to pay more than 18,000 pounds. The additions to the admission do not amount to the expression of a condition or limitation attached to the acknowledgment defeating the promise to pay that was otherwise to be implied from the admission of liability. (at p194)
10. Although my agreement with the decision of the Chief Judge in Equity that the letter of 23rd May 1963 is an acknowledgment sufficient to take the case out of the Statute of Limitations would be sufficient to dispose of the appeal, I think I should refer to the other matter decided by the Full Court because I am satisfied that, independently of the letter, the respondent was a creditor of the appellant on the date of the presentation of the petition and I regard this as the critical date. (at p194)
11. Section 221 (1) (b) of the Companies Act authorizes the court to make a winding up order "on the petition of . . . any creditor". As I construe this provision in the light of other provisions of the Act, such as ss. 223, 224, 225 (2), 226, 227 and 228, a petition presented by a creditor is a petition "of" a creditor upon which a winding up order may be made. After the presentation of such a petition, the court may stay proceedings against a company. When a winding up order is made upon the hearing of a petition, the winding up order is - in the absence of an earlier resolution for voluntary winding up - deemed to have commenced at the time of the presentation of the petition. (at p194)
12. It is also to be observed that the rules governing the making of winding up orders, while providing for the verification of a petition - including verification that the person presenting the petition is a creditor - make no provision for proof that the person who presented the petition continues to be a creditor up to the time when the petition was heard or up to the time of the making of a winding up order. The scheme of the rules is in keeping with my understanding of s. 221. (at p194)
13. In the course of argument upon this appeal, reference was made to the consequence of a petitioning creditor being paid off between the presentation of the petition and the making of an order. That circumstance would not, in my opinion, put an end to the petition nor would it affect the jurisdiction of the court to hear and determine the petition although, of course, in such circumstances proceedings might not be continued and, if they were, the court could, in the exercise of its discretion, refuse to make a winding up order upon the petition of a person not then a creditor. However this may be I have found nothing in the Act to require the conclusion that an order for the winding up of a company cannot be made upon the petition of a creditor of the company whose debt was not statute-barred at law at the time of the presentation of the petition for winding up merely because time sufficient to bar the debt ran before the making of the winding up order. The Statute of Limitations does not itself bar the taking or the prosecuting of proceedings for the winding up of a debtor company and, if the Statute were to be applied by analogy, the presentation of the petition would clearly enough correspond with the commencement of an action to recover the debt. By analogy with the Statute of Limitations, it could hardly happen that a petitioning creditor loses his right to proceed while waiting for the court to hear and to determine his petition. (at p195)
14. The problem as I see it, however, is not so much the application of the Statute of Limitations by analogy ; it is rather a problem of the construction of the Companies Act to be considered upon the footing that a statute-barred creditor is not a creditor for the purposes of s. 221 of the Act. (at p195)
15. The only reason relied upon by the appellant for refusing to treat a petitioning creditor whose debt has become statute-barred at law between the date of the presentation and the date of the determination of the petition, as a creditor upon whose petition a winding up order can be made depended upon the construction which it was claimed had been given to sections of the English Act corresponding with those sections of the Act dealing with the distribution of the assets of a company in the course of a winding up - e.g. ss. 224 (1) and 264. The case principally relied upon was In re General Rolling Stock Co. (1872) LR 7 Ch App 646 , where it was decided that in a winding up, the assets of the company are made applicable to the payment of all liabilities of the company subsisting at the date of the winding up order. There, an order to wind up a company had been made on 11th February 1865. In February 1865 and at the beginning of March 1865, bills payable by the company fell due but no claim was made in the winding up for the debts thus becoming due until March 1871. The liquidator then contended that the claimant was not entitled to prove because by then his debts had become statute-barred. The court held that the claimant was entitled to prove. That decision has, of course, no direct application to s. 221 of the Companies Act, for it relates to creditors entitled to prove, not to creditors who may petition, but it was argued that it was to be implied from that decision that it is the making of a winding up order that stops time from running against a creditor of a company and that, therefore, time continues to run against a creditor up to that time notwithstanding that he has, before the time for the barring of his debt had run, petitioned for the winding up of the company. In my opinion, the case cannot be regarded as authority for the proposition that a petitioning creditor ceases to be a creditor for the purposes of a winding up if after the presentation of his petition, time sufficient to bar his debt at law elapses. The court was not asked to consider whether a debt not barred at the time of the commencement of the winding up could be the subject of a claim in the winding up; it was asked to decide whether a debt not barred at the time of the winding up order could be the subject of a claim. It was decided that it could. In so deciding, the court did not, as I apprehend the judgments, decide that a creditor at the time of the commencement of a winding up action thereafter by the lapse of time ceases to be a creditor, or a creditor entitled to prove in the winding up. Indeed, in that case it seems likely that the claimant was not a creditor of the company at the date of the commencement of the winding up because some, and perhaps all, of the bills did not become due until after that date. Curiously enough, the case is cited in Buckley on The Companies Acts, 13th ed. (1949), as authority for this proposition: "The winding up order constitutes the liquidator a trustee of the property of the company for those who were creditors at the commencement of the winding up and prevents the Statute of Limitations from running". (at p196)
16. Reliance was also placed by counsel for the appellant upon In re Art Reproduction Co. Ltd. (1952) Ch 89 , which was a decision which was approved by Viscount Simonds in Government of India v. Taylor (1955) AC 491, at p 509 . What was decided in the former case and approved in the latter was that a liquidator is not entitled to pay statute-barred debts without the consent of the contributories. It is true that in the former case Wynn-Parry J. (1952) Ch 89, at p 94 said: "In In re General Rolling Stock Co. (1872) LR 7 Ch App, at pp 648, 649 , James L.J. quoted s. 98 of the Act of 1862 and proceeded: 'A duty and a trust are thus imposed upon the court, to take care that the assets of the company shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time when the winding up order was made which gives the right. It appears to me that it would be most unjust if any other construction were put upon the section'. Mellish L.J. said (1872) LR 7 Ch App, at p 649 : 'It appears to me to be the clear meaning of that section, that the assets should be applied in satisfaction of all the liabilities which existed at the time of the winding up order'." The case, however, dealt with debts in respect of which the statute had run before commencement of the winding up. This is apparent from the report of the case in The All England Law Reports (1951) 2 All ER 984, at p 985 . The company went into voluntary liquidation on 11th October 1950 and the debt in question was held to be a simple contract debt incurred between 1st January 1940 and 5th September 1940. It is therefore quite clear that Wynn-Parry J. was not considering the problem with which we are here concerned and the approval of his decision by Viscount Simonds did not go beyond the proposition that liquidators have no right to pay statute-barred debts. (at p197)
17. I find, therefore, nothing in the cases cited to require me to construe s. 221 (1) (b) of the Companies Act as restricted in its application to a creditor at the time of the making of a winding up order. To construe the section in that way would add a new and unnecessary terror to the "law's delays". (at p197)
18. For the foregoing reasons, I would dismiss the appeal. (at p197)
OWEN J. On 22nd June 1964 the respondent (the petitioner) presented a petition to the Supreme Court in its equitable jurisdiction seeking a winding up order against the appellant company and on 8th March 1965 the order was made. More than six years before the presentation of the petition the petitioner had made a number of advances to the company at interest and at all material times the moneys so lent and a substantial amount of interest thereon were outstanding. The petition alleged that the company was unable to pay its debts and this was found to be the fact. At the hearing, the company relied first upon the fact that by 22nd June 1964 more than six years had elapsed since the petitioner had advanced the moneys in question to the company and claimed that for this reason the debts were statute-barred and that the petitioner was not at the date of the presentation of the petition a "creditor" of the company within the meaning of s. 221 (1) of the Companies Act, 1961 (N.S.W.). (at p197)
2. The petitioner sought to answer this by proof that the company had on 24th June 1958, that is to say two days less than six years before the date of presentation of the petition, made a payment of interest upon the moneys advanced to it by the petitioner. Further it was said that the company had, by a letter to the petitioner dated 23rd May 1963, that is to say less than six years before the date of the winding up order, acknowledged its indebtedness in terms implying a promise to repay the loans and interest thereon. As to the first of these matters the reply was made that the date of the winding up order was the relevant time to be considered in determining whether the debts were statute-barred and, as to the second, the company contended that the letter did not amount to an acknowledgment which would prevent the application of the Statute of Limitations. The learned Chief Judge in Equity who heard the petition found that a payment of interest had been made less than six years before the presentation of the petition and was of opinion that in these circumstances a winding up order could be made notwithstanding the fact that more than six years had elapsed by the time the matter came on to be heard and the order made. His Honour went on to hold that in any event the letter of 23rd May 1963 was a sufficient acknowledgment to take the debts out of the operation of the statute. Accordingly he made the order sought by the petitioner. On appeal to the Full Supreme Court their Honours were of opinion that in considering whether the debts were statute-barred the date to which regard was to be had was the date of the presentation of the petition, and that since a payment of interest on the moneys lent had been made within six years before that date the learned Chief Judge had rightly made the order. (at p198)
3. I find it unnecessary to express any view on this last aspect of the case since I am of opinion that the company's letter of 23rd May 1963 was an acknowledgment sufficient to prevent the debts being statute-barred either at the date of the presentation of the petition or at the date of the winding up order. Its relevant terms were these : (at p198)
4. "As our financial year ends on 31st May, it would be very much appreciated if you would confirm the amount that will be owing by Motor Terms to Liberty up to 31st May 1963. (at p198)
5. "At the same time, we would like to have a statement to the effect that it
was agreed to settle the total debt for 17,252 pounds
or if you cannot commit
yourself to such a precise amount, then a statement to the effect that Motor
Terms will not be required to
pay an amount exceeding, say, 18,000 pounds
would be sufficient for our purposes."
As I read the letter, in the light of the relevant surrounding circumstances
including the fact that interest on the advances was
accruing from time to
time, it acknowledged the existence of a debt then owing by the company to the
petitioner and asked to be informed
of the amount at which that debt and the
interest thereon would stand on 31st May following and from that
acknowledgment an implication
arose of a promise to repay. It was submitted,
however, that the terms of the second paragraph of the letter prevent such an
implication
arising and that the most that can be taken from the letter was
that the company was promising to repay some lesser sum, either 17,252
pounds
or an amount exceeding 17,252 pounds but not exceeding 18,000 pounds. I do not
agree that this is so. The second paragraph
does no more than ask the creditor
for leniency and not to press for payment of what is described as the "total
debt". It does not,
in my opinion, qualify or limit the implication of a
promise to repay the "total debt" which arises from the acknowledgment of
indebtedness.
(at p199)
6. I would therefore dismiss the appeal. (at p199)
ORDER
Appeal dismissed with costs.
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