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Supreme Court of New South Wales - Court of Appeal |
Last Updated: 2 March 2011
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Case Title:
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Decision Date:
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Decision:
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Catchwords:
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CORPORATIONS - winding up - insolvency - s 459F(2)
presumption of insolvency arising from failure to comply with statutory demand
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where two companies made a joint application purporting to be in accordance with
s 459G - where court found that no valid or effectual
application under s 459G
had been made - whether the only requirement for a valid s 459G application is
compliance with 21 day period
for filing - whether issue estoppel on validity of
s 459G application
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Legislation Cited:
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Cases Cited:
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David Grant & Co Pty Ltd v Westpac Banking
Corporation [1995] HCA 43; (1995) 184 CLR 265
Golden Plantation Pty Ltd v TQM Design & Construct Pty Ltd [2010] NSWSC 1279 Golden Plantation Pty Ltd v TQM Design & Construct Pty Ltd; KCL Developments Pty Ltd v TQM Design & Construct Pty Ltd [2010] NSWSC 1453 Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509 Long Nominees Pty Ltd v Roandale Holdings Pty Ltd [2009] NSWSC 932 Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541 Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661 |
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Texts Cited:
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Parties:
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Representation
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- Solicitors:
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Decision Under Appeal
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- Court / Tribunal:
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- Before:
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- Date of Decision:
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- Citation:
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Golden Plantation Pty Ltd v TQM Design &
Construct Pty Ltd; KCL Developments Pty Ltd v TQM Design & Construct Pty
Ltd [2010] NSWSC 1453
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- Court File Number(s)
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Publication Restriction:
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1 SPIGELMAN CJ: On 20 May 2010 the appellant ("TQM"), served two creditor's statutory demands in the amounts of $2.933 million on the first respondent ("KCL") and $2.035 million on the second respondent ("GP"). Pursuant to s 459G of the Corporations Act 2001 (Cth) ("the Act"), which I will set out below, KCL and GP had a right to apply to the Court for an order setting aside the statutory demand within 21 days. The legislative scheme also made provision pursuant to s 459F, which I will also set out below, that the period of compliance with a statutory demand would, where there was an application under s 459G, be extended to seven days after the s 459G application was determined, or other period specified by order of the Court.
2 Pursuant to s 459C of the Act, the relevant part of which I will also set out below, a creditor making an application for an order to wind-up a company in insolvency under s 459P of the Act has the benefit of a presumption that the company is insolvent if the debtor has failed to comply with the statutory demand within three months after the day that the application for winding-up in insolvency is made.
3 On the facts of the present case, where there has been no relevant extension of time under s 459G, the time for compliance with each statutory demand expired on 11 June 2010. Accordingly, the time for commencing a winding-up proceeding with the benefit of the presumption of insolvency expired on 10 September 2010. No such application was lodged prior to that date.
4 On 10 June 2010 KCL and GP jointly filed a single application for an order that both statutory demands of 20 May 2016 be set aside, purportedly pursuant to s 459G. On 4 November 2010 Barrett J held that this application did not validly invoke the rights under s 459G and dismissed the originating process. ( Golden Plantation Pty Ltd v TQM Design & Construct Pty Ltd [2010] NSWSC 1279.)
5 On 12 November 2010 each of KCL and GP instituted an originating process for an injunction to restrain TQM from relying on the failure by the plaintiff to comply with each statutory demand in proceedings for the winding-up of the plaintiffs. On 15 December 2010 his Honour upheld the claims of KCL and GP and made the orders sought. ( Golden Plantation Pty Ltd v TQM Design & Construct Pty Ltd; KCL Developments Pty Ltd v TQM Design & Construct Pty Ltd [2010] NSWSC 1453.)
6 His Honour's conclusion was based on the proposition that, as he had held in the first judgment that there was no valid s 459G application by either KCL or GP, the provisions for extending time did not have effect. TQM appeals from this decision.
7 The relevant provisions of the Act are:
"459C(1) This section has effect for the purposes of:
(a) 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;
..."
8 Section 459F provides:
"459F ...
(2) The period for compliance with a statutory demand is:
(a) if the company applies in accordance with section 459G for an order setting aside the demand:
(i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand-the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or
(ii) otherwise-the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or
(b) otherwise-21 days after the demand is served."
9 Section 459G provides:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company."
10 There is no issue before the Court with respect to his Honour's first judgment dismissing the application of KCL and GP on the basis that the application was not an application pursuant to s 459G of the Act. In the first paragraph of his Honour's first judgment his Honour identified what he was deciding in the following manner:
"A preliminary question in these proceedings is whether the jurisdiction of the Court has been validly and effectually invoked so as to permit the grant of the relief sought".
11 In oral submissions before this Court, it was suggested that the submissions on behalf of the appellant before his Honour on that occasion were confined to issues of irregularity rather than jurisdictional. Nevertheless, what his Honour determined was an issue of jurisdiction. He made the orders dismissing the application by GP and KCL on that basis. No issue as to the scope of his Honour's first judgment was raised before his Honour in the course of the argument with respect to the second judgment.
12 In a sense what his Honour determined in his first judgment can be understood as an interpretation of subs (1) of 459G, namely that the words "an order setting aside a statutory demand" are expressed in the singular and do not empower two companies to apply for a single order setting aside two statutory demands. His Honour was identifying an essential condition for a valid application under s 459G on this interpretation of subs (1).
13 The validity of his Honour's reasoning in this respect is not before this Court and I express no opinion about it. This appeal is confined to the second judgment with respect to the effect of the time stipulation provisions as his Honour construed them.
14 The appellant contends that once an application under s 459G has been made within the 21 day period prescribed by that section, it must be treated as a valid application, relevantly for purposes of determining the period for compliance with the statutory demand under s 459F(2)(a), with consequential effect on the date upon which the company is found to have failed to comply with the statutory demand by s 459C(2)(a).
15 Barrett J rejected these contentions of the appellant. His Honour concluded:
"[25] The event on which the applicability of s 459F(2)(a) depends is described in clear terms that refer only to an application that is 'in accordance with' s 459G, while the references in each of s 459F(2)(a)(i) and s 459F(2)(a)(ii) are to an application 'under' s 459G. The words 'in accordance with' and 'under' make it plain that the only application that can play a part under s 459F(2)(a) is one that is advanced in the way authorised or provided for by s 459G.
[26] The ultimate finding in the judgment of 4 November 2010 was stated thus:
'My conclusion therefore is that the plaintiffs did not, by means of the originating process filed on 10 June 2010, make a valid and effectual application under s 459G in respect of either statutory demand and that the court therefore has no jurisdiction to set aside either demand.'
[27] The absence of a valid and effectual application under s 459G meant that there was no application under s 459G, not that there was an application under s 459G and that it was irregular or defective.
[28] Where, as here, the particular application was advanced in a way not authorised or provided for by s 459G (that being the finding of 4 November 2010), it is s 459F(2)(b), not s 459F(2)(a), that fixes the period for compliance. The result produced by s 459F(2)(b) is that the period for compliance with the statutory demand was 21 days after service of the demand on 20 May 2010."
16 Barrett J adopted the reasoning of Brereton J in a case which gave rise to a similar factual issue. In Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509, his Honour said:
"[8] Comparison of the words used in s 459F(2) and those in s 459G(3) makes abundantly clear that the automatic extension provided for by 459F(2)(a) is triggered only by a valid application made in accordance with s 459G - that is to say, one that complies with the requirements of s 459G(3). Cases such as Graywinter Properties Pty Limited v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 establish that an application is not validly made for the purposes of s 459G(3) unless there is a sufficient supporting affidavit, [see also Pacific Islands Express Pty Ltd v Empire Building Development Pty Ltd [2008] NSWSC 576 (Austin J); and Modena Imports v Leveraged Capital ].
[9] That is precisely what Barrett J found in the present case. His Honour dismissed the proceedings on the basis that no valid application under s 459G had been made. In those circumstances, the period for compliance with the statutory demand was not extended by operation of s 459F(2)(a); it follows from s 459F(2)(b) that the period for compliance was 21 days after the demand was served. The present proceedings for the winding up order were not instituted until 24 March 2009, more than three months after that date.
[10] In those circumstances, the presumption under 459C(2) is not now available. Although it was submitted that this would be an inconvenient result, because it would potentially require creditors to commence winding up proceedings, if they wished to take advantage of the presumption, before proceedings to set aside the statutory demand had been resolved, it is one that I reach without reluctance. The case law in this area has placed a great deal of emphasis on strict compliance with the requirements of s 459G. It is entirely consistent with the requirement for strict compliance that the period for compliance with the statutory demand only be extended by a valid application, and that a creditor who wishes to take the point that there has been no valid application needs to be vigilant to guard its position and file a winding up application if it wishes to take advantage of the presumption of the insolvency."
17 The thrust of the appellant's submissions is that the 21 day period specified in s 459G is the only precondition for a valid application under s 459G. It relies on certain observations by Gummow J, with whom all the other members of the High Court agreed, in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265.
18 The appellant relied particularly on the following passage at p 279 of that judgment and I set out that part of [38] contained in the appellant's written submissions with the emphasis added by the appellant:
"[38] " ... If an application for an order setting aside a statutory demand has not been made within 21 days after service of the demand, there is no application under Pt 5.4 before the Court. Therefore, there is no question of such an application being dismissed because of a defect or irregularity in connection with it ..."
19 The appellant submitted that its contention is reinforced by the following observations of Gummow J (at p 277), again as emphasised by the appellant:
"[28] " ... The force of the term 'may only' is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified . To adapt what was said by Isaacs J in The Crown v McNeil , it is a condition of the gift in subs (1) of s 459G that subs (2) be observed and, unless this is so, the gift can never take effect. The same is true of subs (3) ."
20 With respect to the passage at [38] Barrett J said:
"[22] It does not follow from this observation that, if an application for an order setting aside a statutory demand has been made within the 21 day period, the court has before it an application under s 459G. The application must also accord with s 459G in respects other than those concerning timing. The fact that the statement in the David Grant case referred only to the matter of timing is unsurprising, given that the question there before the court went to the susceptibility of the 21 day period to extension by court order."
21 In my opinion, Barrett J was correct to reject the appellant's contentions in this respect. I also agree with the reasoning of Brereton J in Leveraged Capital which Barrett J adopted.
22 The High Court judgment in David Grant v Westpac Banking Corporation was concerned with the terminology "may only" when specifying the 21 day period under s 459G(2). It is not possible to rely on the High Court's references to the word "only" to infer that the High Court purported to state that the 21 day limit was the only essential precondition for a valid application under s 459G. The High Court did no more than determine that the 21 day period was such an essential condition.
23 When the judgment went on to state at [38] that "there was no question of such an application being dismissed because of a defect or irregularity", the High Court was also not purporting to identify the sole basis upon which a s 459G application could be held invalid.
24 Paragraph [38] should be set out in full:
"[38] Section 467A provides that an application under Pt 5.4 'must not be dismissed' merely because of 'a defect or irregularity in connection with the application', unless the court is satisfied that substantial injustice has been caused and this cannot otherwise be remedied. However, s 467A cannot assist the appellants. If an application for an order setting aside a statutory demand has not been made within 21 days after service of the demand, there is no application under Pt 5.4 before the court. Therefore, there is no question of such an application being dismissed because of a defect or irregularity in connection with it. In Re J and E Holdings Pty Ltd , Sheller JA summed the matter up as follows:
'The position is quite simply that unless the Court has a power to extend the time within which the application to set aside the statutory demand can be made, the plaintiff has no right to make it.'"
25 The High Court was dealing with a contention that the relevant party could invoke the provisions of s 467A of the Corporations Law, there under consideration. That section provided:
"467A An application under Part 5.4 or 5.4A must not be dismissed merely because of one or more of the following:
(a) in any case - a defect or irregularity in connection with the application;
(b) in the case of an application for a company to be wound up in insolvency - a defect in a statutory demand;
unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (for example, by an adjournment or an order for costs)."
26 Similarly, with respect to the second passage relied upon at [28], which I have set out above, the High Court identified specific matters which did "define the jurisdiction of the court". It did not suggest that there could not be any other mandatory preconditions for invoking that jurisdiction.
27 As both Brereton J acknowledged in Leveraged Capital, and Barrett J acknowledged in the judgment under appeal, anomalies may arise on the basis of the interpretation of these provisions which their Honours adopted. Barrett J considered a submission based on the judgment in Long Nominees Pty Ltd v Roandale Holdings Pty Ltd [2009] NSWSC 932, where his Honour had held that instituting an application for winding-up for a company was an abuse of process when it was made at a time that an application under s 459G was pending in the Court. Accordingly, his Honour awarded indemnity costs. In the present case Barrett J accepted at [32] that the dilemma that this may pose for a creditor "is not fanciful".
28 No doubt it is not always possible to have the s 459G application determined within the timetable for which the Act provides for reliance on a statutory demand. Nevertheless, before any finding of abuse of process is made, significant weight would be given to the interests of the creditor in avoiding the risk which has materialised in both Leveraged Capital and in the present proceedings. The facts in Long Nominees were quite different. When a question arises as to the validity of a s 459G application, that must be a relevant consideration in any application for indemnity costs.
29 The statutory demand regime under the Act constitutes a carefully formulated series of interlocked steps which have substantial consequences and the objects of which require precise compliance for their attainment. On occasions this may give rise to anomalies, or at least an inability on the part of one party to take advantage of the benefits for which the statute provides, as has happened in the present case.
30 In David Grant v Westpac Banking Corporation, Gummow J referred to the judgment of Sheller JA in this Court in Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541 at 548 and added at 279:
"Sheller JA ... referred to various examples where it might be thought that, upon the construction he preferred, which I have also accepted, Pt 5.4 might operate harshly. ...
No doubt, in some circumstances the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand."
31 I referred to these observations in Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661 at [37]- [38]. In that judgment I also said:
"[49] There are many ways in which an obligation to pay an amount of money can be contested in legal proceedings. There are ways in which an amount paid notwithstanding a denial of an obligation to do so, can be recovered. The practical effect of the operation of Pt 5.4 may very well be that companies will be obliged to actually make payments in circumstances in which they deny the obligation to do so. The fact that one party in a commercial context, rather than another, thereby receives the commercial and legal advantages of being in possession of a sum of money which is in dispute, raises no issue of principle and causes no injustice of a necessarily irremediable character to the party which is not in possession of the funds, even if it once were.
[50] The position may be otherwise if the necessity to make the payment causes an otherwise solvent company to be subjected to the costs and disadvantages of a process of winding up. There is a public interest in avoiding that consequence. On the other hand, if the company is not solvent, because the disputed debt is indeed owing, there is a public interest in commencing the processes of the winding up sooner rather than later. These are offsetting public interests. The legislature has adopted a particular scheme which causes the balance to be drawn in a specific way. The circumstance that commercial injustices may, on some occasions, be caused to the debtor company by the operation of that scheme, may be offset by the commercial injustices that the continued operation of an insolvent company may cause to existing and, if permitted, increased or future creditors of such a company."
32 The purposes of the legislative scheme, first introduced by amendment in 1992 and which in substance is maintained under the present Act, are such that the Court should be very slow to introduce doubt about the precision with which the words "in accordance with s 459G" in s 459F(2)(a) should be interpreted.
33 I repeat my observations in Switz v Glowbind :
"[46] The purpose of the longstanding statutory demand procedure is to minimise the transaction costs which the law imposes on creditors seeking to enforce debts. The threat of winding up is often effective to ensure that a recalcitrant debtor does not seek to exploit the delays and costs that legal disputation may impose on commercial transactions. That threat is rendered ineffective to the degree to which such delays and costs are permitted to intrude into the statutory procedure itself.
[47] The 1992 reforms which introduced the new Pt 5.4 were designed to minimise the delay and attendant legal costs which were a common feature of the battle of tactics in insolvency practice under the pre-existing scheme."
34 In his first judgment, Barrett J held that the s 459G applications were not made "in accordance with" that section. The precise consequences which his Honour held to flow from that finding in the second judgment serve the objects of the Act by ensuring that, in the case of any delay in the determination of an application to set aside a purported s 459G application, the creditor must take steps within the relevant period to protect itself.
35 In the present case it appears to me that his Honour's first judgment determined between these parties that the purported s 459G application was not in accordance with the section. This in my opinion gives rise to an issue estoppel on this point between the parties.
36 There is no res judicata because the issue before the Court on the first occasion was whether or not the application by the respondents under s 459G should be dismissed on jurisdictional grounds. However, in the course of determining that matter, his Honour did determine the issue of whether or not the applications purportedly made under s 459G were made 'in accordance with' the requirements of s 459G. That gives rise to an issue estoppel which, in my opinion, is properly applicable to the determination in the second judgment as to whether the requirement in s 459F(2)(a) was satisfied.
37 On this alternative basis I would also dismiss the appeal. In my view, the respondents are entitled to succeed on the issue of interpretation and, alternatively, on the issue estoppel basis.
38 In my opinion the appeal should be dismissed with costs.
39 HODGSON JA: I agree that the appeal should be dismissed with costs. I express no view as to whether the deficiency in the application purportedly made in this case under s 459G of the Corporations Act was a defect or irregularity within s 467A of the Act or rather was such that there was no application made that would engage the provisions of s 459F(2)(a). That is, I express no view on the correctness of the first decision of Barrett J in this case made on 4 November 2010: Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1279.
40 In my opinion, the appellant does face the insurmountable difficulty that in that decision Barrett J held that no valid or effectual application had been made in accordance with s 459G, holding at para [18] that he had no jurisdiction to set aside either of the statutory demands in this case. He dismissed the respondent's originating process on that basis. By that decision he excluded the possibility that the deficiency in the application was a defect or irregularity within s 467A or was otherwise curable, but rather determined in a binding fashion between these particular parties that it did not amount to an application that could give the Court jurisdiction.
41 In those circumstances, in my opinion there was an issue estoppel that established as between these parties that no application had been made such as would engage s 459F(2)(a), and it is for that reason in my view that the second decision of Barrett J on 15 December 2010 should not be reversed on appeal.
42 This view does have the consequence that where a respondent to a purported application under s 459G contests that purported application on the basis that it did not constitute an application under s 459G, or that it was not made within twenty one days within the meaning of s 459G(3), and where the purported application is later dismissed on that basis, then the respondent to that application may at the time of that dismissal be out of time for reliance on the statutory presumption, because proceedings were not commenced within the three month period prescribed by s 459C.
43 I note however that this problem does not arise if the respondent to such an application merely contests the application on the merits.
44 MACFARLAN JA: I agree with the Chief Justice.
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