Australian Skyreach Rentals Pty Ltd & Anor v Ferell Industries Pty Ltd [2001] QSC 26

) 4-( o t> D· Of, 07_9. S R . B a Queensland Government ta te e po rt Ing urea u ~ Departmentoflustkund Attomey~e~ra( Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION WILSON J No 10900 of 2000 AUSTRALIAN SKYREACH RENTALS PTY LTD (ACN 064 779 602) and AUSTRALIAN SKYREACH REVISED COPIES ISSUED State Reporting Bureau Date 9' I ).,I{) / EQUIPMENT PTY LTD(ACN 064 860 993) TRADING AS AUSTRALIAN SKYREACH RENTALS Applicant and FERELL INDUSTRIES PTY LTD Respondent BRISBANE .. DATE 05/02/2001 JUDGMENT ' Floor, The Law Courts, George Street, Brisbane, a. 4000 Telephone: (07) 3247 4360 Fax: (07) 3247 5532 1 -- 1 of 7 -- 05022001 Tl/TW12 M/T 9011/2001 (Wilson J) HER HONOUR: This is an application to wind up Ferell Industries Pty Ltd in insolvency. The applicant/creditors rely on the presumption of insolvency which arises from non-compliance with a statutory undertaking demand. See section 459C of the Corporations Law. The presumption applies except in so far as the contrary is proved. A statutory demand was served on 13 September 2000 calling for the payment of $4,358.92 by way of hire and associated charges. Correspondence ensured. The company disputed the debt, but according to its director, Mr Ferella, because the costs of an application to set aside the demand would exceed the amount of the demand, the company made a commercial decision not to apply to have the demand set aside. Outside the time for compliance with the demand, .the undisputed part of the debt, namely $2,321, was tendered. Thus the disputed part of the debt is $2,037.92. The company has complained that the creditors failed to provide an address for service within the company's state on the statutory demand. By section 459S of the Corporations Law, a company may not oppose a winding up on a ground that could have been relied on to set aside the statutory demand except with the leave 2 JUDGMENT 1 10 ( 30 ( so 60 -- 2 of 7 -- I , ____ / 05022001 Tl/TW12 M/T 9011/2001 (Wilson J) of the Court, and the leave of the Court is not to be granted unless the Court is satisfied that the ground is material to proving that the company is solvent. In the present case, the company has not asked the Court for leave. However, it has pointed to these matters in support of a submission that, even if satisfied that the company is insolvent, the Court ought not to wind it up in the exercise of its discretion. See section 459A. Thus, there are two issues before me, one, the solvency of the company and, two, whether the explanation for failure to make an application to set aside the statutory demand is relevant to the exercise of my discretion. The question of solvency is to be assessed at the date of the hearing. It is well established that the test is a cash flow test, rather than a balance sheet test. This is not to say that what is revealed by the balance sheet is irrelevant to the question of solvency. In the present case, three balance sheets have been put forward, one at 30 June 1999, one at 30 June 2000, and one at 30 December 2000. So far as current assets are concerned these disclose, as at 30 June 1999 cash of $70,658. As at 30 June 2000, cash of $772,351. 3 JUDGMENT 1 10 20 30 40 50 60 -- 3 of 7 -- 05022001 Tl/TW12 M/T 9011/2001 (Wilson J) As at 30 December 2000, total current assets of $923,145.89 consisting of cash, $65,022.67 11 Receivable from Ferell Corporation 11 $473,123.22, and 11 Deposits paid 11 $385,000. The current liability positions, as shown by the balance sheets are as follows. As at 30 June 1999 creditors and borrowings $34,677. As at 30 June 2000 creditors and borrowings $3,000, provisions $153,196, making a total of $156,196. As at 30 December 2000, the position was as follows: GST $25,996.73; accrued expenses $9,119.79; provision for income tax $153,196.02, making a total of $188,312.54. Non-current liabilities were shown as follows. At 30 June 1999 creditors and borrowings $67,173. At 30 June 2000 creditors and borrowings $343,806. At 30 December 2000, loan $64,929.47. Thus the net asset position was as follows. At 30 June 1999 ($31,192); at 30 June 2000, $272,350; at 30 December 2000, $669,903.88. It is instructive also to look at the profit and loss statements. The gross profit on trading has varied as follows. As at 30 June 1999, $276,048; as at 30 June 2000, $689,508, and for the six months to 30 December 2000, $520,887.85. 4 JUDGMENT 1 10 20( ( 30 ( 50 60 -- 4 of 7 -- 05022001 Tl/TW12 M/T 9011/2001 (Wilson J) The net position from trading was as follows~ As at 30 June 1999 ($31,193); as at 30 June 2000, $456,738 and for the half year to 30 December 2000, $397,554.34. The director of the company, Mr Ferella, has declared that the company is able to pay its debts as they fall due. Similarly, the accountant, Mr Biala, has made bald statements that as at 12 September 2000 the company was able to pay its debts when due and payable, and as at 15 January 2001 it was able to pay its debts when due and payable. As the solicitor for the applicant/creditors has pointed out, no primary source material has been disclosed and the failure to pay such a small debt, in itself, would often raise a question of solvency. However, in all the circumstances of this case I am satisfied that the company is able to pay its debts as and when they fall due. Accordingly, I am satisfied of its solvency and that a winding up order ought not to be made. I cannot help but observe that the Court would be reluctant to wind up a company for a disputed debt as small as this one. I note the doubts expressed in McPherson on the Law of Company Liquidation, fourth edition pages 92-93 as to whether this would be a proper exercise of the discretion. Many times the Courts have said the statutory demand 5 JUDGMENT 1 10 20 30 40 50 60 -- 5 of 7 -- 05022001 T2-3/CAL24 M/T 9011/2001 (Wilson J) procedure and the winding up procedure ought not to be used for debt collection. In the circumstances I do not have to come to a final conclusion on this, but I express my disquiet at the use of the procedure in the present circumstances. I dismiss the application to wind up. HER HONOUR: Both sides have asked for costs. The company has asked for costs on the basis that this is a winding up application which ought never to have been brought. It has been submitted on behalf of the company that the applicants were on notice early on that any winding up would be disputed on the grounds of solvency. The applicants have asked for costs. Their solicitor has reminded me that when the matter first came before me on 24 January 2001 I adjourned it because I was not satisfied that the material as to solvency was sufficient. He has also drawn to my attention an offer to settle made on 24 January 2001, which was not accepted by the company. In all the circumstances I have decided that there should be no order as to costs. I have already expressed my concern that the company chose to ignore the provisions of the Corporations Law about statutory demands and made a commercial decision not to apply to have the demand set aside. I have also expressed my concern at the use of the 6 JUDGMENT 1 10 ( 30 50 60 -- 6 of 7 -- 05022001 T2-3/CAL24 M/T 9011/2001 (Wilson J) statutory demand and winding up procedures for debt collection. As I say, there will be no order as to costs. 7 JUDGMENT 1 10 20 30 40 50 60 -- 7 of 7 --