AEC Electrics Pty Ltd, Re [2000] QSC 80

SUPREME COURT OF QUEENSLAND CITATION: IN THE MATTER of the Corporations Law and IN THE MATTER of AEC ELECTRICS PTY LTD [2000] QSC 080 PARTIES: IN THE MATTER of the Corporations Law and IN THE MATTER of AEC ELECTRICS PTY LTD (ACN 075 265 744) FILE NO: s2080 OF 2000 Brisbane Registry DIVISION: Trial Division DELIVERED ON: 12 April 2000 DELIVERED AT: Brisbane HEARING DATE: 4 April 2000 JUDGE: Mackenzie J ORDER: 1. I order that the application for leave to oppose the application to wind-up be adjourned to 13 April 2000. 2. I reserve costs. CATCHWORDS: CORPORATIONS LAW – WINDING-UP – Leave sought to oppose application to wind-up inappropriate to decide issue of leave as preliminary issue. Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Texel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535, 537 Whelpton v Braams Constructions Pty Ltd (1994) 12 ACLC 881 COUNSEL: L Bowden for the applicant M D Martin for the respondent SOLICITORS: Broadbent Radich for the applicant Ross McLinan for the respondent [1] MACKENZIE J: This is an application under s459S of the Corporations Law for leave to oppose the application to wind-up the company and to rely upon grounds of opposition that it could have relied upon to set aside a statutory notice of demand served on the company. Section 459S provides as follows: "459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply -- 1 of 3 -- 2 with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent." [2] The principal ground relied on in resisting the application is that it is premature. The submission is that the application ought to be heard in conjunction with the application to wind-up. A secondary ground is that since the company claims to be solvent irrespective of the sum claimed in a notice of demand served on it the existence of the debt is not material to proving that the company is solvent. [3] The facts before me are that on or about 21 January 2000 the applicant was served with a notice of statutory demand under s459E of the Corporations Law. The company instructed its solicitors to apply to set the notice of demand aside. On the day instructions were received, Monday 7 February 2000, the solicitor dictated an application and supporting affidavit with the intention that the application be filed before Friday 11 February 2000, the last day upon which it could be done. According to the solicitor his personal assistant, who would ordinarily have typed the documents was expected to return from leave on 8 February 2000 but gained an extension of her leave. The solicitor accepts responsibility for not thereafter supervising the preparation of the application and ensuring that it was filed in time. [4] Upon realising that the application was not filed he contacted the creditor, disputing the debt, advising that the company was solvent and foreshadowing the present application if winding-up proceedings were pursued. He renewed this later with the creditor's solicitors. There is an affidavit denying that the debt is owing. The assertion the company is solvent is supported by affidavits of an accountant and a director of the company. There is also an affidavit on behalf of the creditor refuting the claim that the debt is not owing. There is therefore a conflict as to what, if anything, is owing. [5] The company could have relied on non-indebtedness had it duly made application pursuant to s459G had it duly made application to set aside the demand. The presumption of insolvency under s459C rises from the failure to comply with the statutory demand. The onus is on the company to prove solvency if it is to avoid liquidation. [6] Austin J in analysing s459S in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC467 made a number of observations. In summary the statutory context of Pt5.4 of the Corporations Law requires the discretion under s459S to be exercised cautiously or sparingly (David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265). Nevertheless the discretion is a safety net allowing special cases in which there is a dispute as to the existence of the debt to be litigated at the time of the application for winding-up in insolvency even if there has been no application under s459G (Texel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535, 537). Section 459S allows the court to give leave -- 2 of 3 -- 3 to oppose winding-up on grounds relevant to the winding-up. Where the question of indebtedness is raised at a stage where s459S must be invoked, one question is whether the dispute affects the ultimate question of solvency. [7] The question at that stage is not whether there is a genuine dispute about the existence of the debt. The restriction imposed by s459S(2) by the requirement that the ground be material to proving solvency requires an assessment to be made on the evidence as it stands of the potential effect of the disputed debt upon the question of solvency. If it is apparent that without regard to the debt the company is solvent it will not be material to the company's solvency to litigate that issue. On the other hand the court may not have reached a conclusion about overall solvency and may not have heard all relevant evidence at the time it is called on to consider the question of leave. [8] It is a question of judgment in each case whether a debt is material or not to the question of solvency. Section 459S makes no express provision concerning the time for bringing the application. In the present case there are clearly differing positions as between the applicant and the respondent as to the existence of the debt relied on. There is a substantial reason why the existence of the debt was not litigated on an application under s459G. [9] When the matter was last before me a director of the debtor company swore an affidavit concerning the debt. This was answered by material from the creditor. It would be surprising if there were not further material filed on the issue before the return date of the application for winding-up. The result of this is that it is inappropriate to decide the issue of leave as a preliminary matter, without it being necessary to reach a concluded view on the issue whether the company is precluded from having that issue determined on an application brought before the return date for the application for winding-up. The conclusion is dictated in this case by practical considerations and is consistent with the approach adopted by Tamberlin J in Whelpton v Braams Constructions Pty Ltd (1994) 12 ACLC 881. [10] The orders are as follows: 1. I order that the application for leave to oppose the application to wind-up be adjourned to 13 April 2000. 2. I reserve costs. -- 3 of 3 --