Australian College of Nannies Pty Ltd, Re [1993] QSC 250

Se 7 :s) :2 .:;:() I State Reporting Bureau 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.) c=) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION 0 WILLIAMS J Application No 575 of 1993 IN THE MATTER OF THE CORPORATIONS LAW IN THE MATTER OF ACN 051 136 835 PTY LTD (Formerly known as Australian College of Nannies Pty Ltd) 0 BRISBANE .. DATE 01/09/93 0 JUDGMENT 1 -- 1 of 14 -- 010993 mkg (Williams J) HIS HONOUR: I have prepared reasons for judgment which I publish. For those reasons I will make a winding up order and I will excuse the applicant with respect to the non-compliance , with the rules as evidenced by the qualifications in the Registrar's certificate. 10 For the reasons that I have published there will be an order as per initialled draft. 020 0 30 40 0 50 60 JUDGMENT 2 -- 2 of 14 -- n ~ .. () CJ ,IN THE SUPREME COURT OF QUEENSLAND No. 575 of 1993 BrisbanE~ Before Mr Justice Williams IN THE MATTER Corporations Law .and of the IN THE MATTER of ACN 051 136835 PTY LTD (formerly known as AUSTRALIAN COLLEGE OF NANNIES PTY LTD) JUDGMENT - WILLIAMS J. Judgment delivered 1st September 1993 CATCHWORDS: Counsel: Solicitors: Hearing Date: Companies - winding up - allegation that company had set-off against debt on which application based - evidence as to set-off vague and uncertain. A. Stone for applicant. M. Martin for respondent - company. Australian applicant. Government Solicitor Baker Johnson & Partners for respondent. 26th August 1993 for -- 3 of 14 -- --.~-······--------------------- 0 0 0 IN THE SUPREME COURT OF QUEENSLAND No. 575 of 1993 IN THE MATTER of theCorporations Law and IN THE MATTER of ACN.051 136 835 PTY LTD (formerly known as AUSTRALIAN COLLEGE OF NANNIES PTY LTD) JUDGMENT - WILLIAMS J. Delivered the 1st day of September 1993 The winding up of the company now merely known as ACN .051 136 835 Pty Ltd is opposed by its directors and shareholders, Mr & Mrs Poteri. The applicant is Educational Resources Pty Ltd which was formerly under the control of the Poteris, but is now in liquidation pursuant to a winding up order made by this Court on 23rd March 1993 on that company's own application. It should () also be noted that there was also another company controlled by the Poteris which had a close relationship both with the respondent company and with Educational Resources Pty Ltd, namely Legal Research Pty Ltd; it was wound up on 18th December 1992 on the application of the Attorney-General of the Commonwealth. P.A. Hennessy is the Official Liquidator of both Legal Research and Educational Resources. Having read the material, and heard James Nicholas Poteri give evidence, it is probably fair to say that the directors of -- 4 of 14 -- 2 the three companies failed to maintain strict divisions between the affairs and activities of each. Moneys payable to one were banked to the credit of another, inter-company transactions were not evidenced by any written document or company minute, and agreements between companies were made solely by word of mouth passing between Mr & Mrs Poteri. In those circumstances it is understandably difficult for the liquidator of Educational Resources and Legal Research to ascertain what amount, if any, is owing by the respondent company to either of those companies in liquidation, and it is also difficult for this Court to unravel the mess. c=) I find it most convenient to outline the relevant facts by c=) starting with the winding up of Legal Research on 18th December 1992. Apparently that company had been involved in litigation with the Attorney-General for the Commonwealth and had been ordered to pay costs thereof. The application for the winding up of Legal Research was based on the inability of that company to pay those costs. Some time prior to December 1992 the principal business activities of Legal Research had been transferred to or taken over by either or both Educational Resources and the respondent company. On or about 2nd February 1993 the Deputy Commissioner of Taxation served on Educational Resources a demand requiring immediate payment of $21 0, 602. That company was unable to satisfy that demand, and the material now before the court indicates that between December 1992 and 19th February 1993 the Poteris took legal advice as to what could be done to save c=) c=) -- 5 of 14 -- 0 0 0 0 3 Educational Resources from liquidation, to save the respondent company from liquidation, or at least to preserve the family's goodwill in the name Australian College of Nannies. Ultimately it was accepted that as Educational Resources could not meet the demand of the Deputy Commissioner of Taxation it should be wound up voluntarily. Resolutions to that effect were passed at meetings of directors and shareholders held on 19th February 1993. The formal order was made by the court on 23rd March 1993. At the hearing there was a dispute as to the identity of the liquidator to be appointed; the Deputy Commissioner of Taxation wanted Hennessy but that was opposed b the Poteris on the ground that there might in the circumstances be a conflict of interest. The court appointed Hennessy. What is of critical importance for present purposes is that two days prior to the passing of the resolutions for winding up, namely on 17th February 1993, the respondent company and Educational Resources entered into a deed in terms of which the respondent company acknowledged that it was indebted to Educational Resources in the sum of $74,484. The only possible explanation for the respondent company entering into that deed (the only signatories to which are Mr & Mrs Poteri in their respective capacities as a director of each company) at a time when it was known by the respondent that the other company was about to go into liquidation is that the debtor wished to provide for terms of repayment over an extended period of time. The implication is that prior to 17th February 1993 the amount of $74,484 was payable on demand and therefore could have been called up for immediate payment by any liquidator of Educational -- 6 of 14 -- 4 Resources. The deed provided that the amount in question should be repaid by sixty consecutive monthly payments. I should record, as I observed during argument in court, that I find it incredible that a deed such as that would have been entered into in those circumstances if the common directors had any reason to believe either that the amount was not owing or that there was an equivalent amount which could be set-off against .. · it. In his affidavit of 23rd March 1993, filed with respect to 0 the identify of the liquidator to be appointed for Educational Resources, J.N. Poteri referred at some length to the sum of $7 4 ,.484 payable by the respondent company to Educational 0 Resources, and asserted that payment of such sum would enable the liquidator of the latter company to pursue an action for damages against the Commonwealth of Australia, something which was of concern to him. On 23rd March 1993 James Nicholas Poteri signed a "report as to affairs" of Educational Resources, such document being a 0 necessary formality in the windingup. In that document Poteri disclosed that the major asset of Educational Resources was a 0 loan to the respondent company in the amount of $74,484. There is no reference therein under the heading of liabilities to any right toset-off in favour of the respondent company. On 29th March 1993 the liquidator of Educational R~sources demanded payment of the first instalment due under the deed of . ' 17th February 1993. In response he received on 2nd April 1993 a cheque for $1,998 with a note stating that it was for "Loan Repayment Attached per Monthly Cheque". In his affidavit in -- 7 of 14 -- 0 0 0 0 5 opposition to the application now before me, Poteri said that that amount "was paid to the company in an effort to square up the transactions". In the course of his oral evidence he attempted to give some explanation for the use of that expression, but I found what he said to be unintelligible. Further, he attempted whilst in the witness box to give some explanation for the making of that payment, but what he said was inconsistent with the documentation to which I have referred. I have come to the conclusion that the only finding open on the evidence is that the amount of $1,998 was paid on 2nd April 1993 because Poteri, as a director of the respondent company, acknowledged that there was money owing by that company to Educational Resources as evidenced by the deed. On 19th April 1993 Educational Resources, through its liquidator, caused a notice of demand pursuant·to s. 460(2)(a) of the Corporation Law to be served on the respondent company. It demanded payment of $70,001.35; that amount was said to be derived as follows:- Trust Funds paid to Australian College of Nannies on 14 August 1992 Less: Payment received 2 April 1993 $72,000.00 $ 1,998.65 The respondent company failed to comply with the terms of that notice within the period of three weeks specified therein. But the respondent company was not inactive during that-period. On 23rd April 1993 Messrs Ernst & Young provided Alimar Pty Ltd with a valuation of the business, including thegoodwill, known as Australian College of Nannies, being the business carried on -- 8 of 14 -- 6 by the respondent company. They assessed that value at $5,000. On 22nd April 1993 Alimar Pty Ltd changed its name to Australian College of Nannies (Qld) Pty Ltd, and on 1st May 1993 it acquired the business of the Australian College of Nannies for $5,000. The directors of Australian College of Nannies (Qld) Pty Ltd are the son (aged 18) of .Mr & Mrs Poteri, and Mrs Poteri's father. About the same time the moveable plant and equipment used in connection with. the business were sold to a company called Singline Pty Ltd for $15,000. The directors of Singline are Mrs Poteri's father and her uncle. Poteri has maintained, particularly during his public examination, that the sale of the business was the sole idea of his son and he denies that he was in any way involved in making the decision. It is not necessary to make any finding thereon, but the evidence of Poteri to that effect is, to say the least, surprising. Once the business of the College of Nannies was sold there was no business owned or being carried on by the respondent company and it had no real assets. Its balance sheet (unaudited) as at 31st December 1992 showed total assets amounting to $245,174 and total liabilities to $422,000; that is overall there was an excess of liabilities over assets of $176,826. The major asset disclosed therein was office fittings and equipment valued at $235,123 after depreciation. During evidence Poteri admitted that all, the.. office fittings and equipment which were saleable had been sold for $15,000. Thus it can be seen that after the sale o·f the business and the plant and fittings the respondent company had virtually no assets but considerable liabilities 0 0 0 0 -- 9 of 14 -- 0 7 (many of which were loans from directors or associated companies). Pursuant to an order of this Court made on 7th June 1993 Poteri was publicly examined on 4th, 5th and 6th August 1993. During his examination he did not refer to any set-offs against the amount of $70,000 odd which the liquidator of Educational Research asserted was owing by the respondent company to it. In particular he did not in the course of his examination refer to assignments by his wife and himself to the respondent company of debts owed by Educational Resources to them personally, .nor did he refer to any set-off in an approximate sum of $70,000 being c=) "student discounts given by the company on behalf of Educational 0 0 Resources to its students". He was cross-examined about some answers he gave in the ···course of that examination and he was shown some pages of the transcript thereof (ex. 2) . He denied the accuracy of that transcript and it has to be said that some of his recorded answers appear to be rather garbled; whether that is due to a fault in the transcription or whether that was the way in which he answered the question cannot now be determined. But it does seem clear that he did not refer to any set-off with respect to the "student discounts"; but rather he seemed to be saying that the sum represented by such "student discounts" formed part of the consideration for the acquisition of the business of the Australian College of Nannies by the respondent company from Educational Resources at the end of 1991 or beginning of 1992. Poteri has prepared a document- entitled· "Summary of the Relationship between Educational Resources Pty Ltd and Australian -- 10 of 14 -- 8 College of Nannies Pty Ltd" and it is ex. "D" to his affidavit filed 18th August 1993. I infer that the document only came into existence , recently, probably for purposes of these legal proceedings. The first item is against the date. 31st December 1991 and debits the respondent. company with $72,475, being money paid by prospective students to Educational Resources but wrongly banked to an account under the control of the respondent company. That do_es not all appear from the written document, but it is the clear finding which must be made in the light of all the evidence. Poteri conceded that there was no document, evidencing that; there was no company minute. At all times the money was in an account under the control of the respondent company but there was an alleged acknowledgment that it was the property of Educational Resources. Nothing produced in evidence verified any of the transactions detailed on ex. "D". The transfer of $72,000 on 31st December 1992 is also dealt with in an extremely vague manner in both the affidavit and the summary. Given that the affidavit and the summary (together, perhaps, with the files ex. 1) are the sum total of the documents justifying the set-offa claimed I cannot, particularly in the light of all the matters _to which I have already referred, conclude that there is substance in the contention made on behalf of the respondent company. One , can readily see that if students made payments to Educational Resources in 1991 for 1992 courses, and those courses were conducted by the respondent company, there may well be a basis for the respondent company claiming from Educational 0 0 0 0 -- 11 of 14 -- 0 9 Resources those amounts. But there is no evidence suggesting that any such claim was ever made prior to the liquidation of Educational Resources and there is no documentation supporting such a claim in any event. The Poteris claim that they were owed a total of $64,818 by Educational Resources and that they have assigned that debt to the respondent company. It is sufficient to say that the liquidator of Educational Resources disputes that alleged indebtedness to the Poteris, and there does appear to be at least some arguable basis for that conclusion. I should also record that counsel for the respondent company 0 objected to the contents of paras 15 (a) and 16 of the longer affidavit of M.J. McGahan filed 25th August 1993. In the 0 0 circumstances I uphold that. objection; I have not placed any reliance at all on the contents of those paragraphs. The position can therefore be summarised as follows:- (i) The demand· pursuant to s. 460(2) (a) of the Corporations Law for payment of $70,001.35 has not (ii) (iii) been complied with; On a number of occasions prior to presentation of this application, Poteri, a director of the respondent company, acknowledged that an amount of the order of $70,000 was owing by the respondent company to Educational Resources; The respondent company, through its director' J. N. Poteri, failed to claim any· set-off·· as now~ c'laimed when there was reasonable opportunity to ·do so · and -- 12 of 14 -- 10 when one would ordinarily have expected such a claim to be made if true; . (iv) There is a total lack of detail with respect to the alleged set-off. There is no minute or other documentation confirming such a claim, and there is no primary accounting material indicating the existence of such a claim. (v) The evidence as to the alleged set-off arrangement is so uncertain that it does not, prima facie, give rise to an actionable cause; (vi) The documentary evidence, such as it is, appears to be 0 at variance with the claims made by Poteri as to the c=) .(vii) existence of a set-off; The respondent company is hopelessly insolvent, has no assets, and no business to carry on. Taking all of those matters into account I am of the view that the company has not positively established the existence of a set-off against the debt on which the application is founded, nor am I satisfied that the respondent company has shown a sufficient arguable basis for disputing that indebtedness such that it should be proved in an action. In all of the circumstances I find that the necessary facts for the making up of a winding up order have been made out. I must now deal with the matters raised by the Registrar in his qualified certificate. It appears that the applicant wrongly followed the procedure under the new Companies Rules; it should have, in the circumstances of this case, followed the procedure laid down in the earlier Rules. In addition there was an address c=) c=) -- 13 of 14 -- --,-~--- 0 0 0 0 11 wrongly omitted from one of the advertisements. But clearly no-one has been prejudice by those procedural errors; the matter was fully argued before me on the merits. In the circumstances~ I will excuse the applicant with respect to the non-compliance with the Rules as evidenced by the qualifications in the Registrar's Certificate and I will make a winding up order as sought. -- 14 of 14 --