Crust 'N' Crumb Bakers (Wholesale) Pty Ltd, Re [1991] QSC 185 [1992] 2 Qd R 76

Sc. 91) l8S- IN THE SUPREME COURT OF QUEENSLAND CHAMBERS Application No. 271 of 1991 Before Mr Justice McPherson S.P.J. IN THE MATTER of Corporations Law - and - IN THE MATTER of CRUST 'N' CRUMB BAKERS (WHOLESALE) PTY. LTD. JUDGMENT - McPHERSON S.P.J. Delivered the Twenty-Fourth day of June 1991 CATCHWORDS Companies - Winding up - Insolvency - Statutory notice of demand served - Notice referring to s. 364 of Code - Served after Corporations Law in force - Whether defect fatal - Corporations Law, ss.465(2), 601. Counsel: Solicitors: R. Jones for the Applicant G. Young for the Respondent Company R.G. Kilner & Black for the Applicant Stephens & Tozer for the Respondent Company Hearing Date: 11 June 1991 -- 1 of 9 -- IN THE SUPREME COURT OF QUEENSLAND CHAMBERS Application No. 271 of 1991 IN THE MATTER of Corporations Law - and - IN THE MATTER of CRUST 'N' CRUMB BAKERS (WHOLESALE) PTY. LTD. JUDGMENT - McPHERSON S.P.J. Delivered the Twenty-Fourth day of June 1991 This is an application for an order to wind up a company on the ground that it is unable to pay its debts. The only evidence of insolvency is that the company failed to comply. with a statutory notice of demand dated 12 February 1991 requiring payment of·$20,713.17 due by it to the applicant creditor. The application for winding up was filed on 13 May 1991. It is inti tuled in the matter of the Corporations Law and in the matter of the company, which is named in it. The application is opposed by Mr Young, of solicitors for the company, because of what he submits is a defect in the statutory notice of demand. The notice is in the form that, unless within 21 days of its service on the debtor company the sum of $20,713.17 is paid, etc., then the company will be deemed to be unable to pay its debts "and application will be made to the Supreme Court of Queensland under Section 364 ( 1 ) of the Companies (Queensland) Code for the winding up of the debtor". Mr Young's point is that at the date of the notice and of its -- 2 of 9 -- 2 service the Companies Queensland Code had been repealed by the Corporations Law, which came into force on 1 January 1991, and consequently that the proceedings were wrongly taken under the Code instead of the Corporations Law. For this proposition he relied on the decision of Legoe J. in the Supreme Court of South Australia in Eurotiles (Sales) Pty. Ltd. v. Granefield Pty. Ltd. (1991) 4 A.S.C.R. 162. I reserved my decision on the application before me so that I could study his Honour's reasons in that case. It was a case of an application by a company to dismiss an application for the winding up of the company. The summons seeking winding up was dated 24 January 1991, so it was filed after the Corporations Law had come into force. The statutory notice of demand to establish the ground of insolvency had, however, been given in reliance on s.364 of the Companies (South Australia) Code. It is not clear from the report precisely when the notice was served or when it was not complied with; but, having regard to the dates involved, it seems likely that it had at least been served while the Code was still in force. His Honour dismissed the application to wind up the company. He did so because he considered that the new Corporations Law made it mandatory that applications to wind up made after 31 December 1990 "must be conducted in accordance with the Corporations Law and not the previous legislation"; and that the application to wind up in that case, although filed on 24 January 1991, "was not made in accordance with the Corporations Law but expressly by reference to s.364 of the previous Companies (S.A.) -- 3 of 9 -- 3 Code, now no longer in operation for applications to wind up after 1 January 1991". In reaching this conclusion his Honour referred to s.601 of the Corporations Law: "691. The provisions of this law with respect to winding up do not apply to any body corporate the winding up of which was started before the commencement of this Chapter, and - (a) any such company is to be wound up in the same manner, and with the same incidents, as if this Law had not been enacted; and ( b) for the purposes of the winding up, the previous law of this jurisdiction corresponding to this Chapter is taken to remain in force." By way of emphasis his Honour italicised the words "had not been enacted" in s.601(a). He was referred to Interim Practice Note no.- 3 issued by the Australian Securities Commission, expressing the view that proceedings started before 1 January 1991 are to_ continue in accordance with the Corporative Scheme Legislation - that is, the former Codes; but that - "where an application for the winding up. of the company is filed, or a resolution for the winding up of a company is passed after 31 December 1990, any winding up which proceeds on the basis of that application or resolution must be conducted in accordance with the Corporations Law." His Honour also referred to s.465(2) of the Corporations Law, which declares that, apart from the case of a resolution for voluntary winding up, the winding up is to be "deemed to have commenced at the time of filing of the application for the winding up". With great respect to these views, I find myself unable to follow them. Section 601 is, I consider, not designed to apply the new Corporations Law to proceedings or steps taken after 1 -- 4 of 9 -- 4 January 1991 with a view to obtaining a winding up order in respect of a company. I consider it is intended as an exception to the rule that would otherwise prevail, which is that the provisions of the repealed Code would cease, and the provisions of the Corporations Law would apply, from the time (1 January 1991) when that Law came into force. Its purpose is to ensure that the provisions of the Code, although repealed, nevertheless continue to apply to "a body corporate the winding up of which started before the commencement of the Act". In such a case the company is to be wound up in the same manner and with the same incidents "as if this Law had not been enacted"; and for the purposes of that winding up the previous law of this jurisdiction (that is, the Code) is "taken to remain in force". What is meant by "winding up" in this context? In my opinion it does not comprehend steps or proceedings taken for the purpose of obtaining an order -tha t the company be wound up. Winding up is a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled. It is a process, comparable to an administration in equity, that begins or "starts" with an order of the Court. However, it is not the court order itself that "winds up" the company; the order does no more than direct that the company be wound up, which is then carried into effect by an officer of court, the liquidator, who does the things I have identified in order to liquidate the company's assets and wind up its affairs. In referring to "winding up" or to the company -- 5 of 9 -- 5 being "wound up", and to the manner and the incidents of doing so, s.601 therefore speaks not of proceedings aimed at obtaining an order of court to wind up the company but of the process that ensues from and follows such an order. Leaving aside the case of a successful appeal, winding up thus "starts" when, and not before, an order to wind up is made appointing a liquidator. It is true that by s.465 express provision is made with respect to the time when winding up is deemed to have "commenced". That is a time that, in the case of a winding up by the court, is by statute artificially antedated to the time of the filing of the application for an order that the company be wound up. In that sense it to some extent resembles, and has on occasions been compared to, an act of bankruptcy in the case of an individual. However, in s.601 the draftsman was careful to use the· word "started", and not "commence" or "commenced" in relation to winding up. The "commencement of winding up" is a technical phrase or term of art invested with a particular meaning by s.465; but it is not the term that is used in s.601. I do not in any event consider that s.465 can be regarded as relevant to the present question. Section 465(2) does, as I have said, artificially antedate the commencement of the winding up to the time at which the application for a winding up order is filed. But it does not produce that effect or have that operation until the making of an order to wind up in fact takes place. Until that moment arrives, if it does at all, one cannot know that there is going to be winding up, so that it is not possible before the order is made (if it ever is) to say that the winding up has commenced. The position is different once the -- 6 of 9 -- 6 winding up order has been made; it then becomes possible to look back to and find the time when it commenced. At the present stage of these proceedings an order to wind up has yet to be made. Ex hypothesi no order to wind up had been made when the statutory notice of demand was served on 12 February 1991, or when the application for a winding up order was filed on 13 May 1991. The Corporations Law was, however, then in force. At that time the proceedings were accordingly governed by the provisions of that Law and not by the repealed Code. On any view, this conclusion is not affected by s.601 because the winding up of this company was not "started before the commencement of this Chapter". The proceedings (which are not what s.601 is directed to) to wind up are therefore subject to the law that prevailed on 12 February 1991 and 13 May 1991, which was the Corporations Law that commenced on 1 January 1991, and not the repealed Code that, subject only to s.601, ceased to be law on 31 December 1990. The application filed on 13 May 1991 for a winding up order was and is therefore required to conform to the provisions of the Corporations Law. It does so in the sense that, if it be material, it is intituled "In the matter of [the] Corporations Law"; apart from that title, one would not be able to say whether it affected to conform or not, because the procedures under the old law and the new law are identical. What is said to be fatal is that the notice of demand did not comply with the requirements of the Corporations Law. It is dated 12 February 1991 and was served on the following day; but it is headed "Companies Queensland Code : Section 364(2)(a)"; and, as I have said, the -- 7 of 9 -- 7 body of the form also refers to the Code and to that section of it, whereas, strictly speaking, it should have referred to the Corporations Law and to s.406(2)(a). The question is whether this defect is destructive of the validity of the notice and of the consequence that service of it was designed to elicit; that is, payment of the debt demanded or, failing that, proof that the company is unable to pay its debts. It should be borne in mind that the procedure provided by s.460(2)(a) is not itself a "proceeding" but simply a convenient method of proof of insolvency: Clarke & Walker Pty. Ltd. v. Thew (1967) 116 C.L.R. 465, 467. There is no statutory prescribed form in which the notice of demand must be expressed. However, a long line of cases going back well into the nineteenth century shows that the requirements of provisions like those in s.460(2)(a) must be strictly adhered to because of the important consequences involved in the use· of that procedure see Re Hodges (1873) 8 eh.App. 204, 205. Its fundamental purpose is to warn the company of the creditor's intention of instituting winding up proceedings if the demand is not complied with. The notice in the present case satisfies these requirements. Its only defect (or the only one relied upon here) is that it refers to the section or paragraph and name of the repealed Code instead of the corresponding section of the current Corporations Law. The two provisions are, however, in all material respects indistinguishable. A debtor company, or its officers, armed with a knowledge of s.364(2)(a) of the Code could, on receipt of this notice, have been under no illusions about the consequence that would follow if the demand was not complied with. That would -- 8 of 9 -- 8 remain so whether or not the company or its officers were aware that the Code provision had been repealed and replaced by another provision identical in effect, and nearly so in form, now to be found in the Corporations Law. The form in which the demand is expressed ought not, I think, to be approached in the spirit of an incantation or the spell in the fairy tale, which, if the right words or formula are not recited, fails to raise a bubble in the witch's cauldron. Its purpose, which is functional, is to inform. There is no reason to suppose that the company here was misled by the error in the notice. The notice dated 12 February and served on the following day is therefore to be considered an effective demand for the purposes of s. 460 ( 2) (a) of the Corporations Law. Not having been complied with, insolvency on the part of the company is established as a ground for winding up. I will accordingly order that the company be wound up under the Corporations Law, and that Neville John Pocock and Peter Normal Thurecht be appointed to conduct the winding up, with power in doing so to act severally as well as jointly. -- 9 of 9 --