FEDERAL COURT OF AUSTRALIA

Grant Thornton Services (NSW) Pty Limited v St. George Wholesale Distributors Pty Limited [2008] FCA 1777

Corporations Act 2001 (Cth) s 459S

Bayview Holdings Pty Ltd v Zan Holdings Pty Ltd (unreported, Supreme Court of Western Australia, Ipp, Wallwork and Steytler JJ, 19 October 1998) not followed

HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 referred to

Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719 applied

Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216 considered

Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 followed

Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 referred to

GRANT THORNTON SERVICES (NSW) PTY LIMITED v ST. GEORGE WHOLESALE DISTRIBUTORS PTY LIMITED

NSD 1483 of 2008

PERRAM J

7 NOVEMBER 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  Leave be granted to the defendant pursuant to s 459S of the Corporations Act 2001 (Cth) to oppose the application of the plaintiff on the ground that the debt claimed in the creditors statutory demand dated 15 July 2008 is subject to a bona fide dispute.

2.                  The defendant pay the plaintiff’s costs of the application.

THE COURT NOTES THAT:

3.                  The grant of leave extended to the defendant was done on the basis of a concession made at the end the hearing that the debt the subject of the statutory demand was pivotal to the question of the defendant’s solvency; that is, if the debt existed, the defendant was insolvent and if the debt did not exist the defendant was solvent.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     By an interlocutory process filed on 14 October 2008 the defendant, St. George Wholesale Distributors Pty Limited, applies pursuant to s 459S(1) of the Corporations Act 2001 (Cth) (“the Act”) for leave to oppose the application filed by Grant Thornton Services (NSW) Pty Limited on 18 September 2008.  That applicant was for the winding up of the defendant on the ground that the debt claimed in the creditors statutory demand dated 15 July 2008 is subject to a bona fide dispute.  Section 459S of the Act provides:

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 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 issues which arose in the application were effectively two.  The first was the question of whether s 459S had any application at all to the present proceeding.  The second was, on the assumption that it did, whether leave should be granted in accordance with the terms of the provision.

3                     The short facts are that the defendant maintained premises at Belmore Road, Riverwood, in New South Wales.  In or about the first week of January 2008 the defendant moved from those premises to premises at 125-127 Parramatta Road, Homebush.

4                     It did not, at that time, notify the Australian Securities and Investments Commission (“ASIC”) of a change to its registered address.  Mr Dwyer, who gave evidence before me on behalf of the defendant, gave evidence of a conversation he had with a Mr Field who is an employee of the plaintiff.  It should be noted that the plaintiff was formerly the defendant’s accountant.

5                     Mr Dwyer says that he asked Mr Field to change the address that the defendant maintained with ASIC from Riverwood to Homebush and that Mr Field assented to that request.  Mr Field denies having agreed to do so.  There was no cross-examination before me of either witness and it is impossible for me to locate any other contextual matters which might, by way of independent corroboration or otherwise, allow me to determine which of those two accounts I prefer.  In the circumstance where the defendant is the applicant on the motion, it seems to me that the defendant bears the onus of proof on the balance of probabilities in persuading me of the truth of its account.  Where there is no reason to choose between either account it follows that the moving party fails to prove, at the requisite standard, the correctness of its position.  It is not proved that Mr Field agreed to change the address.

6                     It would appear that the defendant did not, having moved premises, check the registered office on occasion or at all for the purpose of determining whether it had received official correspondence.

7                     Whilst that state of affairs was extant, there developed a dispute between the plaintiff and the defendant in relation to the plaintiff’s professional fees.  It was not put in evidence before me but there is annexed to the plaintiff’s originating application a statutory demand which seeks a sum in relation to fees.  The defendant tendered before me some correspondence that indicated that the fees in dispute were in the sum of $172,000.  Without notice to the defendant it would appear that at a date in early July the plaintiff served a statutory demand at the address of the defendant which was disclosed in the records of ASIC.

8                     Very shortly thereafter, the defendant through its officer, Mr Dwyer, noticed that its registered address had not been changed.  Mr Dwyer asked an accountant in his employ to arrange for the address to be altered.  The evidence does not show that upon discovering that the registered address had not been changed that Mr Dwyer took steps to check the registered office to see whether there had been received at that registered office any official documents of a significant kind.  Instead, on 23 July 2008, that is, after the time at which the statutory demand was served but, so I was informed, before the 21 day period pertinent to that statutory demand had expired, the defendant instructed its lawyers, W Lawyers, to request that any statutory demand should be served upon them instead of the defendant.

9                     Of course, by that time, the statutory demand had already been served.  Consistent with its instructions, the defendant’s solicitors sent an email to the plaintiff on 23 July 2008 and requested that if the statutory demand was to be issued it should be served on the offices of W Lawyers.  There was no response to that email.  In the circumstances, what then occurred was that the period for compliance with the statutory demand expired.  The necessary consequence of that, by reason of Pt 5.4 of the Act, is that, save in some circumstances which it is not presently necessary to relate, the defendant was locked out, at least at the level of the statutory demand, from contesting the existence or otherwise of the debt.

10                  The plaintiff points to a number of matters on which it is necessary to make some short comment.  First, it observes that, to the knowledge, it says, of the defendant, the plaintiff was corresponding with the defendant at its registered office.  This fact was to be inferred from an email sent on 7 July 2008 from the plaintiff to Mr Dwyer of the defendant.  That email enclosed the demand for the fees of the plaintiff in the sum of $172,000 and that letter, if read, would have disclosed that the plaintiff was corresponding with the registered address.

11                  Mr Davidson, who appeared for the defendant, submitted that there were a number of indications that the plaintiff was well aware that the defendant had moved its premises from the Riverwood premises to the Homebush premises.

12                  For example, as early as February 2008, an email from Mr Field to the plaintiff had indicated that the move had occurred.  But I did not understand Mr Stowe, who appeared for the plaintiff, to suggest that the plaintiff was unaware of the fact of the business premises having been moved.  I will deal with the points that arise in turn. 

Does section 459S apply?

13                  In terms, s 459S applies to prevent a party opposing a winding up application on a ground that the company could have relied upon for the purposes of setting aside a statutory demand but did not so rely.  The meaning of that provision has been the subject of some consideration by the courts.  Effectively, it has been interpreted to mean that the ground must be such that it was actually available to be asserted according to the facts and circumstances existing at the time of the winding up: see Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719 at 722-723 [9] per Austin J.

14                  I accept that as a correct interpretation of s 459S(1).  The question devolves therefore to one of whether it can be said as a matter of fact that the ground now sought to be relied upon by the defendant in opposing the winding up is a ground which was not, in fact, available.  As Masri demonstrates at 723 [12], where there has been a change of premises without a corresponding alteration in the registered office, that test will ultimately require an examination of the issue of the reasonableness of the superintendence by the applicant of its registered office.

15                  That is, one needs to ask whether the defendant applicant took reasonable steps to check its mail.  Mr Stowe has submitted that the fact that the plaintiff was aware the defendant had moved its business premises is not material to what he submitted was an objective test.  On the other hand, Mr Davidson submitted that knowledge by the plaintiff was significant for the purposes of the Masri test.  I think that the submissions of Mr Stowe are to be preferred.  The question posed by s 459S, it is to be borne constantly in mind, is a question of fact as to whether a particular ground was actually available.  It seems to me that the subjective state of mind of the plaintiff, or its knowledge, simply does not go to that question.

16                  Brought down to the level of how that applies when there has been a change of business premises without a corresponding alteration of a registered office, that seems to me to require an analysis which focuses simply on the reasonableness of the steps taken by the defendant company to check its mail.  The knowledge of the plaintiff is irrelevant.  That being so, it is pertinent to note that the evidence suggests that the defendant would have, if it had read its email, been aware that demands for moneys had been made upon the registered address.  It certainly knew that after the statutory demand was served that the registered office still remained at its original location.

17                  Mr Stowe submitted that, once one accepted that Mr Dwyer was so aware, it followed that he should have checked the registered office to see what had arrived.  Had he done so, he would have discovered the statutory demand and that in that circumstance, s 459S could not apply.  I accept that submission.  Upon Mr Dwyer becoming aware in the terms to which he deposed in paragraph 11 of his affidavit, it was reasonable to expect of him that he would at least check to see what mail had arrived at that office; more is that so when, as Mr Stowe correctly submitted, the plaintiff was required by law to serve the statutory demand at that office.

18                  In that circumstance, the submission that s 459S has no application to the present proceedings must be rejected.  I then turn to the question of whether leave should be granted under s 459S.  The parties in this afternoon’s application ran the case in an efficient fashion and they agreed that the sole question which arose on the question of whether leave should be granted was whether the defendant satisfied the materiality requirements in subsection (2).  There has been some, although I would not say a lot, of disputation about the meaning of materiality in s 459S(2).

19                  However, it seems to me that I should accept that the authorities show that “material” means that an applicant, under s 459S, must show that the debt in respect of which it is seeking leave is pivotal to the question of solvency.  That is, the defendant must demonstrate that if the debt exists then the company will be insolvent and if the debt does not exist, then the company will be solvent.  In my opinion, that is the better reading of the reasons of Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661 at 674 [56].    I accept that, at first blush, paragraph [53] can be read the other way, however, for two reasons I do not think that passage should be so interpreted.

20                  First, it is apparent, for the reasons given by the Chief Justice in that judgment at 673-674 [47]-[51] that the evident statutory intention which underpins s 459S is very much directed to diminishing, rather than expanding, the circumstances in which debts are to be debated.  Put another way, as the Chief Justice demonstrated in that case, the previous situation which obtained prior to the introduction of the predecessor to s 459S, where it was common, frequent and unwelcome for debates about debts to take place at the time of the winding up petition, was to be expunged by that provision.  It is consistent with that interpretation, or that understanding, of the intention underpinning 459S to interpret materiality in a way which is circumscribed.

21                  Secondly, the learned Chief Justice indicated at 671 [36] that he did not propose to follow the decision of the Full Court of the Supreme Court of Western Australia in Bayview Holdings Pty Ltd (in liq) v Zan Holdings Pty Ltd (unreported, Supreme Court of Western Australia, Ipp, Wallwork and Steytler JJ, 19 October 1998).  The Full Court had there adopted a somewhat liberal approach to materiality.  It seems to me that a fair reading of the reasons of the Chief Justice is that the proper approach to materiality is the narrow one.  For completeness, it should be noted that in my opinion two justices of this Court have approached the matter on the more narrow view and have certainly thought themselves to be implementing the position in Switz: see HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 at 184 [53] per French J; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 at [43]-[45] per Besanko J.  That would be sufficient for me to feel obliged to approach the matter on the same basis.

22                  Mr Davidson drew my attention to a decision of White J in Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216 where at 1226 [64] his Honour said this:

The question is not whether the debt demanded by Radiancy (Sales) is determinative of Bimat’s insolvency.  The question is whether it is material to proving the company is solvent.  If the debt is owed, the company is undoubtedly insolvent.  If it is not owed, the company may be solvent if Mr Colosimo’s evidence as to the payment of creditors is accepted.  Accordingly, s 459S(2) is satisfied in relation to the grounds that Radiancy (Sales) is not a creditor, or that the alleged debt is genuinely disputed.

(Emphasis added.)

23                  Mr Davidson says that this paragraph is an acceptance of the more liberal view.  I accept that is a construction which may be open.  However, looking at the balance of his Honour’s reasons, it does not appear to me that his Honour was turning his mind in explicit terms to that question.  I doubt therefore, whether White J, actually intended to say that.  Even if his Honour had, however, the decision of the Court of Appeal and the two decisions of the Judges of this Court to which I have referred make it appropriate that I adopt the narrow approach to materiality.

24                  Before me this afternoon, Mr Davidson proffered a concession that, at least on the materials which were before the Court today, the existence of the debt was pivotal to its success.  The defendant did not proffer that undertaking in a qualified sense: that is, the defendant did not submit in terms of s 459S that the ground was material to proving that the company was solvent.  Rather, it was a hedged concession that for the purposes of the present application, the company was insolvent if the debt existed.  It seems to me that when one has regard to the matters to which Spigelman CJ adverted in Switz that to permit such a concession to be sufficient for s 459S(2) purposes would be to contradict the apparent aim underpinning the legislation, namely, the ending so far as possible, of debates about the existence or otherwise of debts during the course of winding up proceedings.

25                  In those circumstances, I do not regard that concession as making out materiality in the relevant sense.  Against that possibility, Mr Davidson proffered what was termed in the course of argument, a conditional concession.  The conditional concession was to the effect that if I came to a view that the reasoning in Switz meant that I had to take a narrow view of the meaning of materiality, and if I was of the view that the concession that had been proffered was not sufficient to make out that materiality, the defendant would concede that the existence or otherwise of the debt was pivotal to its solvency. 

[ There was brief discussion with counsel. ]

26                  During the course of the delivery of my reasons for judgment, Mr Davidson proffered a concession that the debt in question was pivotal, in the sense I have just discussed, to the question of solvency of the defendant.  It seems to me to follow that the test under s 459S(2) is satisfied.  There were no other bases upon which it was said that leave should not be granted.  In that circumstance it seems to follow from what has been conceded that the defendant should be granted leave.

Costs

27                  The decision in Switz that materiality is established by showing that the contested debt is pivotal was supported by at least two Judges of this Court.  Against that there was a Full Court decision in Western Australia which suggested to the contrary.  But in the circumstances, it seems to me that the authorities were clearly in one direction on this issue and that had the concession been made at an earlier time the plaintiff would have, for obvious reasons, consented to a grant of leave.  This means that this afternoon’s hearing has been an escapade which has taken place as a result of the defendant not proffering the concession at an earlier time.

28                  I will make orders accordingly.

Associate:

Dated:         28 November 2008