FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Leinad Pty Limited; in the matter of an application by St George Bank Limited [2008] FCA 1887

DEPUTY COMMISSIONER OF TAXATION v LEINAD PTY LIMITED ACN 003 671 529

NSD 928 of 2008

GRAHAM J

28 NOVEMBER 2008

SYDNEY

IN THE MATTER OF AN APPLICATION BY ST GEORGE BANK LIMITED

THE COURT:

1.                  Orders that St George Bank Limited ACN 055 513 070 be substituted for Deputy Commissioner of Taxation as the plaintiff in the Originating Process filed 23 June 2008.

2.                  Orders that the substituted plaintiff publish a notice stating that the substituted plaintiff intends to apply for an order that the defendant be wound up.

3.                  Orders that the period within which the application for the defendant to be wound up in insolvency must be determined, be extended up to and including Tuesday, 31 March 2009.

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.

IN THE MATTER OF AN APPLICATION BY ST GEORGE BANK LIMITED

REASONS FOR JUDGMENT

1                     These proceedings were commenced by an Originating Process filed 23 June 2008 in which the Deputy Commissioner of Taxation was shown as the plaintiff.  The Originating Process sought an order that the defendant company be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (‘the Act’).  To establish insolvency, the plaintiff intended to rely upon non-compliance with a statutory demand in accordance with s 459C(2)(a) of the Act.

2                     On 25 November 2008, an accommodation was reached between the plaintiff and the defendant, allowing for a taxation dispute between the plaintiff and the defendant to be dealt with in another way. 

3                     On 25 November 2008, I noted an agreement between the then plaintiff and the defendant as recorded in Short Minutes of Order initialled by me, dated 25 November 2008 and placed with the papers.  I made an order that the defendant company pay the plaintiff’s costs of the proceedings to 25 November 2008 fixed in the amount of $10,000 and I stood the matter over to 2:15pm today to allow an application to be made by St George Bank Limited to be substituted as plaintiff in accordance with s 465B of the Act.

4                     When the matter was called for hearing today, counsel for the applicant, St George Bank Limited (‘the Bank’), expressed a concern about the continued representation of the defendant by his current solicitor given that the solicitor had been involved in acting for the Bank in respect of the preparation of certain loan documents.  It would seem to me that this, of itself, gives rise to special circumstances which warrant the exercise by the Court of its power under s 459R(2) of the Act to extend the period within which the application must be determined.  But for an extension of the period, it would be necessary for the application for winding up to be determined on or before 23 December 2008. 

5                     As to the question of substitution, s 465B of the Act empowers the Court to order substitution in an application under s 459P, such as this, with a person who might otherwise have applied for the winding up of the company being substituted for the applicant who sought that relief. 

6                     The winding up of a company in insolvency may be sought under s 459P(1) of the Act by, amongst others:

‘(1)(b)  a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor) …’

7                     The question is does St George Bank Limited answer the description of such a creditor? 

8                     It seems clear that on or about 9 July 2007, a facility offer was made by the Bank to the defendant offering a temporary commercial overdraft to expire on 20 July 2007 in the sum of $310,000 and that the facility was accepted by the company on that day, namely, 9 July 2007.  Under the heading ‘Repayment’, the relevant term of the facility provided:

‘Repayment    We may demand at any time that you repay the whole or part of the total amount owing.  You must repay in full the amount we demand at the time we specify in the demand.’

9                     No demand was relevantly made for the repayment of the total amount owing prior to the expiry of the temporary facility on 20 July 2007.  It was submitted for the defendant that the condition in respect of repayment was directed at what would happen if the facility was not repaid in full on the date on which the facility expired.  The submission was that the loan was not, in fact, repayable on 20 July 2007, or perhaps 21 July 2007, but rather was repayable on demand after the facility expired on 20 July 2007 or possibly 21 July 2007.  It is clear on the evidence that no demand was in fact made calling for the payment of the money until a demand requiring payment within seven days was made on behalf of the Bank on 2 September 2008, that is to say, well after the Originating Process was filed on 23 June 2008. 

10                  A letter from the Bank to the defendant of 28 August 2007 was put in evidence which referred to the relevant account number for the facility and recorded that:

‘… we both have agreed that clearance of this amount [$313,850.13] will be made in full within two (2) weeks – being no later than Wednesday 12^th September 2007.’

11                  It is unnecessary for me to consider whether, if this agreement was made as recorded in the letter, it had the effect of amending the facility agreement that had previously been reached.  It certainly does not appear to me to be a letter which could be construed as a demand within the meaning of that word as used in respect of ‘Repayment’ to which I have earlier referred.

12                  I do not consider it necessary to decide whether the amount due under the facility was, in fact, due and payable on or before 23 June 2008.  It is clear that the Bank was, at all material times, a contingent creditor of the company and as such eligible to be a plaintiff in an originating process seeking a winding up of the company in insolvency under s 459P of the Act. 

13                  In my opinion, it would be appropriate to order that the Bank be substituted for Deputy Commissioner of Taxation as the plaintiff in the originating process.  It would also be appropriate for an order to be made in accordance with rule 5.10 of the Federal Court (Corporations) Rules 2000 requiring the publication of a notice in accordance with Form 10

advising of the order having been made for the Bank to become the substituted plaintiff. 

Associate:

Dated:         11 December 2008