FEDERAL COURT OF AUSTRALIA

Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd

[2012] FCA 1296

IN THE MATTER OF SUNSTATE DESIGN & CONSTRUCT PTY LTD

Acn 120 826 271

THE COURT ORDERS THAT:

1.    The winding up application is dismissed.

2.    The plaintiff pay the defendant’s costs of and incidental to the application for the winding up order.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

IN THE MATTER OF SUNSTATE DESIGN & CONSTRUCT PTY LTD

Acn 120 826 271

REASONS FOR JUDGMENT

1    This application today is an application for an order for the winding up of a company called Sunstate Design & Construct Pty Ltd. Mr Matthews of counsel appears on behalf of the defendant company and Mr Brown of counsel appears on behalf of the plaintiff.

2    The application for the winding up order is founded upon a failure, or at least a contended failure, on the part of the defendant company to comply with a statutory demand under the Corporations Act 2001 (Cth) (the “Corporations Act”). A copy of the demand in evidence reveals that the form used by the creditor fails to comply with the content requirements for the form prescribed by the Corporations Act.

3    Section 459E(2) of the Corporations Act provides that a statutory demand, for the purposes of s 459E, must exhibit a number of features. Relevant for present purposes is s 459E(2)(e) of the Act, which requires that the demand “must be in the prescribed form (in any)”. There is, in fact, a prescribed form and the evidence reveals that the statutory demand made by the creditor does not contain a “warning notice” to the debtor which is required by the form.

4    The prescribed form is “Form 509H”. Item 49 of Schedule 1 to the Corporations Amendment Regulations 2007 (No. 13) (Cth) had the effect of deleting from Schedule 2 of the Corporations Regulations 2001 (Cth) the prescribed Form 509H and replacing it with Form 509H set out at Item 49. Item 49 of Schedule 1 commenced on the commencement of Items 1 to 48 of Schedule 1 to the Corporations Amendment (Insolvency) Act 2007 (Cth). Those items commenced on 31 December 2007 and thus the Regulations introducing Item 49 commenced on 31 December 2007.

5    However, Regulation 4(2) of the Corporations Amendment Regulations 2007 (No. 13) (Cth) provides that despite the amendment made by Item 49 of Schedule 1, for the period of 12 months after the commencement of the Regulations, a person may comply with s 459E(2)(e) of the Corporations Act 2001 (Cth) in relation to a statutory demand for payment of debt by using Form 509H as in force immediately before 31 December 2007 or Form 509H as in force after the commencement of Item 49.

6    It follows that from 1 January 2009, a creditor is required to use, in making a statutory demand, Form 509H as prescribed by Item 49.

7    Form 509H both before and after Item 49 provided for para 5 in these terms:

Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:

(a)    an affidavit supporting the application must be filed with the court; and

(b)    a copy of the application and a copy of the affidavit must be served on the person who served the demand.

8    Form 509H as prescribed by Item 49 from 1 January 2009 required the addition, immediately after para 5 of the form, of a warning in a prominent box containing text in bold type as follows:

9    In this case, the creditor made a statutory demand upon the debtor by using a version of Form 509H that omitted the warning notice to the debtor as required by Form 509H and s 459E(2)(e).

10    The question that arises then is whether the omission of the warning notice to the debtor renders the statutory demand invalid.

11    Mr Matthews advises the Court that his research has failed to reveal any authorities dealing with this question and submits that this application may well be the first case to confront the question. Accordingly, I proceed today to construe the provisions expressly on that footing.

12    The Explanatory Statement for the Corporations Amendment Regulations 2007 (No. 13) explains the reason for adopting Item 49 in these terms:

Item [49] – Schedule 2, Form 509H

Under section 459E(1) of the Corporations Act, a person may serve a statutory demand on a company relating to a single debt that the company owes to the person, which is due and payable and whose amount is at least the statutory minimum; or two or more debts that the company owes to the person, that are due and payable whose amounts total at least the statutory minimum. Form 509H, ‘Creditor’s statutory demand for payment of debt’, is the prescribed form for a statutory demand for the purposes of paragraph 459E(2)(e).

Failure to comply with a statutory demand can have serious consequences for a company, including potentially being wound up in insolvency. Each year applications to a court for termination of windings up are made in circumstances where the company is solvent, but the statutory demand was either not brought to the attention of the relevant officers or its significance was not recognised.

Form 509H will be amended so that there is a clear warning on its face stating that a failure to respond to a statutory demand can have very serious consequences for a company.

Item 49 replaces the current Form 509H with a new form that contains a boxed, bold warning noting the seriousness of the consequences for a company of a failure to respond to the demand, including liquidation and the passing of control to a liquidator. Subregulation 4(2) permits the current form of statutory demand to be used concurrently with the new form for 12 months after the commencement of the regulations.

                                [emphasis added]

13    The Explanatory Statement explains both the reason for adopting the warning notice and the perceived importance of drawing to the attention of the debtor the consequences of a failure to respond to the statutory demand.

14    Use of the prescribed form is a mandatory requirement because the language of s 459E(2) provides that the demand must be in the prescribed form (if any), and there is a prescribed form which gives particular emphasis to the matters addressed by the warning notice. In this context, it would be odd to dismiss the omission of the warning notice as an inconsequential, immaterial irregularity in circumstances where the form was amended expressly for the purpose of fixing the attention of the debtor on the important consequences flowing from a failure to deal with the notice. Section 25C of the Acts Interpretation Act 1901 (Cth) provides that where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and “substantial compliance” is sufficient. It would, in my view, be impossible to conclude that there has been substantial compliance with the prescribed form in circumstances where the form used by the creditor omits the important warning notice to the debtor, in light of the amendment to the Regulations in 2007 which as I have already mentioned commenced in full force (after the transitional period) on 1 January 2009.

15    A statutory demand is defined under s 9 of the Corporations Act as a document that is, or purports to be, a demand served under s 459E. However, the definition of a statutory demand cannot elevate an “invalid” statutory demand that purports to be a valid statutory demand, into a valid statutory demand. The demand as made remains a statutory demand, as defined, for the purposes of determining what might or might not flow from the use of a purported demand, for example, for the purposes of Divisions 1, 2, 3 and 4 of Part 5.4 and for the purposes of Part 5.4A, but if the statutory demand is invalid by reason of the omission of the important warning notice, the definition of a statutory demand, does not have the effect, as a matter of construction, of rendering an invalid demand, valid.

16    In this case, the company did not apply under Division 3 of Part 5.4 to set aside the statutory demand on the footing that the notice exhibited a “defect in the demand” giving rise to “substantial injustice” should the demand not be set aside under s 459J. On the application for the winding up order under s 459P, the defendant company sought dismissal of the application on the ground that the omission of the warning notice goes beyond a mere “defect” in the statutory demand and goes beyond a mere “irregularity” in the application as contemplated by s 467A(a) or (b).

17    It may be that the failure to incorporate the warning notice was central to the failure of the company to make an application under s 459J in relation to the statutory demand itself. Such a consequence seems to have been one of the motivating factors in the amendment to the Regulations so as to ensure that the significance of the consequences of non-compliance were brought to the attention of officers of the company.

18    A defect is defined by s 9 to include, in relation to a statutory demand, “an irregularity; and a misstatement of an amount or total; and a misdescription of a debt or other matter; and a misdescription of a person or entity”. However, I am not satisfied that the omission of the important warning notice can simply be characterised as an irregularity. The omission does not amount to a mere defect in the notice. It seems to me that the failure to incorporate the warning notice is fatal to the validity of the notice as the warning notice is central to the operation and efficacy of the notice. In circumstances where the statutory demand fails as a valid demand (that is, the demand cannot operate as a valid demand from the outset) because the demand does not warn the recipient in the mandatory manner which is central to its efficacy, s 459S(1)(b) has no prohibitory operation as the omission goes beyond a mere defect in the demand.

19    It follows that service of an invalid notice cannot give rise to a presumption of insolvency upon non-compliance with the demand and thus the ground of winding up falls away. It therefore necessarily follows that the winding up application cannot succeed and must be dismissed.

20    Accordingly, I order the dismissal of the application for the winding up order. I should also note that in the course of submissions Mr Brown indicated that the creditor had taken the formulation of Form 509H as used from the Federal Court website. However, although the Federal Court website contains examples of the Court forms under the Federal Court (Corporations) Rules 2000 (Cth), the website does not contain the multiplicity of forms provided for by the Corporations Regulations 2001 (Cth).

21    I should make this further observation.

22    In the course of the hearing of the application it became apparent that there had been some discussions between the parties about an interim arrangement by which moneys, the subject of the demand, that is to say, $30,255, would be paid into the trust account of the solicitor for the debtor. Arrangements have now been made transparently plain in the course of the Court proceedings that an undertaking will be given effect which is that the moneys paid into the trust account of the solicitor for the debtor will be paid into the trust account of the solicitors for the creditor to be held by those solicitors pending an application for leave to appeal from an order of the Queensland Civil and Administrative Tribunal and to be held further, pending the determination of the appeal, in the event that leave is given.

23    That undertaking is given to the Court and accepted as a proper arrangement by the creditor for present purposes and it is given quite independently of the question of the validity of the notice and the consequences for the winding up application of invalidity in the notice.

24    I make that point simply because the dismissal of the winding up application on the footing that the statutory demand is invalid and does not have the effect of discharging the undertaking.

25    The undertaking is given quite independently of the resolution of that question.

26    The defendant to the proceedings seeks an order that its costs of and incidental to the winding up application be paid by the plaintiff. The plaintiff contends that it has been put in an invidious position of having to make an application for winding up in circumstances where the conduct of the defendant inevitably, it is said, led the creditor into making the winding up application. The creditor says that had the defendant simply complied with the demand or paid the judgment debt, then these processes would not need to have been invoked.

27    Whatever the merits of that position might be on an analysis of the facts going to any of those matters, the position, however, remains, unfortunately or not, that because the statutory demand was invalid, the application for relief under the Act could never have succeeded. It follows that the costs of the defendant in responding to an application that has not succeeded and could not have succeeded on the strength of the ground relied upon must necessarily be paid by the plaintiff.

28    Accordingly, I order that the plaintiff pay the defendant’s costs of and incidental to the application for the winding up.

Associate:

Dated:    16 November 2012