FEDERAL COURT OF AUSTRALIA

Poolrite Australia Pty Ltd (in liq) v Structural Pools Aust Pty Ltd [2013] FCA 1100

THE COURT ORDERS THAT:

1.    Structural Pools Aust Pty Ltd be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

2.    Ivan Glavas and Paul Andrew Burness, official liquidators, be appointed liquidators of the company.

3.    The plaintiff’s costs be assessed if not agreed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

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

REASONS FOR JUDGMENT

1    The applicant seeks an order under s 459A of the Corporations Act 2001 (Cth) that the respondent be wound up in insolvency, but there is a problem.

2    The prescribed form for a statutory demand requires inclusion of a box containing the following words:

3    The demand served on the respondent by the applicant omitted the box and the enclosed words required by the prescribed form. It is convenient to refer to the omitted box and words as “the warning box” in these reasons.

4    The application has been referred by a deputy registrar to a judge because there are conflicting judgments of single judges of this Court concerning the consequences of the failure of the applicant to include the warning box in the demand.

5    In Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd [2012] FCA 1296, Greenwood J held that the failure to include the warning box was fatal to the validity of the demand and that no presumption of insolvency could arise from a failure to comply with such a demand. However, in Inter Mining Pty Ltd v Lake Johnson Pty Ltd [2013] FCA 915, McKerracher J held that the omission of the warning from a demand was a mere defect and did not make the demand invalid.

6    In the present case, there is no appearance on behalf of the respondent and no opposition to the grant of the orders sought in the application. However, as the application relies upon a presumption of insolvency arising from the respondent’s failure to comply with the demand, it is necessary to consider which of the conflicting decisions should be followed.

7    Section 459E(1) provides, relevantly, that a person may serve on a company a demand relating to a debt that the company owes to the person that is due and payable. Section 9 defines “statutory demand” to mean “a document that is, or purports to be, a demand served under section 459E”. For the purposes of an application to wind up a company in insolvency, the court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made, the company failed to comply with a statutory demand: s 459C(2)(a).

8    The prescribed form for a statutory demand is Form 509H, which is found in Sch 2 of the Corporations Regulations 2001 (Cth). The warning box first appeared in the prescribed form by an amendment to Sch 2 which commenced on 31 December 2007, but there was a 12 month period of grace during which a creditor could use the old version. Since 1 January 2009, the prescribed form has required the inclusion of the warning box.

9    The applicant has not explained how the warning box came to be omitted. It is interesting to note that the form found on the AustLII website is the old version of the prescribed form. That may provide the explanation. The correct form is available on the ComLaw website.

10    In Townview Holdings, Greenwood J decided that the omission of the warning box from the prescribed form was so fundamental that the demand could not be regarded as valid or capable of answering the description of a “statutory demand” and that no presumption of insolvency arose under s 459C(2)(a). That made it unnecessary for the respondent to make an application to set aside the demand.

11    A company may apply to the court for an order setting aside a statutory demand served on the company:  s 459G(1). Such application may only be made within 21 days after the demand is served: s 459G(2). The effect of s 459J is that where a defect in the demand is alleged the court must not set aside the demand unless it is satisfied that because of a defect, substantial injustice will be caused unless the demand is set aside: Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 at 450, Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 458, Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 at 757. An application for the winding up of a company under Pt 5.4 must not be dismissed because of a defect in a statutory demand unless the court is satisfied that substantial injustice is caused that cannot otherwise be remedied: s 467A.

12    In Inter Mining, McKerracher J considered that he was bound to follow the decision of the Queensland Court of Appeal in McElligott v Boyce [2011] QCA 117 that the omission of the warning box from a demand was a defect or irregularity only. On his Honour’s view, a demand that omitted the warning box still answered the description “statutory demand” and was valid and could only be set aside upon an application under s 459J if the requirements of that section were met. It is implicit in his Honour’s reasoning that omission of the warning box would not prevent the presumption of insolvency arising.

13    The judgment in Townview Holdings was given ex tempore. Greenwood J proceeded on the basis of the express assurance of counsel for the respondent that his research had failed to reveal any authorities dealing with the question of whether the omission of the warning box renders the demand invalid. It is arguable that this assurance was literally correct, but, as McKerracher J noted in Inter Mining, counsel failed to draw the attention of Greenwood J to several cases that had previously decided that the omission of the warning box was a defect that could not be set aside unless substantial injustice was demonstrated. One of those cases was McElligott v Boyce. The decision in McElligott v Boyce that the omission of the warning box was a defect in the statutory demand does not leave room for the view that the omission is fatal to the validity of the demand. If the earlier authorities had been drawn to Greenwood J’s attention, his decision may well have been different.

14    Like McKerracher J in Inter Mining, I consider that I am bound to follow McElligott v Boyce. A single judge should not depart from a decision of an intermediate appellate court in another jurisdiction on the interpretation of Commonwealth legislation unless convinced that the interpretation is plainly wrong: Farah Constructions Pty Limited v Say-dee Pty Limited (2007) 230 CLR 89 at [135]. I am not convinced that the decision in McElligott v Boyce is plainly wrong, or even wrong at all, despite the reasons for the contrary view stated by Greenwood J in Townview Holdings.

15    In Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226, Lockhart J said at 237-238:

According to its ordinary usage a “defect” means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection. A defect according to ordinary understanding is not necessarily something which is of a minor nature, it may be either major or minor … The notion of a “defect” is not to be confined to a misstatement of an amount of a debt to a small or minor misstatement or to an immaterial or minor misdescription of a debt or a person or entity.

16    In my opinion, the omission of the warning box from the statutory demand is a defect. While the omission was appropriately described as “important” in Townview Holdings, it is still a defect.

17    The definition of “statutory demand” in s 9 includes a document that “purports to be served under section 459E”. I agree with McKerracher J in Inter Mining that a demand that merely omits the warning box is nevertheless one that is a statutory demand because it purports to be served under s 459E. That the application in the present case purports to be a statutory demand is apparent from the text of the document. As it is a statutory demand, a presumption of insolvency arises under s 459C(2)(a) because it was not complied with.

18    In Townview Holdings, Greenwood J considered that it would be odd to dismiss the omission of a warning notice as an inconsequential irregularity in circumstances where the form was expressly amended for the purpose of fixing the attention of the debtor on the very important consequences flowing from a failure to deal with the notice. That is true, but I agree with McKerracher J that account must also be taken of the broader policy of the Corporate Law Reform Act 1992 (Cth) which introduced Pt 5.4 “Winding Up in Insolvency” into the then Corporations Law. That policy, reflected in the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) and in ss 459H, 459J, 459S and 467A of the Corporations Act, was to increase the efficiency of the winding up process by disregarding technical deficiencies, at least where no substantial injustice is caused by the deficiency. The amendment of the prescribed form cannot operate to weaken this legislative policy.

19    The view that the omission of the warning box is fatal to the validity of the demand may be supported by some circularity in the argument to the contrary. There is a 21 day time limit under s 459G(2) to apply to set aside a demand and that time limit cannot be extended: David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265 at 278. If the demand omits the warning box and the debtor applies to set aside the demand within the 21 days, it will be difficult to show substantial injustice for the purposes of s 459J. On the other hand, if the consequence of the warning box being omitted is that the seriousness of the demand is not appreciated by the recipient and no application to set it aside is made within 21 days, the very purpose of the inclusion of the warning box in the prescribed form is defeated and no remedy is provided under s 459J. In Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267, White J answered the circularity argument by noting that under s 459S leave may be granted to raise a ground that the company could have relied on in an application to set aside the statutory demand. However, that is not a complete answer because such a ground must be one that relates to the solvency of the company, and it is difficult to see that the absence of the warning box would do so. It may be that s 467A provides an answer because it allows a court to dismiss an application to wind up a company in insolvency because of a defect in a statutory demand if satisfied that substantial injustice has been caused that cannot otherwise be remedied: c.f. Topfelt Pty Ltd v State Bank of New South Wales Ltd at 240.

20    I consider that I am bound to follow McElligott v Boyce. I conclude that the presumption of insolvency arises.

21    Another issue is that the applicant’s solicitor posted the application to the respondent on 28 August 2013 and on the same day published a notice of application for an order that the company be wound up. Rule 5.6 of the Federal Court (Corporations) Rules 2000 (Cth) requires that a notice of application for an order that a company be wound up be published at least three days after the originating process is served on the company. That requirement allows the company to avoid the commercial damage that may result from publication of the notice by paying the debt or applying for an injunction restraining publication of the notice if the debt is disputed: Dikwa Holdings Pty Ltd v Oakbury Pty Ltd (1992) 8 ACSR 53 at 57.

22    There is no evidence of any substantial injustice to the respondent as a result of the premature publication. Having regard to s 467A, the premature publication of the notice does not, in my opinion, provide a reason for refusing the application.

23    I will order that the respondent be wound up.

Associate:

Dated:    28 October 2013