FEDERAL COURT OF AUSTRALIA

Hadley v BetHQ Pty Limited [2016] FCA 1263

ORDERS

THE COURT ORDERS THAT:

1.    The Defendant, BetHQ Pty Limited, be wound up in insolvency.

2.    Antony de Vries and Suelen McCallum be appointed as liquidators.

3.    The costs of the Plaintiff be paid out of the Defendant’s assets.

4.    Orders 1 and 2 be stayed until 4.00 pm on Tuesday, 25 October 2016.

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

REASONS FOR JUDGMENT

1    Unless otherwise indicated, references to provisions of a statute are references to provisions of the Corporations Act 2001 (Cth) and references to rules are references to the Federal Court (Corporations) Rules 2000 (Cth).

2    On 15 June 2016, the plaintiff, Mr Hadley, filed an application under s 459P seeking orders that the defendant, BetHQ Pty Limited, be wound up in insolvency and appointing a liquidator. Mr Hadley relies on the presumption of insolvency created by s 459C(2)(a) arising from the failure of BetHQ to comply with a statutory demand within 21 days after the demand was served on BetHQ.

3    On 18 October 2016, I refused BetHQ leave under s 459S to rely on grounds of opposition to the winding up application which it could have relied on in challenging a statutory demand under s 459G. I made orders that BetHQ be wound up in insolvency and that liquidators be appointed; for reasons set out at [62] below those orders were stayed until 4.00 pm on 25 October 2016. I gave brief ex tempore reasons for refusing leave under s 459S and making orders for winding up BetHQ and the appointment of liquidators; I indicated that my published reasons may expand on those ex tempore reasons.

4    It is the unchallenged evidence of Mr Gary Ball, the sole director and shareholder of BetHQ, that on 24 October 2014, BetHQ was licensed by the Norfolk Island Gaming Authority to act as a bookmaker in respect of race meetings and sports betting and to carry on a business of a betting exchange. The licence term is until October 2022. BetHQ does not currently conduct business and Mr Ball gave an undertaking to the Court that it would not deal with or dissipate its assets during the period of the stay.

Procedural History

5    Attached to the application are copies of two documents dated 8 April 2016. The first document is the statutory demand made by Mr Hadley for the payment of a debt of $25,613.20, being the balance of his betting account with BetHQ opened in about October 2015, comprising amounts deposited into the account by Mr Hadley and accumulated dividends credited in respect of successful bets placed by Mr Hadley by using and operating the account. The second document is an accompanying affidavit sworn by Mr Hadley deposing that the debt is due and payable and that he believes that there is no genuine dispute about the existence or amount of the debt. Mr Hadley’s residential address as set out in each of the documents is a suburb of Sydney, New South Wales.

6    In his affidavit sworn on 8 June 2016 (Hadley Affidavit), Mr Hadley states his occupation to be “labourer/professional gambler”. He deposed as follows (as written):

1.    I am the Plaintiff.

2.    Annexed to this affidavit and marked “JIH-1” is a current and historical extract of the records maintained by the Australian Securities & Investments Commission with respect to the Defendant.

3.    The Defendant is registered in Queensland and the registered office and principal place of business of the Defendant is situated in Queensland.

4.    The sum demanded in the demand which is attached to the originating process is an amount due and payable by the Defendant under the terms of an agreement between the Defendant and me, which was made in New South Wales.

5.    The following facts are within my own personal knowledge save as otherwise stated.

6.    The Defendant was on 8 April 2016 indebted to me in the sum of $25,613.20 the accumulated account balance of the betting account 6823 (the “account”) opened by me with the Defendant in about October 2015 and operated by me after the date that the account was opened.

7.    The demand, a copy of which is attached to the originating process, was signed by me.

8.    The demand and accompanying affidavit was served by Darren Charles Kane, my solicitor. Mr Kane has been instructed by me to make an affidavit of service of the demand and accompanying affidavit.

9.    The matters stated in the originating process concerning the demand and, failure of the Defendant to comply with it, are true and correct.

10.    The sum demanded remains due and payable by the Defendant to me.

7    The exhibit to the Hadley Affidavit records that as at 8 June 2016:

(1)    The registered office and principal place of business of BetHQ was Level 10, 15 Green Square Close, Fortitude Valley, Queensland 4006 since 29 August 2014;

(2)    The director and secretary of BetHQ was Gary Ball, whose address was in New Farm, a suburb of Brisbane, Queensland;

(3)    The current shareholder was Mr Ball; and

(4)    The current share capital is 100 issued shares and the “amount paid” is $815,489.00 and the “amount due” is $184,511.00.

8    In his affidavit sworn on 8 June 2016, Darren Charles Kane (of Colin W Love & Company Lawyers, Mr Hadley’s solicitors) deposed that he served the statutory demand and accompanying affidavit on BetHQ by posting them on 8 April 2016 by express post to BetHQ’s registered office at Level 10, 15 Green Square Close, Fortitude Valley, Queensland, 4006. Exhibit “DCK-1” is a copy of the letter sent to BetHQ enclosing the statutory demand and accompanying affidavit, and exhibits “DCK-2” and “DCK-3” are copies of the front and back of the express post envelope.

9    On 12 July 2016 a form indicating consent to act as liquidators by Mr Antony de Vries and Ms Suelen McCallum, official liquidators, of de Vries Tayeh, was filed.

10    In his affidavit sworn on 12 July 2016, Mr Kane deposed to (among other things):

(1)    Service of a covering letter, the originating process, Mr Hadley’s affidavit sworn on 8 June 2016 and his affidavit of that date in relation to service of the statutory demand and accompanying affidavit by sending them by express post on 16 June 2016 to BetHQ’s registered office at Level 10, 15 Green Square Close, Fortitude Valley, Queensland, 4006;

(2)    Exhibits DCK-3 and DCK-4, being copies of the front and back of the express post envelopes which he used on 16 June 2016 for service of the documents referred to in (1);

(3)    Lodging ASIC Form 519 with ASIC on 16 June 2016;

(4)    On 16 June 2016, sending a letter to ASIC of that date which attached the original Form 519; and

(5)    Publication on ASIC’s website on 11 July 2016 of a Notice of Application for Winding Up Order in respect of the Originating Process.

11    Mr Kane swore a further affidavit on 12 July 2016. Exhibits DCK-8 and DCK-9 referred to in the affidavit are an extract of an ASIC search as at that date which indicates that the Form 519 was received by ASIC on 20 June 2016 and a copy of the Form 519 which had been stamped as received on 20 June 2016.

12    BetHQ did not appear at the hearing of the application which had been set down for 13 July 2016. The hearing was adjourned until 29 July 2016 by Registrar Tesoriero on the application of the plaintiff because the publication of the application on ASIC’s website on 11 July 2016 did not meet the requirements of r 5.6(2)(b)(ii) which requires the notice to be published at least seven days before the date fixed for the hearing of the application (see also s 465A(c)). There was a second irregularity because under s 470(1)(a) the plaintiff is required to give ASIC notice of the winding up application by lodging a Form 519 no later than 10.30 am the next business day after filing the application and an extract of ASIC’s register indicates that it had not been lodged until 20 June 2016.

13    Mr Kane’s affidavit sworn on 14 July 2016 attests that on 13 July 2016, Mr Kane published a second Notice of Application for Winding Up order on ASIC’s website, he wrote to BetHQ (at its registered address in Fortitude Valley) advising of the new hearing date of 29 July 2016 and he sent a copy of the letter by email to BetHQ at the email address specified as the “contact us” address on its website; Mr Kane received a “delivery receipt” in response to the email.

14    On 25 July 2016, Racing Victoria Limited lodged a Form 4 Notice of Appearance stating that it was a creditor of BetHQ for $15,379.01 and that it intended to appear at the hearing on 29 July 2016 to support the application.

15    At 11.14 am on 29 July 2016, the day the matter came before Registrar Ng, Mr Ball lodged a Form 4 indicating that he intended to appear at the hearing of the winding up application and listing four grounds of opposition to the application. The four grounds of opposition were in summary:

(1)    That the Statutory Demand was defective in that the plaintiff is not owed more than $2,000 and any action would cause substantial injustice to the defendant;

(2)    New South Wales is not the proper jurisdiction to bring the proceeding as there is no agreement between the plaintiff and the defendant in New South Wales; any proceeding should be brought in Queensland or Victoria;

(3)    The defendant has a genuine dispute in relation to the amount and existence of the debt resulting from breach by the plaintiff of the terms and conditions of the agreement and the defendant had exercised its rights to suspend and cancel the plaintiff’s account; and

(4)    The defendant has an offsetting claim arising out of an indemnity for breach of the terms and conditions of the agreement.

16    Although Mr Hadley opposed Mr Ball appearing for BetHQ, Registrar Ng granted Mr Ball leave to appear by telephone on behalf of BetHQ on that occasion and ordered BetHQ to file any affidavits setting out the facts, matters and evidence on which it relies in support of the grounds stated in the notice of opposition by 23 August 2016. The matter was stood over until 26 August 2016.

17    On 26 August 2016, Mr Ball again sought leave to appear for BetHQ and to hand up an affidavit sworn by him on that day. Registrar Segal made orders referring the matter to a docket judge, directing BetHQ to file any amended notice of opposition by 9 September 2016 and that BetHQ pay the plaintiff’s costs fixed in an amount of $990. Mr Ball’s affidavit sworn on 26 August 2016 was filed electronically later that day.

18    On 9 September 2016, the defendant lodged a document headed Form 4 Amended Notice of Appearance. It stated that Mr Ball intended to appear and gave his address as New Farm, Queensland. The Amended Grounds of Opposition to Winding Up included in the document were detailed, including much material in the nature of submissions. In summary, Mr Ball set out the following seven grounds of opposition:

(1)    The statutory demand was not received by BetHQ until Thursday, 18 August 2016. He complained that service was defective because it was not in accordance with the Service and Execution of Process Act 1992 (Cth) (SEPA);

(2)    The originating process was not received by BetHQ until Thursday, 18 August 2016. The same complaint of non-compliance with SEPA was made;

(3)    The statutory demand is defective because it does not specify an address in Queensland where the alleged debt could be paid;

(4)    New South Wales is not the proper jurisdiction to bring these proceedings;

(5)    BetHQ has a genuine dispute in relation to the amount of the debt and the existence of the debt because Mr Hadley has breached the terms and conditions of his agreement with BetHQ;

(6)    Mr Hadley’s gambling through the operation of an account with BetHQ was illegal because he is a non-approved Wagering Service Provider (WSP). Racing Victoria’s standard conditions of approval and race field policy prohibit BetHQ, as an approved WSP, from accepting a betting transaction from non-approved WSPs; and

(7)    BetHQ has an offsetting claim against Mr Hadley under the indemnity against breach of the terms and conditions of his agreement with BetHQ.

19    Mr Ball swore a further affidavit on 27 September 2016 which was filed the next day. In the course of the hearing on 18 October 2016, counsel for Mr Hadley tendered the affidavit noting the date of the affidavit and Mr Ball’s statement at paragraph [3] that he had moved to Melbourne. BetHQ read only paragraph [5], which dealt with the fact that Racing Victoria had obtained a default judgment against BetHQ on 31 May 2016 as a result of BetHQ’s failure to appear because neither BetHQ nor Mr Ball had been aware of any pre-hearing conference on that date and BetHQ had applied to have the default judgment set aside.

20    A case management hearing was set down for 29 September 2016. Mr Ball again sought leave to appear for BetHQ, and that application was opposed by Mr Hadley. In the course of that hearing, Mr Ball was cautioned as to the potentially serious consequences for BetHQ of a winding up order being made, that s 459S may be relevant to the consideration of his grounds of opposition and the desirability of obtaining legal advice. Leave was given to the plaintiff to file and serve brief written submissions by 5 October 2016 in relation to the SEPA issues raised by BetHQ, having regard to the extensive argument provided by BetHQ in its Amended Grounds of Opposition. Mr Ball indicated that he would get legal representation once those submissions had been filed and served. The hearing of the application to windup BetHQ was set down for 7 October 2016; this date was subsequently changed to 2.15 pm on Tuesday, 18 October 2016.

21    Mr Hadley swore an affidavit on 17 October 2016 deposing (among other things) that the debt was due and payable and remains unpaid.

22    On 17 October 2016 at 1.58 pm, BetHQ lodged electronically a further Form 4 Notice of Appearance. The details of the person intending to appear were Cam Ly & Co Solicitors, of an address in Castlereagh Street, Sydney. The grounds of opposition to winding up stated in the notice were the same as those contained in the Form 4 lodged electronically on 29 July 2016.

23    Mr Martin, counsel for BetHQ, appeared at the hearing on 18 October 2016. He sought and was granted leave to file in court an application for leave under s 459S to oppose the winding up application:

(1)    On grounds 5-7 of the Amended Notice of Opposition (see [18] above).

(2)    Further or in the alternative; on the bases that:

(a)    The statutory demand was not received by BetHQ at any time on or before the expiration of the period of 21 days from the alleged date of service.

(b)    A genuine dispute exists as to the alleged debt, more particularly that:

(i)    The debt is not due at all; or, alternatively,

(ii)    Mr Hadley has no legal entitlement to the funds held by BetHQ due to a breach of the relevant gambling industry legislation by Mr Hadley; or, alternatively,

(iii)    BetHQ has a legal right, pursuant to its contract and terms of engagement with Mr Hadley, to withhold any sums possibly standing to the credit of Mr Hadley if BetHQ is of the view that the account operated by Mr Hadley is or was being operated in a manner inconsistent with the BetHQ contract and/or terms of engagement.

(c)    BetHQ has an off-setting claim within the meaning of s 459H of the Act arising out of Mr Hadley’s mis-operation of his betting account with the applicant.

24    Mr Martin sought an adjournment of the hearing of both the application for leave under s 459S and the application for winding up having regard to the fact that BetHQ had only appointed legal advisors on 17 October 2016.

25    Mr Parkin, counsel for Mr Hadley, opposed the adjournment on the basis that Mr Hadley had been in a position to proceed with the winding up application on 29 July and 26 August 2016 and was now in that position again. Further, Mr Ball had indicated to the Registrars that he proposed to get legal advice and had indicated at the case management hearing on 29 September 2016 that he would obtain legal advice following receipt of Mr Hadley’s submissions which were to be filed by 5 October 2016. Those submissions were in fact filed by then and sent to Mr Ball. In this regard, Mr Parkin relied on affidavits of Mr Kane and Ms Cindy Ann Fitzpatrick (Mr Kane’s personal assistant) sworn on 17 October 2016. Ms Fitzpatrick deposed that she sent the plaintiff’s outline of submissions to Mr Ball’s email address by way of service on 5 October 2016 at 3.47 pm. Mr Kane deposes that at 10.04 am on 17 October 2016 he sent an email to Mr Ball’s email address regarding the fact that a notice of appearance by legal advisors for BetHQ had yet to be filed despite Mr Ball’s indication to the Court that he would obtain legal representation; a delivery receipt for that email was obtained. Mr Parkin also relied on the fact that at the case management hearing on 29 September 2016, Mr Ball had been advised of the seriousness of the winding up application and that the hearing would proceed on the date set down for it.

26    The Court was satisfied that BetHQ had both adequate notice that the hearing of the application for winding up would proceed on 18 October 2016 and adequate opportunity to obtain legal representation since at least 29 July 2016, that issue having been raised both before the Registrar and at a case management hearing held on 29 September 2016. The adjournment was refused.

Application for leave pursuant to section 459S

27    To clarify any confusion about the grounds of opposition relied on by BetHQ, Mr Martin submitted that he was not aware of the Form 4 lodged on 17 October 2016 at 1.58 pm and confirmed that BetHQ did not rely on the grounds of opposition set out in that document. He confirmed that BetHQ did rely on the Amended Grounds of Opposition set out in the Form 4 lodged on 9 September 2016 save as follows:

(1)    BetHQ does not seek to challenge Mr Kane’s evidence of posting the statutory demand, originating process and related documents or that the postal address was the registered office of BetHQ in Fortitude Valley, Queensland; and

(2)    BetHQ does not rely on the paragraphs of the Amended Grounds of Opposition relating to any failure to comply with SEPA ([1.1]-[1.15], [2.1]-[2.3]), the failure to specify an address for payment in Queensland ([3]) or the claim that New South Wales is not the proper jurisdiction to bring the proceedings ([4]).

28    Mr Martin read Mr Ball’s affidavit sworn on 26 August 2016 on the interlocutory application for leave to rely on the Amended Grounds of Opposition. Having regard to the interlocutory nature of the application, Mr Martin did not seek to establish findings of fact on the basis of that affidavit in respect of this application.

Principles to be applied

29    BetHQ relied on, and Mr Hadley did not contest, the statement of the principles to be applied in considering an application under s 459S as set out by Black J in In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 (Vangory Holdings) at [9]-[10] as follows:

Section 459S of the Corporations Act relevantly provides:

(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.

The matters relevant to an application for leave under this section are whether there is a serious question to be tried on the ground sought to be raised; the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor’s statutory demand, involving an evaluation of the reasonableness of the debtor’s conduct at the time when the application might have been made; and whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent: Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 at [49]; DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036; Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282 at [33]; Re Pegasus Capital Management Pty Ltd [2011] NSWSC 570 at [6]. The discretion conferred by s 459S of the Corporations Act is to be exercised cautiously and sparingly and with regard to the purpose of Part 5.4 of the Corporations Act to provide for determination of any objections to a creditor’s statutory demand by an application under s 459G of the Corporations Act, rather than at the time of the winding up application: Switz Pty Ltd v Glowbind Pty Ltd above; Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd above at [34].

Is there a serious issue to be tried?

30    As noted by Black J in Vangory Holdings at [11], this consideration is directed to whether there is a seriously arguable case that the debt is the subject of a genuine dispute and does not require a final determination of whether a genuine dispute exists.

31    Mr Ball’s affidavit of 26 August 2016 asserts (at [23]) that Mr Hadley’s betting is done in close association with other gaming and wagering service providers which BetHQ believes have access to information not available to gaming participants at large and this is a form of wagering manipulation that is not in the spirit of gaming and wagering or in accordance with applicable laws or BetHQ’s terms and conditions for the operation of accounts.

32    Mr Martin did not take the Court to any of the legislation under which it was alleged that it would have been illegal for BetHQ to accept bets from Mr Hadley as a professional gambler or to pay him dividends from successful bets in such a way as to defeat Mr Hadley’s claim to payment of the balance of the account.

33    Mr Martin did take the Court to provisions of BetHQ’s terms and conditions which:

(1)    permit BetHQ to suspend or cancel a player’s account if (among other reasons) the player is in breach of BetHQ’s terms and conditions or the account is not being used “appropriately”; and

(2)    reserves to BetHQ the right to withhold or delay the transfer of winnings in those circumstances.

34    In the absence of being taken to any of the legislation on which Mr Ball seeks to rely to assert a claim that the debt is not due and payable because of illegality, it is difficult to assess how arguable BetHQ’s case may be on that basis. However, there may be arguable grounds that there is a genuine dispute as to the debt asserted by Mr Hadley on the basis of the remedial actions available to BetHQ for alleged breach of BetHQ’s terms and conditions because Mr Hadley has (in effect) engaged in wagering manipulation based on inside information, assuming that the evidence rises above the current level of assertion and is believed. However, even if there is a serious issue to be tried as to whether there is a genuine dispute or offsetting claim, that is not determinative of whether leave should be granted under s 459S. Indeed, Vangory Holdings is a case in which Black J found that there was a serious issue to be tried but nonetheless refused to grant leave.

Is there a sufficient explanation for why the grounds of opposition were not raised in an application to set aside the statutory demand?

35    In his affidavit sworn on 26 August 2016 Mr Ball states that BetHQ did not receive either the statutory demand or the originating process until 18 August 2016. Mr Ball says that, following the hearing before Registrar Ng on 29 July 2016, he faxed a request to the Registry for a copy of all documents filed in the matter, all orders made and a copy of the transcripts of the hearings from 13 July and 29 July 2016. Mr Ball followed up the request on 15 August 2016 by making a telephone call to the Registry. Mr Ball says that he had not received the statutory demand or originating process by 17 August 2016 so he wrote to Colin W Love & Company Lawyers stating that he had “not been served with all the documents filed in this matter” and that he had been trying to get a copy of the statutory demand and “other documents filed with the court”; he asked that copies of these documents be sent to him via email and provided his personal email address. Mr Kane wrote to Mr Ball at this email address the following day. Mr Kane asserted that all documents had been served on BetHQ’s registered office but “in fairness” he attached nine documents including the originating process (which attaches the statutory demand) and other related documents.

36    Mr Ball states (as written):

[BetHQ’s] business operations which were conducted from offices in Preston in Melbourne were suspended in March 2016. The Preston office was vacated in April 2016. I stopped going into the serviced offices situated at Level 10, 15 Green Square Close, Fortitude Valley QLD 4006 with the same frequency as before. That was largely a virtual office and was the address of the registered office of the Defendant. The virtual office would either give documents or correspondence to me or onpost documents and correspondence received to the Preston office. There have been previous situations arising from their haphazard forwarding or delays in forwarding documents and correspondence. Discussions had been had with management and staff and assurances given that it would not happen again.

37    Mr Martin submitted that the Court should infer that this is a case where mail was not forwarded from the “virtual office” in Fortitude Valley to the Preston office in accordance with arrangements which had been put in place by Mr Ball and this was why no action was taken by BetHQ to set aside the statutory demand under s 459G within 21 days after the demand was served.

38    In his submissions, Mr Parkin noted that as at 26 August 2016, Mr Ball stated his residential address to be at New Farm in Queensland, whereas his affidavit sworn on 27 September 2016 states his residential address as Thornbury in Victoria. That would suggest that he has only recently moved. Moreover, Mr Ball states that the operations at the Preston office were suspended in March 2016 and the office was vacated in April 2016, but there is no evidence as to whether that was before or after 8 April 2016 being the date on which Mr Kane posted the statutory demand to the address of BetHQ’s registered office in Fortitude Valley, Queensland (as stated in ASIC’s records). Mr Parkin submitted that Mr Ball’s evidence does not establish that BetHQ acted reasonably in the superintendence of the collection of mail from its registered office so as to bring it to the attention of its officers in an appropriate timeframe.

39    In Perpetual Nominees Ltd v Masri Apartments Pty Ltd; Perpetual Nominees Ltd v Aus Constructions Pty Ltd (2004) 49 ACSR 719; [2004] NSWSC 551 (Masri) at [12], Austin J discussed the legislative policy behind s 459S and the assumptions which underpin that policy:

… The legislative policy is that the provisions relating to the setting aside of a statutory demand are to be a complete code for the resolution of disputes about the subject matter of the demand, thereby preventing disputes about the underlying debt from being contested at the hearing of the winding up application: Switz, at NSWLR 672, [39]; ACSR 732-3. But that policy assumes that the debtor company has the opportunity to make an application, within the prescribed time limit, to set the demand aside. Such an opportunity will exist if the statutory demand is both properly served and comes to the notice of the company's directors in a timely fashion. Arguably, the opportunity will also exist if, although the directors did not in fact discover the existence of the statutory demand within the time limit, they would have done so if they had acted reasonably in the superintendence of the collection of mail from the company's registered office. Where, however, it is established on the evidence that the directors of the company did not become aware of the existence of the statutory demand until after the expiration of the 21-day period, and they have acted reasonably with respect to superintendence of the collection of mail from the company's registered office, the case is one where the company could not, in a factual sense, have relied on any of the grounds available to challenge the demand within the time period. In such a case, fairness requires that the company be permitted to raise those issues at the only hearing available to it, namely the final hearing of the application for winding up, even though to that extent one reverts to the old practice which the Harmer reforms were intended to reverse.

40    I was not satisfied that BetHQ or its sole director Mr Ball acted reasonably in the superintendence of the collection of mail from BetHQ’s registered office, which ASIC’s records indicated was also its principal place of business. I was not willing to draw the inference proposed by Mr Martin (see [37] above) having regard to Mr Ball’s evidence that he had previously complained about the “haphazard” and “delayed” forwarding of mail from the “virtual office” in Fortitude Valley and the vagueness of Mr Ball’s evidence as to when the Preston office was vacated following the suspension of business from that office in March 2016. There is no evidence at all about whether the Preston office was attended to collect mail in April 2016 if it was forwarded from the registered office. It is not clear when Mr Ball moved from Queensland to Victoria or why, if the Preston office was the place from which BetHQ conducted its business, ASIC’s records were not changed to reflect this in a timely manner.

41    The factual circumstances of this case should be distinguished from those in Masri at [12] for the same reasons as those adopted by Rein J in Nick Scali Ltd v JSK Logistics Pty Ltd [2008] NSWSC 597 (Nick Scali):

In Masri the company had sent notice of a change of address to ASIC at the same time as the demand addressed to the old address had been posted, so the timing was critical. The approach taken in Masri might be thought to dent the scheme of certainty that the statutory demand provisions are intended to provide, but accepting for present purposes that non-receipt of the demand correctly served on the registered office of a defendant can be a basis for permitting leave under section 459S, in my view, it could only be in very limited circumstances of the type that were present in Masri that would permit leave to be granted on the basis that documents validly served on the registered office of the company had not come to the attention of the directors. Failure to act reasonably in respect of superintendence of the collection of mail from the company's registered office and/or failure to take steps to ensure that changes in the registered office were advised to ASIC would, in my view, preclude the grant of leave.

42    With respect, I share Rein J’s concerns as to whether the non-receipt of a demand correctly served on a registered office can, as a matter of statutory construction, be an appropriate basis for permitting leave under s 459S and the grounds of opposition proposed by BetHQ are grounds which could have been raised in an application to set aside a statutory demand under s 459G.

Are the grounds material to proving whether BetHQ is solvent?

43    In Grant Thornton Services (NSW) Pty Limited v St George Wholesale Distributors Pty Limited [2008] FCA 1777 at [18]-[23], Perram J considered relevant authorities on the meaning of “material” in s 459S(2) and concluded at [19] that it means that an applicant 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.

44    Mr Martin submitted that:

(1)    It must be relevant to solvency that, on BetHQ’s argument, the debt does not exist or has been suspended. The Court should be slow to wind up a company where there is a serious issue to be tried.

(2)    As the winding up application was advertised on 11 and 13 July 2016 on ASIC’s website and Racing Victoria is the only creditor who appeared to support the application, it can be inferred that Mr Hadley and Racing Victoria are the only creditors.

(3)    ASIC searches put in evidence by Mr Hadley demonstrate that BetHQ’s paid up capital is $815,489.00 and the “amount due” on uncalled capital is $184,511.00. $184,511.00 exceeds the aggregate of the amounts claimed by Mr Hadley and Racing Victoria even if all paid up capital has been expended in the business.

(4)    The financial conditions of BetHQ’s Norfolk Island gaming licence require BetHQ to maintain cash reserves to meet bets and observe certain ratios.

(5)    Relying on the accrued jurisdiction of the Court, the interests of justice require BetHQ to be able to agitate issues which it could have agitated earlier.

45    The onus is on the applicant for leave under s 459S to place relevant material before the Court on the question of its solvency and that onus must be discharged in the context of the financial position of the defendant company: see Re OCNR (Australia) Pty Ltd; Convergence Team Pty Ltd v OCNR (Australia) Pty Ltd [2014] QSC 102 per Mullins J at [16]-[17]. This must be so, in light of the presumption of insolvency created under s 459C(2)(a) in circumstances where a statutory demand has been served and no application to set it aside has been made within the necessary timeframe. Since BetHQ does not dispute that Mr Kane posted the statutory demand, it will be deemed to have been received at the address to which it was posted, BetHQ’s registered office, on the fourth working day after 8 April 2016 (s 160 of the Evidence Act 1995 (Cth)).

46    BetHQ did not discharge its onus under s 459S(2) to demonstrate that the debt claimed by Mr Hadley is material in the sense of being pivotal to the issue of solvency. No financial records or other information as to BetHQ’s assets, liabilities and financial position were put in evidence by BetHQ on the leave application. Mr Ball’s evidence in the affidavit sworn on 26 August 2016 does not address the issue of solvency; he states only that BetHQ ceased operations at its Preston office in March 2016 and vacated that office in April 2016. He was not called to give evidence on the leave application. The fact that, after advertising the application for winding up, only Racing Victoria has come forward to support the application does not give rise to an inference that BetHQ is solvent or that the debt is pivotal to the issue of BetHQ’s solvency. The fact that the Norfolk Island gaming licence imposes financial conditions on BetHQ says nothing about BetHQ’s compliance with them or its financial position, particularly when it has ceased operations. There is no evidence before the Court as to the terms on which uncalled capital might be called or of Mr Ball’s capacity to meet any call. I accepted Mr Parkin’s submission that s 459S(2) is mandatory in its terms.

Conclusion

47    I determined that leave under s 459S should be refused.

Application to wind up BetHQ in Insolvency

48    Mr Martin renewed his application to adjourn the hearing of the application. That application was refused for reasons previously given.

49    I found that all matters relevant to the making of an order for winding up had been proved, but there were some matters which required comment.

50    First, Mr Martin objected to paragraphs [4], [6] and [10] of the Hadley Affidavit (see [6] above) on the basis that they are hearsay and conclusions based on facts not in evidence. Mr Martin submitted that he was not seeking to dispute the debt but merely to put the plaintiff to proof.

51    It is not open to BetHQ to make the argument that Mr Hadley is not a creditor unless the Court grants leave under s 459S having regard to the statutory scheme that contemplates that disputes about the existence of debts be resolved through the process of having the statutory demand set aside: Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179; [1999] NSWSC 15 per Austin J at [36]-[39]. The presumption of insolvency which founds an order under s 459P arises from the failure to comply with a statutory demand which is still in effect: s 459C(2)(a) and s 459F. It was therefore not necessary for Mr Hadley to prove the debt in the Hadley Affidavit so that while paragraphs [4] and [6] were of doubtful relevance, Mr Martin’s objection to them could not be sustained.

52    Relevant to resolving Mr Martin’s objection to paragraph [10] of the Hadley Affidavit are the terms of s 459Q(c) and r 5.4.

53    Section  459Q relevantly provides:

459Q    Application relying on failure to comply with statutory demand

If 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 application:

(a)    must set out particulars of service of the demand on the company and of the failure to comply with the demand; and

(b)    must have attached to it:

(i)    a copy of the demand; and

(ii)    [not relevant]; and

(c)    unless the debt, or each of the debts, to which the demand relates is a judgment debt – must be accompanied by an affidavit that:

(i)    verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(ii)    complies with the rules.

54    Rule 5.4 relevantly provides:

Affidavit in support of application for winding up (Corporations Act s 459P, s 462, s 464)

(1)    The affidavit in support of an originating process seeking an order that a company be wound up must be made by the plaintiff or by a person with the authority of the plaintiff or plaintiffs.

(2)    If the application is made in reliance on a failure by the company to comply with a statutory demand, the affidavit must:

(a)    verify service of the demand on the company; and

(b)    verify the failure of the company to comply with the demand; and

(c)    state whether and, if so, to what extent the debt, or each of the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made.

Note:    An example of the affidavit in support of an application for winding up in insolvency for failure to comply with a statutory demand is shown in Schedule 3 (Notes to these Rules)

(3)    [Not relevant]

(4)    The affidavit must be made within 7 days before the originating process is filed.

55    The purpose and express words of s 459Q(c)(i) and r 5.4(2)(c) is to verify that the debt the subject of the statutory demand remains due and payable. The language is one of “a formal affirmation” and not of the need to “prove and demonstrate by good evidence or otherwise substantiate” the debt and that conclusion is supported by the legislative context: see Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd (2012) 200 FCR 146; [2012] FCAFC 2 per Finn, Gordon and Murphy JJ at [17]-[23]. The Hadley Affidavit at paragraph [10] addresses the requirements of s 459Q(c)(i) and r 5.4(2)(c); in so far as it is not in admissible form, it does not need to be. Mr Martin’s objection to that paragraph cannot be upheld.

56    Mr Martin also objected to paragraph [5] of Mr Hadley’s affidavit sworn on 17 October 2016 which reiterated paragraph [10] of the Hadley Affidavit. There is no statutory requirement for this statement to be updated and I consider that it should be treated as a submission only.

57    The second issue was the significance of the two irregularities identified at paragraph [12] above. BetHQ did not make any complaint on the basis of these irregularities. I am satisfied that there is no substantial injustice resulting from them which should prevent the making of a winding up order if it is otherwise justified having regard to the fact that notice of the application for the winding up order was indeed published on ASIC’s website on 13 July 2016 and the period of the delay in giving notice to ASIC as required by s 470(1)(a) was a matter of a few days: see s 467A. This reflects the approach taken by Barrett J in Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214 at [8].

58    Thirdly, Mr Martin asserted that BetHQ was in fact solvent, a claim which BetHQ is entitled to prosecute without leave under s 459S. He again raised the argument that BetHQ has paid up capital in excess of $800,000 and unpaid capital of $184,511. He submitted, and he was correct, that the amount of $184,511 exceeds the aggregate of the debts claimed by Mr Hadley and Racing Victoria. However, that fact is ultimately not to the point. It is the defendant company which bears the onus of proving solvency and rebutting the presumption established by s 459C(2)(a). The matters on which Mr Martin has based his submissions are entirely inadequate to do that for reasons previously given. Ordinarily, the court should be presented with the “fullest and best” evidence of the defendant’s financial position; unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: see Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 per Weinberg J at [44]. No financial statements of any kind were in evidence and Mr Martin’s submission from the bar table that BetHQ is solvent was not founded on any evidence from Mr Ball. I was not in a position to be satisfied on the balance of probabilities that BetHQ is solvent.

59    When the presumption of insolvency has not been rebutted, the Court nonetheless retains discretion whether to make a winding up order under s 459A. Mr Martin submitted that the Court should have regard to the fact that the statutory demand and originating process did not come to Mr Ball’s attention until 18 August 2016, Mr Ball being the sole director and shareholder of the defendant. However, consistently with the commentary of Rein J in Nick Scali, in my view the failure of a company’s management to take steps to ensure that changes in the registered office are advised to ASIC in a timely manner or to adequately superintend correspondence to its registered office do not provide an adequate basis for refusing to make orders winding up BetHQ when the grounds for doing so have been established.

60    On that basis I made orders that:

(1)    BetHQ be wound up in insolvency;

(2)    Antony de Vries and Suelen McCallum be appointed as liquidators; and

(3)    Mr Hadley’s costs be paid out of BetHQ’s assets.

61    I declined to make an order that the costs of Racing Victoria, as supporting creditor, be paid out of BetHQ’s assets. Although Racing Victoria submitted an appearance and was represented during the hearing, it played no active role in the proceedings.

Application for stay

62    Mr Martin submitted that the making of a winding up order would jeopardise the Norfolk Island gambling licence which does not expire until October 2022 and sought a stay of seven days in which to consider whether to appeal my decision. Mr Ball confirmed that BetHQ does not currently conduct business or lease any premises. He undertook not to deal with or dissipate BetHQ’s assets during the operation of the stay. Mr Hadley opposed the grant of the stay, however having regard to the undertaking given by Mr Ball, the short period proposed and the possible jeopardy to BetHQ’s gambling licence, I stayed Orders 1 and 2 referred to at [60] above until 4.00 pm on Tuesday, 25 October 2016.

Associate:

Dated:    25 October 2016