Federal Court of Australia
QBE Insurance (Australia) Limited v Good Life One World Pty Limited, in the matter of Good Life One World Pty Limited (Controller Appointed) [2021] FCA 1249
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The Defendant, Good Life One World Proprietary Limited (Administrator Appointed) ACN 613 984 928, be wound up in insolvency under the Corporations Act 2001 (Cth).
2. Stephen John Hundy of Worrells Solvency & Forensic Accountants, Level 2 of the AMP Building, 1 Hobart Place, Canberra ACT 2601, be appointed liquidator of the Defendant.
3. The Plaintiff’s costs (including reserved costs) of the proceedings be taxed and reimbursed out of the property of the Defendant 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.
WHITE J:
Introduction
1 On 12 October 2021, I made orders for the winding up of Good Life One World Pty Limited (Controller Appointed) (GLOW) and appointed Stephen John Hundy of Worrells Solvency & Forensic Accountants as its liquidator. I said that I would publish my reasons later. Those reasons follow.
Procedural history
2 On 16 April 2020, QBE Insurance (Australia) Limited (QBE) served a Statutory Demand pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act) on GLOW. GLOW did not make any application to set aside the Statutory Demand nor make any attempt to comply with it.
3 On 15 January 2021, QBE applied, under s 459P of the Act, for GLOW to be wound up in insolvency. Initially, GLOW opposed the making of such an order.
4 QBE’s application was in the Registrar’s list but, on 24 March 2021, and at the request of the parties, the Registrar referred the application to a Judge for hearing and determination. I listed the matter for hearing on 29 April 2021. However, QBE sought an adjournment of the hearing in order that it could consider the implications of the complaint to the Australian Financial Complaints Authority (AFCA) made by the directors of GLOW with respect to the transactions which gave rise to its application. There were then successive adjournments pending the resolution by AFCA of the directors’ complaints.
5 On 30 June 2021, I made by consent an order pursuant to s 459R(2) of the Act extending the period within which the winding up application was to be determined to 15 September 2021.
6 On 1 September 2021, QBE informed the Court that the AFCA complaint process had been finalised, and I listed QBE’s winding up application for hearing on 9 September 2021.
7 On 9 September 2021, GLOW sought an adjournment of the hearing because its solicitor, Mr Scragg of Peter Scragg & Associates, had terminated its retainer of his firm and because it had only just retained new solicitors. An affidavit of Mr Scragg indicated that he had terminated his firm’s retainer because of the conduct of GLOW’s directors, Jonathon Leffler and Louise Gray, in filing in the Court affidavits which they wrongly represented as having been prepared and filed by Peter Scragg & Associates and because of other conduct indicating that the directors no longer had confidence in him. I then adjourned the hearing to Monday, 27 September 2021 so as to give GLOW’s new solicitors time to prepare for the hearing. At the same time, I extended the time fixed by s 459R(2) of the Act to 11 October 2021.
8 At the hearing on 27 September 2021, counsel for GLOW informed the Court that, late on Friday, 24 September 2021, an administrator had been appointed to GLOW. The administrator (Mr Hundy) sought and obtained an adjournment of the hearing pursuant to s 440A(2) of the Act, in order to see whether a deed of company arrangement (DOCA) then proposed by Mr Leffler and Ms Gray and involving the contribution of $275,000 could be negotiated. The time fixed by s 459R was further extended to 18 October 2021.
9 At the hearing on 12 October 2021, Mr Hundy informed the Court that he had not received the $275,000 and that Mr Leffler and Ms Gray did not intend contributing that sum to fund the DOCA. He consented to an order for the winding up of GLOW.
10 For the reasons which follow, I consider that the winding up orders should be made.
Background
11 On 9 June 2018, GLOW obtained finance from QBE, secured by a deposit bond. The terms of the loan and security were contained in a Deposit Bond Agreement executed that same day.
12 An external controller was appointed to GLOW on 1 May 2019, but the Court was not provided with evidence concerning the circumstances of that appointment.
13 On an undisclosed date in 2019, QBE commenced proceedings in the District Court of South Australia to enforce its entitlements under the Deposit Bond Agreement (DCCIV585 of 2019). There were three defendants to the District Court proceedings: GLOW and its directors, Jonathan Leffler and Louise Gray.
14 The defendants did not file a defence in the District Court proceedings and, on 23 March 2020, QBE obtained judgment by default against them for amounts (including costs and interest) totalling $222,735.70.
15 On 16 April 2020, QBE served a Statutory Demand pursuant to s 459E of the Act, together with a copy of the default judgment, on GLOW at its registered office at 113 Main Street, Lobethal, South Australia. The process server deposed, and I accept, that he effected that service by “delivering the documents [to] 113 Main Street, Lobethal and leaving them with Louise Gray”.
16 The effect of reg 5.4.01AA, which was incorporated into the Corporations Regulations 2001 (Cth) (the Regulations) by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), was to extend to six months the statutory period fixed for the purposes of s 549G of the Act within which GLOW could make an application to set aside the Statutory Demand.
17 As noted, GLOW did not make any application pursuant to s 459G of the Act to set aside the Statutory Demand or otherwise attempt to comply with it by 31 December 2020.
18 QBE lodged its application for the winding up of GLOW on 15 January 2021. The Notice of Appearance of GLOW was filed for it by Ms Gray on 19 March 2021, five days before the winding up petition was to be heard by the Registrar. In the Notice of Appearance, Ms Gray set out eight grounds on which she opposed the application for winding up. These are:
1. The Application for winding up in insolvency is outside of the legal timeframe allowed for filing.
2. The Applicant has sufficient security in the form of caveats over the Debtors and Guarantor's real estate titles to realize the debt.
3. The Applicant and Respondent entered into negotiations on or around April 2019 and came to an agreement on or around September 2019, regarding repayment of the debt.
4. Contrary to the spirit of the agreement the applicant has proceeded to file claims, obtain default judgement, leading to the application for winding up in insolvency against the company and Bankruptcy against its Directors.
5. Service of the claims DCCIV 585/2019 and DCCIV 586/2019 were not received by Director Louise Gray, and therefore not defended.
6. Recent examination of the documents relied upon in the issuance of the Deposit Bonds has highlighted discrepancies which appear to invalidate the contracts upon which the Default Judgements rely, for the debt being claimed in these proceedings.
7. It appears that QBE made an error in issuing and paying the Deposit Bonds.
The Vendors claims for the Deposit Bonds was fraudulent.
The Guarantors who were not the purchaser (in two of the bonds), has in effect given a guarantee on contracts that were not binding.
QBE failed to perform sufficient due diligence at all stages of the bond issue and payout.
8. The outcome of lnterlocutory Applications which are afoot in District Court of SA and QLD to seek orders to have the judgements set aside, based on point raised in 1-7, are yet to be decided.
19 As is apparent, Ms Gray did not make any assertion for GLOW that it was solvent. Ms Gray’s reference in [1] to the application being outside the “timeframe” (presumably the time referred to in s 459C(2)) overlooked the effect of reg 5.4.01AA which extended the statutory period in GLOW’s case to 16 October 2020.
20 Peter Scragg & Associates, an Adelaide based firm of solicitors, filed a Notice of Acting for GLOW on 23 March 2021. Mr Scragg represented it at the hearing on 29 April 2020 and thereafter until 8 September 2021. This included representing GLOW at the case management hearing on 1 September 2021 at which QBE’s application was listed for hearing on 9 September 2021. On 8 September 2021, Chamberlains Law Firm, a Canberra based firm of solicitors, commenced to act for GLOW. As already noted, on the application of counsel instructed by that firm, the hearing on 9 September 2021 was adjourned to 27 September 2021. Timetabling orders were made to facilitate that hearing.
21 GLOW did not comply with any of the timetabling orders.
22 Receivers and Managers were appointed to GLOW on 6 July 2021 and, as noted, Mr Hundy was appointed as a voluntary administrator on 24 September 2021.
The statutory powers and principles
23 Section 459A of the Act provides that, on an application under s 459P, the Court may order that an insolvent company be wound up in insolvency.
24 Section 459C(2) of the Act requires the Court to presume on an application under s 459P that the company is insolvent if, during or after the three months ending on the day when the application was made, the company has failed (as defined by s 459F) to comply with a statutory demand.
25 Section 459F provides for the circumstances in which a company will be taken to have failed to comply with a statutory demand. These circumstances exist in this case.
26 Section 459G permits the company to apply to the Court for an order setting aside a statutory demand. It provides:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within the statutory period after the demand is so served.
(3) An application is made in accordance with this section only if, within that period:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
27 Section 459J provides for the circumstances in which the Court may set aside the service of a statutory demand:
459J Setting aside demand on other grounds
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
28 Section 459S of the Act limits the grounds on which a company may oppose an order for its winding up:
459S 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.
29 In relation to s 459S(1), Perram J said in Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777; (2008) 26 ACLC 1462:
[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 …
(Citation omitted)
30 In relation to the requirement of materiality in s 459S(2), Perram J said in Grant Thornton at [19]:
… “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 …
31 Section 95A of the Act identifies the circumstances in which a corporation will be insolvent for the purposes of s 459A. It provides that a person is insolvent “if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable” and that a person “who is not solvent is insolvent”.
32 This cash flow test of insolvency focuses on the liquidity and viability of a company’s business.
33 The solvency of a company is a question of fact to be supported by evidence of the company’s financial position taken as a whole: First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) [2013] FCAFC 108, (2013) 95 ACSR 654 at [33]; Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621, (2001) 53 NSWLR 213 at [54].
34 Counsel for QBE referred to the summary of relevant propositions by Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 at [44]:
• The respondent is presumed to be insolvent and as such bears the onus of proving its solvency …
• In order to discharge that onus the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent …
• 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 …
• There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency …
• The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account …
• The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored …
• It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights …
(Citations omitted)
35 The effect of the statutory scheme is that the Court is to presume that the company is insolvent if the company fails, within the period of three months before the application is made, or thereafter, to comply with a statutory demand. By reason of the amendments effected to the Regulations to which reference was made earlier, GLOW had until 16 October 2020 in which to comply with the Statutory Demand or to apply for an order setting it aside. That period cannot be extended by the Court: David Grant & Co Pty Ltd (Receiver Appointed) v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 277-8 (Gummow J). If a company does not apply to set aside the statutory demand within the statutory period, then the presumption of insolvency is applicable: Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1 (ASIC v Lanepoint Enterprises) at [28]. It operates unless the company proves that it is not insolvent (s 459C(3)). By s 459S, a company may not, without the leave of the Court, oppose an application for its winding up on a ground on which it did rely, or on which it could have relied, on an application for the setting aside of the statutory demand. Section 459S(2) confines the Court’s discretion by stipulating that leave is not to be granted unless the Court is satisfied that the ground is material to proving that the company is solvent.
36 As the High Court noted in ASIC v Lanepoint Enterprises at [27], the evident policy of Pt 5.4 of the Act is that there be a speedy resolution of applications to wind up in insolvency. To that end, a challenge to a statutory demand is to be made promptly, before the application for the winding up in insolvency is determined and, when possible, disputes are to be resolved on the application to set aside the demand.
Consideration
37 In the circumstances of the present case, GLOW’s failure to comply with the Statutory Demand means that it must be presumed to be insolvent (s 459C(2)(a)). It was also non-contentious that QBE has complied with all the statutory preconditions for the making of an order for the winding up of GLOW in insolvency.
38 On 29 April 2021, the Court directed that any application by GLOW pursuant to s 459S of the Act, together with any supporting affidavit, be filed and served by 11 May 2021 and made timetabling orders for the hearing of such an application in the event that it was filed. GLOW did not file an application for leave within the time fixed by the Court and has not thereafter sought an extension of the time in which it may do so.
39 This means that the sole question for the Court’s determination on the application for winding up is whether GLOW has proved that it is not insolvent.
40 GLOW has not put before the Court any financial statements or other material indicating that it is solvent. This is despite an order of the Court on 1 September 2021 that any affidavit providing an updated statement as to the solvency of GLOW be filed and served by 4 pm on 6 September 2021.
41 A number of matters indicate that GLOW is not solvent.
42 An affidavit of Ms Gray made on 17 March 2021 referred to GLOW having three default judgments entered against it (totalling $532,592.14). Ms Gray deposed that applications were “currently afoot” to have the default judgments set aside. On 1 September 2021, the Court ordered that any affidavit by GLOW with respect to the application to set aside the judgment obtained by QBE in the District Court of South Australia, be filed and served by 12 noon on 6 September 2021. In the affidavit filed on 6 September 2021, Ms Gray did depose to some steps in applications to set aside the default judgment but GLOW did not rely on that affidavit at the hearing on 11 October 2021.
43 Ms Gray’s affidavit of 17 March 2021 indicated that GLOW wished to raise the following defences:
(a) there is sufficient equity of $2,073,680 in properties over which QBE does have security to realise the debt claimed by QBE;
(b) GLOW has other assets of $1,453,457 which, when combined with its property assets, indicates that it has total assets of $3,527,137, an amount far exceeding the debt claimed by QBE;
(c) QBE, GLOW, Ms Gray and Mr Leffler had negotiated a payment plan;
(d) QBE filed the creditors’ petition outside the six month statutory period.
44 However, ultimately, GLOW did not seek to rely on Ms Gray’s affidavit or, indeed, any of the other affidavits which Mr Leffler and Ms Gray had filed. It is apparent in any event that the matters to which Ms Gray deposed could not establish GLOW’s solvency.
45 Receivers and Managers were appointed pursuant to mortgages granted by GLOW on 6 December 2017, 30 May 2018, 1 June 2018 and 11 July 2018. The report of the Receivers and Managers lodged with ASIC on 13 August 2021 records that GLOW does not have any assets. Although 10 different debts to four different creditors (including QBE) are listed in the report, the extent of GLOW’s indebtedness is marked in the report as either “unknown” or “withheld”. Mr Lawrence, one of the joint Receivers and Managers, stated in the notice provided pursuant to s 421A(5) of the Act that the addresses of those secured creditors and the extent of the indebtedness has been withheld “due to the commercially sensitive nature of the information which would prejudice the achievement of the objects for which the Receivers and Managers were appointed if that information were made available to the public”.
46 Mr Hundy deposed on 27 September 2021 that GLOW had estimated liabilities to three creditors totalling $1.2 million and had no assets. He did not claim that GLOW was solvent, let alone depose to matters which could support such a view. As noted, he sought the adjournment of the hearing on 27 September 2021 in order to allow time for the directors to provide the funds for their proposed DOCA.
47 In the circumstances, it is plain that GLOW does not rebut the statutory presumption that it was insolvent. It was accordingly appropriate for an order for its winding up to be made.
48 Mr Hundy proposed that he be appointed liquidator. QBE supported that appointment and I am satisfied that it is appropriate.
49 These are my reasons for the orders made on 12 October 2021.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice White. |
Associate: