Legislation
Section 459A of the Corporations Act 2001 (Cth) (the Act) states that on “an application under section 459P, the Court may order that an insolvent company be wound up in insolvency.”
Section 459C of the Act states, relevantly:
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a) the company failed (as defined by section 459F) to comply with a statutory demand; or
(d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a security interest; or
(e) a person entered into possession, or assumed control, of such property for such a purpose; or
(f) a person was appointed so to enter into possession or assume control (whether as agent for the secured party or for the company).
Section 459C(3) states that a “presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.”
Section 459Q states:
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 must set out particulars of service of the demand on the company and of the failure to comply with the demand.
Simpson v CT Partners Australia[1]
The plaintiffs were creditors of the defendant.
The first plaintiff claimed to be owed bonuses totaling $176,922.67 for the period starting 1 July 2014 ending 30 December 2014. The bonuses arose from an oral agreement, however the calculations were confirmed in writing.
The second plaintiff claimed $867,539 being half of the purchase price owing pursuant to a share sale and purchase agreement entered into between the defendant and the plaintiffs.
An application to wind up the defendant was filed on 30 June 2015 on the grounds that the company was actually insolvent and for just and equitable reasons must be wound up.
JP Morgan Chase Bank N.A, as a secured creditor, enforced its security interest pursuant to a general security deed and entered into possession of the defendant’s assets on 1 July 2015.
On 8 July 2015, Johnson Executive Search Pty Ltd served a statutory demand for payment of a debt (Statutory Demand) on the defendant, the 21 day period expired on 29 July 2015. The defendant failed to satisfy the Statutory Demand by the expiry of the 21 day period.
Both of the events at paragraphs 10 and 11 took place after the “3 months ending on the day when the [winding up] application was made” (3 Months) pursuant to the Act.
This case discussed the merits of relying upon events that trigger the presumption of insolvency when they have occurred after the 3 Months.
Gilmour J referred to the analysis of McMurdo J in Equititrust Limited v Willaire[2] when he stated that “a failure to comply with a statutory demand, would not be relevant if it occurred after the winding up application was filed.”
Gilmour J continued to quote McMurdo J at [87]:
[T]here is no authority for the proposition that in a case such as this, where the application is filed originally upon other events giving rise to the presumption, a subsequent failure to comply with the statutory demand must be disregarded. I agree with Barrett J [in Golden Plantation v TQM Design and Construct Pty Ltd] that the effect of s 459Q is to make it “impermissible to file an originating process on (the basis of non-compliance with a statutory demand) until the failure has occurred and particulars of it can be stated”, but that s 459Q does not preclude a reliance upon a failure to comply with a demand which occurs after an application is duly commenced.
Decision
In these circumstances, Gilmour J was satisfied that the winding up application was properly commenced and further that the plaintiffs could rely upon the defendant’s failure to comply with the Statutory Demand despite the fact that the failure to comply occurred after the application was filed.
As such, Gilmour J made orders winding up the defendant.
Gilmour J made it clear that this particular situation occurs where the winding up application has been properly commenced on grounds other than failure to comply with a statutory demand. Once properly commenced on other grounds, a party may then rely upon non-compliance with a statutory demand to prove insolvency.
Lavan Legal comment
This case illustrates that if after a winding up application has been filed, a company fails to comply with a statutory demand, provided the application did not originally rely on the statutory demand, then the rebuttable presumption set out in section 459C(2)(a) may be relied upon to prove that the company is insolvent and should be wound up.
This case further demonstrates that there is value in proceeding with a statutory demand after a winding up application has been made in certain circumstances.
