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Qld Refrigeration Pty Ltd v Continental Cold Storage & Distribution Pty Ltd

 

[2004] QSC 12

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

ACTING SENIOR DEPUTY REGISTRAR MITCHELL

No BS10111 of 2003

IN THE MATTER OF CONTINENTAL COLD STORAGE & DISTRIBUTION PTY LTD

 

QLD REFRIGERATION PTY LTD (ACN 010 031 455)

Applicant

and

 

CONTINENTAL COLD STORAGE & DISTRIBUTION PTY LTD (ACN 099 996 139)

Respondent

BRISBANE

DATE 23/01/2004

JUDGMENT

A/S D REGISTRAR: This is an application by Rentco Transport Equipment Rentals Proprietary Limited, to be a substituted applicant in these proceedings. The current applicant, the Australian Tax Office, seeks leave to withdraw as their debt has been settled in some way. I did not give leave to withdraw yesterday due to a concern that the substitution needs a vehicle, namely the existing application in order to have the substitution apply. On the 15th day of January, this application came before me and was adjourned to the 22nd with orders of filing of any and all material upon which the respondent relies.

The application is made pursuant to section 465(b) of the Corporations Act 2001, which permits the Court to make an order if it is satisfied that it is appropriate to do so. Mr Sawyer, who appeared for the substituted applicant, relied upon a debt, namely a default judgment in the Magistrates Court at Inala obtained on the 2nd of December 2003 in the sum of $41,588.82, inclusive of costs.

The original application to wind up the company was filed on the 10th of November 2003 by the then applicant. That application was based upon a failure to comply with the statutory name, which was served on the 18th of September 2003. That debt has also been resolved in some manner, apparently in November 2003.

Mr Sawyer made what I would call short and concise submissions to support his application. He stated, and I will try and quote exactly, “On an actual and factual basis, there is an entitlement to substitution”. The support that Mr Sawyer suggested the Court should take notice of was that there could be no better debt than a judgment debt, that the company is insolvent as it cannot satisfy debts when they fall due. The judgment has not been set aside and the current applicant does not seek a winding up today but simply a substitution with the usual adjournment to allow procedural and other matters to be done.

Mr Shehan, counsel on behalf of the respondents, filed a number of affidavits, with lengthy submissions, and quoted a number of cases to oppose the making of the order for substitution. Mr Shehan, essentially submits, as is in his conclusion, that Rentco has no standing as a debtor as the debt is substantially disputed. Irrespective of standing, it is appropriate that the dispute be permitted to be contested in a court of covenant jurisdiction. It is not appropriate to adjourn the application for substitution as it is likely that the determination will accrue before the statutory six month period for hearing of the application expires, amongst other things. Irrespective of the debt, the respondent has established solvency and the last matter, on the face of the affidavits of Mr Dobson, even if the judgment was not set aside, a winding up order would not be made.

The basic premise that underpins the respondent's submissions, is that an applicant with a disputed debt should not be permitted to substitute in winding up proceedings. Section 465(b) provides that the Court should only make an order based on two premises. Because the application has not been proceeded with diligently (this is not applicable here) or for some other good reason. The most frequent reason is that the original applicant, or in this case the substituted applicant, wishes to withdraw having been satisfied or paid out. The purpose behind substitution is to make sure that proceedings can continue and permit all creditors to take advantage of them.

In the submissions by Mr Shehan there is reference to the decision of South East Water Limited versus Kitoria, that is K-I-T-O-R-I-A Proprietary Limited, 1996, 14 ACLC, 1, 328, which deals with the competing policy objectives that need to be balanced by the court to decide an application for substitution. Amongst the cases mentioned in Mr Shehan's submissions, there were other cases which supported the idea that an applicant, who is not a creditor, should not be able to substitute.

I was slightly confused in the bundle of cases handed up by cases that were not mentioned in the submissions, these being Ocean City Limited, a Federal Court case in 1993 and a case of FAI Southern Cross Exploration, a decision of the New South Wales Supreme Court, 1986, New South Wales decision of Fortune, J. These cases may have had relevance but without a full investigation of the case law I could not identify why they were handed to me.

Mr Shehan in paragraph 3.2 points to an alternative school of thought with regard to dealing with an application for substitution other than what is expressed by South East Water Limited. However, for whatever reason, he does not make reference to a later decision of ACP Syme Magazine Proprietary Limited and TRI Auto Components Proprietary Limited, 1997 (3), it is a Federal Court case, a decision of Justice Spender.

In the material that was handed up by Mr Shehan, there is a copy of law of company liquidation, fourth edition, by Andrew Keay, that is K-E-A-Y, at page 128 of that text there is a discussion of both South East Water Limited and the decision of ACP Syme.

The writer of the text expressed a view that their view of Justice Spender is preferable, the chief reason being that a insolvent company should not be committed to continue to trade. In that particular case, that is the ACP Symes case, the debt was disputed as in this case. But for various reasons, having reviewed the case law, his Honour still made an application for winding up, the application for substitution having been previously dealt with in that case by a Registrar of the Federal Court.

There is no specific submission as far as my memory tells me on this particular case of ACP Syme. There is reference also to other cases in Mr Shehan's submissions which I have not had the opportunity to read. There are suggestions however, in the case of Kelvin Grove Proprietary Limited v. Parttoo Proprietary Limited 1998 16 ACLC 864, that the substitution hearing is not the time at which the company should raise an argument relating to the fact that there is a bona fide dispute on the debt.

As stated earlier, Mr Shehan has made extensive submissions to the Court to oppose the making of the order for substitution. He relies heavily upon a number of affidavits filed by Paul Dobson, an accountant employed by the respondent company to assist - to, amongst other things, assist in putting the accounts of the company in order but also to use in evidence to support the premise that the company is indeed solvent.

In the latest of affidavits of Mr Dobson filed by leave there are references which, to a certain extent, were confusing with regard to the debt situation of the company. For instance, there is a write-off of a debt of $183,943.87 to a related entity. It is not my role on a substituted application to look behind why a bad debt was written off of such magnitude but this is something I noticed during my investigations of the material.

There is also, for the period April 2002 to January 2003, a suggestion that the company had a profit of around about $75,000. In the period ending the 30th of September 2003 there is suggested to be an actual profit of $128,000 with a cash profit of $39,320. There is, in that same affidavit, references to other debts which are due by the company.

In paragraph 21 of the affidavit of Mr Dobson, it states his opinion, “From my review of the workings of the company, and subject to my assumptions, the respondent is solvent.” Mr Sawyer, for the applicant, reminded the Court that the test for solvency is not to be judged by profit and loss statements but upon the ability of the company to pay its debts when they fall due.

In the short time since the hearing that I have had an opportunity to look at the material on behalf of both parties and the submissions made, it has been difficult for me to form a view one way or another as to whether or not a debt is disputed or not. This is for another place to decide.

Putting aside issues of disputed debt, even if the judgment of the applicant were set aside, Mr Shehan, as I stated earlier, submits that an order would not be made. However, there is, from my memory, a matter which was not raised by the parties. This is, in order to succeed on an application for substitution, the creditor must have been a creditor at the time of the filing of the original application. For authority on this, see Ripon Investments Pty Ltd (1985) 3 ACLC 733.

The original application was filed on the 10th of November 2003 and it was not until the 2nd of December that the current applicant obtained judgment. The case of Ripon was based upon the then provisions of the Victorian Companies Code which stated, with regard to substitution, and I quote:

“The Court may, upon terms that it thinks just, substitute as a petitioner any person who, in the Court's opinion would have a right to present the petition and be desirous of proceeding with the petition. The current section 465B(1) has a similar pre-requisite contained in the words ‘the Court may by order substitute, as applicant or applicants in an application under section 459P, 462 or 464 for a company to be wound up.’A person or persons who might otherwise have so applied for the company to be wound up.”

Having stated that the original application was filed on the 10th of November and it was not until the 2nd of December that judgment was obtained, I have reached the conclusion, for reasons other than submissions stated by the respondent, that it is not appropriate to make an order for substitution.

In that case, the application should be dismissed and the applicant, the substituted applicant, the Australian Tax Office, have leave to withdraw.

If I am wrong in this view, the substituted applicant always has a right to appeal against my decision to the application's Judge. However, the substituted applicant, if it is later found that by a Court of competent jurisdiction that the judgment should be set aside, then that applicant, Rentco, will have no right to bring an application. However, if the judgment stands, as it currently does, then the applicant Rentco has an existing right to file its own application to wind up.

In essence, I dismiss the application by Rentco for substitution and, as stated, I give leave to the representative of the Australian Tax Office to withdraw. This being the case, unless there are other applicants, I am left in a position that the current application has no applicant or to proceed. I would like to hear submissions on this point.

A/S D REGISTRAR: Based upon the fact that there is no current applicant and based upon brief submissions made by Mr Shehan it is appropriate that the original application also be dismissed. The application to wind up the company is dismissed. Having stated that the substitute applicant has an existing right to make an application in its own right. I would now like to hear submissions with regard to costs.

A/S D REGISTRAR: All right. Thank you. I have reached a conclusion that the application for substitution should be dismissed and also that the winding-up application be also dismissed, principally for the reason that the creditor does not have standing pursuant to 465B. I consider that the costs should follow the event and I order that the applicant Rentco pay the respondent's costs of and incidental to the application including reserve cost to be assessed or as agreed. Thank you.

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Editorial Notes

  • Published Case Name:

    Qld Refrigeration Pty Ltd v Continental Cold Storage & Distribution Pty Ltd

  • Shortened Case Name:

    Qld Refrigeration Pty Ltd v Continental Cold Storage & Distribution Pty Ltd

  • MNC:

    [2004] QSC 12

  • Court:

    QSC

  • Judge(s):

    -

  • Date:

    23 Jan 2004

Litigation History

No Litigation History

Appeal Status

No Status