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In this interesting matter, the applicant creditor took action to recover the respondent’s debt from its guarantor, who disputed the debt. The guarantor later entered administration and was liquidated before a trial took place. The applicant in turn applied to have the respondent wound up on one of three grounds. First, pursuant to s 461(1)(c) Corporations Act 2001 (Cth) (“the Act”), because it had suspended its business for a year. Second, pursuant to s 461(1)(k) of the Act, on just and equitable grounds. Third, pursuant to ss 459A or 459B of the Act, on the basis that the respondent was insolvent. Cooper J determined that orders pursuant to s 461(1)(c) would deprive the respondent of the opportunity to contest or repay the debt before being wound up. For that reason, and because an alleged lack of confidence was not established, it was not just and equitable to make an order pursuant to s 461(1)(k). Similarly, there was no adequate evidence or basis from which to infer insolvency and make orders pursuant to ss 459A or 459B. In the result, the application was dismissed with costs.
19 October 2022
The applicant, Devmin International Pty Ltd (“Devmin”), was the assignee of a debt owed by the respondent, and thereby its creditor for the purposes of ss 459P(1)(b) and 462(2)(b) Corporations Act 2001 (Cth) (“the Act”). , . The respondent, Belconnen Developments Pty Ltd (“Belconnen”), was one of several companies incorporated to engage in various aspects of a property development business under the name “Parity Group”. , . The sole director and secretary, Mr Garden, was also the sole director and shareholder of Garden Bells Pty Ltd, Belconnen’s sole shareholder. .
The relevant debt arose in the context of dealings between Mr Garden and the director of Hollistic Property Group Pty Ltd (“Hollistic”), Mr O’Dwyer, regarding a proposed development. –. Mr Garden contended that during their dealings, Mr O’Dwyer made representations about his capacity to raise funds for the development. –. Belconnen later had to borrow funds from Hollistic to meet its commitments, apparently after Mr O’Dwyer failed to raise those funds. –. Mr Garden alleged that the development ultimately could not proceed because of Mr O’Dwyer’s failures. .
Hollistic had assigned its rights to Devmin shortly before the loan fell due. . Devmin later demanded payment, and after it was not forthcoming, demanded payment from Belconnen’s guarantor, Parity Developments Pty Ltd (“Parity”). , . In response, Parity made a Calderbank offer to settle the dispute by paying the demand in full. . Devmin did not accept the offer, and later instituted proceedings against Parity seeking repayment. –. Parity defended the proceeding inter alia on the basis of alleged misrepresentations made by Mr O’Dwyer. .
Before a trial could take place, Parity entered voluntary administration, and subsequently, liquidation. , . Devmin in turn applied to wind up Belconnen on three grounds. , . First, pursuant to s 461(1)(c) of the Act, on the basis that Belconnen had suspended its business for a whole year. . Second, on grounds that it was just and equitable for Belconnen to be wound up, pursuant to s 461(1)(k) of the Act. . Third, pursuant to ss 459A or 459B of the Act, on the basis that Belconnen was insolvent. .
Suspension of business
It was not in contention that Belconnen had not traded for more than a year. . The discretion to make an order under s 461(1)(c) thus arose on the facts. . However, Cooper J considered that it was necessary to determine the appropriateness of such an order in the context of Devmin’s inferred purpose in seeking it, namely, repayment of the debt. . In that respect, his Honour highlighted Belconnen’s argument that Devmin had not sued on the debt or issued a statutory demand because it was aware that the debt was disputed on the grounds previously ventilated by Parity. .
Cooper J considered Belconnen’s disputes about the debt should more properly have been heard in the context of a summary judgment application in an action for the debt, or an application to set aside a statutory demand. . If Belconnen’s arguments were found not to be genuine, it would still have the chance to pay the debt before it could be wound up. . The instant application deprived it of that opportunity. . For that reason and having regard to the historical purpose of orders under the provision, his Honour determined not to make an order under s 461(1)(c) of the Act. .
Just and equitable
His Honour noted Devmin’s contention that the facts raised two of six identified categories for making an order on just and equitable grounds, being the failure of the substratum of the company and/or lack of confidence, fairness, and the public interest in commercial morality. . There was a significant degree of overlap between the first category and an order pursuant to s 461(1)(c) of the Act. . His Honour therefore considered that, even if Devmin could make out its case, an order due to failure of the substratum of the company was inappropriate for much the same reasons already identified. .
Devmin’s contention in respect of the second category was that certain conduct of Mr Garden gave rise to a lack of confidence in the conduct and management of Belconnen’s affairs. . However, even taking the evidence of any alleged misconduct at its highest, Cooper J was not satisfied that it gave rise to a lack of confidence in Belconnen’s administration. . The alleged conduct, which concerned other companies controlled by Mr Garden was not so pervasive as to make it just and equitable that Belconnen be wound up. .
With respect to the final ground, Cooper J noted Devmin had adduced no evidence indicating insolvency. –. Instead, it had relied on four matters to support an inference that Belconnen was insolvent. . First, it pointed to Belconnen’s failure to repay the debt. , Second, it argued Parity’s Calderbank offer was an admission that the debt was owing. , Third, it highlighted that there were multiple proceedings seeking to recover money from companies in the Parity Group. . Fourth, Devmin relied on Belconnen’s failure to adduce evidence of its solvency. .
Cooper J explained that even if it was assumed that Parity’s offer was an admission, it was subject to without prejudice privilege. . It could not prove the debt against Parity or Belconnen, and having been made by Parity, was not an admission by Belconnen. . None of the proceedings Devmin pointed to involved it or Belconnen. . The authorities identified by Devmin did not support the argument that Belconnen’s failure to adduce evidence of its solvency could be relied upon by Devmin where other evidence was not sufficient to establish that fact. .
Given that Belconnen otherwise disputed the obligation to pay the debt, his Honour was not satisfied that the evidence was sufficient to permit an inference that Belconnen was insolvent. .
In the result, Cooper J dismissed Devmin’s application with costs. –.