Jumping the gun – application to wind up before demand expires invalid

This might sound obvious, but an interesting recent case confirms, for Victoria at least, that a creditor cannot apply to wind up a company relying on a presumption of insolvency before the creditor’s statutory demand expires.  The case is Surdex Steel Pty Ltd v GB Manufacturing Pty Ltd [2012] VSC 90, a decision of Associate Justice Gardiner.

The case considered whether an applicant for an order that a company be wound up in insolvency can rely upon the statutory presumption of insolvency provided by s 459C(2)(a) of the Corporations Act 2001, if time for compliance with a statutory demand has not expired before the winding up application is filed, but has expired by the time the application comes on for hearing.

There are divergent authorities in other jurisdictions.  The surprising view that a winding up application could be commenced before the statutory demand expires arises from an argument regarding the construction of s459C(2)(a) of the Corporations Act 2001.   The sub-section says:

The court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made:

(a) the company failed (as defined by s 459F) to comply with a statutory demand; …

The words “or after” in the section were relied on in a series of cases beginning with a decision of Santow J in Pinn v Barroleg Pty Ltd (1997) 23 ACSR 541, as demonstrating a legislative intention that the expiry of the demand could occur “after” the application to wind up was filed.

Associate Justice Gardiner preferred the other line of authority which focussed on other provisions of the Act that implied that the expiry of the demand must have occurred prior to the application being made.  For example, s459Q(a) requires an applicant for a winding up in insolvency to specify details of non-compliance with the demand. So Palmer J in Woodgate (as trustee for the bankrupt estate of Fenton) v Garard (2010) 78 ACSR 468 read down s459C(2)(a) so that it would not cut across s459Q(a).  Further, sub sections 459C(2)(b) – (f) were noted as alternative triggers giving rise to a presumption of insolvency (eg execution levied against the company on a judgment) which could clearly occur after an application was filed, thereby giving the words “or after” some work to do.

There being no presumption of insolvency in the circumstances, the application was dismissed because no other evidence was available to prove insolvency.

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