Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445; (1995) 13 ACLC 1309 (11 August 1995)

FEDERAL COURT OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA v. PARFORM PTY LTD
No. VG3257 of 1995
FED No. 613/95
Number of pages - 6
Companies
[1995] FCA 1445; (1995) 13 ACLC 1309

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
SUNDBERG J

CATCHWORDS

Companies - Winding up - Statutory demand - Compounding for amount of debt - Tender - Whether status of creditor lost by refusal of tender - Insolvency - Corporations Law, ss.459C, 459E, 459F.

Australian Mid-Eastern Club Ltd v. Yassim (1989) 1 ACSR 399
Occidental Life Insurance Co v. Life Style Planners Pty Ltd [1992] FCA 549; (1992) 9 ACSR 171

Deputy Commissioner of Taxation v. Guy Holdings Pty Ltd [1994] TASSC 126; (1994) 12 ACLC 966
Re Concrete Pipes and Cement Products Ltd [1926] VicLawRp 5; (1926) VLR 34

HEARING

MELBOURNE, 26 July 1995
11:8:1995

Counsel for the Applicant: P Murdoch QC / R D Shepherd

Solicitors for the Applicant: I F Purbrick

Counsel for the Respondent: P W McDermott

Solicitors for the Respondent: James Taylor and Co

ORDER

The Court orders that:

(1) Parform Pty. Ltd. be wound up under the provisions of s.459P of
the Corporations Law.
(2) Robert Michael Scales be appointed liquidator of the affairs of
the company.
(3) The Applicant's costs (including reserved costs) be taxed and
reimbursed out of the property of the company in accordance
with section 466(2) of the Corporations Law.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Background
SUNDBERG J On or about 14 April 1995 Commonwealth Bank of Australia ("the Bank") served on Parform Pty. Ltd. ("Parform") a statutory demand under s.459E(2) of the Corporations Law for payment of a debt of $38,762.80. The demand required Parform within 21 days after service to pay the Bank the amount of the debt or to secure or compound for that amount to the Bank's reasonable satisfaction. The Bank claims that Parform did not comply with the demand, and seeks an order that Parform be wound up under s.459P.

2. Parform gave notice of its grounds of opposition. The first was that it had complied with the statutory demand in that it had compounded the debt to the reasonable satisfaction of the Bank. The compounding is said to have been constituted by a letter from Parform's solicitors dated 27 April 1995 to the Bank's solicitor in which Parform offered to pay $10,000 forthwith and the balance within 30 days of 27 April 1995. The second ground of opposition was that Parform was solvent and able to pay all its debts as they fall due from its own money. On 21 July 1995 Parform sought to rely on an additional ground, namely that on 3 July 1995 it tendered the amount due by bank cheque.

The compounding
3. The "composition" ground of opposition derives from s.459E(2) and s.459F(1) of the Corporations Law. The former deals with the contents of the demand. The demand must require the company "to pay the amount of the debt ... or to secure or compound for that amount ... to the creditor's reasonable satisfaction ...". Under s.459F(1) the company is taken to fail to comply with the demand if at the end of the 21 day period it has not complied with it. Section 459C(2) requires the Court to presume that the company is insolvent if it has failed to comply with the demand. The presumption operates "except so far as the contrary is proved for the purposes of the application": sub-s.(3).

4. To "compound" for a debt is to accept an arrangement for payment of the amount of the debt or of a different amount. I was referred to no authority on the phrase "to the creditor's reasonable satisfaction", and my own researches have disclosed none. But I do not think the phrase is intended to enable the creditor to be the sole judge of his satisfaction. The words "to the creditor's reasonable satisfaction" seem to me to posit an objective test. In other words, where the debtor puts up a proposal which the creditor rejects, it is for the court to decide whether in rejecting it the creditor was acting reasonably in all the circumstances. If the test were wholly subjective, the legislature would have employed the phrase "to the creditor's satisfaction". In my view the Bank acted reasonably in rejecting the offer. There was nothing in the letter or in the circumstances surrounding the offer that gave the Bank any assurance that Parform would be able to pay the balance within the 30 day period. Accordingly, Parform did not within the 21 day period compound for the amount of the debt to the Bank's reasonable satisfaction.

The tender
5. On 29 June 1995 Parform's solicitors sent to the Bank's solicitor by facsimile the following offer of settlement of the winding up proceedings:

1. That a bank cheque for the sum of $38,762.80 is
forthwith given to you, 10:00 a.m. tomorrow morning.
2. My client will at the hearing of the Petition consent
to the following orders:-
(a) Application to wind up be dismissed.
(b) The Respondent company pays to the Commonwealth
Bank of Australia its costs in the winding up
application including any reserved costs.
It is of course a term of the offer that you likewise
consent to an order in these terms conditional of
course on receipt of the bank cheque.
...
Please also note that the actual bank cheque is held
by this office, so there is no question that if it is
accepted the terms of the offer will not be carried
out.

6. The Bank rejected the offer. When the matter was before the Court on 12 July 1995 Parform's counsel informed the Court that bank cheques for the amount of $38,762.80 were available in court to be accepted by the Bank on that day. The Bank did not avail itself of the invitation. A valid tender which is refused does not expunge the debt. In Australian Mid-Eastern Club Ltd. v. Yassim (1989) 1 ACSR 399, at p 403 Meagher JA, with whom Samuels and Priestley JJA agreed, said:

If a valid tender be made, a refusal of that tender (whether
for good or bad reason, or for no reason at all) does not
eliminate the debt in question. The relationship of
creditor and debtor still subsists. The tender is no answer
to a claim for the debt unless (as did not happen here)
there is a continued readiness to pay, coupled with an
actual payment into court.
... Moreover, both the (creditor's) solicitors and their
client had every reason to refuse the money: a winding up
summons was on foot, and there were other creditors. The
client would probably have had to return the payment in the
event of a winding up order being made: see Tellsa Furniture
Pty. Ltd. (in liq.) v. Glendave Nominees Pty. Ltd. (1987) 9
NSWLR 254; 13 ACLR 64.

7. This passage was applied by Lockhart J in Occidental Life Insurance Co. v. Life Style Planners Pty. Ltd. [1992] FCA 549; (1992) 9 ACSR 171, at p 172. At the date of the letter of 29 June 1995 Parform owed other debts: $7,966.35 to the City of Stonnington for municipal rates and $6,659.85 to Yarra Valley Water for water rates. These two amounts were paid on 11 July 1995, the day before the tender in court.

Insolvency
8. In reliance on the tender, Parform's counsel urged me to dismiss the Application in the exercise of my discretion. He relied on Deputy Commissioner of Taxation v. Guy Holdings Pty. Ltd. [1994] TASSC 126; (1994) 12 ACLC 966. In that case the company failed to comply with the statutory demand within the prescribed period, and the creditor applied for a winding up order. The company then paid the amount the subject of the demand and submitted that the application should be dismissed. The creditor sought to prove that the company remained indebted to it in respect of amounts other than that the subject of the demand. Zeeman J held that the creditor had not established the existence of the other debts by admissible evidence. After observing that the presumption raised by non-compliance with the demand did not deprive the court of its discretion to refuse to make a winding up order under s.459A, and that an applicant's status to seek an order is not affected by payment of the amount the subject of the demand after the date of the application, his Honour said:

The question is whether it is appropriate to order that the
respondent be wound up in insolvency when by s.459C(2) it is
deemed to be insolvent but the amount of the statutory
demand has been met and there is no evidence as to what the
actual financial position of the respondent might be.

9. After referring to some authorities his Honour concluded:

Adopting the principle that, in the case of an application
under s.459P where the debt the subject of the statutory
demand has been paid after the filing of the application,
the application ought to be dismissed unless there is
established some positive reason that a winding up order
ought to be made, I conclude that this application ought to
be dismissed. It has not been established that the
respondent owes anything to the applicant or any other
creditor, no other creditor has applied to be substituted
for the applicant and no other matter has been established
making it appropriate to exercise my discretion against the
respondent.

10. Counsel also relied on Re Concrete Pipes and Cement Products Ltd. [1926] VicLawRp 5; (1926) VLR 34. In that case, after the presentation of the petition but before the hearing, the company offered to pay the debt the subject of the petition together with costs. The offer was repeated at the hearing. Nevertheless, Weigall AJ made a winding up order. The Full Court adjourned the appeal so as to provide the company with an opportunity to pay the debt. On the adjourned hearing, the debt having been paid, the appeal was allowed and the petition dismissed. One of the considerations leading the Full Court to dismiss the petition was that "the assets of the company are very large and the liabilities not large". In other words the company was solvent.

11. Parform asserts that it is solvent. It relies on an affidavit of one of its directors, Susan Elaine Schiffer. She swears that Parform "is solvent and able to pay its debts as and when they fall due". She says that the company owns the property at 174 Kooyong Road, Toorak, as trustee of a family discretionary trust. She and her husband live there, and pay the company rental which is sufficient to enable it to discharge its liabilities. She admits that Parform was in arrears with rates and water charges, but says that both amounts were paid on 11 July 1995. She says that the amounts fell into arrears because she and her husband failed to pay Parform the rent which it had to have in order to pay the rates. Their failure to pay resulted from the fact that they and various companies associated with her husband are involved in litigation with the Bank, and that she and her husband were using their available money to fund the litigation. In answer to an affidavit filed on behalf of the Bank in which it is claimed that Parform owes the Bank $2,605,230.57, she says that Supreme Court proceedings by the Bank to recover that sum are being defended strenuously. She says that Parform's solicitor has told her and her husband that the company's defence includes an assertion that certain bill facilities advanced by the Bank are not repayable before August 1996. The solicitor has also informed her that if the defence succeeds, Parform will not owe the Bank anything under the facility until August 1996. The solicitor has also told her that the defence to the Bank's proceeding denies the validity of a guarantee and mortgage over Kooyong Road, and that if these defences are upheld, Parform will owe nothing to the Bank save for the amount the subject of the Application to wind up. She produces a copy of the pleadings. She also produces accounts for the company for the financial years ending 30 June 1994 and 30 June 1995, and in reliance on them submits that Parform's assets exceed its liabilities.

12. In cross-examination on her affidavit Mrs. Schiffer admitted that she knew very little about Parform's affairs, and that her husband had looked after them. He was now bankrupt and was no longer a director. Their daughter had replaced him as a director, but she too knew nothing about its affairs. She said that her husband was in Melbourne, and there was no reason why he could not have sworn an affidavit about Parform's affairs. She assumed that he would have been able to tell the Court about Parform's affairs and its arrangements with the Bank. She was unable to say what rent she and her husband were required to pay for their occupation of Kooyong Road, or anything about the arrangements under which they occupied the property.

13. The accounts for the year ended 30 June 1995 show an excess of assets over liabilities of $269,827. Essential to this result is a current asset of $665,189 described as "Receivables - loans unsecured". The accounts for the year ended 30 June 1994 show a current asset of $650,773, also described as "Receivables - loans unsecured". The amount of the "Receivables" in 1993 was $636,680. Mrs. Schiffer was unable to say who owed the money to Parform or whether the lender was able to repay the amount. She was unable to say why loans described as current assets and called "receivables" had remained outstanding since 1993.

14. The accounts for 1995 show current liabilities of $1,345,382 made up of $73,656 (bank overdraft), $652,000 (commercial bills) and $619,726 (loans unsecured). Mrs. Schiffer was unable to say to whom this last amount was owed, or why it had not been paid even though it was owed prior to 1993. The accounts showed that in each of 1993 and 1994 Parform had received rental of $52,416. But Mrs. Schiffer's evidence was that no rent had in fact been paid. The accounts also showed that Parform had received interest of $35,000 in 1993 and in 1994. Mrs. Schiffer didn't know what bank account Parform operated, or how it earned the interest. She didn't know whether the accounts were truthful in this respect. She admitted that the money used to purchase the bank cheques Parform tendered to the Bank was not Parform's money but was made available to it by her and her husband.

15. Parform has not displaced the presumption of insolvency raised by s.459C(2). Mrs. Schiffer's affidavit has been shown to be unreliable. She studiously avoids any mention of the merits of the defence in the Bank's action against Parform and others. Mere production of the defendants' Defence proves nothing. See Australia and New Zealand Banking Group v. Lefkovic (unreported, Supreme Court of Victoria, 24 June 1992). And as I have said, Mr. Schiffer was available to establish Parform's true position. Instead of swearing an affidavit himself, the conclusion is inescapable that he put up his wife, who knew nothing about the company's position, to take what heat might be generated in cross-examination and so that she could plead ignorance if pushed into a corner. It is also an inescapable inference that had the husband sworn an affidavit along the lines of that sworn by his wife, and been cross-examined on it, he would not have been able to sustain the contention that the company was solvent.

16. In those circumstances, the Concrete Pipes Case and Guy Holdings are readily distinguishable. Parform is not solvent, and adopting the presumption in the latter case, there is in the present case a positive reason for making a winding up order: the company does owe money to other creditors, though their identities are not known. In Guy Holdings there was no evidence as to the company's financial position, and in that vacuum Zeeman J refused an order to wind up. There is no vacuum here.

17. Granted that Parform is insolvent, the Bank had every reason to reject the tender. There are other creditors, and the Bank may well have had to return the payment in the event of a winding up order being made. Cf. Australian Mid-Eastern Club Ltd. v. Yassin, supra.

18. The Court orders that:

(1) Parform Pty. Ltd. be wound up under the provisions of s.459P of
the Corporations Law.
(2) Robert Michael Scales be appointed liquidator of the affairs of
the company.
(3) The Applicant's costs (including reserved costs) be taxed and
reimbursed out of the property of the company in accordance
with section 466(2) of the Corporations Law.