IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 3582 of 1994 ) GENERAL DIVISION ) BETWEEN: THE CHASE MANHATTAN BANK AUSTRALIA LIMITED Applicant AND: OSCTY PTY LIMITED Respondent CORAM: HILL J PLACE: SYDNEY DATED: 30 JUNE 1995 MINUTES OF ORDER THE COURT ORDERS THAT: (1) The applicant's notice of motion be dismissed. (2) The applicant to pay the respondent's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 3582 of 1994 ) GENERAL DIVISION ) BETWEEN: THE CHASE MANHATTAN BANK AUSTRALIA LIMITED Applicant AND: OSCTY PTY LIMITED Respondent CORAM: HILL J PLACE: SYDNEY DATED: 30 JUNE 1995 REASONS FOR JUDGMENT The applicant, The Chase Manhattan Bank Australia Limited ("Chase"), moves the Court pursuant to O20 r1 of the Federal Court Rules for orders that the respondent Oscty Pty Limited be wound up, that a liquidator of the respondent be appointed and that the respondent pay Chase's costs of the application. On 12 September 1994 Chase served upon the respondent a statutory demand dated 9 September 1994 asserting that the respondent owed Chase $8,340,888.73. The twenty-one day period allowed for compliance with that demand expired on 3 October 1994. The demand was not complied with. On 10 November 1994 Chase applied to the Court to wind up the respondent relying upon the statutory presumption of insolvency provided for in s459C(2) of the Corporations Law ("the Law"). On 22 March 1995 the respondent filed a notice of intention to appear at the hearing and of grounds of opposition to the winding up application. The only ground of opposition stated in the notice was that the statutory demand was not a valid statutory demand within the meaning of the Law. By a subsequent motion, the respondent sought an extension of time to apply under s459G to set aside the statutory demand and an order that the statutory demand in fact be set aside. That motion was duly heard by Lindgren J and dismissed. The respondent, in the course of that motion, relied, inter alia, upon what it said was a claim against Chase in an amount exceeding the amount shown in the statutory notice arising from the fact that Chase, as mortgagee, had acted in breach of its duty to the respondent in selling a property over which it had security. Lindgren J expressed the view that he was not satisfied on the evidence then before him that the respondent had a genuine claim against Chase in the amount shown in the statutory demand or any other amount. On 20 April 1995 the respondent sought and was granted leave to amend its notice of grounds of opposition to the making of a winding up order to include its solvency. The respondent was directed to file and serve all evidence upon which it proposed to rely to rebut the presumption of insolvency by 1 May 1995. On 8 May the respondent commenced proceedings, number NG3212 of 1995, against Chase and others, seeking, inter alia, damages from Chase in respect of the mortgagee sale. That part of the proceedings as also sought an injunction restraining the sale which had not then been completed was subsequently disposed of by consent. By 16 May the Court had been advised by the respondent that it had filed all evidence upon which it proposed to rely, both in the winding up proceedings and in the new proceedings. Orders were made on 2 June 1995 expediting the hearings of both the winding up petition and the claim by the respondent against Chase for damages, it being my view that it was preferable that the two cases proceed together so that all matters in controversy between the parties were resolved. The thought that it was preferable to permit the action in damages and the contested petition to proceed for hearing on an expedited basis was not one which Chase found palatable. It accordingly filed the present motion for summary judgment. The case for Chase was put simply. It was said that by virtue of s459C(2a) of the Law, the Court was required to presume the respondent to be insolvent in that it had failed to comply with the statutory demand. The respondent had failed in its application to set aside the demand and had failed to satisfy Lindgren J of the existence of an offsetting claim against Chase. No evidence had been filed by the respondent in support of the amended notice of grounds of opposition asserting that the respondent was solvent. It was said therefore to be inevitable that the respondent must fail to rebut the presumption of solvency at the conclusion of any contested hearing. Even if the evidence filed in both proceedings were read, it was said that the respondent would not succeed. It should be noted that there will be before the Court evidence on the case of breach of Chase's duty as mortgagee that was not before Lindgren J when that matter was before his Honour. It was said, for Chase, that the Law dictates that applications to wind up companies be dealt with expeditiously, that Chase had a right to obtain an order winding up the respondent and such an order should accordingly now be granted. It was said that so to do would put an end to the proceedings against Chase for breach of duty and that that would be in the interests of creditors (particularly, it might be observed, Chase). In my view, the present proceeding is wholly misconceived. Non-compliance with a statutory demand leads to the presumption (in s459C) that the company failing so to comply is insolvent. That presumption operates except so far as the contrary is proved for the purposes of the application: s459C(3). Once the application to wind up is before the Court, the company may not oppose the application on a ground that it in fact relied upon in an application to set aside the statutory demand, or could have relied upon: s459S(1). That is, however, subject to the ability of the Court to grant leave so to do. Nevertheless the Court is instructed by s459S(2) not to grant leave, unless it is satisfied that the ground is material to proving the company solvent. Notwithstanding its reliance upon the potential claim for damages against Chase before Lindgren J, the respondent seeks now to rely upon that claim and the evidence which it has filed in respect of an alleged breach of duty, to show solvency. To enable it to do so it would need to apply to the judge hearing the winding up application under s459S(2) for leave. Whether or not such an application would be successful is not a matter for me to decide. The point is, that such a discretion exists and it is one for the Court hearing the winding up application to exercise, not for me to exercise in the course of an application for summary judgment. The existence of the discretion makes summary judgment, in my view, impossible. It must also be pointed out that in any event the Court has a general discretion, whether or not to permit a company to be wound up. Thus s467(1) provides, subject to exceptions not presently material, that the Court on a winding up application may dismiss the application with or without costs even if a ground has been proved on which the Court may order the company to be wound up or the Court may adjourn the hearing conditionally or unconditionally or make any interim or other order that it thinks fit. Once it is accepted that the question whether or not a winding up order should be made, in the circumstances where a dispute is presently being litigated between the respondent and Chase, is a matter for the discretion of the judge hearing the winding up application, it is clear that an attempt to deal with the matter by an application for summary judgment must fail. To obtain summary judgment Chase must show that it must succeed in the winding up proceeding. That it can not do in the face of the discretions which may be exercised adversely to it upon the hearing of the winding up application. In any event, it seems to me that the present is a case which is preferable to go to trial on the question of whether the Court should wind up the respondent, the matter to be dealt with concurrently with the question whether the respondent has a claim in damages against Chase which it could set off against the amount owing by it to Chase. It may be hoped that the matter can be dealt with quickly as the parties are ready to proceed to deal both with the merits and the winding up application. I would accordingly dismiss the motion by Chase and order Chase to pay the respondent's costs of it. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill. Associate: Date: Counsel and Solicitors CR Newlinds instructed by for Applicant: Heidtman and Co Counsel and Solicitors G Moore instructed by for Respondent: Caruna Kay and Barry Date of Hearing: 2 June 1995 Date Judgment Delivered: 30 June 1995