FEDERAL COURT OF AUSTRALIA Brown v Zomba Music Publishers Australia Pty Ltd [2003] FCA 1214 CORPORATIONS – winding up – based on presumption of insolvency – whether application outside time required for operation of presumption – whether application an abuse of process in its terms – application for summary dismissal – application precluded by statute Corporations Act 2001 (Cth) ss 459C(1)(a), 459C(2), 459K, 459P, 459S, 459S(1)(b) Federal Court Rules O 20 r 2 Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 cited Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533 cited David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 applied ROBERT GEOFFREY BROWN alias ROBERT JOHN MUTT LANGE alias MAURICE JOHN HOWE v ZOMBA MUSIC PUBLISHERS AUSTRALIA PTY LTD, ZOMBA MUSIC HOLDINGS B.V. HOE FLOO 24 1251 Eb LAREN THE NETHERLANDS and MARY THEOFELOS alias EILLEEN REGINA EDWARDS alias SHANIA TWAIN W3018 of 2003 RD NICHOLSON J 31 OCTOBER 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3018 OF 2003 BETWEEN: ROBERT GEOFFREY BROWN alias ROBERT JOHN MUTT LANGE alias MAURICE JOHN HOWE PLAINTIFF AND: ZOMBA MUSIC PUBLISHERS AUSTRALIA PTY LTD (ACN 089 247 138) ZOMBA MUSIC HOLDINGS B.V. HOE FLOO 24 1251 Eb LAREN THE NETHERLANDS MARY THEOFELOS alias EILLEEN REGINA EDWARDS alias SHANIA TWAIN DEFENDANTS JUDGE: RD NICHOLSON J DATE OF ORDER: 31 OCTOBER 2003 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application on behalf of the first named defendant for summary dismissal of the application for winding up be dismissed. 2. The application be adjourned for further directions on 3 December 2003 at 10.30 am. 3. The title to the proceeding be amended by deletion of reference to the second and third named defendants. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3018 OF 2003 BETWEEN: ROBERT GEOFFREY BROWN alias ROBERT JOHN MUTT LANGE alias MAURICE JOHN HOWE PLAINTIFF AND: ZOMBA MUSIC PUBLISHERS AUSTRALIA PTY LTD (ACN 089 247 138) ZOMBA MUSIC HOLDINGS B.V. HOE FLOO 24 1251 Eb LAREN THE NETHERLANDS MARY THEOFELOS alias EILLEEN REGINA EDWARDS alias SHANIA TWAIN DEFENDANTS JUDGE: RD NICHOLSON J DATE: 31 OCTOBER 2003 PLACE: PERTH REASONS FOR JUDGMENT 1 The plaintiff brings an application in reliance on s 459P of the Corporations Act 2001 (Cth) ('the Act') seeking an order for winding up the defendant on the ground of insolvency in that the defendant has failed to comply with a statutory demand dated 26 March 2003. 2 In an affidavit in support of the originating process for winding up the plaintiff attests that the amount of $9 million is the sum specified in the statutory demand. He also attests that the statutory demand was served by the plaintiff by registered post to the registered office of the defendant on 28 March 2003. The exhibited 'creditor's statutory demand for payment of debt' bearing the date of 26 March 2003 demands a sum of $9 million and describes the debt in respect of which that amount is due as 'royalties'. An amended affidavit accompanying the statutory demand describes the debt as for 'royalties at 1 cent per track of the Twain Lange Copyright'. The demand in this amended form was dated 10 April 2003 and also served. 3 Also exhibited to the affidavit is a company search in respect of the first named defendant. That shows it to be an Australian proprietary company with an issued share capital of $100 000 beneficially owned by the second named defendant. 4 In an affidavit sworn on 8 August 2003 the plaintiff asserts copyright ownership of the original song titles and song lyrics of two works 'Come on over' and 'The woman in me' published by the first named defendant and claims to have written the titles and lyrics and jointly authored them with the third named defendant. 5 An affidavit of Mr Smith, director of the first named defendant, was filed on its behalf. It acknowledges receipt by that defendant of the creditor's statutory demands dated 26 March 2003 and 10 April 2003. It refers to prior proceedings commenced by the plaintiff against it and its related companies in relation to the works of Shania Twain and that those proceedings had been dismissed: see proceedings number W576 of 2001 in the Federal Court of Australia. Denial was made of the debt the subject of either statutory demand. While signifying an intention, in the event of the present application not being dismissed, to seek an adjournment to enable proper material to be placed before the Court to establish that the first named defendant is not insolvent, the first named defendant nevertheless places before the Court its audited financial statements and reports to 31 December 2002 and evidence of continuous financial support from another source. Additionally, the affidavit brings evidence that the songs recorded by Shania Twain on her 'Come on over' and 'The woman in me' albums were not produced, manufactured, sold or distributed by the first named defendant. 6 On behalf of the first named defendant, it is submitted by counsel that there are two matters entitling it to summary dismissal of the application. 7 The first is the reliance in the application on the presumption of insolvency arising from the alleged failure by the first named defendant to comply with the statutory demand. The application was brought on 25 July 2003. Section 459C(2) provides that the Court must presume that a company is insolvent if 'during or after the three months ending on the day when the application was made' the company has (inter alia) failed to comply with a statutory demand. By operation of s 459C(1)(a), the section has effect for the purposes of s 459P. Applying s 459C(2), the period of three months dating back from 25 July 2003 expires on 25 April 2003. Each of the statutory demands relied upon is outside this period so that, it is submitted, there can be no presumption of insolvency properly arising. This is supported by reference to the affidavit evidence of Mr Smith to the effect that the material demand was served on 28 March 2003 so that the period of 21 days provided for in that notice expired on 18 April 2003. In respect of the notice dated 10 April 2003 the period of 21 days would have expired on 1 May 2003, that is within the relation back period. That raises the question whether the notice dated 10 April 2003 was only an amended version of the notice dated 26 March 2003 or was a fresh notice. 8 The second ground on which summary dismissal is sought is that the application should be seen to be an abuse of process. Reliance is placed upon O 20 r 2 of the Federal Court Rules which entitles a court, when it appears that no reasonable cause of action is disclosed or the proceeding is an abuse of the process of the court, to order that it be stayed or dismissed generally or in relation to any claim. 9 In support of this, reliance is placed on the statement by the plaintiff in his affidavit dated 10 April 2003 that 'it would be in the best interests of all concerned, that you or your representative contact me personally at my address in Perth before; (sic) 18/04/2003 with a cash offer to defer the winding up of the companys (sic) concerned and the avoidance of criminal prosecution of all directors for fraud'. It is said this is intimidatory and hence an abuse of process: cf Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11; Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533. 10 These grounds must be considered in the context of s 459S of the Act. That section provides that in so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the court, oppose the application on a ground (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). The requirement in par (a) is of no materiality here. However, an issue arises here from the provision in par (b) making the section applicable whether or not an application to set aside the demand has been made to the Court. The question is whether this provision applies so as to prevent the first named defendant relying on a ground which it could have relied on if it made an application to set aside the statutory demand. 11 That issue must be considered in the context that Pt 5.4 Div 3, relating to an application to set aside a statutory demand, provides that a statutory demand has no effect while there is in force under s 459H or s 459J an order setting aside the demand. The former section relates to a dispute or offsetting claim. The latter section relates to setting aside a demand because of a defect or some other reason why it should be set aside. It is the apparent intent of this provision that save where an order has been made under either of these sections, a statutory demand shall be of effect. 12 It is accepted by counsel for the first named defendant that Pt 5.4 Div 3 is a complete code for the resolution of disputes involving statutory demands: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270. However, he submits that the proceedings in this case are a step removed from that proposition in that what is now before the Court is an application to wind up the company, not an application to set aside a statutory demand. It is said that the present application is not, therefore, within Pt 5.4 Div 3 but rather is within Pt 5.4 Div 4. It is submitted that once an application to wind up is commenced pursuant to s 459P, the rules of the court in which the application is commenced will take effect. It is argued that Pt 5.4 will provide the substantive law against which the application is determined and the procedural rules of the Court are the source of the procedural law. Therefore, it is said, there is no impediment to the application of O 20 r 2 to the present proceedings. It is also contended that O 20 r 2 is not inconsistent with the statutory scheme in Pt 5.4 of the Act. Additionally, it is submitted, that conclusion is consistent with r 1.3(2) of the Federal Court (Corporations) Rules 2000 which provide, materially, that the other Rules of Court apply to a proceeding under the Act so far as not inconsistent with the Federal Court (Corporations) Rules. 13 In my opinion it is not possible to read Pt 5.4 Div 4 and particularly s 459S independently of the provisions of Pt 5.4 Div 3, particularly s 459K. The presence in s 459S(1)(b) of the words 'whether it made such an application or not' are reinforcing of the codifying effect of s 459K. The prevention of an argument arising as a ground of opposition to winding up if it could have been argued on an application to set aside a notice of demand, is only explicable on the basis that such arguments can only arise for consideration under Pt 5.4 Div 3. If not argued there, they are precluded from argument under Pt 5.4 Div 4. 14 In my view both of the grounds relied upon in support of the application for summary dismissal are grounds which could have been relied upon by the first named defendant in an application to set aside the statutory demands dated 26 March 2003 and (if it is properly to be characterised as a separate demand) 10 April 2003. Accordingly, in application of s 459S, I consider they cannot be relied upon to oppose the application for winding up. In this respect, the Rule of Court (O 20 r 2) must yield to the statutory provision. 15 In reaching this view I express no opinion on whether either of the grounds relied upon would support an application to set aside the demand or demands or an order under O 20 r 2. This is because I consider the application should be adjourned for a reasonable period to enable the first named defendant to determine what course it wishes to take. In oral submissions it was suggested that in the event the application for summary dismissal did not succeed, the first named defendant would wish the opportunity to assemble evidence relating to solvency. 16 That leaves the position of the second and third named defendants to be considered. There is no evidence either has been served. I accept the submission for the first named defendant that neither are necessary or proper parties to the application and reference to them should be struck out in the title to the proceeding. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson. Associate: Dated: 31 October 2003 The Plaintiff represented himself Counsel for the Defendants: Mr AR Beech Solicitor for the Defendants: Watson Mangioni Date of Hearing: 26 August 2003 Date of Judgment: 31 October 2003