FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v S.J. Bambra Pty Ltd, in the matter of S.J. Bambra Pty Ltd [2010] FCA 1245 Citation: Deputy Commissioner of Taxation v S.J. Bambra Pty Ltd, in the matter of S.J. Bambra Pty Ltd [2010] FCA 1245 Parties: DEPUTY COMMISSIONER OF TAXATION v S.J. BAMBRA PTY LTD (ACN 005 785 875) File number: VID 542 of 2010 Judge: GORDON J Date of judgment: 9 November 2010 Date of hearing: 9 November 2010 Date of last submissions: 9 November 2010 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 26 Counsel for the Plaintiff: Ms A Sheggerud-Woods Solicitor for the Plaintiff: Wisewould Mahoney Counsel for the Defendant: Mr E Moon Solicitor for the Defendant: Hall & Wilcox Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 542 of 2010 IN THE MATTER OF S.J. BAMBRA PTY LTD (ACN 005 785 875) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: S.J. BAMBRA PTY LTD (ACN 005 785 875) Defendant JUDGE: GORDON J DATE OF ORDER: 9 NOVEMBER 2010 WHERE MADE: MELBOURNE UPON THE UNDERTAKING: By Mr Peter James Bambra, company director, on behalf of the Defendant, not to sell, transfer, encumber, dispose or otherwise dissipate any of the Defendant's assets during the period of the stay referred to in paragraph 4 of the Orders made by Registrar Hetyey on 21 October 2010 (as extended by paragraph 1 of the Orders below), save for those assets of the Defendant required in the operation of the ordinary course of business it conducts. THE COURT ORDERS THAT: 1. Paragraph 4 of the Orders made by Registrar Hetyey on 21 October 2010 be varied to read "the operation of Orders 1-3 of the above be stayed until 4:00pm on 16 November 2010". 2. The costs of today be costs in the winding up of the Defendant. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 542 of 2010 IN THE MATTER OF S.J. BAMBRA PTY LTD (ACN 005 785 875) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: S.J. BAMBRA PTY LTD (ACN 005 785 875) Defendant JUDGE: GORDON J DATE: 9 NOVEMBER 2010 PLACE: MELBOURNE REASONS FOR JUDGMENT FACTUAL BACKGROUND AND PROCEDURAL HISTORY 1 On 8 July 2010, the Plaintiff, the Deputy Commissioner of Taxation (the Commissioner), made application under s 459P of the Corporations Act 2001 (Cth) (the Act) to wind up the Defendant, S J Bambra Pty Ltd (ACN 005 785 875) (the Defendant) on the grounds of insolvency. On the facts set out in the supporting affidavit, the ground of insolvency was the failure of the Defendant to meet a creditor's statutory demand for payment of a debt which, at that time, totalled $154,309.54. 2 The application was first listed for hearing at 2:15 pm on 9 August 2010. On that date, a director of the Defendant, Mr Peter James Bambra, filed an affidavit in support of an application that the application for a winding up order be adjourned for a period of three to four weeks in order to allow him to obtain funding to satisfy the debt. That affidavit disclosed a number of facts and matters. First, the Defendant did not dispute that the Defendant owed the Commissioner the debt but explained that the Defendant had suffered a catastrophic event which had caused it to be in short-term financial stress, which he, at that time, considered would soon be remedied. The catastrophic event described was that, on 23 February 2010, a factory from where the Defendant conducted its business was burnt to the ground as a result of an electrical fault or power surge destroying all the Defendant's stock, machinery, books and records. As a result of that event, the Defendant lodged a claim with its insurer which provided the Defendant with some interim funding to enable it to trade on a limited capacity. Subsequent affidavit material discloses that the Defendant received a monthly payment for interruption to business and that a separate claim in respect of the damage to the building has been lodged and the building works are currently being completed. 3 On 8 July 2010, an officer from the Commissioner filed and served an affidavit in which the deponent informed the Court that, as at 5 July 2010, the balance outstanding under the statutory demand was $70,309.54. 4 On 6 September 2010, the matter was adjourned by consent until 4 October 2010. On 4 October 2010, the matter was further adjourned for hearing on 21 October 2010. 5 On 21 October 2010, the matter came on for hearing before Registrar Hetyey at which time the Commissioner pursued its application for an order that the Defendant be wound up. The Defendant again sought an adjournment of the application to enable it to obtain funding. 6 Two further affidavits were before the Court at the hearing on 21 October 2010 and are relevant. The first is an affidavit sworn on 21 October 2010 by a Mr Peter Mark Lewis, a private lender of funds to various borrowers. He deposed that he had recently been approached to lend money to the Defendant and the proposed loan amount was more than sufficient to meet the amount set out in the statutory demand (the proposed loan). The proposed loan was to be secured, inter alia, over two properties referred to in a further affidavit sworn by Mr Bambra on 12 October 2010. Despite title searches revealing that there were caveats lodged over those properties, Mr Lewis deposed that, at least at the time of swearing his affidavit, he was prepared to consider the proposed loan when agreement had been reached for the withdrawal of those caveats. 7 The second affidavit relevant to the hearing on 21 October 2010 was the further affidavit by Mr Bambra sworn on 12 October 2010. The affidavit set out the assets, income and expenses and valuations of property held by the Defendant or by Mr Bambra. That affidavit disclosed that the business conducted by the Defendant was conducted at two premises: one in Keysborough in the State of Victoria (the Keysborough premises) and another in Regency Park in South Australia (the South Australian premises). The business employs 20 people and has a turnover of approximately $3.1 million per year. A balance sheet as at June 2010 was attached, as well as a profit and loss statement at the same date, and aged payables and aged receivables schedules dated 14 September 2010. 8 The Commissioner placed great reliance upon these documents. First, in relation to the balance sheet as at June 2010, the Commissioner identified that the debt currently recorded as owing to the Australian Taxation Office was only $128,042.99. I do not place any reliance on that aspect of the matter. As noted earlier (see [3] above), the affidavit sworn by an officer of the Commissioner deposed that, as at July 2010, the debt owed under the statutory demand was $70,309.54. 9 The further fact identified was that, in the balance sheet, the plant and equipment of $1.419 million was inconsistent with a subsequent affidavit sworn by Mr Bambra in which he identifies the plant and equipment as valued at approximately $500,000.00. As was pointed out at the hearing, having taken into account the accumulated depreciation on the plant and equipment of close to $1,000,000 recorded in the balance sheet, I do not consider that the discrepancy between the amount recorded in the balance sheet as at June 2010 and that set out in the affidavit is significant. 10 Thirdly, the Commissioner identified that on the "aged payables summary" as at 14 September 2010, the amount shown as owing in the "3+ Months" column of close to $225,000 was far greater than the amounts expected to be received of some $31,000. At first blush, that appears correct. However, I note that the total due for aged receivables of some $357,000 is not inconsistent with the total amount payable of $388,000 set out in the same document. 11 In addition to those matters and the fire that temporarily affected Mr Bambra's cashflow (see [2] above), Mr Bambra discloses that he estimates the business, as a going concern, is worth approximately $2.5 million, that the Defendant has a commercial facility with the Bankwest of some $640,000 and has no overdraft facility. Mr Bambra's affidavit also set out that he was the sole registered proprietor of a property situated in Lower Templestowe which he had recently had valued at some $775,000. He identified other assets including motor vehicles and a boat and that other than a debt owed on a credit card, he had no other debts. In addition to those assets and liabilities, Mr Bambra also identified a property located in Phillip Island in the State of Victoria, which had a sworn valuation of $625,000, which was unencumbered. As at 14 October, Mr Bambra indicated he was currently in negotiations to borrow sufficient funds to meet the statutory demand. 12 It is apparent the statutory demand has not been satisfied and had not been satisfied on 21 October 2010 when the matter came before Registrar Hetyey. On that day, a further affidavit sworn by the Tax Office disclosed that the total amount owing as at 9 November 2010 was some $268,563.53. Counsel for the Commissioner identified that it was entitled to rely upon this amount, consistent with s 465B(3) of the Act, which entitles the Court to consider or substitute an applicant which may include the current applicant. 13 On 21 October 2010, Registrar Hetyey made the following orders: UPON THE UNDERTAKING: Given by Mr Peter James Bambra, company director, on behalf of the defendant, not to sell, transfer, encumber, dispose or otherwise dissipate any of the defendant's assets during the period of the stay referred to in Order 4 of these orders, save for: a) those assets of the defendant required in the operation of the ordinary course of business it conducts; or b) encumbering, charging, or otherwise granting as security, whether by debenture or otherwise in procurement of the Proposed Loan as defined in the relevant affidavit of Mr Peter Mark Lewis sworn 21 October 2010. THE COURT ORDERS THAT: 1. S.J. Bambra Pty Ltd be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth). 2. Clyde Peter White, an official liquidator, be appointed liquidator of the company. 3. The plaintiff's costs, including reserved costs, be taxed and reimbursed in accordance with section 466(2) of the Corporations Act 2001 (Cth). 4. The operation of orders 1-3 above be stayed until 4:00 pm on 9 November 2010. 5. There be liberty to apply. 14 Notwithstanding that a stay was granted, the Commissioner took the view (erroneously in my view) that it was obliged by s 470(1) of the Act to file the Form 519 (Notification of court action relating to winding-up) with the Australian Securities and Investments Commission and did so. 15 The stay of the operation of the Orders for the wind up expires at 4:00pm this afternoon. On 5 November 2010, the Defendant retained new solicitors. On 8 November 2010, the Defendant filed a Notice of Motion seeking an extension of that stay order for a period of 14 days. SUBMISSIONS OF THE PARTIES 16 The Defendant's submissions in support of the extension of the stay are as follows. First, the filing of the Form 519 has constituted notice to the world that the Defendant has been wound up and that has caused the Defendant prejudice in seeking to raise additional finding. 17 Secondly, the extension of the stay should be granted based on the facts in an affidavit of Mr Bambra filed on 9 November 2010 in which Mr Bambra deposes to the fact that additional funding outside of the Defendant's assets is likely to be sourced from two sources: 1. his stepmother to the extent of $200,000; and 2. a Mr Matthies, who has agreed to lend the Defendant $85,000 secured over his residential property in Templestowe Lower. 18 Finally, in relation to the insurance claim, Mr Bambra explains that in addition to the business interruption monthly payment of $31,483.17, he expects that he will receive a payout from his insurer in the sum of between $250,000 and $300,000 on account of lost plant and stock upon completion of works at the Defendant's Keysborough premises and that those works are substantially completed, with the builder waiting only on the insurer's final approval. 19 The Defendant submitted: 1. it will be in a position within approximately seven days to pay the whole of the amount outstanding under the statutory demand and discharge the entire debt the Defendant owes to the Commissioner; 2. there is no evidence that the company is insolvent; 3. there is no other supporting creditor standing in the shoes or seeking to stand in the shoes of the Commissioner; and 4. the amount in fact outstanding under the original statutory demand is only some $13,000. The Defendant proffered a continuation or a renewal of its undertaking provided to Registrar Hetyey on 21 October 2010. 20 As noted earlier, the Commissioner opposed the extension of the granting of the stay on a number of bases. First, that there is no explanation as to why the proposed loan described in the affidavit of Mr Lewis (see [6] above) did not eventuate. There is some answer to that in most recent affidavit of Mr Bambra in which he states that he withdrew that application when it became apparent that the person from whom he was seeking funding intended the moneys to be repaid from his superannuation moneys. 21 Secondly, the Commissioner submitted that this matter has been before the Court on four or five previous occasions, and a further stay was not justified. The Commissioner pointed out that the Defendant had been ordered to file material in relation to the hearing which was originally scheduled for 6 September 2010 but failed to do so. 22 Thirdly, the Commissioner submitted there were inconsistencies in the material which did not rebut the presumption of insolvency: see [8] to [10] above. Finally, in relation to valuations of properties and the available equity, the Commissioner submitted there were misrepresentations or at least substantial queries in respect of the matters alleged by Mr Bambra. ANALYSIS AND CONCLUSION 23 There is no doubt that this Defendant has been given plenty of opportunities and time to put its house in order. The funding has still not been obtained, and, on any view, the issue has to be resolved without delay. Notwithstanding the forceful submissions of the Commissioner, I propose to grant the Defendant extension of the stay granted in paragraph 4 of the orders made by Registrar Hetyey. I do not propose to grant the extension of 14 days. It is simply too long. The extension will be until 4:00pm on 16 November 2010. 24 I grant the extension primarily for two reasons. First, the unsecured creditors, as submitted by Counsel for the Defendant, are not exposed by the defendant continuing to operate as the Form 519 has been filed by the Commissioner and the world at large knows that the Defendant is subject to a winding up order. 25 Secondly, the undertaking proffered by the company director, Mr Bambra, on behalf of the Defendant is that the Defendant will not sell, transfer, encumber, dispose or otherwise dissipate any of the Defendant's assets in that period of the stay, save for the assets of the Defendant required in the operation of the ordinary course of business it conducts. 26 In the circumstances, I will make the following orders. UPON THE UNDERTAKING: by Mr Peter James Bambra, company director, on behalf of the Defendant, not to sell, transfer, encumber, dispose or otherwise dissipate any of the Defendant's assets during the period of the stay referred to in paragraph 4 of the Orders made by Registrar Hetyey on 21 October 2010, save for those assets of the Defendant required in the operation of the ordinary course of business it conducts. THE COURT ORDERS THAT: 1. Paragraph 4 of the Orders made by Registrar Hetyey on 21 October 2010 be varied to read "the operation of Orders 1-3 of the above be stayed until 4:00pm on 16 November 2010". 2. The costs of today be costs in the winding up of the Defendant. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 9 November 2010