FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Great Wall Resources Pty Limited (Controller Appointed) [2010] FCA 1509 Citation: Deputy Commissioner of Taxation v Great Wall Resources Pty Limited (Controller Appointed) [2010] FCA 1509 Parties: DEPUTY COMMISSIONER OF TAXATION v GREAT WALL RESOURCES PTY LIMITED (CONTROLLER APPOINTED) File number(s): NSD 1175 of 2010 Judge: EMMETT J Date of judgment: 7 December 2010 Legislation: Corporations Act 2001 (Cth) s 95A Date of hearing: 7 December 2010 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 13 Counsel for the Plaintiff: D. Jay Solicitor for the Plaintiff: Australian Taxation Office Counsel for the Defendant: D. Raphael Solicitor for the Defendant: Autore & Associates Counsel for the First Supporting Creditor: J. Johnson Solicitor for the Second Supporting Creditor: P.W. Rosier of Rosier Partners IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1175 of 2010 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: GREAT WALL RESOURCES PTY LIMITED (CONTROLLER APPOINTED) Defendant JUDGE: EMMETT J DATE OF ORDER: 7 DECEMBER 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The defendant be wound up in insolvency under the provisions of the Corporations Act 2001; 2. David Young of Pitcher Partners be appointed as liquidator of the defendant; 3. The costs of the plaintiff be paid out of the assets of the defendant. 4. The costs of the supporting creditors also be paid out of the assets of the defendants. 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 NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1175 of 2010 BETWEEN: Deputy Commissioner of Taxation Plaintiff AND: GREAT WALL RESOURCES PTY LIMITED (CONTROLLER APPOINTED) Defendant JUDGE: EMMETT J DATE: 7 DECEMBER 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiff, the Deputy Commissioner of Taxation, has applied for an order that the defendant, Great Wall Resources Pty Ltd (the Company), be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the Corporations Act). The Deputy Commissioner relies on failure by the Company to comply with a statutory demand as evidence of the Company's insolvency. When the matter was called on for hearing today, after the Company sought to rely on accounting evidence that I rejected, the Company sought an adjournment of the hearing of the winding up application. I do not consider that this is a case where an adjournment should be granted. 2 The statutory demand was served by post on the Company shortly after 26 May 2010. The winding up application was filed on 8 September 2010 and was served on the Company by mail shortly after that day. The first return date for the winding up application was 8 October 2010. On that day, the winding up application was adjourned by consent to 29 October 2010. The Registrar directed on that day that any further adjournment application be supported by an affidavit to be filed no later than 27 October 2010. On 29 October 2010 the Company was directed to file and serve affidavit evidence in relation to a proceeding in the Supreme Court of New South Wales (the Supreme Court) concerning the sale of three parcels of land by 23 November 2010. The proceeding was adjourned to 26 November 2010 3 On 26 November 2010, on the Company's application, the hearing of the winding up application was adjourned to Friday, 3 December 2010. The Company was directed to file any further and final evidence in respect of solvency no later than the close of business on 1 December 2010. On 3 December 2010 the proceeding was listed for hearing before the Corporations Duty Judge, in which capacity I am hearing the application today. The Company has filed a notice of opposition to the winding up application on the sole ground that it is not insolvent. 4 The Company sought to rely on two affidavits by Mr William Bartlett, an accountant, and two affidavits by Mr Anthony Autore, a solicitor. Objection was taken to the affidavits of Mr Bartlett on two grounds. Mr Bartlett's evidence was, in essence, to the effect that he was satisfied, on a preliminary basis, that the Company appears to be solvent within the meaning of s 95A of the Corporations Act. He said that he held that belief despite a preliminary report prepared by him showing that the Company's current assets are less than its current liabilities. The objection was first that Mr Bartlett was not qualified to express that opinion. Further, even if he were so qualified, it was said that there was no evidentiary basis for the assumptions that Mr Bartlett made in expressing his opinion about the solvency of the Company. 5 The question is whether the Company is able to pay all of its debts as and when they become due and payable. I rejected the affidavits of Mr Bartlett but indicated that I would be prepared to receive them as submissions without having any evidentiary basis. That led to an application on behalf of the Company that the hearing of the winding up application be adjourned. 6 I invited counsel for the Company to indicate what utility there would be in an adjournment. In the course of argument on that question, consideration was given to the evidence that Mr Bartlett might give and the facts that the Company might prove in support of Mr Bartlett's evidence. In essence, Mr Bartlett's opinion was based upon two documents prepared by him. One was a projected cash flow of the Company as at 29 November 2010. Another was a statement of assets and liabilities of the company as at 31 October 2010. It was clear from Mr Bartlett's evidence that he had no first hand knowledge of the affairs of the Company. In particular, he relied upon material furnished to him by an accountant for the Company and from the director of the Company. Neither the accountant nor the director had given any evidence. Further, it was not clear whether it is proposed that they might give evidence if an adjournment were granted. 7 The essence of the thesis advanced by Mr Bartlett is that the Company's business has been that of developing and selling parcels of land at Yalla on the south coast of New South Wales. For some considerable time the Company has been endeavouring to sell the parcels of land. It has entered into a number of contracts for sale, at least one of which has been rescinded. Some of the contracts have been the subject of litigation in the Supreme Court. The statement of assets and liabilities shows total current assets consisting of parcels of land or debtors in respect of contracts for the sale of parcels of land totalling some $8.562 million. The statement of assets and liabilities shows current liabilities of some $3.862 million. However, it could not be said that the Company would be in a position to pay its debts as and when they fall due unless it could be shown, at best, that the parcels of land will be sold in the fairly near future in order to generate sufficient funds to meet its current liabilities. 8 One concern about the statement of assets and liabilities is that it omits a judgment debt in the Supreme Court for a sum in excess of $800,000. The justification advanced for that omission appears to be that, although notice of appeal was not filed within the time limited by the Supreme Court Rules, it is proposed to apply for an extension of time to enable an appeal to be brought from that judgment. I have no evidence, however, as to the likely prospects of an appeal from the judgment. Clearly enough, in those circumstances, the judgment debt ought to be treated as a current liability of the Company. On that basis the current liabilities would be in excess of $4.5 million. 9 Mr Bartlett appears to have made assumptions in preparing his projected cash flow that sales of certain parcels of land would be effected within six months. He brings to account in his projected cash flow the proceeds of sale of some eight parcels of land. Most of the parcels of land are in the Yalla subdivision. Another significant parcel is situated at Sussex Inlet. It appears that only three contracts have been entered into, which, if they were settled, would generate proceeds of sale of approximately $1,200,000. The best that could be hoped for, if an adjournment were given, would be for evidence to be made available that the solicitor for the Company has been instructed to endeavour to arrange for sale of other parcels of land as soon as possible. 10 Bearing in mind the time of year, there must be considerable doubt as to whether there is any likelihood that the parcels of land in question would be sold in time to meet the cash flow contemplated by Mr Bartlett. The substantial parcel of land at Sussex Inlet is said to have a value of in excess of $2 million and proceeds of $2 million were brought to account by Mr Bartlett in his projected cash flow. Counsel for the Company indicated that his instructions are that that parcel has only been put on the market in the last month or so. 11 The Company has had ample opportunity to put on evidence in admissible form as to the prospects of its being able to discharge its current liabilities within the reasonably near future. The direction given on 29 October 2010 required that final evidence was required to be filed by 23 November 2010 at the latest. The Company has failed to comply with that direction. I do not consider, on the material before me or on the basis of what counsel for the Company puts as his instructions, that there would be any utility in adjourning the hearing of the winding up application, other than for a very substantial period of time. There is no guarantee that the Company will achieve sales that will enable it to meet its current liabilities of in excess of $4,500,000. In those circumstances, I do not consider that it is appropriate to grant an adjournment. 12 Counsel for the Company accepts that, in the absence of evidence establishing that the Company is solvent, the Deputy Commissioner has satisfied the requirements for making a winding up order. As I have said, the originating process is based on a statutory demand served on 26 May 2010. I have had regard to the affidavits of Anthony Fahd and Hameesha Kumar in support of the originating process and proving service of the originating process. The Australian Securities and Investments Commission (the Commission) was notified of the winding up application on 9 September 2010 and I have taken into account an extract in relation to the Company provided by the Commission. 13 The winding up application was advertised on 24 September 2010 in the Sydney Morning Herald and I have seen evidence of Mr Fahd as to the current indebtedness of the company to the Deputy Commissioner. The winding up application has been supported by two creditors of the Company, both of whom have judgment debts against the Company. I have noted the consent of Mr David Young of Pitcher Partners of 6 September 2010 to act as liquidator of the Company. In all of the circumstances, I consider that it is appropriate to make a winding up order in terms of the originating process. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 31 January 2011