All Reach Travel Pty Limited v China Business Focus Pty Limited [2004] NSWSC 211

New South Wales Supreme Court

CITATION : All Reach Travel Pty Limited v China Business Focus Pty Limited [2004] NSWSC 211 HEARING DATE(S) : 22 March 2004 JUDGMENT DATE : 22 March 2004

JURISDICTION: Equity Corporations List JUDGMENT OF : Campbell J DECISION : Application adjourned

CATCHWORDS : CORPORATIONS - winding up - application to terminate winding up - proper applicant - need for proof of solvency - if all debts not paid out, need for independent accountant's report on solvency - if debts paid out with money contributed, need to have money contributed in form of capital LEGISLATION CITED : Corporations Act 2001 (Cth) PARTIES : All Reach Travel Pty Limited - Plaintiff China Business Focus Pty Limited - Defendant FILE NUMBER(S) : SC 5884/03 COUNSEL : M Leonard, solicitor - Plaintiff L Ma - Defendant SOLICITORS : Leonard Deane Lawyers - Plaintiff LLL Lawyers - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

CAMPBELL J

MONDAY 22 MARCH 2004

5884/03 ALL REACH TRAVEL PTY LIMITED v CHINA BUSINESS FOCUS PTY LIMITED JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application under s.482 Corporations Act 2001 to terminate or alternatively stay a winding up. The stay which was sought was pending an appeal to the Court of Appeal against the making of the winding up order. The relief which was pressed before me today was the termination of the winding up. 2 In discussion with counsel it has been accepted that the matter should be adjourned today. I will list the potential problems which need to be clarified, in my view, before it would be appropriate to make an order. 3 The first is that at present the applicant on the interlocutory process is said to be the Company itself, and that one or more of the directors or contributories have given the instructions for the application to be brought. That is not a procedure which is possible for two reasons. One is that the Company is in liquidation, and control over it has passed to the liquidator. The other is that under s.482 an application can be made only by the liquidator, a creditor or a contributory. I am told that a contributory is to be substituted as an applicant, and an amended application can be filed. It would adequately suffice if the contributory was added as an applicant on the present interlocutory application, without the company necessarily being removed as an applicant, because when the company has no standing and in fact does not validly appear its remaining on the record is of no effect. 4 The second problem is that I am not satisfied that the Company is solvent. The Court will not exercise its power to terminate a winding up unless the Company will, upon that termination occurring, be solvent. This company has trade creditors of some $206,000, every one of which is more than 90 days old. Included in that amount is an amount owed to the petitioning creditor and another creditor who has been pressing for payment, each of whom is proposed to be paid out by bank cheques which are at Court today. However, there is also a debt in excess of $155,000 owed to a Mr Armstrong. The Court is told nothing of his attitude to the winding up being terminated. 5 Other smaller creditors include various restaurants. I do not regard a general statement by a director in an affidavit that the trade creditors will be able to be paid "within the usual 180 days" as sufficient to persuade me that these debts to smaller creditors are not ones which are presently due. 6 The balance sheet of the company shows that by far its most substantial asset consists of receivables. If the balance sheet is taken at face value, and the receivables are all collectable, and collectable at a time which enabled the current liabilities to be paid on time then the company would be solvent. However, without an independent accountant's report as to solvency, I would not be prepared to conclude that the receivables were likely to be all or substantially all, collectable, nor that they would be collectable at an appropriate time for the Company to be solvent. The need for an independent accountant's report was mentioned in a letter which the liquidator wrote to the solicitors on the record for the applicant on 8 March 2004. If the debts of the Company are not to be paid out at or before the time of the termination of the winding up, the Court requires such an independent report as to solvency in all save the simplest cases. 7 There is a further problem, which arises from the fact that various people interested in this company in China have, of recent weeks, remitted money to Australia to assist in paying debts of the company. The amounts have been remitted in circumstances where there appear to be no specific terms agreed concerning replacement of the money. Thus, for all the Court knows at present, the amounts that have been remitted could be repayable on demand. 8 If that were so, it would not stop the company from being insolvent. The usual practice of the Court, when people associated with a company contribute money to it to enable it to pay debts as a means of terminating a winding up, is to require those moneys contributed to be treated not merely as long-term or subordinated loans, but as capital. That does not appear to have been done. 9 As well, it appears that there are three contributories to this company. Though this is less important than the other matters I have mentioned, the Court is not informed of the attitude of two of them. 10 The contributory who seeks to become substituted wishes to have the opportunity of remedying these problems. With a view to that, I stand the matter over to the Corporations List on 5 April 2004. **********