Reported Decision : 47 ACSR 269 New South Wales Supreme Court CITATION : DCT v Tixana [2003] NSWSC 968 HEARING DATE(S) : 20 October 2003 JUDGMENT DATE : 20 October 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : See last paragraph CATCHWORDS : CORPORATIONS - winding up - presumption of insolvency - whether period for compliance with statutory demand is extended under s 459F(2) where an application to set aside the demand is held to be out of time LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459C, 459F, 459G CASES CITED : David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 Vista Commercial Constructions v Deputy Commissioner of Taxation (1997) 25 ACSR 285 PARTIES : Deputy Commissioner of Taxation (P) Tixana Pty Ltd (D) FILE NUMBER(S) : SC 4449/03 COUNSEL : M R Aldridge SC with R Quinn (P) J T Johnson (D) SOLICITORS : ATO Legal Practice (P) Sally Nash & Co (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J MONDAY 20 OCTOBER 2003 4449/03 DEPUTY COMMISSIONER OF TAXATION V TIXANA PTY LTD JUDGMENT (Ex tempore; revised 21 October 2003) 1 HIS HONOUR: On 28 October 2002, the plaintiff issued a statutory demand against the defendant under s 459E of the Corporations Act. The statutory demand was served by post. On 22 November 2002, the defendant filed an originating process in proceeding No. 5640/02 to set aside the statutory demand, purportedly under s 459G of the Corporations Act. 2 As is well known, s 459G provides that an application to set aside a statutory demand may only be made within 21 days after the demand is served. In David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 the High Court held that the 21 day time limit in that section is mandatory and cannot be extended under s 1322 of the Act. The position, therefore, was that the application filed on 22 November 2002 was competent under s 459G only if made within 21 days after service of the demand. 3 On 14 August 2003, Master Macready heard proceeding No. 5640/02, delivering his judgment on 15 August 2003. He held that the statutory demand had been served on 30 October 2002. The consequence was, in light of the High Court's decision in David Grant, that the application to set aside the statutory demand under s 459G was not a competent application because it was made out of time. 4 There has been no appeal against the judgment of Master Macready, and so the parties are estopped from denying that the statutory demand was served on 30 October 2002. 5 The principal significance of a statutory demand is that failure to comply with it creates a presumption of insolvency under s 459C, which can be relied upon by the person issuing the statutory demand in a subsequent application to wind up the recipient of the demand on the ground of insolvency. Section 459C(2)(a) directs the Court to presume that a company is insolvent if, during or after the three months ending on the day when the application for winding up is made, the company failed to comply with the statutory demand. The meaning of "failed to comply with a statutory demand" is explained in s 459F. Sub-section (1) of s 459F says if, at the end of the period for compliance with the statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail with the demand at the end of that period. Then s 459F(2) provides as follows: "(2) The period for compliance with a statutory demand is: (a) if the company applies in accordance with section 459G for an order setting aside the demand: (i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand---the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or (ii) otherwise the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or (b) otherwise 21 days after the demand is served." 6 No order has been made or purportedly made under s 459F(2)(a)(i) for the extension of the period for compliance with the statutory demand in this case. However, the present plaintiff has instituted an application under s 459P, by originating process filed on 21 August 2003, for an order that the defendant be wound up. The issue is whether the presumption of insolvency arising by virtue of service of the statutory demand on 30 October 2002 remains available for the purposes of the present winding up proceeding. The parties have agreed that a separate question be formulated and determined on that point. 7 Section 459F(2) extends the period for compliance with the statutory demand only in circumstances where the company to which the demand has been directed applies "in accordance with s 459G". In my opinion, for an application to be in accordance with s 459G, it must comply with the mandatory time limit stipulated by the section as interpreted by the High Court in David Grant. 8 Section 459F(2) might have been drafted so as to be conditional upon the company making an application "purportedly in accordance with s 459G", or it might have referred to the company making an application "under s 459G". In either of those events it would be arguable an application for the setting aside of the statutory demand, even though made out of time, would satisfy the prerequisite for the extension of the period of compliance with the statutory demand set out in s 459F(2). But the wording used by the legislature is "in accordance with", and those words in their plain meaning require that the application be made within the time limit specifically set by s 459G(2). 9 It is unnecessary for me to decide whether an application which might not comply with s 459G in some other respect (for example, by failing to provide an affidavit which properly supports the application) is, for the purposes of s 459F(2), an application "in accordance with" s 459G. 10 There is no authority directly in point, but the conclusion I have reached derives some support from the observations of Gummow J in the David Grant case at 278, where his Honour refers to the effect of s 459F and notes that the extension of the period for compliance will operate only if, in terms of s 459F(2)(a), the company applies in accordance with s 459G. Those observations were quoted and applied by the Full Federal Court in Vista Commercial Constructions v Deputy Commissioner of Taxation (1997) 25 ACSR 285 at 293. Although the issues before the Courts in those two cases were different from the issue before me now, the observations to which I have referred indicate that in their Honours' view, the stipulation in s 459F(2)(a) that the company applies in accordance with s 459G is a prerequisite for the application of s 459F(2). 11 Counsel for the plaintiff drew my attention to some undesirable consequences said to flow from the construction that I have decided to adopt. First, he pointed out that the construction I have taken may operate harshly on a plaintiff who seeks a winding up order in reliance on a statutory demand. Suppose that A serves a statutory demand on company B, company B applies to set it aside, and A defends that application on the ground that it was not made in accordance with s 459G. Applying the construction I have decided to adopt, A cannot invoke the presumption of insolvency unless it makes a winding up application with 3 months and 21 days from the date of service of the statutory demand. If the application to set aside the statutory demand has not been determined within that period, A will be forced to file a winding up application without knowing whether it can rely on the statutory demand, in order to preserve its access to the presumption in the event that it succeeds in company B's application. 12 That, it seems to me, is a consequence of the clear wording of the statutory provision. There may be a case for law reform to improve A's position. 13 Secondly, counsel submitted that the construction I have taken deprives the Court of the power to make an order extending the period for compliance with the statutory demand, in circumstances where an application has purportedly been made to set aside the demand, but the application is not in accordance with s 459G. I agree that the wording of 459F(2) seems to impose, as a prerequisite for the Court's jurisdiction to make an extending order, that the application to set aside the demand be made in accordance with s 459G. It is unnecessary for me to decide whether, in the circumstances envisaged by counsel's submission, the Court might be able to achieve the result of extending the period for compliance in some other way. If there were no other means by which the Court could extend the period for compliance with the demand, then the section might operate harshly in certain circumstances, but again the meaning of the statutory language is so clear that no other conclusion can be drawn from it. 14 Therefore, the answer to the separate question is that the presumption of insolvency under s 459C(2)(a) is not available to the present plaintiff with respect to the statutory demand issued on 28 October and served on 30 October 2002. ********** Last Modified: 10/30/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.