New South Wales Supreme Court CITATION : Hoang Giet & 1 Or trading as Hong Ky Quality Meats v Poumeaton Enterprises Pty Ltd [2006] NSWSC 1467 HEARING DATE(S) : 19/10/06, 20/10/06 JUDGMENT DATE : 20 October 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 10/20/2006 DECISION : Application refused. CATCHWORDS : Corporations - Winding-up - Application to set aside winding-up order or to terminate winding-up - Interlocutory orders - Inadequate undertaking as to damages - Position of third parties - Interlocutory orders refused. LEGISLATION CITED : Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW) CASES CITED : Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd (2006) 57 AC SR 131 Hoang Giet & 1 Or t/as Hong Ky Quality Meats PARTIES : v Poumeaton Enterprise Pty Ltd FILE NUMBER(S) : SC 4384/06 Plaintiff: M Pesman COUNSEL : Liquidator: D Robertson CBA Bank: J M Lanser Defendant/Applicant: D K Raphael Plaintiff: Leonard Legal SOLICITORS : Liquidator: N/A CBA Bank: J M Lanser Defendant/Applicant: N/A IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Friday, 20 October 2006 4384/06 Hoang Giet & 1 Or t/as Hong Ky Quality Meats v Poumeaton Enterprise Pty Ltd JUDGMENT 1 HIS HONOUR: On 17 October 2006, on the application of the plaintiff, the Court ordered that the defendant company be wound up and that Mr Mark Robinson be appointed liquidator. The order was made in the absence of appearance by the defendant. 2 Late yesterday, the defendant filed in Court an interlocutory process in which it seeks an order that the winding-up be terminated pursuant to s 482 of the Corporations Act 2001 (Cth). It was foreshadowed that the application would be amended to seek an order pursuant to Rule 36.15 or 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) to set aside the order. 3 The defendant contends, and there is evidence to show that there is a serious question to be tried, that the order was made in breach of an agreement which the defendant company had reached with the plaintiff. The defendant says that it had made an agreement with the plaintiff's collection agent to pay the plaintiff's debt by monthly instalments commencing on 18 September 2006. It is common ground that the first such payment was not made until 19 September 2006, but the defendant says the plaintiff's collection agent had agreed to the first payment being received on that day. 4 There is a serious question to be tried that the plaintiff compromised its claim by the arrangement said to have been made on or about the 13 and 19 September. The defendant would say that the reason for its non attendance on the return date of the originating process was due to the plaintiff's acceptance of that arrangement. 5 The defendant's business includes six retail butcher shops. The urgency of the application is that there is a substantial quantity of meat stored in the butcher shops, presumably under appropriate freezing conditions. The liquidator, upon being appointed, has closed the shops and changed the locks. The defendant is concerned that the meat will go to waste and that valuable assets of the company will be dissipated. 6 For that reason an order is sought that the winding-up be stayed until the hearing of the defendant's interlocutory process. A stay of the winding-up would vest management of the company's business in the director. Various undertakings were proffered in relation to the conduct of the company's business during the period of a stay, and in relation to permitting the liquidator to continue to conduct proper investigations in relation to the company's affairs. 7 As I understand the position, the liquidator has not been able to formulate any means of salvaging the meat, or otherwise disposing of it for the best value obtainable for it. Accordingly, there was an apparent attraction in the course of allowing the business to be recommenced for the purpose of releasing that stock. 8 Questions were raised at the hearing yesterday by the liquidator as to the solvency of the defendant company. There was evidence adduced yesterday of three judgment debts, one of which is owed to a supporting creditor who appeared on 17 October. Evidence was also given however that those judgment debts had been made subject to instalment orders, and it was said that the instalment orders had been complied with. The effect of such instalment orders would be to convert debts which would otherwise be immediately due and payable, into future debts due and payable at the time the instalments fell due for so long as the regime was complied with. 9 I indicated yesterday that I was not satisfied with the proffered undertaking as to damages. There was no evidence as to the ability of the director, Mr Liu, who is the applicant, to satisfy an undertaking as to damages. It was foreshadowed that an undertaking as to damages would be proffered by his wife, but it was clear from the evidence given yesterday that at that point, the undertaking she was prepared to offer did not extend to an undertaking as to damages in the usual form. 10 Her position now is that she proffers an undertaking as to damages, but limited to the value of a property at 41A Fairview Road, Canley Vale. She estimates the value of that property to be $600,000, but it is subject to a mortgage. As Mr Robertson for the liquidator points out, we have only her estimate as to the value of her equity in the property on which to assess the worth of her undertaking. 11 A particular difficulty which has emerged in the course of further argument and evidence this morning is that there is evidence now that the defendant is indebted to the Commonwealth Bank of Australia and to CBFC Limited in an amount in excess of $2,500,000. There is evidence that the debt owed to CBFC Limited accounts for more than $1,500,000 of that debt. No debt to CBFC Limited was disclosed in the applicant's evidence. 12 Where an application is made to stay or terminate a winding-up order under s 402 of the Corporations Act, the Court will require evidence of the solvency of the company before such an order is made. However, a different position may obtain where the application is to set aside an order for winding-up, where the order has been obtained through a fundamental irregularity. I had occasions to consider that question in Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd (2006) 57 AC SR 131. 13 The position of the Commonwealth Bank and CBFC goes not only to the question of the company's solvency, but also to its entitlement to deal with the stock. The search of the records of the Australian Securities and Investments Commission shows that the Commonwealth Bank and CBFC Limited hold fixed and floating charges over the assets of the company. Those charges are not in evidence. Evidence was given by an officer, apparently employed by the Commonwealth Bank, that the charges secured all of the assets of the company. 14 The onus on the present application lies on the applicant to show that if the orders sought were made, the company would be entitled to deal with the stock. However, it is probable that the fixed and floating charges, assuming, as Mr Higgs said, they cover all of the assets of the company, would now have crystallised, and the company would not be entitled to deal with the stock without the consent of those creditors. Those creditors do not consent to that course. 15 Accordingly, I do not consider that a temporary stay of the winding-up ought to be ordered. 16 It is also a matter of some concern that apparently the evidence filed in support of the application did not disclose the financial position of the company, but I do not rest my decision on that ground as the applicant has had only a limited opportunity to deal with that matter, and it may emerge at the hearing of the interlocutory process that the position is otherwise. 17 It is also a matter of concern that the undertakings as to damages are not, I think, satisfactory. 18 However, my principal reason for refusing the present application is that I am not satisfied that the company, if the director resumed control of it, would be entitled to deal with the stock as proposed. 19 For these reasons I refuse that application. I stand over the amended interlocutory process to the Corporations Judge at 2pm on Monday, 23 October 2006. 20 If the applicant is successful in obtaining an order setting aside the orders made on 17 October 2006, the question will still arise as to how the originating process should be dealt with. There are at least two or three supporting creditors. If the applicant is successful in obtaining the orders sought in the interlocutory process on Monday, the parties should be in a position to deal with the originating process at the same time. 21 I stand the matter over to 2pm on Monday 23 October. Any affidavits to be relied upon in support of any of the applications which will be before the Court on Monday should be served by 10 o'clock on Monday. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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