Chief Commissioner of State Revenue v Zafco Franchise Co Pty Ltd [2006] NSWSC 1085

New South Wales Supreme Court

CITATION : Chief Commissioner of State Revenue v Zafco Franchise Co Pty Ltd [2006] NSWSC 1085 This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 9 October 2006 JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Young CJ in Eq

EX TEMPORE JUDGMENT DATE : 10/09/2006

DECISION : Application for termination of winding up of company refused.

CATCHWORDS : CORPORATIONS [236]- Winding up by court- Termination- Solvency- Application by contributory to terminate winding up- Contributory paid debt of petitioning creditor- Contributory probably now creditor of company- Insufficient evidence to show solvency- Winding up not terminated.

LEGISLATION CITED : Corporations Act 2001 (Cth), s 482

CASES CITED : Metledge v Bambakit Pty Ltd [2005] NSWSC 160

Peter Zafiropoulos (Applicant) PARTIES : Jobstar Coffs Pty Ltd, Britstar Pty Ltd and Jobstar Port Pty Ltd (Intervenors) Richard John Porter (Liquidator)

FILE NUMBER(S) : SC 5524/05

T J Rickard (Applicant) COUNSEL : A W Street SC and D Kang (Intervenors) G Lancaster (S) (Liquidator)

Consolidated Lawyers (Applicant) SOLICITORS : Andresakis & Associates (Intervenors) Access Business Lawyers (Liquidator)

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

YOUNG CJ in EQ

Monday 9 October 2006

5524/05 – CHIEF COMMISSIONER OF STATE REVENUE v ZAFCO FRANCHISE COMPANY PTY LTD JUDGMENT 1 HIS HONOUR: This is an application under s 482 of the Corporations Act 2001 (Cth) to terminate a winding-up. The corporation was wound up by a Deputy Registrar on 30 June on the ground of insolvency, the plaintiff being the Chief Commissioner of State Revenue. 2 The application today is made by a contributory and it seems fairly clear that the contributory has, from his own moneys, paid out the petitioning creditor and either paid out or come to some arrangement with other persons claiming to be creditors of the company other than a group of companies on the North Coast which trade as Base Warehouse - Jobstar Coffs Pty Limited, Britstar Pty Limited and Jobstar Port Pty Limited. Those three companies have sought leave to be heard on the application and I granted that leave. 3 The case for the contributory was presented by Mr Rickard of counsel. He says that when one reads the liquidator's report, one can see that the company is now solvent and that the petitioning creditor's claim arose because the last part of an arrangement that the company had made with the petitioning creditor had not been carried out through distraction of other business affairs. 4 The liquidator has filed an affidavit which says that he neither supports nor opposes the application but his solicitor, Mr Lancaster, told me today that he slightly supports rather than opposes the application. 5 The requirements of an applicant in this sort of application are quite clear. The applicant bears the onus to make out a positive case for termination and where the ground for winding-up is insolvency, an indispensable part of his task is to prove solvency (see Metledge v Bambakit Pty Ltd [2005] NSWSC 160 at para [31]). 6 In my view, the applicant has not shown sufficient material from which I can conclude that the company is solvent. First, it would seem that if it ever did keep proper books and records those are not available, or were not available to the liquidator. 7 Secondly, the material that has been presented both by the applicant and in the liquidator's affidavit does not appear convincing. The assets are said by the liquidator to appear to be $38,000 but when one sees that the principal debtor to the company is in administration, one must consider that that amount should be severely discounted. 8 Thirdly, it would seem that the applicant himself has been paying out debts of the company and there has never been any proper arrangement as to what his status will be. In the absence of evidence, I must conclude that he is a creditor of the company and as Barrett J said in the case to which I have referred at para [30], that remains a factor in determining solvency. If the amounts owing to the applicant had been capitalised, of which he became a shareholder, that would be another matter, but the mere intention to do that in the future, or the mere fact that the applicant is the sole shareholder of the company, is not enough. 9 It is a matter of public policy not to allow an insolvent company to go back into the mainstream of commercial life. Furthermore, there is the debt which the intervenors claim. The intervenors have been represented by Mr Street SC and Mr Kang. They say they have a proof of debt for something like $1 million, though I must confess at first glance it would seem that the most credible claim is that of $115,000 for refund of a franchising fee, which franchise, they say, never came about. 10 Mr Rickard says to that: "Well, they are using the Base Warehouse name, they must have got some value for it", but I cannot work out that matter on this application. 11 It is also rather singular that the company did sue the three creditors for whom Messrs Street and Kang act, yet there is no mention of that claim being an asset in the sworn statement of affairs. 12 The whole evidence is unsatisfactory and does not convince me that the company is solvent or that the winding-up should be terminated at this stage. 13 Accordingly, I dismiss the application, but if the position of the company improves, that is not to stop another application being made. I order that the applicant pay the costs of the liquidator and the intervenors.