New South Wales Supreme Court CITATION : NAB v Idoport [2008] NSWSC 999 HEARING DATE(S) : 03/09/08 JUDGMENT DATE : 3 September 2008 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 3 September 2008 DECISION : 1. Make an order in accordance with paras 1 and 2 of the originating process; 2. order that the defendant pay the costs of the proceedings; 3. the exhibits may be returned after 28 days. CATCHWORDS : CORPORATIONS - winding-up in insolvency - company clearly insolvent - no question of principle LEGISLATION CITED : Corporations Act 2001 (Cth) Civil Procedure Act 2005 (NSW) CASES CITED : National Australia Bank Limited v Idoport Pty Limited [2007] NSWSC 1349 National Australia Bank Limited & 11 Ors PARTIES : v Idoport Pty Ltd FILE NUMBER(S) : SC 1878/07 COUNSEL : Plaintiff: T Bathurst QC & R Dick Defendant: M J Dawson SOLICITORS : Plaintiff: Freehills Defendant: Mimmo & Associates IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Wednesday, 3 September 2008 1878/07 National Australia Bank Limited & 11 Ors v Idoport Pty Ltd JUDGMENT 1 HIS HONOUR: Pursuant to an originating process filed on 16 March 2007 the plaintiffs seek an order that the defendant be wound up in insolvency. Various extensions of time for the determination of the winding-up application have been given under s 459R of the Corporations Act 2001 (Cth). The last such order was made on 12 May 2008. The period for determination of the plaintiffs' winding-up application was extended to 31 October 2008. 2 By its amended notice of appearance filed on 29 May 2008, the defendant indicated its intention to oppose the winding-up application on the following grounds. First, that the defendant is solvent. Second, that the plaintiffs are not creditors of the defendant. Third, that: " The plaintiffs do not have standing as creditors of the defendant for the purposes of Section 459P of the Corporations Act 2001 (Cth) as the first plaintiff has been paid. More particularly: (a) the defendant is the beneficiary of a guarantee issued by the first plaintiff on 6 November 1996 (the 'Guarantee' ); (b) the Guarantee creates an unconditional obligation to pay the guaranteed money on demand; (c) the unconditional nature of the Guarantee to pay on demand is not qualified by reference to the terms of the Consulting Agreement between the second plaintiff, the defendant and others dated 6 November 1996 (the ' Consulting Agreement '). The Guarantee is autonomous and the defendant is entitled to exercise its rights under the Guarantee independently of the defendant exercising its rights under the Consulting Agreement; and (d) the judgment debt in Supreme Court Equity Division Proceedings case numbers 50113 of 1998 and 50026 of 1999 ( 'Judgment Debt' ) has been paid by operation of contractual set-off pursuant to the Guarantee. " 3 Fourthly, the defendant contended that the proceedings were an abuse of process because the defendant was a beneficiary of an unconditional guarantee issued by the first plaintiff as issuing bank and is owed a sum in excess of the judgment debt. Finally, the defendant indicated its intention to oppose the winding-up application on discretionary grounds. 4 The defendant's principal contention was that it was owed a sum which exceeds the judgment debt in favour of the plaintiffs and was entitled to set off moneys owed to it against moneys payable by it under the judgment debt. In particular, it relied upon a guarantee of 6 November 2006. 5 An order was made for the determination of a separate question, namely: " On the assumption (which is not admitted by the plaintiffs) that the defendant has an arguable claim against the plaintiffs for the payment of performance bonuses under the Consulting Agreement and the Guarantee (hereafter 'the Performance Bonus Claim'), is the defendant entitled to raise the Performance Bonus Claim as any grounds of opposition to the plaintiffs' claim for an order that the defendant be wound up? " 6 On 6 December 2007, Young CJ in Eq answered that question in the negative. (See National Australia Bank Limited v Idoport Pty Limited [2007] NSWSC 1349). An application for leave to appeal from that judgment was refused on 6 May 2008. 7 On 29 January 2002, Einstein J dismissed claims then brought by the defendant against what I will call the NAB parties in two proceedings and made orders which have been called "the barring orders" that: " ... the plaintiff and each of the cross-claimants to the second cross-claim be barred from bringing fresh proceedings concerning any cause of action or the whole or any part of any claim for relief by any of them in these proceedings, until costs in these proceedings have been paid in full. " 8 On 14 February 2007, Einstein J made orders that the defendant to these proceedings pay to the plaintiffs to these proceedings in respect of assessed costs a gross sum amount of $42,050,000 plus interest pursuant to s 101(4) of the Civil Procedure Act 2005 (NSW). 9 At the date on which these proceedings were instituted, the amount of the judgment debt was in excess of $63 million. I am told that with additional interest the current judgment debt is in excess of $70 million. The defendant has not paid the debt after demand was made for it in March of 2007. Unless the defendant were able to maintain that the debt has been extinguished by set-off of payments which it claims are due to it by the plaintiffs pursuant to the Guarantee or the Consulting Agreement, it is clear that the plaintiffs are creditors of the defendant. 10 Even without taking into consideration the judgment debt, the defendant is insolvent. Its balance sheet as at 30 June 2006 disclosed that the defendant had a deficiency of net assets of $10,713,824 and accumulated losses of $15,339,041. Its assets were minimal, consisting of cash and receivables of $122,476. No financial statements for the next financial year or for the period of nine months to 31 March 2008 were produced in response to notices to produce. As was to be expected from the defendant's balance sheet, a search of the register for real estate holdings discloses that the defendant was not the registered proprietor of real estate. 11 The financial statements for the year ended 30 June 2006 disclose secured borrowings from Fulham Partners LLC in the sum then of $3,219,614 secured by a fixed and floating charge over the assets of the company. There are two registered charges over the company's assets. Orders made in proceedings 2586/07 between the defendant and Fulham Partners LLC provide that Fulham and the second plaintiff in those proceedings are not obliged to provide further funds to the defendant under a certain loan agreement, or, in the case of the second plaintiff, to subscribe for redeemable preference shares. There is no evidence of any funds available to the plaintiff with which to meet its other debts, let alone the judgment debt in favour of the plaintiffs. 12 In written submissions, the defendant contended that the judgment debt has been paid by reason of the principles of contractual set-off arising under the guarantee and that therefore the plaintiffs are not creditors of the defendant. That contention cannot be sustained in the light of the answer given by Young CJ in Eq to the separate question as to whether the defendant was entitled to raise the "Performance Bonus Claims" as a ground of opposition to the plaintiff's claim for the winding-up order. 13 There was no appearance for the defendant on the hearing of the application. An application was made by counsel then appearing for the defendant for an adjournment but I refused that application. Accordingly, the hearing has proceeded ex parte. However, I have taken into account the written submissions provided on behalf of the defendant. However, it is clear, having regard to the orders made by Young CJ in Eq, that the plaintiffs have standing, and it is also clear beyond doubt that the defendant is insolvent. I see no discretionary reason not to make a winding-up order. The procedural requirements have been satisfied. 14 For these reasons, I make an order in accordance with paras 1 and 2 of the originating process. 15 I order that the defendant pay the costs of the proceedings. 16 The exhibits may be returned after 28 days. ****** 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. 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