Supreme Court New South Wales Medium Neutral Citation: In the matter of C2C Investments Pty Limited (No 8) [2013] NSWSC 267 Hearing dates: 28 February 2013 Decision date: 28 February 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Adjournment not granted. Catchwords: CORPORATIONS - Winding up - Winding up in insolvency - Application for an order adjourning winding up application under s 467(1)(c) Corporations Act 2001 (Cth) - Whether adjournment would deliver better prospects to creditors - Whether likelihood that applicant could be restored to solvency during adjournment. Legislation Cited: Corporations Act 2001 (Cth) ss 459P, 459R, 459S, 467, 467(1), 467(1)(c) Cases Cited: - Crema Pty Ltd v Land Mark Property Developments Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631 - Fire and All Risks Insurance Company Ltd v Southern Cross Exploration NL (No 4) (1986) 10 ACLR 683 - Re DTX Australia Ltd (1987) 11 ACLC 444 Category: Interlocutory applications Parties: Commonwealth Bank of Australia (Plaintiff/Respondent) C2C Investments Pty Limited (Defendant/Applicant) Representation: Counsel: P. Newton/A. Kaufmann (Plaintiff/Respondent) S.A. Benson (Defendant/Applicant) Solicitors: Gadens Lawyers (Plaintiff/Respondent) Platinum Lawyers (Defendant/Applicant) File Number(s): 2012/62000 Judgment- ex tempore 1By Amended Interlocutory Process filed 17 September 2012, the Plaintiff, the Commonwealth Bank of Australia ("CBA") seeks an order that the Defendant, C2C Investments Pty Limited ("C2C") be wound up under, relevantly, section 459P of the Corporations Act 2001 (Cth). The winding up application has continued over a considerable period, and involved events that were summarised in my earlier judgment in the proceedings ([2012] NSWSC 1443). In particular, another entity ("Community Association") initially applied to wind up C2C on 24 February 2012; it was granted leave to withdraw from the winding up proceedings, apparently after its debt was paid, on 26 June 2012 and CBA was then granted leave to apply to be substituted; an order for substitution was made by Senior Deputy Registrar Howard on 12 September 2012 and an application to set aside that order was dismissed on 28 November 2012. The winding up application has therefore been on foot for more than twelve months and the Court has extended time for its determination under section 459R of the Corporations Act to late March 2013. 2By Interlocutory Process filed 19 September 2012, C2C sought leave under section 459S of the Corporations Act to oppose the winding up application on specified grounds. C2C has not pursued that application and has sought an order adjourning the winding up application for a further period of eight weeks pursuant to section 467(1)(c) of the Corporations Act. The basis of that adjournment application is that C2C contends that it will be receiving an injection of funds, apparently by way of loan, sufficient to pay out the amount of $179,000 owed to CBA. 3C2C's application is supported by an affidavit of its director, Mr Geoffrey Shannon, dated 28 February 2013. C2C sought leave for Mr Shannon to supplement that affidavit by additional oral evidence as to several matters, which I did not grant for reasons that I have indicated in an earlier judgment. 4Mr Shannon's evidence is that he is personally entitled to fees payable by a third party in excess of $160,000 which are due on or about 28 March 2013. An email from that third party is in evidence indicating that amount will be paid at a settlement arranged through Suncorp Bank and that the third party expects to pay in full on or about that date. Mr Shannon indicates that he is prepared to make a loan to C2C of a sum equivalent to the amount received from the third party; assuming that loan was then applied, as is proposed, to pay out CBA, the debt presently owed to CBA would be repaid in part and replaced by another debt owed by C2C to Mr Shannon. There is, I should note, no present evidence as to the third party's capacity to make a payment other than the email indicating the third party's expectation that it will do so and referring to funding arranged through Suncorp Bank. 5Mr Shannon also notes that another company of which he is a director has an amount due to it by Buschell Developments for $150,000 plus GST, and he has agreed to provide funds from that amount to pay CBA, or, presumably, the balance owing to it after the earlier amount is paid. Presumably, although Mr Shannon's affidavit does not expressly say so, that amount would again be provided by loan to C2C. The ability of the entity associated with Mr Shannon to recover that amount from Buschell Developments is plainly less certain; an email from a director from Buschell Developments refers to a payment date of 11 April 2003 but expressly states the payment will be made from funds received by lawyers, "subject to successful judgment". There is no other evidence of the timing or prospects of the relevant proceedings, from the successful judgment in which Buschell Developments would make the payment, from which moneys would in turn be advanced to C2C. 6Mr Shannon's affidavit also qualifies evidence given in his earlier affidavit dated 19 December 2012 that C2C had no creditors other than CBA, by noting that it has other creditors including a company associated with Mr Shannon's father, an entity named Unhappy Customers Litigation Pty Limited, a law firm which C2C and Mr Shannon have retained in other matters and Mr Shannon himself. He indicates that those parties have agreed that "providing an adjournment was agreed", those funds would be applied to CBA's debt. I will assume that the reference to an adjournment being "agreed" would extend to an adjournment which was ordered by the Court, over CBA's opposition. There is, however, no evidence as to the amount of those other debts, when they are due or whether C2C has the capability to pay them when they are due. There is plainly at least a question as to C2C's capability to pay those amounts, since it appears that its assets are a cross-claim against Bank of Western Australia in other proceedings and two other properties, which may or may not be encumbered in favour of other parties. Mr Shannon also offers an undertaking to the Court that he will give the moneys due to him to CBA and will not seek to recover them in legal proceedings or otherwise. 7CBA opposes the application for an adjournment of the winding up. C2C contends that position is against CBA's interests, because it may deliver CBA the worse result of C2C's liquidation rather than the payment contemplated by C2C's suggestion. Plainly, CBA does not share C2C's assessment of CBA's commercial interests. 8Section 467(1) of the Corporations Act provides that, on hearing a winding application, the Court may, inter alia, adjourn the hearing conditionally or unconditionally or make any other order that it thinks fit. The case law establishes that the Court may adjourn a winding up application, at least where that would deliver better prospects for the creditors by allowing the company to trade, than would arise from a winding up: see the authorities cited in Austin and Black's Annotations to the Corporation Act [5.467]. 9In Fire and All Risks Insurance Company Ltd v Southern Cross Exploration NL (No 4) (1986) 10 ACLR 683, an adjournment was granted where the company had substantial assets and the activities of the creditor which sought its winding up had led to, or contributed to, its inability to pay its debts. In Re DTX Australia Ltd (1987) 11 ACLR 444, an adjournment was granted where the majority of creditors supported that adjournment, although a minority opposed it. On the other hand, the Supreme Court of Victoria declined to adjourn a winding up application in Crema Pty Ltd v Land Mark Property Developments Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631, where a substantial amount was due to creditors who opposed the adjournment; the evidence of the company's position demonstrated insolvency; there was only an assertion of the possibility of profit from a commercial development if the company was allowed to continue to trade; and there was no confidence that the company could refinance itself in the relevant time. 10In the present case, two factors provide potential support for the adjournment application. The first is the prospect that it may lead to payment of the CBA, subject to the matters noted below, and to CBA's apparent assessment that that prospect does not warrant its consent to the adjournment. Second, the adjournment application may be supported by the fact that C2C is party to litigation against BankWest, whose liabilities have now been assumed by CBA; however, counsel for C2C has properly accepted that the primary claim in those proceedings is brought by another entity whose ability to pursue that claim will not be affected by the winding up of C2C. 11In my view, several other factors tend strongly against an adjournment of the winding up application. First, the winding up application has already continued for more than twelve months. It is at least implicit in section 459R of the Corporations Act, which contemplates that windings up will ordinarily be determined in six months unless the time is extended by the Court, that such applications will be dealt with promptly. That implication is not surprising, where windings up applications are brought in respect of companies that are contended to be insolvent and that may well be dealing with third parties who are exposed to the risk of insolvency. Second, there is no positive evidence that C2C is solvent or that an adjournment will assist it in achieving solvency. At best, the contemplated proposal seems to contemplate that CBA will be paid out, and the liability which presently exists to CBA will be replaced by a liability to Mr Shannon. There is no evidence before the Court as to how liabilities to other creditors would be met. The lack of evidence in that regard is particularly striking where the company is presently party to the proceedings against BankWest also brought in this Court, and is inevitably incurring debts or contingent debts in respect of its liability or potential liability for costs in those proceedings, including any liability for costs orders made against it in the proceedings. Third, C2C's ability to pay out the full amount due to CBA is uncertain, where the second payment to which I referred above depends on the outcome of litigation as to which the Court has no underlying information. 12Fourth, as in Land Mark, the application is opposed by the creditor who seeks the winding up. The position in that regard is different from DTX Australia, where the application was supported by the majority of creditors. 13Fifth, any payment to CBA made under the proposed arrangement would plainly be vulnerable to recovery, if a liquidator is later appointed to C2C, as a preference, given that there is evidence that other creditors exist and no positive evidence of C2C's solvency. 14Sixth, the proposal makes no allowance for the other contingent liabilities of C2C arising from the costs of these proceedings, which of themselves continued over a long period, or for the costs which would be thrown away by way of a further adjournment today. 15For all these reasons, I do not consider that an adjournment for the eight week period proposed by C2C should be granted. 16Alternatively, C2C put a proposal of an adjournment for a shorter period, to late March 2013, when it would be clear whether Mr Shannon had received the first amount contemplated by the proposal so as to advance it to C2C and allow the first payment contemplated by the proposal to be made to CBA. On one view, an adjournment for a shorter period raises lesser difficulties than an adjournment for a longer period. However, the fundamental difficulties to which I have referred above, including the absence of evidence of C2C's solvency or any likelihood that solvency would be restored during an adjournment, the fact that a payment made would be potentially recoverable as a preference, and the fact that the proposal is opposed by CBA and inconsistent with the expectation that windings up will be dealt with promptly, all exist, notwithstanding that there is a shorter adjournment rather than a longer one. 17For these reasons, the factors which lead me to conclude that I cannot adjourn the winding up for eight weeks also indicate that I cannot adjourn the winding up for four weeks. I am therefore not satisfied that I should make an order under section 467 of the Corporations Act adjourning the winding up proceedings. ********** 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. Decision last updated: 24 April 2013