By Jeffrey Brown a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
A recent application to remove notification of a winding up application, recorded on the ASIC register, has been dismissed in the NSW Supreme Court.
Playup Australia Pty Limited (“Playup”) received a statutory demand from a creditor Ryan Kay (“Kay”). Playup failed to comply with the demand and Kay filed an application to have Playup wound up. Kay lodged notification of his application on the database maintained by ASIC, in accordance with standard procedure.
The parties settled their differences on the morning of the hearing of the winding up application, and the application was dismissed. It was a term of the agreement between the parties that Kay would co-operate with Playup in seeking to have the reference to the winding up removed from ASIC records, and a direction to that effect was also sought from the Court. The direction was sought in order to claim potential investors in Playup, who it was said would be “spooked” by reference to a winding up application in the publicly available ASIC records.
Parker J concluded that, although the Court had jurisdiction to make such an order under s 1332(4) of the Corporations Act, this was not an instance where the jurisdiction came into play.
His Honour reviewed previous caselaw on the issue. He acknowledged that in OneSteel Reinforcing Pty Limited v Westpoint Constructions Pty Limited [2005] FCA 808, the Court agreed to make an order in almost identical terms to those sought in the present case. In that case, the evidence established that the statutory demand was validly served on Westpoint but the demand did not actually come to the attention of the company’s directors until time had passed for compliance. However Parker J considered the approach taken in that case was too wide, and the finding that Westpoint’s directors would have acted immediately on the statutory demand had it come to their attention was not relevant to the question of whether the discretion in s 1322(4) should be employed.
Parker J instead noted with approval the comments of Justice Barrett in Lavercome v Auscott Limited [2006] NSWSC 867:
“Section 1322(4) does not create any general reformatory jurisdiction. It allows the court to make orders ensuring the content of registers kept by ASIC under the Corporations Act accords with the statutory requirements with respect to such content…But if a particular thing is in the register and its presence there represents precise compliance with a requirement imposed by the statute, the jurisdiction is not enlivened.”
In the present case, Parker J observed that:
“A form has been lodged [with ASIC] and an entry has been made in ASICs database, which reflects [that a winding up application has been made]. For a Court to order ASIC to remove reference to such an application from its database would be to require it to act contrary to the intention of Parliament. The result would be that the database, by its incompleteness, would be inaccurate.”
And just in case anyone was left in doubt about His Honours attitude to the application, he added:
“If Playup’s investors or customers are “spooked” by the truthful revelation that Mr Kay made, and later withdrew, a winding up application against Playup, that is not the Court’s concern.”
A copy of the decisions can be found here.
When dealing with commercial disputes, directors need to be constantly mindful that if an alleged creditor lodges a statutory demand, and that demand is not complied with, a resulting application to wind the company up will in almost all cases remain as a permanent stain on the company’s public record.
Statutory demands need to be dealt with quickly and in accordance with the strict legislative requirements.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
