3 things about Winding-Up Courtesy of Chen -v- College of Building

Notice of a genuine dispute is enough to set aside a Winding-Up Application despite the company apparently failing to meet the strict time requirements of the Statutory Demand.

In Chen v The College of Building Ltd [2015] ACTSC 248, Justice Penfold heard an appeal against the order of the Registrar setting aside a statutory demand despite evidence the statutory demand wasn’t complied with.

Mr Chen sent a statutory demand in December 2014 and the 21 day period for compliance or set aside expired, apparently before it was even received by the College in January 2015. In any event, the College replied on the day it claimed to receive the demand disputing the existence or validity of the debt, restating positions that evidence revealed were already disclosed to Mr Chen.

The chronology and general interactions between the parties are covered ad nauseam at [12] and [13].

3 things to take away from this decision:

  1. Late Provision of Evidence Isn’t Enough to Defeat a Set Aside Order (necessarily)
    The College had earlier raised challenges to the existence of the debt and prior to the appeal presented supplementary evidence relating primarily to the provision of mail collection over the Christmas break. This additional evidence arguably could have been presented to Mr Chen earlier but the Registrar had already dismissed the winding up application on the evidence available. Penfold J determined that this additional evidence was merely supplementary and not directly relevant to whether the application should be dismissed. In this vein the advice is, generally speaking, get as much of your evidence on as soon as possible, especially when the winding up of a company is at stake. But the fact that you haven’t put on every little scintilla of evidence won’t defeat your position provided the relevant evidence is already available (common sense right?).
  2. Don’t Appeal a Winding-Up Dismissal Without Good Reason
    Appealing the dismissal of a winding-up application requires the strategic nous of Von Clausewitz, which the Court doubted Mr Chen held [32]. In this instance the application was dismissed partially on the basis of there being a genuine dispute, something which the applicant admitted at appeal [30]. If a genuine dispute has been established then this is sufficient to have a statutory demand set aside. By the time the College filed it’s supplementary evidence it was already too late for Mr Chen to have the College wound up on the basis of failing to comply with the statutory demand as the Statutory Demand had reached its 3 month limit and couldn’t have been enforced in any event as it was now “stale”. The Court was understandably sceptical of the pursuit of the appeal and concluded that Chen probably only pursued it to improve his costs position…though how this would have accomplished this end was not clear. [23]
  3. Tactics Can’t Override the Existence of a Genuine Dispute
    The Court examined the apparent strategic positioning of Chen’s litigation:

(a)       the statutory demand was served in full knowledge that it was unjustified, and that Mr Chen would struggle to make out his claim in substantive litigation; and

(b)       it was served in the hope that:

(i)        the exigencies of the Christmas/New Year period would prevent the College responding to it appropriately;

(ii)       such a failure by the College would enable Mr Chen to threaten to seek the winding up of the College in insolvency; and

(iii)      such a threat would enable Mr Chen to negotiate a settlement of his dispute with the College without having to pursue the disputed debt, and establish it, in the courts in the usual way. [31]

The Court PROBABLY gave undue credit to the strategy of Mr Chen but the overall message was pretty clearly spelled out to the parties; strict reliance on the technical aspects of the law won’t generally defeat an otherwise readily defensible position

These extracts are merely reminders of a few things apparent in most areas of the law; in addition to the directly above semi-coloned point, the Court will (almost) always look more favourably on the party that appears more reasonable.

The aspects surrounding the Christmas shutdown do seem generous considering the apparent failure. The Court must have really held doubts regarding the service of the demand as the Corporations Act is intended to set a strict timeline sometimes with harsh outcomes and it is the responsibility of companies to ensure that they have adequate mail collection provisions in place and respond accordingly to statutory demands.

Sidebar: Despite the Legislature gazzumping the measurement of time from the Universe and International Meridian Conference and vesting it between the Legislation Act and the Court Procedures Rulesthere seems to be a blackhole that surrounds the ACT practice concerning the Christmas “shutdown” and how the Court should consider notices presented over this time in spite of the (pretty easily understandable) rules in place. Perhaps its due to the extraordinary Public Service ACT practice of indulging in an excessive “shutdown”. Plus yes, I do mean blackhole in the most literal sense, in that time does seem to bend and become largely subjective and fungible the closer we get to the event horizon of the “shutdown”.

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