Standing as a creditor in accordance with s 459P(1)(b) Corporations Act 2001 (Cth)
First Equilibrium Pty Limited v Bluestone Property Services Pty Limited (in liq)  FC AFC 108
An appeal from the decision of Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd  FCA 876.
Challenge to creditor standing on application to wind up appellant company on grounds of insolvency. Standing examined with reference to bona fides of the appellant’s asserted counter claim and circumstances surrounding the failure of appellant to take steps to advance asserted counter-claim or demonstrate solvency. Court held respondent had standing as a creditor in accordance with s 459P(1)(b) Corporations Act 2001 (Cth).
The respondent (Bluestone) applied under ss 459A and 459P of the Corporations Act 2001 (Cth) (the Act) for the appellant (Equilibrium) to be wound up in insolvency. The primary judge found that Equilibrium was insolvent at the time of the filing of the application (27 March 2013) and at the hearing (26 August 2013) (collectively the Relevant Dates).
On 2 September 2013, pursuant to ss 459A and 459P of the Act, his Honour ordered that Equilibrium be wound up on the grounds of insolvency (the Winding-up Order). The Winding-up Order was stayed by the primary judge until further order.
Equilibrium appealed the Winding-up Order on three grounds:
- That Bluestone did not have standing to bring the application because it was not a “creditor” of Equilibrium for the purposes of s 459P (1) (b) of the Act.
- Bluestone had not discharged the onus of establishing that Equilibrium was insolvent on each of the Relevant Dates; and
- There were mutual credits and dealings between Equilibrium and Bluestone which enlivened the operation of s 553C (1) of the Act.
Equilibrium submitted that the primary judge erred in finding that Bluestone was a creditor. Equilibrium’s complaint was that the primary judge erred in finding that Equilibrium did not have a counter-claim equal to or exceeding the Judgment Debt and, therefore, erred in failing to find that the Judgment Debt was disputed on substantial grounds so as to defeat Bluestone’s standing as a creditor.
Equilibrium’s assertion that it had a “counter-claim”, on at least two previous occasions, was found by the Court to be not genuine. The Court considering all circumstances, when exercising its discretion including:
(1) The bona fide or genuine dispute on substantial grounds of the “counterclaim”;
(2) That Equilibrium had taken no step to litigate its “counterclaim” in the proceeding 4 years;
(3) that Equilibrium had not sought leave to commence proceedings against Bluestone (who was now in liquidation) and Equilibrium’s failure to lead any evidence of any intention to do so.
On this basis the Court held that Equilibrium had failed to discharge the onus it bore and confirmed that Bluestone was a creditor with standing to bring the application under s 459P(1)(b) of the Act.
Bluestone bore the onus of establishing that Equilibrium was insolvent on each of the Relevant Dates. The court found that the primary judge correctly stated the applicable principles, namely that “the question of whether a company is solvent is a question of fact to be ascertained from a consideration of the company’s financial position taken as a whole”: see Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd  FCA 876 at , citing Australian Securities and Investments Commission v Plymin  VSC 123; (2003) 46 ACSR 126 at -  and Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at .
As the primary judge stated, the “inescapable fact is that Equilibrium has failed to pay a Judgment Debt obtained by Bluestone [for] more than four years”. Equilibrium did not assert that the Judgement Debt was not due and payable. It was due and payable on each of the Relevant Dates.
The primary judge found that there were no mutual credits or mutual dealings and that the issue of set-off under s 553C (1) did not arise. Section 553C(1) applies when a person wants to have a debt or claim admitted against an insolvent company that is being wound up.
Where the onus of establishing a genuine dispute on substantial grounds is required, consideration will be given to all surrounding circumstances. If the Court sees any factor that, on rational grounds, indicates an arguable case, it must find that a genuine dispute exists even where any case apparently available to be advanced to the contrary seems stronger.
Considering the low threshold required, (which the Court found the Applicant was unable to satisfy in any event) the Court also considered, the Applicant’s failure to take steps to litigate the “counterclaim”, its failure to take steps set aside the judgment debt, failure to take steps to seek leave to proceed against an insolvent company or produce satisfactory evidence of solvency ensured that the Court was unable to grant the relief sought. As such the Court found that it was the very same dealings contributed to the inability for section 553C(1) to arise.
Andrea Mapp – CommBar profile