ARAFURA FINANCE CORPORATION PTY LTD v. KOOBA PTY LTD

Supreme Court of the Northern Territory of Australia

MUIRHEAD A.J.

22, 28 September 1987 at Darwin

Companies - Winding-up - Order - Stay - Appeal against order
- Principles applicable to granting a stay.

(	Cases considered:
Re A	&  BC	Chewing Gum	Ltd	Topps	Chewing Gum	Inc.	v.
Coakley & Ors
(1975) 1 All ER 1017
Alexander	&	Ors v. Cambridge	Credit	Corporation	Ltd (Receivers appointed) & Anor
10 ACLR
Brinds Ltd & Ors v. Offshore Oil NL & Ors (No.2)
10 ACLR 242
Federal Commissioner of Taxation v. Myer Emporium Ltd
64 ALR 325
Thrifty Rent-a-Car Pty Ltd v. Darwin Marketing Services	Pty Ltd & Ors
(unreported decision of Supreme	Court of the	Northern Territory - 12 March 1987)

Cases referred to:
In re Diamond Fuel Company (1879) 13 Ch D 400
Jennings Constructions	Ltd v. Burgundy	Royale	Investments Pty Ltd
69 ALR 265 Joskovitz v. Bonnick
[1964] VR 654
Robert ff.Barber & Co Ltd v. Simon (1914) 19 CLR 24

Counsel for Plaintiff Solicitors for Plaintiff

Counsel for Defendant Solicitors for Defendant

T.J.Riley
Philip &   Mitaros

D.Mildren Q.C. Loftus &  Cameron

'•

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY OF AUSTRALIA
IN DARWIN
No.320 of 1987		BETWEEN: ARAFURA FINANCE
CORPORATION PTY LTD
Plaintiff

AND:
KOOBA PTY LTD
Defendant

MUIRHEAD A.J.

REASONS FOR DECISION
(Delivered Monday, 28 September,1987)

In this matter the plaintiff company sought an order for the winding up of the defendant company. The application was resisted. On 3 September  I delivered reasons in which, to put it concisely, I determined an order should be made notwithstanding that I was not satisfied that the total sum specified in the Section 364(2) notice was due. I found that at least

,•

$36,798.19 was	then due.	I adjourned	the matter	to
17 September to give the defendant the opportunity of paying that sum and intimated that if payment was not effected the order would be made. On that date the matter was called on and Mr Mildren Q.C. for the defendant intimated the sum had not been paid and he advised me his instructing solicitors proposed to institute an appeal. As counsel for the plaintiff was not present I adjourned the matter until 22 September. On that day I made the order sought. Mr Mildren then sought a stay of proceedings on the basis that an appeal was being immediately instituted, an application strongly resisted by the plaintiff. No affidavit in support of the application has been filed, no monies paid into Court to abide the result. I have little evidence of the situation of the defendant, although I accept without hesitation those few matters put to me for my information by Mr Mildren. I understand the defendant is not actively trading and its main asset may indeed be an option to purchase, or a proprietary right in shares of another company, a matter which I understand may be the subject of some other litigation.

It is now about 4 months  since  the application for winding up was lodged. As my reasons for judgment indicate, there is undoubtedly a divergence of judicial views as to the course to adopt

where the Section 364(2) notice requires payment of an amount in excess of the sum proved to be due. I accept the fact that there is a bona fide issue to be determined on appeal. It is probable that further months will elapse before the appeal is determined. Meanwhile, the administration of the company's affairs will remain in the hands of the present directors. The material examined by me when determining whether a winding up order should be made causes me to hold some anxiety as to whether the interests of creditors or contributories will be preserved or heeded, should the liquidator not take control.

As far as I can see, the Code makes no specific reference to a stay of the winding up order after it has been made, and I have some doubts as to whether 0.43 R.16 of Rules of Supreme Court (NT) which empowers the Court to grant a stay of execution after judgment is applicable. Joskovitz v. Bonnick (1964) VR 654 is authority for the proposition that the Court's

discretion	under	this	Rule Section 372(2)	contemplates		the

is	a	wide appointment	of

one.
a

provisional liquidator where there is an appeal against a winding up order until  the appeal  is  determined. Mr Riley concedes I have the power to grant a stay within the general exercise of the inherent powers of the Court and I am satisfied that such power exists.

The authorities suggest an application for a stay may properly be made upon the motion of the directors exercising their residuary powers despite a winding-up order. (See Re Union Accident Insurance Co Ltd (1972)
1 All ER 1105 per Plowman J.@ 1113).

In Re Diamond Fuel Company (1879) 13 CH D 400 is authority for the proposition that despite the fact a liquidator has been appointed, a residual power of appeal remains vested in the directors. This decision is also some authority for the proposition that a company appealing against a winding-up order may well be directed to provide security for costs, a matter adverted to by Mr Riley in his submissions. (See also Robert H.Barber & Co Ltd v. Simon (1914) 19 CLR 24 @ 28).

.	A very restrictive	approach to the	granting
!
of a stay in winding up proceedings was enunciated by Plowman J. in Re A & BC Chewing Gum Ltd: Topps Chewing Gum Inc v. Coakley & Ors (1975) 1 All ER 1017@ 1029. That case involved a dispute between directors of a company which was apparently trading profitably, the order for winding up being made on the 'just and equitable' grounds. His Honour apparently following the English practice at the time stated:

"But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding-up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of s.227 of the 1948 Act; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.
Supposing there is an appeal and the winding-up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered; it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously. But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, really no additional harm has been done once the winding-up order has been made by refusing a stay" (at p.1029).

He thus found that the fortunes of the company were not likely to be jeopardized, bearing in mind the liquidator's right of carrying on the business, and his principal concern related to the liquidator's opportunity of ascertaining the assets and protecting the situation of creditors. A more liberal approach was adopted by the Court of Appeal in New South Wales in Alexander & Ors v. Cambridge Credit Corporation Ltd (Receivers  appointed) &      Anor 10  ACLR
42. There the Court referred to earlier authorities (notably Victorian) where it had been held that a "judgment creditor is  entitled to the  'fruits of  his

victory' unless the appellant can show 'special' or 'exceptional' circumstances which warrant the imposition of a stay". The Court reconsidered the principles and concluded (@ p.50) "In our opinion  it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour".

Shortly after Alexander (supra) the Victorian Full Court considered the situation in Brinds Ltd & Ors v. Offshore Oil N.L. & Ors (No.2) 10 ACLR 242. It affirmed the inherent jurisdiction to grant a stay, the locus standi of the company to seek a stay without the liquidator's consent and dealt with matters which went to the exercise of the discretion (see p.245).

In Federal Commissioner of Taxation v. Myer Emporium Ltd 64 ALR 325, Dawson J. referred to applicable principles including the necessity that the

applicant	for	a	stay	should	demonstrate circumstances'.		He said (p.327):

'special

"It is well established by authority that the discretion which it confers to order a stay of proceedings is only to be exercised where special circumstances exist which justify departure from the ordinary rule that a successful litigant is entitled to the fruits

of his litigation pending the determination of any appeal: see, eg, The Annot Lyle (1886)
11 PD 114 at 116; Scarborough v. Lew's Junction Stores Pty Ltd [1963] VR 129 at 130. Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory: see Wilson v. Church  (No.2) (1879)  12 Ch  D
454 at 458 Klinker  Knitting Mills Pty  Ltd v. L'Union Fire Accident and General Insurance Co Ltd [1937] VLR 142. Generally that will occur when, because of the respondent's financial state, there is no reasonable prospect of recovering moneys paid pursuant to the judgment at first instance. However, special circumstances are not limited to that situation and will, I think, exist where, for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed:  see McBride v. Sandland [No.2] (1918) 25 CLR 369 at 375."

In Jennings Constructions Ltd v. Burgundy Royale Investments Pty Ltd 69 ALR 265, Brennan J. stated (at p.267):

"In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this court's discretion. In each case when the court is satisfied a stay is required to preserve the subject matter of the litigation, it is relevant to consider first, whether there is a substantial prospect that special leave to appeal will be granted; secondly,  whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies."

Asche J.	(as	he	then	was)	examined	and

applied	the

remarks

of	Brennan J.	in

Jennings

Constructions

(supra)

in	this

Court	in

Thrifty

Rent-a-Car Pty Ltd v. Darwin Marketing Services Pty Ltd
&  Ors	(unreported decision	of	Supreme Court	of	the

Northern Territory	12-3-87)	and	appears	to	have

placed	considerable	emphasis	upon	the	'balance	of convenience' test.

Various	principles	(some	in	apparent

conflict) emerge from these authorities - the manner in which they are expressed inevitably being governed to some extent by the nature of litigation in issue and the factual and historical background to the application for stay. I accept that the restricted approach of Plowman J. referred to earlier in these reasons has not been adhered to in this country, albeit

,-,	I	consider	there	are	sound	reasons	for
(	)

cautious

examination	of	such	applications	in matters.

liquidation

I have already stated that it cannot be said that the appeal has no merit but many other matters concern me.

..

( 1)	The evidence tendered upon the application to wind up satisfied me that Kooba Pty Ltd is in considerable difficulty.

( 2)	The	defendant	did	not	pay	the	sum	of
$36,798.19 to the petitioning creditor within the 14 day span I allowed, having been informed that in that event a winding-up order would be made.

( 3)	No affidavit material has been tendered as to the assets or debts of the company nor have the directors deposed that the company is in fact able to pay its debts.

( 4)	The company is not trading. Prior to the winding up no steps were taken to prevent advertising of the petition. The reputation and the fortunes of the company are unlikely to be prejudiced.

( 5)	The directors have the right, if they see fit to do so, to prosecute the appeal.

( 6)		The liquidator essentially acts subject to directions of the Court. His  appointment will serve to ascertain and preserve assets

..	-.

(contingent or otherwise) for the benefit of the creditors. If the assets consist of options, they may in the liquidator's discretion be exercised if such exercise is to the benefit of the company and its creditors.

( 7)		A stay will involve further substantial delay and am not satisfied the creditors' interests will be protected during this time.

( 8)	It is unlikely that the assumption by the liquidator of his duties and responsibilities will deprive the company of the benefit of a successful appeal.

However one approaches the matter i.e. by applying the test of the applicant establishing special or exceptional circumstances, or demonstrating appropriate reasons to warrant the stay, or by applying the balance of convenience test, I am satisfied the stay must be refused. I regard it as important  that the liquidation proceed; the creditors are thereby likely to benefit and the fortunes of the company are unlikely to suffer.

The application for a stay of proceedings	is refused.	I will hear counsel as to costs.