Law v James
[1927] 2 NSWLR 573(Decision by: Hardie JA)
Law
vJames
Judges:
Jacobs JA
Hardie JAHope JA
Judgment date: 1 November 1972
Decision by:
Hardie JA
Northside Properties Pty. Ltd. was a company incorporated under the New South Wales Companies Act , 1961. Its balance sheet as at 30th June, 1969, showed assets of the value of $1,607.32, and debts in excess of $100,000. On 1st May, 1970, a judgment creditor of the company presented a petition for the compulsory winding up of the company upon the ground that it was unable to pay its debts. The petition was served on 11th May, 1970, advertised in accordance with the rules on 21st and 22nd May, and heard on 4th August 1970, when a winding up order was made. Proof of the company's inability to pay its debts consisted of evidence that the company had failed to comply with a demand for payment pursuant to s. 222 (2) of the Companies Act , 1961.
On 27th May, 1970, the directors of the company, four in number, held a directors' meeting. The chairman, the appellant James, tabled notices received by the company that Mrs. Marks had assigned to James the debt of $2,653.25 owing to her by the company. The chairman also tabled notices received by the company that Mrs. Jorgenson had assigned to him the debt of $3,235.55 owing to her by the company. The minute recorded that James owed the company the sum of $6,021.33 on his loan account, and further noted that as a result of the assignments of the debts by Mrs. Marks and Mrs. Jorgenson to James, the latter then owed the company the amount of $132.53 on his loan account. James tabled his cheque in that amount in favour of the company and a resolution was passed to the effect that the cheque in question should be accepted in repayment of James' indebtedness to the company.
On 10th March, 1971, the solicitors for the liquidator wrote to James claiming that the arrangement and transactions of 27th May, 1970, were void and of no effect and calling upon him to pay to the liquidator the amount of $6,021.33 less the sum of $132.53 paid by him on 27th May, 1970. The solicitors for James replied on 31st March, 1971, claiming that the amount of their client's indebtedness to the company had been satisfied. This claim was supported by the submission that none of the transactions constituted a disposition of the property of the company within the meaning of s. 227 of the Companies Act , and alternatively that, in the light of the provisions of the bankruptcy law relative to set-offs applicable to companies in the course of winding up, their client was entitled to set-off against his indebtedness to the company the debts owing by the company to Mrs. Marks and Mrs. Jorgenson and assigned by the latter to him.
On 6th September, 1971, the liquidator took out a summons under the Companies Act , claiming as against James, declarations that the purported setting-off of 27th May, 1971, took effect after the commencement of the winding up of the company by the court and at a time when James had notice that the company was insolvent, and accordingly that the purported setting-off was void.
The matter was heard in due course by Street J.: see Re Northside Proper ties Pty. Ltd. and the Companies Act (4). The evidence before him consisted of the relevant documents, namely, balance sheet of the company as at 30th June, 1969, assignments from Mrs. Marks and from Mrs. Jorgenson, notices to the company of the assignments and minutes of the board meeting of 27th May, 1970. The court made the declaration sought by the liquidator on the ground that the transaction took place after the presentation of the winding up petition, that the respondent had notice of the presentation of the petition and that, for the purposes of applying the set-off provision of the Bankruptcy Act 1966-1969 (Cth) (s. 86), the presentation of a winding up petition was equivalent to "an available act of bankruptcy". The steps by which the Equity Court reached this conclusion are set out in detail in the judgment under appeal. The critical portion of the reasoning reads (5):
"It can fairly be said that the presentation of a winding up petition casts over the affairs of a company a shadow somewhat analogous to the committing of an act of bankruptcy in the case of an individual. If the petition is dismissed, the shadow will dissipate. If an order is made, then the shadow will darken retrospectively, and provisions, such as those avoiding dispositions of property and the like, will operate throughout the period from the date of presentation of the petition. For the purposes of deciding the present case I prefer to recognize, and apply, the direct analogy between the presentation of a winding up petition in the case of a company and, on the other hand, the committing of an act of bankruptcy in the case of a personal debtor."
Other portions of the judgment left open the question as to whether failure to comply with a demand for payment under s. 222 of the Act was sufficiently analogous to non-compliance with a bankruptcy notice.
Counsel for the appellant pressed before us the argument that his client was entitled to rely on the provisions of s. 86 (1) of the Bankruptcy Act and that this right of set-off was not diminished or affected by the operation of the provisions of s. 86 (2). It was put that there was no act, omission, event or set of circumstances, in the case of the winding up of a company, identical with or analogous to an available act of bankruptcy committed by a personal debtor.
In the case of a petition to wind up a company on the ground that it is unable to pay its debts there is, in my view, a clear and close analogy to an available act of bankruptcy in the case of an individual, where, as here, a notice of demand for payment of a debt in excess of $100 is served and not complied with within the period specified. The service of such a notice and non-compliance by the company is proof of the company's inability to pay its debts and constitutes an act or omission similar or analogous to an act of bankruptcy committed by an individual.
In the instant case it is beyond argument that the appellant as chairman of the board of directors would have had knowledge of the service of the notice and the failure to comply with it prior to the date of the assignment to him of the two debts in question; that is to say, prior to the date on which the respon dent acquired the debts which he sought to set-off against his indebtedness to the company.
In my opinion the order made on the application of the liquidator was clearly correct on the basis indicated above. On this view, it is unnecessary to go into the question dealt with in the court below as to whether the presentation of the petition is equivalent, for the purposes of applying s. 86 of the Bankruptcy Act to a company in the course of being wound up compulsorily, to an available act of bankruptcy committed by a private individual; further, it is unnecessary to examine the alternative basis on which the liquidator sought to support the decision under appeal, namely that, as the winding up is deemed to have commenced at the date of the presentation of the petition, the right of set-off under s. 86 (1) is not available to the appellant, whose claim to be a creditor of the company depends upon transactions which took place after the presentation of the winding up petition.
For the reasons indicated I am of the opinion that the appeal should be dismissed with costs.