The New South Wales Court of Appeal in Chief Commissioner of State Revenue v Boss Constructions (NSW) Pty Ltd [2018] NSWCA 270 has found that an estoppel cannot operate to effectively extend the time limitation imposed by s 459G(2) of the Corporations Act 2001 (Cth) (“CA”).
Section 459G(1) of the CA enables a company which has been served with a creditor’s statutory demand under s 459E of the CA to apply to the Court for an order setting aside the demand. However, by s 459G(2), the application “may only” be made within 21 days after the demand is served. Section 459G is contained in Pt 5.4 of the CA (ss 459A – 459T) which establishes a regime for the winding up of a company in insolvency.
Background
The Chief Commissioner of State Revenue (“Chief Commissioner”) had served a statutory demand on a company for unpaid payroll tax and interest. The company made an application to the Supreme Court of New South Wales to set aside the demand under s 459G. A question arose as to whether the application had been made within the 21 day period referred to in s 459G(2). The application had been filed on 20 July 2017. The company maintained that the demand had been served on 29 June 2017 and, accordingly, the application had been made within the prescribed time. The Chief Commissioner, on the other hand, contended that the demand was served on 27 June 2017 and so the application was filed outside the prescribed time.
After a separate hearing of the question, the trial judge found that service of the demand had in fact been effected on the earlier date of 27 June 2017 but further found that the parties had proceeded upon the assumption that the demand had been served on 29 June 2017 and that it would be unconscionable for the Chief Commissioner to depart from that assumption. Accordingly, the trial judge concluded that the Chief Commissioner was estopped from disputing that service was not effected until 29 June 2017 or that the application to set aside the demand had been made within the prescribed time. The Chief Commissioner appealed by leave to the Court of Appeal.
Court of Appeal
Bathurst CJ (with whom Leeming JA and Sackville AJA agreed) made the following points about the legislative scheme of Pt 5.4 of the CA (at [17]-[20]). References to the cases have been omitted.
- The practical effect of the provisions relating to statutory demands was that, where a statutory demand had been served, a company which had not availed itself of the procedure in s 459G to set aside the statutory demand was not entitled to oppose the winding up application on a ground which could have been raised to set aside the demand, such as by disputing the existence of the debt, unless the Court granted leave to do so.
- The statutory demand regime constituted a carefully formulated series of interlocked steps which had substantial consequences and the objects of which required precise compliance for their attainment. The focus should be on the actual statutory provisions and what they are intended to achieve.
- The statutory demand provisions constituted a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts unless they were raised promptly.
Bathurst CJ then noted that David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 had rejected the proposition that the Court could extend the time limitation in s 459G(2) by an order under s 1322(4)(d) of the CA and had described the time limitation and other requirements in s 459G as a limitation or condition upon the Court’s authority to set aside the demand, indicating that the expression “may only” defined the jurisdiction of the Court by imposing a requirement as to time as an essential condition of the right conferred by s 459G (at [21]).
His Honour further noted that a similar approach had been adopted by later authorities (at [22]-[24]).
His Honour then said that it was plain that an estoppel could not operate to effectively extend the time limitation imposed by s 459G(2) for the following reasons (at [25]-[27]):
- The requirement as to time defined the Court’s jurisdiction by imposing the requirement as an essential condition of the right conferred by s 459G. Just as an order under s 1322(4)(d) of the CA could not extend the time so as to confer jurisdiction, the time could not be extended either by agreement of the parties or by the operation of an estoppel.
- The text of the legislation supported this conclusion:
- The term “may only” in s 459G(2) told against any variation in the time limit as a result of an agreement of the parties or by the operation of an estoppel.
- The other detailed requirements in Pt 5.4 of the CA relating to the form of the application to set aside a demand under s 459G and the limited power to extend the time in s 459F(2)(a)(i), together with the wording of s 459G, indicated that the time limit could not be varied.
- The policy behind Pt 5.4 tended against the proposition that estoppel could operate to vary the time limit. The object of the legislation was to provide a mechanism by which applications to wind up potentially insolvent companies could be dealt with promptly, with s 459R(1) of the CA requiring that such applications be finally determined within 6 months. In the case of the statutory demand procedure, this was achieved by setting out detailed steps to be taken within precise time limits. It was clear why the legislature regarded this policy to be in the public interest, and this was a further powerful reason why the time limitation should not be able to be varied by the application of doctrines such as estoppel.
To the extent that such a conclusion might result in any harsh results, his Honour considered that this needed to be balanced against the public interest in the prompt determination of applications to wind up insolvent companies and the avoidance of injustices that might be caused by the continued trading of such companies. His Honour further considered that s 459S of the CA, which enables the Court to grant leave to raise matters which could have been raised in an application under s 459G if relevant to the question of solvency, could alleviate any harsh results (at [28]).
Bathurst CJ went on to make it clear that it did not matter how the estoppel was formulated or expressed – the effect was to prevent the Chief Commissioner from asserting that the time limit imposed by s 459G(2) had expired, and thus, to confer jurisdiction on the Court to hear an application which it otherwise would not have. The estoppel could not operate in the face of the legislative scheme of Pt 5.4 of the CA (at [29]-[31]).
Outcome of the appeal
Although the Court of Appeal dealt with the substantive issue on the appeal, the Court did not allow the appeal and dismiss the company’s application because, at the time that leave to appeal had been granted, the Court’s attention had not been drawn to s 459C(2) of the CA which only requires the Court to presume insolvency if the company failed to comply with the statutory demand during or after the 3 months ending on the day the application for a winding up order was made. As there was nothing to suggest that an application for a winding up order had been made within the time prescribed by s 459C(2), the effect of this subsection was to render the proceedings “entirely hypothetical”. Accordingly, the order made by the Court of Appeal was to direct the parties to provide submissions within 10 days on whether leave to appeal should be revoked (at [32]-[36]).
