Foreign company, unregistered and without an office in Australia, held to be amenable to a winding up order

In the recent decision of In the matter of TCL Airconditioner (Zhongshan) Co Ltd (No 2) [2019] FCA 257 the Federal Court held that a Chinese company was amenable to the Australian jurisdiction and thus could validly be served with a statutory demand under s 585 of the Corporations Act 2001 (Cth) (‘CA’), as the precursor to a winding up order.

Background

A Chinese air conditioner manufacturer and foreign company, TCL Airconditioner (Zhongshan) Co Ltd (TCL), entered into a general distribution agreement (GDA) with an Australian company, Castel Electronics Pty Ltd (Castel), for the supply of air-conditioning products to Australia.

Pursuant to the GDA, TCL would manufacturer and deliver air conditioners to a port in China and Castel would arrange for the products to be delivered to and sold in Australia. Relevantly, the GDA expressly denied that Castel operated as agent or legal representative of TCL, and stipulated that Castel had no authority to bind TCL to any transaction in Australia.

The GDA continued for several years until it was terminated by Castel after it had alleged that TCL had repudiated the contract. TCL and Castel engaged in arbitration to settle the dispute. In January 2011, the arbitrators published awards with a balance of at least $3.2 million in favour of Castel. The Federal Court registered the awards in November 2012.

In response to TCL’s failure to comply with the judgment debt, Castel served a statutory demand on TCL at an address in Queensland and by email to TCL’s solicitors in relation to the dispute, Norton Rose. Norton Rose responded to receipt of the demand by asserting that TCL was not registered in Australia and did not carry on business in Australia.

What is meant by “carries on business in Australia”?

The CA allows for Part 5.7 bodies to be wound up and have liquidators appointed to them, in exactly the same manner as companies, for reasons including “if the Part 5.7 body is unable to pay its debts”.

An unregistered foreign company may be a Part 5.7 body if it “carries on business in Australia”. Subsections 21(2) and (3) of the CA clarify the meaning of that expression.

McKerracher J in the Federal Court noted that at common law, the question of whether or not a company is carrying on business in a particular territory is a question of fact which turns on all the circumstances of the particular case.

His Honour also referred to the recent decision of Tiger Yacht Management Ltd v Morris [2019] FCAFC 8 which confirmed that, amongst other applicable principles, a company does not need to have an office or maintain an identifiable place of business within Australia to be “carrying on business” in the country.

TCL’s arguments

TCL relied on the three conditions set out in National Commercial Bank v Wimborne (1979) 11 NSWLR 156 (Wimborne) to argue that the Court did not have jurisdiction to make a winding up order. Specifically, TCL argued that TCL was not “present” in the jurisdiction as:
  1. Castel did not have authority to bind TCL as agent;
  2. Castel’s role under the GDA was to facilitate distributions to Australia, and the acceptance of orders for its products did not emanate from a place of business of TCL in Australia; and
  3. despite sale orders and contracts forming in Australia, TCL’s involvement in those orders and contracts did not continue for a sufficiently substantial period of time.

Resolution

McKerracher J did not take issue with the Wimborne conditions and accepted that Castel was not an agent for TCL by reason of the terms of the GDA (rather Castel was a buyer and TCL a seller). However, his Honour viewed the agency issue as “not the end of the inquiry as the real test is what TCL was actually doing, if anything in Australia.”

Ultimately, the process adopted by the parties (and deposed to by Castel’s managing director) led McKerracher J to conclude that taking into account all the circumstances, TCL “… was doing much more than simply selling and exporting goods disinterestedly from China to buyers in Australia” but rather was, at relevant times, carrying on business in Australia. The relevant factors included:

  1. the separate sales contracts entered into between Castel and TCL were accepted in Australia and deemed to be governed by Australian law,
  2. the quality of the products (as well as its trademark and reputation) was important to TCL to the extent that it guaranteed each airconditioning compressor sold for a period of five years and each entire unit sold for a period of one year;
  3. TCL travelled to Australia on an annual basis to meet with representatives of Castel and discuss topics including retail pricing, compliance with regulatory requirements, the nature of the warranty and promotional assistance.
McKerracher J also dealt rather swiftly with the issue of whether TCL was validly served with the statutory demand. His Honour observed that the ‘effective informal service rule’ provides that compliance with one of the prescribed modes of service is not necessary, provided:

“the serving party can prove to the Court’s satisfaction that the document actually came to the attention of an officer of the company who was either expressly or implicitly authorised by the company to deal directly and responsively with the document, or documents of that nature (a responsible officer) …”

Under s 585 of the CA, service of a statutory demand may be effected by leaving the demand at the Part 5.7 body’s “principal place of business in this jurisdiction”. Notwithstanding this requirement, his Honour inferred that the statutory demand came to the attention of TCL because Norton Rose, who responded to receipt of the statutory demand by effectively asserting that TCL was not amenable to the Australian jurisdiction, “would not have sent such a letter without instructions”.

Key lessons

Foreign companies that are not registered and do not have an office in Australia are not necessarily exempt from being wound up if it can be demonstrated that the foreign company “carries on business” in the jurisdiction.

Whether a company “carries on business” in Australia is ultimately a factual inquiry, and there is no ‘one size fits all’ approach to the issue.

The ‘effective informal service rule’ is not limited to Australian companies and the essential factor is whether it can be established that the notice came to the attention of the person to be served.

McCabe Curwood has extensive experience in matters relating to corporate insolvency. For more information on winding up a foreign company, see video by Gidon Kangisser.

Contributors

Nathan Jones Senior Associate
Gidon Kangisser Lawyer