ACN 076 676 438 Pty Ltd (in Liq) v A-Comms Teledata Pty Ltd
[2001] WASC 97
•12 APRIL 2001
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: ACN 076 676 438 PTY LTD (IN LIQ) & ANOR -v- A-COMMS TELEDATA PTY LTD & ANOR [2001] WASC 97
CORAM: McKECHNIE J
HEARD: 10 APRIL 2001
DELIVERED : 12 APRIL 2001
FILE NO/S: CIV 1592 of 2000
BETWEEN: ACN 076 676 438 PTY LTD (IN LIQ)
First Plaintiff
GLENN ROBERT FEATHERBY
Second PlaintiffAND
A-COMMS TELEDATA PTY LTD
First DefendantREEDER GLENN NICHOLS
Second Defendant
FILE NO/S :COR 41 of 2001
BETWEEN :A-COMMS TELEDATA PTY LTD (ACN 089 699 945)
REEDER GLENN NICHOLS
X-COM AUSTRALIA PTY LTD (ACN 010 772 979)
SHARMAN PETCH
ApplicantsAND
ACN 076 676 438 PTY LTD (IN LIQ)
First RespondentGLENN ROBERT FEATHERBY
Second Respondent
Catchwords:
Liquidator - Duties - Continuance of litigation - Approval to compromise - No new principles
Legislation:
Corporations Law (Cth)
Result:
Approval to compromise action given
Representation:
CIV 1592 of 2000
Counsel:
First Plaintiff : Mr K L Christensen
Second Plaintiff : Mr K L Christensen
First Defendant : Mr P Mendelow
Second Defendant : Mr P Mendelow
Solicitors:
First Plaintiff : Tottle Christensen
Second Plaintiff : Tottle Christensen
First Defendant : Karp Steedman Ross-Adjie
Second Defendant : Karp Steedman Ross-Adjie
COR 41 of 2001
Counsel:
Applicants: Mr P Mendelow
First Respondent : Mr K L Christensen
Second Respondent : Mr K L Christensen
Solicitors:
Applicants: Karp Steedman Ross-Adjie
First Respondent : Tottle Christensen
Second Respondent : Tottle Christensen
Case(s) referred to in judgment(s):
Teledata World Services Pty Ltd v Australian Satellite and Cablevision Pty Ltd [1999] WASC 141
Case(s) also cited:
Corporate Affairs Commission v Harvey (1979) CLC 40-564
Gray v Bridgestone Aust Ltd (1986) 10 ACLR 677
In Re Federal Bank of Australia Ltd [1894] 20 VLR 199
In Re Sir John Moore Gold Mining Company (1879) 12 Ch D 331
Leon v York-O-Matic Ltd [1966] 3 All ER 277
Northumberland Insurance Co Ltd (No 2) (1975) 1 ACLR 142
Partnership Pacific Ltd v Aliprandi (1990) 4 ACSR 51
Re Adam Eyton Ltd & Co (1887) 57 LJ Ch 127
Re Chase Corp (Aust) Equities Pty Ltd (1990) 8 ACLC 1118
Re Devonshire Silkstone Coal Company (1878) WN 71
Re Imobridge Pty Ltd (In Liq) (No 2) (2000) 18 ACLC 29
Re Spedley Securities Ltd (In Liq) (1992) 9 ACSR 83
Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 12 ACLR 730
Tanning Research Laboratories Inc v O'Brien (1987) 11 ACLR 778
Yeomans v Walker (1986) 5 NSWLR 378
McKECHNIE J:
INTRODUCTION
There are two applications before the court in respect of different proceedings. There is an application by a liquidator for approval to dispose of certain property and effectively compromise litigation. There is an application by creditors to remove the liquidator and for orders to progress the litigation.
For convenience, as will appear, the applications have been heard together.
On 9 October 2000, I made the following orders in CIV 1592 of 2000:
"The order made by the Hon Justice Parker on 30 August 2000 in so far as it extended the terms of the injunction granted by the Honourable Justice Owen on 11 July 2000 be varied and that the Defendants do deliver to the Second Plaintiff the assets described in paragraph 5 of the affidavit of Reeder Glenn Nicholls sworn 8 June 2000 and filed herein ('the Property') by 4:00pm on Tuesday 10 October 2000.
On 6 February 2001 the liquidator and the company sought orders that:
"1.The Plaintiffs be authorised to dispose of the property referred to in paragraph 2 of the order of The Honourable Mr Justice McKechnie made 9 October 2000 pursuant to the terms of the agreement which is annexure 'MR2' to the affidavit of Mark David Reilly sworn January 2001 and such application is also made pursuant to the provisions of section 477(6) of the Corporations Law.
2.The costs of the application be provided for.
…."
On that day I made programming orders allowing creditors leave to make application to oppose the orders sought on the chamber summons and to file affidavits.
The matter was set down for a special appointment on 19 March 2001.
The matter was adjourned on that day on application of the creditors and subsequently re‑listed for 10 April 2001 when the matter proceeded.
In related proceedings, COR 41 of 2001), A-Comms Teledata Pty Ltd, Reeder Glenn Nichols, X-Com Australia Pty Ltd and Sharman Petch, as applicants, sought orders against ACN 076 676 438 Pty Ltd (In Liquidation), as first respondent, and Glenn Robert Featherby, as second respondent. I shall hereafter refer to the four applicants in COR 41 of 2001 as the applicants. On 10 April 2001, I also heard argument on the applicants' application for the following orders:
"1.The second respondent be removed as liquidator of the first respondent and a Court appointed liquidator be substituted for the second respondent;
2.Until the appointment of the Court appointed Liquidator referred to in paragraph 1, the winding up of the first respondent be stayed;
3.An order restraining the second respondent from the disposing of the property referred to in paragraph 2 of the Order of the Honourable Justice McKechnie made on 9 October 2000 in CIV 1592 of 2000 ('Property') by the above Honourable Court;
…."
History of the litigation
The road to these applications has been tortuous and it is necessary to set out the background in order to understand the contentions of the parties.
ACN 076 676 438 Pty Ltd (In Liquidation) was formerly known as Teledata World Services Pty Ltd and I will refer to it hereafter for convenience as Teledata.
Teledata was incorporated in 1996 as a telecommunications service provider and Reeder Glenn Nichols was its Managing Director.
In 1998 Teledata was contracted to provide temporary telephone services to construction camps along the Pasminco Century Zinc pipeline in North Queensland.
Teledata arranged for Australian Satellite and Cable Vision Services Pty Ltd ("ASCS") to supply satellite communications and telephone switching equipment.
When the equipment was provided, Teledata asserted that the equipment was faulty and defective and in due course commenced litigation against ASCS. That company, in turn, counterclaimed in the sum of $80,658. On 5 August 1999 I ordered that the proceedings be transferred to the Supreme Court of South Australia: Teledata World Services Pty Ltd v Australian Satellite and Cablevision Pty Ltd [1999] WASC 141.
In September 1999, Teledata purported to sell its business, including certain equipment and most of its creditors, to A-Comms Teledata Pty Ltd ACN 089 699 945 ("A‑Comms"), not to be confused with one of the applicants in COR 41 of 2001, A‑Comms Ltd.
On 8 February 2000, Teledata was wound up by reason of its insolvency by order of the court. Mr Featherby was appointed as liquidator.
Mr Nichols supplied a report on the affairs of the company to the liquidator.
In the course of that report, he indicated that the company effectively had no cash, stock, work in progress or plant and equipment or other assets. The only unsecured creditors shown were two disputed debts, not here relevant, and a claim by ASCS for $80,658, which was said to be offset against a claim for $350,000 for damages. There may or may not be a plus sign after the number $350,000. That is a reference to the litigation now in South Australia to which I have referred.
Subsequently, the liquidator commenced proceedings against A‑Comms and Mr Nichols after ASCS agreed to indemnify the plaintiffs. These are the proceedings numbered 1592 of 2000.
These proceedings were commenced by writ of summons and sought by way of relief inter alia a declaration that the sale agreement between Teledata and A-Comms was void and a declaration that A‑Comm holds the assets the subject of the sale agreement upon a constructive trust for the benefit of Teledata. The liquidator obtained an injunction in respect of the equipment which had been taken out of the possession of Teledata.
That equipment was the subject of my order of 9 October 2000.
On 9 October 2000 the liquidator also obtained an order for judgment in default against A‑Comms. The judgment read:
"1.In default of the first defendant complying with the order made by the Honourable Justice Miller made on 29 September 2000 for the filing and serving of its defence to the plaintiffs' amended statement of claim dated 5 July 2000 the written agreement entered into between the first plaintiff and the first defendant dated 28 September 1999 wherein the first plaintiff purported to sell all of its assets and undertakings to the first defendant is declared void and is hereby set aside.
2.The first defendant holds on trust the first plaintiff's assets being the subject of the aforesaid agreement.
3.The first defendant do pay to the plaintiffs such damages or equitable compensation suffered by the plaintiffs to be assessed.
4.The first defendant do pay to the plaintiffs interest on all sums found due from 28 September 1999 to the date hereof, such interest to be compounded with monthly rests at the rate of 6%.
5.The first defendant pay the plaintiffs' costs of the action, including reserved costs, to be taxed."
Subsequently, by consent, the action by the plaintiff against the second defendant Mr Nichols has been settled on the basis that the plaintiffs' claim against the second defendant be discontinued with no order as to costs.
From what I have set out, it appears that there are two assets of Teledata. The first is the physical equipment which is subject to dispute. Teledata asserts in its action against ASCS that it has rejected the goods as unfit. ASCS denies that. At all events, the property is in the hands of the liquidator. The second asset is the chose in action which is the litigation. The damages claim is unresolved and unquantified. It is unquantified to this extent. In the report to which I have referred, Mr Nichols valued the damages claim at $350,000. In an affidavit sworn in those proceedings on 4 April 2001, he values the claim at $1.8 million. As he provides no calculations as to the $1.8 million, I can ascribe no weight to that figure. All that can be said is that Teledata has a substantial claim for damages against ASCS but that much work would be required to establish the extent of the loss and the damages.
The parties to the litigation
Mr Featherby, the liquidator, was appointed by the court. As I have outlined, he has taken action against the previous Managing Director, Mr Nichols, and has been funded or indemnified in respect of that action by ASCS. Mr Nichols is a person interested in the liquidation.
There are a number of other persons who have now lodged proof of debt. They are the companies or persons who, together with Mr Nichols, I refer to as the applicants.
Events of November/December 2000
In late 2000 ASCS took action in South Australia against Teledata seeking an order for security for costs and to strike out the action for want of prosecution.
The application for security for costs was dismissed. The application to strike out for want of prosecution has been adjourned from time to time awaiting resolution of the liquidator's application in these proceedings. The application to strike out is listed for 20 April 2001 in the South Australian Supreme Court.
In November 2000, when Mr Nichols and the applicants became aware of the ASCS applications, they lobbied the liquidator to oppose them. Some money was made available by Ms Sharman.
It appears that some $4000 was transferred to South Australian solicitors Finlaysons and a further $4000 lodged in a solicitor's trust account in Perth as an indemnity for the liquidator.
However, Finlaysons required the liquidator and/or his solicitors to assume personal liability for costs, something neither were prepared to do.
As a result, Finlaysons withdrew as solicitors on the record for Teledata.
An agreement is reached
The liquidator subsequently entered into an agreement which is subject to approval of this Court. That agreement is as follows:
"1.Each party to the South Australian action releases the other from all claims and counterclaims arising in the action with each party bearing their own costs in respect of the action. The parties shall each sign a Notice of Discontinuance of the South Australian action which shall be filed.
2.My client will withdraw its Proof of Debt in the winding up of Teledata and agree not to file any further Proof of Debt in the winding up of that company.
3.The Liquidator shall sell to my client so much of the satellite equipment listed on the attached schedule as is in the possession of the Liquidator or has been returned to my client, in consideration of the payment of the consideration amount referred to in clause 4 of this letter.
4.In consideration of the Liquidator transferring the satellite equipment to my client, my client shall pay a consideration amount of $44,000 to the Liquidator. The payment shall be made seven days after the signing of an agreement between the parties to record the settlement. The payment is subject however to the conditions outlined in this letter being met.
5.The Liquidator warrants that he has good title to the satellite equipment hereby sold to my client. Other than this, all other warranties are excluded and the equipment is being acquired on a strictly as is basis.
6.My client has signed an Agreement for Indemnification ('the Indemnity') whereby my client indemnifies the Liquidator for costs associated with a certain action. The action is a court action in the Supreme Court of Western Australia (CIV 1592 of 2000) taken by the Liquidator to set aside the purported transfer of Teledata's business and assets to A‑Comms Teledata Pty Ltd. My client has paid or is liable to pay the following costs as a result of the indemnity:-
6.1$33,000.00 Tottle Christensen;
6.2$6,000.00 Featherby Reilly ('the indemnity costs')
7.It is a condition of this settlement that the indemnity costs are reimbursed by the Liquidator to my client. This reimbursement would come within Section 556(1)(a) of the Corporations Law in repayment to the indemnifying creditor (my client) for the costs paid under the Indemnity.
8.The payment of the reimbursement amount may be done by way of set‑off against a proportion of the consideration payable under clause 3.
9.This agreement is subject to such approvals as may be required by virtue of the Corporations Law or otherwise. Please let me know if you think any further authority is required, perhaps by virtue of a Court order.
10.My client would meet the Liquidator's and your costs in relation to the negotiation, finalisation and carrying out of this agreement. I would need an estimate of these costs.
11.My client would arrange for so much of the satellite equipment as is in your client's possession to be transported across to Adelaide at my client's expense."
This agreement has been reduced to a formal deed. I have set out the letter of offer which expresses the salient features.
If approval is given to the liquidator, following the payment of the costs referred to within the agreement, there will be available for distribution to creditors the sum of only $5000.
The applicants take exception to this agreement. They say the court should not countenance the compromise. They assert that the liquidator has breached his duties and in any event it is in the interests of creditors that a new liquidator be appointed. They wish the South Australian litigation to proceed, or at least to be properly assessed. They acknowledge the need for funding.
The funding of future litigation
In my view, although many matters are raised which are important, the most important and decisive is the question of funding.
In his affidavit of 23 May 2000, Mr Reilly, acting for the liquidator, deposed:
"4.10In respect to the Company's position regarding the proceedings against Australian Satellite, which were instituted in this Honourable Court, but which have been subsequently transferred to the Supreme Court of South Australian (sic) I have been informed by Tim Cavanagh the managing partner of Corsers and verily believe that:-
4.10.1no detailed opinion was provided by Corsers on the merits of these proceedings;
4.10.2the case against Australian Satellite requires detailed expert opinion on the state of the equipment in order to support the Company's allegations against Australian Satellite that the equipment supplied was faulty and that (sic) was never provided to him.
4.11I have been further informed by Tim Cavanagh and verily believe that:-
4.11.1in part settlement of monies due by the Company to Corsers they were given post dated cheques drawn on an account of Nichols;
4.11.2the aforesaid cheques were dishonoured upon presentation."
It is manifest that Teledata has never had any funds with which to pursue the litigation against ASCS in any way. There has been no money even for the purposes of obtaining an expert opinion or counsel's opinion.
Therefore, funding the litigation has always been a critical issue.
In an affidavit sworn 23 January 2001, Mr Reilly deposed:
"6.Prior to Featherby's appointment as liquidator of the First Plaintiff, the Company has caused proceedings to be instituted in South Australia against Australian Satellite and had engaged the firm of solicitors, Finlaysons, to act on its behalf. As I had no funds with which to engage Finlaysons, they subsequently applied and obtained an order that they be taken off the record in those proceedings. …
…
8.Save for the indemnity provided, as approved in COR 131 of 2000, no monies have been received in the winding up of the First Plaintiff.
9.I have not received any monies from the First Defendant herein with respect to the judgment obtained in these proceedings against it."
In a further affidavit sworn 10 April 2001, he deposed:
"8.I have never had any funds or sufficient information to obtain any independent advice against the proposed action against Australian Satellite.
…
13.With respect to paragraph 33 of Nicholls' Affidavit, I have never had the information or monies to be able to instruct solicitors to advise on the Action.
14.With respect to paragraph 35 of Nicholls' Affidavit, I recall at one meeting with Nichols asking whether he had financial resources to provide an indemnity to which he said he did not.
…
18.I have not had sufficient monies to ascertain who the creditors of the Company are.
19.In relation to the testing of the Property, I have had some discussions with Mr Nicholls that arrangements be put into place and funding for the testing take place. At no time has he ever made a proposal to fund the testing of the equipment."
There is a considerable factual dispute, both in the correspondence and the affidavits, as to the extent to which the applicants have offered to fund the litigation and to indemnify the liquidator. Further, in relation to Mr Nichols, there is a dispute as to the extent to which he has offered his assistance to the liquidator. On their behalf it is asserted that the liquidator has failed in his fiduciary duties in calling a meeting of creditors.
Some comment needs to be made to as who are the creditors of the company. In the report, to which I have referred, Mr Nichols did not assert that there were creditors other than those disputed claims listed. That list did not include the applicants.
In an affidavit sworn 4 April 2001, he asserts there were a number of creditors at the time of liquidation, including Ms Sharman Petch - $30,225.67; X-Com - $40,000, a company associated with Mr Halabi; Paul Cougan - $13,000; Re‑Com World Services Pty Ltd ‑ $38,462; and A-Comms Ltd - $689,869.78, a company associated with Mr Toms.
He deposes that:
"37.Despite the fact that the Liquidator … has had verbal and written offers from the Creditors to fund the Liquidator or indemnify the Liquidator to both test the defective Property and to progress the Action; has had offers of assistance of time to progress the Action; has had knowledge that the Action passed the threshold requirements in the security for costs application, the Liquidator appears to have refused to inform himself about the merit of the Action, and has refused to progress the Action, to the prejudice of the Creditors."
A proof of debt has been lodged by Mr Toms and the other applicants.
The various creditors, or their authorised representatives as the case may be, have sworn affidavits which are in almost identical terms.
For example, Mr Toms swears that he is a company director of A‑Comms Ltd and that it is a creditor of Teledata in the sum of $689,869.78. Annexed to his affidavit is a true copy of a schedule of transactions made.
The schedule, the title of which is common to all creditors, is as follows:
"Teledata World Services Pty Ltd
076 676 438
Unpaid bills
As of November 27, 2000"
There is no information provided as to the type of bill referred to in the schedule. The date given is a date well after the liquidation. In short, there is very little meaningful information on the document without further information being provided or indulging in speculation. The affidavit then continues as follows:
"7I have been advised by Reeder Glenn Nichols that within about a week or so of the first respondent having been placed in liquidation, he delivered up the books and records of the first respondent to the liquidator.
8I believe that those books and records would show that, as at the date the first respondent was placed in liquidation, the first named applicant was a creditor of the first respondent in the said sum."
Objection is taken by the liquidator to these paragraphs in all cases. The objection is based on the fact that there is no statement of information or belief and the reasons why. That objection is well made. Paragraph 7 is no more than hearsay and not proof that the books were in fact delivered up by Mr Nichols.
This has significance because there is an unresolvable dispute on the affidavits as to this question. It is common ground that Mr Nichols delivered a CD to the liquidator and it is also common ground that he did not deliver the password until months later. There is a dispute as to whether any books of account, cheque books, cheque butts, invoices and the like were delivered. I am unable to resolve this dispute on the affidavits.
There is a difficulty with par 8 above. As A-Comms had purported to take over the creditors of Teledata, it is highly debatable whether the books and records of Teledata would have shown that A‑Comms Ltd was a creditor at the time of liquidation.
The affidavit in common with the other affidavits concludes as follows:
"12.As part of a pool of creditors of the first respondent, I have always been willing and able to provide an indemnity so that proceedings in the Supreme Court of South Australia (No. 1075 of 1999) could be pursued.
13.I want the opportunity to pursue those proceedings, and I remain willing and able to so provide such an indemnity."
Apart from this statement, no other evidence has been provided as to the ability of Mr Toms to provide an indemnity to the liquidator. Details of his present financial position are absent.
As there is no cash in the company, it stands to reason that in addition to an indemnity, a liquidator would require substantial funds on account of costs to be incurred, in addition to an indemnity against any adverse costs order which might be made.
The same comments made in respect of Mr Toms' affidavit can be made about the affidavits of Sharman Dale Petch and Paul Cougan.
The position of Ramzi Halabi is a little different. X‑Com Australia Pty Ltd entered into a loan agreement on 4 September 1998. The loan agreement is annexed.
However, in common with the other applicants, there is no material for me to form any assessment as to his ability to both fund the action and provide a meaningful indemnity for a liquidator.
Mr Nichols is a person interested in the liquidation. In his affidavit of 4 April 2001 he deposes:
"35.Furthermore, at all material times, I have not only been willing to provide an indemnity to the Liquidator in relation to his fees and any adverse costs order for him to progress the Action, but I have had the capacity to so provide an indemnity. Annexed hereto marked 'GN69' is a true copy of my bank account showing a considerable balance of monies at the relevant times."
Annexure GN 69 is a one page transaction account information bank statement. It is dated 6 April 2001 and deals with the period between 23 March and 5 April 2001. The funds available at the end of the transaction period were $126,223.04.
$90,400 of that sum is comprised of three different payments from a company called Swatch Telecom. The reason for these payments is not explained, nor whether there will be future payments. Contrary to the assertion in the affidavit, Annexure G69 does not provide evidence that "at all material times" Mr Nichols has had the capacity to provide an indemnity. It provides some evidence that he has a present capacity to provide funds both for an indemnity and to fund the litigation.
The allegations of the liquidator's breach of duty
It is not in issue that the liquidator has a fiduciary relationship to the company, its creditors and contributories, and must act for the purposes of all creditors generally. He must act honestly and in good faith. I do not need to make particular reference to the authorities cited by the applicant to that effect. The propositions are unarguable.
There are, as I distil the submissions for the applicant, a number of areas where it is asserted that the liquidator has failed in these duties.
The principal assertion is that he has failed to hold a meeting of creditors. It is the fact that no meeting has been held.
In my view, the obligation, if it exists, to hold a meeting, would not have arisen until mid‑November 2000. Until the action against A‑Comms and Mr Nichols was resolved there is no evidence that there were any creditors of Teledata beyond those disclosed in Mr Nichols' initial report. Proofs of debt were not lodged by the applicants until November 2000 at a time coinciding with correspondence from their solicitors to the liquidator and his solicitors concerning the threatened ASCS applications for security of costs and to strike out.
I am not sure what purpose a meeting would accomplish. The position of a major creditor, ASCS is well known. It wants to secure the equipment and is prepared to enter into the deed.
The applicants had made known their position to the liquidator (together with some offers of financial assistance) in the correspondence from the solicitors acting for them, Karp Steedman Ross‑Adjie to both the liquidator and his solicitor. Their views have been conveyed very clearly to the liquidator that they would like the litigation continued and they were prepared to indemnify him. There does not appear to be any other relevantly interested party.
By my Order of 6 February 2001, notice of the application by the liquidator to dispose of the equipment was given to creditors. The applicants have responded setting out, in affidavit form, their positions.
There is no question that in some circumstances the failure to hold a meeting may be evocative of a lack of good faith in the liquidator. I do not consider those circumstances arise in the present case. The liquidator is obliged to consider the wishes of the creditor but is not necessarily obliged to follow them. To summarise the correspondence between the applicants' solicitor and the liquidator, it seems that the liquidator and his solicitors have continually sought satisfactory arrangements to fund the litigation with ASCS. I do not consider a meeting would have achieved any purpose.
Lack of independence and conflict
It is said that the liquidator has a perception of conflict because he is being funded by ASCS and the deed provides for payment of his costs.
In some circumstances, again, this might well lead to a conflict. However, the liquidator is entitled to be paid. Such payment is an expense of the liquidation. The agreement has been fully disclosed. It is subject to the approval of the court. The liquidator is obliged to liquidate the affairs of the company, including the disposal of property. In the absence of a firm funding arrangement, I consider the liquidator is acting properly in compromising the litigation without incurring further expense.
It was argued that a return of $5000 to creditors is an example of impropriety. That return is very low. The costs of the solicitors and liquidator must be added to it. While there is some evidence as to the value of the equipment when it was required, there is no evidence that the deed represents a sale at an undervalue or that there is a ready market for the equipment.
Having read the correspondence and considered the actions of the liquidator, I do not consider the liquidator has a conflict of interest sufficient to justify his removal. If there is a conflict it has been fully disclosed and the final decision to proceed is in any event not one for the liquidator but one for this Court.
Failure to take counsel's opinion and assess the merits of the case
The liquidator freely acknowledges that he has not received a detailed legal opinion on the case. There is some dispute as to whether, in order to obtain a legal opinion, the equipment must first be tested. I note that ASCS required that at least a portion of the equipment be tested. This is one reason why the proceedings were sought to be removed to South Australia. I consider a prudent course would be to test the equipment. Whether it should be tested or not, the fact remains that testing, and more particularly a legal opinion, will take money and there is still no concrete proposal put forward by the applicants. All that there is at this stage is their willingness to also provide an indemnity, and from Mr Nichols a willingness to fund the litigation which may or may not be matched by an ability to do so.
Mr Nichols was the Managing Director of the company, and intimately involved in the contract. Mr Robb, who has sworn an affidavit in other proceedings, was on site trying to fix the problems which arose with the equipment. Mr Nichols also went to the site and appears to have intimate knowledge of the technical aspects.
On the basis of his knowledge together with that of Mr Robb, there appears no reason why Mr Nichols could not have obtained legal advice or at least pursued the option of obtaining legal advice to put before the liquidator indicating that the claim against ASCS is valid and should be pursued. He says he has always had funds available.
Conclusion
The applicants have failed to establish sufficient grounds to justify the removal of the liquidator in this case. In my opinion the liquidator's actions have not been infected with a breach of duty such as to justify his removal. Nor do I consider it to be in the interests of the creditors generally to remove the liquidator, notwithstanding a strained relationship between the liquidator and Mr Nichols.
The application in COR 41 of 2001 is therefore dismissed.
In relation to the liquidator's application in CIV 1592 of 2000, in the absence of a clear and unequivocal commitment to fund the litigation, combined with cogent evidence of an ability to indemnify the liquidator against any costs order which may be made, I consider it is reasonable for the liquidator to enter into the deed.
By so doing, he will ensure a small return to the company. He must weigh the certain prospect of a small return against the uncertain prospect of ultimately successful litigation. In consequence, I will make orders in terms of the liquidator's summons.
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