Atlas CTL Pty Ltd (in liq) and PJM Fleet Management Pty Ltd (in liq)
[2019] VSC 866
•18 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
CORPORATIONS LIST
COMMERCIAL COURT
S ECI 2019 05559
IN THE MATTER of ATLAS CTL PTY LTD (IN LIQUIDATION)
(RECEIVERS AND MANAGERS APPOINTED) (ACN 158 167 492)
| ANDREW STEWART REED HEWITT and MATTHEW JAMES BYRNES in their capacities as Receivers and Managers of ATLAS CTL PTY LTD (Receivers and Managers appointed) (in liquidation) (ACN 158 169 294) | Plaintiffs |
| and | |
| PJM FLEET MANAGEMENT PTY LTD (Receivers and Managers appointed) (in liquidation) (ACN 007 398 763) | Intervenors |
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JUDGE: | Sifris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 December 2019 |
DATE OF JUDGMENT: | 18 December 2019 |
CASE MAY BE CITED AS: | Atlas CTL Pty Ltd (in liq) and PJM Fleet Management Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 866 |
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CORPORATIONS – Receivers seek to be excused from rental liability in respect of vehicles for short period pending investigation – Numerous security and priority disputes under Personal Property Securities Act 2009 (Cth) – Intervenors object to relief – Receivers not using vehicles – s 419A Corporations Act 2001 (Cth); Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing (2003) 178 FLR 400.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | H Austin QC and A Roe | Mills Oakley |
| For the Intervenors | N Mirzai | Hunt & Hunt |
HIS HONOUR:
Introduction
The plaintiffs (Receivers) make application under s 419A of the Corporations Act 2001 (Cth) (Act) for orders that they be excused from liability to make rental and other related payments in respect of certain motor vehicles under a master lease agreement (Master Lease Agreement) dated 1 July 2012 between Atlas CTL Pty Ltd (In Liquidation) (Receivers and Managers Appointed) (ACN 158 167 492) (Atlas) and the Defendant (PJM), and associated sub-leases. The plaintiffs are Receivers of Atlas having been appointed by Nissan Financial Services Australia Pty Ltd (Nissan) on 25 November 2019.[1]
[1]The appointment was pursuant to the terms of a General Security Agreement dated 26 August 2016.
The Receivers have identified significant and complex issues concerning the validity, enforceability and priority of various security interests said to attach to the relevant vehicles. The Receivers have taken steps to obtain possession of and secure the vehicles so as to preserve the vehicles, and prevent them from being dealt with by other parties whilst these issues are investigated.
Pending the resolution of these issues, the Receivers seek to be excused (for the period 3 December 2019 to 2 February 2020) from incurring personal liability for rent and other related payments with respect to the possession of the vehicles. The Receivers contend that they are not using or deriving any relevant material financial benefit from the vehicles.
The application is made under s 419A of the Act. Broadly speaking, that provision provides for the controller of property to be personally liable for amounts payable by a corporation under a rental agreement where various conditions are satisfied, subject to (relevantly) s 419A(7), which provides:
Subsection (2) does not apply in so far as a court, by order, excuses the controller from liability, but an order does not affect a liability of the corporation.
The Receivers’ application is also made pursuant to s 500(2) of the Act, pursuant to which they require the Court’s leave to commence a civil proceeding given PJM’s liquidation. This order is not opposed and will be made.
Background
PJM
The defendant, PJM Fleet Management Pty Ltd (Receivers and Managers Appointed) (in Liquidation) (PJM), was incorporated on 30 April 1990. Pamela Judith Murphy (Murphy) has been the sole director of PJM since 1997. PJM operated a vehicle fleet rental business, which commenced utilising the business name Atlas Car & Truck Rentals in March 2000.
To obtain the vehicles which it utilised in its fleet rental business, PJM entered into agreements with a number of financiers,[2] to finance the purchase of, or to lease, those vehicles, and related supplies. PJM then on-leased these vehicles to customers, including Atlas, for value.
[2]Volkswagen Financial Services Pty Ltd (Volkswagen) and BMW Australia Finance Limited (BMW) are two of such financiers. They (the Intervenors) were given leave to be heard pursuant to r 2.13 of the Supreme Court (Corporations ) Rules 2013 (Vic) and filed affidavits and made submissions opposing the application.
On 22 October 2019 (Administration Date):
(a) Richard Albarran, John Vouris and Richard John Laurence (Administrators) were appointed joint and several voluntary administrators of PJM pursuant to s 436A of the Act; and
(b) Peter James Hedge (Hedge) was appointed receiver and manager of PJM by Toyota Finance Australia Limited (Toyota).
The Administrators’ report to creditors of PJM under s 439A of the Act (PJM 439A Report) states that as at the Administration Date the following financiers claimed a secured interest in the property of PJM:
Name No of Vehicles Amount Owed Australia and New Zealand Banking Group Limited (ANZ) 0 $1,341,713 BMW Australia Finance Limited (BMW) 658 $14,776,067.69 BOQ Asset Finance & Leasing Pty Ltd (BOQ) 5 $75,504.67 Commonwealth Bank of Australia (CBA) 13 $136,256.64 Capital Finance Australia Limited 14 Unknown Goodyear & Dunlop Tyres (Aust) Pty Ltd 0 $99,348.29 Macquarie Leasing Pty Ltd 5 $255,824.17 Metro Finance Pty Ltd 15 Unknown Nissan 600 $13,010,257.33 Pepper Asset Finance Pty Ltd 8 $133,715.89 Toyota Finance Australia Limited (Toyota) 369 $13,217,513.22 Volkswagen Financial Services Australia Pty Limited (Volkswagen) 821 $13,897,541 Westpac Banking Corporation Unknown Unknown Total 2508 $40,614,199.90
On 28 October 2019 Bruno Secatore and Sam Kaso were appointed joint and several receivers and managers of PJM by BMW. As noted, BMW has been given leave to be heard on this application.
On 26 November 2019 Kenneth Michael Whittingham (Whittingham) was appointed receiver and manager of PJM by Volkswagen. As noted, Volkswagen has been given leave to be heard on this application.
On 27 November 2019 the creditors of PJM resolved that PJM be wound up, and that the Administrators be appointed as its liquidators (Liquidators).
Atlas
Atlas was incorporated on 4 May 2012. Murphy has been the sole director of Atlas since its incorporation.
Atlas operated a business providing:
(a) leisure and commercial motor vehicles for rental hire in Melbourne, Sydney, Brisbane, Cairns, the Gold Coast, Adelaide and Perth; and
(b) motor vehicles to rideshare businesses, including Uber.[3]
[3]Although Atlas ceased trading on the date of the appointment of the Receivers (25 November 2019) ‘approximately 734 Atlas vehicles were in the possession of Atlas customers’. It is expected that all vehicles will be returned by the end of this year (Hewitt 1 at [27]).
All of the motor vehicles utilised in Atlas’ business were leased to it by PJM pursuant to the Master Lease Agreement between Atlas and P JM. The Master Lease Agreement relevantly provides that:
(a) each time that Atlas wished to lease a vehicle from PJM, it would deliver a completed vehicle quotation order form (clause 3);
(b) upon receipt of a vehicle quotation order form, PJM would provide Atlas with a quotation setting out the vehicle(s) required, the delivery address, monthly lease rates payable by Atlas, kilometre allowance, the duration of the term for which the vehicle would be leased, and other matters (clause 4);
(c) the term of the lease to Atlas could be extended by Atlas on request an indefinite number of times (clause 6.4);
(d) Atlas would pay to PJM in relation to each vehicle leased by PJM to Atlas monthly lease charges, fines or penalties, tolls, and amounts in respect of petroleum products purchased with fuel cards supplied by PJM (clause 14);
(e) on or before the 10th day of each month, PJM would send to Atlas an invoice for the monthly lease charges for the following month, new vehicle delivery invoices, petroleum products purchased, tollway products, and any other amounts payable by Atlas to PJM under the Master Lease Agreement (clause 14);
(f) Atlas was required to notify PJM in writing by the 15th day of the same calendar month in which an invoice was received if Atlas did not agree with the invoice received (clause 14); and
(g) Atlas was required to pay the invoice within 30 days of receiving it, apart from any amount disputed by Atlas in accordance with the Master Lease Agreement (clause 14).
The terms summarised above indicate that the Master Lease Agreement contemplated:
(a) numerous sub-lease agreements being entered into between PJM and Atlas for the lease of various vehicles from time to time;
(b) that the duration of the lease term for each of those sub-lease agreements would vary from case to case, and may have been extended past their initial term; and
(c) each sub-lease agreement between PJM and Atlas being separately documented.
On 22 October 2019 the Administrators were appointed joint and several voluntary administrators of Atlas pursuant to s 436A of the Act.
On 26 November 2019 Whittingham was appointed receiver and manager of Atlas by Volkswagen.
On 27 November 2019 the creditors of Atlas resolved that Atlas be wound up, and that the Administrators be appointed as its liquidators.
The Submissions
The Receivers contend, and it is not disputed, that they need more time to undertake further necessary enquiries, which will have an effect on the ultimate security position and competing interests of the relevant parties and presumably the rental owing under the Master Lease Agreement. Pending this investigation – a relatively short period – they should not personally be required to pay rental which in any event has not been demanded by PJM, and in respect of which they and Atlas may ultimately not be liable. They contend further that as they are not deriving any benefit from the vehicles, their request is entirely reasonable and precisely what the section contemplates.
The Intervenors contend that given the strategy of the Receivers (to collect, store and presumably sell the vehicles and maintain exclusive control of the process) the vehicles, being in the possession of the Receivers, are in effect being used (and a benefit derived from such use) and in such circumstances there is no basis to dispense with the personal liability of the Receivers. Any such dispensation, it was submitted, is in effect to grant an interlocutory injunction without any undertaking as to damages. Other issues are raised by the Intervenors, such as delay and prejudice.
Consideration
I propose to grant the Receivers the specific and narrow relief they seek.
All parties agree, as appears to be the case, that there is a genuine and serious priority dispute in relation to the many vehicles the subject of the contended specific and general security instruments.[4] The substantive priorities dispute must of course wait for another day. If the parties are unable to resolve the matter the parties and the Court will need to determine the best way forward. However, the question remains as to what to do in the interim, and at this stage in particular with regard to the narrow application before the Court. Further, in view of the uncontradicted evidence of the Receivers,[5] there can be no or very little dispute that there is much to be done by the Receivers and that the records of Atlas (and PJM) are in a mess.[6] Of course much of the work may relate to the substantive priority issue. However, the payment of rent and other charges is inextricably linked to such determination.
[4]The results of the PPSR searches in relation to Atlas are set out in paragraphs [21]-[22] and [26] of Hewitt 1. There are 1860 current registrations against Atlas and 1633 vehicles in the fleet. These paragraphs alone expose the complexity and extent of the substantial multiple security interests that require investigation and assessment. It may be noted that prior to the appointment of the Receivers, the Administrators returned some of the vehicles leased to Atlas and they were returned to the particular financier (Hewitt 1 at [23]). As the position becomes clearer it is hoped that matters will begin to resolve. The further steps that the Receivers propose to take (relating mainly to the substantive dispute) are detailed in Hewitt 1 at [31]-[33]. The steps taken to date are set out in Hewitt 1 and Hewitt 2. (Hewitt 1 and Hewitt 2 are defined in fn 5).
[5]Affidavits of Andrew Stewart Reed Hewitt sworn 6 December 2019 (Hewitt 1) and 9 December 2019 (Hewitt 2).
[6]See Hewitt 2.
Much material was filed by the Receivers and the Intervenors, including substantial exhibits. Much of this may be relevant to the substantive case but is of little assistance to me in determining this narrow application. The question is simply, to pay or not to pay rental within this short period of time. There are compelling reasons why the application should be acceded to.
First and most importantly, and indeed in my view conclusively, the Intervenors, as strangers to the Master Lease Agreement, have little to say about the (statutory) relief from statutory liability to a contractual counter party. It is not clear as a matter of privity (despite their limited appointment) why they should even be heard on the matter that at best affects them indirectly, and has very little to do with which party has the best security interest in the vehicles.
PJM does not oppose any of the relief sought. As between PJM and Atlas, there is no dispute so far as the application is concerned. PJM does not claim any rent under the Master Lease Agreement. No tax invoice or other statements as required by the contractual arrangement has been supplied. PJM in effect concedes that the matters are complex and the records are in a mess.[7] Time is required to sort things out. If PJM, the creditor, is not making any claim and does not oppose the relief, why should the Intervenors simply because, in separate and distinct transactions, they are creditors of the creditor (PJM). Their own financing arrangements may give them an interest, and indeed the best interest in the vehicles – and in respect of which they may be entitled to possession – but it does not give them an interest in the Atlas–PJM rental stream which is entirely different and independent from their own financing terms. As was in effect conceded, there is no correlation between the two. There is no basis on which the Intervenors can compel PJM to enforce the Master Lease Agreement and no basis to interfere with the approach of PJM to this application.
[7]Regarding any liability between Atlas and PJM the position is far from clear (see Hewitt 2 at [16]-[18]).
Secondly, and of no less importance, is the fact that the Receivers are not relevantly, and notwithstanding their suggested strategy, deriving any benefit from retaining the vehicles.
The leading case concerning the interpretation of s 419A(7) is Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing.[8] Following a careful analysis of the text, context and purpose of s 419A, Campbell J identified the “mischief” that the provision was intended to address in some detail at [86]-[89]. His Honour said at [86]:
[O]ne can conclude from a comparison of the previous law on the topic with section 419A, that the mischief which section 419A is trying to cure is to do with of a corporation under the control of a controller deriving benefit from the leased property, but not paying for it.
[8](2003) 178 FLR, 400 (‘Nardell’).
Here, as submitted by the Receivers, they are not deriving, or attempting to derive, any benefit from the leased vehicles but not paying for it. The vehicles are instead in, or in the process of being delivered into, the custody of Manheim Auctions.[9] The vehicles are accordingly not being “used” in the sense discussed in Nardell, and are certainly not being used in an “active way” or “within the scope of what was intended by the original lease document” which anticipated the cars being rented.[10] Rather than “deriving benefit from the leased property, but not paying for it”, the Receivers are in fact incurring expenses associated with preserving the property.[11] The question of whether a party used property “in a manner that brought financial benefit” was described as the “most persuasive consideration” in Rapid Metal Developments v Rildean.[12]In my opinion, the fact that the Receivers are not using the property in that manner strongly supports the exercise of the discretion.
[9]Hewitt 1 at [26], [34]-[35].
[10]Hewitt 1 at [18]-[19]; Nardell [87]-[88].
[11]Hewitt 1 at [52].
[12](2009) 27 ACLC 1,058, [97].
Campbell J’s three illustrations[13] as referred to by the Receivers provide useful points of contrast to this matter. This is not a case where the vehicles are being kept in reserve by way of backup, or kept on hand for the purpose of future expansion of a business, or to replace vehicles being retired. To the contrary, the Receivers “have no present intention of trading or otherwise operating any part of the business formerly carried on by Atlas, nor do they intend to rent any of the Remaining Atlas Vehicles to customers, or to otherwise use them or financially benefit from possession of them”.[14]
[13]Nardell [87].
[14]Hewitt 1 at [35].
The vehicles are being possessed solely to preserve them pending the resolution of an investigation into the validity, enforceability and priority of the relevant security interests. This is a complex issue.[15] Resolving that issue is further complicated by the quantity of material that the Receivers need to review, the fact that the relevant material is in a degree of disarray, and the fact that Atlas has lost access to the software system it used to manage its fleet of vehicles.[16] These matters have also impeded the Receivers’ ability to accurately determine the full extent of the liabilities that Atlas may have to PJM and by extension, the liabilities that the Receivers may have under s 419A.[17]
[15]Hewitt 1 at [50]-[52].
[16]Hewitt 2 at [8]-[15].
[17]Hewitt 2 at [16]-[18].
The fact that the Receivers are in possession of the relevant vehicles does not point against the exercise of the discretion as contended by the Intervenors. This case is squarely captured by the observation of Campbell J that “it does not always happen that, merely because a corporation is actually in possession of, or occupying, some leased property, it is deriving any benefit from that property”.[18] Moreover, the vehicles are in the custody of Manheim Auctions and the Receivers have expressly disavowed any intention to use the vehicles.[19]
[18]Nardell at [88].
[19]Nardell, [87]-[88]; Hewitt 1 at [34]-[35].
In my opinion, the reason for the Receivers choosing not to give a notice under s 419A(3) of the Act, a factor relied on by the Intervenors, is legitimate, namely that the Receivers needed to exercise rights with respect to the relevant vehicles for the limited purpose of ensuring the preservation of those vehicles pending the resolution of the substantive security interest issues. This is not a case where the Receivers did not give a notice because they illegitimately “planned, or hoped, to gain some advantage from the lease remaining on foot”.[20]
[20]Nardell, [128].
I do not accept that there is any material prejudice arising from the making the order. The Receivers have taken steps to preserve the vehicles by storing them with Manheim Auctions and have incurred expenses in taking these steps. Any temporary inconvenience that may arise for the relevant parties must be balanced against the importance of correctly resolving the substantive security interest issues. The Receivers do not propose to sell the vehicles until the security issues have been resolved.
Finally, I do not consider that there has been any material delay on the part of the Receivers in this matter. In Nardell, Campbell J regarded a period of over two months from when the controller was first aware that the time for giving a notice under s 419A had passed and when proceedings were commenced as a “significant delay” ([140]) but granted relief regardless. Here, the Receivers were appointed on 25 November 2019. An urgent application was issued in this Court on 6 December 2019. There has been no delay and, in my opinion, the Receivers have acted expeditiously and appropriately.
In all of the circumstances I consider that the Receivers are entitled to the relief they seek. Despite the respective insolvency regimes, Atlas remains potentially liable to PJM pursuant to their underlying contractual arrangements. There is no reason in the circumstances why the Receivers should be personally liable. In fact, at present and on the available material, there is every reason why they should not be liable personally for the limited duration that they seek.
If the orders are made and the plaintiffs are ultimately successful, the course taken by them to secure their contended (superior) interest – unfairly criticised by the Intervenors – will have been justified and this would presumably include the non-payment of rental to PJM. If they are unsuccessful, Atlas may be liable directly to PJM for arrears of rental. This underlying obligation will remain if the orders are made. The Receivers will, however, to the extent of such orders, be relieved of liability.
If the orders are not made and the plaintiffs are ultimately successful, personal rental payments made by the Receivers to PJM may not be recoverable.
This is not an injunction application and the relevant principles are not strictly applicable or relevant. Although the analysis referred to above is useful, it is not strictly a question of the desirable holding positon where numerous considerations and undertakings may intrude. Rather, it is a specific application under a provision of the Act. The Court has a discretion which must be exercised according to the context, facts and circumstances of the case.
BMW and Volkswagen as Intervenors endeavoured to establish their right to their respective funded vehicles both as a matter of substantive priority (although it was conceded that the matters were complex and that there was a legitimate dispute) and (to a lesser extent) as the preferred interim measure. If the vehicles are not returned, any rental may be payable (by Atlas and but for this application, the Receivers) to PJM but not to BMW or Volkswagen. It was not at all clear how any such payments would be dealt with by PJM, with the numerous ‘fingers in its pie’. As noted, the substantive matters are not relevant to the determination of this application. There is no reason why, pending resolution of that dispute, the vehicles should be returned or recovered by the direct financiers. It was not explained why this holding position is better than that proposed by the Receivers. In fact they propose to sell the vehicles and make good any loss if they lose the substantive priority dispute.
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