Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admin apptd)
[2009] FCA 269
•26 March 2009
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission, in the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269
CORRIGENDUM
IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691;
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691, EMMANUEL GEORGE CASSIMATIS and JULIE GLADYS CASSIMATISQUD75 of 2009
LOGAN J
26 MARCH 2009 (CORRIGENDUM DATED 31 MARCH 2009)
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009
IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691
First DefendantEMMANUEL GEORGE CASSIMATIS
Second DefendantJULIE GLADYS CASSIMATIS
Third Defendant
JUDGE:
LOGAN J
DATE OF ORDER:
26 MARCH 2009
WHERE MADE:
BRISBANE
CORRIGENDUM
On page 10 of the Reasons for Judgment paragraph 11 should read “18 March 2009” not “19 March 2009”.
On page 33 of the Reasons for Judgment paragraph 57 should read “allow a tainted proxy” not “allow a trained proxy”.
I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 31 March 2009
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission, in the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269
CORPORATIONS — application by ASIC to wind-up corporation either on just and equitable ground or in insolvency and appoint official liquidators — application to adjourn that application pending meeting of creditors — application to remove allegedly misleading memorandum to creditors on the deed of company arrangement proposal for that meeting on personal website of two directors — whether Court satisfied that it was in the interests of creditors to continue in administration rather than to wind-up the corporation — whether deed of company arrangement should be proposed to creditors’ meeting — Court not satisfied adjournment of winding up application in the interests of creditors — order that company be wound up on just and equitable ground — determination of other applications in respect of administrators’ reports to creditors unnecessary
STATUTES – Corporations Act 2001 (Cth) ss 435A, 435C, 439A, 439C, 440A, 440D, 445D, 447A, 447B, 459A, 459P, 461, 462, 464, 467, 513
Australian Securities and Investments Commission Act 2001 (Cth) s 1
Corporations Act 2001 (Cth) ss 435A, 435C, 439A, 439C, 440A, 440D, 445D, 447A, 447B, 459A, 459P, 461, 462, 464, 467, 513
Corporate Law Reform Act 1992 (Cth)Australian Prudential Regulation Authority v Rural & General Insurance Ltd (2004) 136 FCR 149 followed
Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 applied
Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416 followed
Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 followed
Australian Securities Commissioner v Marlborough Gold Mines Ltd (1993) 177 CLR 485 applied
Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 applied
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 considered
Loch v John Blackwood Ltd [1924] AC 783 considered
National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 considered
Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216 considered
Storm Financial Limited ABN 11 064 804 691 v Commonwealth Bank of Australia ABN 48 123 123 124 [2008] FCA 1991 considered
TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 followed
Worrell; In the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70 citedMcPherson BH, Winding Up on the “Just and Equitable Ground” (1964) 27 MLR 282
IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691;
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691, EMMANUEL GEORGE CASSIMATIS and JULIE GLADYS CASSIMATISQUD75 of 2009
LOGAN J
26 MARCH 2009
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009
IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691
First DefendantEMMANUEL GEORGE CASSIMATIS
Second DefendantJULIE GLADYS CASSIMATIS
Third Defendant
JUDGE:
LOGAN J
DATE OF ORDER:
26 MARCH 2009
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Pursuant to s 459P(2)(d) of the Corporations Act 2001 (Cth), the plaintiff has leave to apply to the Court for an order that the First Defendant be wound up in insolvency.
2.The First Defendant be wound up in insolvency and under s 461(1)(k) of the Corporations Act 2001 (Cth).
3.Mr Ivor Worrell and Mr Rajendra Kumar Khatri of 8th Floor, 102 Adelaide Street Brisbane be appointed jointly and severally as liquidators of the First Defendant pursuant to s 472(1) of the Corporations Act 2001 (Cth).
4.The Second and Third defendants’ application filed on 19 March 2009 be dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009
IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691
First DefendantEMMANUEL GEORGE CASSIMATIS
Second DefendantJULIE GLADYS CASSIMATIS
Third Defendant
JUDGE:
LOGAN J
DATE:
26 MARCH 2009
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Constructive or Creative Insolvency?
Part 5.3A of ch 5 of the Corporations Act 2001 (Cth) (the Act) makes provision for inter alia, the administration of a company’s affairs with a view to the execution of a deed of company arrangement after its approval at a meeting of creditors. Its origins may be traced to amendments made to the Act’s predecessor, the Corporations Law (repealed) by the Corporate Law Reform Act 1992 (Cth) (Corporate Law Reform Act 1992).
In the Explanatory Memorandum circulated by the then Attorney-General when introducing the bill which became the Corporate Law Reform Act 1992, it was noted (paras 14, 15 and 21) that the proposed Pt 5.3A would implement recommendations made in the Law Reform Commission’s Report No 45 in respect of the Commission’s General Insolvency Inquiry, popularly known as “the Harmer Report”.
In the Harmer Report (Volume 1, para 52 and para 53) the following observations are made in relation to the then state of Australia’s corporations law:
Conservative legislation
52.The Commission is also concerned that, apart from conclusions that might be suggested by statistical evidence, the legislative approach to corporate insolvency in Australia is most conservative. There is very little emphasis upon or encouragement of a constructive approach to corporate insolvency by, for example, focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects.
Creative alternatives to insolvency
53.Constructive or creative insolvency is not a myth. However, it requires suitable procedures that encourage and offer a reasonable prospect of achieving that result. A constructive approach to corporate insolvency requires the preservation, if practical and possible, of the property and business of the company in the brief period before creditors are in a position to make an informed decision.
For reasons which will emerge, the Deed of Company Arrangement (DOCA), both in its original and now amended form, proposed under Pt 5.3A of the Act for consideration at a meeting of the creditors of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) (Storm Financial) on 30 March 2009, is certainly “creative”; whether it amounts to “constructive insolvency” is another thing entirely.
Background to the Present Applications
Storm Financial was placed in administration under Pt 5.3A of the Act on 8 January 2009. Messrs I Worrell and R Khatri were appointed as administrators. A convenient background summary, which also details the opinions they have come to form, is offered by the administrators in the report which they prepared for the purposes of s 439A(4) of the Act. Though lengthy, it is desirable, including in light of the various applications made by Mr and Mrs Cassimatis, to set out the following excerpt from that report:
3.Overview & Statutory Information
Storm was incorporated on 23 May 1994 and carried on the business of financial planning from its headquarters in Townsville and from other centres along the east coast of Australia. The company is the holder of an Australian Financial Services Licence.
Storm was the holding company for twenty-one wholly owned subsidiaries, which collectively made up the Storm Group of companies. Of the twenty-one subsidiary companies, only three carried on business or held assets in their own right. They were:
·Storm Financial Property Pty Ltd
·Cassimatis Corporation Pty Ltd
·Victorian Families Retirement and Investment Group Pty Ltd
·
The role of Storm Financial Property Pty Ltd and Cassimatis Corporations Pty Ltd was to hold real properties from which properties Storm carried on business.
Victoria Families Retirement and Investment Group Pty Ltd carried on the business of investment advising in Victoria and received accounting and administration support from Storm.
For most relevant periods Storm operated under the direction of a board of six directors; however four of these directors resigned in mid December 2008 and an additional director was appointed on the 23rd of December 2008. A schedule showing the names of these directors is provided later in this report. The joint Chief Executive Offices of the company were Emmanuel Cassimatis (age 56) and Julie Cassimatis (age 42). Both Mr and Mrs Cassimatis were directors of Storm. Mr Cassimatis was designated Executive Chairman while Mrs Cassimatis held the title of Managing Director.
The accounting records of Storm and the Storm Group were prepared by qualified personnel, appear to have been properly kept and were subject to independent audit. The last audited financial report prepared was in respect to trading for the financial year ended on the 30 June 2008. The relevant audit report for that period was dated 24 October 2008 and contained no adverse comments. The audit report noted that the audit “did not involve an analysis of the prudence of business decisions made by directors or management”.
A financial snap shot of the Storm Group taken at 30 June 2008 provides a very positive view of its financial position. In regard to the year ended 30 June 2008 the Group:
·Earned gross revenue of $69.9 million, which was an increase of nearly 57% over the prior year.
·Recorded a net gain in value of $7.08 million from assets available for sale.
·Disclosed a profit before tax of $37.5 million, which represented an increase of 263% from 2008.
·Had net assets of $13.72 million
·Had cash and equivalent resources of $24.9 million
It also appears that at that time the Group had excellent relations with its bankers and clients. Further, internal marketing reports submitted to the board of directors suggested that the “pipeline” of potential clients remained healthy, and consequently an ongoing income stream could be anticipated.
And yet, just over six months later, Storm was insolvent and had appointed Voluntary Administrators, which culminated in a cessation of business, the Commonwealth Bank of Australia (the Groups bankers) had appointed Receivers to take control of the most of the Group’s assets and many clients held Storm liable for losses on the share market that they had incurred amounting to many millions of dollars.
The initial catalyst for the dramatic reversal of Storm’s financial position was, without a doubt, the very large and sustained drop in the Australian share market. Whether the company could have withstood the drop in the share with the assistance of its bankers, whether the investments recommended by Storm to its clients were appropriate in most cases; whether the Fund Managers managing client investments acted appropriately and whether the actions of Strom and its directors following the drop were appropriate, are all issues that have been called into question. They are also issues which will require detailed and sustained inquiry, perhaps with the assistance of the courts, before a final judgement can be made. In this report the Administrators can do no more than identify the issues and provide commentary regarding some of the factors that may go towards reaching conclusions in regard to each of them.
As detailed later in this report Emmanuel and Julie Cassimatis and Storms sole shareholder have provided to the Administrators a proposal for a Deed of Company Arrangement. Acceptance of the proposal by creditors will preclude the company being placed into liquidation. It is a matter for creditors to decide whether the company should be placed into liquidation or the proposal for the Deed of Company Arrangement accepted. However the Administrators are required by law to make a series of recommendations to creditors regarding the future of the company. For the reasons disclosed in this report the Administrators recommended that the proposal for a Deed of Company Arrangement be rejected and that the company be placed into liquidation.
This report should be read in full.
Statutory Information
Company Name: Storm Financial Limited Directors: Emmanuel Cassimatis
Julie Cassimatis
Thomas Meakin (resigned 14 December 2008)
Stuart Nelson (resigned 14 December 2008)
Geoffrey Williams (resigned 12 December 2008)
Peter Hutley (resigned 15 December 2008)
Dawn Maree Collett (appointed 23 December 2008)Secretary: Lauren Davies Auditor: PriceWaterhouseCoopers Shareholders: Emmanuel Cassimatis and Associates Pty Ltd (as trustee) Date of Incorporation: 23 May 1994 Registered Office: 382-432 Sturt Street, Townsville, QLD Principal Place of Business: 382-432 Sturt Street, Townsville, QLD Registered Charges: Commonwealth Bank of Australia
Fixed and FloatingActing as Trustee? No Associated Companies: Storm Financial Property Pty Ltd
Victorian Families Retirement Investment Group Pty Ltd
Storm Financial Holdings Pty Ltd
Storm Financial (One) Pty Ltd
Storm Financial (Two) Pty Ltd
Storm Financial (Three) Pty Ltd
Storm Financial (Four) Pty Ltd
Storm Financial (Five) Pty Ltd
Storm Financial (Six) Pty Ltd
Storm Financial (Seven) Pty Ltd
Storm Financial (Eight) Pty Ltd
Storm Financial (Nine) Pty Ltd
Storm Financial (Ten) Pty Ltd
Storm Financial (Eleven) Pty Ltd
Storm Financial (Twelve) Pty Ltd
Storm Financial (Thirteen) Pty Ltd
Storm Financial (Fourteen) Pty Ltd
Storm Financial (Fifteen) Pty Ltd
Storm Financial (Sixteen) Pty Ltd
Storm Financial (Seventeen) Pty Ltd
Cassimatis Corporation Pty Ltd4. Current Financial Position and Realisation of Assets
The Administrators are not in a position to state with certainty what the present financial position of the company is because:
·The Receivers are in the process of realising the assets of the company and the assets of certain of its subsidiaries. Until such time as the sale process is completed the Administrators can only provide a very broad estimate of the possible residual debt due to the Commonwealth Bank.
·Claims from clients claiming damages as against the company for negligent advice continue to be received and it appears certain that further reclaims, perhaps for very significant amounts, will be received after the completion of this report.
The Administrators are however able to provide the following information regarding the company’s financial position.
1.Debt due to the Commonwealth Bank (CBA).
At the date of the Administrators’ appointment Storm was indebted to the CBA for:
Equipment Finance $ 1,521,060 Margin Loan $ 1,797,459 Commercial Bills $ 7,447,055 $10,757,574 In addition to these borrowings Storm had guaranteed advances by CBA to Storm Financial Property Pty Ltd of $16,329 million. The prime security for the advances by CBA to Storm Financial Property Pty Ltd consisted of real property mortgages over the premises from which Storm carried on business and which were owned by Storm Financial Property Pty Ltd or Cassimatis Corporation Pty Ltd.
The total obligation which Storm had to the CBA at the closure of Storm’s business was $27,094,574.
The directors of Storm dispute that any amount is due to the CBA in respect to the Margin loan and allege that the CBA failed “to execute instructions of Storm, given in writing on 26 October 2008 to redeem the underlying securities in Storms margin loan from the CBA”. They say that “had it done so the securities would have been realised the difference to Storms account with CBA would have been approximately $3 million in favour of Storm”. No statement or documentation has, as yet, been provided to the Administrators to support the directors’ contention that CBA failed to follow instructions, or to support the amount of the losses which the directors say were wrongly incurred as a result of such failure. Further, senior staff members of Storm have volunteered information to the effect that any instructions given to CBA were ambiguous and may have been withdrawn and/or varied.
Storm provided CBA with a Fixed and Floating Charge over all of its assets and undertaking to secure the advances and guarantees set out above. The CBA also held certain fixed charges. CBA appointed the Receivers to protect its interest in the assets over which it held security.
The assets available to the Receivers to satisfy the CBA debt consist of:
· Real property having a cost price of $27.543 million. · Plant and equipment with a book value of $4.362 million. · Loans to clients of Storm with a book value of $3.525 million. · “Intangibles” with a book value of $42.023 million. · Potentially, the recovery of a dividend paid on 15/12/08 of $2.0 million · Potentially, the recovery of “prepayments” totalling $324,293 · Security deposits held by various landlords of $750,000 The Receivers also have available to them cash funds of slightly over $1 million. However, as the Corporations Act requires that these funds be used to pay priority employees claims the funds will not be available for reduction of the CBAs debt.
The Administrators are not able to make any assessment regarding the realisable value of the real property or the plant and equipment.
As regards the sum of $3.525 million described as “Loans to Clients” the Administrators advise that this represents advances to, or security provided for, Storm clients who were unable to “correct their positions” or “in situations where the clients LVR were high”. The Administrators have been advised that these advances were unsecured, interest free and repayable “in due course”, that is without a fixed repayment date, and that they relate to at least 117 separate clients. Internal documents of Storm record that “As the market recovers Storm will recoup these funds in full”.
Given that the advances are unsecured, were made to clients who were apparently suffering some degree of financial difficulty, and may have relied upon the market recovering for repayment, the collectability of much of the advances sum must be in doubt.
In regard to the item “Intangibles” with a book value of $42.023 million the Administrators’ understand that this item from the accounting treatment of cost and future income streams associated with a series of business acquisitions from Authorised Representatives, undertaken by Storm. Given the reduction in trading which culminated in the closure of the business and the adverse publicity which Storm has since attracted it would not be realistic to expect the Receivers to recover any more than a very small part of the amount carried in the books of the company for this item.
On the 15 December 2008 the company paid a dividend of $2 million to Emmanuel Cassimatis and Associates Pty Ltd (E C and A). The Australian Securities and Investment Commission (ASIC) has commenced court action which has resulted in the $2 million held by E.C. and A being temporarily frozen and which seeks the repayment of the funds to Storm. The payment of the dividend was made at a time when the company had less than the statutory minimum of three directors. Following the appointment of Dawn Collette (the sister of Mrs Julie Cassimatis) as a director on the 23 of December 2008 a resolution confirming the dividend payment was passed by the board. Legal advice received by the Administrators suggest that it is likely that the ASIC will be successful in its application to have the funds returned to the company and that, if the funds are returned, they will be property of the company and so subject to the CBA Charge.
Inquiries conducted by the Administrators disclosed that on the 15 December 2008 (that is the same day as the dividend was paid) the directors of the company directed Storm’s CFO to pay the following amounts, which were classified in the accounts of Storm as “prepayments”.
· $74,293.71 to Third Person, a PR Consulting firm · $150,000.00 to Mallesons, a firm of Solicitors · $50,000.00 to PriceWaterhousecoopers, Storms Accountants and Auditors · $50,000.00 to J. Samaha, a Solicitor As far as the Administrators’ have been able to determine none of the parties shown above had unpaid invoices outstanding by Storm for services already provided to the company, at the date of payment. Further, the opportunity for providing services between the date of payment and the appointment of Administrators’ would have been very limited given the intervention of the holiday period. It is not clear to the Administrators why these payments were made and the payments appear to have been made other than in the normal course of business. The Administrators also note that the payments were made at a time when the company did not have the statutory minimum number of directors. Details of these payments have been provided by the Administrators to the Receivers to facilitate collection by the Receivers, if the payments were in fact payments.
Taking a very broad approach, the Administrators believe that it is possible that the value of realisable assets available to the Receivers will approximate the amount of the debt due to the CBA, but with the real possibility of a shortfall.
2.Victorian Families Retirement Investment Group Pty Ltd (Victorian Families)
As advised above, Victorian Families is a wholly owned subsidiary of Storm. All of the directors of Victorian Families have resigned and the business of that company has effectively ceased. Victorian Families is not in receivership although the shareholding of the company is subject to control by the Receivers. The Receivers have declined to take control of Victorian Families as they are, quite properly, concerned that the company may be subject to a series of large claims from clients. Further, they point out that they are the Receivers of the company controlling the premises from where the Victorian Families carries on business and this might give rise to a perception of conflict. In the circumstances the Administrators have instructed their solicitors to seek the appointment of liquidators to Victorian Families. Further information regarding this matter may be provided at the next meeting of creditors.
3.Claims Received to Date
In addition to the debt claimed by CBA, at the date of this report the Administrators have received Proofs of Debt or other information regarding claims against the company which may be summarised as follows:
Claims by the Australian Taxation Office 9,640,282.50 Claims by related parties 8,545,314.61 Claims by vendors of financial planning firms 23,618,819.29 Claims by trade and sundry creditors 501,662.95 Claims by clients of storm 18,713,916.33 Claims by employees entitled to priority 1,164,447.03 Total claims received to date (excluding CBA) $43,470,526.38 The debt claimed by the Australian Taxation Office comprises of income tax payable by Storm in respect to the year ended 30 June 2008 less certain credits shown in Storms accounts.
Claims by related parties include claims by way of loan account and in respect to wage entitlements where no priority is provided by the Companies Act.
Claims by the vendors of financial planning firms includes, in some instances, a claim for a share of income earned from clients introduced by those firms.
Claims by clients of Storm are either in respect of damages claimed against Storm arising from alleged negligent advice and/or in respect to fees for services which the client claims were not provided. The amount shown is claimed by 54 clients; however the Administrators’ have been advised by Mr Damien Scatinni of Slater and Gordon, Solicitors, that his firm acts for approximately 1000 clients and that very substantial claims will be lodged by his clients.
[Emphasis added]
Receivers and Managers were appointed to Storm Financial at the behest of the Commonwealth Bank, a secured creditor, on 15 January 2009.
On 11 February 2009 and at a time after the Australian Securities and Investments Commission (ASIC) had intervened in the proceeding, on the application of the administrators and for reasons which I then published (Worrell; In the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70) I ordered, inter alia:
·pursuant to s 439A(6) of the Act, the convening period for the meeting of creditors of Storm Financial required to be held pursuant to s 439A of the Act be extended to midnight 16 March 2009.
·the Court reserve for further consideration any application to further extend the convening period for the meeting of creditors required to be held under s 439A of the Act with respect to the Company.
·pursuant to s 447A(1) of the Act, s 439A(2) of the Act is to operate to permit the convening and holding of the meeting of creditors of the Company at any time during the convening period, including the convening period as extended pursuant to s 439A(6), provided the requirements of s 439A(3) and s 439A(4) are complied with.
In the result, there was no application for any further extension of the convening period. As a result, the administrators came to give notice for the holding on 23 March 2009 of the creditors’ meeting.
Since the report was prepared and as foreshadowed in it, the administrators have made application for the winding up of Storm Financial’s subsidiary, Victorian Families. On 18 March 2009 I appointed them as the provisional liquidators of that company (Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Victorian Families Retirement & Investment Group Pty Ltd QUD 73 of 2009).
Having been provided, for its consideration, with a copy of the DOCA in the form reported on by the administrators, the ASIC was not initially disposed to seek the winding up of Storm Financial. It was offered an opportunity so to do by the Court prior to the dispatch by the administrators of notices calling the meeting of creditors for 23 March 2009. What avowedly caused ASIC later to change its mind and to seek the winding up of Storm Financial were a document entitled “A Simple English explanation of the DOCA” and “Storm Financial Limited – The Simple Solution” (the Information Memorandum) and other commentary concerning the DOCA published by Mr Emmanuel Cassimatis and his wife Mrs Julie Cassimatis on a web site maintained by them. That publication came to the attention of ASIC on 16 March 2009. As is evident from the excerpt from the administrators’ report, Mr and Mrs Cassimatis may be described as the founders of Storm Financial. They are two of its remaining three directors. The other, who joined its board on 23 December 2009, is the sister of Mrs Cassimatis.
As a result of this change in position by ASIC and its winding up application filed by leave in Court on 19 March 2009 it became necessary for the Court to order the adjournment of the creditors meeting from 23 March 2009 to 30 March 2009.
ASIC seeks the winding up of Storm Financial either on the basis of insolvency (s 459A and s 459P(1)(f) of the Act) or on the basis that it is “just and equitable” that the company be wound up (s 461(1)(k) of the Act). Alternative relief directed to the correction prior to the creditors’ meeting of the alleged mischief in the “Information Memorandum” is also sought.
One riposte made by Mr and Mrs Cassimatis to this turn of events was to seek relief in respect of what were alleged to be deficiencies in the report made to creditors by the administrators for the purposes of the second meeting of creditors. Another was to seek the adjournment of the hearing of the winding up application so as to enable the creditors’ meeting to proceed.
The applications by ASIC and Mr and Mrs Cassimatis were heard together. The receivers and managers appointed by the Commonwealth Bank under its security appeared on each application, as did the administrators.
The relief sought in the respective applications is as follows:
(a)On the part of ASIC:
1.It be granted leave pursuant to section 440D of the Act to begin this proceeding.
2.Storm Financial be wound-up pursuant to sections 232, 459A, 459P and 461(1)(k) of the Act.
3.Mr Worrell and Mr Khatri of Worrells be appointed jointly and severally as liquidators pursuant to section 472(1) of the Act.
4.Pursuant to s 447B of the Act the meeting of creditors, prescribed by section 439A of the Act, to be held on 23 March 2009, be adjourned until further order.
5.Pursuant to s 447B of the Act that the Mr and Mrs Cassimatis immediately remove the document titled “A Simple English explanation of the DOCA” and/or “Storm Financial Limited – The Simple Solution” (“the Memorandum”) from the website to s 447B of the Act that Mr and Mrs Cassimatis publish on the website in a form approved by the Court a notice correcting the misleading nature of the Memorandum.
7.Pursuant to s 447B of the Act that Storm Financial forward to creditors a document in a form approved by the Court correcting the misleading nature of the Memorandum.
8.Liberty to apply.
9.Such further or other order or relief as the Court considers appropriate.
Costs.
(b)On the part of Mr and Mrs Cassimatis and pursuant to under Sections 447A, 447B(2) and 447E(1)(b) of the Act:
1.That the administrators of Storm Financial provide a supplementary report to their report dated 16 March 2009 provided pursuant to s 439A of the Corporations Act 2001 to the same persons to whom their earlier report was provided addressing the matters determined by the Court.
2.Such consequential orders concerning the dissemination of the report and the adjourned meeting as the Court considers appropriate.
3.Costs.
The relief sought by Mr and Mrs Cassimatis detailed in para 15(b) was predicated upon a continuance of the process whereby either on 30 March 2009 or on such later date as the Court might appoint the meeting of creditors would occur.
In its conception (Harmer Report, Vol 1, para 54 and Explanatory Memorandum, para 449) and, consequentially, in its prima facie time frames for the length of a convening period and for the holding of creditors’ meetings, Pt 5.3A was intended to offer an expeditious procedure whereby creditors might, after consideration of a report by administrators, come to decide that, even if it were not possible for a company or its business to continue, there existed a way of administering the company that resulted in a better return to creditors and members than would result from an immediate winding up of the company. That the latter are the ends to which the procedures are directed is made plain by the statement of the objects of Pt 5.3A found in s 435A of the Act. The case law since its original enactment concerning whether and to what extent the times for which Pt 5.3A prima facie provides should be extended evidences a recognition of the expedition of administration intended by Parliament and also the flexibility of approach to what may in the circumstances of a particular case constitute due expedition of administration leading up to a creditors’ meeting. Especially given the length to date of this administration, that had necessary ramifications as to a need for an expeditious hearing and determination of the present applications.
Insofar as it relies upon the just and equitable ground, ASIC does not need leave to bring its winding up application. It has standing to bring such an application (s 462(2)(e) of the Act). The necessary condition precedent for which s 464(1) of the Act provides is met in that ASIC has been conducting an investigation of the kind described in that subsection since December 2008.
ASIC’s ability to apply for an order that Storm Financial be wound up in insolvency is dependent on a grant of leave (s 459P(2)(d) of the Act). Such leave may only be granted if the Court is satisfied that there is a prima facie case that the company is insolvent (s 459P(3) of the Act). Subsection 459P(3) looks to the present. The administrators voice the opinion in their report (p 24) that Storm Financial is presently insolvent. No one sought to challenge that opinion. I am, to say the least, satisfied that there is a prima facie case that Storm Financial is presently insolvent.
The impact, in part, of a requirement for leave notwithstanding, it remains the case that the Court at least has before it an application brought as of right for the winding up of the company on the just and equitable ground. Irrespective of the ground upon which it is brought, s 440D does not give rise to any separate requirement for a grant of leave to ASIC in order for it to bring the application: Australian Prudential Regulation Authority v Rural & General Insurance Ltd (2004) 136 FCR 149. That being so, the first issue which necessarily arises is whether ASIC’s winding up application should be adjourned?
Should the winding up application be adjourned?
Subsection 440A(2) of the Act provides:
(2)The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
It was common ground that it fell to those who opposed the hearing of the winding up application to satisfy the Court that it is in the interests of Storm Financial’s creditors for it to continue under administration rather than be wound up. If that satisfaction is engendered, the language of s 440A(2) dictates that the Court must adjourn the winding up application. The converse does not automatically follow. The Court would possess a discretion nonetheless to adjourn the winding up application.
Of the parties, only Mr and Mrs Cassimatis opposed the winding up application. While the administrators did not resile from the recommendation made in their report, they did not, appropriately in my opinion, actively press for such an order, as opposed to endeavouring to assist the Court as to the present position in relation to Storm Financial’s affairs and the construction and application of the Act. The receivers and managers supported the application made by ASIC in separate submissions. They also alternatively contended for the making of remedial orders in respect of the Information Memorandum.
Mr and Mrs Cassimatis sought the adjournment of the winding up application either as a matter of obligation on the basis of satisfaction as envisaged by s 440A(2) of the Act or in any event as a matter of discretion. In either case, it was submitted that the winding up application should be adjourned until such time as it could be seen whether or not the DOCA had failed according to its terms, in the event that it was approved at the forthcoming creditors’ meeting. The prospect that the DOCA either might not be approved by the creditors or that an extension of the fulfilment of an essential term might not granted in accordance with the terms of the DOCA could doubtless be accommodated by a reservation generally of liberty to apply to relist the winding up application. Of course, if the winding up application were to be adjourned, its relisting might be rendered unnecessary were the creditors to resolve at the meeting that Storm Financial should be wound up.
What is entailed under s 440A(2) in satisfying the Court that it is in the interests of the company’s creditors for a company to continue under administration rather than to be wound up has been the subject of judicial consideration.
In Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457 McPherson JA, with whom Pincus and Davies JJA agreed, observed of s 440A(2):
It is evident from the terms of that subsection that before it applies the court must be satisfied not only that there is an administration but also as the subsection says, that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. …
The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other.
In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors.
These are observations made by an intermediate appellate court in respect of Commonwealth legislation adopted, under the co-operative scheme then prevailing, by the various States. The provision concerned has been taken up in the Act in respect of analogue facts and though not, strictly, bound by a decision given in the Court of Appeal Division of the Supreme Court of Queensland, it is incumbent on me not to depart from the interpretation of s 440A(2) of the Act evident in these observations unless convinced that that interpretation is clearly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. To be convinced that a judge of the eminence of McPherson JA was clearly wrong in a matter touching upon corporate insolvency is a considerable step, especially when his Honour’s observations commanded the concurrence of Pincus and Davies JJA. As it happens, not only do I respectfully agree with the observations but also I did not understand any party to seek to persuade me that those observations were clearly wrong, as opposed to Mr and Mrs Cassimatis urging that they were distinguishable on the facts of this case.
The quoted observations made by McPherson JA in Creevey’s Case were not though made in a vacuum, as the following statement made by Philip McMurdo J in Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216 at [55] serves to remind:
There are two matters to be noted about that passage from Creevey. The first is that read in context, it is referring to the absence of evidence of any assets whatsoever. Secondly, it is not possible to read this passage as a statement of some principle that in every case, for a court to be satisfied in terms of s 440A(2), there must be some detailed comparison of the dividends from one regime or the other. It will often be the case where not enough is known about what is likely to come from one or both regimes for that comparison to be made at this stage. As McDougall J said in SGBRaffia v Gammacon (No 2) [2007] NSWSC 1510, McPherson JA in Creevey
“was not purporting to reframe the statutory test but, rather, to state its application firstly in the case before the court and secondly by reference to more general considerations.”
McDougall J there referred to what was said by Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377 at 380 in a passage which I respectfully adopt:
“[18] Ultimately what the court needs to do is to be persuaded. The amount of proof which can result in persuasion, differs with the circumstances in which litigation comes before the court. It is common enough, in applications under s 440A, for an administrator to need to seek an adjournment very soon after his or her appointment, at a time when he or she knows very little about the affairs of the company. In that sort of situation, comparatively little material might be needed to justify a short adjournment. As time goes on, however, and the occasion that there has been for the collecting of evidence increases, so the amount of material which might need to be put before the court before it is persuaded, will increase.”
In Re Octaviar Ltd [2008] QSC 216 the occasion for the deciding whether the Court was satisfied that it was in the interests of creditors that the administration proceed was a decision by the directors of the company concerned to appoint administrators (subject to the discharge or expiry of injunctions then in place) after the hearing of an application for the winding up of the company had commenced. Necessarily, the Court did not at that time have the benefit of the considered views of those administrators as to the relative worth of what was offered under the DOCA compared with a liquidation so far as the interests of creditors were concerned. Further, the present is not an adjournment application by Storm Financial’s administrators but rather by two of its directors and members, who are also creditors. They wish to promote a known DOCA to a creditors’ meeting following an administrators’ report which recommends the contrary.
Mr and Mrs Cassimatis drew attention to observations concerning s 440A(2) made by Hamilton J in TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830. After noting that Creevey’s Case was the only intermediate appellate authority, Hamilton J conducted a critical analysis of later authorities in various original jurisdictions concerning the subsection. His Honour (at [18]) reached this conclusion:
18What I derive from a consideration of the foregoing authorities … is that it is dangerous, as in so many cases, to place any gloss upon the statute. The sole consideration posited as the criterion for the Court's decision in s 440A(2) is the interests of the company's creditors. It is clear that the onus is on the person seeking the adjournment to establish to the satisfaction of the Court that the adjournment is in the interests of those creditors. In general terms, that will be difficult to do unless there is a good case that there will be a greater or more accelerated return from the course contended for. But considerations beyond mere quantum may be relevant to take into account in determining what is in the interests of the creditors and whether it is established that an adjournment may be said to be in the creditors' interests. Where there are advantages in either course, in general terms it may well be the proper course to give such adjournment as will allow the creditors themselves to vote upon the proposal and determine which course they prefer.
I respectfully agree with this conclusion as to what is to be derived from the authorities to which he refers. Further, there is nothing in it which is inconsistent with the observations made of s 440A(2) in Creevey’s Case. The long and the short of it is that s 440A(2) means what it says; it is for the person seeking the adjournment to satisfy the Court that in the circumstances of the particular case, it is in the interests of the company’s creditors for it to continue under administration rather than be wound up. In some cases that may be able to be done by a comparative exercise as between prospective returns to creditors; in others such an exercise may be premature but it may nonetheless be in the interests of creditors for there to be a short adjournment so as to allow the position to be investigated. These are but non-exhaustive examples.
TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 has present utility for another reason. I was informed that, even were the DOCA approved at the creditors’ meeting, it was “highly likely” that ASIC would seek its termination under s 445D. ASIC is an eligible applicant for such an order: s 445D(2)(ba) of the Act. Of this contingency and its relevance Hamilton J observed (at [19]):
It is no part of the Court's function to decide prospectively a s445D application which has not been made, or to consider whether or not in considering such an application it would require a guarantee to assure the dividend of third party creditors who wished the DCA to proceed before it would grant the application. However, the determination of a party, whose word in the context is not lightly to be doubted, offers yet another complicating factor in the situation in which the interests of the creditors must be assessed. I do not accept Mr Hayter’s submission that these considerations are wholly irrelevant. They seem to be yet another factor to be taken into account in determining whether an adjournment is in the interests of the creditors.
Again, I respectfully agree with his Honour. The contingency, in this case the “high likelihood”, of an application under s 445D is another factor which it is not irrelevant to take into account in determining whether an adjournment is in the interests of creditors.
It was conceded in the written submissions made on behalf of Mr and Mrs Cassimatis that it was “unclear” whether an administration under the DOCA (and I understood this also to be as it was proposed to be presented in amended form) would result in a better return to creditors than an immediate winding up. For their part, the administrators went rather further in their report. They do not see the DOCA as offering the prospect of a better return. Though the further excerpt is lengthy, it is again desirable that their opinion be set out:
8. The Administrators Recommendations
The options available to creditors are:
(a)To accept the proposed deed of company arrangement;
(b)To wind up the company; or
(c)To end the administration and hand the company bank to its directors
Under Section 439A, Administrators must provide a recommendation to creditors based on the information available to them.
Whether to Accept the Proposal for a Deed of Company Arrangement
The Administrators recommend that creditors do not accept the proposal for a Deed of Company Arrangement.
The Administrators reasons for recommending against accepting the proposal for a Deed of Company Arrangement are as follows:
1.The proposal is subject to a condition precedent which, on the basis of legal advice received by them, the Administrators do not expect to be fulfilled. The condition precedent states, in effect, that the sum of $2 million to be paid in under the proposal will only be paid if the current injunction over those funds (which was obtained by the ASIC) expires or is removed and the CBA takes not step to prevent the monies being paid to the Deed Administrators.
2.In the event that the condition precedent is fulfilled (within up to 120 days), that is the injunction expires or is removed and the CBA takes no action, again on the basis of legal advice received the Administrators believe that it is likely that a liquidator of storm would be able to recover the $2 million for the benefit of creditors, and to do so without agreeing to conditions such as are contained in the proposal. The proposal therefore provides no extra benefit in terms of the payment of the $2 million.
3.In the event that the proposal is rejected and Storm is placed into liquidation priority employee entitlements will be paid by the Receivers or through the federal government funded General Employee Entitlement & Redundancy Scheme (GEERS). The proposal therefore provides no additional benefit to employees.
4.Although the Administrators agree that a Public Examination of all relevant parties should be carried out, and agree that any decision to commence or continue litigation should be based primarily on evidence gathered at such Public Examination, they are of the view that such a process can be carried out, at least as efficiently, by a liquidator as a Deed Administrator.
5.In the vent that Storm is placed into liquidation it is likely that the liquidators will be able to seek recovery for the payment of $444,711 paid on the 22 of December 2008 to the Westpac Bank, from Emmanuel and or Julie Cassimatis. That benefit will be lost if the proposal for a Deed of Company Arrangement is accepted.
6.In the event that Storm is placed into liquidation the liquidators will be able to seek compensation from the directors of the company for any debts incurred after the commencement of the insolvency and which remain unpaid. That benefit will be lost if the proposal for a Deed of Company Arrangement is accepted.
7.In the opinion of the Administrators the directors of Storm (defined in the proposal as being Emmanuel and Julie Cassimatis) have an inappropriate level of control. For example:
(a)By clause 11 of the proposal the Deed Administrators must obtain the directors written agreement by the 17 of April 2009 (that is a date before the expiration of the date on which the $2 million is required to be paid in) for a budget for the costs and expenses of the proposal examinations or alternatively accepted the budget contained in that clause. Bearing in mind that the directors will be among the parties to be examined this limitation is, in the opinion of the administrators, inappropriate.
(b)By clause 21 of the proposal any legal action taken by Storm against the CBA will be conducted by the directors, but subject to such assistance and supervision of the Administrators and their independent solicitors as the Administrators think fit. It is not clear to the Administrators what the terms “conducted by” and “supervision” mean for the purposes of the proposed Deed and they are concerned that, in effect the directors will have full control (see below). Further, given that the directors may be joined as a party in any action commenced by Storm (or any action by Storm on behalf of clients of Storm) in the opinion of the Administrators the directors may lack the required level of independent to conduct such proceedings.
(c)The event that a dispute arises between the directors and the Administrators regarding any decision of the Administrators (see clause 31) and that dispute is not settled by the process set out in the clause 34 the directors may by clause 34 replace the Administrators as trustees of the Storm Client Recovery Fund and require the Deed Administrators’ to repay the balance of the funds held by them.
(d)The general scheme of the proposal provides for action on behalf of clients to be conducted by the directors but subject to such assistance from and supervision of a Client Committee assisted by an independent legal advisor or advisors. It is not clear to the Administrators what the terms “conducted by” and “supervision” mean for the purposes of the proposed Deed and they are concerned that, in effect that directors will have full control of the proceedings. Further, given that the directors may be joined as a party in any action commenced by Storm (or any action by Storm on behalf of clients of Storm) in the opinion of the Administrators the directors may lack the required level of independent to conduct such proceedings.
Whether to liquidate the Company
It is the Administrators’ recommendation that the company then be wound up.
The company is insolvent in that it has insufficient current assets to meet its commitments. Placing the company into liquidation will also provide the Liquidator with powers to conduct further investigations into the affairs of the company; look at the matter of Insolvent Trading; recover any Preferential Payments made to creditors; examine and recover any other Insolvent Transactions and examine the general affairs of the company.
In liquidation the possibility exists that the liquidators may have access to funding to recover assets and prosecute claims from:
·The Assetless Administration Fund administered by the ASIC
·Contributions from creditors
·Litigation Funders
Whether to End the Administration
In the Administrators view it would not be in the interest of the creditors for the Administration to end. Should the company’s creditors resolve that the Administration be ended, the control of the company would revert to the directors. The company is insolvent and the affairs of the company should be formally resolved.
It is likely that a creditor would apply to have the company wound up shortly after the Administration is ended as the company is unable to pay its debts.
Other Information
We confirm that pursuant to Section 439A(4)(b) of the Corporations Act, there is no other information that we are aware of at this time that will assist creditors in making the decision as to whether or not they should accept the proposal for a Deed of Company Arrangement that has been put forward.
9 Dividend Possibilities
Priority employee creditors will be paid their entitlements by the Receivers and, to the extent necessary, by GEERS, should the company be placed into liquidation. Should the proposal for a Deed of Company Arrangement be accepted priority employee creditors will be paid their entitlements by the Receivers and by the Deed Administrators.
Storm carried Professional Indemnity Insurance. Clients of Storm who are able to demonstrate that they have incurred losses as a result of negligence by Storm may be paid, or partly paid, by Storms insurers provided the claims lodged are not subject to any of the policies exclusions.
Any dividend to ordinary creditors is dependent upon:
·Any surplus being available from the Receivers
·Whether in liquidation the liquidators are able to recover any void or voidable transaction and whether damages for insolvent trading can be recovered.
·Whether a public examination supports a conclusion that legal is can be sustained against any third party and the eventual success or other wise of any such action. At the date of this report the Administrators cannot say that any such action will be undertaken or speculate about the likelihood of success should such action be taken. The comments apply equally to liquidation and the proposed Deed of Company Arrangement.
Read on behalf of Mr and Mrs Cassimatis was an opinion provided by a Mr W J Hamilton, a chartered accountant. Like Messrs Worrell and Kahtri, he is an experienced insolvency practitioner and official liquidator. He offers a critique of their report. Though directed to the subject of the relief sought in the separate application made by Mr and Mrs Cassimatis, its tender on their behalf was not limited to that context. For reasons he sets out in his opinion, he expresses the view that it “is difficult to readily arrive at a decision on reading [the administrators’ report] as to creditors’ best interests, a winding up or a DOCA. A great deal of homework needs to be done in arriving at the status of all classes of creditors claiming, secured and unsecured, with likely comparative returns, cents in the dollar ($1.00) and over what period in the winding up or DOCA”. Mr Hamilton, I note, was not set any such “homework” by Mr and Mrs Cassimatis.
An affidavit in reply sworn by Mr Worrell was read on behalf of the administrators. In that Mr Worrell states (para 15):
In considering whether I should attempt a range of estimates, I reached the conclusion that it was not in the interests of creditors to attempt such a comparison. The reasons for that conclusion were:
(a)the outcome in terms of the asset and liability potentials were so broad as to be impossible to determine on almost any scenario;
(b)the range of scenarios was so broad as to mean that there would need to be a very large number of potential alternatives suggested, giving a very large number of possibilities which in itself may be confusing;
(c)in each of the scenarios it was, in any event, impossible to estimate the potential recoveries with any degrees of certainty;
(d)it was impossible to estimate the quantum of creditors with any certainty;
(e)it was impossible to estimate the possible costs of all of the potential pieces of litigation and their outcomes with any certainty.
There is, with respect, much force in this statement. The views expressed in the administrators’ report under the heading “Dividend Possibilities” strike me as a fair assessment in the prevailing circumstances, which include a necessarily compressed timeframe for reporting. For just the reasons Mr Worrell expresses in the passage quoted, I doubt, for example, whether, had I had the benefit of Mr Hamilton’s opinion at an earlier stage, I should have been disposed further to extend the convening period so as to allow the administrators to undertake the work he describes.
One way of highlighting the difficulties faced by the administrators in assessing dividend possibilities under the DOCA and the weight one gives the DOCA proposal when considering whether it is in the interests of creditors to allow the administration to proceed is by a consideration of its centrepiece, “the DOCA sum”. As defined, this is a sum of $2 million which is to be advanced by Emmanuel Cassimatis & Associates Pty Ltd (ECA) to the deed administrators (to be the present administrators) from account no 35 - 0685 with Westpac Banking Corporation. ECA is a company controlled by Mr and Mrs Cassimatis.
It is common ground that the DOCA sum is the subject of litigation in the Supreme Court of Queensland – originating application No. 1020 of 2009 (See Ex 3). In its present form, it is Storm Financial as applicant, at the behest of the receivers and managers, which seeks relief against Mr Cassimatis as first respondent, Mrs Cassimatis as second respondent and ECA as third respondent. The relief sought by the applicant in those proceedings is as follows:
A. DETAILS OF APPLICATION
The application is made under:
1.section 1324 of the Corporations Act 2001 (Cth) (“the Corporations Act”).
2.section 1317H of the Corporations Act;
3.section 47 of the Supreme Court Act 1995.
1.The Applicant seeks the following injunctive relief:
(a)Until further order an interlocutory injunction restraining the Respondents from paying, transferring or otherwise dealing in any way with, or causing any other person to pay, transfer or deal in any way with the sum of $2,000,000 paid into Account Number 35-0685 with Westpac Banking Corporation, BSB No 034-222 by the Applicant pursuant to an email instruction to Westpac from Laruen Davies on behalf of the Applicant on or about 15 December 2008 from Westpac Bank Account No 27-0383 in the name of the Applicant.
(b)A permanent injunction restraining the Respondents from paying, transferring or otherwise dealing in any way with, or causing any other person to pay, transfer or deal in any way with the said sum of $2,000,000 otherwise than by paying the said sum to the Applicant.
2.The Applicant seeks to the following further relief:
(a)A declaration that on 15 December 2008 the Applicant had no profits from which a dividend of $2,000,000 could be paid.
(b)A declaration that the payment on 15 December 2008 of $2,000,000 from the Westpac Cash Management Account BSB 034-111 account number 27-0383 held in the name of the Applicant to the Third Respondent was ultra vires.
(c)A declaration that the resolutions purported to be made on 23 December 2008 by the First Respondent, the Second Respondent and Ms Dawn Collett as directions of the Applicant were void.
(d)A declaration that the Third Respondent hold the $2,000,000 paid into Account Number 35-0685 with Westpac Banking Corporation, BSB No 034-222 on or about 15 December 2008 as trustee for the Applicant.
(e)An order requiring the Third Respondent to repay or cause to be rapid to the Applicant the amount of $2,000,000 held by or on behalf of the Third Respondent in bank account number 35-0685 BSB No 034-222 with Westpac Banking Corporation.
(f)Alternatively as against the Third Respondent, the amount of $2,000,000 as money had and received.
(g)Alternatively as against the Third Respondent, the amount of $2,000,000 as money paid under a mistake.
(h)An order requiring the First Respondent, the Second Respondent and the Third Respondent pay to the Applicant the amount of $2,000,000 being the amount of its loss and damage suffered by reason of the breaches of duty by the First Respondent and the Second Respondent as directors of the Applicant.
(i)Pursuant to s 1317H of the Corporations Act, an order that each of the First Respondent, the Second Respondent and the Third Respondent compensate the Applicant for the damage suffered in consequence of the payment of $2,000,000 to the Third Respondent.
(j)Damages.
(k)Interest on the amount of $2,000,000 pursuant to Section 47 of the Supreme Court Act 1995.
(l)Costs on a full indemnity basis; and
(m)Such other order as the Court deems appropriate.
The underlining is referable to amendments made to the Supreme Court application. At the time when the administrators made their report, ASIC was the applicant in those proceedings. The receivers and managers have recently caused Storm Financial to assume that role.
Because Storm Financial is presently under administration the effect of s 513A(b) is that the winding up will be taken to have begun or commenced on the s 513C day in relation to the administration. That will, in the circumstances, of this case, be the day on which the administration began: s 513C(b). Winding up will not therefore adversely affect relation back periods.
It follows from the fact that it is appropriate to make a winding up order that it is unnecessary to consider the merits of the separate application made by Mr and Mrs Cassimatis. Rather, it consequentially follows that their application must be dismissed.
A corollary is that the administrators’ remuneration will not be able to be approved at the creditors meeting, as opposed to being passed by the Court. The administrators did not see this as a reason not to make a winding up order. Nor do I.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 26 March 2009
Counsel for the Plaintiff: Mr R Newlinds SC Counsel for the Plaintiff: Mr AJ McInerney Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the Receivers and Managers of the First Defendant: Mr GA Thompson SC Solicitor for the Administrators of the First Defendant: Tucker & Cowen Solicitors Counsel for the Second and Third Defendants: Mr P Dunning SC Counsel for the Second and Third Defendants: Mr C Jennings Solicitor for the Second and Third Defendants: Russell and Company Solicitors Date of Hearing: 24 - 25 March 2009 Date of Judgment: 26 March 2009
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