Australian Securities & Investments Commission v D W & I M Tapping Pty Ltd

[1998] FCA 1611

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v D W AND I M TAPPING PTY LTD
No. TG 3019 of 1998
FED No. 1611/98
Number of pages - 4
Corporations Law

IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

GENERAL DIVISION

MARSHALL J

Corporations Law - whether it is in the interests of the respondent's creditors to have the respondent continue under administration or whether a provisional liquidator ought to be appointed.

Corporations Law (Cth) ss472, 440

Australian Securities Commission v Solomon (1996) 19 ASCR 73

HOBART, 1 December 1998 (hearing and decision)

#DATE 1:12:1998

Appearances

Counsel for the Applicant: Mr Abbott

Solicitor for the Applicant: Malthouse Chambers

Counsel for the Respondent: Mr Kimber

Solicitor for the Respondent: Butler McIntyre and Butler

THE COURT ORDERS THAT:

(1) An official liquidator of D W and I M Tapping Proprietary Limited (ACN 051 859 682) be provisionally appointed pursuant to subsection 472(2) of the Corporations Law (Cth);

(2) John William Woods, a partner of Moore Robsons, Chartered Accountants, of 30 Davey Street, Hobart, in the State of Tasmania be appointed provisional liquidator of D.W. and I.M. Tapping Proprietary Limited (ACN 051 859 682) with the powers provided by the Corporations Law (Cth);

(3) The provisional liquidator be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and in the exercise of his powers as provisional liquidator to be calculated on the basis of the time reasonably spent by the provisional liquidator and by his partners and staff in accordance with the Insolvency Practitioners Association's scale of fees to be taxed or otherwise settled as the Registrar may determine;

(4) The provisional liquidator take possession of the property of D.W. and I.M. Tapping Proprietary Limited (ACN 051 859 682) including:

(a) the books and records of the company other than such books and records as may be in the possession of the applicant;

(b) any and all documents touching or concerning loans made to or loans made by the company including any documents concerning transactions entered into or allegedly entered into by the company as trustee;

(c) all cash, negotiable instruments, documents, the title, security documents or related documents; and,

(d) the right, title and interest of the company under its lease or other occupation and its office at Chapple Street, Glenorchy in the State of Tasmania;

(5) The respondent pay the applicant's costs including reserved costs, if any.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

MARSHALL J

There is before the Court a notice of motion, filed by the applicant, in which it is sought that an official liquidator be provisionally appointed, in respect of the respondent, pursuant to s472(2) of the Corporations Law (Cth). Consequential orders are sought relating to the appointment of Mr John Woods as a provisional liquidator. The notice of motion was filed on 2 November 1998. At the same time an application was filed, being the substantive proceeding before the Court, for the winding up of the respondent and for the appointment of an official liquidator pursuant to s472(1) of the Corporations Law (Cth).

The substantive application is due to be heard by a Registrar of the Court on 3 December 1998. On 6 November 1998 the respondent resolved to appoint Mr Martin Green administrator of the company. Section 440A(3) of the Corporations Law (Cth) prevents the Court appointing a provisional liquidator of 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 have a provisional liquidator appointed.

I am not satisfied that it is in the interests of its creditors for the respondent to continue under administration rather than to have a provisional liquidator appointed. I accept the evidence of Mr Woods that there is no advantage to the creditors in the company continuing under administration. Significantly, as Mr Woods said, a provisional liquidator has an obligation to investigate the actions of the company and its directors. There is sufficient evidence before me to raise concerns about the conduct of the directors of the respondent.

The likelihood of the creditors not receiving capital and interest owing to them from the respondent principally arises due to a loan made by the respondent. That loan concerns an amount of between $550,000 to $712,000, depending on whose evidence is accepted as to the current standing of that loan, to a related company, G.W. Stanton and Associates Proprietary Limited ("Stanton"). I am therefore of the view that urgent intervention is required by a provisional liquidator with obligatory powers of investigation.

Additionally, there is evidence from an officer of a significant creditor of the respondent, Calhold Proprietary Limited, which supports the view that it is not in that creditor's interests for the respondent to continue on with administration.

Mr Green has given evidence that the creditors voted unanimously at the first creditors meeting to ratify his appointment as administrator. He said that his investigations of the affairs of the respondent are continuing and that he proposes to hold a second creditors meeting before 10 December 1998.

Additionally, by way of an affidavit filed in Court today, Mr Green has shown that he prepared a draft report for circulation at that meeting although he is not in any position to currently make any recommendations. Mr Green also said that certain information regarding property valuations was due to be received by him from 30 November 1998 and that such information was critical to the preparation for his report at the second meeting.

Ordinarily one might have some sympathy for the view that an adjournment ought be granted for such a purpose, that is, to obtain more information to assist in the administration. However, previous directions as to the progress of this matter have been made by the Court with a view to this notice of motion being determined prior to the hearing of the substantive application on 3 December 1998 and the parties have been made aware of that intention, at the very least, at the last directions hearing.

Another factor which militates against any such adjournment is that Mr Green is being assisted in his investigations by a person who is a former director of Stanton, Mr Mladineo, about whom there exists real doubt regarding his capacity to be independent in any investigative role relating to the respondent. Further, it is relevant in my mind that the applicant has completed some investigative work in respect of the respondent and has put in evidence a report concerning the company for Mr Woods. In that report Mr Woods concludes that the company is insolvent. No challenge was made to that report by the respondent. The report was made by the applicant in a statutory fact finding capacity.

The Court is entitled to have regard to that report in considering that the substantive application has a reasonable prospect of success, not only on the grounds of insolvency but also in respect to the other matters raised by the Australian Securities and Investments Commission which require further investigation; principally, in my mind, the conduct of the directors of the company and the role of Mr Mladineo. See, for example, Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80 per Tamberlin J. In these circumstances the Court is fortified in its view that it is appropriate for a provisional liquidator to be appointed. The report reveals at the very least that the substantive application has a reasonable prospect of success.

That view is further reinforced by unchallenged evidence in Mr Woods most recent affidavit that there is "an egregious shortfall of funds" in the company. Consequently the Court declines to accede to the respondent's request for an adjournment and makes the following orders in terms of the draft order submitted on 2 November 1998 which is document 9 on the Court file, that is:

(1) An official liquidator of D W and I M Tapping Proprietary Limited (ACN 051 859 682) be provisionally appointed pursuant to subsection 472(2) of the Corporations Law (Cth);

(2) John William Woods, a partner of Moore Robsons, Chartered Accountants, of 30 Davey Street, Hobart, in the State of Tasmania be appointed provisional liquidator of D.W. and I.M. Tapping Proprietary Limited (ACN 051 859 682) with the powers provided by the Corporations Law (Cth);

(3) The provisional liquidator be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and in the exercise of his powers as provisional liquidator to be calculated on the basis of the time reasonably spent by the provisional liquidator and by his partners and staff in accordance with the Insolvency Practitioners Association's scale of fees to be taxed or otherwise settled as the Registrar may determine;

(4) The provisional liquidator take possession of the property of D.W. and I.M. Tapping Proprietary Limited (ACN 051 859 682) including:

(a) the books and records of the company other than such books and records as may be in the possession of the applicant;

(b) any and all documents touching or concerning loans made to or loans made by the company including any documents concerning transactions entered into or allegedly entered into by the company as trustee;

(c) all cash, negotiable instruments, documents, the title, security documents or related documents; and,

(d) the right, title and interest of the company under its lease or other occupation and its office at Chapple Street, Glenorchy in the State of Tasmania;

(5) The respondent pay the applicant's costs including reserved costs, if any.

I will also reserve liberty to apply on not less than 24 hours written notice to each other party.