Bank of Melbourne Ltd v HPM Pty Ltd (in liq)

[1997] FCA 1481

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - application under s 479(3) of the Corporations Law for an order that a liquidator has power pursuant to s 477(2)(c) to assign causes of action commenced by the company in liquidation - whether such an assignment would lead to vexatious or improper litigation - whether appropriate for application to be heard ex parte.

Bankruptcy Act1966 (Cth), ss 132, 134(1)(a) and 135(1)(a)
Corporations Law, ss 474(2), 477(2)(c), 479(3), 545

Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 applied
Brookfield v Davey Products Pty Ltd (1996) 14 ACLC 303 at 307 applied
UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (1996) 14 ACLC 1262 applied
Re Park Gate Waggon Works Company (1881) 17 Ch D 234 applied

Citicorp Australia v Official Trustee in Bankruptcy (1996) 141 ALR 667 applied
Re BPTC Ltd (1996) 14 ACLC 845 applied
Re GB Nathan & Co Pty Ltd (1991) 9 ACLC 129 applied
Re Security Provident Fund (1984) 2 ACLC 594 applied
Murdoch v Crawford [1986] VR 97 applied
Re Sportsman’s Leisure and Hobby Warehouse (1989) 7 ACLC 1270 applied

BANK OF MELBOURNE LTD  ACN 007 270 448 v HPM PTY LTD (IN LIQUIDATION) ACN 008 679 481

WAG 3042 of 1995

LEE J
PERTH
25 FEBRUARY 1997

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAG 3042 of 1995

BETWEEN:	BANK OF MELBOURNE LTD ACN 007 270 448 Applicant
AND:	HPM PTY LTD (IN LIQUIDATION) ACN 008 679 481 Respondent
JUDGE:		LEE J
DATE OF ORDER:		25 FEBRUARY 1997
WHERE MADE:		PERTH

THE COURT ORDERS THAT:

1. The applicant, in his capacity as liquidator of HPM, has power, pursuant to s 477(2)(c) of the Corporations Law to assign to Harold Blakeley of 81 Mandurah Terrace, Mandurah in the State of Western Australia all of HPM’s rights to pursue the causes of action which HPM maintains in civil action No. 2236 of 2994 filed in the Supreme Court of Western Australia.

1. The applicant, in his capacity as liquidator of HPM may sign the Deed of Assignment and apply the common seal of HPM to the Deed of Assignment which constitutes annexure “GJT6” to the affidavit of Garry John Trevor sworn 26 November 1996 and filed in these proceedings subject to clarification of Deed by amendment or deletion of par 4(D) thereof.

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

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

 WAG 3042 of 1995

BETWEEN:	BANK OF MELBOURNE LTD ACN 007 270 448 Applicant
AND:	HPM PTY LTD (IN LIQUIDATION) ACN 008 679 481 Respondent

JUDGE:	LEE J
DATE:	25 FEBRUARY 1997
PLACE:	PERTH

EX TEMPORE REASONS FOR JUDGMENT

This is a motion brought by the liquidator of HPM Pty Ltd (In Liquidation) (“HPM”) pursuant to s 479(3) of the Corporations Law, for a direction that the liquidator has power pursuant to s 477(2)(c) of the Corporations Law to assign the rights to, and benefit of, rights or causes of action expressly or impliedly identified in an action commenced by HPM in the Supreme Court of Western Australia in December 1994.

HPM conducted a business of hotel proprietor on premises owned by HPM.  In promoting a proposal to redevelop the property on which the hotel business was operated HPM became indebted to a financier who, in due course, appointed a receiver and manager to HPM’s business pursuant to securities granted by HPM.  In the Supreme Court action HPM sought orders against several parties, including orders for the payment of damages by the financier, the receiver and manager and HPM’s accountants.  The causes of action relied upon included breach of contract, breach of fiduciary duty, negligence, and unlawful appointment of the receiver and manager.

In the course of the action, an order that HPM provide security for the costs of the defendants was made. The liquidator was at risk that an order could be made that he pay costs in the action in the event that HPM was unsuccessful.  The liquidator sought indemnity from the creditors for the cost of obtaining legal advice on the prospects of the action.  The creditors, which included the defendants to the action, were unwilling to provide the indemnity sought.

In May 1996, the liquidator made application to this Court under s 479(3) of the Corporations Law, for a direction pursuant to s 545 of the Corporations Law, that he was not obliged to incur any further expense in the winding up of HPM, and that he be permitted to assign such of the causes of action in the action as were capable of assignment on such terms as he deemed commercially prudent.  The following orders were made:

“1.The liquidator advise the creditors of the order made by the Supreme Court that the liquidator provide security by 6 June 1996 and the pending applications by other defendants for like orders and that pursuant to s 545(1) of the Corporations Law, the liquidator does not propose to incur these expenses by complying with that or like orders being satisfied that there is no sufficient property available in the winding up, the result being that the proceeding by the company in the Supreme Court will be stayed indefinitely and inform the creditors of the possibility that an application to strike out the proceeding may be filed if the action remains stayed for some time without any prospect of the order for security being met.

2.If  the liquidator receives a proposal to share or assign the benefit of the Supreme Court proceeding to a third party and the liquidator considers that such proposal should be accepted the liquidator is to notify the creditors thereof and obtain approval.

3.        The application is otherwise adjourned sine die.”

Pursuant to orders 1 and 2, circulars were sent to the creditors of HPM and a meeting  was held on 25 June 1996 where it was resolved that subject to Court directions and execution of a deed of assignment in terms approved by the creditors, the causes of action of HPM in the action be assigned. A draft deed of assignment was subsequently prepared, and on 2 September 1996, the creditors resolved that subject to obtaining direction of the Court, the draft deed be executed.

I am satisfied, by the relevant authorities, that the liquidator has power pursuant to s 477(2)(c) of the Corporations Law to assign all of HPM’s rights arising from the action.  The relevant part of the section is set out as follows :

“477(1)...

(2)  Subject to this section, a liquidator of a company may :

...

(c)sell or otherwise dispose of, in any manner, all or any part of the property of the company;”

A liquidator’s power of sale under s 477(2)(c) is similar to that conferred on a trustee in bankruptcy, by ss 134(1)(a) and 135(1)(a) of the Bankruptcy Act1966 (Cth), to dispose of the property of a bankrupt. It entitles a liquidator to sell a bare right of action to a stranger, whether for a cash payment or on terms that the stranger will pay to the company part of the proceeds of the litigation, provided only, that the right of action is “property” of the company in liquidation: Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 448 per Drummond J; Brookfield v Davey Products Pty Ltd (1996) 14 ACLC 303 at 307 per Branson J; UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (1996) 14 ACLC 1262 at 1278 per Hansen J; Re Park Gate Waggon Works Company (1881) 17 Ch D 234. Such an assignment, made under statutory power, will be exempt from the rules against champerty and maintenance: Re Movitor Pty Ltd v Sims at 448 per Drummond J; UTSA Pty Ltd v Ultra Tune Australia Pty Ltd at 1278 per Hansen J.

Section 9 of the Corporations Law, defines “property” in s 477(2)(c) to include a “thing in action”. However, unlike s 132 of the Bankruptcy Act, which vests the property of the bankrupt in the trustee upon appointment, the Corporations Law does not vest the property of the company in liquidation in the liquidator unless an order to this effect is made by  the Court under s 474(2).  However, the lack of such an order  will not limit a liquidator’s power to assign a company’s right of action, provided that in such a case, the company remains the “assignor” for the purposes of the transaction: Brookfield v Davey Products at 307 per Branson J. 

In determining whether a liquidator should be directed to make an assignment of a cause of action, a court should consider whether the assignment would lead to vexatious or improper litigation. However, there is no obligation on either the Court or the liquidator to conduct an investigation of the likelihood of success of the proceeding, indeed it is quite impractical to do so in an application of this nature, and such a conclusion should only be drawn where it is clear and obvious in the circumstances that the action has no reasonable prospect of success: Citicorp Australia v Official Trustee in Bankruptcy (1996) 141 ALR 667 at 682. There is nothing in the present case to warrant such a conclusion.

The Court was informed by counsel for the liquidator, that the first defendant to the action had requested that it be notified of the hearing date of this motion. That notice had not been given. It was submitted by counsel for the liquidator, that an application under s 479(3) was a non-adversarial procedure to assist a liquidator conduct an administration and may be expected to be made ex-parte.  It was said that the function of  the application was for the liquidator to be directed as to the proper action to be taken by the liquidator and not to determine substantive matters in dispute between the liquidator and third parties: Re BPTC Ltd (1996) 14 ACLC 845 at 846 per McLelland CJ; Re GB Nathan & Co Pty Ltd (1991) 9 ACLC 1291 at 1295 per McLelland J, citing; Re Security Provident Fund (1984) 2 ACLC 594 at 595; Murdoch v Crawford (1986) VR 97 at 99; Re Sportsman’s Leisure and Hobby Warehouse (1989) 7 ACLC 1270 at 1273-1274.

In general, I accept that submission and that it was appropriate in this case that the application be heard ex parte.  However, the position does not hold for every case.  In cases where there is opposition to the proposed assignment and where there are conflicting interests to be considered (eg  Citicorp v Official Trustee), it would be inappropriate for the application to be heard ex parte.  However, that is not the situation in this case, and given the course the matter has followed, it has been appropriate to deal with the application ex parte.

In passing, it is appropriate to draw the liquidator’s attention to the question of whether the liquidator may remain liable for the costs of the defendants in the event that the assignee is unsuccessful in the prosecution of the action in the Supreme Court.  Although the deed of assignment contains an indemnity clause intended to protect the liquidator from such liability, the liquidator should satisfy himself that the terms of the indemnity are sufficient. Given that a defendant in the action has already informed the liquidator that it will apply for order that the liquidator be liable for costs should claims prosecuted against it by the assignee fail, this is a matter on which the liquidator should seek independent advice.

I certify that the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee

Associate:

Dated:            25 February 1997

Counsel for the Applicant:	P E Harris
Solicitor for the Applicant:	Hely Edgar
Date of Hearing:	25 February 1997
Date of Judgment:	25 February 1997