Bay Air Conditioning Pty Ltd v ACN 002 908 125 Pty Ltd
[2000] NSWSC 311
•5 April 2000
CITATION: Bay Air Conditioning Pty Ltd v ACN 002 908 125 Pty Ltd [2000] NSWSC 311 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 2477/99 HEARING DATE(S): 13, 16 & 24 March and 4 & 5 April 2000 JUDGMENT DATE: 5 April 2000 PARTIES :
Bay Air Conditioning Pty Limited (P)
ACN 002 908 125 Pty Limited (formerly known as A Nolasco Pty Limited) (D)JUDGMENT OF: Hamilton J
COUNSEL : M France, Solicitor (P)
In person; then P Stern, Solicitor (Administrator)
M Foley, Solicitor (A Nolasco, a director, by leave)
Ms S Nash, Solicitor (Supporting Creditor)
A Weaver, Solicitor (Supporting Creditor)
N G Cassim, Solicitor (Supporting Creditor)SOLICITORS: Haydon Fowler Corbett Jessop (P)
In person; then Phillips Fox (Administrator)
Foleys (A Nolasco, a director, by leave)
Sally Nash & Co (Supporting Creditor)
Harris & Co (Supporting Creditor)
N G Cassim & Company (Supporting Creditor)CATCHWORDS: CORPORATIONS [229] - Winding up by Court - Winding up application - Orders - Adjournment of hearing - Discretionary considerations - Possible implementation or initiation of voluntary administration to facilitate pursuit of litigation by company. LEGISLATION CITED: Corporations Law ss 436B, 440A(2)
Corporations Regulations 1990 reg 5.6.19(3)CASES CITED: Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1997) 26 ACSR 629 DECISION: Adjournment application refused; winding up order made; liquidator nominated by director appointed.
- 9 -IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONHAMILTON J
WEDNESDAY, 5 APRIL 2000
2477/99 BAY AIR CONDITIONING PTY LIMITED v ACN 002 908 125 PTY LTD (formerly known as A NOLASCO PTY LTD)
JUDGMENT
HIS HONOUR:
1 Before me are winding up proceedings against A Nolasco Pty Ltd (“the company”) in which Bay Air Conditioning Pty Ltd is now the plaintiff. The matter has proceeded before me in fits and starts over a few days recently. It first came before me by way of a motion by way of appeal from or review of a decision of the Registrar substituting the present plaintiff, Bay Air Conditioning Pty Ltd, for the original plaintiff, D Raffin and Co Pty Ltd, whose debt had been paid out, although, as I understand it, some argument remains over its costs. Before me, as well as the review of the Registrar's decision, was the winding up summons itself. It seemed to me that, in a sense, the Registrar's decision was water under the bridge, and the parties certainly have continued to conduct the proceedings before me on the basis that the winding up summons was before the Court for hearing.
2 During the course of the matter, a considerable complication occurred in the sense that Mr Steven Nicols was appointed voluntary administrator of the company. In the course of that administration, Mr Nolasco, a director of the company, was seeking to promote a deed of company arrangement (“the DCA”), the main burden of which was that, if the company remained out of liquidation, he would continue to fund litigation against various persons, principally Mr Green, which, it is said, would be successful and productive of funds which could be used for the benefit of the creditors; it was said this would produce a result more beneficial for the body of creditors generally than a winding up. The course of that administration was troubled and it ended, in circumstances about which I shall need to say a deal more, on 3 April 2000.
3 Whilst the administration was current, Mr Nicols appeared in person on behalf of the company as its administrator. Yesterday, he claimed that the administration had been brought to an end on 3 April 2000, but that fact was contested by Mr Nolasco, a director of the company, who appeared pursuant to leave which I granted. Mr Nicols continued to appear yesterday in the situation where it was disputed whether or not the administration had come to an end, but he has been legally represented today by Mr Stern, solicitor. This was sensible, since his conduct in relation to a creditors’ meeting was being called into question. The conflict about the termination of the administration is that Mr Nicols took the stance that a resolution ending the administration had been passed at a creditors’ meeting held on 3 April 2000. It was put on behalf of Mr Nolasco that that resolution had not been put to that meeting, and had not been passed, so that the administration was still current. Were the administration still current, then I should adjourn the winding up proceedings if satisfied that it is in the interests of the creditors for the company to continue under administration rather than be wound up: see s 440A(2) of the Corporations Law (“the CL”).
4 There was some evidence, initially quite confused, as to what had occurred or not occurred at the meeting on 3 April 2000. However, today minutes of the meeting were produced to the Court and tendered. Some questions were asked by Mr Foley which suggested a challenge to the authenticity of the minutes. However, Mr Nicols deposed that the minutes were correct. They showed the proposal and passing of a resolution to end the administration. More importantly, Mr Nicols, as chair of the meeting, gave a certificate to that effect, which certificate is in evidence. Pursuant to reg 5.6.19(3) of the Corporations Regulations 1990 (“the CR”) this evidence that the person chairing the meeting had declared the resolution passed constitutes conclusive evidence that the resolution was passed. There is now some evidence of people who say they were at the meeting and that the resolution was not put or passed. There are challenges made as to the regularity of the putting and passing of the resolution at the meeting. However, in face of the declaration, it seems to me that I must regard the resolution as passed and the administration at an end; and I find that to be the situation based upon that certificate. I should say that there is no motion or application before me for relief relating to the validity of the meeting; I have not entered on that subject matter, and I say and decide nothing one way or the other concerning the regularity of what occurred or did not occur at the meeting.
5 My finding, based on the declaration that the resolution was passed, means that the company is, in effect, for the moment returned to the control of the directors. The directors have not taken steps to hold a meeting and to appoint Mr Foley, solicitor, to appear for the company in place of his appearing for Mr Nolasco. However, he has continued to exercise the leave which he was granted to appear for Mr Nolasco as a director of the company. No other person appearing has objected to that course and the proceedings have been conducted in that way.
6 Mr France, solicitor for the plaintiff, presses, as he has always pressed, for the winding up of the company. He was supported yesterday and today by Mr Weaver for Mr Green. The plaintiff's claimed debt is $122,000. Mr Green's claimed debt is $117,000. Mr Cassim, solicitor, appeared for a creditor, Iberian Artisans Pty Ltd, with a claim in the sum of some $35,000 and supported winding up. At an earlier point of time, Miss Sally Nash, solicitor, appeared for three creditors and announced support for winding up. Those creditors were BDA Consultants Pty Ltd with a claimed debt of $28,000; Bankstown Excavation and Demolition for $43,000; and Ogis Engineering for $10,000. Miss Nash has not re-attended, and there is some evidence put on by Mr Nolasco that suggests that BDA's attitude has changed. However, there is no such evidence in relation to Bankstown Excavation and Demolition and Ogis Engineering.
7 Evidence has been called today for the first time in any hard form from a solicitor involved in the litigation said to be the basis of the DCA as to the state of that litigation. That litigation is litigation against Mr Green, one of the supporting creditors, and his support for winding up must be viewed in the light that it may be to his advantage that the company be wound up, because the litigation against him may be the more readily maintained by the company if there is a DCA with a regime for funding the litigation, rather than if there is a liquidator, who may have funding problems. Mr Nolasco, as will appear, has offered to support the litigation financially if there is a DCA, but it is certainly not plain that he would offer the same support to a liquidator. No-one else came forward to Mr Nicols while he was in office as administrator, nor is there in the evidence any suggestion of any offer from any other creditor to fund the litigation.
8 The difficulty with the offer to fund the litigation is that the continuation of the litigation is surrounded by many difficulties. It is litigation in the Building and Construction List in this Division of this Court. Mr Massey, solicitor, who was engaged in the litigation on the company's behalf between June and December last year, gave evidence. It is clear from his evidence, and other evidence, that Mr Nolasco and his wife have put up a guarantee of $90,000 by way of security for costs, and have paid another $80,000 in cash by way of security of costs. Had the security for costs not been provided, those proceedings would have been dismissed in the Building and Construction List. There is a requirement for the deposit of $40,000 cash by way of further security for costs, when that matter is fixed for trial. There was in the past a motion to dismiss the proceedings for want of prosecution, which was unsuccessful, and there is a further similar motion pending at the present time.
9 Mr Massey ceased to act in December 1999 for nonpayment of his costs. His outstanding costs in relation to the building case are some $130,000, including disbursements, and his firm was owed a further $20,000 odd by the company in relation to other matters. Mr Massey holds, and continues to maintain, a lien over the papers in the building case. The stage that the building case reached before Mr Massey left it was that the bulk of the evidence had been prepared, although there is some further evidence to be prepared.
10 Mr Ted Tsovaras, solicitor of this city, has been spoken of as a possible successor to Mr Massey as the plaintiff's solicitor in the building case, but there is no evidence that Mr Tsovaras has in fact been engaged. Mr Massey's estimate of the cost of bringing the building case to fruition, so far as he could give it in a broad brush way in the witness box, was that it would cost $60,000 to $70,000 for solicitor and barrister (a good junior would, in his view, suffice) to prepare the matter up to “kick-off”, ie, to the commencement of the trial. The additional costs of the trial, he estimates, would be in the vicinity of $70,000 to $100,000. I have already noted that to get to the trial, $40,000 further would have to be provided in cash by way of security for costs.
11 We are now in early April. The building case is still not set down for trial, or finally prepared. I do not doubt for a moment Mr Nolasco's sincerity in desiring that the DCA be able to be perfected, and that the piece of litigation run, and that the proceeds be brought in. I have greater doubts about his ability to bring that about. There is no evidence of the source of the considerable amount of funds which would be necessary to provide for the litigation to be pursued to fruition. The claim in the building case is for some $1 million, but Mr Massey's estimate - made while he was the solicitor with the conduct of it - was that $200,000 to $250,000 was a more realistic estimate as to what might be recovered under the litigation.
12 In view of the uncertainty as to its success, as to its funding, and as to what might be recovered under it, I regard that litigation as a somewhat speculative hope, rather than a solid chance of recovering a large sum of money. Various other pieces of litigation have been mentioned as potential sources of money to the company. These include claims against other creditors, and also a matter that is already in the Court of Appeal, where it is said that success in the appeal might bring about the recovery from Mr Nolasco's brother of a sum or sums up to a total of $770,000 that would redound to the benefit of the company. I cannot understand on the evidence the mechanism for this. Whatever it may be, that case is not yet fixed for hearing in the Court of Appeal.
13 I have traversed those matters to show the possible sources of funds that it is said may be available through the mechanism of the DCA that may not be available if the company is placed into liquidation. In all the circumstances, whilst the prospect of recovery of sums of money in those proceedings cannot be eliminated, the prospects as to amount and time are not very concrete on the evidence before me.
14 Mr Nolasco has brought forward the evidence of some witnesses who say that they wish taken whatever steps be necessary for the DCA to be further considered. However, the last administration seems to have ended in disputation and disorder, which does not inspire great confidence as to what may occur under a second administration. Furthermore, the evidence as to the support of the various people for such a scheme is, in many cases, very uncertain. The affidavits have been brought forward very late, but seem not to relate to the latest proposal for the DCA put forward by Mr Nolasco in a letter which was dated 31 March 2000, and produced at the creditor's meeting on 3 April 2000. It is really quite unclear what material the people saying they support this course have been given as the basis of their support. In relation to the affidavits brought forward very late, I have allowed them to be read, although the deponents were not brought to court today, for various reasons - which I shall not go into. There was thus not an opportunity for cross examination.
15 The company is undoubtedly insolvent. There is no need for there to be reliance upon the notice of demand given by the original plaintiff in that regard. The report prepared by Mr Nicols, as administrator, was put into evidence without objection. The situation appears to be that there are trade creditors in the vicinity of $580,000. That, in a sense, is confirmed by Mr Nolasco who, through his solicitor, says to the Court that as part of the DCA he would be prepared to guarantee a ten cents in the dollar dividend to creditors, capped at $65,000, corresponding to $650,000 in unsecured debts. There are no funds of any substance at the moment to meet these debts. Mr Foley makes no admission of insolvency, as indeed he is not called on to do. But there is nothing in the submissions that he has put to me that suggests either that there are not creditors of some $600,000 odd unpaid, or that there are funds available to meet those debts. His submissions have proceeded by reference to the greater benefit that would be obtained by taking steps to ensure that, through the DCA, the various pieces of litigation are conducted to finality, rather than leaving a situation where there is a liquidator who may not take that course.
16 Of course, if I do appoint a liquidator, it is not to be taken that that course is absolutely precluded. A liquidator is empowered by CL s 436B to put the company into administration if the liquidator deems that course appropriate. Perhaps in a less embattled atmosphere than has prevailed in court, Mr Nolasco may be able to bring forward a scheme, and to demonstrate its practicalities to the liquidator to allow that course to be followed. If Mr Nolasco is not prepared to fund the liquidator, but would be prepared to fund the litigation if it were conducted through a DCA, that is one of the courses that the liquidator may consider, and ought consider, if it appears to him a possibly viable course. And it is not to be assumed that a liquidator will not himself pursue viable claims: Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1997) 26 ACSR 629. I take into account that by the mechanism of s 436B the possibility of conduct of the litigation through a DCA is not totally precluded, or that the liquidator may pursue it himself. However, bearing in mind that I have come to the conclusion on the evidence before me that the administration is at an end, bearing in mind the evidence that clearly establishes the insolvency of the company, and bearing in mind the uncertainties that I have already spoken of as to the recovery of moneys under the litigation that has been referred to, I have come to the conclusion that a liquidator should be appointed. I should add that, even if the administration had not come to an end, I should have come to the same conclusion on the other material available.
17 One last matter that has weighed on my mind in appointing a liquidator is the uncertain state of facts surrounding a cheque for some $57,000 in the company's favour which was banked in February or March 2000, not to the account of the company, but to the account of another company controlled by Mr Nolasco. The things that Mr Nolasco has said about this sum and the cheque, and the manner of dealing with it, do not seem to me to be entirely consistent. It has been said at one time that the cheque was paid to the other company in settlement of a debt owed to it by the company. On the other hand, upon the return of the money being demanded by Mr Nicols as an asset of the company, $5,000 was paid back, and it was said that the balance would be paid back, if the DCA went through. There seems to me to be a very unsatisfactory and unresolved situation surrounding this money. The cheque appears undoubtedly to have been the company's property. It has been paid to somebody else. The circumstances of that, and the validity of the debt in respect of which it has been paid, are far from clear on the evidence. The clarity is reduced further by the not entirely consistent stance taken by Mr Nolasco in relation to those matters. The uncertain situation as to that potential asset of the company, when the company is undoubtedly insolvent, appears to me to point in the direction of the appointment of a liquidator, who can attend, as is necessary, to that matter on an urgent basis.
18 The application that is made to me by Mr Foley, on behalf of Mr Nolasco, is in effect an application that these proceedings should be further adjourned for a short time, so that during the short adjournment his client, now being again in control of the company, may take steps for the appointment of a further administrator. Mr Michael Wayland, a qualified person, has given his consent to be appointed as administrator. The new administrator has not been appointed, but if I grant an adjournment, it seems reasonably plain that he will be. In all the circumstances, for the reasons I have already given, I propose to refuse the application for adjournment, and to proceed immediately to the making of a winding up order and the appointment of a liquidator.19 Debate has taken place before me as to the identity of the liquidator. The proceedings for winding up are under the old rules, where the Court's general practice was to appoint liquidators by rotation, except when there were special circumstances. The new rules do not apply in this case, although in force. The practice is different under the new rules, there being a greater ability on the part of plaintiffs at least to nominate the liquidator. What has occurred in this case is that Mr Michael Wayland, who is on the list and qualified to be appointed as a liquidator, has been put forward by Mr Nolasco. A consent by Mr Wayland to act as administrator was earlier tendered and a consent by Mr Wayland to act as liquidator if appointed is now tendered. Mr France asks that the next name off the list, who is not Mr Wayland, be appointed, for the sake of the appearance of total independence. On the other hand, he concedes that Mr Wayland is on the list, is a well-qualified liquidator, and has had no association with this matter until the last day or so, when he has consented to act as administrator or liquidator if appointed. The matter has been very embattled. It would certainly be desirable if a controller of the company could now be found with whom both sides could deal. Taking into account all the matters that have been put before me, I have decided that I should, upon making a winding up order in respect of the company, appoint Mr Michael Wayland as liquidator.
…oOo…
(1) I order that the company be wound up in insolvency.(2) I appoint Michael Edward Wayland liquidator.
(3) I order that the plaintiff's costs be paid out of the assets of the company in accordance with s 466(2) of the Corporations Law.
(4) I release Mr Nicols from all undertakings to the Court in relation to the property of the company.
(5) I reserve any question of Mr Nicols' costs of these proceedings after he ceased to be administrator.
(6) Exhibits may be returned.
…oOo…
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