Beck and Yates v Complete Furniture Specialists Pty Ltd

[1999] VSC 267

SUPREME COURT OF VICTORIA
PRACTICE COURT	Do not Send for Reporting
Not Restricted

No. 6080 of 1999

ANDREW WILLIAM BECK and PETER G. YATES AS RECEIVERS AND MANAGERS OF THE COMPLETE FURNITURE SPECIALISTS PTY LTD	Plaintiffs
V
THE COMPLETE FURNITURE SPECIALISTS PTY LTD & ORS	Defendants

---

JUDGE:	Byrne J
WHERE HELD:	Melbourne
DATE OF HEARING:	22 July 1999
DATE OF JUDGMENT:	22 July 1999
CASE MAY BE CITED AS:	Beck and Yates v The Complete Furniture Specialists Pty Ltd
MEDIA NEUTRAL CITATION:	[1999] VSC 267

---

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S.P. Gardiner	Lander & Rogers
For the first and second Defendants	Mr D. Sharp	Darroll Nelson & Co
For the third Defendant	No appearance
The fourth Defendant, Mr D. Lagarna	Appeared in person

HIS HONOUR:

1. The application before the court is brought by summons filed on 8 July 1999 on behalf of Andrew William Beck and Peter G Yates as receivers and managers of The Complete Furniture Specialists Pty Ltd which I shall refer to as "Complete Furniture".

1. They complain that they have been impeded in the performance of their duties by Complete Furniture and by two of its directors, the second named defendant, Douglas Johnston and the third named defendant, Simon Johnston and also by the fourth named defendant, Dominic Lagarna who is apparently an employee of Complete Furniture.

1. In their summons the plaintiffs seek interlocutory relief restraining the defendants, pending the determination of the proceeding, from impeding them.  The application is opposed by Complete Furniture and Mr Douglas Johnston who appeared before me by counsel.  Mr Simon Johnston has not yet been served.  Mr Lagarna, who was served only yesterday, was present in court but had not yet had the opportunity to obtain legal representation.

1. There was no issue as to the fact that the defendants resisted the intrusion of the plaintiffs into the business of Complete Furniture.  Before me the debate concerned the validity of the appointment of the plaintiffs as receivers and managers of that company.

1. In accordance with my direction given on 16 July 1999, the first and second named defendants had filed and served the statement of the grounds relied upon to impugn this appointment.  They are eight in number and I set them out in full as part of this judgment. 

"1.The purported appointment of Simon Alexander Wallace-Smith (“Wallace-Smith”) as Receiver and Manager of Greenacres Management Pty Ltd by Finkelstein J. in the Federal Court of Australia on 30th April 1999 was unconstitutional and invalid, it being an attempted cross-vesting of powers not properly exercisable in a Federal Court. (Re Wakim H.C.A. 17th June, 1999).

2.      As a consequence of 1 herein

(a)the purported Receivership of Wallace-Smith is invalid,

(b)the purported actions or exercise of any power by the purported Receiver and Manager as such is invalid including inter alia the lodging of documents with the ASIC, the giving or authorising of a Notice of Demand upon the first named defendant and the institution of legal proceedings (including the application by Greenacres Management Pty Ltd (Receiver and Manager Appointed) and Wallace-Smith as Receiver and Manager thereof in the Supreme Court of Victoria No 5757 of 1999.)

3.The alleged Debenture is unregistered, it being purportedly lodged or filed outside the requisite time allowed by the Corporations Law Section 263 and/or without any valid authority as aforesaid.

4.The alleged Debenture (the validity or the amount of which is not admitted) is at best an alleged unsecured debt and is otherwise incapable of providing the basis for the appointment of a Receiver and Manager other than by way of application to and order by a Court.

5.The purported appointment of the plaintiffs as Receivers and Managers purportedly pursuant to the alleged debenture is invalid in that there was no (or no valid) prior Notice of Demand.

6.The purported appointment of the Plaintiffs as Receivers and Managers is invalid in that they are insufficiently independent of the purported appointor and/or there is a conflict of interest in their position in that:

(a)they are the partners of Wallace-Smith, the purported appointor, and

(b)the servants and agents employed by them in the purported receivership as alleged, are the servants and agents of the partnership inter alia, themselves and Wallace-Smith, the purported appointor.

7.The Plaintiffs as purported Receivers and Managers of the first named defendant pursuant to a purported Deed of Appointment have no power to take these proceedings as such against the first named defendant.

8.The purported appointment of the plaintiffs herein as Receivers and Managers is invalid in that the purported Deed of Appointment

(a)refers and/or relates to a Debenture which is registered; and

(b)fails to specify or particularise adequately or at all the ground or grounds for the purported appointment."

1. Counsel for the first and second named defendants raised at the outset the question whether these grounds involved "a matter arising out the constitution" within the meaning of s.78B of the Judiciary Act 1903 so that I should not proceed without first being satisfied that the Attorneys-General had been given sufficient notice.

1. The point arises this way: a company associated with Complete Furniture is Greenacres Management Pty Ltd (in liquidation) ("Greenacres"). Greenacres shares a common director with Complete Furniture, Mr Douglas Johnston. Its other director is Fiona Johnston. Greenacres is a creditor of Complete Furniture pursuant to a loan agreement dated 1 June 1998 and the amount owing is approximately $250,000. On the same day Complete Furniture executed a debenture charge in favour of Greenacres to secure that loan. Complete Furniture is in default under the loan agreement. The charge was not lodged within 45 days as required by the Corporations Law, s.263(1).

1. On 30 April 1999, on application of ASIC, the Federal Court of Australia appointed Simon Alexander Wallace-Smith to be receiver and manager of Greenacres pursuant to s.1323(1)(b).  This appointment has been extended twice by orders of the Federal Court made on 7 May and 24 May, on the last occasion until the trial and determination of the ASIC application.  As receiver of Greenacres, Mr Wallace-Smith, on 1 June 1999, gave to Complete Furniture a notice of demand requiring payment of the loan. 

1. On 11 June 1999 Greenacres was, by order of this court, ordered to be wound up and Mr Wallace-Smith was appointed liquidator.

1. On 2 July 1999 Mr Wallace-Smith, as liquidator of Greenacres, executed a deed appointing the plaintiffs as receivers and managers of Complete Furniture.  This is the appointment which is under challenge.

1. The challenge is put on eight grounds which I have set out above.  Of these, only two raise issues which, it was said, do not directly or indirectly involve attacking the validity of the order appointing Mr Wallace-Smith as receiver and manager of Greenacres.  These were heard, and I deal with them in turn now.

1. Ground 6.  It was put that since Mr Wallace-Smith and both Mr Beck and Mr Yates are partners in the firm Deloitte Touche Tohmatsu, those last two persons ought not to have been appointed as receivers and managers of Complete Furniture for want of independence.  No particular conflict of interest, present or apprehended, was pointed to.

1. Section 418 lists a number of persons who by reason of their defined relationship with a company are not qualified to be appointed as its receiver and manager.  One of these is an officer, which includes a liquidator, of a mortgagee of property of the company.  It was then put that, if Mr Wallace-Smith could not himself be appointed, neither could his partners.  Reliance for this purpose was placed on the decision of the Court of Appeal in England In re Lloyd, (1879) 12 Ch D 447, in which the court discharged an order appointing as receiver of a deceased's estate, a member of a firm of solicitors who was acting for the plaintiff. Sir George Jessell, MR said that this was an improper appointment because it was the duty of the plaintiff's solicitors to check the receivers' accounts. Hence, his Lordship observed, there existed a conflict. Under the Corporations Law the accounts of a receiver and manager appointed by debenture holder are amenable to scrutiny by persons other than the chargee. In Charleville Aboriginal Housing Co Ltd (receivers and managers appointed) v Mercantile Credits Ltd (1989) 7 ACLC 355, the Full Court of the Supreme Court of Queensland refused to remove two members of the firm of accountants Ernst and Whinny from the office of receivers and managers of a company because, at a later time, another member of that firm was appointed its auditor.

1. At page 360 of the report, the court said that “courts do not lightly interfere with the rights of a debenture holder to appoint receivers and managers provided under a deed of debenture where powers are given with the agreement of the debtor as incidental to the security created by the deed itself."  This is not to say that in a given case it would not be imprudent or even improper for the relationship of partners to exist between those controlling the debenture holder and its appointees.  In this case no present or likely risk of conflict or impropriety has been demonstrated.  Accordingly, the ground fails.

1. Ground 8(b).  The point here was that the deed of appointment of the plaintiffs as receivers and managers of Complete Furniture was ineffective because it failed to specify the grounds of appointment.  I reject this submission.  There is no prescribed form of appointment.  The deed recites that Complete Furniture is in default of its obligation under the debenture without specifying which obligation.  There is no dispute that it was, on 2 July 1999, in default in its obligation to pay interest.   It had not paid the principal sum which had then fallen due. 

1. I am satisfied, therefore, that the entitlement of the plaintiffs to interlocutory relief is not defeated by either of these two contentions.  The remaining contentions all depend directly or indirectly upon the validity of the order of the Federal Court appointing Mr Wallace-Smith as receiver and manager of Greenacres.  It was he, in that capacity, who gave the notice of demand of 1 July 1999 to Complete Furniture.  The giving of that notice is a relevant step in the procedure appointing the plaintiffs as receivers and managers of Complete Furniture.  This is whether it operates as a demand upon which the principal is repayable in accordance with clause 5(a) of the loan agreement or as an exercise by Greenacres of the option to call up the principal for default pursuant to clause 6.  If Mr Wallace-Smith had not the power to do these things, the principal was not due and payable by Complete Furniture on 2 July when the plaintiffs were appointed its receivers and managers.

1. Grounds 3 and 4 attack the validity of the debenture for want of registration. It is true it was not lodged for registration within the time specified in s.263. On 4 May 1999 shortly after the Federal Court order appointing him receiver and manager of Greenacres, Mr Wallace-Smith lodged the debenture and it has been registered. He has now before this court an application to validate this registration by extending the time. The hearing before the Senior Master is pending. It is said that since the Federal Court order is invalid this lodgement likewise is ineffective.

1. These arguments all derive their force from the underlying submission that the orders of the Federal Court of 30 April, 3 May and 24 May are a nullity for want of jurisdiction: Re Wakim (1999) 163 ALR 270. Counsel for the plaintiffs challenges this as the effect of the High Court's decision.

1. I am not at all confident that it raises a matter arising under the Constitution so that s.78B applies. It may be that the matter is more one as to the status of the Federal Court and its orders. I can well understand, however, that the Attorneys-General may have an interest in the points which the first and second named defendants may seek to raise. I shall therefore, if requested, adjourn the further hearing of this application to enable them to serve the Attorneys with notice of the proceeding and a copy of these reasons.

---