Bell v Amberday Pty Ltd
[2001] NSWSC 558
•4 July 2001
Reported Decision:
(2001) 39 ACSR 25
(2001) 19 ACLC 1439
New South Wales
Supreme Court
CITATION: Bell v Amberday [2001] NSWSC 558 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 1382/98 HEARING DATE(S): 5 May, 15 December 2000, 4 April 2001 JUDGMENT DATE:
4 July 2001PARTIES :
Susan Marie Bell (P)
Amberday Pty Limited (D1)
Ian James Patton (D2)
Baiada Pty Ltd (Applicant)
Andrew Wily (Respondent)JUDGMENT OF: Austin J
COUNSEL : J T Johnson (A)
J Chippindall (R)SOLICITORS: Manfred Dougall & Company (A)
M D Nikolaidis & Co (R)CATCHWORDS: CORPORATIONS - company liquidation - liquidator carries on company's business with a view to sale - whether liquidator personally liable for company debts so incurred - whether creditor has restitutionary claim against liquidator personally - whether receiver's right of indemnity and equitable lien prevails over liquidation creditor's claim - whether leave should be granted to permit proceedings for recovery of debt LEGISLATION CITED: Corporations Law ss 471B, 483, 553, 555, 556 CASES CITED: Deputy Commissioner of Taxation v Tideturn Pty Ltd [2001] NSWSC 217
Ex parte James; re Condon (1874) LR 9 Ch App 609
Hartogen Energy Ltd v Australian Gas Light Company (1992) 8 ACSR 277
Hewitt v Court (1982) 149 CLR 639
Pace v Antlers (1998) 26 ACSR 490
Re Application of Central Commodities Services Pty Ltd (1984) 1 NSWLR 25
Re Autolook Pty Ltd and the Companies Act 1961 (1983) 14 ATR 658
Re Great Eastern Electric Company Ltd [1941] 1 Ch 241
Re National Arms and Ammunition Company (1885) 28 Ch D 480
Shawyer v Amberday Pty Ltd (in liq) [2001] NSWSC 399
Shirlaw v Taylor (1991) 31 FCR 222
Sydlow Pty Ltd v T G Kotselas Pty Ltd (1996) 15 ACLC 846
Weston v Carling Constructions Pty Ltd (2000) 35 ACSR 100DECISION: Application dismissed
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONAUSTIN J
WEDNESDAY 4 JULY 2001
JUDGMENT1382/98 SUSAN MARIE BELL V AMBERDAY PTY LIMITED & ANOR
1 HIS HONOUR: Proceedings were commenced early in 1998 which eventually led to the winding up of a company called Amberday Pty Ltd. A creditor called Baiada Poultry Pty Ltd has brought an application by notice of motion in the winding up proceedings, for relief in respect of a debt of $47,125.70. The same creditor commenced proceedings to recover the debt in the District Court of New South Wales. Orders have been made for the District Court proceedings to be heard concurrently with the application and the winding up proceedings. This judgment relates to the application, though it has obvious implications for the District Court proceedings.
2 There is no dispute that Baiada is a creditor for goods sold and delivered to the business of Amberday for the amount claimed. Nor is there any dispute that the debt was incurred after an order was made for the winding up of Amberday, while the business of Amberday was being conducted by Mr Andrew Wily, the respondent to the application and the defendant to the District Court proceedings. Mr Wily conducted the business first as receiver and manager and then as liquidator, but Baiada's debt arose during the liquidation.
3 Baiada's notice of motion seeks, nunc pro tunc, an order that leave be granted to it to commence and maintain proceedings against Mr Wily in respect of moneys said to be due and owing by him to Baiada for goods sold and delivered to Mr Wily during the period of the liquidation of Amberday. The granting of such leave would, in effect, validate the District Court proceedings. The notice of motion also seeks an order that Mr Wily as liquidator of Amberday ‘pay or cause to be paid’ to Baiada the amount of money due by him in respect of goods sold and delivered by Baiada to him during the period of liquidation of Amberday. The granting of that relief, in effect on restitutionary grounds, would supersede the claim for debt in the District Court proceedings. The question raised by the application and the District Court proceedings, considered together, is whether Baiada can obtain relief on any basis which will permit it to recover the debt from Mr Wily personally.
4 Amberday was formed in August 1997 for the ostensible purpose of acquiring the business of an entity called Malcolm Waters Services Pty Ltd. The latter company had carried on the business of wholesale and retail butchers at Corrimal, near Wollongong, for some time. It was controlled by Malcolm Waters. At about the time Amberday was formed, Malcolm Waters Services was placed in liquidation with substantial liabilities.
6 As a result of an interlocutory application in the proceedings, Mr Wily was appointed receiver and manager of the business of Amberday on 13 February 1998. He was not given a power of sale, but he continued to manage the business, and for that purpose he issued a circular to all the creditors of the business whom he could identify, including Baiada. The circular, dated 26 February 1998, informed creditors that Mr Wily had been appointed receiver and manager and that he was continuing to trade the business. It continued:5 The principal shareholders and sole directors of Amberday were Susan Bell, who had been in a personal relationship with Mr Waters, and E M Patten, a long time business associate of Mr Waters. Mr Waters continued as manager of Amberday after it acquired the business of Malcolm Waters Services. It appears that the management of Amberday was unsatisfactory, and no proper books and records were kept. By the end of 1997 a dispute had arisen amongst Mr Waters, Ms Bell and Mr Patten, and Ms Bell commenced proceedings for relief under the oppression provisions of the Corporations Law.
‘I request that an account styled ‘Amberday Pty Ltd (Receiver and Manager Appointed)’ be opened. I advise that all orders should be placed in accordance with the pro-forma order form attached containing one of the signatures below. I advise that as Receiver and Manager I will not accept liability for any orders placed without one of the authorised signatures.’
7 The authorised signatories were Mr Wily and his employees, Darren Vardy and Sean Thomas. The letter instructed creditors with queries to contact Mr Thomas. The attached order form was headed ‘Amberday Pty Ltd (Receiver and Manager Appointed) ORDER FORM’ and contained a provision for signature above the words ‘authority per AHJ Wily Receiver and Manager’. Baiada acted on orders given pursuant to these instructions, and supplied poultry products accordingly. Its invoices were directed to Amberday Pty Ltd (Receiver and Manager Appointed). It was paid for goods supplied during the receivership.
8 Mr Wily made reports to the Court as receiver and manager on 17 February 1998 and on 13 March 1998. He reported that Amberday was insolvent, and could not satisfy the claims of its creditors without the sale of the business and associated building and plant. He said that there was an irreconcilable dispute between the directors of the company. He recommended that the company be placed in liquidation to enable the liquidator to sell the business, to investigate funds that were apparently missing, and deal with claims made by the liquidator of Malcolm Waters Services. Counsel for Mr Wily submitted that it was clear from the evidence that Mr Wily's efforts to conduct the receivership were substantially frustrated by the activities of Mr Waters. Mr Waters was not called to give evidence to reply to claims by Mr Wily in his affidavits and reports concerning absence of financial records and failure to account for substantial cash sums.
9 Mr Wily was involved in litigation, during the course of his receivership and subsequently. The liquidator of Malcolm Waters Services attempted to set aside the purchase of the business by Amberday. Those proceedings were eventually compromised on terms which enabled Amberday to retain the business. A claim was also made by Gladys Shawyer, the mother of Malcolm Waters, through Mr Waters as her tutor, in proceedings in this Court, No 2773/98. Mrs Shawyer alleged that she had a charge over part of the property where the business was carried on, or an equitable interest as unregistered mortgagee. Mr Wily brought a cross claim in those proceedings, seeking to establish an equitable charge or lien for his costs as receiver and manager, in priority to Mrs Shawyer's claim. Those proceedings were determined by Bryson J on 18 May 2001: Shawyer v Amberday Pty Ltd (in liq) [2001] NSWSC 399. His Honour held that Mr Wily had a fully constituted equitable interest by way of charge for his costs as receiver and manager, which had priority over Mrs Shawyer's mere equity to establish a claim to an equitable mortgage by deposit of title deeds, and by recourse to proprietary estoppel (at paragraph 38). Since Mr Wily's claim would exceed the recoverable value of the property (paragraph 8), leaving no asset from which Mrs Shawyer could recover, he dismissed her claim and ordered her to withdraw her caveat over the property.
11 On 16 April 1998 Mr Wily sent a letter to Baiada headed ‘Notice to Suppliers - Amberday Pty Ltd (In Liquidation) trading as Natural Meats Corrimal’. The letter stated that Mr Wily, who had been receiver and manager, had been appointed liquidator on 14 April 1998. It asked Baiada to close off the account in the name of ‘Amberday Pty Ltd (Receiver and Manager Appointed)’ and forward a final statement to Mr Wily's office. The letter continued:10 On 13 April 1998 Bryson J ordered that Amberday be wound up, and granted leave to Mr Wily to act as liquidator despite the fact that he was owed substantial fees as receiver and manager and that he had incurred substantial legal expenses. He decided that he should continue to carry on the business of the company in order to sell it, as liquidator, as a going concern. Mr Wily had the power to carry on the business under s 477 (1) (a) of the Corporations Law, and there being no vesting order under s 474 (2), the business which he carried on was a business which remained vested in the company. The evidence does not suggest any lack of good faith on the part of Mr Wily when he decided to carry on the business: cf Re Great Eastern Electric Company Ltd [1941] 1 Ch 241, 246. The evidence discloses that at the time Mr Wily believed, on the material made available to him, that the business was marginally profitable. However, Mr Thomas, the employee appointed by Mr Wily to manage the business of Amberday, embarked on a fraudulent course of conduct by misappropriating funds from the Amberday account and other accounts operated by Mr Wily, by the use of forged cheques. Mr Thomas subsequently died. The misappropriated funds were replaced, principally by the bankers to Mr Wily's firm.
‘I ask that you open a new account styled ‘Amberday Pty Ltd (In Liquidation)’ as I am continuing to trade the business.’
12 It appears that Baiada followed this instruction and continued to supply poultry products to the Amberday business, addressing invoices to Amberday Pty Ltd (In Liquidation), with the result that (as I have said) it came to be owed $47,125.70 for goods supplied during the liquidation period.
13 Mr Wily attempted to sell the business by two contracts, one for the sale of the business and the other for the sale of the property upon which the business was conducted. The business was sold for $110,000 together with stock of about $33,000, and the property was sold for $195,000. The contract for sale of the property provided for payment of the purchase price by instalments, with the purchaser to be allowed into possession of the business under licence. The purchaser defaulted and the contracts were terminated, and the deposit was forfeited. So far as Mr Wily was concerned, however, the business ceased to be conducted after 9 July 1998 and he was left with the property (subject to the alleged mortgage to Mrs Shawyer) and plant and equipment.
14 After cessation of trading Mr Wily was left with a number of creditors, failing into two classes - namely, creditors whose debts were incurred during the period of the receivership, and creditors whose debts were incurred during the period of liquidation of the company when Mr Wily was still conducting the business. Mr Wily was owed $174,000 for remuneration as receiver and manager, and $287,695.72 for remuneration as official liquidator. His evidence is that substantial sums of money were owed to his lawyer in respect of both the receivership and the liquidation. His evidence is that all creditors of the receivership (including Baiada) have been paid, with the exception of the lawyers and certain named creditors including the Commissioner of Taxation in respect of group tax. Baiada contests the assertion that the legal fees are still owing in respect of the receivership.
15 All claims for recovery of trade debts incurred during the receivership were paid in full. However, there were substantial debts owing in respect of trading during the liquidation period. Mr Wily and his partner Mr Topp negotiated with major creditors whose debts arose during this period. Mr Wily's evidence is that he was concerned that creditors had extended credit to the company in liquidation which he could not immediately discharge, and he believed it to be proper to ensure that they received some immediate benefit. For the most part, the creditors accepted less than their full claims. Except in one case, liquidation funds were used to discharge these debts. The exception related to a company called Gill's Meats Pty Ltd, which was owed $59,933.73, which was partly a receivership debt but principally a liquidation debt in an amount of $41,027.74. Mr Wily agreed with Gill's Meats that the debt would be assigned to Armstrong Wily & Co in consideration of a payment made from the personal assets of the firm. Mr Wily was unable to negotiate any arrangement with Baiada.
16 As I understand the matter, now that Mrs Shawyer's claim has been determined by Bryson J, there is no impediment to Mr Wily selling the Corrimal property. That may be the only substantial asset of Amberday. The company has a claim for costs against Mr Patten for approximately $50,000. Mr Wily says that he may have a claim for insolvent trading against Ms Bell and Mr Patten. However, Ms Bell is bankrupt and he is not aware of the assets of Mr Patten. He says that Mr Waters may be a de facto director of Amberday against whom he may have a claim, but is not aware of whether Mr Waters has any assets. In these circumstances, and having regard to his own costs, Mr Wily is of the opinion that it is unlikely that there will be any dividend to creditors of Amberday.
17 On 23 November 1998 Baiada instituted proceedings against Mr Wily personally in the District Court of New South Wales to recover $46,106.10 plus interest, for goods sold and delivered by it to Mr Wily between May 1998 and July 1998 (that is, during the liquidation period). Mr Wily filed a Notice of Grounds of Defence denying any indebtedness and saying that he was not personally liable for goods sold and delivered by Baiada to Amberday. By his foreshadowed Notice of Grounds of Amended Defence, Mr Wily added that no goods were sold or delivered by Baiada to Mr Wily in his personal capacity; and that if any goods were sold and delivered by Baiada they were sold and delivered by it to Mr Wily strictly as agent for Amberday, a company which was the subject of Mr Wily's liquidation at the time of sale and delivery of the goods and at all material times. The District Court proceedings have been transferred to this Court with a direction that they be concurrently with Baiada's application in the winding up proceedings.
19 The hearing before me has been a hearing of the application rather than the transferred District Court proceedings. Counsel for Baiada reminded me, in submissions, that the District Court proceedings are not presently before the Court and I should make no order in respect of them. It is true that the District Court proceedings were not the subject of the hearing, notwithstanding the earlier direction of the Court that the application and the District Court proceedings be heard together. However, in the course of determining the application it has become necessary for me to make findings which have a direct implication for the District Court proceedings. Counsel for Mr Wily urged me to dismiss the District Court proceedings, if his client was successful in the application. I shall return to this question later.18 Section 471B of the Corporations Law states that while a company is being wound up by the Court, a person cannot begin or proceed with any court proceedings against the company except with the leave of the Court. No leave was obtained by Baiada prior to or after its commencement of the District Court proceedings. One of the purposes of the application in the winding up proceedings is to cure that deficiency by obtaining an order for leave nunc pro tunc.
Did Mr Wily undertake personal contractual liability for Baiada's debt?
20 Logically the first question to consider, in assessing Baiada's claims, is the contractual relationship between the parties. In my opinion, the contracts for the supply of poultry products were made between Baiada as supplier and Amberday Pty Limited (In Liquidation) as purchaser. Amberday contracted through the agency of Mr Wily, but Mr Wily was not a principal contracting party.
21 As a matter of construction of the contractual arrangements, evidenced by Mr Wily's letter dated 16 April 1998 and Baiada's invoices, Baiada did not enter into any contract for the supply of poultry to Mr Wily personally during the liquidation. Mr Wily made it clear in his letter of 16 April 1998 that an account should be opened in the name of the company rather than in his name personally. It appears that Baiada did so. Although Mr Wily said in the letter that he was continuing to trade the business, the letter of 16 April 1998 was a letter written on behalf of a corporate customer asking a supplier to open an account in the company's name under its new style. That being so, it is clear that Mr Wily did not intend to accept personal liability on the ensuing supply contracts. A reasonable person with basic commercial knowledge, in the shoes of the supplier, would not interpret the letter as an offer by Mr Wily to be personally bound, since it was clear that he was acting in his capacity as liquidator, on behalf of the company. The Court had made no order vesting any assets of the company in the liquidator personally. In the case of Baiada's contract, evidence that the supplier understood the basis upon which Mr Wily was contracting is found in the fact that invoices were made out in the name of company in liquidation. Mr Wily gave evidence, which I accept, that he did not agree at any stage that he had a personal liability to discharge the Baiada debt, and that he did not authorise anyone to assume liability in his name.
22 Mr Wily gave evidence that he accepted personal liability for certain debts incurred during the receivership, but that may have been because the debts were specially treated - they related to taxation liability, electricity supply and workers compensation insurance. In written submissions Mr Wily’s counsel said that there can never have been any doubt that a receiver appointed by the Court is personally liable for any debts he incurs. However, Mr Wily has strenuously contested the proposition that he had personal contractual liability for debts incurred during the liquidation period. It might appear odd that a Court-appointed receiver who carries on the business of the company is personally liable for debts incurred during the receivership, but as soon as he becomes liquidator his personal liability ceases. But the outcome is explained by the different natures of the officers of the Court-appointed receiver and manager, and liquidator. In the latter case, in the absence of an order vesting assets in the liquidator, the liquidator acts as fiduciary agent for the company and in principle it is open to him, in carrying on the business of the company to contract only as agent for the company and not in his personal capacity. In my opinion this is what Mr Wily did in the present case. Although the letter which he wrote on 26 February 1998 as receiver is in some respects similar to his letter of 16 April 1998 written as liquidator, the former letter contains the additional statement that as receiver and manager, Mr Wily would not accept liability for orders placed without authorised signatures. This can be taken to imply that he would accept liability if the proper procedure was followed.
24 There is some limited evidence to the effect that, in a telephone conversation on 10 September 1998, Mr Thomas acknowledged to a Mr McKenzie on behalf of Baiada that Armstrong Wily & Co owed the debt, and that Mr Thomas promised payment of the debt. Baiada points out that in the two letters written by Mr Wily to suppliers he said that any queries should be referred to Mr Thomas. In my opinion, however, this evidence is not sufficient to establish a personal liability on the part of Mr Wily. The letters merely designate Mr Thomas as a person authorised to answer queries. They authorise Mr Thomas to place orders, but only in terms of the letters, according to which the account was an account in the name of the company rather than in Mr Wily's name personally. Nothing in the letters clothed Mr Thomas with authority to render Mr Wily personally bound. Mr Wily's own evidence is that he did not authorise Mr Thomas or anyone else to bind him personally to the supply contracts. That evidence is plausible and I accept it.23 On 26 June 1998 Mr Topp, on behalf of Mr Wily, wrote to Baiada in response to a telephone request, enclosing ‘an extract of my commitments schedule for both the receivership and the liquidation to date’. I regard this letter as another example of loose expression, not indicating an intention on Mr Wily's part to be personally bound.
Mr Wily's equitable lien for the costs of receivership
25 Baiada says that the debt owing to it was incurred by Mr Wily as liquidator, and therefore as a ‘relevant authority’ for the purposes of s 556 of Corporations Law. Baiada contends, consequently, that its debt is an expense ‘properly incurred by a relevant authority ... in carrying on the company's business’, and therefore has the first-ranking priority amongst unsecured debts conferred by s 556 (1)(a).
26 Baiada claims, accordingly, that its debt prevails over any equitable lien that Mr Wily may be able to assert as receiver. Baiada relies on Lindgren J's decision in Pace v Antlers Pty Ltd (1998) 26 ACSR 490. The facts of that case were very complex. Suffice it to say that in 1993, Mr Millar was appointed receiver and manager of the assets of Antlers for the purpose of ascertaining and preserving them. In 1994 he was appointed liquidator of the company. It was contended that until 1995, when the receivership was terminated, Mr Millar held the assets of the company as receiver rather than as liquidator. Lindgren J referred to and distinguished cases which had held that a receiver appointed to the assets of a company under an instrument could not be required by a subsequently appointed liquidator to hand over the assets held by the receiver. His decision was that a court-appointed receiver did not need the protection of an order before transferring assets to a liquidator appointed by the same Court (at 500), and in any event, Mr Millar did in fact pay over to himself as liquidator the funds which he had previously held as receiver.
27 The case is distinguishable from the present case, because in Pace v Antlers Lindgren J did not address the receiver's right of indemnity and equitable lien for unpaid remuneration and expenses. In my view, the obligation of a receiver to hand over assets to the liquidator is subject to those rights, in the sense that the Court must take them into account before making an order for the transfer of the assets under s 483 of the Corporations Law.
28 As I have said, Mr Wily is owed $174,000 for remuneration for his work as receiver and manager appointed by the Court, and he has incurred expenses including a substantial amount owed to his solicitor (although, as I shall explain, Baiada contends that the debt to the solicitor has been satisfied). He has also paid some expenses of the receivership out of his own pocket. He claims a right of indemnity for recoupment of his remuneration and expenses, supported by an equitable lien, in respect of the assets of Amberday. If Mr Wily's claim has priority over Baiada's claim, it will consume and exhaust all of the assets of Amberday, and there will be nothing left for Baiada.
29 Mr Wily's right of recoupment of his remuneration and expenses was considered by Bryson J in Shawyer v Amberday Pty Ltd [2001] NSWSC 399. His Honour remarked, at paragraph 9, that the entitlement of a receiver appointed by the Court to a lien, supporting his right of indemnity for recoupment of remuneration and properly incurred expenses out of the assets the subject of the receivership, is very clearly established by authority. He cited the judgment of Needham J in Re Application of Central Commodities Services Pty Ltd (1984) 1 NSWLR 25, in which earlier authorities and texts were reviewed. He referred to the subsequent decision of the Full Federal Court in Shirlaw v Taylor (1991) 31 FCR 222, and my own decision in Weston v Carling Constructions Pty Ltd (2000) 35 ACSR 100. Citing Hewitt v Court (1982) 149 CLR 639 at 663-667 (per Deane J), Bryson J expressed the opinion that Mr Wily's lien is an equitable interest, proprietary in nature, which goes far beyond a disposition of the Court towards protecting the officer whom it has appointed. He proceeded to hold that this equitable interest prevailed over Mrs Shawyer's mere equity to establish a claim to security for money made available to the company.
30 Mr Wily relies on these authorities in the present case. Given the circumstances of the present case, he places particular emphasis on my holding, in Weston v Carling Constructions Pty Ltd , that the receiver's equitable lien can be asserted against assets in his possession, undiminished by the statutory provisions for the payment of unsecured debts (see paragraph 23). My decision in that case is consistent with Shawyer v Amberday Pty Ltd , and is reinforced by his Honour's reasoning. Applying my earlier finding, I hold that Mr Wily's claim for recoupment of his remuneration and expenses has the status of a claim by a secured creditor, exercisable in priority to any of the claims of unsecured creditors which are given priority in a winding up by s 556 of the Corporations Law.
31 Counsel for Mr Wily also submitted that, in light of Weston v Carling Constructions Pty Ltd , until the receiver's claim is fully satisfied out of assets in the liquidator's hands, there is no ‘property’ of the company for the purposes of s 485 (3), and therefore it is not open to the Court to make an order under that subsection as to the payment out of company property of expenses incurred in the winding up in such order of priority as the Court thinks just. I can see no reason for exercising my discretion under s 485 (3) in the circumstances of the present case. Therefore I find it unnecessary to decide whether Weston v Carling Constructions Pty Ltd goes so far as to exclude the Court's power to make any such order, in a case where the assets of the company in liquidation are insufficient to meet the prior claims of a Court-appointed receiver.
32 Baiada drew attention to the standard terms and conditions of trade printed on the back of its invoices. The standard terms included a requirement for payment in cash on delivery unless approved credit facilities had been established, a provision imposing interest on unpaid amounts of the rate of 18% per annum, and a provision whereby the customer charged its assets from time to time with the payment or moneys owing by the customer to Baiada from time to time, and granted to Baiada a caveatable interest in the customer's realty or its directors' realty from time to time.
33 Baiada submitted that these provisions had been implicitly adopted by Mr Wily as terms and conditions of trade because he continued to deal with Baiada during the liquidation period after it had sent invoices which were endorsed with them. In light of these provisions, Baiada submitted that it would be entitled to lodge a caveat upon the title to the Corrimal property. It submitted, therefore, that it had an equitable interest over of the company's realty which had priority over Mr Wily's equitable lien for the costs and expenses of receivership.
35 Baiada submits that the equitable principles which give rise to an equitable lien on the part of a receiver can be overridden by a court of equity where it is appropriate to do so. I regard that submission as inconsistent with Bryson J's reasoning in Shawyer v Amberday . Moreover if, contrary to my view, the Court had a discretion to modify the equitable lien is some fashion, I would see no basis of fairness for doing so in the present case. This is not case of an officer of the Court purporting to take an unfair advantage of his position.34 In my opinion this submission fails on the facts. Even assuming that the printed provision on the back of the invoice was sufficient to give rise to an equitable interest by way of charge over all of the company's realty, that interest was later in time than Mr Wily's equitable interest. Mr Wily's interest arose during the receivership, when he became entitled to remuneration and incurred expenses. Any charge of Baiada with respect to debts incurred during the receivership was discharged by payment of those debts. Any equitable interest of Baiada with respect to the amount which it now claims arose only when the debts were incurred, during the subsequent liquidation period.
36 Baiada makes the following submissions:
The restitution claim
(a) there has been an enrichment of the assets of Amberday, in that Baiada has continued to supply Amberday at the request of Mr Wily and his servants and agents, and has not been paid;
(b) Baiada is not in a position to submit an ordinary proof of debt, because it is not a creditor entitled to rank and participate under s 555 of Corporations Law and it does not have a provable debt for the purposes of s 553, because the debt was not incurred before the ‘relevant date’, namely the date when the winding up order was made (cf Re National Arms and Ammunition Company (1885) 28 Ch D 480);
(c) Mr Wily's failure as liquidator to satisfy debts incurred during the period of his administration is such that ‘as an honest man he would nevertheless be bound to admit that it would not be fair’ that he or the company should retain the benefit ( Ex parte James; re Condon (1874) LR 9 Ch App 609, 614; Re Autolook Pty Ltd and the Companies Act 1961 (1983) 14 ATR 658, 660; Hartogen Energy Ltd v Australian Gas Light Company (1992) 8 ACSR 277, 290-294);
(d) the orders sought by Baiada are designed to nullify the enrichment of Amberday's estate.
38 Baiada's formulation of its case echoes the account of the principle in Ex parte James set out in MacPherson on the Law of Company Liquidation (4th ed, p 375), according to which the principle applies when the following conditions are satisfied:37 In Baiada's submission, Mr Wily has failed to provide any satisfactory explanation as to the facts and circumstances under which he, as an officer of the Court, has failed to satisfy debts incurred during the period of his administration; or the extent to which there are or were assets available at the relevant time to do so; or the extent to which one or more of the other creditors whose debts were incurred during the period of the administration have been satisfied in priority to Baiada's claim; or the circumstances under which he ceased to operate the business. Cumulatively, it is submitted, these considerations support the application of the principle in Ex parte James .
(i) there must be some form of enrichment of the property of the company;
(ii) the person claiming relief must not be in a position to lodge a proof of debt in the liquidation;
(iii) the rule applies to prevent a liquidator from having a claim to which he or she is strictly entitled in law, if in all the circumstances the liquidator as an honest person would have to admit that the claim would not be fair;
(iv) the rule does not necessarily restore the person making the claim to the status quo, as it only operates to the extent necessary to prevent the company's estate from being enriched.
39 Mr Wily submits that the principle in Ex parte James has no application to the present circumstances. Without conceding that the other three elements are satisfied, Mr Wily submits that the third element is not present here. He says there is no unfairness in the present case. He submits that the liquidator, in his capacity as receiver and manager, is entitled to be paid in respect of his expenses and remuneration for that task. Mr Wily says that he has adequately disclosed the problems he faced as receiver, and that he has acted with honour and beyond any duty in seeking to preserve the position of the liquidation creditors.
40 It seems to me that Mr Wily is really making two points, both of which I accept. The first is that, even if there were circumstances of unfairness surrounding his conduct of the business and the incurring of debts during the liquidation period, those circumstances would not stand in the way of his asserting the receiver's right of indemnity and equitable lien. There is no ground for concluding that Mr Wily behaved unfairly to trade creditors whose debts were incurred during the receivership, since they have all been paid. In any case, the right of indemnity and equitable lien of a Court-appointed receiver gives rise inexorably to an equitable interest which has priority over the claims of unsecured creditors in the liquidation, and in my opinion this means that the equitable lien of the receiver has priority over any restitutionary claim against the liquidator, even if the receiver and liquidator are the same person.
41 Secondly, Mr Wily submits that a full and fair assessment of his conduct as liquidator would not justify the conclusion that denying Baiada's claim would be unfair, within the third requirement for the application of the principle.
42 Baiada relies on Deputy Commissioner of Taxation v Tideturn Pty Ltd [2001] NSWSC 217. In that case Santow J found that a liquidator who had continued to carry on the company's business after the making of a winding up order had failed to exercise proper supervision over those to whom he had delegated the running of the business, to ensure that group tax was being paid on a monthly basis. The liquidator had the bank statements for the business reconciled monthly by one of his staff, but that process simply showed wages being paid on a gross basis, and the liquidator failed to take up the failure to remit group tax for about six months. The Deputy Commissioner submitted that it had been unreasonable for the liquidator to delegate the decision as to which debts incurred by the business after the making of the winding up order should be paid, and also unreasonable for the liquidator not to check and ensure that group tax deductions were being remitted. Santow J agreed with these submissions.
43 In my opinion, the case is distinguishable on its facts. Mr Wily's administration of the liquidation led to other creditors being paid, either wholly or on a compromised basis, while Baiada has not been paid, but that outcome was a result of Mr Wily's own efforts at negotiation, assisted by his partner Mr Topp, and was not the product of any failure of supervision of other persons. There were negotiations between Mr Wily and Baiada, and the evidence does not provide any adequate basis for me to conclude that those negotiations were conducted otherwise than in good faith by Mr Wily. The reasons for failure of those negotiations are not clear, but offers were made for settlement by Mr Wily which were not manifestly unreasonable, having regard to the financial position of the company, the amounts accepted in settlement by other creditors, and the implausibility of Baiada's allegation that Mr Wily was personally bound.
45 The duty of care of a liquidator was extensively considered by Lindgren J in Pace v Antlers . In that case, the liquidator failed to pay income tax that had been assessed for the company. Some contributories resisted his application to be released as liquidator, on the ground that his failure to pay the tax was a breach of his fiduciary duty or his duty of care and skill as liquidator. As to the general standard of care, his Honour said (at 503):44 Baiada submitted that as an officer of the Court, Mr Wily has a positive duty as liquidator to advise those who extended credit to Amberday's business of any risk that they might not be paid. This, it was submitted, was a particularly obvious responsibility given the amount of fees and expenses that Mr Wily had incurred as receiver and manager.
‘In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. ‘All the circumstances’ will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator's role and function, and that a liquidator is paid for liquidation work. ‘All the circumstances’ will also include the fact that some decisions and courses of action which the liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.’
46 He held that a liquidator is under a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly (at 501). It was argued that the liquidator was not obliged to pay the tax debt earlier then he did, because it was not an expense of the winding up. Lindgren J found that the tax debt was not a debt provable in the winding up of the company, because it was incurred well after the commencement of the winding up. He then held, but for certain provisions of the income tax legislation, the tax debt would not have been a cost and expense of the winding up, for the purposes of s 292 (1) (a) of the Companies Act 1961 (NSW), a provision approximately equivalent to s 556 (1) (a) of the Corporations Law. His conclusion of that point related to the facts of the case before him. In Pace v Antlers the tax debt arose out of sales purportedly made by the directors of the company on the assumption, eventually held to be false, that the winding up of the company had terminated several years earlier. Lindgren J held that in those circumstances, the tax debt could not be said to have the incurred for the purpose of the winding up of the company (at 504, 507). That particular holding is clearly distinguishable from the facts of the present case.47 However, Lindgren J found that the tax debt should be treated as a cost or expense of the winding up by virtue of some provisions of the Income Tax Assessment Act 1936 (Cth). Under s 215 of that Act, a liquidator is obliged to give notice of his appointment to the Commissioner, who must then notify the liquidator of the amount which appears to the Commissioner to be sufficient to provide for present and future tax. The liquidator then has the statutory duty to set aside sufficient funds for the payment of tax out of the assets available for payment of ordinary debts of the company, and has a personal liability, to that extent, to pay the tax. In Pace v Antlers Mr Millar did not give notice to the Commissioner as required by s 215, and was not entitled to be in a better position that he would have been in had he performed his statutory obligation. Lindgren J expressed the view that the amount of Mr Millar's liability under s 215 would have been a cost or expense of the winding up for the purposes of s 292 (1) of the 1961 Act. He concluded that Mr Millar was in breach of his duty by failing to comply with s 215 and pay the tax.
48 Once again, Lindgren J's reasoning and conclusion are clearly distinguishable from the present case, because Baiada's debt is an ordinary trade debt not supported by the statutory provisions applicable to unpaid income tax. It is true that according to the affidavit evidence of Mr Wily, there is an amount of unpaid group tax relating to the carrying on of the business, but he accepts liability to pay that tax and in the circumstances, there is no basis from for concluding that non-payment of the tax amounts to a breach of duty of care from which Baiada may derive any benefit.
49 I have no difficulty in concluding that Baiada's debt was an expense properly incurred by the liquidator in carrying on the company's business for the purposes of s 556 (1) (a) of the Corporations Law, even though the debt was incurred by him as agent for the company in liquidation rather than as principal (cf Pace v Antlers , at 506-507). The subsection specifically extends to expenses incurred in carrying on the company's business, and it would be unduly restrictive to confine it to business expenses for which the liquidator undertakes personal liability. The words ‘incurred by a relevant authority’ are capable of applying where the relevant authority incurs the expense as agent, and I see no reason for adopting any other construction.
50 It seems to me, however, that although s 506 provides a degree of protection to a creditor in Baiada's position, there is nothing in the Corporations Law or in the duty of care of a liquidator that would require a liquidator in Mr Wily's position to draw specific attention to his own claim as receiver to an equitable lien over the assets of the company, before incurring credit on behalf of the company in the course of trade. The carrying on of a business involves, of its nature, the receipt of revenue as well as the incurring of expenses. I see no reason for doubting that a reasonable person in Mr Wily's shoes could have formed the view that the current expenditure of the business could be met out of current revenue. Mr Wily gave evidence that he thought, at the time (before Mr Thomas' defalcation) that the business was marginally profitable.
52 Baiada also criticises Mr Wily for his failure to pay group tax and for failure to cause transactions in connection with the trust account of the law firm to be reflected in the statement of receipts and payments lodged by Mr Wily with the Australian Securities and Investments Commission. In my opinion these matters do not provide a foundation for a conclusion that Mr Wily has failed to discharge his duty of care as liquidator. At one stage in submissions, counsel for Baiada seemed to question the appropriateness of Mr Wily's decision to continue the business of the company after the winding up order was made, with the view to selling it, in view of the substantial amount of his own claim to remuneration and expenses as receiver. For the reasons I have already given, I reject this suggested criticism. It was open to Mr Wily to anticipate that the expenses of carrying on the business would be met by the revenue of the business.51 Baiada is critical of the arrangements may between Mr Wily and the law firm which has acted for him, M D Nikolaidis & Co. The firm raised an invoice on 7 June 1999 in the amount of $107,853.90, and on 23 August 1999 Mr Topp of behalf of Mr Wily wrote saying that the deposit forfeited on the unsuccessful sale of the property and business, then held in the firm's trust account, would be applied by the firm in full and final settlement of the firm's fees. Notwithstanding that statement, Mr Topp asserted in evidence that the payment was not intended to be in full and final satisfaction of legal fees. In my opinion, notwithstanding a submission by Baiada to the contrary, it is not established by the evidence that the law firm has no further claim for fees with respect to the receivership, although the quantum of those fees is unclear. Baiada submits that the approach taken to the question of legal fees is a clear indication of the inadequate manner in which the administration has continued. I disagree. In my opinion Mr Wily's dealings with the law firm are just another indication of his attempts as liquidator to make reasonable arrangements to permit him to proceed with the administration and to act fairly to creditors.
53 Unless leave is granted under s 471B, the District Court proceedings cannot be proceeded with, according to that section. The Court has a broad discretion to grant leave under the section. The factors which influence the Court's decision to grant or withhold leave were explored by Tamberlin J in Sydlow Pty Ltd v T G Kotselas Pty Ltd (1996) 15 ACLC 846. Leave will not be granted if there is nothing to inquire into, so that it is pointless to allow the proceedings to continue. All the relevant issues have been fully litigated before me, and I am satisfied that there is no basis for recovery by Baiada against Mr Wily personally, and, consequently, that proceedings against him personally would be bound to fail. It therefore seems to me that there is no proper ground for the granting of leave under s 471B.
Leave to proceed under s 471B
Conclusions
54 Baiada has failed to make out its claim for an order granting leave under s 471B, or for an order directing payment by Mr Wily of the amount which it claims. Therefore Baiada’s notice of motion will be dismissed.
56 The claim for recovery against Mr Wily personally was misconceived. In the circumstances I see no reason for denying Mr Wily an order that Baiada pay his costs of the notice of motion. There was a suggestion in submission that costs should be awarded on an indemnity basis but I do not see any proper ground for doing so. While the claim was, in my view, misconceived, it was not hopeless. However, I shall give the parties the opportunity to make brief submissions with respect to costs in light of my reasons for judgment, before making a final decision on costs.55 Counsel for Mr Wily submitted that if I were to reach this conclusion, I should also make an order dismissing the District Court proceedings (originally number 8530/98, which have now been transferred to this Court and are numbered 1162/00). I am strongly inclined to do so, but I wish to make sure that there is no procedural unfairness to Baiada by taking this course of action. I shall therefore give counsel the opportunity, after they have considered these reasons for judgment, to address me on the question whether orders should be made without further hearing, dismissing proceedings number 1162/00.
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