Daniel Ivan Cvitanovic in his capacity as liquidator of Master Education Services Pty Ltd (in liquidation)

[2012] NSWSC 205

Supreme Court

New South Wales

Medium Neutral Citation:	Daniel Ivan Cvitanovic in his capacity as liquidator of Master Education Services Pty Ltd (in liquidation) [2012] NSWSC 205
Hearing dates:	17 February 2012
Decision date:	17 February 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Approval not required under s 477(2A) of Corporations Act (Cth) to compromise an unliquidated claim in the District Court of New South Wales.
Catchwords:	CORPORATIONS - Insolvency - Liquidation - Application by liquidator to Court under s 511 of Corporations Act 2001 (Cth)
Legislation Cited:	- Corporations Act 2001 (Cth) ss 477, 477(2A), 511
Cases Cited:	- Elderslie Finance Corporation Limited v Newpage Pty Limited (No 6) (2007) 160 FCR 423; 25 ACLC 1042 - QBE Workers Compensation (NSW) Ltd v GJ Formwork Pty Ltd (2006) 56 ACSR 687 - Handberg (in his capacity as liquidator of S&D International Pty Ltd) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 - Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238 - Re HIH Insurance Ltd [2004] NSWSC 5 - Re Tietyens Investments Pty Ltd (in liq) (receiver and manager appointed) (1999) 31 ACSR 1
Category:	Principal judgment
Parties:	Daniel Ivan Cvitanovic in his capacity as Liquidator of Master Education Services Pty Ltd (in liquidation) (Plaintiff) Marsdens Law Group (Defendant)
Representation:	Solicitors: Meehans Solicitors (Plaintiff) Colin Biggers & Paisley (Defendant)
File Number(s):	2012/29432

Judgment - EX TEMPORE

1. By Originating Process filed on 30 January 2012, Mr Daniel Cvitanovic, in his capacity as liquidator of Master Education Services Pty Limited (in liquidation) ("MES"), seeks an order that, under s 511 of the Corporations Act 2001 (Cth), the Court determine the question whether he is required to obtain the Court's approval under s 477(2A) of the Corporations Act to compromise an unliquidated claim in the District Court of New South Wales and, if the answer to that question is yes, that he be authorised to compromise the claim in terms of consent orders executed in December 2011.

1. Mr Cvitanovic was appointed as administrator of MES in August 2009 and MES was placed in a creditor's voluntary winding up and he was appointed as its liquidator on 21 September 2009. MES subsequently commenced proceedings in the District Court of New South Wales ("the District Court proceedings") in February 2011, alleging professional negligence on the part of a law firm which had represented in it in previous litigation; the law firm thereafter filed a Defence, and sought security of costs and Mr Cvitanovic as liquidator guaranteed security of costs to a specified amount. Solicitors for the law firm subsequently communicated its position in respect of the District Court proceedings by a letter dated 13 December 2011 which identified certain matters which would be raised in the defence of the proceedings, including limitation defences. MES received counsel's advice as to the claim on 21 December 2011, which recommended a settlement of the District Court proceedings, and, as I have noted above, the parties signed consent orders in December 2011 that provided for judgment for the plaintiff in a specified amount with no order as to costs.

Direction under s 511 of the Corporations Act

1. Mr Cvitanovic seeks a direction as to the question noted in paragraph 1 above under s 511 of the Corporations Act . That section allows a liquidator in a voluntary winding up to apply to the Court to determine any question arising in that winding up and may be used to obtain a determination of a question of law arising in a voluntary winding up: Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238.

1. Section 477(2A) of the Corporations Act prevents a liquidator compromising a debt to a company if the amount claimed by the company is more than the prescribed amount. The question whether the claim in the District Court proceedings may be a claim for a debt arises from the fact that the Statement of Claim alleges that the solicitor's breach of contract or negligence had caused MES to suffer loss and damage in defending legal proceedings in an amount particularised as $311,438.22, being the costs and disbursements which were otherwise unrecoverable against a third party.

1. The claim in the District Court proceedings was for an amount that was by way of damages arising from breach of contract or negligence, not a claim for payment of a liquidated amount, and that claim was, in my view, neither a debt nor a contingent debt: Re Tietyens Investments Pty Ltd (in liq) (receiver and manager appointed) (1999) 31 ACSR 1 at [92]-[94]; Elderslie Finance Corporation Limited v Newpage Pty Limited (No 6) (2007) 160 FCR 423; 25 ACLC 1042 at [24]. The authorities indicate that the Court will err on the side of treating a claim as a debt where there is room for doubt as to that matter, so as to allow approval to be given under s 477(2A) of the Corporations Act and ensure that any compromise is not invalidated for lack of compliance with that section: Re HIH Insurance Ltd [2004] NSWSC 5 at [12]; QBE Workers Compensation (NSW) Ltd v GJ Formwork Pty Ltd (2006) 56 ACSR 687 at [4]-[5]; Elderslie Finance at [26]. However, in the present case, I see no room for such doubt and no need to adopt that wider approach. I therefore answer the question as to whether approval of the compromise is required under s 477(2A), "No".

1. The second order that was sought, being an approval under s 477 of the Corporations Act if required, does not arise. The usual process is for a voluntary winding up to take place with limited involvement of the Court and approval to a settlement of litigation would not normally be required or given under that section in the absence of a risk attaching to the liquidator which could adversely affect the winding up process: Handberg (in his capacity as liquidator of S&D International Pty Ltd) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [19]. In the present case, Mr Cvitanovic has, appropriately, not sought approval for the settlement if it was not required under s 477(2A) of the Corporations Act .

Order

1. Pursuant to s 511 of the Corporations Act , the Court answers the question identified in para 2 of the Originating Process, "No".

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