Degnan v Branchport Pty Ltd
[2004] FCA 1015
•29 JULY 2004
FEDERAL COURT OF AUSTRALIA
Branchport Pty Ltd; Degnan v Branchport Pty Ltd [2004] FCA 1015
IN THE MATTER OF BRANCHPORT PTY LTD (ACN 104 079 058), KEUKA PTY LTD (ACN 104 079 067), PENN YAN PTY LTD (ACN 102 203 270) and SCUSE ME PTY LTD (ACN 100 963 344)
WANDA LEE DEGNAN v BRANCHPORT PTY LTD (ACN 104 079 058), KEUKA PTY LTD (ACN 104 079 067), PENN YAN PTY LTD (ACN 102 203 270) and SCUSE ME PTY LTD (ACN 100 963 344)
V 923 of 2004
GOLDBERG J
MELBOURNE
29 JULY 2004
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 923 of 2004
IN THE MATTER OF BRANCHPORT PTY LTD (ACN 104 079 058), KEUKA PTY LTD (ACN 104 079 067), PENN YAN PTY LTD (ACN 102 203 270) and SCUSE ME PTY LTD (ACN 100 963 344)
BETWEEN:
WANDA LEE DEGNAN
PlaintiffAND:
BRANCHPORT PTY LTD
(ACN 104 079 058)
First DefendantKEUKA PTY LTD
(ACN 104 079 067)
Second DefendantPENN YAN PTY LTD
(ACN 102 203 270)
Third DefendantSCUSE ME PTY LTD
(ACN 100 963 344)Fourth Defendant
JUDGE:
GOLDBERG J
DATE OF ORDER:
29 JULY 2004
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Paragraph 3 of the order made on 27 July 2004, that is, that Morgan Lane and Paul Burness of Worrells Insolvency and Forensic Accountants, both of Level 5, 15 Queen Street, Melbourne, official liquidators, be appointed provisional liquidators of Branchport Pty Ltd (ACN 104 079 058), Keuka Pty Ltd (ACN 104 079 067), Penn Yan Pty Ltd (ACN 102 203 270) and Scuse Me Pty Ltd ACN 100 963 344), pursuant to s 472(2) of the Corporations Act 2001 (Cth) and that they have the power specified in s 477 to (a), (b), (d) and (k) of the Act, be revoked and set aside.
2.There be reserved for further consideration whether the order made in par 1 be made nunc pro tunc.
3.There be reserved for further consideration the question of costs.
4.There be reserved for further consideration any issue in relation to the actions of the said provisional liquidators.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 923 of 2004
IN THE MATTER OF BRANCHPORT PTY LTD (ACN 104 079 058), KEUKA PTY LTD (ACN 104 079 067), PENN YAN PTY LTD (ACN 102 203 270) and SCUSE ME PTY LTD (ACN 100 963 344)
BETWEEN:
WANDA LEE DEGNAN
PlaintiffAND:
BRANCHPORT PTY LTD
(ACN 104 079 058)
First DefendantKEUKA PTY LTD
(ACN 104 079 067)
Second DefendantPENN YAN PTY LTD
(ACN 102 203 270)
Third DefendantSCUSE ME PTY LTD
(ACN 100 963 344)Fourth Defendant
JUDGE:
GOLDBERG J
DATE:
29 JULY 2004
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
There is before the Court an application by Michael J Corcoris Pty Ltd, Thextons Pty Ltd and CM 2001 Pty Ltd, (together “the Corcoris interests”), for an application for an order that the order made by me on 27 July 2004, appointing Morgan Lane and Paul Burness of Worrells Insolvency and Forensic Accountants as provisional liquidators of Branchport Pty Ltd, Keuka Pty Ltd, Penn Yan Pty Ltd and Scuse Me Pty Ltd (“the companies”), be revoked.
The application comes about in the following way. On Tuesday, 27 July 2004 an originating process was filed in Court whereby application was made under s 461(k) and s 472(2) of the Corporations Act 2001 (Cth) (“the Act”) for the appointment of Messrs Burness and Lane as provisional liquidators of the companies and the winding up of the companies on the ground that it was just and equitable that they be wound up.
An interlocutory application was filed at the same time for the appointment of Messrs Burness and Lane as provisional liquidators pursuant to s 472(2) of the Act. The application was made ex parte in the afternoon of 27 July 2004 on the basis of what was deposed to by Wanda Lee Degnan. She said she was the sole director and sole shareholder in each of the companies, that there were substantial finance facilities in place in relation to each of the companies, which had been formed specifically to carry out specific property developments, and that mortgages were falling due for payment. Ms Degnan said that if the application was not granted to appoint the provisional liquidators there would be a significant loss of value in the companies and the companies would be prejudiced in relation to the proceeds of sale of their properties.
Affidavits were sworn by Ms Degnan and her solicitor Mr Block. No other party at that time was given notice of the application for the appointment of the provisional liquidator. A receiver, Mr Rathner, had been appointed to Branchport Pty Ltd earlier that day. He had not been given notice of the proceeding and in the course of the hearing the matter was stood down to enable him to be given notice, but he was unavailable to be contacted at that time.
There was evidence as to the identity of the lenders to the various companies and I was also told that there had been relevant proceedings in the Supreme Court. I was told by Mr Herskope, who appeared as counsel for the plaintiff, that on Tuesday 20 July 2004 Branchport became aware that a company called Michael J Corcoris Pty Ltd had lodged caveats over the properties 25 and 29 Clifton Grove, Carrum Downs. I inquired as to the interest claimed by Michael J Corcoris Pty Ltd and was told it was essentially as co‑owner. I was also informed that that proceeding was resolved by the caveats being withdrawn and that there were further proceedings involving substantially the same parties which came before Ashley J later that week, that is, last week. That caveat was removed by order of Ashley J. It was based upon the associated company, Thextons Pty Ltd, having an equitable interest as mortgagee.
I was informed in the course of that hearing that what had happened as a result of the lodging of the caveats and the notification given by Mallesons Stephen Jaques, acting on behalf of the caveator, to the other persons interested in the various pieces of land, was to the effect that, the companies had lost the support of all their lenders. When I inquired as to the reason for all the activity, on counsel’s instructions, I was told that the reason was that the Corcoris interests, who had remained silent for some time, had become apprised of the fact that there was refinancing in the wind and had used this particular time “to essentially assert their interest as a bargaining chip to attain” - and then I interrupted counsel:
“To what, to acquire the land?”
Mr Herskope replied:
“To make all sorts of allegations, your Honour, about interest in the land that they assert they have.”
I said:
“Their formal relationship is that of lender. Is that right?”
Counsel said:
“Yes, your Honour, and your Honour will have noted that the loan agreements make it clear that that is the relationship, and there is no other relationship. So what we have right now, your Honour, is because of their conduct last week, it’s the deck of cards, and it's falling over fast. We come to court today because it is urgent by reason of all of these circumstances. The chain of events has commenced both in respect of withdrawal of support and, as your Honour now sees from the letter from Lowe Lippmann, the appointment of Mr Rathner.”
The matter then proceeded before me and at about the time the inquiry was to be made of whether Mr Rathner could come to the Court, I said to counsel:
“Let me ask you, in relation to the other three companies, are there any other interests that on your instructions might be prejudiced by the appointment of a provisional liquidator?”
The response was:
“… other than the interests which the Corcoris interests allege they have in the land, my instructions are no, but those interests are hotly contested and disputed.”
I inquired as to where the contentions in relation to those interests might be found and I was told that it was in an affidavit which had been sworn by Mr Nicholas Corcoris in the proceeding before Ashley J, but that a copy of the affidavit was not in Court. The matter was adjourned to enable communication to be made with Mr Rathner. At that time I was concerned about what I called the “few gaps that need to be filled”, such as the issue of the Corcoris interest, that I did not understand.
Inquiries were made of Mr Rathner but he was unavailable. After the parties returned from the short adjournment, Mr Herskope handed to me an affidavit sworn by Mr Corcoris pursuant to an order made by Ashley J. I was told by counsel that the affidavit seemed to be designed to try to create the impression that there was some arrangement between Mr Corcoris and the husband of the applicant in relation to some 90:10 split in the beneficial interest in the companies which counsel said was not deposed to in any detail, save for an assertion. I was given the affidavit and I read it briefly and placed it on the file.
What has become apparent today is that there had been an ongoing dialogue, prior to the application for the appointment of the provisional liquidators, between Messrs Mallesons Stephen Jaques, acting for the Corcoris interests, Rigby Cooke, acting for Ms Degnan and her interests, and also a firm Wollan & Associates, acting for a lender, Eskaton Pty Ltd. There had been an attempt to try and put into place a moratorium in relation to actions being taken in relation to security interests over pieces of land. On 22 July 2004, Mallesons Stephen Jaques, through Mr Troiani, a partner, sent a letter to Mr Block at Rigby and Cooke. That letter stated:
“We refer to discussions after court this morning and this afternoon and confirm the proposal that there be a complete moratorium on activities affecting security interests over the above properties until 5.00pm next Wednesday 28 July 2004.
Accordingly, subject to agreement by Eskaton Pty Ltd to such a moratorium, our client agrees to the following mutual undertakings:
No interests controlled by or associated with Nick Corcoris and no interests controlled by or associated with Tom and/or Wanda Degnan will, prior to 5.00pm next Wednesday, 28 July 2004, take any step by way of variation of the existing security arrangements in respect of the Carrum Downs properties including, without limitation:
(a) refinancing;
(b) the lodging of any caveat;
(c) the acquiring of any other person’s security interest; and
(d)communicating with mortgagees or potential mortgagees (other than for the purpose of keeping the presently proposed refinanciers informed).
We look forward to receiving confirmation from you, on behalf of your clients, that this undertaking is given.”
What is significant about the letter is that a moratorium was proposed by Mallesons Stephen Jaques and that the second paragraph of the letter said, and I repeat:
“Accordingly, subject to agreement by Eskaton Pty Ltd to such a moratorium, our client agrees to the following mutual undertakings-”
which were then set out. On 23 July 2004 Rigby Cooke through Mr Anton Block, partner in the firm, replied to that letter, referred to its content and said:
“We are instructed that our client agrees to give the undertaking to your client on the identical terms as set out in your above letter.”
I had the benefit of evidence this afternoon from Mr Block who made it clear, and I accept, that he had asked Mr Wollan if Eskaton had agreed to what Mr Block described as “the indulgence” in the letter, that is the moratorium. He said that Mr Wollan had told him that he had not yet received instructions, that Eskaton was concerned to protect its interests and that Mr Wollan would tell him when he got the instructions.
In fact, he did not get a reply on 23 July 2004 from Mr Wollan. He did get a reply on 26 July 2004 which, in Mr Block’s terms, was to the effect that Mr Wollan said, “We’ll do what we want to do when we want to do it”. It is apparent that Mr Troiani from Mallesons Stephen Jaques was told the same thing.
I am prepared to accept for present purposes that as a result of Eskaton not agreeing to the moratorium, the mutual undertakings referred to in Mallesons Stephen Jaques’ letter of 22 July 2004 did not become operative and enforceable. That is not to say, however, that the nature and existence of the undertakings and the sequence of events within which they occurred were not relevant matters to put to the Court on the application for the appointment of the provisional liquidators. In my view, they were so relevant.
I was also told by Mr Block that on Monday, 26 July 2004, the day before the appointment of the provisional liquidators and the application for it, there had been without prejudice discussions between Mr Block and Mr Troiani in an attempt to resolve the issues between their respective clients. Those discussions finished at 6.30 that evening or thereabouts and Mr Block became aware at around 8.00 to 8.30, or shortly before that time, that there was a proposal being put for the application for the appointment of a provisional liquidator to be made on behalf of his clients the following day or at some time shortly thereafter.
Mr Block said, and I accept, that as a result of a conversation with Mr Wollan and Mr Troiani on Monday, and that because the Eskaton indulgence had not been given, he thought that the undertakings proffered in the letter of 22 July 2004 were not relevant. On the next day, 27 July 2004, he implemented, together with one of his partners, the provisional liquidator proposal.
I took his evidence that he “implemented the proposal” to refer to the preparation of material for a court application, the instructions to be given to counsel and the arrangements for the matter to come to the Court. He said that he did not tell Mallesons Stephen Jaques what was being proposed for that day, that is the application to the Court. When he was asked why he did not tell Mallesons Stephen Jaques, he said that there was a significant amount of work to be done for the Court and it took a significant amount of time to do that work. At that time, he knew that the claim had been made by the Corcoris interests for a 90% equity in the companies the subject of the application for the appointment of a provisional liquidator. He also knew that the Corcoris interests had provided finance for some of those companies and he also knew that one of the matters being discussed between the parties was the refinancing of the loans. He also knew that on the Tuesday on which the application was made the Corcoris interests had an extant offer, that is, an offer on the table to resolve the issues between the parties.
In my opinion, the fact of these discussions, the fact of the claim for the 90% equity by the Corcoris interests, the fact that refinancing was being discussed and the fact that there was an extant offer on the table were matters that should have been brought to the attention of the Court on the application for the appointment of the provisional liquidators.
I accept that before I made the order for the appointment of the provisional liquidators, I was given a copy of Mr Corcoris’s affidavit that was sworn in the proceeding before Ashley J. That affidavit raised the issue of the 90% equity claim, but it did not deal with the matters which had occurred on and subsequent to 23 July 2004 to which I have already referred.
It is trite law that on an ex parte application, particularly an ex parte application for such a draconic remedy as the appointment of a provisional liquidator, there is an obligation on parties to make full and frank disclosure of all matters which might be considered relevant to the issues before the judge or which are thought to be matters of which the judge would want to have knowledge before making a decision. In my view, that obligation was not satisfied in the present circumstances.
I consider that the goings on, between what counsel for the Corcoris interests referred to as “two warring parties”, were matters that were relevant in considering the urgency of the appointment of the provisional liquidators and in particular whether they should be appointed without an interested party, the Corcoris interests, being put on notice of the matter.
I also think it ought to be easy enough, even in the course of hectic preparation for an urgent application such as was made on Tuesday, for either a telephone call, an email or a fax of short compass to be sent to parties, such as those in the position of the Corcoris interests, saying no more than, “We propose to make an application before the Court today for the appointment of a provisional liquidator. We will inform you when we have a time from the judge”.
Mr Herskope placed significant weight on the fact that Ms Degnan had deposed to the fact that the companies were insolvent. That was a matter I took into account in determining whether or not the order should be made for the appointment of the provisional liquidators. It is just one of the matters to be taken into account, but it is not an insignificant matter. However, in my view, that does not bear upon the issue whether the application to revoke the appointment should be granted on the grounds that full disclosure of all relevant material was not made to the Court. If the appointment of the provisional liquidators is revoked, it does not automatically follow that because the companies are insolvent, there will be a further application to appoint a provisional liquidator on notice to any relevant party. The provisions of Pt 5.3A are available for the appointment of administrators and that Part can be availed of in circumstances where companies are, or are likely to become, insolvent. The power, of course, to appoint such an administrator lies in the hands of the board of directors of the companies, in this case, Ms Degnan.
There was evidence placed before me of the general nature of the status of the companies. I had the benefit of hearing from Mr Burness, one of the provisional liquidators, who has been seeking, with his partner and staff, to ascertain the position of the companies. There was insufficient time to have placed before the Court detailed information as to the status of the companies. Mr Corcoris had deposed to the fact that if the projects were completed, there would be a minimum of $10 million profit which would be realised and that any competent financier with a reasonable opportunity to assess the value of the development and to put in place proper security would refinance the developments. Mr Burness and his staff have done some preliminary work that show at least a possibility, and it seems a probability, that in most cases, each development on realisation will achieve, or go close to, a surplus. Mr Herskope pointed out quite rightly that such a realisation depends upon the value of the land and the allotments and the prices for which they can be sold.
There was also evidence before me that the ANZ Bank had called up a loan and that the provisional liquidators had held meetings with three financiers in all, and there was a proposal for their facilities to be withdrawn. In one case, they have been withdrawn. I do not consider that this is a matter I should take into account at this stage in determining whether or not the appointment of the provisional liquidators should be revoked and set aside on the grounds advanced by the Corcoris interests. It seems to me that if that is a matter that now exists, it is a matter that can be dealt with either by negotiation or dialogue with the financial institutions once they are apprised of the full facts as to how the order I propose to make this evening has come about. There was, of course, always the opportunity for refinancing as deposed to by Mr Corcoris.
At the end of the day, the matter can be summed up this way. The application was made ex parte to the Court. There was an obligation for there to be full disclosure made of all relevant matters. The adviser to the plaintiff turned his mind to the matters which have now been established, in my view, as matters which ought to have been brought to the attention of the Court. Those matters were not brought to the attention of the Court. In respect of the undertakings at least, a view was taken such that they were not relevant because they had not been implemented. I accept that that view was held honestly and in good faith but I think it was incorrect.
So far as the negotiations between the parties were concerned – the fact of the without prejudice negotiations, the matter of the refinancing and the offer that was on the table to resolve the issues – these were matters that should have been brought to the attention of the Court. If those matters had been brought to the attention of the Court, that is, had been brought to my attention, I do not consider I would have made an order on Tuesday without giving the Corcoris interests the opportunity to be present, to put their point of view and if need be, call evidence. I therefore propose to order that the appointment of the provisional liquidators be revoked.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. Associate:
Dated: 3 August 2004
Counsel for the Plaintiff: Mr A Herskope Solicitor for the Plaintiff: Rigby Cooke Counsel for the Defendant: Mr S K Wilson QC & Mr B Gillies Solicitor for the Defendant: Mallesons Stephen Jaques Date of Hearing: 29 July 2004 Date of Judgment: 29 July 2004
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