Deputy Commissioner of Taxation v Lease-Wright Pty Ltd
[2012] FCA 1281
•19 November 2012
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Lease‑Wright Pty Ltd [2012] FCA 1281
Citation: Deputy Commissioner of Taxation v Lease‑Wright Pty Ltd [2012] FCA 1281 Parties: DEPUTY COMMISSIONER OF TAXATION v LEASE-WRIGHT PTY LTD ACN 010 230 074 File number(s): QUD 580 of 2011 Judge: GREENWOOD J Date of judgment: 19 November 2012 Catchwords: BANKRUPTCY AND INSOLVENCY – consideration of an application to wind up a company under administration Legislation: Corporations Act 2001 (Cth), ss 459P, 466(2), 440A Cases cited: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 - cited Date of hearing: 16 November 2012 Date of last submissions: 16 November 2012 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 26 Solicitor for the Plaintiff: M J Broderick, Gadens Lawyers Solicitor for the Defendant: W T Fitzgerald, JHK Legal
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 580 of 2011
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
PlaintiffAND: LEASE-WRIGHT PTY LTD ACN 010 230 074
Defendant
JUDGE:
GREENWOOD J
DATE OF ORDER:
19 NOVEMBER 2012
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The defendant, Lease‑Wright Pty Ltd ACN 010 230 074, be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
2.Andrew Peter Fielding be appointed liquidator of Lease‑Wright Pty Ltd ACN 010 230 074 .
3.The plaintiff’s costs of and incidental to the application for a winding‑up order be taxed and paid out of the property of the defendant in accordance with s 466(2) of the Corporations Act 2001 (Cth).
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 580 of 2011
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
PlaintiffAND: LEASE-WRIGHT PTY LTD ACN 010 230 074
Defendant
JUDGE:
GREENWOOD J
DATE:
19 NOVEMBER 2012
PLACE:
BRISBANE
REASONS FOR JUDGMENT
These proceedings concern an application for the winding up of the defendant in insolvency under s 459P of the Corporations Act 2001 (Cth) (the “Act”). The ground of winding up is the defendant’s failure to comply with a statutory demand under s 459E of the Act.
The application was filed on 6 December 2011 and was first returnable on 3 February 2012. The winding up application was then adjourned to 2 March 2012 and then adjourned on 23 March 2012, 13 April 2012, 27 April 2012, 1 June 2012, 10 August 2012, 12 October 2012 and 9 November 2012. On 1 June 2012, an order was made under s 459R(2) of the Act for the period of time within which the application may be determined, to be extended by six months to 1 December 2012.
On the hearing of the matter on 1 June 2012, the defendant filed an affidavit in support of an adjournment of the application, sworn by Ms Karen Esther Cartwright, a director of the defendant, together with an affidavit sworn by Mr Roger Cartwright, who is also a director of the defendant. Ms Cartwright’s affidavit is a substantial document and in it Ms Cartwright sought an adjournment on the footing that the defendant had taken steps to realise a series of assets which would generate sufficient funds to discharge the debt due to the plaintiff, the Deputy Commissioner of Taxation.
At paras 2 to 14 inclusive of her affidavit, Ms Cartwright explained the steps being taken by her and Roger Cartwright to arrange an auction on 2 June 2012 a property at Runaway Bay. Ms Cartwright deposes to a number of facts about that property and explains that if the property is sold at auction for the proposed reserve, the net funds available after discharge of a mortgage to National Australia Bank would be likely to be approximately $450,660.
At paras 15 to 28 of her affidavit, Ms Cartwright also explains that steps had been put in place to auction a property owned by her and Roger Cartwright on 9 June 2012 at Broadbeach Waters. Ms Cartwright explains that if the property is sold at auction for the proposed reserve, sufficient funds would be available after discharge of secured creditors, to pay the amount of the debt owed to the plaintiff of $268,861.48.
At paras 29 to 37, Ms Cartwright explains that on or about 22 March 2012, Ms Cartwright and her husband listed a business for sale owned by the trustee of the Kazro Family Trust. That business had been operated by Ms Cartwright and her husband for approximately 10 years. It is an importing and wholesale furniture business supplying retailers of furniture. Ms Kazro explains at para 34 of her affidavit that the business had been listed for sale for $388,000 for goodwill plus stock to the value of $500,000. She also explains that she is informed by the selling agent Mr Kirizi and that she verily believes that the Kazro Furniture business “is worth at least the listing price” and that she believes the Kazro Furniture business “has good reasonable prospects of selling for this price”. She says that Kazro Furniture is a profitable business and that it has good prospects of being sold “in the near future”. A profit and loss statement is annexed to her affidavit for the business of Kazro Furniture. She also says that in their capacity as beneficiaries of the “Kazro Family Trust”, she and Roger Cartwright intend to use the balance sale proceeds from the sale of the business to pay the outstanding debt owed to the plaintiff.
On 1 June 2012, Roger Cartwright swore an affidavit in which he says that he is a director of the defendant and that he has read the affidavit of Karen Cartwright. He also says that based upon his “intimate knowledge of the financial affairs of the [defendant]”, he believes Karen Cartwright’s affidavit to be “[an] accurate account of the [defendant’s] financial situation”. As to the properties, Roger Cartwright said that he was willing to provide an undertaking in favour of the Deputy Commissioner of Taxation to direct the balance sale proceeds from the sale of the two properties to the Deputy Commissioner in the event that the properties sold at auction.
Having regard to the material set out in the affidavits of Roger and Karen Cartwright, the Deputy Commissioner of Taxation supported an adjournment of the winding‑up application in order to allow the defendant to exhaust the opportunities to realise the particular assets described in the affidavits.
As things transpired, the properties did not sell at auction.
Ultimately, on 11 October 2012, the directors of the defendant by resolution appointed Mr Richard Albarran and Mr Glen Oldman of Hall Chadwick as administrators of the defendant pursuant to s 436A of the Act.
The administrators conducted discussions with Roger and Karen Cartwright and prepared a report to creditors dated 7 November 2012.
One matter that emerged out of discussions between the administrators and Roger and Karen Cartwright which is reflected in the report of 7 November 2012 at para 4.2, p 5 of the report is that on 7 February 2012 the trustee of the Trust, by Roger and Karen Cartwright, entered into a “Sale of Assets Agreement” with a related entity called Abd (Aust) Pty Ltd (“ABD”) by which the assets and undertaking of the furniture business were sold to ABD. The administrators report that “all assets of the business (being various pieces of furniture, a forklift, pallet racking and all trade creditors of the Vendor)” were transferred to ABD. The administrators say in their report that they have been provided with a copy of the Sale Agreement executed by both parties however, the Agreement does not set out any details of the assets sold, their costs or value or the sale price. The lack of clarity about the content of the Sale of Assets Agreement caused the administrators to make enquiries of Roger and Karen Cartwright about the “details of the Sale”. The administrators were also told that all assets subject to the sale “are in the custody of the Purchaser however, no consideration has yet been paid by the Purchaser”. The administrators observe that it therefore appears that the Sale has not been completed.
It follows therefore that on 7 February 2012 after filing and service of the winding‑up application and after the first return date of the application before the Court on 3 February 2012, Roger and Karen Cartwright caused the defendant in its capacity as trustee of the Trust to transfer (sell) the furniture business to a related company on the basis of a Sale of Assets Agreement which is incomplete and in respect of which no consideration was actually paid. More fundamentally, the sale price is said to be $25,000 notwithstanding that four months later Ms Cartwright swore an affidavit in which she failed to disclose any aspect at all of the sale of the business to a related entity and talked about the business having a value of “at least” $388,000 and a stock value of $500,000. Mr Roger Cartwright in adopting the content of Ms Cartwright’s affidavit on the footing of his “intimate knowledge of the financial affairs of the [defendant]” also failed to mention the transfer by the defendant trustee of the furniture business to a related company and represented that the true value of the business (then unsold) was as Ms Cartwright had represented it to be.
At no time in the course of these proceedings has either Roger Cartwright or Karen Cartwright filed any affidavit material to explain the sale of 7 February 2012 or the inaccuracies and misrepresentations contained in their affidavits concerning the furniture business which were formulated and filed in support of matters of relevance to an adjournment of the winding‑up application on the footing, in part at least, that the net proceeds of sale of the furniture business would be sufficient to pay the Deputy Commissioner of Taxation the debt then due and owing to the Commonwealth.
In the report of the administrators, the administrators note that no independent valuation had been conducted with respect to the sale of the furniture business. They also observe that a registered valuer, “Hymans Asset Management” (“Hymans”) has been appointed to attend the trading premises of the purchaser (ABD) to ascertain the value of the company’s assets. The administrators note that as at 7 November 2012 they were yet to receive a valuation. ABD is a related company because the directors and shareholders of it (as purchaser) are the same directors and shareholders of the defendant, namely, Roger and Karen Cartwright.
Apart from the obvious concern arising out of the matters just mentioned, the administrators advise the Court that requests have been made of Roger and Karen Cartwright to provide the administrators with all of the relevant financial documents relating to the affairs of the defendant. Even as at 16 November 2012, not all of the relevant documents have been produced. Further requests have been made over the last few days, according to Mr Fitzgerald who appeared on behalf of the administrators, but at least the following documents are yet to be produced: the Trust Deed, cheque books and bank statements.
In the report of administrators to creditors dated 7 November 2012, the administrators observe at para 4.4, p 6 that they have not received adequate records to properly explain the majority transactions and position of the company. They say that the records not received “that are critical to my investigations” include the following: a copy of the MYOB file for the Trust; full details of the assets of the Company and the Trust; and a copy of the Trust Deed.
The administrators also observe in their report that based on the limited books and records of the company at hand, several payments totalling $14,000 may be potentially preferential in nature and therefore voidable as against the liquidator. Apart from the apparent voidable disposition of the furniture business, the administrators say that further investigations are necessary to determine whether the directors have conducted the trading activities of the defendant when the company was insolvent. The administrators observe that it is their preliminary view that if the company is wound up, the likelihood of recovery of any funds as a result of an insolvent trading action against the directors is ultimately dependent upon the value of any equity in the directors’ real properties. Fundamentally, the administrators say that further enquiries are necessary in relation to the Sale of Assets Agreement so as to determine whether it represents an “uncommercial transaction” for the purposes of the Act.
The failure of the directors to disclose the sale transaction to a related entity casts real doubt over the accuracy and reliability of other statements that might be made by the directors to administrators in the course of conducting an administration.
The administrators conducted a second meeting of creditors on Thursday, 15 November 2012. The unsecured creditors of the defendant are represented by four claimants owed $1,382,866.83. The creditors are: Australian Taxation Office ($272,866.83); Dorrine Cartwright ($350,000); Platinum Lawyers and Conveyances ($10,000); Roger and Karen Cartwright ($750,000). The creditors resolved to adjourn the meeting on the footing that further investigations by the administrators were necessary before they could form a view.
On 15 November 2012, the day of the meeting of creditors, Roger and Karen Cartwright proposed a Deed of Company Arrangement by which they would establish a Deed Fund of $75,000 by 12 monthly instalments of $6,250 for distribution to creditors. They say that they would reserve the right to vote at the meeting but would subordinate their claim to any dividend. Of course, adoption of such a proposal would foreclose further examination of the unexplained sale of the furniture business in the affidavits of 1 June 2012. The administrators today say that Roger and Karen Cartwright recognise that because the defendant in its trustee capacity sold the furniture business to a related entity, the contribution to the Deed Fund “might need to be increased”.
The administrators seek an adjournment of the winding‑up application under s 440A on the footing that the Court ought to be satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up. However, the Court has to take into account the interests of the creditors overall and in circumstances where the directors have failed to produce essential financial records of the company or the trust and have had an opportunity to do so since 11 October 2012, and have misrepresented the position in relation to the disposition of the furniture business to a related company (notwithstanding that they now recognise that a contribution to a proposed Deed Fund would need to recognise the fact), there are serious concerns that the words and actions of the directors are unreliable.
That being so, it follows that the interests of the creditors are best served by winding up the company in insolvency and appointing independent liquidators to conduct all of the necessary forensic investigations a liquidator may undertake under the Act with a view to establishing the nature of the assets of the company and the Trust, the scope of the transactions undertaken in relevant periods for the purposes of the Act, the compulsory delivery up of all of the relevant financial documents, and, where appropriate, conduct an examination of the directors.
Further, the transfer of the assets of the furniture business by the defendant trustee to a related company, might have had the effect of prejudicing the trustee’s right of indemnity out of those assets. It is important that a liquidator stand in the shoes of the trustee and preserve all of the items of property for the creditors which are, in part at least, represented by the trustee’s right of indemnity out of the assets of the trading Trust: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367. I am therefore not satisfied for the purposes of s 440A(2) of the Corporations Act that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
Accordingly, orders will be made that the company be wound up in insolvency. Mr Andrew Fielding will be appointed liquidator. It is important that an entirely independent liquidator is appointed to conduct the forensic investigations necessary. In forming that view, I make no criticism whatsoever of the present administrators.
Further, the plaintiff’s costs of and incidental to the winding‑up application are to be taxed and reimbursed out of the property of the defendant in accordance with the provisions of the Corporations Act 2001 (Cth).
I certify that the preceding twenty‑six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate:
Dated: 19 November 2012
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