Enviro Systems Renewable Resources Limited (Receivers and Managers Appointed) v Westpac Banking Corporation - [2014] SASC 165

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
ENVIRO SYSTEMS RENEWABLE RESOURCES LIMITED (RECEIVERS AND MANAGERS APPOINTED) v WESTPAC BANKING CORPORATION
[2014] SASC 165
Reasons for Decision of The Honourable Justice Gray
5 November 2014
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENERALLY
Appeal against a decision of a Master refusing to set aside a statutory demand. The appellant was formerly in the business of producing and selling firewood at a property in Victoria known as Warolim and owned a hardware store in South Australia. The respondent appointed receivers over the appellant’s assets. The hardware store, Warolim property and the timber thereon were subsequently sold by the receivers. The appellant submitted, inter alia, that there was no debt due to the respondent due to the manner in which the sale of Warolim was conducted. The Master proceeded on the basis that Warolim was sold at public auction. The sale in fact proceeded by way of expressions of interest and then a private negotiation with one of the parties expressing interest. Counsel for the respondent conceded the Master had proceeded under an erroneous understanding of the facts and that, consequently, there was a need for the Court to reconsider the matter.
Whether the Master erred in finding that Warolim was sold at public auction. Whether, if the Master so erred, the matter should be reheard.
Held (allowing the appeal):
1. The Master erred in finding that Warolim was sold at public auction.
2. Matter to be reheard before a different Master after the respondent makes further disclosure.

ENVIRO SYSTEMS RENEWABLE RESOURCES LIMITED (RECEIVERS AND MANAGERS APPOINTED) v WESTPAC BANKING CORPORATION
[2014] SASC 165
Masters Appeals
GRAY J.

This is an appeal from a decision of a Master of this Court dismissing an application to set aside a statutory demand.
Background
The plaintiff and appellant, Enviro Systems Renewable Resources Limited (Receivers and Managers Appointed), is an unlisted public company formerly in the business of growing, processing and selling firewood. It owned a property near Edenhope in Victoria called “Warolim”, on which it operated a tree plantation. Enviro Systems also owned, but did not operate, a hardware store in Verdun, South Australia.
The defendant and respondent, Westpac Banking Corporation, was the first registered mortgagee over both the hardware store and Warolim. The Bank also held a fixed and floating charge over all of Enviro Systems’ assets. Guarantees from directors further secured the advances from the Bank.
On 23 January 2013, the Bank served a notice of default and intention to sell in respect of the hardware store. On 6 February 2013, the Bank appointed receivers and managers over the hardware store. In March 2013, the Bank took possession of the store. On 12 April 2013, the store was sold at public auction for the amount of $1,045,000.00, inclusive of GST. On the same day, the Bank appointed receivers and managers over all of Enviro Systems’ assets, including Warolim. At this time, the Bank’s debt was said to be a little less than $2,900,000.00.
On 3 October 2013, the Warolim land and the plantation were sold for $515,000.00.
On 25 February 2014, the Bank caused a statutory demand in the sum of $2,898,870.27 under section 459E(2)(e) of the Corporations Act 2001 (Cth) to be issued to Enviro Systems. This statutory demand is the subject of the present proceeding.
On 13 October 2014, a Master of this Court concluded as follows:
The evidence before me has not established that there is a genuine dispute as to [Enviro Systems’] liability to the [Bank] except to the extent that I have indicated.
I order that the statutory demand be varied by reduction of the amount of the demand from $2,898,870.27 to $1,098,870.27. I declare the demand as varied to have had effect, as so varied, from when the demand was served on [Enviro Systems]. I dismiss the application to set the demand aside.
The Appeal
On appeal, Enviro Systems submitted that there was no indebtedness to the Bank due to the manner in which the sale of Warolim was conducted and the forestry assets surrendered. Enviro Systems further submitted that the Bank had failed to mitigate its loss and that, in any event, Enviro Systems had a set-off against the Bank as a result of the Bank breaching its duty of care to Enviro Systems as mortgagee to mortgagor. Enviro Systems did not contest any of the Master’s findings with respect to the sale of the hardware store.
The Bank submitted that there was no genuine dispute or off-setting claim. The Bank further submitted that Enviro Systems had not led evidence to demonstrate that its conduct, or that of the receivers, was deficient or improper.
On the hearing of the appeal, it became apparent that the Master proceeded under a material misapprehension of fact. In respect of the Warolim property, the Master, in the course of his reasons, said:
I do not accept that the dispute about the value of Warolim creates an arguable case about the process of that sale. The sale was by public auction. That is an appropriate process. There is no evidence, beyond the bare assertion, that the defendant did not use all reasonable care to sell the property for less than its market value or for the best price reasonable obtainable.
[Emphasis added.]
It is apparent from the papers that the sale was not by way of public auction. To the contrary, the sale process proceeded by way of expressions of interest and then a private negotiation with one of the parties expressing interest. Counsel for the Bank conceded that this was an error on the part of the Master and that, as a consequence, there was a need for this Court to reconsider the application to set aside the statutory demand.
One argument of Enviro Systems was that the sale of the land and timber should have proceeded as separate sales, both by way of public auction. It was said that valuations by the selling agent some months prior to sale indicated a value of the Warolim property without regard to standing timber of $1,890,000.00. A valuation obtained by the receivers shortly prior to sale indicated a value of between $535,000.00 and $740,000.00. On Enviro Systems’ case, the standing plantation had a present day valuation of millions of dollars. This was supported by a written valuation. A valuation obtained by the receiver indicated a low value on the basis that the land would be purchased for pasture use and value in the standing plantation would be reduced by the need for clearance and stump grinding.
As noted above, counsel for the Bank conceded that the application needed to be considered afresh. The material on file did not identify the basis on which a decision was taken not to conduct a public auction. The Bank agreed to make its files and that of its receiver available for inspection, insofar as those files related to the sale of Warolim and the timber. Any documents properly the subject of legal professional privilege, unless waived, would properly be excluded.
Conclusion
In the above circumstances, I made the following orders:
-The appeal be allowed for the limited purpose of setting aside the orders of the Master made on 13 October 2014, to the intent that the question of whether to set aside the statutory demand should be remitted for re-hearing.
-Within seven days the respondent is to produce to the appellant its own records, and the records of the receivers, in connection with the sale of the property known as Warolim and the timber thereon.
-The respondent is to file and serve any further affidavits on which it intends to rely at the re-hearing within seven days.
-The appellant is to file and serve any further affidavits on which it intends to rely at the re-hearing within seven days thereafter.
-By consent, any winding up proceedings issued by the respondent prior to the re-hearing are to be adjourned pending the outcome of that hearing.
-The time for compliance with the Statutory Demand is extended until further order.
-Costs of the proceedings before the Master and of this appeal are reserved.