Environinvest Ltd v Great Southern Property Managers Ltd (No 2)

[2010] VSC 323

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. 10475 of 2009

IN THE MATTER OF ENVIRONINVEST LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 080 743 791)

ENVIRONINVEST LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 080 743 791)

- and –

JAMES PATRICK DOWNEY

First Plaintiff

Second Plaintiff

v

GREAT SOUTHERN PROPERTY MANAGERS LIMITED (RECEIVERS APPOINTED) (IN LIQUIDATION) (ACN 108 409 641)

Defendant

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	3 February 2010
DATE OF JUDGMENT:	11 March 2010
CASE MAY BE CITED AS:	Environinvest Ltd v Great Southern Property Managers Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2010] VSC 323

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COMMERCIAL AND EQUITY – Managed Investment Scheme– Winding up by a person appointed under s 601NF(1) of the Corporations Act 2001 (Cth) – Conflict of duty – Person appointed to wind up the schemes also the liquidator of the responsible entity – Application to excuse potential conflict in disclaiming leases.

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APPEARANCES:	Counsel	Solicitors
For the First and Secondnamed Plaintiffs	Mr S Rubenstein	Norton Rose
For the Defendant	Mr PE Anastassiou SC with Mr RFR Pintos-Lopez	Blake Dawson
For certain Investors and Growers (by leave)	Mr MJ Galvin	Brian Ward & Partners

HIS HONOUR:

1. By originating process dated 3 December 2009, the liquidator of Environinvest Ltd (Receivers and Managers Appointed) (In Liquidation) (‘Environinvest’), James Patrick Downey, made application pursuant to s 568 of the Corporations Act 2001 (Cth) (‘the Act’) for an extension of time within which to decide to disclaim certain leases. Mr Downey’s application was granted and time was extended until 5 February 2010.

1. The application to the court followed an application made by the defendant, Great Southern Property Managers Ltd (Receivers Appointed) (In Liquidation) (‘Great Southern’), under s 568(8) of the Act requiring Mr Downey to decide whether he would disclaim leases over property owned by Great Southern. Mr Downey had 28 days from receipt of the notice by Great Southern, or such further time as the court allowed, to disclaim or to be taken to have adopted the property.

1. The leases in question related to 13 parcels of land owned by Great Southern.  The land had been employed by Environinvest for the purpose of the PYEP Managed Investment Scheme (‘the Scheme’).  The land owned by Great Southern was only some of the land employed in the Scheme.

1. On 23 February 2009, I made orders winding up the Scheme.  Mr Downey was the liquidator of Environinvest and, on 30 April 2009, was appointed to take responsibility for winding up the Scheme. 

1. Mr Downey’s appointment was made in circumstances where it had not been possible to find an appropriately qualified person willing to undertake the task of winding up the Scheme.  It was commonly understood that Mr Downey’s appointment would expose him to a perceived conflict of interest, and the risk of an actual conflict, when discharging his various functions as liquidator of Environinvest and as the person responsible to wind up the Scheme.  A committee of management was formed with the object of dealing with any question of actual or perceived conflict of interest or duty, and Mr Downey undertook to comply with any direction of the committee to apply to the court for directions in that event.  This application is made pursuant to a direction of the committee.

1. When making his initial application for an extension of time, Mr Downey frankly conceded that while Environinvest had failed to comply with the terms of the leases, Great Southern was not entitled to terminate the leases because of an unusual “no right to terminate” clause.  He said that Environinvest did not have sufficient assets with which to meet any of the obligations under the leases.  Mr Downey required additional time to further explore expressions of interest in the trees on the leased land.  He was not optimistic as to the prospects, but sought an opportunity to pursue discussions with interested parties in the hope that they may yield an outcome beneficial to Environinvest and to the members of the Scheme.  Great Southern opposed the application on the basis that there was no realistic prospect that Mr Downey’s efforts would result in any concluded agreement. 

1. The pessimism expressed by Great Southern has achieved fulfilment in Mr Downey’s inability to reach any agreement, in principle or otherwise.  He maintained that, as liquidator of Environinvest, he would be required to disclaim the leases on the basis that they are a burdensome financial obligation which may be to the detriment of the creditors interested in the liquidation of Environinvest.  He acknowledged, however, that to disclaim the leases may adversely affect the rights and entitlements of Scheme members with an interest in a sub-lease. 

1. This application came before the court on 3 February 2010.  Mr Downey seeks the approval of the court to disclaim the leases.  He submitted that while approval would not ordinarily be required, he has been directed by the committee of management to make this application because his decision may impact adversely on the interests of some members.

1. The plaintiffs and defendant were represented by counsel.  Mr Galvin of counsel sought and was granted leave to appear for growers with sub-leases of the relevant land.  He did not purport to represent all growers.  His clients were the members of the Ballarat Partnership, the Blue Gum Partnership, the Wood Chip Partnership, Dr Nathan Orbach and Mr James Taylor. 

1. The submissions made by Mr Galvin were concise and helpful.  He identified the real concern and potential prejudice to the growers in terms of a lost opportunity to later complain that the disclaimer was in breach of some unidentified duty of the liquidator which might be actionable at the instance of a member of the Scheme.  In other words, by approving Mr Downey’s decision to disclaim the court would effectively shut out, once and for all, the members from later contending that he had committed an actionable wrong.

1. Mr Galvin was quick to point out that there was no apparent basis upon which it could be said, as presently advised, that Mr Downey was not fully justified in disclaiming the leases in his capacity as liquidator of Environinvest and that the evidence was such as to leave him with no other practical course.  He submitted, however, that the court should not assist in a decision which was his to make as liquidator of the responsible entity.

1. Properly characterised, Mr Downey’s application was not to endorse a decision which only he as liquidator of the responsible entity could make, under s 568 of the Act, to disclaim property. The application was, in effect, to excuse him from a potential conflict in making that decision in circumstances where such a conflict had been anticipated and a mechanism created by the court to deal with it. In the absence of Mr Downey receiving some assistance from the court in dealing with his conflict, he may be compelled to resign as liquidator or as the person responsible for winding up the Scheme. Such an outcome would be unacceptable having regard to the history of this matter and it was not otherwise contended on behalf of the growers. On the contrary, the growers expressed general satisfaction with the way in which Mr Downey was conducting himself as liquidator of the responsible entity and the person responsible for winding up the Scheme, and expressed sympathy with the dilemma confronting him.

1. The application by Mr Downey was of the very kind contemplated by the court at the time of his appointment and the establishment of the committee of management. In my opinion it is open to the court to declare that Mr Downey, in his capacity as liquidator of Environinvest, is permitted to exercise the power under s 568(1) of the Act to disclaim the leases, notwithstanding the disclosed conflict of duty with his role as the person responsible for winding up the Scheme. While the decision to disclaim is for Mr Downey, the evidence strongly supports the validity of such a decision. Mr Galvin conceded that the growers may have available to them remedies to preserve that which is threatened by a disclaimer. To rely on the prejudice brought about by the loss of a speculative right to later contend for an actionable breach of duty by Mr Downey is not a proper basis upon which to refuse to excuse Mr Downey from the conflict, permitting him to do as he seems rightly compelled to do, as liquidator of Environinvest, to disclaim the leases.

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