Franbridge P/L v Societe & Generale Finance Corporation P/L

[1994] FCA 514

9 4 %

JUDGMENT NO. .., d l.

Betveen X - Applicant

And r

03 AUG 1994

Respondents

The receiver of a company in provisional liquidation, Franbridge Pty Limited, has brought before the Court an application for directions under section 424(1) of the Corporations Law. The principal direction sought was that he, as receiver, is justified in selling the business and assets of Franbridge to a company called Staffecho Pty Limited in accordance with a deed which has been tendered and marked exhibit Al. The receiver was appointed pursuant to a mortgage in favour of a company called Societ6 and Generale Finance Corporation Pty Limited. All three companies, Societ6 and Generale, -Franbridge and Staffecho, are associated in the sense that they are not at arm's length.

a sum whih will effectively pay out the mortgagee but it will	leave little or nothing for the unsecured creditors who are owed
several hundred thousand dollars. However, the arrangements for the sale leave the trade debtors of Franbridge in the hands of the receiver and there is evidence before the Court suggestive that the bringing in of these debts may realise a sum which is large enough to pay out the unsecured creditors.
The came is a strange one in that although the liquidator has been given leave to appear in the proceedings, in effect as the representative of the unsecured creditors, and has announced through counsel that he opposes the deed, little has been drawn to the attention of the Court that would suggest that the deed and the proposed sale embodied in it are not reasonable and proper. The liquidator's point of view is based upon a series of intangible suspicions or doubts, or is perhaps a request for time to have examined on oath, under the Corporations Law, the relevant principals of the companies so that the genuineness and propriety of the proposed sale can be inveetigated. Those permons have been sumnronsed to be examined but their examinations have been delayed by a challenge to the procedure adopted which
a month. Thus the liquidator says in effect that he is not able is to be considered by a Full Court on reference from me in about
to put before the Court at this time any substantial or substantive reason suggestive that the receiver has not acted honourably, reasonably and appropriately in relation to the sale, but that there are circumstances surrounding the sale, mostly based upon the inter-relationship between the companies and their directors, as to cause the Court to pause before giving any actual or apparent approval to the sale.
In fact, the receiver is not pressing today for an overt approval of the sale. The direction that he actually seeks is that the male by the applicant to Staffecho of the business of Franbridge would not be improper merely because

There is no challenge to the mortgage nor to the appointment of the receiver. The deed provides for the sale of the business for

(a) a related company, Societ6 and Generale, is the

mortgagee which appointed the receiver, and

(b) Societ6 and Generale and Staffecho share common

directors.

This direction is based upon a form of wording framed by Hodgson

J in Vartex Petrol-es Ptv

B-,Supreme Court of New South Wales Equity Division,

unreported 17 August 1989. In that case his Honour proposed a formulation in similar terms to that which is put forward today, although it should be said that in doing so he reserved to the other party to that litigation the opportunity to provide authority in opposition to his proposition and nothing has been

persuaded for or against the proposed direction. Two other cases	presented to me to indicate whether in fact his Honour was
have been presented to the Court today in this connection, but before dealing with them briefly I should mention that the application brought by the applicant also seeks a declaration under section 420A(1) that the receiver has acted reasonably in respect of this sale.
In contrast to the provisions of section 424(1), which have been in legislation of this and similar kinds for many decades at least, the provisions of section 420A(1) are, at least in statutory terms, quite new. They were inserted into the Australian Corporations Law only in 1992 with effect from 23 June 1993. The subsection provides:

In exercising a power of sale in respect of property of a corporation a controller must take all reasonable care to sell

(a)	if, when it is sold, it has a market value - not less than the market value; or
(b)	otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

The applicant has brought evidence to address the terms of this subsection which satisfies me that the proposed sale is the best price that that evidence reveals is reasonably obtainable having regard to the surrounding circumstances. It must of course be remembered that the receiver was appointed by the mortgagee and his task is to try to obtain the repayment of a mortgage debt.

This sale will achieve that result but will do no or little more.

The receiver says that by accepting this offer, which does not

include the trade debtors, he has done the very best for the unsecured creditors because he has made it possible for them to obtain at least some monies, perhaps all their monies, which the other two offers he received would not have done. He has put evidence before the Court that he has advertised the business widely. Of course one could always advertise a business more than the particular examples given, such as overseas or by hiring a business vendor or expert agent to act. Nonetheless there seems no reason to believe, and nothing is submitted to the contrary, that the receiver has done anything other than a satisfactory job in obtaining or trying to obtain, within a reasonable space of time and for the expenditure of a reasonable sum of money, the best available price.

Although with the presence of the liquidator in ostensible opposition to the deed, this litigation has really been an ex parte proceeding. I say that because the liquidator has frankly admitted that he is not in a position to put anything to the contrary of the material put forward by the receiver and has not even been in a position to instruct counsel to test the material on cros8-examination. Hence, I am entirely in the hands of the receiver, although there is nothing wrong with that by itself and

I do not for a moment suggest that there is the slightest basis

for believing that the receiver's evidence is not true. However, where material is presented with no testing of the prima facie position and no contrary material because the liquidator has been

reasons earlier mentioned, the Court has difficulty in making	frustrated in his efforts to examine the matter on oath for the
positive findings. What I do know is that signed deeds have been exchanged and are merely awaiting the outcome of this hearing before being completed, with completion available and expected within a week. The deed contains a clause which enables each party to rescind without penalty if the Court does not approve the deed.
I mentioned that two other cases had been cited in evidence. One
is Pgputv of Taxation v Best &
and m [l9921 7 ACSR 245, a decision in this Court of Justice Lockhart. The second case was &g - ~-ZA

d Ex Darte W- [l9901 20 NSWLR 286, a decision of

Juatice Waddell, the former Chief Judge of the Equity Division of the New South Wales Supreme Court. That proceeding, also ex parte, was an application by a receiver under the former equivalent of the New South Wales Companies Code to the present section 424(1). The provisions were not identical but they are very similar.

Without examining the separate judgments in detail, it is clear that all three of their Honours were reluctant to become involved in directions of the kind sought here. Justice Lockhart, at the end of the day, declined to give a direction that the receiver was justified in accepting an offer to acquire the assets of Best and Less but his Honour's decision was based upon the particular facts of the case which included the strenuous opposition of the

he would be placed at a disadvantage by the sale. Although his	Deputy Commissioner of Taxation who claimed that as one creditor
Honour said at 247:

The power of the court to give directions to a receiver must be interpreted liberally .....

he also said:

Sections of this kind cannot, however, be resorted to for the purpose of seeking the intervention of the court to make a commercial decision for receivers or liquidators.

If the Court was being asked to make an entrepreneurial or

comer&ial decision, his Honour was concerned at 249 that: the public perception of such a direction would be to regard the court as placing its imprimatur upon the

purchase . . . . . of the business and that would carry

with it a tone of judicial approval of the events.

His Honour was at pains to say that the receiver must make his

own decieion and his own assessment of what was commercially

sensible and feasible and that the Court should approach this whole question of the giving of directions with considerable care.

Although Justice Hodgson agreed to give, at least arguably, directions of the kind sought here, his Honour took care to limit his intervention to the barest possible minimum. Waddell J held

that a receiver was entitled to apply to -the Court under sections such as 424(1) for a direction as to whether or not:

. . . . . he may lawfully take a course which he proposed

to do.

He pointed out a basic principle of the general law that the Court will nonetheless not give what is purely an advisory opinion, despite sections such as 424(1).

I have the same reluctance as their Honours to sanction the intervention of the Court in such matters and in this case in particular. I am even more reluctant than Justice Hodgson to whom I pay great respect and deference in matters of this kind. I agree that it is not per se improper for a receiver to sell the business of one company to a related company where the related company is the mortgagee responsible for the receiver's appointment. For clearly there is no legal blockage to such a sale. The question is whether it meets the demands of equity, propriety and commercial morality and also whether it complies

with section 420A(1 ) .

for whether the applicant has acted reasonably in entering into the proposed sale, the subsection talks about reasonable care and the best price reasonably obtainable. It does not talk about the receiver acting reasonably. On the evidence before me, and only on that evidence with the limitations to which I have referred, I can say that the best price reasonably obtainable at this time seems to have been obtained and that the receiver seems

At the same time a declaration to that effect, in the form sought	to have acted with reasonable care in carrying out hie duties.
in the application, seems to me to be a fairly meaningless exercise for the reason which Justice Hodgson pointed out in Vart-, namely that it would not protect the receiver from an attack at a later time if evidence became available suggestive that my uninformed opinion was wrong.
In the circumstances 1 find it very difficult to understand what role the Court is expected to play. Not only historically have the courts not given advisory opinions, but they have always been reluctant, and have very rarely been prepared, to make declarations which have no practical effect at all in relation to the matters of disputation under consideration. Even accepting Justice Lockhart's invitation to interpret aection 4 2 4 ( 1 ) liberally, it seems to me doubtful that the concept of:

. . . . . d i r e c t i o n s i n r e l a t i o n t o any m a t t e r a r i s i n g i n

connection w i t h the performance o r e x e r c i s e of any of

the	c o n t r o l l e r t s	funct ions	and	powers	a s	c o n t r o l l e r
. . . .	-

embraces the idea that a declaration could be made in effectively ex parte proceedings, certainly without the opportunity of any adversarial testing of the assertions, that a sale to a particular purchaser and for particular terms was, as the application says:

one c a r r i e d out i n the terms o f t h e s e c t i o n 420A.

For my own part I would require more before I would be prepared to make a formal finding of that kind. I agree with the other judges that the Court should not be asked to make orders, give directions or make declarations that would convey to the public, quite wrongly, for the reasons Justices Lockhart and Hodgson point out, that the Court is giving judicial approval to the sale after due consideration in accordance with regular procedures when, however the words are hedged, in fact it is not doing that at all. I do not believe that it would give protection to the receiver and I do not think that people should be led to believe that it would give such protection or that the Court has really been able to give the matter careful and proper judicial consideration.

In those circumstances I would decline to give the directions asked for or make the declaration sought in the application but, for what they are worth, the receiver will have the benefit of my observations. With this prospect in view I raised the possibility that the application be adjourned, as opposed to dismissed, to enable the Pull Court to facilitate or dispose of the examination summonses that I mentioned earlier, after which the Court, if not the liquidator, would be in a position to consider the whole of the facts assuming that the examinations took place. If they do not occur and there is no way they can proceed at all, then a final decision could be made on the application at that time.

to dismiss the application if the directions were not going to	That proposal was first opposed by the receiver and I was asked
be given as asked for. However, on second thoughts, the question was raised as to whether I might refer this matter to the Full Court as well, on the basis that the Pull Court would be asked to determine whether under section 4 2 4 ( 1 ) the Court has the jurisdiction and, if the jurisdiction, the power to give a direction or make a d~claration of the kind sought, or to give some even wider approval to sales in circumstances such as this, and whether it should do so on the evidence presented in this case.
That proposal had at first some attraction but on reflection I have concluded that it should not be acceded to. It is clear that at some time a Full Court will have to consider the meaning of section 424(1) in the context being discussed, but the actual applications by this applicant today, although headed orders in the handwritten short minutes earlier quoted, are for statutory directions. It seems to me that these directions are not sufficiently definitive of anything relating to this particular receiver and this particular sale as to provide a proper factual basis for a Pull Court to pronounce on the meaning of the section in this case. There will be cases where, in the presence of a direct challenge and opposition by a group of informed opponents, facts will be in existence which will throw up the dileuuna of a court in attempting to resolve a matter such as this in favour of or against a direct approval of the sale, at least so as to
be. ensure that the sale proceeded or did not proceed as the case may
This is not such a case. In this case the receiver has made a decision to proceed with the sale and has exchanged contracts; the sale is to go ahead, I am told, within a short time. Although, as I have noted earlier, there is a clause in the deed which suggests that obtaining the approval of the Federal Court is, if not a prerequisite, then something which the receiver desires to have prior to the sale, nothing I have said would suggest that the Court is refusing to approve the settlement. It is merely stating that at the present time there are insuf ficient facts to give a final opinion either way because it
has evidence from one interested side only. Thus the Court is h
in no poeition to make a definitive finding or give a form of sanction which the public might consider is an actual judicially- determined imprimatur for the proposed sale. At the same time it should not be interpreted that I have any reason to believe that the contrary decision would be appropriate. On the available evidence, and with that limitation, there is indeed no reason for suggesting that there is anything either improper or unreasonable about the sale.
For those reasons there is not a sufficiently substantial or definitive matter nor is there a proper factual basis for a reference to the Full Court such as would ultimately resolve the issue in this case. Those conclusions having been reached, at the apparent request of the parties I dismiss the application.

I

I certify that this and the e\ae/\
preceding pages are a true copy of the

Reasons for Judgm t h

in of his Honour

Justice Elnfeld

Assoc e

l