Glendining v Pham - [2015] WASC 419

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GLENDINING -v- PHAM [2015] WASC 419

CORAM: CHANEY J

HEARD: 12 OCTOBER 2015

DELIVERED : 12 OCTOBER 2015

FILE NO/S: COR 180 of 2015

MATTER :Sections 232 and 233 of the Corporations Act 2001

BETWEEN: PAUL GLENDINING
Plaintiff
AND
KHIET MY PHAM
First Defendant
OXFORD UNIFORMS PTY LTD
Second Defendant

Catchwords:

Corporations - Provisional liquidator - Conflict between directors and shareholders - Turns on own facts

Legislation:

Nil

Result:

Provisional liquidator appointed

Category: B

Representation:

Counsel:

Plaintiff:     Mr M L Bennett
First Defendant              :     No appearance
Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Bennett + Co
First Defendant              :     Robson Hayes Legal
Second Defendant         :     No appearance

Case(s) referred to in judgment(s):

ASIC v Weerappah (No 2) [2009] FCA 249

CHANEY J:
(This judgment was given extemporaneously and has been edited from the transcript.)
Before me today is an application for the appointment of a provisional liquidator and for orders conferring various powers on the provisional liquidator, including the usual statutory powers and some additional powers which are sought having regard to the issues between the plaintiff and the first defendant in these proceedings. The proceedings, being an application brought by the plaintiff for relief under s 232 and s 233 of the Corporations Act 2001 (Cth), were first commenced by the plaintiff on 28 July this year.
The company in relation to which orders are sought is the second defendant, Oxford Uniforms Pty Ltd (Oxford Uniforms). The company is in the business of supplying school uniforms in Western Australia, utilising the services of a subsidiary company, Oxford Vietnam Company Ltd (Oxford Vietnam), to procure or manufacture those uniforms. The plaintiff and the first defendant are equal shareholders and directors of the second defendant.
The orders initially sought in the originating process, issued on 28 July, were for either the purchase by the first defendant of the plaintiff's shares in Oxford Uniforms or, alternatively, the purchase by the plaintiff of the first defendant's shares or, in the further alternative, the winding up of the company. That alternative prayer for winding up is of significance in founding the basis upon which the application before me today is made, namely, it fulfils the requirement that there be on foot an application to wind up the company. The basis of the application in these proceedings is an allegation that the affairs of the company are being conducted in a manner that is oppressive, unfair, and discriminatory to the interests of the plaintiff as a shareholder.

At the same time as these proceedings were commenced on 28 July 2015, other proceedings between the same parties were commenced by the plaintiff, being matter COR 179 of 2015, in which the plaintiff sought leave under s 237 of the Corporations Act to bring an action in the name of the company against the first defendant.
There have been a number of applications in the course of the conduct of this matter to date. When the proceedings were initially commenced the plaintiff sought an urgent injunction in relation to the fulfilment of an outstanding order in relation to certain 'leavers jackets' which were overdue for delivery to a customer of the second defendant. That application was resolved by an exchange of mutual undertakings when the matter first came on for an urgent hearing on 29 July.
Since that time there have been numerous and quite voluminous affidavits filed by the parties, and those affidavits reveal that there have been ongoing disputes over the fulfilment of orders, and reveal allegations of a history of allegedly inappropriate or improper conduct by one side or the other over a period, going back into the earlier part of this year, if not earlier.
A further application was made in September 2015 for an interim injunction. That application was made by the first defendant, and came before Allanson J on 23 September this year. At that time, Allanson J made an order restraining the plaintiff from placing orders other than through the Vietnamese subsidiary, Oxford Vietnam. On 1 October this year I extended that injunction and directed conferral by the parties as to fulfilment of existing and proposed further customer orders, having regard to the obvious effect that the impasse between the plaintiff and the first defendant was having on the operation of the company, and to what appeared to me at that time to be a paralysis of the company in carrying on its business, by reason of the dispute between the shareholders/directors.
It is evident from the affidavits which have subsequently been filed that that conferral was undertaken in accordance with my directions, but failed to resolve anything. Indeed, it might be an accurate generalisation to say that the parties' position appears, if anything, to have diverged rather than converged on the matters in issue between them.
Against that background the plaintiff has now brought this application for the appointment of a provisional liquidator. The first defendant, through his solicitors, has notified the court that the first defendant neither consents to, nor opposes, the application. The application served on the first defendant was accompanied by a minute of proposed orders, setting out in detail the powers sought to be conferred upon the provisional liquidator, and it can be taken that the first defendant does not oppose the terms of the orders sought.
There is no appearance today by the first defendant, which is a result of matters personal to the first defendant's solicitor which apparently made attendance difficult. Having regard to the first defendant's position as conveyed by his solicitor and subsequently confirmed in an email to the court, his solicitor was advised by the court that there was no need for him to attend and convey those instructions to me in open court.
Brief submissions have been filed by the plaintiff which identify various decided cases outlining the relevant principles to be applied in relation to the appointment of a provisional liquidator.
One of the authorities to which reference was made was ASIC v Weerappah (No 2) [2009] FCA 249, a decision by Goldberg J, which conveniently summarises the relevant principles to be applied. I do not propose to enunciate those principles in detail, but to draw attention to some of those which are apposite in this case. At [8] of that decision his Honour notes that:
[T]he applicant for the appointment must satisfy the court that there is a reasonable prospect that a winding-up order will be made at the final hearing.
In my view, the affidavit material filed on both sides indicates that the company has become quite dysfunctional and is unable to conduct its business in a way which is likely to preserve the interests of either creditors or the shareholders. Regardless of whether the allegations on one side or the other might ultimately prove to be justified and made out, I consider that there is a distinct likelihood that the ultimate result of the proceedings will be that the company will be wound up after final hearing.
The second principle identified at [8] is that:
[A]n applicant must establish that there is good reason for the court intervening prior to the final hearing of the winding-up application on the basis that the appointment of a provisional liquidator is required in the public interest or to preserve the status quo or to protect the company's assets from dissipation.
Again, the affidavit material filed in relation to the application, in my view, does lead to concern that the value of the assets of the company will be detrimentally affected, and the potential liabilities of the company greatly extended, if there is not some independent person taking control of the affairs of the company and its business, and looking to the preservation of the assets of the business in the interests of creditors and the shareholders. So that consideration, in my view, favours the appointment of a provisional liquidator.
The third and important well-accepted principle identified at [8] is that:
[T]he appointment of a provisional liquidator pending the determination of a winding-up application is a drastic intrusion into the affairs of a company and should not be made if other measures are adequate to preserve the status quo.
The history of recent dealings, that is, recent dealings between the plaintiff and the first defendant, and the allegations of historical difficulties said to have occurred between them in the management of the company, leads me to the conclusion that there is no other adequate interim measure that might be achieved to preserve the status quo and that, whilst the appointment of a provisional liquidator is a serious intrusion into the affairs of the company, it is in the public interest that it now occur.
A further factor raised is whether, in the public interest, there should be an independent examination of the accounts and financial transactions of the company.
In my view, the circumstances which are deposed to in the affidavits, which suggest transactions being incurred contrary to the wishes of a director, or without any knowledge of a particular director, and the respective complaints on both sides concerning access to financial information, cries out for the need for an independent examination of the affairs of the company, which again supports the appointment of a provisional liquidator.
So, essentially for those reasons, and without going into the particular evidence as to the concerns and allegations expressed by the parties on both sides, I am persuaded that this is a case where the appointment of a provisional liquidator is called for, and I am fortified in that view by the lack of any opposition from the other director and equal shareholder of the company.
I add that another factor of concern about the company which emerges from my reading of the papers is the uncertainty as to the state of solvency of the company, and of its subsidiary. That uncertainty, in my view, supports a precautionary approach of appointing a provisional liquidator, rather than allowing the company to attempt to continue to trade in circumstances where there is at least a concern that it may be engaging in insolvent trading.
For those brief reasons I consider that an order for appointment of a provisional liquidator should be made.
As I have indicated in my exchange with counsel prior to delivering these reasons, I have given consideration to the extent of the powers which are sought and which are set out in the plaintiff's minute of proposed orders.
Those powers do seem to me to be desirable, having regard to the considerable flexibility which I think that the provisional liquidator will need to have in order to maximise and preserve the assets of the company, in the interests of both the creditors and shareholders. I am prepared to make orders in terms of the minute of proposed orders.