Gorst Rural Supplies Pty Ltd v Glenroy (Lake Bolac) Pty Ltd

[2012] VSC 60

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST

S CI  2011 5801  

GORST RURAL SUPPLIES PTY LTD	Plaintiff
v
GLENROY (LAKE BOLAC) PTY LTD	Defendant

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	23 February 2012
DATE OF JUDGMENT:	23 February 2012
CASE MAY BE CITED AS:	Gorst Rural Supplies Pty Ltd v Glenroy (Lake Bolac) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VSC 60	Revised 27 February 2012

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CORPORATIONS – Winding up application – Defendant appointed administrator on the day prior to final hearing - Application for adjournment of winding up proceedings until after the second meeting of creditors -  Corporations Act 2001 (Cth), ss 440A(2), 447A

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms T. Cross (solicitor)	Schetzer Brott & Appel
For the Defendant	Mr J. Kenny (solicitor)	Kalus Kenny

HIS HONOUR:

1. This proceeding is an application by the plaintiff that the defendant be wound up in insolvency pursuant to s 459P and 459Q of the Corporations Act (001) (Cth).  It was commenced by an originating process filed on 28 October 2011. 

1. The basis of the plaintiff’s application is the failure by the defendant to comply with a statutory demand served on the defendant by the plaintiff on about 16 September 2011.  The demand is in respect of debts which owed from May 2009 to May 2011, totalling $77,035 for rural services and supplies. 

1. The defendant made no application to set aside the statutory demand, nor did it meet the demand for payment.  The defendant thereby failed to comply with the demand in about mid‑October 2011 giving rise to a statutory presumption of insolvency under s 459C(2)(a). 

1. This proceeding first came on for hearing on 30 November 2011.  On that occasion, the defendant appeared and contended that it was solvent.  Directions were made for the filing and service of affidavits in support of and in opposition to that contention and the proceeding was set down for trial on 14 February 2012. 

1. The defendant did not file any affidavits in compliance with the orders of 30 November 2011, nor did it file a notice of opposition to the application.  Instead, on the trial date its solicitor attended court and sought an adjournment, which was by consent, for the purpose of satisfying the plaintiff’s claim. 

1. Reluctantly, and only because the plaintiff consented, I granted an adjournment until today for that specific purpose. 

1. The plaintiff’s claim was not satisfied.  Instead, when the matter was called on for hearing today, Mr Kenny, solicitor, announced an appearance on behalf of Mr McDermott, an insolvency practitioner who was appointed as administrator of the defendant yesterday.  He sought an adjournment of the application until after the second meeting of creditors of the company required to be conducted under s 439A of the Act.  He relied on an affidavit of Ross John McDermott sworn 22 February 2012.  In his affidavit, Mr McDermott sought an adjournment:

… to allow time for me to investigate the financial position of the company, and for the directors to put an offer for a possible deed of arrangement to be put to the creditors, and to advise the court and the creditors as to whether or not the proposal would achieve a better return to the creditors than would be the case if the company was wound up.

1. Because Mr McDermott had only been appointed yesterday, he had very little direct knowledge of the company’s affairs.  He deposed that a director of the defendant, Mr Davis, had informed him that the unsecured creditors of the company total about $563,000 and that it had assets worth about $300,000 to $400,000, livestock worth about $179,000 and grain worth $53,000.  He stated that Mr  Davis had told him that he and his wife owned three properties which were currently for sale.  He expected that the proceeds of sale would be sufficient to pay out the secured creditor, Elders Rural Bank, which is owed approximately $2 million and that he believes the properties could be sold for a combined value of about $2.2 million. Mr Davis indicated to Mr McDermott that any net proceeds would be applied towards a proposal for a deed of company arrangement.

1. Mr Kenny made application for an adjournment under s 440A(2) which provides:

The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.

1. The onus is on the defendant to show by “persuasive evidence” that it is in the interests of the company’s creditors that the administration continue rather than liquidation ensue.[1]  The question of whether an administration should continue is related to the further question of whether the creditors could hope to get more by way of payment of their debts from administration than from liquidation.[2] 

   [1]See Creevey v DCT (1996) 19 ACSR 456, 457.

   [2]See Creevey at 457.

1. In Waste Recycling and Processing Services of New South Wales v Local Government Recycling Cooperative[3] Santow J observed:

There must be a sufficient possibility, as distinct from mere optimistic speculation, that such a deferment for the envisaged time is in the interests of creditors.

[3](1999) 32 ACSR 194, 195.

1. In Re First Net Com Pty Ltd: Deputy Commissioner of Taxation v First Net Com Pty Ltd[4] Santow J described the test as requiring “a real prospect” as opposed to a “mere speculative possibility”, but not necessarily “comfortable satisfaction” of a higher return to creditors if the application was adjourned. 

   [4](2000) 35 ACSR 614.

1. In my view, Mr McDermott’s affidavit does not contain persuasive evidence that it is in the interests of the company’s creditors that the company continue under administration rather than be wound up.  At most, I would characterise the assertions made in his affidavit as being “optimistic speculation” that at some time in the future such evidence may possibly be obtained.  During the period of the proposed adjournment it is said that the directors would put an offer “for a possible deed of arrangement”.  This does not persuade me that the application should be adjourned.

1. Another factor which influences me is the fact that despite the application having been on foot for some three and a half months, it was only after the defendant had obtained a short adjournment to satisfy the plaintiff’s claims that the directors, on the eve of the final hearing of this matter, appointed an administrator. While the interests of creditors are of course the paramount consideration in determining whether the administration should continue, I also take the view that, in addition to the absence of persuasive evidence that the administration should continue because it would be in the interests of creditors, the appointment of the administrator yesterday amounts to an abuse of the processes of Part 5.3A of the Corporations Act2001.  In this regard, I point to the chronicle of events which have occurred since this matter first came on for hearing and the absence of any explanation as to why Mr McDermott was only appointed yesterday. 

1. In the circumstances, I refuse the application for an adjournment. I will order first that the administration of the company which commenced on 21 February 2012 be terminated forthwith pursuant to s 447A[5] of the Corporations Act. I note that s 447A(2) provides that the Court may order that the administration of a company should end if the court is satisfied that provisions of Part 5.3A are being abused and I am so satisfied in that regard.

   [5]See schedule 2 to the Supreme Court (Corporations) Rules 2003.

1. As a separate and distinct set of orders, I will order that the defendant be wound up in insolvency under the Corporations Act2001 and that David Raj Vasedevan and Andrew Reginald Yeo jointly and severally be appointed liquidators for the purposes of the winding up.  I also order that the plaintiff’s costs, including costs reserved on 30 November 2011 and 14 February 2012 be costs in the winding up.

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