GREGORY BRUCE DUDLEY as liquidator of BELLYBALL INVESTMENTS PTY LTD (IN LIQ)
[2018] WASC 417
•12 FEBRUARY 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GREGORY BRUCE DUDLEY as liquidator of BELLYBALL INVESTMENTS PTY LTD (IN LIQ) [2018] WASC 417
CORAM: MASTER SANDERSON
HEARD: 20 NOVEMBER 2018
DELIVERED : 12 FEBRUARY 2019
FILE NO/S: COR 43 of 2018
BETWEEN: GREGORY BRUCE DUDLEY as liquidator of BELLYBALL INVESTMENTS PTY LTD (IN LIQ)
Plaintiff
ANTONY THOMAS COOMBE MADDEVER
First Intervenor
KENNETH WILLIAM SHEPHERD
Second Intervenor
FINECRESS HOLDINGS PTY LTD
Third Intervenor
Catchwords:
Corporation law - Directions sought by liquidator - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Directions given
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr T J Langdon |
| First Intervenor | : | Mr J E Scovell |
| Second Intervenor | : | Mr J P Cook |
| Third Intervenor | : | Mr J P Cook |
Solicitors:
| Plaintiff | : | HWL Ebsworth Lawyers |
| First Intervenor | : | MGM O'Connor Lawyers |
| Second Intervenor | : | Mendelawitz Morton Commercial Lawyers |
| Third Intervenor | : | Mendelawitz Morton Commercial Lawyers |
Case(s) referred to in decision(s):
Re Onetell (2014) 99 ACSR 247
Re SCW Pty Ltd (In liq) [2013] NSWSC 302
MASTER SANDERSON:
By amended originating process filed 11 September 2018 the plaintiff sought relevantly the following order:
An order pursuant to s 90‑15(1) of the IPS that the plaintiff is justified and would be acting reasonably in assigning all causes of action that the Company has or may have against:
(a)Kenneth William Shepherd; or
(b)Finecress Holdings Pty Ltd
to Antony Thomas Coombe Maddever.
The following background facts are taken from the written submissions lodged on behalf of the plaintiff.[1] There was no dispute as to their accuracy.
[1] Plaintiff's outline of submissions filed 30 October 2018.
The plaintiff was appointed as liquidator of Bellyball Investments Pty Ltd (the Company) on 10 August 2017. The plaintiff then sold the Company's business assets being assets, used in connection with a business involving the distribution of perishable goods. The Company was wound up on the 'just and equitable' ground under s 461(1)(k) of the Corporations Act 2001 (Cth). The Company had operated as a 'quasi partnership' between the first intervenor (Maddever) and the second intervenor (Shepherd). The relationship between Maddever and Shepherd had broken down and become unworkable. Maddever and Shepherd were the only two directors of the Company. Maddever held one share in the Company and the third intervenor (Finecress), which is controlled by Shepherd and his wife, holds of the other share.
According to Maddever and his solicitors the Company has claims against Finecress and Shepherd. Prior to the winding up Maddever had also sought leave to commence a derivative action in the name of the Company against Shepherd and Finecress. Subsequent to his appointment the plaintiff investigated Maddever's claims. He came to the conclusion he did not have sufficient information to properly assess the alleged claims and the value they may have to the Company. By 16 March 2018 the plaintiff had incurred costs of $46,220 investigating and considering the claims. It is the plaintiff's position, having regard to the lack of specific information available to him as to the merits and value of the claims, the costs incurred to date in investigating those claims and the funding position of the liquidator, he would be justified in not taking any steps to further investigate the claims. Inasfar as that position is relevant to the overall disposition of this application I would accept the plaintiff's submission.
Maddever originally proposed the claims be assigned to him for nominal consideration. These proceedings were commenced on the basis that it was not in the best interests of the creditors or the Company for the plaintiff to assign the claims for nominal value. The plaintiff also took the view it was not in the best interests of the Company to consent to a derivative action by Maddever. There were a number of reasons why the plaintiff came to that conclusion. Perhaps the most important of these reasons was it was not clear whether Maddever could provide the plaintiff or the Company with an indemnity in respect of any claims that might arise against them as a result of Maddever pursuing the alleged claims. That in turn might have diminished the returns to creditors with no clear justification. Once again, insofar as that decision is relevant to this application, the plaintiff clearly took the correct approach.
On 20 April 2018 Maddever's solicitors wrote to the plaintiff's solicitors proposing the claims be assigned to Maddever on the basis all unsecured creditors would be 'paid 100 cents in the dollar' and the 'remainder' be split between Maddever and Finecress. This offer involved no immediate return to the Company or creditors, and the payment of 'all unsecured creditors' and any payment to Maddever and Finecress was dependent on the claims being pursued and proceeds being realised from them. That is any return from the assignment of the claims would only materialise at the end of any proceeding against the second and third intervenors and would be conditional on a successful outcome in those proceedings.
The plaintiff declined to accept the offer. He took the view the prospect of any return was speculative; the proposal would delay finalisation of the liquidation; the offer did not deal with the costs of responding to any attempt by Shepherd or Finecress to join the plaintiff or the company to any resulting proceedings and the plaintiff had no basis upon which to estimate the value of the claims. Once again, it is my view the position taken by the plaintiff was reasonable.
Given the way the matter then developed, the plaintiff wrote to Maddever and Shepherd inviting them to make their 'best' offer to purchase the claims. This course of action was consistent with the approach taken by the Supreme Court of New South Wales in the matter of Re SCW Pty Ltd (In liq) [2013] NSWSC 302 and was clearly the proper course for the plaintiff to pursue in this case.
The liquidator received offers from Maddever and Shepherd. Shepherd's offer involved the direct payment of the claims of particular creditors of the Company by Shepherd, but not other creditors of the Company, independent of any assessment of proofs of debt by the liquidator. The total of these claims was $48,871.60.
The plaintiff formed the view he should not accept that offer. He did so on the following grounds:
(a)the offer would leave several creditors unpaid for the sum of around $60,000 (or, if Maddever's claim for $500,000 was admitted, $560,000);
(b)the basis on which the particular creditors to be paid had been selected was not clear;
(c)the largest of the selected creditors, Select Poultry (WA), is a trading name of Finecress which is controlled by Shepherd, such that the net quantum of the offer was only $22,589.06;
(d)the offer pre‑judges the outcome of the proof of debt and adjudication process which would be inconsistent with the objects and operation of pt 5.6 of the Act; and
(e)upon payment, Shepherd may obtain a right of subrogation in relation to the claims that he pays, which would mean the other (unpaid) creditors would not benefit from any reduction in the total pool of creditors.
Maddever's offer originally involved the payment of $25,000 to the Company plus any resulting net proceeds from the claims. The offer also included an invitation to negotiate the terms of potential indemnities. After some negotiation Maddever revised the offer. As matters now stand Maddever and the plaintiff have agreed the claims could be assigned to Maddever on the following broad terms:
(a)Maddever would pay $50,000 to be applied in the winding up;
(b)Maddever would acquire the claims absolutely;
(c)the plaintiff would forego any right to apply those funds to his own costs and remuneration, other than the costs and remuneration relating to the assignment of the claims and obtaining orders for deregistration and release under s 481 of the Act;
(d)the assignment would be conditional on a direction from the court approving the assignment; and
(e)Maddever would withdraw his proof of debt.
The plaintiff has formed the view he is entitled to accept Maddever's offer and it would be in the best interests of the creditors for him to do so. A deed has been executed but that deed is conditional upon court approval.
The plaintiff says he has formed the view Maddever's offer is in the best interests of the Company for the following reasons:
(a)the quantum of Maddever's offer exceeds the amount offered by Shepherd;
(b)the consideration will benefit all creditors of the company, not just a select few chosen on an apparently arbitrary basis;
(c)the transaction would not undermine the procedures for adjudicating proofs of debt under the Act;
(d)Maddever has agreed to withdraw his proof of debt which is likely to simplify the process of adjudicating proofs and declaring dividends;
(e)the only party prejudiced by the terms of the transaction is the plaintiff himself in that he will forego his priority payment of costs and remuneration from the $50,000 payment;
(f)the offer is substantially more favourable to the company than the previous offers by Maddever, and the liquidator has exercised his commercial judgment in forming the view that Maddever was unlikely to improve upon the offer; and
(g)Maddever has provided evidence of his capacity to pay the purchase price.
Shepherd and Finecress oppose the making of the orders. In par 25 of his written submissions, counsel for the plaintiff summarised what he understood to be the basis of the opposition from Shepherd and Finecress. With respect I think counsel has correctly set out the basis of the opposition. The position of Shepherd and Finecress as disclosed in Shepherd's affidavit sworn 25 October 2018 and in counsel's written submissions is that:
(a)the 'only change' since March 2018 in Maddever's offer is that the consideration offered is $50,000 compared with only nominal consideration;
(b)the deed would appear to attempt to deprive Mr Shepherd of his asserted right of indemnity against the Company under the Company's constitution in the event that any proceedings against him were successful;
(c)the consideration is less than the amount the plaintiff has already spent looking into the alleged claims as at 19 March 2018;
(d)the deed is directed towards shifting a risk to Shepherd and Finecress; and
(e)despite the sale of the Company's business for $500,000 there appears to be no genuine reasonable prospect of any return to the unsecured creditors in any event, with or without the additional $50,000.
In my view, there is nothing in any of these objections. Indeed the points raised in (a), (c), (d) and (e) can be disposed of quickly. First, the existence of the sum of $50,000 for purchase of the claims is not the 'only change' made since March 2018. Maddever has demonstrated his capacity to complete the transaction and the transaction now contemplates the finalisation of the winding up and deregistration of the company before any step is taken to pursue the claims.
Second, any comparison between the costs of investigating the claims on the one hand and the consideration to be paid for their assignment on the other is irrelevant. There is no reason why the two should be linked. It is clearly in the interests of the Company and its creditors to receive $50,000 and recover at least some of those costs rather than to receive nothing.
Third, Shepherd does not specify which 'risk' is being shifted to him and Finecress.
Fourth, the plaintiff's evidence is that the remaining unsecured creditors are likely to receive between nil and 17 cents in the dollar. Taking into account amounts that have been paid to secured creditors and retrenchment payments, any suggestion the creditors have suffered at the hands of the plaintiff and will receive no dividend in the winding up is not correct.
In his written submissions counsel for Shepherd and Finecress describe the deed as 'unjust and counterproductive'. It was his submission the deed was designed to deprive Shepherd of the indemnity contained in cl 95 of the Company's constitution. That clause reads as follows:
In the circumstances except as prohibited by the Act every officer, auditor or agent of the company shall be indemnified out of the property of the company against any liability (including but not limited to legal costs) incurred by him in his capacity as officer, auditor or agent in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application in relation to any such proceedings in which relief is under the Act granted to him by the court.[2]
[2] Affidavit of Kenneth William Shepherd sworn 11 September 2018 Annexure 'KWS 3'.
Counsel for Shepherd and Finecress set out their position succinctly in pars 11 and 12 of his written submissions. These paragraphs read as follows:
11.The liquidator proposes that the court sanction, by way of direction, a deliberate course of conduct designed by the liquidator to breach the contractual promise by the company and Mr Maddever, to afford Mr Shepherd the protection of cl 95.
12.What has been proposed by the liquidator is a planned process of intentional interference with the contractual relations between these three parties.[3]
[3] Second and third intervenors submissions filed 6 November 2018.
In response to that submission counsel for the plaintiff pointed out that 'while the Company's constitution does give Shepherd a right of indemnity, any claim he has under that indemnity would be a debt arising from circumstances occurring after the 'relevant date' under s 553 of the Act and therefore would not be admissible to proof against the Company'.[4] Clearly that is correct. In any event, to the extent Shepherd anticipates he may be entitled to claim under that indemnity, it is open to him to submit a proof of debt. Any such claim must be unsecured. It would not be in the best interests of the Company or the creditors to delay the finalisation of the winding up until the quantum of any claimed indemnity is ascertained. Of course this second point is a minor consideration. The fact any claim would not be provable is fatal to submissions made on behalf of Shepherd and Finecress.
[4] Plaintiff's written submissions filed 30 October 2018 par 26(b).
It was the plaintiff's submission that in making any orders the court would not be exercising a commercial judgment. What is really at issue here is whether or not the legal rights of Shepherd, and to an extent Finecress, would be compromised by the proposed assignment. That is a legal question and it is perfectly proper for the plaintiff to seek directions. I would note that the making of orders is consistent with the decision of Brereton J in Re SCW Pty Ltd. It is also consistent with his Honour's direction in Re Onetell (2014) 99 ACSR 247.
Accordingly I am prepared to make orders as sought in the amended originating process. However, before doing so I will give the parties the opportunity to consider these reasons and make submissions as to the form of the orders. I will also hear the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson13 FEBRUARY 2019
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