Harris Scarfe (in Liq) & Harris Scarfe Wholesale P/L (in Liq) (No 2)

[2007] SASC 186

Supreme Court of South Australia

(Civil)

Re: HARRIS SCARFE (IN LIQ) & HARRIS SCARFE WHOLESALE P/L (IN LIQ) (No 2)

[2007] SASC 186

Judgment of The Honourable Justice Debelle (ex tempore)

16 May 2007

CORPORATIONS - WINDING UP - LIQUIDATORS

Liquidators – change of liquidators – original liquidators parties - original liquidators resign and new liquidators appointed – procedure by which new liquidators are to be substituted for old liquidators as parties – order made substituting new liquidators for old liquidators.

Corporations Act 2001 (Cth) s 9, s 502, s 503, s 588FF; Supreme Court Rules 1987 R 28, R 31 , referred to.
Gazal Apparel Pty Ltd v Davies [2007] SASC 91; Re Harris Scarfe Ltd (in liq) & Harris Scarfe Wholesale Pty Ltd (in liq) (2006) 203 FLR 46, considered.

RE: HARRIS SCARFE (IN LIQ) & HARRIS SCARFE WHOLESALE P/L (IN LIQ) (No 2)
[2007] SASC 186

Civil

1. DEBELLE J.        This is an application by the present liquidators of Harris Scarfe Ltd and Harris Scarfe Wholesale Pty Ltd to be joined as plaintiffs in this action in place of the former liquidators of both companies. Alternatively, the applicant liquidators apply to be substituted as plaintiffs in place of the former liquidators.

2. On 3 January 2002, a resolution for the voluntary winding-up of Harris Scarfe Ltd (“HSL”) and Harris Scarfe Wholesale Pty Ltd (“HSW”), as well as other companies in the Harris Scarfe group, was carried at a meeting of creditors. The creditors also resolved to appoint Michael Joseph Dwyer and Lindsay Phillip Maxsted joint and several liquidators of HSL and HSW. For convenience, I will call Messrs Dwyer and Maxsted “the original liquidators”. As the original liquidators had earlier been appointed joint and several administrators of HSL and HSW on 3 April 2001, the relation-back date for the purposes of s 588FF of the Corporations Act2001 (Cth) is 3 April 2001: s 9 of the Corporations Act.

3. On 31 March 2004, the original liquidators issued an application in this Court for an order extending by a period of 18 months the limitation period prescribed by s 588FF(3) within which to institute applications pursuant to s 588FF(1) against creditors of HSL and HSW. The application was made in this action which is action number 351 of 2004. The application was made against two sets of creditors. For the purposes of this application, it is sufficient to refer only to one of those sets of creditors. They were creditors who were described as the ‘unidentified creditors’. On 14 April 2004, Master Kelly made an order extending the time within which the original liquidators could make an application under s 588FF(1) to 2 October 2005.

4. On 11 November 2004, Mr Maxsted resigned as liquidator of both HSL and HSW. Mr Dwyer continued as liquidator of both companies for a time. However, on 4 January 2005, Mr Dwyer applied to be removed as liquidator of both HSL and HSW and for an order that Colin McIntosh Nicol and Samuel Charles Davies be appointed joint and several liquidators of both companies in his stead.  On 21 January 2005, Master Withers made an order removing Mr Dwyer as liquidator of both HSL and HSW and appointed Messrs Nicol and Davies joint and several liquidators of both companies. For convenience, I will call Messrs Nicol and Davies “the current liquidators”. 

5. Relying on the order of 14 April 2004, the current liquidators instituted proceedings against a number of the companies. They applied for orders pursuant to s 588FF(1) that specified payments were voidable transactions and to recover an amount equal to the payment. In each action, the current liquidators have filed a statement of claim. Each statement of claim recites the appointment of Messrs Dwyer and Maxsted as the original liquidators, the resignation of Mr Maxsted, the removal of Mr Dwyer as liquidator and the appointment of Messrs Davies and Nicol as liquidators in his stead. The facts relating to each of the impugned payments are then alleged. The statement of claim then refers to the extension of the period of limitation by the order of Master Kelly made on 14 April 2004 and seeks orders setting aside each of the impugned transactions.

6. A number of the unidentified creditors then instituted proceedings which, amongst other things, sought to set aside the orders made by Master Kelly on 14 April 2004.  Some of those defendants and other defendants had also made applications seeking either summary judgment or, alternatively, that the statement of claim in the action against them be struck out. The parties agreed that certain questions common to all of the applications should be heard and determined. The questions were:

   1.Are the current liquidators as plaintiffs in the actions referred to in the schedule to these reasons entitled to rely on the order of Master Kelly made on 14 April 2004 in action 351 of 2004 extending the limitation period under s 588FF(3) of the Act?

   2.Does the order of Master Kelly made on 14 April 2004 in action 351 of 2004 have the effect of extending the limitation period in respect of the claim of the current liquidators against Gazal Apparel Pty Ltd, Australian Weaving Mills Pty Ltd, and Sony Computer Entertainment Pty Ltd?

   3. Is a creditor whose interests are affected by the order of Master Kelly made on 14 April 2004 extending the limitation period under s 588FF(3) of the Act entitled to apply as of right to set aside the said order?

   4.If the answer to question 3 is yes, must the application seeking an extension of time be heard inter partes?

   I heard the application and answered each question, Yes: re Harris Scarfe Ltd (in liq)& Harris Scarfe Wholesale Pty Ltd (in liq) (2006) 203 FLR 46. There was an appeal against the answer to the first of those questions. The appeal was dismissed by the Full Court on 16 March 2007:  Gazal Apparel Pty Ltd v Davies [2007] SASC 91.

7. The consequence of the answer to question 3 is that the order of Master Kelly made on 14 April 2004 was set aside as against those creditors who are listed in the schedule to these reasons.

8. In consequence of that order, the current liquidators now seek to prosecute the application made by the original liquidators on 31 March 2004.  To that end, they issued the application now before the court.  They apply either to be joined as plaintiffs or to be substituted as plaintiffs in place of the original liquidators. There are essentially three issues to be considered.  The first is whether such an order should be made. The second is by what procedure should such an order be made.  The third is from what date should the order operate.

9. The first question essentially turns on the meaning and effect of the word “liquidator” in the Corporations Act and on provisions such as s 502 and s 503 of that Act. On 8 September 2006, I stated my reasons for concluding that the current liquidators were entitled to rely on the order made on 14 April 2004 and why the current liquidators are entitled to whatever benefit might flow from the order made on 14 April 2004. On appeal, Doyle CJ reached the same conclusion, albeit for different reasons. In the view of the Chief Justice, an application of ordinary drafting principles had the consequence that a reference to ‘the liquidator’ in s 588FF(3) is a reference to the person who holds the office of liquidator from time to time. I recognise the force of that view. Whatever is the correct approach, it is clear that a reference to the liquidator in the provisions of the Corporations Act, and in particular in s 588FF, is a reference to whoever might be the liquidator at a particular time. The reference to the liquidator is a reference to the person who, from time to time, holds that office.

10. These proceedings have been instituted by the original liquidators for the purpose, among others, of seeking to recover preference payments. For the reasons already given, the current liquidators are entitled to the benefit of any orders which the original liquidators have obtained. By process of like reasoning, the current liquidators are entitled to seek to have the benefit of any application which might have been instituted by the original liquidators but which has not yet been heard and determined. The current liquidators seek to re-argue the application made by the original liquidators on 31 March 2004 and the only question is whether they should be put in a position to do so. Plainly, the question whether they have the capacity to do so is an issue for another day and I express no view on that. The only issue I have to determine is whether they should be substituted as plaintiffs for the purpose of seeking to prosecute that application. For the reasons already given, it is proper to make an order that permits them to do so.

11. The next question is by what process should that order be made. Two procedures were suggested by the parties. The first is joinder and the second substitution. An order for joinder does not, on its face, seem to be appropriate. What has occurred is that one set of liquidators has been replaced with another. If there are any orders extant against the original liquidators, those orders remain on foot. There is, therefore, no requirement to retain them as parties.  The position is, as Mr McNamara QC suggested in argument, that the baton has been passed from one set of liquidators to another.  In my view, that position should be recognised so that an order for joinder would be inappropriate.

12. The alternative is to apply for an order for substitution. It is contended that the terms of Rule 31 do not provide for substitution in these circumstances.  It was submitted that there was no assignment, transmission or devolution of the kind contemplated by Rule 31.02. In my reasons on 21 September, I accepted that submission and I adopt what I said on that occasion and, to the extent necessary, incorporate it in these reasons.  However, as I then noted, it was not necessary for the purposes of that decision to rely on Rule 31.

13. There is an important principle which is reflected in the terms of Rule 28.  It is that no proceedings shall be defeated by reason of the misjoinder or non-joinder by any person as a party. I am also vested with power by Rule 3 to dispense, to the extent necessary, with the Rules of the Supreme Court.  I have already stated why it is appropriate that the current liquidators should be added as plaintiffs. The only question for present purposes is by what process that should be implemented.

14. In my view, notwithstanding that the terms of Rule 31 do not provide for substitution in the particular circumstances of this case, it is appropriate to make an order for substitution. Shortly put, my reason for that conclusion, as I have already mentioned, is that the term “liquidator” means the person for the time being holding that office. The whole purpose of this application is to ensure that the current liquidators are able to prosecute whatever applications are available to them in place of the original liquidators.  What is sought is simply to replace one set of liquidators with another.  On any ordinary usage of the English language, that is a substitution of one party for another. To the extent necessary, I will therefore make an order dispensing with the terms of the rules and then make an order substituting the current liquidators for the original liquidators.

15. I turn to the third question, namely, the date from which this order should operate. As already mentioned, Master Withers by an order made on 21 January 2005 removed Mr Dwyer as liquidator and appointed in his place Messrs Nicol and Davies. It is appropriate in my view that any order substituting the current liquidators for the original liquidators should operate from the same date and take effect immediately upon the making of the order by Master Withers. That order is appropriate because it gives full meaning and effect to what I have earlier said to be the meaning and intent of the operation of the Corporations Act. It gives full meaning to the view of the Chief Justice that the term ‘liquidator’ in s 588FF means the liquidator for the time being.

16. In one sense it might be said that to make the order operate from 21 January 2005 is to act out of an abundance of caution because, as I have already said, term ‘liquidator’ means the person for the time being holding the office. Notwithstanding that fact, I make the order out of an abundance of caution. The order will also remove any possible hiatus.  In my view, a hiatus does not occur for the reasons that I have just expressed as to the meaning of the term ‘liquidator’.

17. For those reasons I will make an order dispensing, to the extent necessary, with the operation of the Supreme Court Rules.  I will then make an order to substitute the current liquidators for the original liquidators, that order to operate immediately following the order of Master Withers made on 21 January 2005 in the action numbered 668 of 2001. I will make such further consequential orders as are necessary.