Harris Scarfe Ltd (in Liq) & Harris Scarfe Wholesale Pty Ltd (in Liq) (No 3) - [2007] SASC 218

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
HARRIS SCARFE LTD (IN LIQ) & HARRIS SCARFE WHOLESALE PTY LTD (IN LIQ) (No 3)
[2007] SASC 218
Judgment of The Honourable Justice Gray
14 June 2007
CORPORATIONS - WINDING UP - APPLICATIONS FOR WINDING UP BY COURT
CORPORATIONS - WINDING UP - LIQUIDATORS - APPOINTMENT - IN WINDING UP BY COURT
Application for court order winding up companies, appointing liquidators, and permitting applicants to dispense with notice requirements - companies had previously been wound up and applicants had previously been appointed liquidators by voluntary resolution of the creditors - directors' insurance policy arguably would not cover a claim by a liquidator who has not been appointed by a court - whether the Court has power to order winding up of companies and appointing of liquidators where the companies have already been wound up and liquidators already appointed - whether an insurance policy that would arguably not cover a claim by a liquidator who has not been appointed by a Court provides good reason to order that the companies be wound up and liquidators appointed - Held (allowing the application): the Court has power to order the winding up of companies and appointing of liquidators where the companies have already been wound up and liquidators already appointed - an insurance policy that would arguably not cover a claim by a liquidator who has not been appointed by a Court is a relevant factor in determining whether good reason exists to order that the companies be wound up and liquidators appointed - in the circumstances good reason exists to make the orders sought.
Corporations Act 2001 (Cth) s 439C, s 446A, s 459A, s 465A(b), s 465A(c), s 470(2)(b), s 470(2)(c), s 467(3)(b), s 467B, s 472(1), s 588M, referred to.
Commissioner of Taxation v Tull Reinforcing Pty Ltd (2006) 153 FCR 394; Dean-Willcocks (in his capacity as Liquidator of Austral Pacific Group Ltd (in liq)) [2004] NSWSC 1209; Re Green (as liquidator of Australian Resources Limited (in liquidation)) (2004) 52 ACSR 452; Carter & Anor (as liquidators of New Tel Ltd (in liquidation)) v New Tel Ltd (in liquidation) (2003) 44 ACSR 661, considered.

HARRIS SCARFE LTD (IN LIQ) & HARRIS SCARFE WHOLESALE PTY LTD (IN LIQ) (No 3)
[2007] SASC 218
Civil
GRAY J
Introduction

On 26 March 2007, I made orders winding up eleven entities forming a group of companies is known as the Harris Scarfe Companies.[1] I further ordered that Samuel Charles Davies and Colin McIntosh Nicol, the applicants, be appointed liquidators.
[1] Those entities were: Harris Scarfe Holdings Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 009 476 073); Harris Scarfe Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 007 870 886); Harris Scarfe Wholesale Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 061 092 359); D-store Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 088 231 789); Camworks Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 093 265 171); CDL Finance Pty…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: Harris Scarfe Ltd (in Liq) & Harris Scarfe Wholesale Pty Ltd (in Liq) (No 3) [2007] SASC 218
Case: [2007] SASC 218
Decision Date: 14 June 2007

CaseChat Overview and Summary

In the matter of Harris Scarfe Ltd (in Liq) & Harris Scarfe Wholesale Pty Ltd (in Liq) (No 3), the applicants sought a court order for the winding up of the companies, the appointment of liquidators, and the dispensation of notice requirements. The applicants were already liquidators appointed by the voluntary resolution of the creditors. The central dispute was whether the Court had the power to order the winding up of companies and the appointment of liquidators when the companies had already been wound up and liquidators already appointed. Furthermore, the applicants argued that an insurance policy that would arguably not cover a claim by a liquidator who had not been appointed by a court provided a good reason to order the winding up and appointment of liquidators.

The court considered the power of the Court to order the winding up of companies and the appointment of liquidators, despite prior winding up and appointment. The court concluded that such power did exist and that the potential non-coverage by the insurance policy of a claim by a liquidator who was not appointed by the court was a relevant factor in determining whether good reason existed to order the winding up and appointment. The court found that in the circumstances, good reason did exist to make the orders sought.

The court allowed the application, finding that the Court had the power to order the winding up of the companies and the appointment of liquidators despite prior winding up and appointment. The court also held that the potential non-coverage by the insurance policy of a claim by a liquidator who was not appointed by the Court was a relevant factor in determining whether good reason existed to order the winding up and appointment. The court found that in the circumstances, good reason did exist to make the orders sought. The court made orders for the winding up of the companies, the appointment of liquidators, and the dispensation of notice requirements.

The final orders included the winding up of the companies, the appointment of liquidators, and the dispensation of notice requirements. The liquidators undertook to advise of the making of the winding-up order on Harris Scarfe’s website. The court allowed the application on the basis that the applicants had made out a prima facie insolvent trading claim against the directors of the relevant Harris Scarfe Companies and that the likelihood of any successful judgment obtained being enforced would depend on the success of the present application.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Using these powers it was appropriate to order dispensation with the notice requirements provided by sections 465A(b), 465A(c), 470(2)(b) and 470(2)(c). This order was sought to avoid the cost burden of complying with these provisions. The liquidators have undertaken to advise of the making of the winding-up order on Harris Scarfe’s website.Conclusion For these reasons the application was allowed.

Ratio Decidendi

Legal Principle Established

The applicants estimate that the creditors of the Harris Scarfe Companies suffered loss and damage totalling $81.6 million in the period between August 2000 and April 2001.Consideration of the Application Section 588M of the Corporations Act provides:(1) This section applies where:(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and(d) the company is being wound up;whether or not:(e) the director has been convicted of an offence in relation to the contravention; or(f) a civil penalty order has been made against the director in relation to the contravention.(2)The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.(3)The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.(4)Proceedings under this section may only be begun within 6 years after the beginning of the winding up. Having regard to the foregoing circumstances, it is appropriate to conclude that the applicants have made out a prima facie insolvent trading claim against directors of the relevant Harris Scarfe Companies. Counsel for the applicants submitted that the likelihood of any successful judgment obtained pursuant to section 588M of the Corporations Act being enforced would depend on the success of the present application. This was said to be due to the terms of a directors and officers insurance policy held in relation to the former directors of the Harris Scarfe Companies. With the exception of D-store Ltd, which was not acquired until 1 December 2000, the directors of the Harris Scarfe Companies were insured between the period 30 September 1999 to 30 December 2001 pursuant to the directors and officers insurance policy. The directors of D-store Ltd were insured by the policy from 1 December 2000, the date on which D-store Ltd joined the Harris Scarfe Companies. In the event of a successful claim against the directors under section 588M, the applicants intend to seek indemnity from the directors’ insurer under the insurance policy. However, clause 6 of the policy provides:The Company shall not be liable for Loss on account of any Claim made against any Insured Person:…(c) brought or maintained by or on behalf of any Insured… “Insured” is defined in clause 21 of the policy to include the Insured Organisation and Insured Persons. “Insured Person” is defined as follows:Insured Person, either in the singular or plural, means any natural person who is or was a past, present or future:…(d) liquidator of the Insured Organisation…but does not include:…(iii) a liquidator appointed by a court.