Hawkwood Holdings Pty Ltd v Christopher Williamson the Liquidator of Merlino Construction Services Pty Ltd (in Liq) (Receivers and Managers Appointed)
[2000] WASC 73
•28 MARCH 2000
HAWKWOOD HOLDINGS PTY LTD & ANOR -v- CHRISTOPHER WILLIAMSON the Liquidator of MERLINO CONSTRUCTION SERVICES PTY LTD (IN LIQ) (Receivers and Managers Appointed) [2000] WASC 73
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 73 | |
| Case No: | COR:16/2000 | 15 MARCH 2000 | |
| Coram: | MASTER BREDMEYER | 28/03/00 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| PDF Version |
| Parties: | HAWKWOOD HOLDINGS PTY LTD MARCO LUIGI TADDEI CHRISTOPHER WILLIAMSON the Liquidator of MERLINO CONSTRUCTION SERVICES PTY LTD (IN LIQ) (Receivers and Managers Appointed) |
Catchwords: | Corporations Company in liquidation Creditors' meeting Casting vote by liquidator Review by the Court of that vote |
Legislation: | Corporations Law s 477(2B), s 556, s 600B(2) Corporations Regulations reg 5.5.21(4), reg 5.6.21(2), reg 5.6.33(1) |
Case References: | Re Imobridge Pty Ltd (In Liq), unreported; SCt of QLD; BC9907423; 12 November 1999 Yoemans v Walker (1986) 5 NSWLR 378 Burnells Pty Ltd v Walsh; Re Burnells Pty Ltd (1979) QR 440 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 12 ACLC 594 Re Bartlett Researched Securities Pty Ltd (Administrator Appointed) (1994) 12 ACSR 707 Re Biposo; Condon v Rodgers (1995) 13 ACLC 1271 Re Burnells Pty Ltd (In Liq); Ex parte Brown & Burns (1979) 4 ACLR 312 Re Leon v York-O-Matic Ltd (1966) 3 All ER 277 Re Mineral Securities (1971) CLC 40-076 Re WA Pines Pty Ltd (1994) 12 ACLC 328 Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1988) 6 ACLC 213 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Applicant
MARCO LUIGI TADDEI
Second Applicant
AND
CHRISTOPHER WILLIAMSON the Liquidator of MERLINO CONSTRUCTION SERVICES PTY LTD (IN LIQ) (Receivers and Managers Appointed)
Respondent
Catchwords:
Corporations - Company in liquidation - Creditors' meeting - Casting vote by liquidator - Review by the Court of that vote
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Legislation:
Corporations Law s 477(2B), s 556, s 600B(2)
Corporations Regulations reg 5.5.21(4), reg 5.6.21(2), reg 5.6.33(1)
Result:
Application dismissed
Representation:
Counsel:
First Applicant : Mr C G Colvin
Second Applicant : Mr C G Colvin
Respondent : Mr L K Christensen
Solicitors:
First Applicant : Hotchkin Hanly
Second Applicant : Hotchkin Hanly
Respondent : Tottle Christensen
Case(s) referred to in judgment(s):
Re Imobridge Pty Ltd (In Liq), unreported; SCt of QLD; BC9907423; 12 November 1999
Yoemans v Walker (1986) 5 NSWLR 378
Case(s) also cited:
Burnells Pty Ltd v Walsh; Re Burnells Pty Ltd (1979) QR 440
Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 12 ACLC 594
Re Bartlett Researched Securities Pty Ltd (Administrator Appointed) (1994) 12 ACSR 707
Re Biposo; Condon v Rodgers (1995) 13 ACLC 1271
Re Burnells Pty Ltd (In Liq); Ex parte Brown & Burns (1979) 4 ACLR 312
Re Leon v York-O-Matic Ltd (1966) 3 All ER 277
Re Mineral Securities (1971) CLC 40-076
Re WA Pines Pty Ltd (1994) 12 ACLC 328
Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1988) 6 ACLC 213
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1 MASTER BREDMEYER: This is an application under s 600B of the Corporations Law to set aside a resolution passed at a meeting of creditors of Merlino Construction Services Pty Ltd (In Liq) (Receiver and Manager Appointed) (the company). The resolution was passed at a meeting of creditors of the company on 12 August 1999 to enter into a funding agreement with Insolvency Management Fund to pursue a claim to recover $620,688 from Hawkwood Holdings Pty Ltd (Hawkwood) as unfair preferences.
2 The application to set aside the resolution passed at the meeting of creditors is made by Hawkwood and its director Marco Luigi Taddei. Hawkwood is a creditor of the Company and it is also, as just seen, the target company. The liquidator proposes to sue it for $620,688.
3 By reg 5.6.21(2) of the Corporations Regulations, the resolution needed to be carried by both a majority of the creditors voting (in person or by proxy) and a majority of the creditors by value of their debts. The liquidator, who proposed the resolution, was unable to get both majorities at the meeting held. A majority of creditors by value voted in favour of the resolution, but a majority of creditors by number voted against it. Hawkwood, a creditor with a claimed debt of $7,500, was one of the creditors voting against the resolution. In that situation, where a double majority was not achieved, reg 5.6.21(4) enables the person presiding at the meeting to exercise a casting vote. If he votes in favour of the resolution, the resolution is carried. If he votes against the resolution, the resolution is not carried. In this case, the liquidator exercised a casting vote in favour of the resolution and, hence, the resolution was carried. So the liquidator is empowered by the resolution to sue Hawkwood and the funding agreement enables him to do that.
4 Section 600B(2) of the Corporations Law enables a person who voted against the resolution to apply to the court to have the resolution set aside. The section does not spell out the circumstances in which the court will set aside the resolution. The court thus has a discretion to be exercised judicially. I turn, therefore, to case law to see if it offers any guidance on how the power to set aside under s 600B(2) should be used. Unfortunately, there is no case directly on s 600B(2). A number of cases have been cited to me on other sections and they are of some use by way of analogy.
5 Re ImobridgePty Ltd (In Liq), unreported; SCt of QLD; BC9907423; 12 November 1999 is of some use. In that case, the liquidator applied to the court under s 477(2B) for approval to enter into a
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- funding agreement on the company's behalf in order to recover an unfair preference from Westpac. The application was opposed by a Mrs Ellis, who was a shareholder, a former director and a major creditor of the company. If the liquidator was successful in his suit against Westpac, she was a guarantor of the loan from Westpac to the Company and feared that her guarantee might be called upon. In that case, the liquidator called a meeting of creditors to approve the funding agreement in order to sue Westpac. The resolution was lost. The liquidator then applied to the court for approval of the proposed funding agreement. Fryberg J, after considering the financial state of the company and the prospects of success of the proposed action, etcetera, approved the liquidator's application to enter into the funding agreement. However, he was critical of the way that the liquidator did not put all the information about the funding agreement and the proposed action before the creditors. The liquidator failed to inform the creditors that his firm was currently owed about $25,000 for fees and that was one of the reasons behind the proposed action. He did not inform the creditors present at the meeting that the action had already been commenced, but suggested that it was simply proposed. He told the meeting that the solicitor acting would be speculating a proportion of his fees. That was simply false. He told the meeting that he had legal advice that he had a claim against Westpac for the recovery of approximately $180,000. The Judge considers that it was most unlikely that the advice was as definite as that. I learn from that case that the liquidator should make a proper disclosure of all relevant matters to the creditors, although, in that case, where the Judge had to consider the question of approval of the agreement independently, the failure to make a full disclosure was not fatal to the application. But turning to the present application, I would expect the liquidator, as an officer of the court, to make a full disclosure of all relevant matters prior to the passing of the resolution so that the creditors can make a well-informed vote.
6 I am assisted by a point of principle decided by the court in Yoemans v Walker (1986) 5 NSWLR 378. The facts in that case are not particularly relevant to the dispute before me, but I accept the principle expressed in the headnote:
"A court should not interfere with a decision made by a liquidator unless there is fraud, or it can be demonstrated that the discretion has not been exercised bona fide, or it can be said that the liquidator has acted in a way in which no reasonable liquidator would have acted."
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7 In this case, the applicants say that the resolution should be set aside as a matter of principle because the liquidator had a financial interest in the resolution being passed. At the time of the resolution, he was owed $39,324 for fees and the company had no money or assets to pay them. The proposed action was his only avenue to recover those fees. Secondly, the funding agreement provided that the liquidator would be paid up to $10,000 on the signing of the agreement, irrespective of the outcome of the action. If the liquidator incurred fees greater than $10,000 and the action was successful, then by s 556 of the Corporations Law he would be entitled to those fees in priority to the creditors.
8 I do not agree with the applicants' statement that under the funding agreement the liquidator was to be paid $10,000 irrespective of the outcome of the litigation. The agreement does not provide for that. It provides that, if and when some money is recovered in the action, it is to be paid, firstly, to IMF (for the fees of the McLernon Group Ltd), secondly to the liquidator's lawyers for their fees, and thirdly to the liquidator up to $10,000 on production of itemised accounts. Those accounts are for work he has done in the conduct of the proceedings.
9 I consider that the creditors were not misled about any of these matters. The liquidator circularised the creditors prior to the meeting and informed them of the proposed action against Hawkwood to recover $620,688 and of the proposed funding offer received from the insolvency funder. He estimated that the action could cost $110,000 in costs, including a provision for an adverse costs order in the event of an unsuccessful outcome. He told the creditors that he was owed $39,324 for fees and that he would seek approval of those fees at the creditors' meeting. He said payment of those fees was dependent upon funds becoming available in the liquidation. He told them that the liquidation had minimal funds and any distribution to creditors was dependent upon successfully recovering an unfair preference. A copy of the agreement with the litigation funder was enclosed with the circular and that revealed that his fees up to a maximum of $10,000 would be paid by the funder, provided that he submitted itemised accounts to the satisfaction of the funder. The percentage to be taken by the funder was set out in the agreement. It was 20 per cent of the sum recovered if the action was concluded within six months of 5 July 1999 and 35 per cent if the action was concluded more than 10 months after that date.
10 The minutes of the meeting held on 12 August 1999 have been tendered. The chief purpose of the meeting was to pass a resolution to agree to the litigating funding agreement. The chairman of the meeting
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- advised the creditors present that the deficiency of assets over liabilities was at least $2,000,000, including unsecured creditors of approximately $1.7 million. If the action against Hawkwood was successful, the unsecured creditors could expect to receive about 15 cents in the dollar. The minutes noted that no creditors wanted to fund the action. Following the passing of the resolution by virtue of the casting vote of the chairman, a resolution was passed fixing the liquidator's remuneration at $39,324. That was for work already completed. A separate resolution was passed, approving future remuneration to the liquidator in accordance with the hourly rates issued by the Insolvency Practitioners' Association of Australia from time to time up to a limit of $25,000, and that the liquidator be authorised to make periodic payments on account of such accruing remuneration. Those two resolutions were passed unanimously, with the chairman abstaining.
11 The applicants say that by reason of the liquidator's personal financial interest in the outcome of the resolution, he was not entitled to vote as a proxy: reg 5.6.33(1). By that regulation a person with a general or special proxy may not vote in favour of any resolution which would place him or his partner or employer in a position to receive remuneration out of the assets of the company except as a creditor rateably with other creditors of the company. There are two exceptions to that by subreg (2) and (3) not presently relevant. At this meeting the liquidator's representative who chaired the meeting, held proxies from four creditors who voted in favour of the resolution. That appears to be wrong by reg 5.6.33(1). But it is not decisive of the dispute before me, because, even without those proxy votes, a majority of creditors by value voted for the resolution. The issue in this case is not the proxy votes exercised by the liquidator but his casting vote exercised under reg 5.6.21(4).
12 The applicants say that, due to the liquidator's personal financial interest in the outcome of the resolution, he should have declined to exercise a casting vote. The question whether the agreement with the litigation funder should be entered into, and the action commenced, could have been referred by the liquidator to the court under s 477 for decision. I agree that an alternative way to get the funding agreement approved was to apply to the court for that approval under that section, but, as a matter of principle, I fail to see why the liquidator, who discloses his financial interest in the outcome of the resolution to the creditors, should be precluded from making a casting vote. The liquidator is going to charge fees, and is entitled to charge fees, for every act he does in the course of the liquidation. So, if he is gathering assets, selling a property or pursuing an action, he is going to charge fees and is entitled to be paid with priority
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- over other creditors. I consider that that fact should not preclude him from exercising his judgment in all kinds of matters, including the casting vote in issue here. In the absence of any authority at all, I am not willing to make new law and say that the liquidator, as in this case, who is owed fees for past work, and hoping to get paid for future work, is thereby debarred from making a casting vote on a matter which has divided the creditors. I consider the liquidator has not been guilty of fraud; that has not been alleged. It cannot be demonstrated that his discretion was exercised mala fide and it cannot be said that he has acted in a way in which no reasonable liquidator would have acted. In the absence of any of these things, I am willing to assume that he acted properly as an officer of the court in casting a vote for a resolution which offered reasonable prospects of recovering money for the benefit of all the creditors, even though it incidentally offered the prospect of recovering money to pay his fees.
13 The application will be dismissed.
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