HRC Technologies Limited; in Re

[1987] TASSC 58

TASSC A54/1987

CITATION:HRC Technologies Limited; In re  [1987] TASSC 58; A54/1987

PARTIES:  IN RE HRC TECHNOLOGIES LIMITED

TITLE OF COURT:  
JURISDICTION:  SUPREME COURT OF TASMANIA
FILE NO/S:  CWU 388/1987
DELIVERED ON:  29 October 1987       
JUDGMENT OF:  Neasey J

Judgment Number:  A54/1987
Number of paragraphs:  10

Serial No 54/1987

List “A”

File No CWU 388/1987

IN RE HRC TECHNOLOGIES LIMITED

REASONS FOR JUDGMENT  NEASEY J

29 October 1987

1. There is before me a petition by a company called H H Peaston Pty Ltd (“the Petitioner”) for the winding up of HRC. Technologies Limited (“the company”) under s363 of the Companies (Tasmania) Code. The Petitioner was at the date of its petition an unsecured creditor of the company in the sum of $10,980. The petition was filed in the court on 28 September 1987. Earlier petitions for winding up of the company had, to the knowledge of the Petitioner, been filed as follows:–

(1) on 9 March 1987, by George Brown & Co Pty. Ltd., a creditor in the sum of $86,874.18, according to the petition;

(2) on 26 March 1987, by Control Data Australia Pty. Ltd., a creditor for $149,998.45; and

(3) on 21 May 1987, by Artronic Productions (Australia) Pty. Ltd., a creditor for the sum of $138,539.30, according to the petition.

These three creditors are all unsecured. Their applications for a winding–up order were heard together before Nettlefold J at Hobart on 9 June 1987, and were then adjourned by his Honour to 29 June. When they came on for hearing on the latter date, certain creditors appeared and were represented, the principal among them being Hambros Nominees Australia Pty. Ltd. (or “Hambro” – the first word in the name of the company is spelt “Hambro” in the Deed of Equitable Charge, and “Hambros” in the Deed of Appointment of Receivers. I shall refer to it hereinafter as “Hambro”), a New South Wales corporation which is a secured creditor of the company in the sum of $5,200,000. The other creditors represented were three companies who are unsecured creditors for a total of $1,626,000. Hambro was at all material times the holder of a Deed of Equitable Charge over the assets of the company, by the provisions of which, on the happening of any of certain precipitating events, Hambro was entitled to appoint receivers and managers. The filing of an application for winding–up constituted such a precipitating event, and by a Deed of Appointment dated 12 June 1987, Hambro appointed two receivers and managers, one of whom was Mr. John Frederick Lord.

1. At the hearing before Nettlefold J on 29 June, the four creditors mentioned, together represented by the same counsel, applied to the court for an adjournment of the petitions for a period of six months, so that the receivers and managers should have the opportunity of arranging to sell the business of the company as an ongoing concern, which would require the business to be carried on in the meantime. The application for adjournment was opposed by the then applicants, and also, according to information which was given to the court, by the present applicant, H H Peaston Pty Ltd, in its then status as an unsecured creditor. The application for adjournment was supported by an affidavit by Mr Lord, a chartered accountant, an official liquidator and a registered liquidator of Sydney, and a partner in the firm of chartered accountants, Duesburys. Mr Lord‘s affidavit stated that he and a Mr Baker had been appointed receivers and managers of the assets of the company, and set forth an estimate of its assets and liabilities, and other relevant information about its business. He deposed that in his estimation, assets owned by the company of a nominal value of $12,250,000 could be realised for about $3,100,000 on a liquidation sale, but that if he were able to realise the assets on a going concern basis without a liquidation, a sum of $11,150,000 could be realised. Mr Lord was cross–examined at some length on his affidavit, and the matter was argued on that day. It was then adjourned to 3 August 1987 at Burnie, so that Mr Lord could in the meantime file a further affidavit with additional information about the affairs of the company.

1. Mr Lord did swear a further affidavit on 28 July 1987, wherein he then estimated that the nominal asset value of the company’s assets was $7,378,971, the liquidation sale value $2,057,191, and the estimated value realisable by receivers’ sale, $6,097,074. The affidavit also deposed that certain assets of the company of a value of $5,080,000 had been realised. The matter of the application for adjournment was further argued before his Honour, who in the end made an order that the applications for winding–up should be adjourned until 14 December 1987, so that the purposes sought to be achieved by the receivers and managers could be pursued.

1. In making that order, Nettlefold J said in substance that in weighing the evidence in respect of whether his discretion to adjourn the applications for winding–up should be exercised, he took substantial notice of the fact that the majority of the unsecured creditors, as well as the secured creditors, favoured the adjournment. In his Honour’s view, the balance of the evidence supported the making of the adjournment order; one important factor being that the principal secured creditor, Hambro, had undertaken that if the adjournment were permitted it would forgo interest on its debt of over $5,000,000 during the period of the adjournment. His Honour thereupon made a conditional order for adjournment until 14 December, the condition being that each petitioner should have liberty to apply, on the understanding that it should be exercised only if there were some change in circumstances which might be seen as arguably likely to affect the court‘s view as to whether it was wise to continue to postpone the making of a winding–up order. As his Honour said:–

“On that basis ....... the petitioning creditors can keep an eye on the matter, and if they think they might be more successful on a further attempt because of changed circumstances, well they can exercise the right which is given to them by (the liberty to apply). If things are just going on more or less in accordance with the prognostication made by Mr Lord, well it would be pointless them applying. They would be wasting their money and the court’s time.”

1. The evidence before me on the present application indicates that, thereafter, correspondence occurred between the Hobart solicitors for the applicant, H H Peaston Pty. Ltd., and the Sydney solicitors for the company and for Hambro. The applicant indicated that it intended to proceed with a petition for winding–up. Its solicitors were reminded that the applicant had been represented by counsel at the hearing at Burnie on 3 August 1987, and of the terms upon which liberty to apply had been reserved to each petitioner, as set out above. It was put to the applicant’s solicitors that there had been no change in circumstances, and that any application by the applicant to wind up the company would be opposed, and if unsuccessful, costs would be sought against the applicant. Later, this view was expressed in more forceful terms, but the applicant’s solicitors indicated that their client was determined to press on with its application. Accordingly, the present petition was filed on 31 August 1987. At the hearing before me on 28 September 1987, the same parties were represented, and an application was made by counsel for Hambro and the three major unsecured creditors that the present application should be adjourned also to 14 December, so that it could then be dealt with by Nettlefold J together with the other applications. The applicant opposed this, and argued that a winding–up order should on the merits be made, notwithstanding the events which I have narrated earlier.

1. Mr Lord had sworn on 28 September and filed a further affidavit, which stated, inter alia, that the company had continued to trade since the making of his previous affidavit in July, gave details of various sales made and work done in an endeavour to arrange for a sale of the business as an ongoing concern, and exhibited detailed information as to the present position of the company.

1. The affidavit states that it continued to be Mr Lord‘s opinion that the best realisable value of the company’s assets would be attained if it were sold by himself as receiver and manager as part of an ongoing business, and that if the company were wound up, then even if he were authorised by Hambro to carry on the business of the company as agent of the mortgagee in possession, considerable commercial disadvantages would arise, which he described in detail. Mr Lord was cross–examined before me on the contents of his affidavit, and in the course of that said in effect that according to his best estimate and appraisal, the business of the company had been since the hearing in August running on an approximately even balance between profit and loss, and that nothing had occurred in the meantime to affect his original view that the best interests of all the creditors including the unsecured creditors would be served if the adjournment until 14 December continued, and that efforts were still being made to sell the business of the company as an ongoing concern. He also said that several promising indications existed that there was reasonable prospect of success in this.

1. Leading counsel for the applicant, Mr Graham, in arguing for the making of the winding–up order, submitted that the present state of affairs of the company as shown by Mr Lord‘s affidavit and oral evidence constituted a most unsatisfactory state of affairs in that “the company continues to trade, it continues to incur liabilities, it’s not reducing any of the liabilities to the pre–receivership creditors, it is seeking business from customers who ..... are very much at risk as to whether they will receive the kind of back–up service and after–sales attention which any ordinary customer is entitled to receive”. Mr. Graham also referred to exhibit B of Mr Lord‘s latest affidavit, which shows substantial growth in unsecured creditor debt during the receivership, to the detriment, he claimed, of pre–receivership unsecured creditors. A risk to the public is occurring, it was submitted, as a result of the company being allowed to trade, in view of its unsound financial position, the unlikelihood of being able to meet ongoing obligations in respect of after–sales service, and of the fact that there appeared to be continuing breach of s556 of the Companies Code.

1. I am not persuaded that the position of the unsecured creditors has deteriorated in any material way since Nettlefold J made his adjournment order on 3 August last, or that the reasons for his Honour’s making that order have not so far been shown to be justified. In fact, the evidence as a whole persuades me that, with respect, it was right to make the adjournment order on 3 August, and that progress so far justifies the continuance of the programme envisaged, in the interest primarily of the unsecured creditors, and in the interest of the secured creditors as well. s324A(2) of the Companies Code confers power on a receiver, in addition to any power conferred on him by any relevant court order or by the instrument under which he was appointed, to carry on any business of the corporation in respect of which he is receiver; and I cannot see that s556 of the Companies Code could on the evidence given so far have any relevant application to the activity of the receiver.

1. It is true that by clause 7.03(b) of the Deed of Equitable Charge, the usual provision is made that a receiver appointed by the mortgagee under the provisions of the deed shall in the course of his receivership act as the agent of the mortgagor, and that therefore the company is prima facie liable for debts incurred by the receiver in the course of carrying on the business, but s324 of the Companies Code provides in effect that, notwithstanding any agreement to the contrary, a receiver who assumes control of a corporation‘s property is liable for debts incurred by him in the course of the receivership. That being so, as Mr Bennett for Hambro and the major unsecured creditors submitted, post–receivership creditors can be expected to look primarily to the receiver (who is no doubt indemnified by Hambro) for payment. See generally as to this, O’Donovan, Company Receivers and Managers, pp 119–120; Gosling v Gaskell [1897] AC 575, HL; and Re Vimbos Ltd [1900] 1 Ch 470. In my judgment, it is plainly right to order that the present application be adjourned to the hearing before Nettlefold J on 14 December next, and that the costs of and incidental to this petition and its hearing so far be reserved for his Honour thereat.