Hurst v Bar Machiavelli Pty Limited ACN 609 268 037 (No 2)

[2018] NSWSC 1549

Supreme Court

New South Wales

Medium Neutral Citation:

Hurst v Bar Machiavelli Pty Limited ACN 609 268 037 (No 2) [2018] NSWSC 1549

Hearing dates:

9 October 2018

Date of orders:

09 October 2018

Decision date:

09 October 2018

Jurisdiction:

Equity - Corporations List

Before:

Parker J

Decision:

The orders of the Court are:

 

1. David Anthony Hurst have leave under Corporations Act 2001 (Cth), s 532(2), to consent to be appointed, and to act as, liquidator of Bar Machiavelli Pty Ltd ACN 609 268 037 (“the Company”).

2. Order that the Company be wound up in insolvency.

3. Order that Mr Hurst be appointed liquidator of the Company.

Catchwords:

CORPORATIONS – winding up – application by creditor to wind up company – where company unable to pay remuneration and disbursements to a creditor who was formerly the administrator of the company

  CORPORATIONS – winding up – liquidators – appointment, resignation or removal of liquidator – independence of liquidator – suitability of appointment where there is an actual or perceived conflict between the liquidator’s duty to creditors and their personal interests – whether a conflict exists in circumstances where the proposed liquidator disputes fees and costs owing to them from discharging their responsibilities as a former administrator of the company

Legislation Cited:

Corporations Act 2001 (Cth), ss 446AA, 499, 532, Schedule 2 (Div 60)

Cases Cited:

Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230
Chevron Furnishers Pty Ltd (in liq), Re; Qld Amalgamated Industries Pty Ltd v Harris [1995] 1 Qd R 125
Hurst v Bar Machiavelli Pty Limited ACN 609 268 037 [2018] NSWSC 1511
Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380

Category:

Principal judgment

Parties:

David Anthony Hurst (Plaintiff)
Bar Machiavelli Pty Limited (Defendant)
Paola Toppi (Intervener)

Representation:

Counsel:
MJ Dawson (Plaintiff)
JT Johnson / M Castle (Intervener)

  Solicitors:
Johnson Winter & Slattery (Plaintiff)
Beazley Lawyers (Defendant)

File Number(s):

2018/302839

Publication restriction:

Nil

Judgment – ex tempore

Revised and reissued on 15 October 2018

1. In these proceedings David Anthony Hurst, a former administrator of the defendant (to which I refer as “the Company”), applies to have it wound up in insolvency. The proceedings were commenced on an urgent basis on 4 October. On that day I appointed Mr Hurst as provisional liquidator of the Company. My reasons are published in Hurst v Bar Machiavelli Pty Limited ACN 609 268 037 [2018] NSWSC 1511. Those reasons set out the background for the application which I will not repeat.

2. The proceedings have now come on for final determination of the winding up application. Mr Hurst, as provisional liquidator, controls the Company and therefore there is no opposition heard from the Company to the winding up order which is sought. I granted leave to Paola Toppi, a contributory of the Company, to appear on the application. She has done so, instructing counsel, for which I am grateful.

3. Mr Hurst claims that the Company is indebted to him for amounts exceeding $300,000. This includes PAYG and superannuation of almost $8,000, amounts claimed by the landlord of the premises from which the Company conducted its business of approximately $70,000, and certain fees and expenses incurred by Mr Hurst in the course of his work as administrator. These include valuation expenses of approximately $9,000, legal fees incurred by Mr Hurst of approximately $60,000, and remuneration and disbursements. I assume that the figures for remuneration and disbursements are in addition to the expenses to which I have referred.

4. At the first meeting of creditors, a sum of money was approved for Mr Hurst's remuneration and disbursements. He claims approximately $72,000 pursuant to that approval. He claims a further $117,000 for remuneration and disbursements which have not been the subject of approval.

5. It is clear that the Company is insolvent and counsel for Ms Toppi did not oppose the making of a winding up order. In particular, counsel accepted that Mr Hurst is a creditor. There is a dispute about the level of his fees and also the level of legal costs which he has incurred. Ms Toppi has offered an indemnity against PAYG and superannuation liabilities and also liabilities to the former landlord and so contends that Mr Hurst will not ultimately be required to bear those costs. But counsel accepted that despite the dispute, Mr Hurst was a creditor at least for the amount of the valuation expenses and that this gave Mr Hurst standing to bring the application. I think that this concession is correct and, accordingly, I will in due course make an order for the Company to be wound up.

6. The substantial issue is whether Mr Hurst should be appointed liquidator. Counsel for Ms Toppi submits that it would be undesirable for Mr Hurst to be appointed as liquidator when there is a dispute about the level of his fees and the costs incurred by him as administrator. Counsel contended that, as liquidator, Mr Hurst would be put in a position of conflict between his interest in maintaining his claims for fees and costs which he has incurred, on the one hand, and his duty to creditors to minimise the costs in the administration on the other. Counsel submitted that so far as Mr Hurst's legal fees were concerned, the conflict could not be solved by an assessment process because Ms Toppi has no standing to seek assessment of Mr Hurst's own legal costs. This last submission was not disputed by Mr Hurst's counsel.

7. Ms Toppi's position is that in these circumstances an independent liquidator should be appointed and a consent form was filed from Jason Mark Tracey of Deloitte Financial Advisory who is independent and would be capable of acting as liquidator. The argument for counsel for Ms Toppi emphasised general statements of principle about the undesirability of a liquidator acting in circumstances where there is, or appears to be, a conflict between the liquidator's personal interests and the liquidator's duty to creditors. For instance, in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Santow J (as his Honour then was) stated (at 233):

In performing his functions the liquidator must both be and appear to be independent and impartial of the creditors.

8. His Honour also quoted from a passage in Chevron Furnishers Pty Ltd (in liq), Re; Qld Amalgamated Industries Pty Ltd v Harris [1995] 1 Qd R 125 which included (at 130):

The principle established by [the] cases is undoubted. The liquidator must have had no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors so that he could not fairly and impartially carry out his duties as liquidator requiring him, in broad terms, to act in the best interests of the general body of creditors.

9. Those general principles are well accepted but it should be emphasised that even where a potential conflict, or even an actual conflict, arises, the Court does not automatically remove the liquidator whatever the circumstances of the administration. The Court has wide powers to direct the liquidator in the conduct of an administration; indeed in appropriate cases it is even possible to appoint a further special purpose liquidator to deal with an issue which might otherwise give rise to a conflict.

10. It is commonplace in an administration, if it proceeds to a winding up, for the administrator to be appointed as liquidator. The two deeds of company arrangement that were put forward in this case both involved the appointment of Mr Hurst as deed administrator, which would have put him in a similar position to that of a liquidator. One of those deeds of company arrangement was put forward by Ms Toppi herself. Furthermore, there are circumstances in which the Act itself provides that the administrator may become the liquidator. I refer, for example, to Corporations Act 2001 (Cth), ss 446AA and 499(2A). The reason for this is obvious. Generally speaking, the investigations carried out by the administrator will remain relevant and it is to the advantage of creditors to retain the administrator's background and knowledge by appointing him as liquidator: see, eg, Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 at [9]-[11] per Barrett J (as his Honour then was).

11. The Corporations Act provides in Division 60 of Schedule 2 for the payment of remuneration and other benefits to external administrators of companies. An external administrator for this purpose includes both a voluntary administrator appointed by company resolution and a liquidator appointed by the Court. That Division provides for a system of remuneration determinations made by resolution of creditors or of a committee of inspection or by the Court and for review of such determinations. The Court has power to make directions so as to ensure that there is a contradictor in the event that that is considered necessary. It is inherent in this system that the external administrator in question will find himself in the position of putting forward an application for remuneration where the amount claimed is questioned or proves contentious but that is a feature of every administration and liquidation. I do not think that it can be seen as giving rise to a conflict of duty and interest but, if it does, it is a conflict which is inherent in the position of liquidator.

12. Technically, there may be a difference between Mr Hurst's position so far as his fees for acting as liquidator are concerned and his fees for acting as administrator. His fees as liquidator arise as a matter of entitlement pursuant to the procedure governed by the Division 60 of Schedule 2. His fees as administrator, once the Company goes into liquidation, are technically an amount due to him as a preferred creditor. Counsel for Ms Toppi suggested that such fees would be subject to the procedure for proof of debts. That may be so, although I am not sure that Division 60 of Schedule 2 is not wide enough to cover an administrator's fees once the Company has gone into liquidation, but it is unnecessary to determine this. If there is a technical difference, I think there is no difference in substance.

13. If as liquidator Mr Hurst has to consider his claim for fees and expenses incurred while administrator in the same way as he would consider fees or expenses incurred by an external creditor, then there are ample powers in the Court to give directions so as to ensure that Ms Toppi is afforded a proper opportunity to contest those fees and the recovery of those expenses. Even if there is no power directly to have Mr Hurst's legal costs assessed, then the Court's powers to give directions are wide enough to ensure that an analogous procedure can operate which would allow Ms Toppi the opportunity to contest the quantum which is claimed.

14. In my view, Mr Hurst's familiarity with the affairs of the Company is a good reason to appoint him as liquidator and the potential for dispute about his fees and costs incurred by him as administrator is insufficient to outweigh that. Accordingly, I will make an order winding up the Company and appoint him as liquidator.

15. Section 532(2) of the Corporations Act prohibits Mr Hurst from consenting to be appointed as liquidator, having been an administrator, without the leave of the Court. For the reasons I have given, I will grant Mr Hurst the necessary leave. I will hear counsel on the precise form of the orders.

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Decision last updated: 15 October 2018