In Re Qintex Ltd (No 3)

[1990] TASSC 42

Serial No 39/1990
List "A"

COURT:  SUPREME COURT OF TASMANIA

CITATION:              In re Qintex Ltd (No 3) [1990] TASSC 42; A39/1990

PARTIES:  IN RE QINTEX LTD (NO 3)

FILE NO/S:  CWU81/1990
DELIVERED ON:  24 August 1990
JUDGMENT OF:  Underwood J

Judgment Number:  A39/1990
Number of paragraphs:  58

Serial No 39/1990
List "A"
File No CWU 81/1990

IN RE QINTEX LTD (NO 3)

REASONS FOR JUDGMENT  UNDERWOOD J

24 August 1990

1. The order sought in these interlocutory proceedings is that Ian Douglas Ferrier, chartered accountant, be appointed provisional liquidator of Qintex Ltd. The application is brought by Pepym Nominees Pty Ltd (Pepym) and Lorimar Telepictures Corporation (Lorimar). Qintex Ltd. was incorporated in Tasmania, Pepym was incorporated in Victoria and Lorimar was incorporated under the laws of the State of California, USA

Background to the Application

1. On 29 March 1990 Pepym filed a petition in this Court for an order that Qintex Ltd. be wound up. The petition alleges that Pepym is a creditor of Qintex Ltd. in the sum of $447,751.64, due principally for fees owed for advertising, public relations and media services provided between May and October 1989. The ground relied on for the order sought is that the company is unable to pay its debts.

1. The petition, bearing a notice of hearing for 23 April 1990, was served at the registered office of Qintex Ltd, 19 Brisbane Street Launceston in Tasmania. On 23 April 1990 the hearing was adjourned to a later date. There followed several further adjournments until the proceedings were called on for hearing on 16 July 1990. Meantime, solicitors, Page Seager, filed an appearance on behalf of Qintex Ltd and notice of intention to appear on the hearing was given by that company, Lorimar, the State Bank of Victoria and Tricontinental Ltd. Also, by 16 July, six interlocutory applications had been filed, all of which required resolution before the proceedings on the hearing of the petition could begin.

1. The first interlocutory application was determined on 23 July 1990. It was brought by Lorimar and sought a declaration that Qintex Ltd had not instructed solicitors to act on its behalf and that, in essence therefore, it could not be heard upon the hearing of the petition and related proceedings. Lorimar claimed that, since 28 December 1989, there had been only two directors of Qintex Ltd and, by its articles, a quorum of directors necessary for the transaction of business was three. It was submitted that, in the absence of a quorum of directors, instructions to solicitors could only come from the company acting in general meeting. Page Seager, by counsel, Mr Brown, claimed that the company had instructed them to oppose the orders sought in the petition. The basis of the claim was that such instruction had in fact been given by Mr Christopher Skase, that he was the managing director of Qintex Ltd and in the circumstances, he had the authority to act and had acted as agent for the company.

1. I ruled that Qintex Ltd had not instructed solicitors to act on its behalf in these proceedings (judgment 261990) and made certain consequential orders. Mr Brown withdrew. The solicitors, purporting to act for Qintex Ltd, filed a notice of appeal to the Full Court and sought an order that all further proceedings on and in relation to the petition be stayed. On 30 July 1990, Cox J ordered that all proceedings, save for the application to appoint a provisional liquidator, be stayed until the last day of Third Term (24 August 1990) or such other time as the Full Court may determine. The hearing of that application then began.

1. Initially it was brought by Lorimar alone but supported by Pepym. During the course of the proceedings an order was made joining Pepym as a co–applicant. The application was opposed by Tricontinental Ltd. On the second day of the hearing Mr Brown returned. He sought leave to appear for Mr Christopher Skase and to be heard in opposition to the order sought. He claimed that, as a shareholder, Mr Skase was a contributory and entitled to be heard. Over the opposition of Lorimar, leave was given for Mr Skase to appear by counsel and to be heard on this application. The hearing continued.

1. A considerable volume of evidence was received by way of affidavit. No oral evidence was given. The proceedings were punctuated by frequent objections to the admissibility of evidence often based on technical grounds. The company, by its proper officer, was subpoenaed to produce the books of the company but did not appear. Counsel for Mr Skase failed in an attempt to file and read a facsimile copy of an affidavit said to have been sworn by Mr Skase in Spain. Largely because of the rule which prevents the use of an affidavit in respect of which notice to produce the deponent for cross–examination has been given and the deponent has not attended for cross–examination, no evidence was adduced from the managing director, Mr Skase. No evidence was given by the other director Sir Lenox Hewitt nor, apart from a short affidavit by a former secretary, any other officer of Qintex Ltd. Although no finding is made, the manner in which the proceedings were conducted on behalf of Mr Skase left me with the distinct impression that the managing director and perhaps other senior officers of Qintex Ltd were more than a little reluctant to bring their evidence to this Court if by so doing the business of Qintex Ltd would be exposed to the probing scrutiny of cross–examination.

The Relevant Companies and Their Officers

Lorimar

1. Originally, Lorimar was Lorimar Distribution Inc, a corporation of the State of California. On 21 November 1989 it merged with Lorimar Telepictures Corporation, a corporation of the State of Delaware. Pursuant to the provisions of the Californian Corporations Code and the Delaware General Corporation Law the legal effect of the merger was to vest all rights and obligations of Lorimar Distribution Inc in, under, or arising from any contract to which it was a party, in Lorimar. Thus, for the purpose of these proceedings there is no need to draw any distinction between Lorimar Distribution Inc and its successor in title, Lorimar Telepictures Corporation (Lorimar).

1. The corporation was and is in the business of (inter alia) making and acquiring episodic stories, films and other material for television and distributing this material (referred to as "Lorimar product") throughout the world. Those to whom Lorimar product is distributed pay a licence fee, the size of which presumably depends on the popularity or anticipated popularity of any given programme and its length. The fee is payable each time the programme is shown. "Knots Landing" and "China Beach" are the titles of just two of the many films, series and television programmes that comprise the Lorimar product. By an agreement made on 1 March 1986, Lorimar licensed an Australian company, Lorimar Telepictures Pty Ltd, to be its distributor of Lorimar product throughout Australia. Mr Michael Solomon and Mr Jeffrey Schlesinger, both of Burbank California, are the president and vice president respectively of Lorimar. Ms Gwen Whitson acts as one of its legal counsel. Mr Barry Gardner is a director and the secretary of the Australian distributing company, Lorimar Telepictures Pty Ltd.

Pepym

1. This company's principal place of business is Milsons Point Sydney. It trades under the name of Charlton and Charlton. One of its directors is Mr Peter Charlton. The company carries on the business of public relations management, advertising and media consulting. In 1985 there were several discussions between Mr Christopher Skase and Mr Peter Charlton. According to the uncontradicted affidavit evidence of Mr Charlton, in about July 1985 it was agreed between him as agent for Pepym and Mr Skase as agent for Qintex Ltd that Pepym would supply its services to Qintex Ltd and or other companies in the "Qintex Group". Mr Charlton deposed:

"Mr Skase told me during the discussions held between April 1985 and July 1985 that any agreement that might be reached would be made between the company and Qintex Ltd, notwithstanding that services might be provided for the benefit of other companies within Qintex Group on behalf of Qintex Ltd. This was the basis of the agreement reached between the company and Qintex Ltd on or around 26 July 1985."

1. Mr Charlton deposed that by 31 October 1989 Qintex owed Pepym $430,563 for work and services provided pursuant to the agreement. (The petition overstates this sum by $17,000 by reason of the erroneous inclusion of an invoice for that amount but in fact payable by another company.)

1. Pepym commenced proceedings in this Court to recover the amount due to it and on 20 February 1990 obtained a judgment by default of appearance against Qintex Ltd for $447,562.64 and $189 costs. On 20 April, Page Seager made an application for an order to set aside that judgment. In support, affidavits by Mr Geoffrey Putland, then a secretary of Qintex Ltd, and Mr Christopher Skase were filed. The affidavits claimed (inter alia) that, with respect to the judgment sum, $17,000 was owed by a company other than Qintex Ltd and in any event Qintex Ltd owed Pepym no money. It was claimed that any sum that might be due to Pepym was due by Qintex Australia Ltd and/or other subsidiaries in the Qintex Group. The solicitors for Pepym consented to the judgment being set aside upon the basis that it had been entered for a sum in excess of the amount due and that the affidavits filed in support of the application asserted factual matters which could only be resolved by a determination of the credit of the witnesses.

Tricontinental Corporation Ltd

1. This company is a member of the State Bank of Victoria group of companies. It lent money to Qintex Ltd. To secure the repayment of the monies lent, on 11 January 1982, Qintex Ltd executed a debenture charge in favour of Tricontinental. The short description of the property charged is:

"The whole of the undertaking property and assets of the mortgagor whatsoever and wheresoever situated both present and future including the goodwill of its business and its uncalled and called but unpaid capital for the time being subject only to the charges (if any) against the mortgagor referred to in the second schedule of the mortgage debenture."

1. Qintex Ltd defaulted in the performance of its obligations to the Bank and, by notice dated 14 November 1989, Tricontinental demanded payment of the sum of $69,500,000.00 and interest. Payment was not and, I infer, has not been made. On 28 June 1990 (after the filing of the petition and this application) Tricontinental, in the exercise of its powers in the mortgage debenture, appointed an agent in possession of the property, undertaking and assets of Qintex Ltd. The agent has taken possession of all the assets capable of being taken into possession and they are not in jeopardy of being dissipated at the hands of Qintex Ltd.

Qintex Ltd

1. The company was incorporated in Tasmania on 23 November 1920 as PO Fysh & Co (1920) Ltd. After a change in name in 1953, it became Qintex Ltd on 27 June 1975. According to the stock exchange Company Review Service its activities are "investment and operations of business as in media and entertainment and resorts and leisure, provision of management advice and to act as management and holding company."

1. The issued capital as at 30 December 1988 was as follows:

13,650,766           50¢ ord shares  =                 $6,825,384

205,000                ord shares paid to 5¢  =  $10,250

3,470,000             50¢ ord shares paid to 1¢  =  $34,700

4,000                    50¢ cum red pref. shares  =  $2,000

4,156,711             50¢ red con pref shares  =                 $2,078,356

$8,950,690

1. As at 13 March 1989, the largest single shareholder was identified by the Review as "CC Skase Group" holding 10,130,118 shares. In its annual report for 1988 the following diagram appears under the heading "Qintex Limited and its Subsidiary Companies – Group Structure and Operations":

"

"  qintex limited	Interest
·     Holding Company ·     Management Company	¬¾¾¾¾
quintex australia limited	53%
·     Holding Company ·     Management Company	¬¾¾¾¾
qintex television limited	100%
(Currently Universal Telecasters Limited)	¬¾¾¾¾
·     Australian Media and Entertainment
mirage resorts trust	¬¾¾¾¾	91%
·     Australian Resorts and Leisure
princeville corporation	¬¾¾¾¾	53%
USA Resorts and Leisure
qintex entertainment inc	¬¾¾¾¾	44%
·     USA Media and Entertainment	"

1. Under the heading "Directorate Qintex Limited and its Subsidiary Companies" the following information is set out.

   "Board of Directors

   Christopher C Skase

   
   

   Chairman

   Peter E Burden, LLB(Hons)

   
   

   BCom,

   
   

   Deputy Chairman

   Dudley Braham

   Frederick G Davey

   
   

   LLB(Hons), BCom

   Sir Lenox Hewitt, OBE,

   
   

   BCom., FASA, FCIS,

   
   

   LCA

   Company Secretary

   Geoffrey W Putland,

   
   

   Dip BS Acc'g, ACA

   Qintex Group Management

   CC Skase  PE Burden,

   
   

   Executive Chairman  Chief Executive Qintex

   
     

   Australia Limited

   
     

   Deputy Chairman

   
     

   and Legal Counsel

   RB Campbell, BEcon,  RAJ Capps, MA (Cantab)

   
   

   Chief Executive –  Group Treasury Manager

   
   

   Media and Entertainment

   Peter G Day, BBus.  Geoffrey W Putland, Dip

   
   

   MBA AASA CPA  BSAcc'g, ACA

   
   

   Finance Director –  Group Accounting Manager

   
   

   Media and Entertainment

   John E Tabart, BE

   
   

   MIE (AUST), Chief

   
   

   Executive – Resorts and

   
   

   Leisure"

1. According to Qintex Ltd's balance sheet, as at 31 July 1988, its current assets totalled $130,382,000 of which $111,829,000 were described as receivables. Its non current assets comprised investments shown as having a total value of $159,518,000 of which $158,123,000 comprised its investment in Qintex Australia Ltd which gave it a 53% shareholding in that company. After setting out the liabilities of the company, the 1988 balance sheet discloses that assets exceed liabilities in the sum of $58,466,000.

1. The profit and loss account shows a healthy operating profit for the same period. The annual report for 1988 opens as follows:

"This milestone year witnessed the maturing of the Qintex Group and its emergence as Australia's largest television broadcaster, a pre–eminent force in the nation's tourist industry, and an emerging corporation in the United States of America.

Throughout fiscal 1988, the focus of management was directed to building and harnessing the potential of the Australian Television Network; completing construction and managing the Australian Mirage Resorts at the Gold Coast and Port Douglas; initiating a major merger for the Media and Entertainment interests in the United States; preparing for the refurbishment and expansion of the Princeville Resort in Hawaii; divesting peripheral businesses and passive investments; reducing debt from the peak level at the commencement of the year; and maximising growth in revenues, cash flow and profit.

Revenues from core business increased from approximately $100 million to $430 million and in the final quarter the revenues were running at an annualised rate in excess of $500 million."

1. Since the publication and filing of the 1988 accounts the following events have occurred:

1In October 1989, the company's home exchange, the Brisbane Stock Exchange, asked the directors to supply details of all loans, investments or deposits which Qintex Australia Ltd has made to or were held by Qintex Entertainment Inc, its subsidiaries and/or associates either directly or indirectly. Shares in Qintex Ltd were last traded at 16¢. As a result of the Directors' failure to respond to the request, suspension of trading in the company's securities was imposed on 23 October 1989. The suspension has remained in place since that date because the exchange was not satisfied with the Directors' response given on 24 October 1989.

2As mentioned earlier, on 14 November 1989, Tricontinental made demand for the payment of $69,500,000 plus interest.

3On 28 November 1989 Tricontinental fixed the charge in respect of the assets and undertakings of Qintex Ltd.

4On 28 December 1989 Mr Burden resigned as a director of Qintex Ltd with the result that the company was left with only two directors, an insufficient number to transact its business in accordance with its articles of association. See also the Code, s219(1). This position has not since been rectified.

5On 21 November 1989, in the Supreme Court of Victoria, Messrs David Crawford and John Allpass were jointly and severally appointed receivers and managers of the assets and undertakings of Qintex Australia Ltd and 28 other companies wholly owned by Qintex Australia Ltd or in which Qintex Australia Ltd had a substantial interest. The order did not affect the Seven Network companies.

6On 22 December 1989, Qintex Ltd made application pursuant to the provisions of the Companies Code, s240(5) for an extension of time until 28 February 1990 in which to hold the 1989 annual general meeting. No such meeting has been held. The last annual general meeting was held on 22 November 1988.

7On 13 June 1990, Mr Bye, the resident secretary in Tasmania, resigned and since that date there has been no secretary resident in the State in which the registered office is located. Due to the insufficiency of directors, this breach of the Code, s236(4) cannot presently be rectified.

8No directors' report for 1989 has been made as is required by the Code, s270(1).

9No balance sheet and no profit and loss account for 1989 has been made as is required by the Code, s269.

10One of the two remaining directors, Sir Lenox Hewitt, turned 72 years of age on 7 May 1989 and there is no evidence of his reappointment in accordance with the provisions of the Code, s226.

11On 28 June 1990, Tricontinental appointed an agent in possession of the property of Qintex Ltd.

1. Evidence was tendered of the holding of Qintex Ltd and two of its wholly owned subsidiaries in Qintex Australia Limited as at 1 August 1990. Other evidence tending to establish the worth of that holding at the same date indicates its total maximum value to be slightly in excess of $35 million. An application of that evidence to the figures in the 1988 balance converts the excess of assets over liabilities in the sum of $58,466,000 to an excess of liabilities over assets in the order of $65 million.

The Seven Network

1. These companies hold, or held, television licences throughout Australia.

Amalgamated Television Services Pty Ltd (Sydney licence).

HSV Channel 7 Pty Ltd (Melbourne licence).

Brisbane TV Ltd (Brisbane licence).

TVW Enterprises Ltd (Perth licence).

South Australian Telecasters Ltd (Adelaide licence).

Mackay Television Ltd (Mackay licence).

Wide Bay Burnett Television Ltd (Maryborough licence).

The shares, or majority of shares, in these companies are directly or indirectly owned by Qintex Australia Ltd which in turn is 53% owned by Qintex Ltd.

1. Since 1988, these television stations have been broadcasting the Lorimar product, pursuant to contractual arrangements which were a central feature of the dispute on this application.

1. Lorimar's real interest in these proceedings arises out of a contract Lorimar claimed it entered into with Qintex Ltd for the supply of Lorimar product in Australia. It claims to be a substantial creditor of Qintex Ltd by virtue of the latter's default in making payments due under this contract. On behalf of Mr Skase it was argued that there was no contract with Qintex Limited or if there was, either Qintex Limited contracted as agent for another company or other companies in the Qintex Group or, the contract was subsequently novated to such other company or companies. The continued performance of the contract Lorimar relied upon had been the subject of re–negotiation discussions involving at least one of the Qintex Group of companies but, as will be seen, any prospect of those negotiations being successful depends on Qintex Ltd having the will and capacity to execute a deed of release.

Contractual Relationship between Qintex Ltd and Lorimar

1. Mr Solomon deposed to discussions between him and Mr Glen Kinging, whom he described as the programme director for the 7 Network, in mid 1989. At that time, Lorimar product was being distributed in Australia to three commercial television networks. The proposal Mr Kinging put to Mr Solomon was that in future, Australian distribution be confined to the 7 Network. Mr Solomon was a little cautious about the proposal. He said that if the arrangement were to proceed, in addition to the payment of licence fees, a contribution would have to be made towards the cost of making the television programmes. This cost or part of it may eventually be recoupable from income earned by worldwide sales of these programmes. This contribution is referred to as the financing contribution. Mr Solomon also said that, as the proposal involved very substantial sums of money, any contract would have to made with Qintex Ltd as he considered that it was the only company capable of meeting the large proposed contractual obligations. There followed some further discussions. Mr Bob Campbell took part in later discussions. As mentioned earlier, he is described in the 1988 annual report of Qintex Ltd as "Chief Executive – Media and Entertainment".

1. As a result of these discussions, agreement was reached and reduced to writing. It is referred to as the Output Deal. It was signed in Australia on 30 August 1988 by Mr Christopher Skase and Mr Solomon in the presence of Messrs Campbell and Kinging. As typed, it refers to an agreement between Qintex Inc and Lorimar Distribution Inc and Mr Skase signed for "Qintex Inc." Evidence was adduced to explain that "Inc" is an American expression and had been used in error. In the body of the document the word "Inc" had been crossed out and in ink, the word "Ltd" substituted. These alterations were made later by Mr Schlesinger and Mr Campbell, at the same time as other changes were made to alter the dates on which certain payments became due. Apparently due to inadvertence, a similar alteration was not made at the end of the document just above Mr Skase's signature. It was submitted that I could not be satisfied that Qintex Ltd was a party to the written agreement but it is quite clear that on the face of it the document is an agreement between Lorimar and Qintex Ltd.

1. It is unnecessary to set out its terms in detail. In substance it provided that, in Australia, for five years from 1 August 1988, Lorimar would supply Lorimar product exclusively to Qintex Ltd and Qintex would take all Lorimar product and pay licensing fees and financing contributions calculated with reference to the type and length of programme supplied. In the event of world–wide sales being sufficiently successful, Lorimar would recoup some or all of its financing contribution.

1. After the agreement was executed the following occurred. Lorimar Telepictures Pty Ltd (the Australian distributing company) supplied Lorimar product to Amalgamated Television Services Pty Ltd, the 7 Network company which held the television licence in Sydney. Each programme was supplied pursuant to a written agreement between the two companies, the terms of which were identical to the terms of the Output Deal, except that it contained no reference to the financing contribution. Annexed to each agreement was a note. Inter alia, the note referred to the Output Deal and to the obligation to pay a financing contribution. The note annexed a letter addressed to Universal Telecasters Ltd (later renamed Qintex Television Ltd) requesting it to pay the financing contribution to Lorimar. Thus, the obligations imposed by the Output Deal were fulfilled through the parties' subsidiaries or companies in which they had a substantial or controlling interest.

1. Payment of the licence fees was made in timely fashion but not so the financing contribution. In early 1989 Mr Campbell approached Mr Solomon with a request that the terms of the Output Deal be re–negotiated because the financial obligations were too onerous to be met. There followed numerous discussions between Messrs Campbell and Kinging, and Mr Solomon, Ms Whitson and others in an attempt to re–negotiate the terms of the Output Deal. During the progress of these discussions, the financial decline of Qintex Ltd, Qintex Australia Ltd and some of the other companies in the Qintex Group became apparent and the events detailed earlier occurred.

1. During the course of these discussions Mr Campbell did not make it clear on behalf of which company he was authorised to act. There is evidence tending to show that he had the ostensible authority to act on behalf of Qintex Ltd and the other companies in the Qintex group that were involved in the use of Lorimar product. For example, in a letter to Lorimar Telepictures Pty Ltd dated 6 December 1989 Mr Campbell set out proposed new arrangements to be entered into between that company and Amalgamated Television Services Ltd In it he stated that it is a condition precedent to the new agreement that there is a "transfer of the contract from Qintex Ltd to Amalgamated Television Services Ltd."

1. By February 1990, the terms of the new arrangement had been worked out between Mr Solomon, Ms Whitson, Mr Campbell and Lorimar Telepictures Pty Ltd. In broad substance they were to the effect that Lorimar and Qintex Ltd would execute a mutual release of the Output Deal and contemporaneously, Lorimar Telepictures Pty Ltd and Amalgamated Television Services Ltd would enter into a new agreement for the supply of some of the Lorimar product by the former to the latter on revised financial terMs The receiver, Mr Crawford, although not appointed with respect to either Qintex Ltd or Amalgamated Television Services Ltd, was involved in the discussions. Meantime, although Qintex Ltd was in default under the Output Deal, Lorimar Telepictures Pty Ltd continued to supply Lorimar product to Amalgamated Television Services Ltd in order to maintain continuity of programming. Licence fees, calculated in accordance with the proposed new agreement, were paid and have since been held in escrow pending finalisation of the new contractual arrangements.

1. Amalgamated Television Services has indicated willingness to enter into the new contractual arrangements. Lorimar and Lorimar Telepictures Pty Ltd have indicated a similar willingness but the fundamental stumbling block in completing these new contractual arrangements is the inability of Qintex Ltd, due to the lack of a quorum of directors, to affix its seal to the deed of release. The lawyers became involved. It was suggested by the solicitors for the 7 Network that execution of the deed of release by Qintex Ltd was unnecessary because either:

1The original Output Deal was executed by Qintex Ltd as agent for Amalgamated Television Services Ltd and Qintex Television Ltd or

2The rights and obligations relating to programme licencing were novated to Amalgamated Television Services Ltd and the rights and obligations to programme financing to Qintex Television Ltd.

1. Understandably, Lorimar was not impressed with these arguments and insisted that the new contractual arrangements with Amalgamated Television Services Ltd could only proceed if Qintex Ltd executed the deed of release.

1. At the date of the hearing of this application, approximately $US4,600,000 for financing contribution was owing to Lorimar pursuant to the terms of the Output Deal. The prospect of that Output Deal being performed during the next three years is virtually nil. Unless Qintex Ltd executes the deed of release, new contractual relations for the supply of Lorimar product in Australia to the Seven Network cannot be entered into.

1. In all these circumstances, the applicants contend that the Court should appoint a provisional liquidator so that Qintex Ltd has some person with the power and authority to re–negotiate the Output Deal on behalf of Qintex Ltd. On behalf of Mr Skase it was submitted that the order should not be made. The same submission was made on behalf of Tricontinental. Its submission was based on the simple proposition that the rights under the Output Deal are vested in the agent in possession and the appointment of a provisional liquidator was pointless for he would be unable to execute a deed of release, at least, without the consent of the agent.

The Appointment of a Provisional Liquidator – "Threshold Test"

1. I turn to consider the circumstances in which a Court will appoint a provisional liquidator. The Code, s372(2) gives the Court power to appoint an official liquidator provisionally "at any time after the filing of a winding up application and before the making of a winding up order". The Legislature has expressed no fetters on the exercise of the discretion conferred by the subsection. It may be exercised after the filing of the petition and before its determination. See Re Clearwater Pty Ltd (1981) 6 ACLR 201 at p202; In re A Company [1973] WLR 1566 at p1572. The petition by Pepym and the supporting affidavit comply with the provisions of the Code and the Rules of Court. On behalf of Mr Skase it was submitted that the petition was not valid in that the allegation in the petition "that the company is insolvent and unable to pay its debts" lacks particularity. The Rules of Court Pt.I apply to proceedings under the Companies Code by virtue of the provisions of the Rules of Court, PtVI, r2. The authority for the Rules of Court is to be found in the provisions of the Supreme Court Civil Procedure Act, s197. Section 3 of that Act defines a pleading to include any petition or summons. The Rules of Court, PtI, O21, r3(1) requires every pleading to contain "a statement as concise as the nature of the case will admit, setting out the material facts on which the party pleading relies for his claim ..". Pleadings define the issues in general terMs Particulars control the generality of the pleadings and restrict the evidence to be led by the parties at the hearing and give the other party such information as may be necessary to enable it to know what case it has to meet at the trial. See Pilato v Metropolitan Water Sewerage and Drainage Board (1959) 76 WN (NSW) 364. The petition sufficiently pleads the issue in general terms. It is not defective, even though the Court may later order the delivery of particulars of the allegation that the company is insolvent and unable to pay its debts. There is subsisting a valid winding up application. The Rules of Court, PtVI, r44(1) provides that the application for the appointment of a provisional liquidator may be made by a creditor or contributory. McPherson, The Law of Company Liquidation (3rd edn) at p99 describes the appointment of a provisional liquidator as having the effect of paralysing the company. For this reason, it has been judicially established that in the proper exercise of the judicial discretion, the Court must be satisfied, as a "threshold test" that ultimately, the Court is likely to make the order sought. See Re Clearwater (supra) at p203. The position was later neatly summarised by Master Lee (as he then was) in Re McClennan Holdings Pty Ltd (1983) 7 ACLR 732 at p738:

"Whilst the ultimate fate of the petition must be left to the court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears in the material that a winding up order is likely: Re Railway Finance Co (Ltd) (1866) 35 Beav 472; 55 ER 979 at 980; Re Mercantile Bank of Australia [1892] 2 Ch. 204 at 210; Clearwater Pty Ltd, supra, McPherson, Law of Company Liquidation, 2nd edn p84. This presupposes that there should be adequate evidence adduced on an application for appointment of a provisional liquidator to show that a winding up is, in the absence of material to the contrary, likely."

1. The "threshold test" was applied by McLelland J in Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493 and expressed by a finding in the following terms at p496:

"I would, therefore, conclude that there is a real prospect (although it is by no means an overwhelming one) that at the hearing the plaintiff will be able to establish that, as at 20 June 1984, the condition prescribed by s363(2)(b) of the Code was fulfilled."

See also Re Capital Services Ltd (1983) 1 ACLC 1270; Re Brylyn No.2 Pty Ltd (1987) 12 ACLR 697; Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595.

1. On behalf of Mr Skase it was submitted that indebtedness by Qintex Ltd to both Pepym and Lorimar was very much in dispute and consequently, I should not be satisfied that it was likely that a winding up order would be made on the hearing of the petition. It was also submitted that it would be inappropriate for me to make findings of fact on this application which "might embarrass the Court" hearing the petition. This last matter overlooks the fact that the issue on this application is not whether the order will be made but whether there is a good chance or a likely prospect that it will be made. That issue falls to be decided on the evidence put before me by way of affidavit. On behalf of Mr Skase the only affidavit filed and read was that of Mr Putland who deposed that "until 6 July 1990 I was a secretary of Qintex Ltd.". This brief affidavit does not dispute indebtedness by Qintex Ltd to either Lorimar or Pepym. It does not deal with this issue. I have earlier referred to the default judgment Pepym obtained against Qintex Ltd and the order setting it aside made with the consent of Pepym. It was submitted that this consent is cogent evidence that there is a substantial issue to be tried and that being so, the likely order is that the petition will be dismissed.

1. I accept the affidavit evidence of Mr Hawson, solicitor for Pepym, that consent to the order setting aside judgment was given because:

"(i)If the judgment had been entered for a sum exceeding the sum alleged to be due to the petitioner, it had been entered for 'too much' and would be set aside 'ex debito justitiae';

(ii)The court would not, upon the hearing of an application to set aside a judgment, attempt to resolve a conflict between the plaintiff and defendant which depended for its resolution upon a determination of the credit of witnesses for both parties. At least part of the claim of the petitioner depended upon what oral communication had been made between Mr Skase and Mr Charlton."

1. Thus it is not to be inferred from the consent to the order setting the judgment aside that Pepym will be unable to establish indebtedness. For the applicants it was conceded that to obtain status to petition and to obtain the order sought on the petition as presently pleaded, Pepym will have to establish that it is a creditor of Qintex Ltd in some sum and that either Qintex Ltd is deemed unable to pay its debts by reason of the failure to comply with the s364 notice, or it is in fact unable to pay its debts. On this application, on the material presented to me, the question is whether it is likely that Pepym will be able to establish those matters on the hearing of the petition.

1. For Mr Skase it was submitted that I could not be satisfied that it is likely that the winding up order will be made because indebtedness to Lorimar and Pepym is in dispute. Thus, it was argued, the material before me established that there was a substantial dispute as to the status of Pepym to bring the petition and whether Qintex Ltd was unable to pay its debts. In these circumstances it was said that the Court hearing the petition would be likely to decline to decide these issues and would make an order dismissing the petition. As Ungoed–Thomas J pointed out in Mann & Anor v Goldstein& Anor [1968] 1 WLR 1091 at p1099, the purpose of the companies' winding up provisions is to wind up a company on one or more of the statutory grounds. The process should not be used for compelling a solvent company to pay a disputed debt (p.1096). See also Cadiz Waterworks Co v Barnett (1874) L.R. 19 Eq. 182.

1. Acknowledging that an excess of liabilities over assets does not, per se, establish that a company is unable to pay its debts, all the material before me tends to establish that Qintex Ltd is in that position. Mr Putland's affidavit makes no reference to the company's ability to pay its debts or the value of its shares. There is the undisputed indebtedness to Tricontinental Ltd in the sum of $69,500,000 and interest. There is the uncontradicted affidavit evidence of Mr Charlton of indebtedness to Pepym in the sum of $430,563. There is the uncontradicted evidence of indebtedness by way of financing contribution under the Output Deal in the sum of $US4,598,230. There is the evidence I referred to earlier with respect to the value of the shares of Qintex Australia Ltd and its impact on the value of the assets of Qintex Ltd as disclosed in the 1988 balance sheet. Finally, there is the uncontradicted evidence of Mr Charlton, to which I will refer later, that in June 1990 the managing director of Qintex Ltd told him that the company had no money. With respect to that, In re Flagstaff Silver Mining Company of Utah (1875) 20 LR (Eq) 268 is authority for the proposition that the admission by Mr Skase is evidence that the company is unable to pay its debts. Leaving aside the failure to comply with the statutory demand, all of the other matters I have just referred to are evidence that Qintex Ltd is unable to pay its debts. In Re Globe New Patent Ion & Steel Co (1875) 20 LR (Eq) 337, applied in Cornhill Ins PLC v Improvement Services Ltd [1986] 1 WLR 114 at p117, it was held that evidence of failure to pay debts is evidence of inability to pay debts. See also Southern Steel Suppliers Pty Ltd v Utility Brute Trailers Pty Ltd (1984) 2 ACLC 686 at p687. The evidence before me discloses that there has been a failure to pay substantial debts over a considerable period of time and there is no evidence to explain that failure. I conclude that it is likely that on the hearing of the petition the petitioner will make out the ground relied upon for the order sought.

1. In Mann v Goldstein (supra) Ungoed–Thomas J considered at p1097 et seq what course a court should take when the petitioning creditor's debt is disputed "on some substantial ground", but it appears that in any event the company is unable to pay its debts. His Honour concluded (p1099) that the establishment of creditor status was a prerequisite to the commencement of proceedings. Thus, even if a company was unable to pay its debts, a bona fide dispute about the petitioner's status should be established by proceedings in a Court of competent jurisdiction and meantime, proceedings on a petition should be restrained. Megarry J adopted the same approach in Re Lympne Investments Ltd [1972] 2 All ER 385. His Honour found that "it seems quite plain that there is a bona fide dispute whether there is any debt at all, and that this dispute is not trivial or insubstantial but is based on solid grounds" (p388). See also Cornhill Insurance PLC v Improvement Services Ltd & Ors (supra). It is clear that the court has jurisdiction to try the issue of indebtedness on the hearing of the petition. See Yassim v Australian Mid–Eastern ClubLtd (1989) 15 ACLR 449. However, it has a discretion in an appropriate case not to do so. The question is whether there is material before me to conclude that there is a bona fide dispute, based on solid grounds, that Pepym is a creditor of Qintex Ltd.

1. Other than Pepym's consent to the order setting aside the judgment there is no evidence of disputed indebtedness at all let alone a bona fide or substantial dispute. In support of the application for this order, a long affidavit by Mr Charlton was read. In it he set out in great detail the circumstances and documentation which led to the making of the contract with Qintex Ltd By paragraph 13 he deposed:

"Mr Skase told me during the discussions held between April 1985 and July 1985 that any agreement that might be reached would be made between the company and Qintex Limited, notwithstanding that services might be provided for the benefit of other companies within the Qintex Group on behalf of Qintex Limited."

1. Mr Charlton also deposed that all the negotiations which led to the agreement were conducted with Mr Skase and subsequently, on almost all occasions, instructions for work to be done were given him by Mr Skase. He annexed invoices for work done which were addressed to Qintex Ltd. He also annexed letters of demand for payment. Initially they were unanswered. Finally, Mr Skase wrote to Mr Charlton in the following terms:

"Pursuant to your request, I confirm that you have always invoiced Qintex Limited for services provided by Charlton and Charlton as a matter of administrative convenience to your company.

I further confirm that your services have all related to the business activities of the Qintex Australia Limited Group, including Qintex Australia Limited and subsidiaries.

In respect to the unpaid invoices from 1 May to 31 October, I confirm that all invoices related to work carried out for Qintex Australia Limited (Corporate and MGM), the Australian Television Network, and Mirage, and that no work during this period was undertaken for Qintex Limited."

1. In the light of all the other evidence, that letter could hardly be said to raise a substantial or bona fide dispute that Qintex Ltd is not a debtor of Pepym. The penultimate paragraph of Mr Charlton's affidavit reads:

"In June 1990 I met Mr Skase in London, England at the Sheraton Park Tower Hotel. During this meeting we discussed the amount owed by Qintex Limited to the company. During this discussion Mr Skase said to me words to the following effect:

'Peter, I would like to pay you but Qintex Limited has no money. I suggest you make a claim against Qintex Australia Limited.'

I said to Mr Skase words to the following effect:

'Christopher, we all know Qintex Australia Ltd has no money either'."

1. That affidavit and Mr Charlton's affidavit verifying the petition is the only evidence concerning the issue of indebtedness to Pepym. For the reasons expressed earlier, I do not consider that the consent to the order setting aside the judgment indicates the existence of a substantial or bona fide dispute. On 23 February 1990 the s364 notice was served on the company and no part of the sum therein demanded has been paid.

1. Accordingly I conclude, on the uncontested material before me, that it is likely that on the hearing of the petition Pepym will establish status as a petitioning creditor and that Qintex Ltd is unable to pay its debts.

The Appointment of a Provisional Liquidator – General Discretion

1. Once the "threshold test" is resolved in favour of an applicant, whether the Court will make an order appointing a provisional liquidator will depend on the commercial realities and the circumstances of each case. That this is so is apparent from the following passage in Re Club MediterraneanPty Ltd (1975) 11 SASR 481 at p484:

"Where the petitioning creditor makes the application and the company opposes it the Court must come to a conclusion as to the degree of urgency and of need established by the petitioning creditor and the balance of convenience. The circumstances will vary. Sometimes the company may be continuing to trade at a loss or to incur further liabilities. Sometimes assets may require to be protected from dissipation or from seizure or encumbrance. Sometimes the right of the company to assets or the right to exercise an option, enforce a contract, reject a claim or otherwise to act for the apparent benefit of the company may be in issue and the issue may need to be resolved or carried forward or rights may need to be protected as a matter of urgency. Sometimes the company may be paralysed by a dispute between shareholders or directors, or by some form of interim court order. Sometimes there may be a conflict of interests between a director or principal officer of the company and the company itself with regard to some right of property and that conflict may render it difficult for the company's rights to receive proper protection.

I have not tried to compile an exhaustive list; commercial affairs are infinitely various. My general observations have been made at the specific request of counsel."

1. In Re Union Accident Insurance Co Ltd [1972] 1 All ER 1105, it was held that the appointment would be made if it was in the public interest to do so. In Re Lockyer Valley Fresh Foods Co–operative Association Ltd; Pitt v Bachmann & Anor (1980) 5 ACLR 282 Kelly J (with whose reasons the other members of the Court concurred) referred with approval to the passage from Re Club Mediterranean cited above and said at p288:

"In my opinion from a consideration of the statements to which I have referred it would be correct to say that the purpose for which a provisional liquidator is usually appointed is to preserve the assets of the company pending the hearing of a winding up petition and to maintain the status quo, but that there may be other circumstances which would justify the appointment. However, what must be kept in mind is that the power of the court to appoint a provisional liquidator is in no way limited and it has a wide discretion."

See also Re McClennan Holdings Pty Ltd (supra); Re Highfield Commodities Ltd [1984] 3 All ER 884.

1. Urgency and/or insolvency are relevant matters but not decisive. See Re Club Mediterranean (supra) at p484. On this application, on behalf of the applicant Lorimar, it was submitted that there were a number of reasons for making the appointment. Most of them can perhaps conveniently be grouped under the heading "public interest".

1For nearly a year trading in the company's shares has been suspended because the directors have failed to satisfactorily respond to the Brisbane Stock Exchange's request for information on matters which led to the suspension.

2The company is unable to act because, since 28 December 1989, the number of directors is less than that required by the articles of association for a quorum necessary to conduct the business of the company.

3Of the two remaining directors one has reached the age of 72 years and there is no evidence of his reappointment in accordance with the provisions of the Code, s226.

4There is no secretary who ordinarily resides in this State and the company is unable to rectify this situation.

5The company has not caused to be made a profit and loss account as is required by the provisions of the Code, s269.

6The directors of the company have not made a report as is required by s270. The company has not held a general meeting as is required by s240.

7The company is unable to affix its common seal to any document.

8The company's major asset is its shareholding in Qintex Australia Ltd and trading in the shares of this company have been suspended since 23 October 1989 and a receiver has been appointed.

1. Although all the foregoing are relevant matters to take into account in the exercise of the discretion to make the order sought, the fundamental position of Lorimar was that there is a substantial contract between it and Qintex Ltd. According to its terms, this contract remains current until 1 August 1993. There is already due and unpaid a sum in excess of $US4.5 million for financing contributions. A new contract for the supply of Lorimar product has been negotiated but its implementation is entirely dependent on Qintex Ltd affixing its seal to a deed of release extinguishing the further obligations of both parties to the Output Deal. During the negotiations Mr Campbell (who negotiated the Output Deal in the first place) gave every indication that Qintex Ltd would execute the deed of release. However, as there are insufficient directors to affix the company seal to any document, this cannot presently be done. The Output Deal is a substantial contract. It imposes obligations and confers benefits on Qintex Ltd. It does not expire until 1 August 1993. It forms a not inconsiderable part of the company's undertaking. In the absence of a provisional liquidator there is no one with whom Lorimar can deal with respect to the future of this contract. In view of this circumstance and in view of the matters I have grouped under the heading of public interest, should a provisional liquidator be appointed? Proceedings on the petition have been stayed and it now appears unlikely that the appeal to the Full Court will be heard until Fourth Term which commences on 29 October 1990. If there were nothing more it would seem appropriate in all the circumstances to make the appointment. However, there is more.

1. Tricontinental opposes this application. The argument on its behalf has strength and simplicity. The rights of Qintex Ltd under the Output Deal, together with the rest of the company's property, assets and undertaking now vest in the agent in possession appointed pursuant to the terms of the mortgage debenture. It was submitted that there is therefore no need for the appointment of a provisional liquidator. The assets are safe from dissipation in the hands of the company and, a provisional liquidator could not execute the deed of release without the consent of Tricontinental.

1. The terms of the debenture mortgage give Tricontinental's agent in possession power to carry on the business of Qintex Ltd but there was no evidence before me  that he is or intends to do so. As was submitted on behalf of Lorimar, the agent's obligation is to Tricontinental and his interests therefore do not necessarily coincide with those of a provisional liquidator. However, a court will not appoint a provisional liquidator simply because it is asked to do so. Consideration must be given to the balance of convenience (Re Club Mediterranean (supra)) and there must be some real task that he can and should perform (Re Brylyn No  2, (supra) at p706). I adopt the following passage from Brylyn No 2 at p707:

   "The second point raised by counsel for the respondent has caused the greatest difficulty, namely whether any good purpose exists for the appointment of a provisional liquidator of this trustee company on the ground that there was in fact nothing useful for him to do. The role of a provisional liquidator is traditionally to preserve the status quo until the hearing and determination of the application to wind up. Subject to an order of the court he may exercise all or any of the powers contained in s 377(a) to (k). See r 61 which also gives him the power to carry on the business of the company. He has the power to bring and defend actions and also to sell or otherwise dispose of, in any manner, all or any part of the property of the company.

   It is true that a provisional liquidator is not appointed for the asking. There must be good reason such as urgency, or unusual circumstances such as danger to assets, lack of control, deadlock, or some public interest element for his appointment and there must be something for him usefully to do. The attempt [sic] will also involve costs which ought not to be thrown away: Re McClennan Holdings Pty Ltd, supra, at ACLR 741; ACLC 793; Re Johannesburg Land and Gold Trust Co [1892] 1 Ch 583 per Chitty J at 589–90; Re Clearwater Pty Ltd, supra; Re Union Accident Insurance Co Ltd. [1972] 1 All ER 1105."

2. On careful consideration I have come to the conclusion that a provisional liquidator should be appointed notwithstanding that all the assets, property and undertaking of the company are vested in the agent in possession. A provisional liquidator will be concerned with  the obligations of Qintex Ltd as well as the benefits under the contract. The present dead–locked stage of the negotiations concerning the Output Deal demonstrate the need for the appointment of a person who is authorised, subject to the rights of the agent in possession, to bring those negotiations to finality as soon as possible. Subject to the rights of Tricontinental a provisional liquidator will have the authority to speak and act for a public company which is presently unable to speak or act (except in a general meeting). Although he will be unable to deal with the assets of the company except with the consent of the agent, his concern will be for the company and not for the debenture holder alone. There is no material before me to indicate what view the agent has adopted, if any, with respect to the mutual unperformed obligations under the Output Deal. Tricontinental is not a party to that contract. It has no concern for the other creditors or shareholders of the company. Further, unlike the agent, a provisional liquidator will be responsible to the Court and subject to its control in the proper discharge of his obligations. It was not submitted that the appointment of a provisional liquidator would inconvenience the agent in the performance of his obligations to Tricontinental Ltd, simply that such an appointment was unnecessary. That argument may have carried more weight had the Court been informed by the agent of the present position with respect to the property assets and undertaking of the company and his plans for their future management.

1. Accordingly, I conclude, for the reasons set out earlier, that this is an appropriate case for the order of appointment and that, in the circumstances, the appointment of the agent in possession is not a sufficiently compelling matter to outweigh those reasons.

1. There will be an order that Ian Douglas Ferrier of 55 York Street, Sydney, Chartered Accountant, be appointed provisional liquidator. I will hear counsel with respect to any terms of the order.