In the matter of ACN 003 671 387 and ACN 008 664 257

[2004] NSWSC 368

Reported Decision: 49 ACSR 443
(2004) 22 ACLC 901

Supreme Court

CITATION:	In the matter of ACN 003 671 387 and ACN 008 664 257 [2004] NSWSC 368
HEARING DATE(S):	23 March & 19 April 2004
JUDGMENT DATE:	4 May 2004
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Leave granted to enter into transactions; order for termination of winding up.
CATCHWORDS:	CORPORATIONS - winding up - liquidator seeks leave to enter into transaction for his personal benefit - source of power to grant leave - whether leave should be granted - whether winding up should be terminated
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 182, 183, 482 Supreme Court Rules, Pt 1 r 8 Supreme Court (Corporations) Rules, r 7.10
CASES CITED:	Boardman v Phipps [1967] 2 AC 46 Brolrik Pty Ltd v Sambah Holdings Pty Ltd (2001) 40 ACSR 361 Christie v Edwards [1939] 1 DLR 158 Commissioner for the Corporate Affairs v Harvey [1980] VR 669 Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167 Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Re Chevron Furnishers Pty Ltd (1994) 12 ACSR 565 Re GK Pty Ltd (in liq); ex parte Deputy Commissioner of Taxation (1983) 1 ACLC 848 Thomas Franklin v Cameron (1935) 36 SR(NSW) 286
PARTIES :	4595/01 ACN 003 671 387 Pty Ltd (In liq) (P) 4596/01 ACN 008 664 257 Pty Ltd (In liq) (P)
FILE NUMBER(S):	SC 4595/01, 4596/01
COUNSEL:	R J Weber SC (P)
SOLICITORS:	DMAW Lawyers (Adelaide) by their agents Aitken McLachlan Thorpe (P)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

TUESDAY 4 MAY 2004

4595/01 IN THE MATTER OF ACN 003 671 387 PTY LTD (IN LIQUIDATION)
4596/01 IN THE MATTER OF ACN 008 664 257 PTY LTD (IN LIQUIDATION)

JUDGMENT

1 HIS HONOUR: These are unusual applications, made by the liquidator of two companies formerly called, respectively, White Mining Ltd and White Mining (QLD) Pty Ltd and then Mackay Mining Services Ltd and Mackay Mining (QLD) Pty Ltd, and now known by their ACN numbers. The evidence refers to the two companies respectively as ACN 003 and ACN 008, and for convenience I shall do likewise. Their liquidator, Mr Sheahan, seeks an order in each case granting him leave to cause the trustee of his firm's service trust to enter into a share sale deed by which it would purchase the issued capital of the two companies for the benefit of Mr Sheahan's firm. The applications also seek orders for termination of the winding up of the companies.

The joint venture

2 In the early 1990s ACN 003 formed a joint venture with Sumisho Coal Development Pty Ltd ("SCD"), which is a subsidiary in the Sumitomo group, to conduct a mining operation in Queensland known as the North Goonyella Coal Mine. ACN 003, which had established mining experience, held a 51% interest, and SCD, which provided equity, held a 49% interest. ACN 008 was a wholly-owned subsidiary of ACN 003 and the vehicle through which ACN 003 held its interest in the joint venture. Another subsidiary of ACN 003, which I shall call NGCM, employed the workers and entered into equipment contracts. A subsidiary owned by the venturers in proportion to the joint venture shares, which I shall call NGCP, was the leaseholder of the mining lease and marketed the coal on behalf of the joint venturers. It sub-leased the mine, and passed the net proceeds of sale, to the joint venturers in proportion to their respective interests.

3 In-seam development started in 1993, and the first export sales were made later that year. Longwall mining operations commenced in 1994. In 1993 ACN 003, apparently acting as agent for SCD and ACN 008 which owned the joint venture assets, purchased an integrated longwall mining system from a UK company now known as Longwall Roof Supports Ltd.

4 In 1997 there were changes to the ownership and operation of the mine. SCD acquired all of the shares in ACN 003. From that time ACN 003 has been a wholly-owned subsidiary of SCD, with ACN 008 remaining a wholly-owned subsidiary of ACN 003.

Problems with LW5S

5 The coal deposits at the mine were mined in panels including Longwall 5 South ("LW5S"), the mining of which commenced in 1998. The longwall mining unit at the coal face in LW5S included 146 roof supports across about 260 m. During the period from November 1998 to June 1999 there were four major roof falls in LW5S, which resulted in equipment damage and interruption to mine production.

6 On 25 September 1999 there was a spontaneous combustion incident in LW5S, assessed as caused by an increase in dangerous gas levels and heating. The mine manager, external consultants and a Department of Mines and Energy inspector consulted and concluded that the whole of the mine could be jeopardised unless the supply of oxygen (fuelling the spontaneous combustion) was cut off by sealing the mine face in LW5S. LW5S was therefore sealed off. The majority of the equipment constituting the longwall unit is now permanently sealed within LW5S.

The Claims

7 It is possible that the roof falls and spontaneous combustion incident may have given rise to an entitlement to recover damages for breach of contract or breach of duty of care from Longwall Support Systems (or its subsidiaries or agents), and perhaps to entitlements against others such as the insurance broker, and to entitlements to recovery under insurance policies for the mine. I shall refer to these possible claims as "the Claims".

8 An industrial special risks insurance policy for $25 million was in force for the period from September 1998 to September 1999, insuring ACN 003, ACN 008, SCD, NGCM and NGCP. The lead insurer was the HIH Insurance Group with 32% of the risk. There were additional excess policies providing cover of a further $225 million, HIH having approximately the same percentage of the risk. A formal consolidated claim in respect of some of the roof falls and the spontaneous combustion incident was eventually submitted on 7 March 2001, for a total amount in the order of $81,097,632, after a detailed calculation of loss was submitted to SCD by Deloitte Touche Tohmatsu.

9 Proceedings were taken by ACN 003, and by ACN 008 and SCD, against Longwall Roof Supports Ltd in the Supreme Court of Queensland in the year 2000, but those claims have been discontinued.

Sale of the mining operations

10 In November 2000 SCD sold its interest in the mining operations to a third party. This transaction involved the sale of the 51% joint venture interest held by ACN 003 through ACN 008, as well as the 49% equity held directly by SCD. ACN 003 sold all of the shares in NGCM, and SCD and ACN 003 sold all of the shares in NGCP. Clause 11 of the contract of sale expressly excluded from the assets sold certain listed insurance claims relating to the roof falls, and the interests of ACN 008, ACN 003 and SCD in longwall equipment lost as a result of an incident subject to an insurance claim. In November 2000 SCD advertised the insurance claims for sale in the Australian Financial Review, but no favourable responses were received.

Liquidation of the companies

11 Mr Sheahan's firm was engaged by SCD in February 2001 to provide litigation management services to support the prosecution of the Claims, and to advise on the possible winding up of ACN 003 and ACN 008. Subsequently on 18 October 2001 orders were made by this Court on the application of Sumitomo Australia Ltd for the winding up of the two companies and for the appointment of Mr Sheahan as their liquidator.

12 In his affidavit, Mr Sheahan said he caused a balance sheet to be prepared for each of the companies as at 18 October 2001, and he purported to identify the balance sheets as an annexure to an exhibit to his affidavit. Regrettably, the relevant annexure is blank. However, the evidence includes reports as to affairs provided by Mr Hashimoto, a director of both companies, made on 7 November 2001. According to those reports:

· the only significant asset of ACN 003 (apart from a small amount of GST receivable) was a debt of $27,748 owed by ACN 008;

· ACN 003's investment in its subsidiary, ACN 008, of $169,380,123 was valueless;

· SCD was an unsecured creditor of ACN 003 for $1,993,362, and there were no other liabilities;

· the only asset of ACN 008 was a debt of $10,563,897 owing to it by SCD, estimated by Mr Hashimoto to be realisable for $1, because (he said) "debtor in major net asset deficiency";

· the only liabilities of ACN 008 were unsecured creditors, namely ACN 003 for $27,748 and SCD for $15,000.

13 It appears from his affidavit that Mr Sheahan has accepted these figures, although he points out that the two companies have choses in action, being the Claims, not identified in the report as to affairs. He says in his affidavit that he has examined relevant books and records of the companies and SCD, has had discussions with officers and personnel of the companies, and with consultants to the companies including legal advisers, and has satisfied himself that the sole creditor of ACN 003 was SCD and that the only creditors of ACN 008 were ACN 003 and SCD.

Liquidator's endeavours to pursue the Claims

14 Mr Sheahan says that when he was appointed liquidator, he had no funds to pursue any of the Claims. In January 2002 Mr Sheahan's firm's agreement with SCD for the provision of litigation management to pursue the Claims was terminated, and SCD informed him that as the sole creditor and shareholder of ACN 003, it had no intention of making funds available to pursue any of the Claims.

15 Over the following 12 month period, Mr Sheahan investigated the possibility of obtaining litigation funding, to enable the two companies to pursue the Claims. The evidence includes a long file note by Cameron Lockett, who is apparently an employee of Mr Sheahan's firm, summarising Mr Sheahan's attempts to obtain litigation funding from nine potential sources, without success. It is unnecessary to set out the evidence here. Although it would have been preferable for that evidence to be given on affidavit, I am satisfied that substantial endeavours were made by Mr Sheahan, with proper disclosure, to obtain litigation funding, and that those attempts were unsuccessful.

16 Mr Sheahan has also given evidence that, during the same 12 month period, he has investigated the sale of the Claims or of the two companies to a third party. He says that many of the discussions he had with third parties came to nothing, and of the expressions of interest received, none was acceptable to SCD.

17 Mr Sheahan says that his firm has accumulated fees and disbursements owing to it of $705,000 for work with respect to the two companies during the liquidation. He says that if the winding up of the two companies is terminated, his firm will write off these fees and forgive the debt owed by the companies in relation to them.

Negotiation of the share sale deeds, and disclosure by Mr Sheahan

18 In February 2003, having regard to Mr Sheahan's lack of success in finding third party assistance, SCD told him that if the sale of the companies for an upfront sum could not be negotiated, SCD would not pursue the Claims, and would finalise the winding up of the companies and have them deregistered. In March 2003, Mr Sheahan entered into discussions with Michael Cramsie, a consultant to SCD, regarding the possible sale by SCD of the shares in the two companies to Delamere Corporation Pty Ltd ("Delamere"), so that the Claims could be pursued, in effect, by Mr Sheahan for his firm's benefit. Mr Sheahan is a director of Delamere, the trustee of the Sheahan Services Trust, which is the service trust for Mr Sheahan's firm.

19 Mr Sheahan deposes that he has disclosed to SCD, on an ongoing basis, all facts within his knowledge that he considers to be material to the Claims, so that SCD can make an informed decision as to whether to sell the Claims to Delamere, and if so, as to the terms of the sale. The evidence before me includes a disclosure memorandum and covering letter, sent by Mr Sheahan to SCD on 22 May 2003. Mr Sheahan says the memorandum contains all material facts relating to the Claims known to him at that time.

20 The document sets out details concerning the nature of the Claims and the relevant facts, refers to the effect of legal advice received, and states Mr Sheahan's views, based on these materials, as to the prospects of success. It appears on its face to be a thorough document. Mr Sheahan says it was a confidential communication between him and SCD and requests that it be kept confidential. I shall make a confidentiality order. Mr Sheahan recommended to SCD that it continue to prosecute the Claims, rather than disposing of them, but SCD obtained its own advice regarding taxation and structural issues, and has decided to proceed with the sale of the Claims.

21 On 23 May 2003 Delamere granted to SCD an option to put the shares in the two companies to it, but subsequently SCD's solicitors indicated that SCD did not want to proceed with a transaction structured in that way and would not be exercising the option. This then led to negotiation of two share sale deeds.

22 Since the disclosure memorandum of 22 May 2003, Mr Sheahan has received two further legal advices regarding the insurance claims; namely an opinion from Mr Robert McDougall QC (as his Honour then was) and a further advice from Mr Keane QC. Although these opinions are not in evidence, Mr Sheahan says he sent copies of them to Mr Cramsie in July and August 2003. Mr Cramsie informed Mr Sheahan by e-mail in response to each of the opinions that SCD was still not interested in pursuing any of the Claims. Mr Sheahan has asked that this correspondence, which is in evidence (apart from the opinions), be kept confidential and I shall make an order accordingly.

23 By letter dated 9 March 2004, the HIH Claims Support Scheme administrator advised Mr Sheahan that ACN 008 has been accepted as eligible for assistance under the Scheme in relation to each of the insurance claims. Mr Sheahan has transmitted this information to Mr Cramsie, who has informed him that, despite this development, SCD wishes to proceed with the sale of the companies.

24 The position of SCD is confirmed by an affidavit of Mr Aoyama, a director of SCD. Mr Aoyama says he has read Mr Sheahan's affidavit and confirms that SCD is satisfied that Mr Sheahan has made full disclosure of all relevant matters regarding the Claims. Mr Aoyama says that as the sole shareholder and creditor of the two companies, SCD wishes to proceed with the sale of the shares on the terms described in Mr Sheahan's affidavit, as soon as possible.

The share sale deeds

25 The evidence includes undated share sale deeds, the first of which is only partially executed and (as I have said) apparently incomplete. The first deed, which Mr Sheahan says was entered into on 30 December 2003, relates to the sale of 10% of SCD's shareholding in each of the two companies to Delamere for $40,000. The second, which according to Mr Sheahan was entered into on 23 March 2004, relates to the sale of the remaining 90% of the shares for $360,000.

26 Each of them is subject to a condition that completion must not occur until the vendor (sic) has obtained an order terminating the winding up of the two companies under s 482(1) of the Corporations Act. The deeds contain a warranty by SCD as vendor that the companies have no liabilities other than those identified in their balance sheets, and a warranty by Delamere as purchaser that full disclosure has been made to SCD of information known to the purchaser, Mr Sheahan and his firm relevant to the strength of the Claims.

27 The deed for the sale of the first 10% contains some additional provisions. By clause 9.1, SCD as vendor and beneficial owner of all the issued shares in the companies assigns to ACN 008 all of its rights in relation to the Claims. By clause 11, SCD as vendor releases the two companies from their respective liabilities to repay all amounts owing by the companies to it. This clause evidently encompasses the $1,993,362 owing by ACN 003 to SCD, and the $15,000 owing by ACN 008 to SCD. By clause 12, the companies (by Delamere as their agent) release SCD from all claims either of them may have against it. This would encompass the debt of $10,563,897 owing to ACN 008 by SCD, which Mr Hashimoto said was of nominal value.

28 Clause 10.6 of the second deed is a mutual release by the vendor and the companies of all claims that each may have against the others. As well as having the effect of confirming the release (in the earlier deed) of the debts owing by ACN 003 and ACN 008 to SCD, and the debt owing by SCD to ACN 008, this would appear to operate as a release of the debt of $27,748 owed by ACN 008 to ACN 003. Consequently, by virtue of the combined operation of the two share sale deeds, the two companies have ceased to have any debts and (apart from the Claims) any assets.

29 The results apparently intended to be achieved by these release clauses in the two share sale deeds have been reinforced by two deed polls executed by Mr Sheahan.

30 Mr Sheahan has executed on behalf of ACN 008 an undated deed poll (which he says was executed on 30 December 2003), by which ACN 008 agrees to release and discharge SCD from its liability to pay all moneys (including accrued interest) outstanding at the date of the deed poll. This appears to encompass the debt of $10,563,897, plus any interest. Apparently it covers ground also covered by clause 12 of the first share sale deed. At some unspecified time in 2003 the directors of SCD resolved, pursuant to s 477(2A) of the Corporations Act, that SCD as the only creditor of ACN 008 approved ACN 008 entering into a deed under which the debt of $10,563,897 owed to SCD would be forgiven.

31 Mr Sheahan has executed another undated deed poll (which he says was executed on 30 December 2003) by which ACN 003 agrees to release and discharge ACN 008 from its liability to repay all moneys owing by ACN 008 to ACN 003. This appears to encompass the $27,748 owed by ACN 008 to ACN 003, and therefore covers some of the ground covered by clause 10.6 of the second share sale deed. On 23 December 2003 the directors of SCD resolved, pursuant to s 477(2A), that SCD as the only creditor of ACN 003 approved ACN 003 entering into a deed under which the debt of $27,748 owed by ACN 008 would be forgiven.

Termination of the winding up - evidence

32 Mr Sheahan says that, by virtue of the releases summarised above, the two companies now have no liabilities other than for his firm's fees and disbursements, and their only assets are the Claims. He has advertised for proofs of debt for the companies and has received no proofs in response.

33 He says that his firm will forgive the companies their liability for fees and disbursements once the winding up of the companies is terminated. When that happens and the share sale deeds are completed, Mr Sheahan and his colleagues will become the directors of the companies and they will be in a position to pursue the Claims for the benefit of Delamere. He says the companies are not currently trading, and they will not trade after termination of the winding up, except to pursue the Claims. He says Delamere intends to use its own resources to provide funds for that purpose, or to recapitalise the companies.

The application for leave to enter into the share sale deeds

34 Mr Sheahan applies for leave to enter into the share sale deeds, nunc pro tunc. I am not concerned that the court has been approached after the making of the agreements, given that settlement is expressed to be conditional on a court order, the application for which necessarily raises the issue of self-dealing: Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167. The application raises for consideration two separate duties of a court-appointed liquidator, namely the fiduciary duty (and perhaps the special “purchasing rule”), and the duty to the court.

35 A court-appointed liquidator occupies a fiduciary position with respect to his or her administration of the assets of the company in liquidation: Thomas Franklin v Cameron (1935) 36 SR(NSW) 286, 296; Commissioner for the Corporate Affairs v Harvey [1980] VR 669, 691, 695. As a fiduciary, the liquidator is subject to the general obligation to avoid being in a position in which his or her duty conflicts (or there is a real sensible possibility that it may conflict) with personal interest: Boardman v Phipps [1967] 2 AC 46; Re GK Pty Ltd (in liq); ex parte Deputy Commissioner of Taxation (1983) 1 ACLC 848, 853. The fiduciary may be exonerated from a breach of duty by obtaining the fully informed consent of the principal: Queensland Mines Ltd v Hudson (1978) 18 ALR 1; Christie v Edwards [1939] 1 DLR 158; affd [1940] SCR 410.

36 In addition, at least some classes of fiduciaries are subject to a special purchasing rule, which prohibits the fiduciary, when acting as such, from purchasing property from his or her principal unless the fiduciary can show that the transaction is fair: that is, that full value is given for the property, and all material information is disclosed to the principal before the transaction is effectuated: PD Finn, Fiduciary Obligations (1977) pp 169-170, 223. If fairness is not demonstrated, the transaction is void in equity and will be set aside at the suit of the principal, and the property will be restored to the principal.

37 Strictly speaking, the purchasing rule applies only to the acquisition of the principal's assets. Here, Mr Sheahan does not propose to acquire assets directly from the companies but, instead, to acquire the companies' assets indirectly by purchasing all of the shares in both companies. There are, however, some ancillary transactions involving the companies directly, namely the releases which clean up the companies' balance sheets prior to termination of their winding up. It is not necessary for me to decide whether the whole transaction reflected in the share sale deeds and the releases is subject to the purchasing rule, or only to the more general fiduciary rule. The difference between the rules appears to be that in the case of a purchase, the fiduciary must demonstrate that he or she has provided full value for the principal's assets, as well as fully informed consent. Here there is detailed evidence, principally in Mr Lockett's file note, of the various proposals made for litigation funding, and rejected by SCD. The proposal made by Mr Sheahan, and accepted by SCD with commercial and legal advice, is obviously regarded by SCD, and appears objectively to be, better than any of the other proposals that have been put forward. This, it seems to me, constitutes evidence of full value for the purpose of the purchasing rule. The remaining question, whether the purchasing rule or the general fiduciary rule applies, is whether there has been fully informed consent.

38 In the case of a court-appointed liquidator, the beneficiary of the duty is, technically speaking, the company, but the company is in no position to make a fully informed decision to enter into or reject the transaction, because the directors and officers of the company are precluded, unless the court approves, from exercising any of their functions or powers: Corporations Act, 2001 (Cth), s 471A. Although there appears to be no direct authority in point, it would be logical to say that for the purposes of the purchasing rule, fully informed consent given by the creditors and contributories to a proposed purchase by the liquidator will suffice. Whether, if the winding up is in insolvency, fully informed consent of the creditors alone will be sufficient, and whether the consent must, in either case, be unanimous, are matters I do not have to decide, for here there is only one creditor which is also the sole shareholder, and it fully supports the transaction.

39 A court-appointed liquidator is commonly regarded as an officer of the court: see AR Keay, McPherson's Law of Company Liquidation (4th ed, 1999), p 287 and cases there cited. The liquidator's precise status is unclear in New South Wales, because the general definition provision of the Supreme Court Rules (Part 1 rule 8) states that unless the context or subject matter otherwise indicates or requires, "officer of the Court" does not include a liquidator. On the other hand, rule 7.10 of the Supreme Court (Corporations) Rules 1999 expressly refers to a liquidator "appointed by the Court as an officer of the Court and subject to the control the Court", suggesting that a court-appointed liquidator is an officer of the court for Corporations Act purposes, notwithstanding the definition in Part 1 rule 8. It seems to me that, when it comes to the liquidator's duty to avoid conflicts of interest, the “context otherwise requires” and therefore the liquidator should be treated as an officer of the court. This leads to the question, is the liquidator under a duty to the court to avoid conflicts of interest in the administration of the company?

40 In some jurisdictions there are rules of court dealing expressly with transactions between a liquidator and the company in liquidation. For example, the former English rules, the Companies (Winding-up) Rules 1949 (UK), rule 161 prevented a liquidator from directly or indirectly becoming purchaser of any part of the company's assets, without the leave of the court: see McPherson, p 293. The rule did not purport to relieve the liquidator of any general obligation to obtain the consent of creditors or contributories, but presumably the court was unlikely to act unless that consent had been given.

41 There is no equivalent rule in the Supreme Court (Corporations) Rules of this Court, which are uniform national rules. (I note in passing that, while it has no direct legal significance, the Code of Professional Conduct of the Insolvency Practitioners Association of Australia, principle 7, prohibits an insolvency practitioner from deriving a pecuniary interest from dealing with property which comes under his or her control for the benefit of others, without prior approval of court or the creditors to whom the full facts must be disclosed.) Although a liquidator is an officer of the corporation for the purposes of (inter alia) ss 182 and 183, there is no express requirement of statutory company law for a liquidator to obtain the court's leave in order to purchase assets from the company, or enter into any other transaction with the company or with respect to it, for liquidator's own benefit.

42 Senior counsel for Mr Sheahan referred to a passage from McPherson, p 293, in which it is said that the provisions of the former English rules may be taken to represent the position that prevails under the general law. The learned author does not explain the basis for that assertion, but in my opinion it is supportable by the following reasoning.

43 While there appears to be no direct authority, it seems that a court-appointed liquidator, like a solicitor acting in litigation, owes a duty to the court, in addition to his or her fiduciary duty to the principal, to avoid any undisclosed conflict of interest. In the case of a solicitor, the duty to the court arises from the court's concern that it should have the assistance of independent legal representation for the litigating parties: see Ipp, D, "Lawyers' Duties to the Court", (1998) 114 LQR 63, at 93.

44 By parity of reasoning, a court-appointed liquidator has a general duty to the court to avoid anything that would or might compromise his or her impartiality, which implies a duty not to deal with the company’s assets for his or her own benefit, or otherwise place himself or herself in a position of actual or possible conflict between personal interest and the duties of office. The court-appointed liquidator’s duty is at least as strong as the lawyer’s, and might be even stronger, having regard to the quasi-judicial functions that a liquidator is expected to perform (see, for example, Re Chevron Furnishers Pty Ltd (1994) 12 ACSR 565).

45 Presumably the court, as the beneficiary of this duty, has an inherent power to exonerate the liquidator from performance of the duty, and the exoneration might conveniently take the form of granting leave to the liquidator to enter into the transaction. It is unnecessary to decide whether that leave, if granted in a case where the liquidator has also breached the fiduciary duty, would also absolve the liquidator from breach of fiduciary duty, because in this case the liquidator is protected from breach of fiduciary duty by the consent of his principal.

46 Though the power to exonerate therefore exists, it seems to me that it will only rarely be exercised. The court will be very careful to preserve the integrity of the winding-up procedure.

47 However, on the facts presented by Mr Sheahan, this is one of those rare cases in which exoneration is appropriate. Mr Sheahan has carried out the duties of his office over an extended period, and has expended very considerable effort endeavouring to obtain litigation funding to pursue the Claims on behalf of the companies or to sell the companies or the Claims to a third party. Only after that exhaustive process had proven to be unproductive did he negotiate the acquisition of the companies for his service trust. The vendor/shareholder is part of a large international corporate group and was separately represented in the negotiations. Most importantly, the vendor/shareholder was the only external creditor of the two companies and has released its debts. There is no-one else interested in the winding up of the companies, and the vendor/shareholder not only consents but strongly advocates the transaction.

48 Mr Sheahan's application to the court is made on the basis that he has disclosed to the court all the relevant facts and circumstances surrounding the transaction. My decision to grant leave is based squarely on the completeness of the disclosure.

49 These are difficult issues. After hearing the application it occurred to me that the Australian Securities and Investments Commission, in its role as regulator of liquidators by virtue of the registration requirements of Part 9.2 of the Corporations Act, may have developed some policies with respect to self-dealing by insolvency practitioners, or would otherwise have an interest in assisting the court. In response to my direction that notice of the application be given to ASIC, I received some written submissions dated 1 April 2004. I have to say that these submissions from the regulator are disappointing. The letter makes some observations which do more no more than review the evidence briefly and refer to general fiduciary principles. The letter says that ASIC does not propose to intervene in the proceedings or to appear, and neither consents to nor opposes the orders being sought. I can only infer that ASIC has not yet developed any relevant policy.

Termination of winding up - decision

50 The principles applied by the courts in considering an application to terminate a winding up have been set out, recently, in such cases as Brolrik Pty Ltd v Sambah Holdings Pty Ltd (2001) 40 ACSR 361 and Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70. There is no controversy about them, nor any difficulty in applying them to the present case. Here, the making of the order is in no way inimical to the interests of creditors, contributories, the liquidator or the public generally. On the contrary, termination is strongly supported by SCD, the sole shareholder, which was formerly the only external creditor.

51 The companies will be returned to commercial life without debts and for the single purpose of pursuing the Claims. Mr Sheahan and his colleagues will take direction of the companies for that purpose, and can be expected to ensure that the companies comply with their statutory obligations.

52 I shall therefore make orders for the termination of the winding up of the two companies, effective on the date of the orders.

Conclusions

53 I have decided to make an order granting leave to Mr Sheahan to cause Delamere to enter into or complete the two share sale deeds. I shall also make orders for the termination of the winding up of the two companies. When I do so, the only condition for the completion of the share sale deeds will have been satisfied and there will be no obstacle to completion of the transaction.

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Last Modified: 05/06/2004