In the matter of Austra Constructions Pty Limited

[2015] NSWSC 2102

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Austra Constructions Pty Limited [2015] NSWSC 2102
Hearing dates:	17 August 2015
Date of orders:	17 August 2015
Decision date:	17 August 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Winding up order made; interlocutory process dismissed.
Catchwords:	CORPORATIONS – winding up – liquidators –application for leave by administrators to be appointed as liquidators – appointment of plaintiff’s nominee as starting point – duplication of work in appointing liquidator – where company used voluntary administration to delay inevitable liquidation and to divest assets to related entities – where possible association of administrators with directors may undermine administrators’ independence and impartiality in liquidation; PROCEDURE – costs – whether costs of administrators’ application to be appointed as liquidators to be treated as costs in administration – where administrators did not impugn independence of plaintiff’s nominee – where administrators did not engage in dispute between creditors – reasonableness of application
Legislation Cited:	(CTH) Corporations Act 2001, s 439A, s 532(2) (CTH) Income Tax Assessment Act 1936
Cases Cited:	In the Matter of El Zorro Transport Pty Limited [2013] NSWSC 1082
Category:	Principal judgment
Parties:	Deputy Commissioner of Taxation (plaintiff) Austra Construction Pty Ltd (Administrators Appointed) (defendant)
Representation:	Counsel: K Metlej (solicitor) (plaintiff) C A Hagon (solicitor) (defendant)   Solicitors: Craddock Murray Newumann Lawyers Pty Ltd (plaintiff) McCabes Lawyers (defendant)
File Number(s):	2015/165932

Judgment (ex tempore)

1. HIS HONOUR: By originating process filed on 4 June 2015, the plaintiff the Deputy Commissioner of Taxation seeks an order that the first defendant company Austra Construction Pty Limited be wound up and a liquidator appointed. The plaintiff proposes as liquidator Robyn Duggan of Ferrier Hodgson, whose consent has been filed. By interlocutory process filed in court by leave today, the administrators of the company seek leave pursuant to (CTH) Corporations Act 2001, s 532(2)(c)(i) to be appointed as liquidators of the company, and that they be appointed its liquidators.

2. The evidence establishes that on 24 March 2015, the plaintiff served on the defendant a creditor's statutory demand, by post addressed to the defendant at its registered office, demanding payment of a sum of $112,021.11, being the running balance account deficit debt as at 24 March 2015 in respect of amounts due under the BAS provisions of the (CTH) Income Tax Assessment Act 1936, together with administrative penalties and the general interest charge. No application was made to set aside or vary the demand, and the demand was not complied with. The company is therefore presumed to be insolvent.

3. The originating process was, as I have said, filed on 4 June 2015. It was served on the defendant on 4 June 2015, together with the supporting affidavit, affidavit of service of the statutory demand and consent of the proposed liquidator. The originating process was first returnable before the Registrar on 7 July 2015. Although I cannot find one on the court file, it appears that on 3 July 2015 the company at least served a notice of grounds of opposition, asserting that it would oppose the application on the ground that it was solvent.

4. When the matter came before the Registrar on 7 July, directions were made that the defendant file and serve any evidence on which it seeks to rely in support of the ground of opposition by 23 July. The defendant did not do so. On 15 July 2015, its sole director resolved to appoint the present administrators as voluntary administrators, thereby further admitting that the company was insolvent. I am satisfied that the defendant is insolvent.

5. The administrators, in their s 439A report of 12 August 2015, prepared in connection then with the proposed second creditor's meeting on 20 August 2015, recommended that the creditors vote against a deed of company arrangement (“DOCA”) proposal, but resolve that the company be wound up. It also emerged that the company had ceased to trade on 30 June 2015, and that on 1 July 2015, after the directors’ first consultation with the administrators, the company disposed of assets to a related entity.

6. The essential question is whether the plaintiff's proposed liquidator should be appointed as liquidator, or whether the administrators should be appointed as liquidators.

7. The starting point, as has often been said in this context, is that all else being equal, the Court appoints the plaintiff's nominee [see, for example, In the Matter of El Zorro Transport Pty Limited [2013] NSWSC 1082 at [5]].

8. There is nothing to be said between the competing nominees in this case as to their respective qualifications or competence. On the evidence before the Court, the plaintiff's nominee will be somewhat more expensive in terms of the hourly charge rate than the current administrators. The administrators have conducted some searches and undertaken some work which would probably need to be duplicated in the event that a new nominee or new liquidator were appointed. The administrators have apparently incurred in the order of $15,000 of remuneration. Much of that must relate to the s 439A report, of which little would be duplicated by a liquidator. It can certainly be accepted that there would be some duplication and that that is a factor, as it usually is, that favours the appointment of the administrators, if there is nothing else working against it.

9. On the other hand, again as I observed in El Zorro (at [10]), this is yet another case in which a manifestly insolvent company has effectively deferred the inevitable by having voluntary administrators appointed after winding up proceedings were commenced, securing an adjournment of the winding up proceedings on a false assertion of solvency while the winding up proceedings were pending, divesting itself of assets to a related entity, and doing so apparently after it had first consulted the voluntary administrators. I make not the slightest imputation against the voluntary administrators, whose s 439A report carries many indicia of impartiality; but to a creditor observing the matter, there would be two concerns: one would be that the voluntary administrators had been consulted before the events of 30 June or 1 July, which are events that will no doubt require investigation, as will the background of any advice that had been sought leading to those events; and secondly, the voluntary administrators have (not at all inappropriately in the context of such an appointment) taken an indemnity from the company's sole director for their fees. In those circumstances, it seems to me that there would be a reasonable apprehension that the voluntary administrators might have an association with the director, which could bear on their judgment in decisions that they would have to make as liquidators.

10. It is for just such reasons that the prima facie position is that administrators, like other officers of a company, are not eligible without the Court's leave to be appointed as liquidators. Where there is a significant saving to be achieved by avoiding duplication of work, that may – if it is consented to by the creditors or is not controversial, or if the appearance of independence remains unimpeached – provide good reason for permitting administrators to be appointed as liquidators. But there is sufficient in this case to think that a reasonable creditor would apprehend, not unreasonably, that the administrators might not be totally independent if appointed.

11. In those circumstances, I am not satisfied that there should be a departure from the general practice of appointing the plaintiff's nominee.

12. The Court orders that:

1. The defendant Austra Construction Pty Ltd be wound up in insolvency.

2. Robyn Duggan of Ferrier Hodgson be appointed liquidator of the defendant.

3. The plaintiff's costs of the proceedings be fixed in the amount of $2,496.91.

4. The interlocutory process filed today be dismissed.

Costs

13. In El Zorro (at [15]), I observed that the administrators had descended into the controversy between the warring camps of creditors, had made submissions impugning the independence and capacity of the nominated liquidator, and had effectively taken their chances on the application as to whether they could displace the ordinary practice of the Court. For those reasons, I concluded that it was inappropriate to make an order that their costs of their application to be appointed as liquidators be treated as costs in the administration.

14. This case is not so extreme. In particular, the administrators did not make submissions impugning the independence and capacity of the plaintiff's nominated liquidator, nor did they descend into a controversy between the warring camps of creditors. As it seems to me, the contention that they put forward was a reasonable position for them to take as one perception of what would bset serve the interests of creditors, although I have ultimately come to disagree with that perception.

15. This is not a case in which I would deprive the administrators of their costs as costs in the administration, and in those circumstances it is not it appropriate to order that the administrators pay the plaintiff's costs.

16. The exhibit to Mr Hagon's affidavit may be returned.

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Decision last updated: 08 September 2016