In the matter of Australian Eco-Retreats Pty Limited (In Liquidation) ACN 002 907 388
[2011] NSWSC 1178
•06 October 2011
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Australian Eco-Retreats Pty Limited (In Liquidation) ACN 002 907 388 [2011] NSWSC 1178 Hearing dates: 4 October 2011 Decision date: 06 October 2011 Jurisdiction: Equity Division - Corporations List Before: Ball J Decision: See paragraph 38 of this judgment
Catchwords: CORPORATIONS - liquidation - termination of winding up under s 482(1) - whether all debts have or will be discharged - no issue of principle Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Nationwide News Pty Ltd v Almona Pty Ltd (1987) 6 ACLC 84
Re Calgary & Edmonton Land Co Ltd (In liq) [1975] 1 All ER 1046.
Re Nature Springs Pty Ltd (In liq) (1994) 13 ACSR 50
Re Skay Fashions Pty Ltd (In Liq) (1986) 10 ACLR 743Category: Principal judgment Parties: Ocean Hotels Pty Ltd (Plaintiff)
Australian Eco-Retreats Pty Limited (In Liquidation) ACN 002 907 388 (Defendant)
Ralph Lawrence Clissold (Applicant)
Marguerite Hackman (Applicant)
Ocean Hotels Pty Ltd (First named Respondent)
Blair Alexander Pleash, Hall Chadwick Chartered Accountants (Second Named Respondent)Representation: Mr A Williams (Solicitor) (Second Named Respondent)
Ms M McCormick (Solicitor) (Second Named Respondent)
Mr JT Svehla (Defendant/Applicants)
Mr I Leong (Defendant/Applicants)
Baker & Borthwick Solicitors (Applicants)
McCormick & Williams Lawyers (Second Named Respondent)
File Number(s): 2011/216811
Judgment
Background
This is an application under s 482(1) of the Corporations Act 2001 (Cth) (the Act ) to terminate the winding up of the defendant ( AER ). The application is brought by Mr Ralph Clissold and his wife, Ms Marguerite Hackman, who together hold all the shares in AER.
Before being placed into liquidation, AER carried on the business of an off-road tour operator. It has operated since 1996. It principally offered multi-day full package 4 wheel drive tours to remote parts of Australia. Ms Hackman is its sole director and Mr Clissold was its operations manager and personally conducted a large number of the tours offered by AER.
One of the offices through which AER has operated is situated in Cairns. That office was run by Mr Clark, who also offered his own tours under the name "Discovery Tours". Under the terms on which that happened, Mr Clark was responsible for all expenses incurred in operating tours out of the Cairns office and paid AER 10 percent of the net profits derived from AER's customers.
An order was made for the winding up of AER on 18 August 2011 on the application of the plaintiff, Ocean Hotels, which operates a hotel in Cairns. The total debt claimed by Ocean Hotels at that time was $13,516.61. The debt was the subject of a judgment in the Magistrate's Court of Queensland and relates to meals provided by Ocean Hotels to tour groups conducted by Mr Clark on his own behalf and on behalf of AER.
According to Mr Clissold, he had agreed that Mr Clark could open an account with Ocean Hotels in AER's name because of Mr Clark's poor credit rating. It appears that the Ocean Hotels' invoices were sent to the Cairns office, but Mr Clark did not pay them and Mr Clissold did not become aware of the outstanding debt until after Ocean Hotels obtained judgment against AER for approximately $12,000. When Mr Clissold became aware of the judgment debt he agreed with Ocean Hotels and Mr Clark that the amount owing was $10,000 and that the debt would be repaid over time and that Mr Clark would pay half of it. Mr Clissold says that he mistakenly believed that, as a result of that agreement, AER was only liable to pay for half the debt. AER paid the first instalment of $2,500, but Mr Clark did not pay the next and, as a result, the whole debt became due.
In early May 2011, Ocean Hotels served a statutory demand on AER.
On 24 May 2011, Mr Clissold wrote to the solicitors acting for Ocean Hotels in which he said that AER would make a second payment of $2,500, but only on condition that Ocean Hotels would seek the balance from Mr Clark. Mr Clissold now accepts that he was not entitled to impose that condition.
Mr Clissold and his wife were overseas when the originating process in these proceedings seeking an order that AER be wound up was served at the registered office of AER. Mr Clissold says that he first became aware that AER had been placed into liquidation when he was advised by Ms Janice Oliver, AER's office manager, that a representative of the liquidator had turned up at AER's office.
Two other pieces of background information are significant.
First, Mr Clissold owns a number of rural properties and has interests in other companies. He estimates that his assets are worth in the order of $9,252,000 and that he has liabilities in the order of $3,124,000 including a loan from Permanent Custodians Limited of approximately $2.5 million. That loan is guaranteed by AER and is secured by a third registered charge over the assets of AER. It appears that Permanent Custodians holds that loan as trustee of a mortgage trust of which ANZ Bank is the manager.
Secondly, on 13 April 2011, Mr Clissold signed a Memorandum of Understanding ( MOU ) with two members of the Gulave Family from Mumbai by which the parties agreed to establish a joint venture to be operated by a company known as CRG International Pty Ltd. I will say something more about the MOU shortly. Broadly, however, the MOU contemplates that Mr Clissold will sell to the joint venture a number of his properties, the joint venture will acquire other properties and AER will become part of the joint venture. The Gulave Family proposed to borrow $2,085,000 in connection with the joint venture from the Commonwealth Bank. One of the conditions of that loan is:
Clients are to have sufficient funds available at settlement held with the Bank to ensure that all associated debts of Ralph Clissold and [AER] are paid in full as per the joint venture agreement. This is to be confirmed by settlement instructions provided by the solicitor and said confirmation is to be satisfactory to the Bank.
In addition, the facility is to be secured by an unlimited guarantee by AER. Obviously, that guarantee cannot be given while AER remains in liquidation. Mr Clissold gave evidence that the business of AER represented a small but essential part of the proposed joint venture.
A number of steps have already been taken to implement the MOU. In particular, CRG has acquired the properties (not from Mr Clissold) for a total price of $2,478,000. The Gulave Family has also made payments to Mr Clissold in connection with the joint venture, although the amount of those payments is not clear from the evidence.
Section 482 of the Act
Section 482(1) of the Act provides:
At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
The application may be made by a creditor or contributory of the company: s 482(1A). In determining whether an order should be made, it is relevant to consider, among other things:
The circumstances in which the company came to be wound up;
- The interests of creditors;
The interest of the public. It is contrary to the public interest to terminate the winding up of a company if, after termination, it would remain insolvent: Re Nature Springs Pty Ltd (In liq) (1994) 13 ACSR 50 at 51 per McLellan CJ. In considering the public interest, the court should also assess the likelihood of the company remaining solvent in the future and the conduct of those who ran the company: Re Skay Fashions Pty Ltd (In Liq) (1986) 10 ACLR 743 at 746 per Tadgell J;
The interest of the liquidator and, in particular, whether the liquidator's remuneration and expenses have been paid or provided for: Nationwide News Pty Ltd v Almona Pty Ltd (1987) 6 ACLC 84;
The interest of contributories and, in particular, whether each member consents to the termination of the winding up: Re Calgary & Edmonton Land Co Ltd (In liq) [1975] 1 All ER 1046.
In this case, the applicants seek an order that the winding up of AER be terminated on the ground that all of the debts owed by AER have been or will be discharged on or shortly after the winding up is terminated with the consequence that AER will have no debts at that time. They do so in order to permit the joint venture to proceed. Consequently, it is necessary to identify all the creditors of AER and to determine whether those creditors have been paid or will be paid as a consequence of what is proposed.
The creditors of AER
The liquidator of AER, Mr Pleash, filed an affidavit in connection with the application. The liquidator neither consents to nor opposes the application, although he has raised a number of issues in relation to it, which I will deal with shortly.
Annexed to the liquidator's affidavit is a list of creditors known to the liquidator. In addition, on 6 September 2011, the liquidator advertised in "The Australian" calling for any additional creditors of the company to lodge proofs of their debts. No additional creditors have come forward. In those circumstances, apart from the creditors referred to by the liquidator, I think it is reasonable to infer that there are no other creditors of AER.
The debts owed by AER may be divided into the following categories:
(a) debts owed to a number of small unsecured creditors;
(b) the debt owed to the petitioning creditor, Ocean Hotels, which is now $18,000;
(c) debts owed to various finance companies in respect of leases of the motor vehicles used in AER's business;
(d) debts owed to entities who have some connection with Mr Clissold;
(e) debts incurred in connection with the liquidation;
(f) a debt of $210,080.82 owed to De Lage Landen Pty Limited ( DLL );
(g) the debt owed by Mr Clissold personally to Permanent Custodians of $2,400,000 which has been guaranteed by AER.
Small unsecured creditors
The small unsecured creditors were owed a total amount of $38,576.33. There is no dispute that those debts have been paid.
Ocean Hotels
On 15 September 2011, Ocean Hotels, Mr Clissold and Ms Hackman entered into a deed of settlement and release by which Mr Clissold and Ms Hackman agreed to pay $18,000 in respect of the amount claimed by Ocean Hotels together with interest on that amount from 30 September 2011. In return, Ocean Hotels agreed that it would not oppose an application to reinstate AER and, upon receipt of the settlement amount, would release AER, Mr Clissold and Ms Hackman from all debts owed to Ocean Hotels. The applicants produced in court a bank cheque for $18,000 made payable to Ocean Hotels. Mr Clissold gave an undertaking to the court through his counsel, Mr Svehla, that, immediately on termination of the winding up, he will hold that bank cheque, and two others to which I will refer shortly, on behalf of the entities to whom they are payable and will forthwith provide those cheques to those entities. Although there is a question of a small amount of interest that may be payable by Mr Clissold and Ms Hackman, I am satisfied that the debt owed to Ocean Hotels will be discharged if the application is granted.
Finance Companies
The following amounts are owed to finance companies in respect of the lease of the motor vehicles:
| Toyota Finance | $15,234.21 |
| BMW Finance | $2,499.02 |
| Westpac Equipment | $48,757.81 |
| St George Finance | $17,000.00 |
The evidence establishes that the amount owed to BMW Finance and St George Finance have already been paid. The applicants brought to court bank cheques made payable to Toyota Finance Ltd and Westpac Equipment Finance Collections for the amounts owing to those entities. I am satisfied that those debts will be paid.
Reasons associated with Mr Clissold
The following amounts are owed to persons associated with Mr Clissold:
| Terry Roberts (past directors fees) | $10,500.00 |
| Baker & Borthwick | $11,500.00 |
| Business and Tax Solutions | $14,150.95 |
| Mr Clissold | $14,900.00 |
In evidence before me (annexure H to Mr Clissold's affidavit sworn on 4 October 2011) was a deed between Mr Clissold, AER, Mr Roberts, Baker & Borthwick, Business and Tax Solutions and Ms Hackman. Under the terms of that deed, Mr Clissold, Ms Roberts, Baker & Borthwick and Business and Tax Solutions agreed to release and forgive AER from each of the debts owed to them immediately upon termination of the winding up order and Mr Clissold agrees to pay the debts owed to those persons or entities. The deed in evidence has been signed by Baker & Borthwick and Business and Tax Solutions, but no other parties.
So far as Mr Roberts is concerned, he apparently is overseas and is not able to sign the deed. However, Mr Clissold gave evidence that Mr Roberts told Mr Clissold that the amount owing to him was $9,200 and that Mr Clissold had paid that amount. That payment was evidenced by a bank statement annexed to Mr Clissold's affidavit.
So far as Mr Clissold is concerned, he gave an irrevocable undertaking to the court through his counsel that he would not seek payment from AER of any amount owing to him or by AER or that might be owing to him by AER as a consequence of payments by him on AER's behalf. I was told by Mr Svehla that the only reason Mr Clissold had not signed the deed was that he had not yet had time to do so.
In order to be effective, the deed must be signed by Mr Clissold since the releases given in favour of AER are conditional on Mr Clissold undertaking to pay the amounts claimed. However, it seems to me that that matter can be dealt with by indicating that a condition of the court making the order is that Mr Clissold execute the deed.
The liquidator ' s fees and disbursements
According to Mr Pleash, he has incurred professional costs up until 29 September 2011 of $53,513.35 of which $33,440.60 has been paid into his firm's trust account, leaving a balance of $20,072.75. In addition, he has incurred disbursements up until 29 September 2011 of $1,795.70, making a total owing to him in respect of his fees and disbursements of $21,868.45. Mr Pleash has also incurred legal fees that are estimated to be $33,594 in respect of these proceedings from 14 September 2011 to 30 September 2011. That amount includes an estimate for the time needed to prepare for and attend the hearing of this application.
Mr Clissold gave evidence that he caused to be paid $60,000 to the trust account of Priest McCarron, the solicitors acting for him in relation to the joint venture, to be held on trust for the liquidator's fees and costs. Priest McCarron have confirmed that firm's receipt of the $60,000.
Mr Williams, who appeared for the liquidator, raised two issues in relation to the payment of the liquidator's fees and costs. First, he pointed out that the acknowledgement of the receipt of the $60,000 from Priest McCarron did not make it clear that the money was held on trust for the payment of the liquidator's fees and his costs. Second, he submitted that the $60,000 may not be sufficient and that the court should require Mr Clissold to give an undertaking that he would pay any other amounts incurred by the liquidator as a condition of making the order.
As to Mr Williams' first point, I can see no reason why the amount of $60,000 should not be held in the trust account of the liquidator, on the basis that it will be held on trust for the payment of the liquidator's fees and costs and disbursements and that the balance, if any, will be paid to Mr Clissold. It should be a condition of any order that Mr Clissold will give an undertaking to the court that he will instruct Priest McCarron to pay the amount currently held in trust to the trust account of Hall Chadwick to be held on trust for that purpose.
As to Mr Williams' second point, Mr Svehla submitted that Mr Clissold should not be required to given an open ended undertaking to pay the liquidator's costs, disbursements and legal fees. I accept that submission. However, I think that there is a risk that the costs, legal fees and disbursements will exceed $60,000, although not by a large amount. In those circumstances, I think it would be appropriate as a condition of the court making an order under s 482(1) that Mr Clissold undertake to the court to pay an amount of up to $20,000 in addition to the $60,000 in respect of the liquidator's fees, legal costs and disbursements.
Amount owed to DLL
AER is indebted to DLL in the sum of $210,080.82 under a chattel mortgage over 11 vehicles. On 22 September 2011, GRC, AER and Mr Clissold executed a deed of assignment by which AER assigned its rights under the mortgage to GRC. The deed forms part of annexure "A" to Mr Clissold's affidavit sworn on 4 October 2011. It is contemplated that DLL will execute the deed of assignment, although it has not done so yet. However, on 4 October 2011, DLL sent an email to Baker & Borthwick, Mr Clissold's solicitors, saying:
As discussed the Deed of Variation has been received and is awaiting processing which should be in the next few days or so. Any hassles I or the credit team will let you know.
In my opinion, this is not sufficient evidence that the debt claimed by DLL is not owing. However, having regard to the email, I think this issue can be dealt with by making it a condition of the orders sought by the applicants that DLL execute the deed of assignment.
Permanent Custodians
That leaves the debt owed to Permanent Custodians Limited. On 30 September 2011, Gadens, who act for Permanent Custodians, wrote to Mr Pleash in which they said:
We are instructed that our client consents to the termination of the winding up of the Company on the basis that the Debt and any interest and costs accrued on it are repaid in full within 7 days of the termination of the winding up of the Company.
Mr Clissold proposes to repay the debt out of the amount that he will receive under the MOU. He has given instructions to Priest McCarron to pay the sum of $2,458,870.26 from the proceeds of the settlement with the Gulave Family to the ANZ Bank.
The MOU and Joint Venture Agreement have been drafted by Indian lawyers. They are not in a form which would be typical of similar documents drafted by Australian lawyers. However, as I have said, the parties have been acting in accordance with them; and the Commonwealth Bank has approved a facility to the Gulave Family to enable them to complete the transactions contemplated by the MOU. On 26 September 2011, Craig Milne + Co, the solicitors for the Gulave Family, wrote to Mr Pleash. In that letter they said:
The monies that our client have paid and will pay to Mr Ralph Clissold pursuant to the MOU and the JVA are not loans, but payments for valuable consideration, being a 50% interest in Mr Ralph Clissold's properties and companies. Specifically, the monies our clients have paid and will pay to Mr Ralph Clissold do not create a debt owed by the Company.
It is difficult to believe that Gadens would have written to Mr Pleash in the terms they did on 30 September 2011 unless their clients expected that they would be repaid out of the money received from Mr Clissold under the terms of the MOU. In particular, the letter indicates Permanent Custodians' consent to the termination of the winding up on the basis that it will be paid subsequently.
The evidence is that Mr Clissold owns the properties in his own name and that consequently it is to be expected that he will receive a substantial proportion if not all the consideration personally.
Having regard to these matters, I am satisfied that Mr Clissold will receive sufficient funds under the terms of the MOU to discharge his debt to Permanent Custodians. In addition, I am satisfied that Mr Clissold will use those funds to discharge the debts. The debt is owed by Mr Clissold personally. Mr Clissold has already taken extensive steps to ensure that AER's debts are paid. Permanent Custodians expect to be paid from the proceeds of the sale of Mr Clissold's properties to the joint venture. The joint venture is obviously important to Mr Clissold and it seems inconceivable that he would jeopardise it by not paying the debt owed to Permanent Custodians.
Should an order be made?
As a result of what is proposed, all the creditors of AER will be paid and AER will be left without any debts. The transaction by which those creditors will be paid will only occur if the winding up is terminated. Mr Williams acknowledged that, if the winding up order is not terminated, the creditors of AER will not be paid in full. It is, therefore, in the interests of creditors to make the order sought by the applicants. AER will be solvent following the termination of the winding up. Having regard to the circumstances in which AER was placed in liquidation, and the fact that it will in the future be controlled by the joint venture, there is no reason to suppose that it will not trade profitably once the winding up is terminated. The liquidator will be paid in full. The only two contributories seek the order. In those circumstances, I am satisfied that an order terminating the winding up should be made provided the conditions I have referred to are satisfied.
Orders
The matter should be stood over for a short period of time to permit the applicants to satisfy the court that the conditions referred to in paragraphs 25, 29, 30 and 32 of this judgment have been satisfied. Once I am satisfied of those matters, I will make the order sought by the applicants.
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Decision last updated: 06 October 2011
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