In the matter of Mudgee Dolomite and Lime Pty Limited (in liquidation)

[2021] NSWSC 1350

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Mudgee Dolomite & Lime Pty Limited (in liquidation) [2021] NSWSC 1350

Hearing dates:

20 October 2021

Date of orders:

20 October 2021

Decision date:

20 October 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders made in accordance with orders 3-6 of the Plaintiffs’ short minutes of order and for return of exhibits.

Catchwords:

CORPORATIONS — Winding up — Liquidators — Application for directions with respect to an asset sale agreement entered into by the company and associated transactions.

CORPORATIONS — Winding up — Liquidators — Investigations — Direction made that liquidators are justified in undertaking investigations as to failure of company to acquire relevant property, and in potentially conducting consequential proceedings subject to any further direction by the Court.

Legislation Cited:

- Insolvency Practice Schedule (Corporations), s 90-15

Cases Cited:

- Walley, Re Poles & Underground Pty Ltd (admins apptd) [2017] FCA 486

- Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2021] NSWSC 256

- Re Plutus Payroll Australia Pty Ltd (in liq) (2019) 139 ACSR 536; [2019] NSWSC 1171

Category:

Procedural rulings

Parties:

Robert Francis Murdoch (Plaintiff)
Jennifer Nettleton and Rahul Goyal in their capacity as joint and several liquidators of Mudgee Dolomite & Lime Pty Limited (In Liquidation) (Second Plaintiffs)
Mudgee Dolomite & Lime Pty Limited (in liquidation) (First Defendant)
Brian Murdoch (Second Defendant)

Representation:

Counsel:
J Hutton (Second Plaintiffs)
T Cork (Solicitor) (Second Defendant)

Solicitors:
Clayton Utz (Second Plaintiffs)
McPhee Kelshaw (Second Defendant)

File Number(s):

2016/271516 (005)

Judgment – ex tempore (Revised 20 October 2021)

Nature of the application

1. By Interlocutory Process filed on 3 September 2021, the Plaintiffs, Ms Nettleton and Mr Goyal, in their capacity as joint and several liquidators (“Liquidators”) of Mudgee Dolomite & Lime Pty Limited (in liq) (“MDL”) sought an order under s 90-15 of the Insolvency Practice Schedule (Corporations) that, in circumstances set out in several affidavits of Mr Goyal, they were justified in entering into and performing, and procuring that MDL enter into and perform, an Asset Sale Agreement and certain associated transactions in respect of the sale of MDL’s quarry and associated business.

2. Developments in the course of the hearing and discussions between the Liquidators and Mr Brian Murdoch, the Second Defendant in the application, have had the result that the orders sought have now been amended, to include the Liquidators’ also investigating the circumstances surrounding MDL's failure to acquire a specified property (“Tilecote property”) that was important for the operation of its quarry and business and, subject to any further direction the Liquidators may seek from the Court, pursuing any claims that MDL has in relation to that matter, including by commencing proceedings if warranted. On that basis, Mr Brian Murdoch now does not oppose the direction sought, where it will provide both for the sale of the relevant assets and for the pursuit of those investigations and the commencement of those proceedings, subject to any further direction that the Liquidators may obtain in that regard.

3. Mr Robert Murdoch, who has an interest in MDL and an interest in the company (“RKM”) that would acquire MDL’s quarry and business under the proposed sale transaction, was also given notice of the application but has not sought to be heard in it. Although the direction sought by the Liquidators could now be given by consent, as between the Liquidators and Mr Brian Murdoch, it nonetheless requires the exercise of a judicial discretion by the Court, and I should indicate the reasons why I am satisfied that that direction should properly be given.

The applicable legal principles

4. Before turning to the evidence led in the application, I should note that the Court has power under s 90-15 of the Insolvency Practice Schedule (Corporations) to give a liquidator advice as to the proper course of action for him or her to take in liquidation, and the Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion by a liquidator, although it typically will not do so where a matter relates to the making and implementation of a business and commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the liquidator’s decision. The Court's power to give directions under this section has been noted in, for example, Walley, Re Poles & Underground Pty Ltd (admins apptd) [2017] FCA 486 at [41]; Re Plutus Payroll Australia Pty Ltd (in liq) (2019) 139 ACSR 536; [2019] NSWSC 1171 at [4]; and in Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2021] NSWSC 256 at [2].

5. I will return to the submissions made by Mr Hutton, with whom Mr Smith appears for the Liquidators, in respect of the Court's power under that section below. I am comfortably satisfied that this is a proper case in order to give a direction to the Liquidators, where the direction sought plainly involves legal issues, at least in respect of the matters which arise in respect of MDL’s failure to acquire the Tilecote property and its potential impact upon the sale process in respect of MDL's quarry and business, and there is a real prospect that the commencement of any further proceedings which may arise from the Liquidators' further investigations into that matter may be controversial as between the parties, or at least as between MDL, the Liquidators, Mr Robert Murdoch and the Robert Murdoch interests.

Affidavit evidence

6. The Liquidators have led substantial evidence in respect of the application, anticipating that it would be, as it originally was, contentious. They rely on Mr Goyal's affidavit dated 3 September 2021, which is not a confidential affidavit, and which refers to the circumstances in which the Liquidators were appointed and, in relatively broad terms, to the steps taken by the Liquidators to undertake a sale of MDL's quarry and business. The sale of that quarry and business, and a relatively wide marketing process, were contemplated at the time the Liquidators were appointed, by orders made by the Court in respect of earlier proceedings between the Robert Murdoch interests and the Brian Murdoch interests which led to the winding up of MDL and the Liquidators’ appointment.

7. The Liquidators also rely on a second affidavit of Mr Goyal dated 3 September 2021, as to part of which the Court made orders under the Court Suppression and Non-publication Orders Act 2010 (NSW). That affidavit was originally provided to the Brian Murdoch interests in redacted form and has now been provided to them in unredacted form, subject to an undertaking as to confidentiality. Mr Goyal there provided a fuller account of the sale process and issues which had arisen in respect of that sale process. In particular, an issue arose in the course of the sale process when it became apparent, for the first time, that Tilecote Pty Ltd (“Tilecote”), a company associated with Mr Robert Murdoch's son, Mr Stephen Murdoch, had acquired the Tilecote property from a third party. That was significant where MDL had historically obtained access to its quarry through that property. Although that was not the only means of access to the quarry, and alternative access was potentially available across a public road, that alternative access would have required an upgrade of that public road and arrangements would need to have been made with the Mid-Western Regional Council and substantial costs incurred in order to implement that upgrade and obtain access to the quarry in that way.

8. That matter could potentially have adversely impacted upon the sale process, particularly when Tilecote then indicated that it would only grant access to the quarry, across the land that it had acquired, if that land was bought by any purchaser of the MDL business from Tilecote at a substantial premium to the price that Tilecote had paid to acquire it, or if the purchaser of the business paid an ongoing toll on materials extracted from the quarry. Obviously enough, that development had both the possibility of adversely impacting upon third party bids for the quarry and advantaging RKM over other bidders, where the historical means of access to the quarry was now under the control of Mr Robert Murdoch’s son. That matter also raised a significant question as to how it came to be that MDL, where Mr Robert Murdoch was a director and had management responsibility for its operations, had failed to acquire the Tilecote property, but Tilecote, associated with his son, had been able to do so, so that issues as to access to the quarry could then be deployed to the potential advantage of RKM and the Robert Murdoch interests in the sale process.

9. For the reasons noted below, I am satisfied, as it appears the Brian Murdoch interests are also now satisfied, that that matter, while it could well have adversely affected the price obtained by MDL in the sale process, has not done so to the disadvantage of MDL or its shareholders. That is not to say, of course, that MDL would not be able to establish a claim to a proprietary remedy in respect of the Tilecote property, or that it has not been deprived of profits that it could have made from the acquisition of the Tilecote property, and particularly the appreciation in the value of the land which is evident in the value which Tilecote now attributes to it, or the opportunity to obtain a toll from a purchaser of the quarry, including RKM which will now purchase the quarry. That will be a question for the Liquidators in their further investigations and in any proceedings which they may bring arising out of MDL’s failure to acquire the Tilecote property and Tilecote’s acquisition of it.

10. Returning now to Mr Goyal's evidence, he refers to the comprehensive sale process undertaken by the Liquidators, including advertising the quarry and business, dealing with several potential bidders, and providing information to those bidders. Mr Goyal refers to the offers made by bidders, and to the decision that he made to accept an offer made by RKM in preference to other offer(s) for the quarry. I will not address the matters relevant to that decision in any detail, where the relevant evidence is subject to suppression orders. It is sufficient to note that RKM was the higher bidder and that the structure of the offer made by the second ranking bidder is such that the Court can be satisfied that bidder had offered the highest price it was prepared to pay, and had not discounted its price by reference to any matter relating to access to the quarry. I also note that the Brian Murdoch interests have had the opportunity to review the relevant evidence, and it is implicit in the position that they now adopt that they have reached the same conclusion as I have reached having regard to that evidence.

11. By a further affidavit dated 5 October 2021, which is not confidential, Mr Goyal again addresses the steps which have been taken in respect of the sale process, and identifies the consequences of a sale now not proceeding, if the Liquidators do not obtain the direction they seek. By a further confidential affidavit dated 10 October 2021, Mr Goyal refers to matters relating to the valuation of the business and to alternative options if a sale of the business did not proceed. Again, I do not elaborate on the matters addressed in that affidavit, where it is also subject to an order under the Court Suppression and Non-publication Orders Act 2010 (NSW), other than to note that none of those alternative options is particularly attractive, and all of them would likely involve significant additional costs in respect of the liquidation, so far as the Liquidators would be required to continue to operate the business pending any future sale of it.

12. The Brian Murdoch interests read an affidavit dated 13 October 2021 of their solicitor, Mr Cork, which identified matters relevant to the concerns which they originally held in respect of the sale process and, at that time, their concern that the Liquidators might not, after a sale was completed, pursue investigations of MDL’s failure to acquire the Tilecote property and its acquisition by Tilecote or any consequential proceedings. Those concerns have since abated, by reason of the revised direction that is now sought by the Liquidators, which contemplates that the Liquidators will not only sell the business to RKM, but will also pursue those investigations and any appropriate proceedings in the manner that I have noted above, again subject to any further direction they obtain from the Court in respect of the proceedings.

The parties’ submissions and determination

13. Mr Hutton and Mr Smith have in turn made detailed submissions in support of the approach taken by the Liquidators. They refer to the proceedings which led to the Liquidators’ appointment, and to steps which have subsequently been taken in respect of an appeal from the decision in those proceedings, which does not impact their appointment or the sale process, but which was the subject of directions given by Williams J in April 2021. They provide a summary of the sale process and of the competing offers in that process, and the issue which arose in respect of access to the quarry through the Tilecote property in the course of that sale process. I have referred to those matters above.

14. Mr Hutton and Mr Smith also refer to the applicable principles in respect of a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) and to the reasons for the Liquidators forming the view that a sale is appropriate in the relevant circumstances. I need not address those reasons in detail, although they are comprehensively outlined in Mr Goyal's evidence and in those submissions, where they are subject to suppression orders and where I am comfortably satisfied that the position which the Liquidators now take is justified on a relatively straightforward basis, and the Brian Murdoch interests have also formed the same view.

15. By amended submissions dated 19 October 2021, the Brian Murdoch interests note that they have now obtained, on giving undertakings as to confidentiality, access to the confidential evidence on which the Liquidators rely, and have noted the form of directions now sought by the Liquidators which provide both for the sale of the business and for the undertaking of investigations and any appropriate proceedings in respect of MDL’s failure to acquire and Tilecote’s acquisition of the Tilecote property. On that basis, they now support the proposed sale of the quarry and MDL’s business to RKM, subject to a direction being made in the form that the Liquidators now seek.

16. I am comfortably satisfied that the approach which the Liquidators now propose is justified. In short, that approach will secure the maximum value that is reasonably obtainable for the quarry and business, after a comprehensive sale process. I have concluded that the sale process obtained by MDL has not, in the event, been adversely affected by the developments which occurred in respect of the Tilecote property in the course of that sale process, other than in respect of MDL’s potential loss of the profit to be obtained from ownership of that property. Second, as well as maximising the value that is obtainable for the quarry and business, the Liquidators’ proposed approach will preserve the opportunity for MDL to establish any proprietary interest to which it is entitled in the Tilecote property or recover, if such recovery is reasonably available, any loss that it has suffered, including any potential loss of profits by reason of its failure to acquire the Tilecote property in the circumstances noted above. That is to the advantage of shareholders in MDL, who are now the residual claimants upon its assets, and would also vindicate the public interest in compliance with the MDL directors’ statutory and general law obligations. It promotes the result that any breach of the Corporations Act 2001 (Cth) or general law duties which may have occurred, in the relevant circumstances, will be investigated and pursued by the Liquidators to the extent that pursuit is appropriate.

17. For these reasons, I make further orders 3-6 in the short minutes of orders prepared by the liquidators, to which Mr Brian Murdoch now consents. I make a further order 7 that the exhibits be returned.

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Decision last updated: 22 October 2021