In the matter of Property Builders (Constructions) Pty Ltd (In Liquidation)

[2013] NSWSC 711

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Property Builders (Constructions) Pty Ltd (In Liquidation) [2013] NSWSC 711

Hearing dates:

24 May 2013

Decision date:

24 May 2013

Jurisdiction:

Equity Division - Technology and Construction List

Before:

Hammerschlag J

Decision:

Under s 477 (2B) of the Corporations Act 2001 (Cth) the entry into of the Settlement Deed on 23 May 2013 between Neil Robert Cussen in his capacity as the liquidator of Property Builders (Constructions) Pty Limited (in liquidation) (ACN 089 023 423), Elli Phontos, Michael Phontos and DR Formwork Pty Limited is approved.

The applicant/first defendant (Elli Phontos) is authorised to carry on the company's proceedings by way of the cross-claim in case number 2009/298902 and on the company's behalf to defend all claims against it in those proceedings.

Catchwords:

CORPORATIONS - Corporations Act 2001 (Cth) ss 477(2B), 477(6), 511, 564 -where creditor agrees with liquidator to fund proceedings being brought by a company in liquidation which is unable to fund them itself - where the agreement will be in force for more than three months - agreement requires approval of the Court - Court has power to authorise the creditor to use the name of the company to commence and prosecute proceedings - agreement approved and orders authorising the creditor to carry on the proceedings made

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

Australian Capital Territory Commissioner for Revenue v Slaven [2009] FCA 744

Category:

Principal judgment

Parties:

Neil Robert Cussen - Plaintiff
Elli Phontos - First Defendant
Michael Phontos - Second Defendant

Representation:

Counsel:
R.D. White - Plaintiff
R.P.V. Carey - First Defendant
Solicitors:
Champion Legal - Plaintiff
Hugh Ford Solicitor - First Defendant

File Number(s):

2011/401779

EX TEMPORE Judgment

1. HIS HONOUR: Section 477(2B) of the Corporations Act 2001 (Cth) ("the Act") provides as follows:

Except with approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:

(a) without limiting paragraph (b), the term of the agreement may end; or

(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by the performance;

more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged within those three months

1. Section 477(6) of the Act provides as follows:

The exercise by the liquidator of the powers conferred by this section subject to the control of the Court, and any creditor or contributory, or ASIC, may apply to Court with respect to any exercise or proposed exercise of any of those powers.

1. Section 511(1) of the Act provides relevantly that the liquidator may apply to the Court to determine any question arising in the winding up of the company, or to exercise all or of any of the powers that the Court might exercise if the company were being wound up by the Court.

1. Property Builders (Constructions) Pty Ltd (in liquidation) ("the company") is suing, by way of cross-claim, Tresedar Pty Ltd, Tetbury Pty Ltd and Mr Aris Evanian ("alternatively the Tresedar parties"). The claim is, by all accounts, the company's only significant asset.

1. The liquidator of the company, Mr Cussen, deposes that the company does not have assets to prosecute the claim. He is not in funds.

1. The applicant, Mrs Elli Phontos, is an unsecured creditor of the company. She has entered into a deed with the liquidator and another unsecured creditor DR Formwork Pty Ltd ("DRF") ("the agreement") under which she has agreed on certain conditions, which are acceptable to the liquidator, to prosecute the cross-claim and defend the proceedings with diligence at her own risk and expense. She will, subject to any entitlement ordered by the Court under s 564 of the Act, hold the proceeds of any recovery on trust for the benefit of the company and its creditors and pay them to the liquidator on finalisation of the proceedings.

1. Section 564 of the Act provides that where in any winding up, property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of money or the giving of indemnity by creditors, or where expenses in relation to which a creditor has indemnified a liquidator had been recovered, the Court may make such orders as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risks assumed by them.

1. The obligations under the agreement will be discharged by performance more than three months after the date the agreement was made.

1. Court approval of the agreement is accordingly required under s 477(2B) of the Act. Mrs Phontos moves for such approval.

1. Mrs Phontos also moves for an order under s 477(6) of the Act, alternatively pursuant to the inherent jurisdiction of the Court, authorising her to carry on the proceedings (by way of the cross-claim) in the name of the company and to defend all claims against the company in the proceedings.

1. The application is supported by the following affidavits: Mr Cussen dated 12 December 2012; Mrs Phontos dated 11 September 2012 and 1 March 2012; Michael Phontos dated 1 March 2012, 11 October 2012, 14 September 2012 and 1 March 2012; Hugh Ford (Solicitor) dated 23 April 2013 and 23 May 2013. The affidavits set out the lengthy factual history of the proceedings. The cross-claim concerns, amongst others, assertions of breaches by the Tresedar parties of a Deed of Settlement and Release made between them and the company to resolve disputes which had a risen in 2008 in relation to a construction project.

1. The Court was provided with helpful written submissions by counsel for the applicant. They have been marked for identification and will be kept with the papers.

1. In Australian Capital Territory Commissioner for Revenue v Slaven [2009] FCA 744 Rares J considered that s 511 and s 476 of the Act give the Court power to authorise a third party to use the name of a company being wound up to commence and prosecute proceedings. His Honour made such an order subject to the applicant there indemnifying the liquidator in respect of costs to be incurred by the company or which it may be ordered to pay in the proceedings and the applicant providing security in respect of the indemnity. The nature and amount of the security was to be agreed between the applicant and the liquidator and the company or failing agreement settled by the Registrar.

1. I am satisfied that the orders sought here should be made as being in the interests of the company and its general body of creditors.

1. The Tresedar parties appeared on the application and did not oppose the orders being made.

1. Mrs Phontos has standing to bring the application. The application is supported by the liquidator who is satisfied that his and the company's position are sufficiently protected. The liquidator has obtained legal advice that the cross-claims are strong and have good prospects of success. There are difficulties in obtaining arms' length litigation funding.

1. The agreement provides for Mrs Phontos to indemnify the company in respect of costs to be incurred and adverse costs orders which might be made against the company and the liquidator. She is to provide security in support of the indemnity of $5,000.

1. In addition DRF provides an indemnity to the liquidator and the company up to $5,000 in respect of costs and expenses which they might incur in the proceedings, $10,000 in relation to the risk of any adverse costs orders and $20,000 against the reasonable costs of experts reports. DRF is to provide security of $25,000 which will be paid in monthly tranches. It may be considered that these figures are on the modest side but I am persuaded that they are sufficient given that the liquidator in his judgment is satisfied with them.

1. A solicitor and a barrister have agreed to represent the company on a contingency basis if this application is successful.

1. The making of the orders does not foreclose the making of orders for security for costs if this transpires to be appropriate.

1. I make the following orders:

1. Under s 477 (2B) of the Corporations Act 2001 (Cth) the entry into of the Settlement Deed on 23 May 2013 between Neil Robert Cussen in his capacity as the liquidator of Property Builders (Constructions) Pty Limited (in liquidation) (ACN 089 023 423), Elli Phontos, Michael Phontos and DR Formwork Pty Limited is approved.

2. The applicant/first defendant (Elli Phontos) is authorised to carry on the company's proceedings by way of the cross-claim in case number 2009/298902 and on the company's behalf to defend all claims against it in those proceedings.

3. The further Amended Interlocutory Process filed 10 May 2013 is otherwise dismissed.

4. No order as to costs.

5. The proceedings are stood over for directions to 21 June 2013.

6. The exhibits are to be returned.

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Decision last updated: 03 June 2013