In the Matter of Ringrong P/L Australia and New Zealand Banking Group Ltd. v Ringrong P/L

Re: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
And: RINGRONG PTY. LTD.
No. VG3278 of 1992
FED No. 1051
Number of pages - 6
Corporations

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Lee J(1)

CATCHWORDS

Corporations - winding up - application for appointment of provisional liquidator.

Corporations Law sub-ss.460(2), 472(2)

Re Club Mediterranean Pty. Ltd. (1975) 11 SASR 481

Re McLennan Holdings Pty. Ltd. (1983) 7 ACLR 732

HEARING

MELBOURNE, 15 October 1992

#DATE 15:10:1992

Counsel for the Applicant: D.J. O'Callaghan

Solicitors for the Applicant: Freehill Hollingdale and Page

Counsel for the Respondent: R. Kendall

Solicitor for the Respondent: D.E. Phillips

ORDER

THE COURT ORDERS THAT:

1. Subject to compliance by the respondent to the undertaking to

file with the Australian Securities Commission the

corporation's accounts for the 1991 and 1992 financial years

the application for appointment of a provisional liquidator is adjourned sine die.

2. Applicant has liberty to relist application on 72 hours notice

subject to the filing of supporting affidavit or affidavits

filed at the time of application to relist.

3. Financial records of respondent to be placed with respondent's

accountant, Mr Neil McCoy, and so held until the petition for winding up is disposed of or until further order of the Court.

4. Costs of this hearing of this motion will be respondent's costs

in the application in any event.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

LEE J This is a motion for the appointment of a provisional liquidator pursuant to sub-s.472(2) of the Corporations Law. By an application filed 17 September 1992 Australia and New Zealand Banking Group Limited ("ANZ") sought an order that the respondent Ringrong Pty Ltd ("Ringrong") be wound up for failure to meet a demand served pursuant to sub-s.460(2) of the Corporations Law. A directions hearing in that matter has been fixed for 26 October 1992. It is said that circumstances exist that require urgent consideration of the question of the appointment of a provisional liquidator of Ringrong.

Ringrong was incorporated in Victoria in 1978. Its principal activity has been as a trustee. Its issued shared capital consists of two one dollar shares, which are held beneficially by its two directors Michael Samuel ("Samuel") and Edna Samuel, for the 1902 Whitehorse Road Property Investment Trust ("Whitehorse"). In its capacity as the trustee of Whitehorse, Ringrong operated a gymnasium known as Workout Ringwood Gymnasium ("Workout") in premises situated in Ringwood, Victoria.
Ringrong is one of a number of corporations together described as the "Samuel Group". Samuel is a director of each of those corporations. In an affidavit filed in support of the motion, Peter Geoffrey Walton, ("Walton") a Senior Manager employed by ANZ, says that the total indebtedness of the Samuel Group to ANZ is $28,788,212.52. By a deed of covenant executed by Ringrong in favour of ANZ, Ringrong has guaranteed the repayment to ANZ of monies advanced by ANZ to the Samuel Group.
The material filed in support of the application indicates that ANZ has become concerned about the manner of operation of Ringrong's affairs as a corporation. The principal cause of the concern stems from a lack of knowledge of the state of the business carried on by Ringrong. Two particular matters form the foundation for the application for the appointment of a provisional liquidator. First, ANZ apprehends that Samuel may have arranged for another corporation to operate the gymnasium business and that Ringrong may have disposed of assets to that corporation without appropriate consideration being received. Second, ANZ believes that the operation of the Workout business and, in particular, receipt of membership subscriptions, should have generated an income of approximately $1 million per year in respect of which no adequate explanation has been provided to ANZ by Ringrong as to the present absence of cash on hand or as to the application of those funds to meet the debts of the business. In particular, ANZ is concerned that the monies received have been applied to meet liabilities of related corporations or put to other uses not for the benefit of the creditors of Ringrong.
Walton says that he was informed by Samuel in early September 1992 that Workout had closed and that half of the gymnasium equipment had been sold and that the funds from the sale of that equipment and the remaining one half of the equipment had been given to Zagame Pty Ltd ("Zagame") in satisfaction of a debt owed to Zagame by another corporation in the Samuel Group, Hermas Properties Pty Ltd ("Hermas"). Walton says that Samuel admitted in a conversation with him that he had arranged his affairs in this manner in order to stop Zagame pursuing Samuel under a personal guarantee.
A gymnasium opened at another location under the name World Gym Ringwood ("World Gym") has as its members the former members of Workout. ANZ points to a planning permit issued by the Ringwood City Council relating to the World Gym premises which indicates that the applicant for the permit was Retail and Commercial Properties Pty Ltd ("Retail"). An Australian Securities Commission search annexed to the affidavit of Walton reveals that Samuel is both a director and shareholder of Retail. Moreover a search of the Business Names register indicates that the proprietor of the name "World Gym Ringwood" is Workout Gym Pty Ltd, a director of which is Samuel.
Walton says that upon contacting Samuel in late September 1992 he was informed that 400 members of Workout had paid membership fees in advance and that all the funds received from those subscriptions had been spent.
Before dealing with Ringrong's response it is appropriate to say something about the appointment of a provisional liquidator.
Sub-section 472(2) of Corporations Law provides:

"The Court may appoint an official liquidator

provisionally at any time after the filing of a

winding up application and before the making of

a winding up order or, if there is an appeal

against a winding up order, before a decision in

the appeal is made"

The power to appoint a provisional liquidator is conditioned by the filing of a winding up application which, in turn, suggests that appointment of a provisional liquidator may not be appropriate unless it is likely that a winding up order will be made (Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732). It follows that the filing of a winding up application cannot be used as the vehicle for an application to appoint a provisional liquidator with no intent to pursue the substantive application thereafter.
There is no suggestion that the primary application for the winding up of Ringrong has not been made bona fide or is insupportable. That aspect of the application is certainly established on the material before the Court.
Sub-section 472(2) provides the Court with a wide discretion to appoint a provisional liquidator. The discretion is not limited to particular circumstances. The main purpose of the appointment of provisional liquidator is to preserve the assets of a corporation for its creditors and to maintain the status quo pending the determination of the winding up application. A provisional liquidator may be appointed where there is a need for specified property to be dealt with by putting it into the immediate possession of a provisional liquidator to prevent it being dealt with in a way that is threatened and is inimical to the interests of the creditors.
Such an appointment also may be appropriate where there is no ability to specify particular property that is at risk but there is a well-founded concern in respect of the manner of administration of the corporation. A court may appoint a provisional liquidator for the purpose of obtaining a swift report on how the company has been administered and what further steps should be taken by the Court. The Court may mould its order to meet the circumstances of the case before it.
When a creditor who has applied for a winding up of a company seeks the appointment of a provisional liquidator and the company opposes the appointment the Court must assess whether the need for intervention is urgent, whether the applicant creditor has established that such an appointment would be appropriate and determine where the balance of convenience lies. (Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484).
I now turn to the response, proffered by Ringrong to the allegations made by ANZ.
Before the Court are two affidavits sworn by Samuel on 12 October 1992 and 13 October 1992 respectively. In his affidavits Samuel states that Ringrong carried on the Workout business in premises leased from Hermas. Hermas had purchased the building from Zagame pursuant to a contract of sale dated 25 July 1989.
According to Samuel's affidavit Hermas defaulted under the contract of sale and Zagame sought to recover possession of the property by proceedings commenced in the Supreme Court of Victoria. The proceedings were settled by, inter alia, Hermas delivering possession of the premises on 31 August 1992. Ringrong had ceased to conduct the Workout business before Zagame recovered possession of the property and members of Workout had been offered the transfer of their membership to World Gym. Samuel admits that he is a director the corporation which operates World Gym.
Samuel denies that proceeds of the sale of one half of Workout gymnasium equipment and the remaining equipment were handed to Zagame. Samuel says that most of the gymnasium equipment used by Ringrong was held under lease and was returned or repossessed on the closure of Workout.
Samuel also maintains that other gymnasium equipment were fixtures attached to the leased premises. A gymnasium had operated on the premises before they were leased to Ringrong and the additional equipment had been part of the leased premises. Under the terms of the settlement of the Supreme Court action the fixtures were returned to Zagame when that company took possession of the building.
With regard to the conduct of the Workout business and the application of income received in the course of that business, Ringrong did not present an up-to-date set of accounts but did supply an unaudited profit and loss statement attached to a balance sheet for the period ending 30 June 1992. The documents provided some explanation of the income received and the running cost discharged from that income. It appears that Workout traded at a loss in the period to 30 June 1992 although it received substantial income from membership subscriptions. The informal accounts provided by Ringrong suggest that no excess of cash funds was provided by the operation of the Workout business and that the disbursement of income received has been wholly directed to the discharge of the cost of running the business.
Whether the explanations provided are to be believed is impossible to determine at this point. It is enough to say that issue has been joined. Where the ground relied upon for the appointment of a provisional liquidator is a general apprehension as to the conduct of the affairs of a corporation rather than direct evidence of maladministration or of conduct to defeat creditors, the presentation of an explanation in response to the concerns of the petitioner will be likely to render the appointment of a provisional liquidator inappropriate unless the explanation fails to answer material issues or appears to be unreliable.
On the material before the Court ground for the appointment of a provisional liquidator has not been made out and I am not disposed to exercise the discretion conferred on the Court by sub-s.472(2) by appointing a provisional liquidator to Ringrong. However, I am of the view that other orders are appropriate to which I will turn later.
I have given consideration as to whether it may be appropriate for a provisional liquidator to be appointed for the purpose of providing a report on the position of the corporation, its administration, the nature of its assets and liabilities and recent treatment of them. However on the material as it stands I am not persuaded that I should exercise my discretion to make an order for even that limited purpose.
In declining to exercise the discretion to make an order appointing a provisional liquidator I am mindful that the substantive application for the appointment of a liquidator and for an order for the winding up of Ringrong is itself listed for hearing as soon as 26 October 1992 and that the applicant will be moving on that date for the orders sought in the application.
If an order for the winding up of Ringrong is made on 26 October 1992 this motion will become otiose but in the event that the Court is not satisfied that the issues arising on the petition can be determined on that day, it may be necessary for there to be recourse to the motion for the appointment of a provisional liquidator if the circumstances warrant it. I consider it appropriate, therefore, to leave the motion on foot for the time being and make appropriate alternative orders, default in compliance with which may lead to the re- listing of the motion.
Ringrong, by its solicitors, has undertaken to file with the Australian Securities Commission by 20 October 1992 the corporation's accounts for the 1991 and 1992 financial years and subject to compliance with that undertaking the application for the appointment of a provisional liquidator will be adjourned sine die. Copies of the accounts so filed are to be delivered to ANZ on the same day and an affidavit filed in Court verifying the lodgment of the accounts. There will be liberty to ANZ to re-list the application on 72 hours notice subject to an additional affidavit or affidavits in support of the application being filed at the time of application to re-list.
As Ringrong is not carrying on business, there will be an order that the financial records of the corporation be placed with Ringrong's accountant, Mr Neil McCoy, and held by him until the petition for winding up is disposed of or until further order of the Court.
The costs of the hearing of this motion on 11 and 14 October 1992 respectively will be Ringrong's costs in the application in any event.

[1992] FCA 1051

15 OCTOBER 1992