In the Matter of the Companies (Tasmania) Code and in the Matter of Richardsons Meat Industries Ltd and in the Matter of an Application by the Liquidator for Directions

[1989] TASSC 13

[2009] TASSC

CITATION:In the Matter of the Companies (Tasmania) Code and in the Matter of Richardsons Meat Industries Ltd and in the Matter of an Application by the Liquidator For Directions [1989] TASSC 13; A6/1989

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M3/1987
DELIVERED ON:  22 February 1989
JUDGMENT OF:  Hobart

Judgment Number:  A6/1989
Number of paragraphs:  16

Serial No 6/1989
List "A"
File No M3/1987

IN THE MATTER OF THE COMPANIES (TASMANIA) CODE AND IN THE MATTER OF RICHARDSONS MEAT INDUSTRIES LTD AND IN THE MATTER OF AN APPLICATION BY THE LIQUIDATOR FOR DIRECTIONS

REASONS FOR JUDGMENT  WRIGHT J

22 February 1989

1. The liquidator of Richardsons Meat Industries Ltd seeks directions as to whether Tasbar Pty Ltd (hereinafter "Tasbar") has suffered any loss by virtue of disclaimer by the liquidator of an equipment hiring agreement entered into between Richardsons Meat Industries Ltd (hereinafter “RMI") and BusinessWorld Pty Ltd (hereinafter "BusinessWorld") on or about 26 March 1985 and, if so, the extent of that loss. The liquidator's application is made under s379(3) of the Companies (Tasmania) Code, pursuant to which the liquidator may apply generally to the court for directions in relation to any particular matter arising under the winding–up.

1. On the basis of affidavits, oral evidence and facts agreed by counsel for the purpose of these proceedings, it appears that on the 26 March 1985 RMI entered into an equipment rental and service agreement with BusinessWorld in respect of two photocopying machines.  These machines were to be rented by RMI over a period of 60 months at a rental of $623 per month, inclusive of 10,000 copies per month in respect of machine No 1045 and 1.8 cents per excess copy on that machine and in respect of all copies on machine No 3107. The agreement further provided that the agreement was to be renewable for 12 monthly periods thereafter.

1. On or about the 20 May 1987, as the result of a series of financial transactions involving Australian Guarantee Corporation Ltd (hereinafter "AGC") as financier, Tasbar acquired the rights and liabilities of BusinessWorld in the agreement. Notification of this transfer of interest was given to RMI by Tasbar on 1 June 1987. According to the affidavit of the liquidator, RMI was in fact insolvent at that time and, on that footing, he expressed the opinion that the rental agreement between BusinessWorld and RMI had no commercial value at that time.

1. Although the liquidator was not cross–examined upon this assertion, and no objection was taken to the inclusion of the opinion in his affidavit, it seems to me plain that the opinion must be rejected. In the first place it is clear from the evidence of Mr. Taylor that Tasbar did in fact pay, or undertook an obligation to pay, a substantial valuable consideration for the acquisition of BusinessWorld's interests in the agreement. Furthermore, although RMI was in receivership at the time of the assignment, a petition for liquidation of the company was not presented to the court until several months thereafter on the 6 November 1987.

1. However, the commercial value of the agreement from a third party's standpoint appears to me to have little relevance to the central point that I am required to determine, namely whether Tasbar has incurred a loss provable in the winding–up as a debt as a result of the liquidator disclaiming the equipment rental and service agreement pursuant to s454 of the Companies (Tasmania) Code. Tasbar does not dispute the liquidator's entitlement to disclaim the agreement as an unprofitable contract, but seeks to prove for the balance rental payments due under the agreement as from the date of the disclaimer. These rental payments are agreed by the liquidator and Tasbar to have a discounted present value of $10,584.

1. Tasbar's claim is made pursuant to s454(12) of the Companies (Tasmania) Code, which provides as follows:—

"(12)    A person aggrieved by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the extent of any loss he has suffered by reason of the disclaimer and may prove the loss as a debt in the winding up."

1. Counsel for the liquidator submitted that as the company was in serious financial difficulties at the time when Tasbar acquired its interest in the relevant agreement, it has sustained no loss as a consequence of the disclaimer of that agreement by the liquidator. It was also submitted that Tasbar has lost nothing by virtue of the disclaimer because no part of the consideration which it paid for the assignment to it of a number of BusinessWorld contracts can properly be ascribed to the assignment of this particular agreement. In my opinion there is no substance to either of these submissions. There can be no doubt that if BusinessWorld had not divested itself of its interest in the relevant agreement it would have been entitled to prove for the loss sustained by it when the contract was disclaimed by the liquidator. Prima facie its loss would have been the future payments provided for in the agreement less a proper discount for the accelerated payments and less any cost to it of supplying photocopies and providing maintenance service for the photocopiers during the remainder of the rental period. It may also have been appropriate to further discount the loss claimed in respect of other factors which it is unnecessary to discuss in detail. In short, the loss would have been a sum representing the nett discounted profit which would have accrued to the lessor pursuant to the terms of the agreement. This is the sum for which BusinessWorld could have proved in the winding–up and no doubt it would have received a dividend eventually representing a percentage of this sum.

1. There is nothing before me in the present proceedings to indicate what, if any, dividend will be achieved in the liquidation. If it can be assumed that at least some dividend is likely, I think it is plain immediately that the liquidator's assertion that BusinessWorld's interest in the agreement had no commercial value cannot be sustained. Surely the value must be at least the quantum of the dividend payable in respect of the debt proved, discounted perhaps for early payment and possibly other contingencies. To assess the actual value in any given circumstances may be difficult, but mere difficulty does not entitle one to reject the interest in the contract as being valueless.

1. I am quite unable to accept the proposition that Tasbar's acquisition of BusinessWorld's interest in the agreement should produce a windfall advantage to RMI by relieving it of a liability to acknowledge the debt in the course of the liquidation. Nor can I see that the nature of the bargain struck between BusinessWorld and Tasbar should have any bearing upon this question. Whether Tasbar paid more or less for BusinessWorld's contractual rights than they were truly worth in an objective sense can hardly alter the nature of those contractual rights. The agreement obliged RMI to pay a number of future rental instalments and to my mind the loss is the same no matter who stands in the lessor's shoes and irrespective of the time at which that person or company commenced to assume that character. The wisdom or otherwise of striking a bargain to assume the role of lessor can only finally be determined when the dividend payable to creditors is determined in the course of the winding–up and it appears to me utterly fallacious to suggest that the company in liquidation can derive a fortuitous advantage dependent upon the nature of the transaction struck between the original lessor and its assignee. The loss to be compensated for is the sum of which the claimant creditor is deprived in consequence of the non–performance of the contract pursuant to which his claim arises. It is not the actual monetary disadvantage which accrues to him calculated as a balance of losses and gains upon his original monetary investment in the enterprise. The argument by counsel for the liquidator treats the meaning of "loss" as being akin to an item of special damage in a claim in tort. I see nothing in s454 of the Companies (Tasmania) Code to justify this conclusion. Accordingly I reject that part of the liquidator's argument which depends upon the making of a distinction between the status of BusinessWorld as the original contracting party and Tasbar as the assignee of BusinessWorld's interest in the contact.

1. However, it is necessary also to consider whether a disclaimer under s454 of the Companies (Tasmania) Code entitles any party to a disclaimed contract to prove a loss on the same basis as damages would be provable in respect of a repudiated contract against the party in breach. The purpose of the disclaimer provision was referred to briefly by Bowen CJ in Re Middle Harbour Investments Ltd (1976) 2 ACLR 226 at 229 as follows:

"The purpose of providing for disclaimer by an official receiver or trustee in bankruptcy or by a liquidator in a winding up seems clear enough. It is to enable him to rid himself, or, in the case of liquidation, the company, of burdensome financial obligations which might otherwise continue to the detriment of those interested in the administration; it is given to enable the official receiver or trustee or the liquidator to advance the prompt, orderly and beneficial administration of the bankrupt estate or, in the case of a company, of the winding up of its affairs (see Re Clarke; Ex parte East and West India Dock Co (1881) 17 Ch D 759 at 764; cf, Re Katherine et Cie [1932] 1 Ch 70; [1931] All ER Rep 125)."

1. It seems to me that the loss which can be proved in a winding up under the enabling provisions of s454(12) is indistinguishable from the loss which may be proved in the bankruptcy of an individual under the provisions of the Bankruptcy Act 1966, s133 and that no significant difference exists in the way in which such losses should be assessed.

1. In Ex parte Llynvi Coal & Iron Co In re Hide (1871) 7 LR Ch App 28 the Court of Appeal in Chancery was called on to consider the Bankruptcy Act 1869, s23 (Imp) which entitled a person injured by disclaimer to "be deemed a creditor of the bankrupt to the extent of such injury" and to "prove the same as a debt under the bankruptcy".

1. It was submitted by counsel for the trustee in that case as it was submitted to me in these proceedings by counsel for the liquidator, that "assuming that the lessors have received some injury, in assessing the loss regard must be had to the insolvency of the lessee". At p32 James LJ dealt with that submission as follows:

   "The question then arises – What is the injury? This is the only point on which the Respondent's case, as it seems to me, will bear any argument. But I think it would be most unreasonable to say that the injury sustained by the lessor is the loss of the proof he would have had under the 31st section. It is said that if the 23rd section was not here he would be entitled to prove under the 31st; but he is deprived of that proof, and therefore may have a dividend on the dividend he has lost. The estate will produce say 2s in the pound; he must, it is contended, prove for the dividend he would have received at that rate, and claim a dividend on that dividend. That cannot be a reasonable intention to be attributed to the Legislature. I am satisfied that the injury referred to in the section means the legal wrong that is done him. He is deprived of a certain contract, under which he was to recover a certain sum of money, and he is to prove against the estate for that which he would have had a right to recover or to sue for if he had not been deprived of that right by the bankruptcy."

   Mellish LJ agreed with him and at p33 said:

   "It is quite plain that the object of these sections is that the bankrupt shall be absolutely relieved from any liability under any contract he has ever entered into. And the bankrupt being so relieved, it is plainly also the intention of the Legislature that the person deprived of the right of action against the bankrupt, and of the benefit of the contract which he made with the bankrupt, should be turned into a creditor in respect of what the Act describes as the injury he has received. That, I think, must mean in respect of what he would have been entitled to recover against the bankrupt if the bankrupt had remained solvent. It would be contrary to every principle that in assessing the damages which could have been recovered against the bankrupt if he had not been made bankrupt, and for which proof is made, you are to take into consideration the fact of the bankrupt being insolvent, so that the amount of the proof is to depend upon the extent of his insolvency. Such could not have been the intention of the Legislature, nor do I think that it is the natural construction of the words. Take the case of an ordinary contract. The section says that if there is a contract which is a burdensome contract, not performed at the time of the bankruptcy, such as a contract to make a railway, to build a house or a ship, the contract itself is absolutely to be put an end to by the disclaimer of the trustee. What is the person who has entered into the contract to prove for? Surely he is to prove for the damage which could be recovered for the breach of the contract. That appears to me to be naturally enough described by the words of the section: 'Any person injured by the operation of this section' – that is to say, any person deprived of any property, right of action, or contract which he had with the bankrupt – 'shall be deemed to be a creditor of the bankrupt.' To what extent? 'To the extent of such injury.' Surely that is the extent, measured as far as you can measure it in money, of the value of what could have been recovered against the bankrupt."

1. These opinions, expressed with the robust and concise logic which so typified English judges of that time, are, in my view, equally applicable to the legislative scheme which is to be seen in s454 of the Companies Code. In my opinion there is no legitimate distinction to be drawn between the word "injury" in the Bankruptcy legislation and the word "loss" which is used in the Code. In In re Sneezum Ex parte Davis (1876) 3 Ch D 463 at 475 and In re Hooley Ex parte United Ordnance & Engineering Co (1899) 2 QB 579 at 582, Mellish LJ and Lindley MR respectively, equated the right of a creditor upon disclaimer to a right to receive "damages".

1. I am of the opinion that in the circumstances of the case before me it is plain that Tasbar has indeed suffered a loss in consequence of the disclaimer and on the basis of the evidence and the agreed facts that loss should be allowed at $10,584.00. There was no material before me to suggest that the machines in question have a residual value to Tasbar and indeed the evidence of Mr Taylor satisfies me that attempts to lease the equipment to potential users have been and will be, unsuccessful.

1. Accordingly no deduction should be made from this sum of $10,584.00 and, in my view, the liquidator should accept Tasbar's proof of debt for that amount. I give directions accordingly.