In the matter of Zegrob Pty Ltd

[2006] FCA 504

FEDERAL COURT OF AUSTRALIA

In the matter of Zegrob Pty Ltd [2006] FCA 504

MEDIA CORPORATION AUSTRALIA LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (ACN 003 072 455) v
ZEGROB PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED)
(ACN 101 194 281)

NSD 733 of 2006

LINDGREN J
18 APRIL 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 733 OF 2006

IN THE MATTER OF ZEGROB PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (ACN 101 194 281)

BETWEEN:	MEDIA CORPORATION AUSTRALIA LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ACN 003 072 455) PLAINTIFF
AND:	ZEGROB PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ACN 101 194 281) DEFENDANT
JUDGE:	LINDGREN J
DATE OF ORDER:	18 APRIL 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The plaintiff be granted leave to file in Court an originating process, an interlocutory process, the affidavit of Christopher John Palmer sworn 18 April 2006, and a consent to be appointed as liquidator provisionally signed by Mark William Pearce on 12 April 2006.

2.Upon Christopher John Palmer and Brian Patrick Collis of O’Brien Palmer Chartered Accountants and Insolvency Practitioners giving to the Court the usual undertaking as to damages, Mark William Pearce of Pearce & Heers Insolvency Accountants, Brisbane, be appointed as liquidators of Zegrob Pty Limited provisionally.

3.The originating process be returnable at 2:15pm on Monday 24 April 2006.

4.Service including service of this order be effected on the receivers and managers of Zegrob Pty Limited and Glenn Seage by 12 noon on Thursday 20 April 2006 and that the time for service be abridged accordingly.

5.        These orders be entered forthwith.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 733 OF 2006

IN THE MATTER OF ZEGROB PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (ACN 101 194 281)

BETWEEN:	MEDIA CORPORATION AUSTRALIA LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ACN 003 072 455) PLAINTIFF
AND:	ZEGROB PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ACN 101 194 281) DEFENDANT
JUDGE:	LINDGREN J
DATE:	18 APRIL 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 18 April 2006 I ordered that Mark William Pearce of Pearce & Heers Insolvency Accountants, Brisbane be appointed as liquidator of the defendant provisionally.  I did so as Corporations Duty Judge in circumstances of urgency.  The following are my reasons.

2. The plaintiff (‘MCAL’) applied for an order that the defendant (‘Zegrob’) be wound up or, in the alternative, for an order appointing an official liquidator as liquidator of Zegrob provisionally.

3. The evidence shows that MCAL is a creditor of Zegrob.  The winding up ground on which it relies is Zegrob’s insolvency, alternatively, the joint and equitable ground.

4. There is evidence of the insolvency of Zegrob.  MCAL asked me to make a winding up order but I declined, deciding to appoint a provisional liquidator and to fix an early return date.  MCAL’s concern is, in substance, its inability to obtain information concerning a substantial asset, namely, the proceeds of a sale by Zegrob of certain newspapers to News Limited.  A report by a provisional liquidator may allay (or increase) MCAL’s fears.

   FACTS

5. The facts are complex.  They are deposed to in a lengthy affidavit of Christopher John Palmer made on 18 April 2006.  However, Mr Palmer, and therefore the Court, does not yet have all the factual information for which one would wish.

6. On 22 March 2006, Mr Palmer and his partner, Bryan Patrick Collis, were appointed as receivers and managers of MCAL by Midwest Radio Network Pty Ltd, pursuant to a first ranking fixed and floating charge granted by MCAL to that company on 18 June 2002.  At that time, MCAL, the chargor, was called ‘Midwest Radio Ltd’.  Michael John Norris was appointed as a director of MCAL on 18 June 2002, and the ultimate holding company of MCAL is MJ Norris Investments Pty Ltd.  Mr Norris attested the affixing of the common seal of MCAL (then Midwest Radio Ltd) to the deed of fixed and floating charge.  According to the Office of State Revenue imprint, the charge secured $1,644,844.09.

7. The change of name from ‘Midwest Radio Ltd’ to MCAL occurred on 11 September 2002.

8. According to Mr Palmer’s affidavit, MCAL is a holding company of several other companies, and conducts in its own right a radio station known as ‘Radio 2LT’.

9. Zegrob was formerly called ‘Australian Newspapers Pty Ltd’.  Its name change occurred in November 2005.  At all material times, Mr Norris has also been a director of Zegrob.

10. According to the evidence before me, MCAL owns all the issued shares in Zegrob.  However, a question arises whether this is so.  Mr Norris has informed Mr Palmer that on or about 30 June 2005, MCAL agreed to sell its shares in Zegrob to another subsidiary of MJ Norris Investments Pty Ltd, namely, Newspapers Pty Ltd.  Mr Norris was a director of that subsidiary too.  On or about 22 August 2005, Mr Norris advised the Australian Securities and Investments Commission (‘ASIC’) of the sale.  Thus, according to ASIC records, it is not MCAL but Newspapers Pty Ltd that holds all the issued shares in Zegrob.  However, Mr Norris has informed Mr Palmer that the agreement for sale as between MCAL and Newspapers Pty Ltd was terminated and that MCAL’s shareholding in Zegrob was in fact never transferred to Newspapers Pty Ltd.  There is in evidence a form of notification given by Mr Norris to ASIC on 10 April 2006 requesting ASIC to amend its records on the basis that ‘the sale of shares that was contemplated did not get finalised’.  I proceed on the basis that Zegrob remains a wholly owned subsidiary of MCAL.

11. Mr Palmer states that it appears to him on the basis of his inspection of records that, as at 28 February 2006, Zegrob owed MCAL $520,008.53.

12. As a result of certain transactions referred to below, it appears that Zegrob became indebted to Malcolm Quinn and to Glenn Seage (or to a company associated with the latter), and that in each case the debt was and is secured by a charge over Zegrob’s assets in favour of Mr Quinn.  On 23 December 1995, pursuant to his charge, Malcolm Quinn appointed Paul Desmond Sweeney and Michael Stimpson of SV Partners, as receivers and managers of Zegrob.

13. Messrs Sweeney and Stimpson filed with ASIC a report as to affairs in relation to Zegrob on 24 February 2006.  This showed Zegrob as having assets of $2,925,210 subject to charges totalling $2,082,910, leaving a sum of $842,300 to satisfy unsecured creditors, whom they particularised as follows:

    MCAL  $341,782
    Glenn Seage              500.000
      -----------
      $841,782
      ======

    As noted earlier, however, according to Mr Palmer, the debt owed to MCAL is $520,008.53. 

14. I turn now to the circumstances in which the indebtedness and accompanying charge to Mr Quinn arose.  Mr Palmer has prepared the following diagram illustrating the relationships between the companies within the group of which Zegrob is a part.

    The main underlying assets are a newspaper called ‘Westside Weekly’, formerly owned by The Rescue Party Pty Ltd, and another newspaper called ‘Ipswich’s Own’, formerly owned by Six Appeal Pty Limited.  There is evidence of the existence of a third newspaper, ‘The Pioneer News’.

15. Through the Hoops Pty Ltd owns 85 percent of the issued share capital of Six Appeal Pty Ltd, and the remaining 15 percent is owned by Zegrob.  Six Appeal Pty Ltd owns all the issued shares in the capital of Don’t Miss Pty Ltd.

16. On 17 March 2005, Glenn Seage or his company, Underseage Marketing Pty Ltd, sold its 15 percent holding in Six Appeal Pty Ltd to Zegrob.  The price was $500,000, payable by instalments secured by a charge given by Zegrob.  Title to the shares passed upon the making of the sale agreement, and the price of $500,000 was ‘credited’ to the loan account of Mr Seage with Zegrob, that is, Zegrob is shown as owing Mr Seage $500,000.

17. On 29 March 2005, Malcolm Quinn sold his shares in Through the Hoops Pty Ltd to Zegrob.  It is difficult to state the sale price with confidence because Zegrob assumed liability to Mr Quinn for other monies as well.  Perhaps for present purposes, it suffices to note that in his affidavit, Mr Palmer states simply that the sale price was $2,234,250.  Again, the price was to be paid by instalments and was secured by a charge given by Zegrob to Mr Quinn over Zegrob’s undertaking.  Title to the shares passed upon the making of the sale agreement.

18. Zegrob’s ledger records its indebtedness to Mr Quinn at $2,022,910.  Between 28 February 2005 and 1 December 2005, a total of $210,000 is recorded as having been paid by Zegrob to Mr Quinn.

19. On or about 26 October 2005, Zegrob granted a fixed and floating charge to Mr Quinn to secure its obligation to pay him in respect of the sale of his shares in Through the Hoops Pty Ltd to Zegrob.  Mr Palmer expresses the opinion that at the time of the giving of that charge, it is quite likely that Zegrob was unable to pay its debts as and when they were due and payable.  He gives reasons for that opinion.

20. The report as to affairs in relation to Zegrob furnished by Messrs Sweeney and Stimpson showed the amount owed by Zegrob to Mr Quinn as $2,082,910.

21. What has prompted the application for the appointment of a provisional liquidator is the recent sale of underlying newspaper assets, and Mr Palmer’s inability to obtain information about the sale.  Mr Norris has informed Mr Palmer that, on or around 21 December 2005, he negotiated a sale of the ‘Westside Weekly’, ‘The Pioneer Times’ and the ‘Ipswich’s Own’ newspapers to News Limited for $7 million.  There is in evidence a letter dated 21 December 2005 from News Limited to Mr Norris in which News Limited makes a firm offer of $7 million for the three newspapers, subject to the performance of certain conditions.  Mr Norris has informed Mr Palmer that, on or about 23 December 2005, News Limited paid a deposit of $700,000.  Apparently the sum of $700,000 was paid to Hopgood Ganim Lawyers, who represented Zegrob.  On 20 January 2006, Gadens Lawyers, representing Zegrob’s receivers and managers, wrote to Hopgood Ganim Lawyers requesting that the sum of $700,000 held in their trust account be transferred to the trust account of Gadens.  The letter contained the sentence, ‘We undertake to hold the funds on the same terms as prescribed in the deposit agreement dated 23 December 2005’.  That deposit agreement is not in evidence, and no doubt Mr Palmer does not have it.

22. On 3 April 2006, Mr Palmer wrote to Hall Lawyers, the solicitors for Mr Quinn, requesting much information including information about the sale to News Limited.  The letter asserted that on or about 20 January 2006, Hopgood Ganim Lawyers paid the deposit of $700,000 either to Zegrob’s receivers and managers or to their solicitors Gadens.  The letter asserted that the sale to News Limited was finalised by Messrs Sweeney and Stimpson as receivers and managers of Zegrob on or about 10 March 2006.  On 7 April 2006, Hall Lawyers replied.  They pointed out that, according to ASIC, MCAL did not own any shares in Zegrob (to which they referred as ‘Australian Newspapers Pty Ltd’).  They asserted that all of the shares in Zegrob were held by Newspapers Pty Ltd, which had held them since 2004.

23. On 13 April 2006 Messrs Sweeney and Stimpson wrote to the receivers and managers of MCAL (Messrs Palmer and Collis) advising that neither they nor their lawyers had received the deposit of $700,000 paid by News Limited to Hopgood Ganim Lawyers.

24. According to Mr Palmer’s affidavit, Michael Norris has advised Mr Palmer that Malcolm Quinn, without the involvement of Messrs Sweeney and Stimpson, finalised the sale of two of the newspapers, the ‘Westside Weekly’ and the ‘Ipswich’s Own’, and that the ultimate sale price was less than $4,300,000.  Mr Palmer states that he is unaware why the price dropped from $7 million to $4.3 million.  He does not refer to the fact that News Limited’s ‘firm offer’ was for three newspapers and apparently only two of them were in fact sold.

25. There is a written consent by Mr Norris as a director of both MCAL and Zegrob to the winding up of Zegrob on the application of MCAL.

26. The conditions of an appointment of a provisional liquidator are satisfied: Corporations Act 2001 (Cth), s 472. MCAL, a creditor of Zegrob, applies for the winding up of that company. If Mr Norris informed Mr Palmer accurately, MCAL is also the sole contributory of Zegrob.

27. In relation to discretion, I think it desirable that an independent official liquidator become involved.  It seems clear that Messrs Palmer and Collis, as receivers and managers of MCAL, have been unable to obtain information as to the proceeds of the sale to News Limited.  It is desirable that Messrs Palmer and Collis become informed as soon as possible about the sale.

28. A provisional liquidator’s investigations and report will no doubt clarify the position.

29. The order will be made upon Messrs Palmer and Collis giving to the Court the usual undertaking as to damages.  I will provide for an early return date of the winding up application and make an order for service on the receivers and managers of Zegrob and Glenn Seage.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:            5 May 2006

Counsel for the Plaintiff:	Mr A P Spencer
Solicitor for the Plaintiff:	The Argyle Partnership
Date of Hearing:	18 April 2006
Date of Judgment:	18 April 2006