Interchase Corporation Ltd (ACN 010 663 993) The application of Gregory Paul Kelly and Richard Anthony Barber
[1992] FCA 344
•18 May 1992
4-4 42
JUDGMENT No. .. 3" ,..., J ,, C A T C H W O R D S
CORPORATIONS LAW - Provisional liquidation - direction by court approving sale of whole of company's assets - * jurisdiction and extent of court's power to make direction.
CORPORATIONS LAW - Provisional liquidation - provisional liquidators sought order authorising and approving the entry into a settlement agreement and the compromise of a number of claims - direction by court finding it "proper" to enter into settlement agreement and to compromise claims.
The Corporations Law, ss. 9, 477 and 479(3) O1 ]UN 1992 Federal Court Rules, 0. 46 r. 6, 0. 71 r. 51 AUSTRAL& PRINCIPAL REGISTRY
Northbourne Developments Ptv. Ltd. v Reibv Chambers Ptv. Ltd.
(1990) 8 A.C.L.C. 39
~e ~oihwells Ltd. (1989) 7 A.C.L.C. 545
Sanderson v Classic Car Insurances Ptv. Ltd. (1986) 4 A.C.L.C.
114
IN THE MATTER OF INTERCHASE CORPORATION LIMITED f IN PROVISIONAL LIOUIDATIONI AND SECTIONS 460 AND 461 OF THE CORPORATIONS LAW
18 MAY, 1992
AUSTRALIAN COMPANY NUMBER 010 663 993
The application of
GREGORY PAUL KELLY and RICHARD ANTHONY BARBER (PROVISIONAL
LIOUIDATORS OF INTERCHASE CORPORATION LIMITED1
NG 3018 of 1991
DRUMMOND J
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA 1 No. NG 3018 of 1991 NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION 1
IN THE MATTER OF INTERCHASE CORPORATION LIMITED (IN
PROVISIONAL LIOUIDATION) AND SECTIONS 460 AND 461 OF 1 THE CORPORATIONS LAW
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AUSTRALIAN COMPANY NUMBER 010 663 993
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The application of I L.,,
I:-
GREGORY PAUL KELLY and
RICHARD ANTHONY BARBER ! ., /PROVISIONAL LIOUIDATORS OF INTERCHASE COWORATION ! LIMITED1 I .
MINUTES OF ORDERS
JUDGE MAKING ORDER: Drummond J DATE OF ORDER: 18 May, 1992 WERE MADE : Brlsbane THE COURT ORDERS THAT:
1. The applicants have leave to amend their notice of motion filed 15 May, 1992 so:
(i) that paragraph l(a) now reads: "the Court directs that the applicants on behalf of Interchase Corporation Limited (in provisional liquidation) (receiver appointed) may enter into and complete a contract for the sale of the Myer Centre on 10 March, 1992 (being the contract a copy of which is exhibit " W - 6 " to the affidavit of Richard Anthony Barber sworn 15 May, 1992 and filed hereln) ;
(ii) as to delete paragraph l(b)
2. The affidavit of Richard Anthony Barber filed by leave on 18 May, 1992 including the two exhibits "RAB-1" and "RAB-2", which are annexed to the affidavit, is to remain confidential in these -
proceedings to the applicants.
3. The applicants' costs of and incidental to this application are costs in the provisional liquidation.
4. The applicants have liberty to apply.
THE COURT DIRECTS THAT:
1. The applicants on behalf of Interchase Corporation Limited (in provisional liquidation) (receiver appointed) ( " Interchase " ) may enter into and complete a contract for the sale of the Myer Centre on 10 March, 1992 (being the contract a copy of which is exhibit "RAB-6" to the affidavit of Richard Anthony Barber sworn 15 May, 1992 and filed herein).
It is proper for the applicants on behalf of Interchase to enter into a settlement agreement with Boonjie Pty. Ltd. in respect of the Myer Centre (belng the settlement agreement, a copy of which is exhibit "RAB-1" to the affidavit of Richard Anthony Barber filed by leave on 18 May, 1992).
It is proper for the applicants to compromise the claims between Interchase and certain other companies involved in the design, construction; management and leasing of the Myer Centre (and their
officers) as set out in the settlement agreement. NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA 1 NO. NG 3018 of 1991 NEW SOUTH WALES DISTRXT REGISTRY ) GENERAL DIVISION 1
IN THE MATTER OF INTERCHASE CORPORATION LIMITED (IN PROVISIONAL LIOUIDATIONl AND SECTIONS 460 AND 461 OF THE CORPORATIONS LAW
AUSTRKLIAN COMPANY NUMBER 010 663 993
The application of
GREGORY PAUL KELLY and
CORAM: Drummond J
PLACE: Brisbane
M: 18 May, 1992
EX TEMPORE REASONS FOR JUDGMENT
By a notice of motion amended by leave, the
applicants, who are the provisional llquidat&s of Interchase --
Corporation Limited, have applied for directions on behalf of
the company that they may enter into a contract for*-the sale
of the Myer Centre and for an order whereby the court authorises and approves the entry by the applicants on behalf of the company into a settlement agreement and compromise.
The applicants were appointed provisional liquidators of the company by Lockhart J on 4 April, 1991. Under the order appointing them, the applicants' powers include the power specified in S. 477(2)(c) of the Corporations Law to sell or otherwise dispose of, in any manner, all or any part of the property of the company.
It is not necessary for the provisional liquidator applicants to seek any directions from the court approving the sale.
, They have been given that express power under the order
appointing them. However, in Northbourne Developments Ptv.
Ltd. v Reiby Chambers Ptv. Ltd., (1990) 8 A.C.L.C. 39,
McLelland 3, in giving a decision under the provisions of the Companies (New South Wales) Code and Supreme Court Rules (New South wales) which are equivalent to S. 477 of the Corporations Law and Order 71 rule 51 of the Federal Court Rules, said at pages 43 and 44:
"The powers specified in sec. 377(2)(a)-(k) of the Code include the power to "(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company." The rule also provides that "The exercise by the provisional liquidator of the powers conferred by this rule is subject to the control of the Court and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers" (reflecting sec. 377(5) of the Code). Ordinarily, 'a provisional liquidator's pri,mary duty
possible harm to all concerned', as Street J put it is to preserve an existing status quo with the least
in Carapark Industries Ptv. Ltd. (in liauiditionl (1967) 1 NSWR 337 at P. 341." However. as Bowen CJ
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C.L.C. 40-126 at p. 27,906: 'cases arise where the in & pointed out in- Re Codisco ~tv.' Ltd. (1974) only way to preserve the assets and undertaking of a company, or at least their value for creditors and
contributories, may be to sell them quickly.' In such a case although it will often be prudent for a provisional liquidator to himself approach the court for an appropriate direction to pre-empt any future complaint by a creditor or contributory, there is no legal obligation upon him to do so."
Given that the provisional liquidators are intending to sell what is effectively the whole of the company's remaining assets for AUD200 million in circumstances in which the company is insolvent, it is understandable that they seek an indication from the court that it is in order for them to
. sell for that amount.
There appears to be no express power comparable to
S. 479(3) of the Coroorations Law vested in the court to give
directions of the kind here sought, to a provisional liquidator as opposed to a liquidator. There is as yet no winding up in existence and the term "liquidator" as defined in S. 9 of the Cor~orations Law for the purposes of S. 479(3) may not include a provisional liquidator. As to the latter polnt, I note, however, that there are dicta to the contrary which are referred to by Cooper J in Re Rothwells Ltd. (1989) 7 A.C.L.C. 545 at 550.
But in any event, the provisional liquidators, as
officers of the court, can, as the decision in Re Rothwells
Ltd. shows, invoke the inherent jurisdiction of the court in seeking these directions. The material before me indicates that the only asset
of the company of any significance is the Myer Centre, that
is, the real property on which this shopping centre isconstructed, and the leases of space in the centre to various retailers and others.
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The value of this asset at varying points in time is covered by paragraph 14 of Mr. Barber's affidavit filed on 15 May, 1992. He deposes to valuations made between February 1987 and February 1991 by a number of different valuers valuing the centre at a maximum of $500 million and a minimum
. of $230 million. He mentions that the valuers who made the
February 1991 valuation, while assessing the market value as
then being in the range of
$230 million to $260 million, qualified this by saying that it
was extremely difficult to find buyers for properties of over
$200 million in value.
As I have said, the provisional liquidators were appointed on 4 April, 1991. They have carried out a range of tasks, including tasks designed to improve the value of the centre. These matters are covered in Mr. Barber's first affidavit in paragraphs 16(a), (c), (e), (f), (g), and (i) in particular.
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The centre opened for trading on 28 March, 1988. The net rental income for the years ending 30 June, 1990 and
30 June, 1991 was approximately $23.2 million and $19.4 million respectively. Mr. Barber says in paragraph 17 of his first affidavit that for the year ending 30 June, 1992 he anticipates an increased rental of the order of $20.1 million.
As at 30 April, 1992 the indebtedness of the company stood at approximately $180 million to secured creditors, a little over $2 million to unsecured creditors and, in relation to the unsecured subordinated noteholders, $120 million in respect of principal, plus approximately $26.4 million
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interest accrued but not paid.
~t is clear that the rental income, even though Mr. Barber says it has increased under the provisional liquidation, is well short of the $28.1 million needed in the current financial year to service the secured borrowings, quite apart from the interest obligations of the company to the unsecured noteholders, which obligations include for the current financial year a total estimated liability of $14.4 million.
Further financial assistance either in the form of a restructuring of the company's existing obligations to secured creditors and noteholders, or in the form of an additional injection of funds is not obtainable. The secured creditors, Commonwealth Bank of Australia and State Bank of South Australia, are now pressing for repayment of the secured
debts. There is the prospect, therefore, of a forced sale by
them if the present transaction does not proceed. There is no reason at all to think that a mortgagee's sale would be any more advantageous to the other creditors than the present transaction. It may well be far less advantageous.
There are, I think, good grounds for Mr. Barber's
belief deposed to in paragraph 22(b) of his first affidavit
where he says:
"I believe that the sale of the Myer Centre by us in a well promoted and orderly fashion, following rectification of problems associated with the encroachments from the Centre onto adjoining private and Crown land, is to be preferred to a sale by a secured creditor or a liquidator (in a winding up), having due regard to the interests of all interested
parties. "
Steps taken by the provisional liquidators to sell the centre are set out at length in paragraphs 24 to 27 of Mr. Barber's first affidavit. The ultimate strategy decided upon was to seek a sale by tender. No conforming tenders were received, but about 20 expressions of interest were received from parties within Australia and from South-East Asia, principally Singapore and Hong Kong. There have been negotiations with a number of these parties.
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These negotiations culminated on 10 March, 1992 in company for the purchase of the Myer Centre for $200 million
the liquidators entering into a contract on behali of the
by a company, Power Twenty-Two Pty. Ltd.. A deposit of $20 million has already been paid pursuant to this contract. The contract was originally conditional upon Power Twenty-Two Pty. Ltd. obtaining finance, but the purchaser has now walved that particular condition. The contract, although still conditional in other respects, is
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essentially a straightforward arms-length sale contract. It i . I I
will ultimately be discharged by payment by the purchasers of i the balance purchase price of $180 million and by transfer by i ! . the company of title to the property sold on the settlement *
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date, which is fixed at 17 July, 1992. I . : ' t 2 ! The net sale proceeds are sworn by Mr. Barber to be sufficient to pay out the secured creditors in full, to pay
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I , . , out the unsecured creditors in full, and to produce a dividend I ( ; . a to the unsecured noteholders of the order of 11.6 cents in the _.- !. dollar. I I r The secured creditors and the trustee for the noteholders have been kept informed of and approve of this decision to sell to Power Twenty-Two Pty. Ltd..
There will be no surplus, quite obviously, for distribution in either a winding up or otherwise to the company's contributories. But notice of this application was given by facsimile to Messrs. Allen Allen and Hemsley, the
solicitors for the directors of Interchase, on 14 May, 1992.
No response has been received to this facsimile. I therefore infer that the directors of Interchase do not wish to oppose the sale. I mention in this regard that in their Report as to Affairs of the company dated 4 April, 1991 the directors stated that, while they were unable to estimate the value of the centre, they suggested a figure of $200 million. That is the figure that has now been achieved a little less than 12 months later in the sale to Power Twenty-Two Pty. Ltd..
It is also noteworthy that given the company's
present level of indebtedness - secured debts of $180 million,
. unsecured creditors of $2 million and the total indebtedness in respect to principal and interest to the noteholders of
$146.4 million, a total of $328.4 million - a price of $200
million plus a further $128.4 million would have to be achieved before the company's contributories could begin to look for even one cent in the dollar return on their capital contributions to the company.
The evidence satisfies me that it would be impossible to obtain any significant increase on the $200 million for which Power Twenty-Two Pty. Ltd. has conditionally contracted to buy the Centre, at least in any reasonable future time frame.
The contract contains the following provision in
clause 45.1:
"The parties obligations in respect of completion of this Agreement are subject to and conditional upon the satisfaction or waiver of the following conditions ("Completion Conditions") in accordance with this Agreement:
(a)
Richard Anthony Barber and Gregory Paul Kelly, as Provisional Liquidators of Interchase obtaining any such order or orders from the Federal Court of Australia sanctioning the entry by Interchase into and completion of this Agreement as those provisional liquidators may require ..."
The court's power to indicate its approval of a sale transaction by a liquidator, provisional or otherwise, is not
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unlimited. Northbourne was a case in which there was an unsuccessful challenge to a sale made without prior court - direction by the provisional liquidator of property that ; comprised effectively the whole of the company's assets. In
that case, McLelland J at page 44 said:
"Even where such an application is made it is necessary to bear in mind that there are limits to the kind of question on which the Court will normally think it proper to give directions."
His Honour, I interpolate, was talking about an application similar to that now made here.
Continuing at page 44, McLelland J said:
"A question of principle, e.g., as to whether in
particular circumstances it is proper for a
provisional liquidator to exercise his power of saleof the whole or a substantial part of a company's assets or undertaking is to be distinguished from a question whether a particular sale or particular terms of sale are commercially prudent. The latter type of question is primarily a matter for the commercial judgment of the provisional liquidator."
To the same effect is a statement in Sanderson v
Classic Car Insurances Ptv. Ltd. (1986) 4 A.C.L.C. 114 at 116
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where, in an application by a liquidator but otherwise similar
to that now made, Young J said:
"... it is usually only proper to exercise that
power where the matter involves guidance to the liquidator on matters of law or principle or to protect him against accusations of acting unreasonably. The court does not usually consider it proper to intervene and make the liquidator's commercial decision for him."
The original application in this matter sought an order that entry by the applicants, on behalf of Interchase Corporation Ltd., into the contract wlth Power Twenty-Two Pty. Ltd. be approved and a further order that the applicants be authorised to affirm and complete the contract on behalf of the company.
The application was amended to seek the directions I have already mentioned in acknowledgment by the applicants of the court's limited power to assist provisional liquidators with directions, which limitations are referred to ili Northbourne. ,-
In reliance on the facts which I consider material to the present application and which I have summarised, I am prepared to give a direction in terms of paragraph l(a) of the amended notice of motion.
The application also seeks the court's authorisation and approval of a compromise with Remm Pty. Ltd., now called Boonjie Pty. Ltd., the main developer of the Centre, of claims between them together wlth the court's authorisation and approval oi a compromise of certain other claims arising out of encroachments by part of the structure of the Centre onto adjoining land owned by Medleylodge Pty. Ltd..
The provisional liquidators' appointment does not confer on them power to compromise claims by the company.
The contract with Power Twenty-Two Pty. Ltd. contains the following provision in clause 45.1:
"The parties obligations in respect of completion of this Agreement are subject to and conditional upon the satisfaction or walver of the following conditions ("Completion Conditions") in accordance with this Agreement:
(a) . . .; and
(b)
the grant of the Medleylodge Easement and registration of the Medleylodge Easement in the Department of Lands."
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The provisional liquidators have negotiated mutual were involved in the development of the Myer Centre (which
releases with Boonjie, some companies related to Boonjie which
companies are listed in the draft settlement agreement) and with Property Estates (Qld) Pty. Ltd. which acted as the project manager for the development of the Myer Centre on Interchase's behalf, and with various officers of these companies.
These releases are conditional upon:
(i) the court approving entry into the settlement agreement;
(ii) registration of the easement in favour of Interchase to be granted by Medleylodge over the areas affected by the rock anchors which encroach onto land adjoining the Centre owned by Medleylodge; and
(iii) registration of an access easement which will allow Medleylodge to construct and use access ways linking internally the Myer Centre with a proposed development on the Medleylodge land.
The release is also conditional upon the execution by Property Estates (Qld) Pty. Ltd. of a release of its rights against Interchase and Boonjie in respect of the Myer-Centre.
The proposed settlement arises out of difficulties for the company due primarily to, firstly, the construction of these external anchor supports for the Centre, not only in the Medleylodge land, that is, land sold by Boonjie to Medleylodge, but also in land owned by ANZ Banking Group Ltd. and, secondly, by design problems which have resulted in difficulties in maintaining and cleaning the atrium roof of the Myer Centre.
Mr. Barber estimates that if entirely successful in actions that may be blrought in respect of the losses it has
, suffered due to these causes, the company could expect to
recover about $850,000.00 plus a further $282,000.00 it had to pay to the ANZ Bank Ltd. in respect of the encroachments into the AN2 Bank land. No litigation has yet been commenced, although detailed legal advice on prospects of success has been obtained by the provisional liquidators. A copy of this advrce is exhibit "RAB-2" to b . Barber's second affidavit, which was filed and read by leave today.
The complexity of the company's claims and the reasons for uncertainty in the provisional liquidators being able to predict the likely result of the company litigating these claims are summarised in paragraphs 8(a) to (f) of Mr. Barber's second affidavit. I accept that Mr. Barber's assessment recorded in paragraphs 9 and 10 of this second
that for a number of reasons including the fact that if the affidavit is a reasonable one in the circumstances. I say proposed actions, and there would have to be a number of them, were entirely successful in what would be very complex and expensive litigation against a number of parties, the result would be that a further sum of a little less than one cent in the dollar would be available for distribution to the unsecured noteholders.
Exhibit 1, which is a copy of the latest available annual return for Boonjie, also contains some evidence which
supports the proposition that that company might not be in a
position to satisfy a substantial judgment even if Interchase - were able to prosecute it successfully against Boonjie. The trustee for the noteholders has been advised of this application and no response has been made by him to it. I therefore infer that he has no opposition, on behalf of the noteholders, to the application insofar as it relates to sanctioning the compromise.
Whether the provisional liquidators decide to commit the company to the settlement in terms of the draft exhibited involves, in large part, a commercial assessment of the pros and cons of the various elements comprising that settlement agreement. If it needs to be made clear, the point is well demonstrated by paragraphs 8 to 12 of 5 . Barber's second affidavit as well as by pages 27 to 29 of the exhibited legal
advice. ,- It is therefore not appropriate for the court to express approval of the provisional liquidators' intended action as claimed in paragraph 2(i) of the amended notice of motion. Although the provisional liquidators' express powers do not include power to enter into the settlement, the court has, as I have already indicated in reliance upon the decision in Re Rothwells Ltd., an inherent power wide enough to enable it to give appropriate directions in relation to the course the provisional liquidators are minded to embark upon.
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Applying the criteria set out in Re Rothwells Ltd.
at pages 550 to 551, I am prepared to direct that in the
. circumstances I have summarised, it would be proper for the
provisional liquidators on behalf of the company to enter into a settlement agreement with Boonjie Pty. Ltd. in respect of the Myer Centre (being the settlement agreement, a copy of which is exhibit "RAB-1" to the affidavit of Mr. Barber filed and read by leave this morning).
I am also prepared to direct that it would be proper in those circumstances for the provisional liquidators to compromise the claims between the company and certain other companies involved in the design, construction, management and leasing of the Myer Centre (and their officers) as set out in that same settlement agreement.
The applicants also seek orders that Mr.-Barber's and the legal advice on prospects of success in litigation be second affidavit, including the draft settlement agreement,
kept confidential. The settlement agreement has not yet been executed although all parties are now prepared to do so. I have concluded that it would be proper for the provisional liquidators to enter into the settlement agreement in the interests of all creditors of the company: the sale agreement is conditional upon an element of the settlement agreement being implemented, and the provisional liquidators are entitled to take the view that the prospects of recouping the company's losses by litigation are such as to make entry into the compromise a proper exercise by them. I am therefore prepared to declare in terms of Order 46 rule 6(l) (h) of the
. Federal Court Rules that the copy of the draft settlement agreement, which is exhibit "RAB-l", and the copy legal advice, which is exhibit "RAB-2", to Mr. Barber's second affidavit ought both to remain confidential in these proceedings to the applicants.
While I have revealed some of the material set out in Mr. Barber's second affidavit, it does contain matter with respect to the proposed settlement and with respect to the legal advice. I think the most practical course to be followed by me is to order that the whole of that affidavit is also to be kept confidential. This means that no one, other than the provisional liquidators, can inspect b . Barber's second affidavit or any of the exhibits to it, without first obtaining the leave of the court.
I certify that this and the fifteen preceding pages is a
true copy of the reasons for
judgment herein of the
Honourable Mr. Justice Drummond.Associate:
Date : 18 May, 1992
Counsel for the applicants: R.N. Chesterman Q.C. and
J.D. McKenna
Solicitors for the applicants: Feez Ruthning Date of Hearing: 18 May, 1992
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