Johnson Winter & Slattery in the matter of Firepower Operations Pty Ltd (No 2)

[2008] FCA 1228

FEDERAL COURT OF AUSTRALIA

Johnson Winter & Slattery in the matter of Firepower Operations Pty Ltd (No 2)
[2008] FCA 1228

CORPORATIONS – choice of person to be liquidator of company to be ordered to be wound up – choice between one of two voluntary administrators on the one hand and a person nominated by the plaintiff on the other hand – defendant company (in administration) acting through administrators supporting one of the administrators - plaintiff creditor supporting a different official liquidator who had support of a person claiming to be a major creditor who undertook to Court to fund that liquidator up to $100,000 – voluntary administrator had no funding support at present – submission that liquidator supported by claimant “creditor” would not be perceived to be impartial in determining whether latter was truly a creditor of company.
Held:  (1) it should not be assumed that official liquidator would not discharge his duties impartially; (2) existence of substantial funding on one side and none on the other carried the day.

IN THE MATTER OF FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549)

JOHNSON WINTER & SLATTERY v FIREPOWER OPERATIONS PTY LTD
(ACN 112 074 549)

NSD 817 OF 2008

LINDGREN J
13 AUGUST 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 817 OF 2008

IN THE MATTER OF FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549)

BETWEEN:	JOHNSON WINTER & SLATTERY Plaintiff
AND:	FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549) Defendant

JUDGE:	LINDGREN J
DATE OF ORDER:	4  AUGUST 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Firepower Operations Pty Ltd (ACN 112 064 549) (the Company) be wound up in insolvency under Part 5.4 of the Corporations Act 2001 (Cth) (the Act).

1. Bryan Kevin Hughes of Pitcher Partners, Level 17, Georges Terrace, Perth, Western Australia be liquidator of the Company.

1. The interlocutory processes filed by:

   (a)  ET (Firepower) Pty Ltd on 4 July 2008 and 28 July 2008;

   (b)  Western Australian Rugby Union (Inc) on 2 July 2008;
   (c)  Rolen Pty Ltd on 2 July 2008;
   (d)  Rutpen Limited on 3 July 2008;
   (e)  Fradjalah Samani on 22 July 2008; and
   (f)   Firepower Operations Pty Ltd (in voluntary administration) on 28 July 2008,

   be dismissed.

2. The costs of Robert John Boylan’s application brought by interlocutory process filed on 23 July 2008 to be substituted as plaintiff form part of the costs of the winding up.

1. The costs of the application for an order that the Company be wound up be paid out of the property of the Company according to the order of priority set out in s 556(1) of the Act.

THE COURT NOTES THAT:

1. There is no order as to costs in respect of the interlocutory processes, other than that referred to in order 4 above.

1. Ross Graham, through counsel, undertakes to the Court to fund Mr Bryan Kevin Hughes as liquidator of the Company up to an amount of $100,000, to conduct investigations in relation to the dissipation of assets of the Company and the potential recovery of those assets. 

   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 817 OF 2008

IN THE MATTER OF FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549)

BETWEEN:	JOHNSON WINTER & SLATTERY Plaintiff
AND:	FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549) Defendant

JUDGE:	LINDGREN J
DATE:	13  AUGUST 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1On 1 August 2008 I ordered that Robert John Boylan be substituted as plaintiff for Johnson Winter & Slattery:  see Johnson Winter & Slattery in the matter of Firepower Operations Pty Ltd [2008] FCA 1227.

2On 4 August 2008 I ordered that the defendant be wound up in insolvency and that Bryan Kenneth Hughes be liquidator.  These are the reasons why I made those orders.

3The defendant is in voluntary administration by reason of a resolution of its sole director, Timothy Johnson, passed on 21 July 2008.  Geoffrey David McDonald and Brent Kijurina, both of Hall Chadwick, were appointed voluntary administrators.  They convened a meeting of creditors which was held on 31 July 2008 when the creditors decided not to oppose the making of a winding up order. 

4There is an outstanding issue, however, as to whether Bryan Kevin Hughes of Pitcher Partners, Perth, or Mr Kijurina should be appointed as liquidator.  Both have signed consents to act. 

5The substituted plaintiff, Mr Boylan, seeks the appointment of Mr Hughes, whereas the defendant in voluntary administration seeks the appointment of Mr Kijurina. 

6Mr Kijurina’s co-administrator, Mr McDonald, has appeared in person to assist the Court.  In his capacity as a voluntary administrator, Mr McDonald has also been giving instructions on behalf of the defendant to the defendant’s legal representatives.

7In the earlier reasons for judgment I explained why I found that the defendant was insolvent and should be wound up, but deferred making the winding up order pending resolution of the issue as to who should be appointed liquidator.

8Rolen Pty Ltd (Rolen), a company of which Ross John Graham is a director, claims to be a substantial creditor of the defendant.  Rolen lodged a proof of debt with the administrators in a sum of $11,162,230.83.  Rolen is by far the largest creditor of the defendant that is not associated with Mr Johnston, a director and the controlling mind of the defendant (assuming that Rolen is a creditor at all - see below).

9Mr Graham has proffered his personal undertaking to the Court to fund Mr Hughes up to an amount of $100,000 to investigate the affairs of the defendant and the recoverability of assets for the benefit of its creditors.  Mr Graham is not willing, however, to fund Mr Kijurina if he should be appointed liquidator.

10The argument put against Mr Hughes’s appointment is that, according to the defendant, there will be a question whether the defendant is indebted to Rolen.  Mr N J Kidd of counsel who appeared for the defendant was able to point to some evidence suggesting that the money that was paid by Rolen to the defendant was paid to it as share capital, not loan capital.  He submits that it would be unsatisfactory if Mr Hughes, having been nominated and funded by Mr Graham, was required to decide the question of indebtedness.

11On the other side, Mr Kidd accepts that so far as the present evidence goes, Mr Kijurina is not funded.  He suggests that it is early days and it may be that some creditors will come up with funds.  He submits that there ought to be an opportunity for this to happen.

12Mr J T Johnson, counsel for Mr Boylan, submits that there is no evidence that Mr Hughes will not act impartially in deciding the question whether Rolen  is a creditor of  the defendant. 

13If one puts Rolen to one side, the larges two creditors of the defendant, according to an interim list of creditors dated 23 July 2008 prepared by the voluntary administrators, are Firepower Investments Pty Ltd and Green Triton Ltd, which are owed in all $13,037,662.00 out of total debts of $16,289,624.01 according.  Both of those companies are associated with and controlled by Mr  Johnston,.  The submission that a particular liquidator is likely to be perceived to favour a particular creditor or particular creditors seems to be available in respect of Mr Kijurina, as much as it is in respect of Mr Hughes.

14While in a perfect world it may be desirable that where there is a challenge to the indebtedness of the funding creditor, the issue be determined by a liquidator who has not been funded by that creditor, it should not be assumed that a liquidator who has been so funded will not perform the duties imposed on him or her by the law.   I note that the question of independence is discussed in Ch 6 of the Insolvency Practitioners Association’s Code of Professional Practice for Insolvencies Professionals.

15There is some cause for concern relating to the circumstances of the appointment of the present voluntary administrators.  I am not suggesting invalidity of the appointment but circumstances which could dispose unrelated creditors against an appointment of Mr Kijurina as liquidator.  In the defendant’s notice of appearance in this proceeding filed on 16 July 2008, the defendant opposed the application for winding up on, inter-alia, the ground that it was not insolvent.  I assume that Mr Johnston gave instructions to the solicitor who filed that notice of appearance to that effect.  Yet five days later, on 21 July 2008, Mr Johnston, in his capacity as sole director of the defendant, was able to resolve that it was the opinion of the Board constituted by himself that the defendant was likely to become insolvent at some future time.  It is plain that the defendant was already insolvent.

16The administrators themselves have been frustrated by Mr Johnston’s failure to communicate with them.

17Of course, Mr Kijurina is not to be tarnished by Mr Johnston’s having given the instructions to the solicitor and by his failure to communicate with the administrators, but it remains the case that the unrelated creditors may have a sense of grievance if Mr Kijurina is appointed liquidator in circumstances in which he and Mr McDonald were appointed as administrators by Mr Johnston and in which Mr Johnston’s two companies mentioned would have majority voting power at a meeting of creditors.

18On the issue of utility/futility it was plainly desirable that Mr Hughes rather than Mr Kijurina be appointed.  It is true, as Mr Kidd pointed out, that given time another creditor or group of creditors may see fit to fund Mr Kijurina, but against that possibility it is to be weighed the present undertaking proffered to the Court by Mr Graham.

19It was for the above reasons that I made orders on 4 August 2008 that the defendant be wound up and that Bryan Kevin Hughes be liquidator.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:        13  August 2008

Counsel for the substituted plaintiff Robert John Boylan:	Mr J T Johnson
Solicitor for the substituted plaintiff Robert John Boylan:	Lavan Legal
Counsel for the Defendant, Firepower Operations Pty Limited (administrators appointed):	Mr N J Kidd
Date of Hearing:	4 August 2008
Date of Judgment:	13 August 2008