Look Property Group Pty Ltd v Gateway Developments (Vic) Pty Ltd

[2011] VSC 237

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

S CI 2011 02128

LOOK PROPERTY GROUP PTY LTD (ABN 51 125 985 855)	Plaintiff
v
GATEWAY DEVELOPMENTS (VIC) PTY LTD (ACN 127 962 832)	Defendant

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JUDGE:	GARDINER As J
WHERE HELD:	Melbourne
DATE OF HEARING:	1 June 2011
DATE OF JUDGMENT:	3 June 2011
CASE MAY BE CITED AS:	Look Property Group Pty Ltd v Gateway Developments (Vic) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2011] VSC 237

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CORPORATIONS – Winding up – administrator appointed several days before the hearing of the winding up application – administrator sought adjournment of the winding up application which was opposed by creditors who could determine outcome of second meeting of creditors – application for adjournment refused – administration terminated pursuant to s 447A of the Corporations Act 2001 and winding up order made.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. A. Robins	Nathan Kuperholz, solicitor, in association with Kliger Partners
For the Defendant	Mr E. Moon	Norton Rose
For the Deputy Commissioner of Taxation	Ms A. O’Brien	ATO Legal
For the supporting creditors	Mr M. Pirrie

HIS HONOUR:

1. The plaintiff makes application for an order under s 459P of the Corporations Act 2001 (“the Act”) that the defendant (“Gateway”) to be wound up in insolvency. 

1. The application is based on a failure by Gateway to comply with a statutory demand which was served on Gateway on 13 January 2011.  Gateway made application to set aside the demand but that application was dismissed on 18 April 2011 and Gateway was ordered to pay indemnity costs.  Gateway failed to comply with the demand within seven days after that date and it is presumed to be insolvent[1]. 

   [1]Section 459F(2)(ii) and 459C(2)(a) of the Act

1. The plaintiff is owed $283,347.50 by Gateway pursuant to an agreement made in March 2008. The debt is comprised of a number of invoices for sales commission in connection with a development at Nicholson Street, in East Brunswick. 

1. In addition, the Deputy Commissioner of Taxation filed a Notice of Appearance contending he was owed $1,940,550.13 by Gateway. The plaintiff sought a winding up order and this application was supported by the Deputy Commissioner of Taxation. The plaintiff’s documentation complied with the requirements of the Act and the Supreme Court (Corporations) Rules 2003.

1. On 27 May 2011, Mr Brendan Marchesi was appointed administrator of the defendant by the directors pursuant to s 436A of the Act. Mr Moon of counsel, who appeared on behalf of Mr Marchesi, filed an affidavit sworn by Mr Marchesi on 31 May 2011. In the final paragraph of that affidavit, he sought an adjournment of the application until the first available date after 1 July 2011 in order that a proposal that the company enter into a deed of company arrangement could be considered at a meeting of the creditors convened pursuant to s 439A of the Act. As such, it had the characteristics of an application under s 440A(2) of the Act exemplified by the decision of the Queensland Court of Appeal in Creevey v Deputy Commissioner of Taxation[2].

   [2]19 ACSR 456.

1. At the hearing, however, Mr Moon only sought an order that the application be adjourned for one week.  The purpose for an adjournment for that period was to enable the first meeting of creditors to take place on 7 June 2011 and to enable the directors of Gateway to conduct negotiations with the creditors in relation to the proposal for the deed of company arrangement.  As such, it was not an adjournment of the type ordered in Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co-operative[3] where the adjournment was granted to allow the administrator to put on appropriate material in support of an application to adjourn for a longer period or to enable the administrator to make a more informed appraisal of whether the company has prospects of continuing to trade in the long term.  Nonetheless, there is a discretion in the Court to adjourn the winding up application if some good purpose is demonstrated. 

   [3](1999) 32 ACSR 194.

1. In his affidavit, Mr Marchesi deposes that Gateway operates a property development at a site at 25-31 Nicholson Street, Brunswick East, in Victoria. The development consists of 55 residential premises and three retail premises. The assets of the company are detailed in Mr Marchesi’s affidavit and consist of the balance of the residential and retail premises which have not already been sold. There are several secured creditors and Mr Marchesi states that, although he has not completed his investigations, he is presently of the view that the sale of the residential and retail premises is not likely to yield a return to the unsecured creditors. There is no information available as to involvement by the company in insolvent trading or voidable transactions under Part 5.7B of the Act.

1. One of the directors of the company, Mr Kirsch, has provided Mr Marchesi with a list of the unsecured creditors of the defendant.  It includes the debts owing to the plaintiff and the Deputy Commissioner of Taxation for the sums that those parties contend they are owed.  The next two creditors identified are Keys Industrial Pty Ltd, which is said to be owed $97,005, and DJ Dalanie Pty Ltd, said to be owed $80,068.99.  These are related party debts in that one of the directors of Gateway, Mr Zammit, is the sole director and shareholder of Keys Industrial Pty Ltd and Mr Kirsch, the other director of the company, is a director and shareholder of Dalanie Pty Ltd.  Aside from those unsecured creditors, there are ten other unsecured creditors but they are owed relatively small sums, the largest of them being the sum of $13,750 owed to JJ Raine & Horne Commercial. 

1. In his affidavit, Mr Marchesi states that the directors of the company have informed him and he believes that they intend to put forward a deed of company arrangement whereby the directors will pay the defendant $100,000 within 90 days of the execution of the deed and that neither of their respective related companies, Dalanie Pty Ltd or Keys Industrial Pty Ltd, will claim a distribution under the deed. 

1. Mr Marchesi states that if the deed as proposed is entered into, the creditors would obtain a return of approximately four cents in the dollar.  He states that this represents a better return to creditors than would occur in the winding up of the company. 

1. Mr Robins of counsel, who appeared on behalf of the plaintiff and Ms O’Brien, who appeared on behalf of the Deputy Commissioner of Taxation, indicated that their clients opposed any application for adjournment.  In substance, it was indicated that their clients regarded the amount proposed as derisory and that there was no point to any adjournment as their combined vote could defeat any resolution that the company enter into a deed of company arrangement. Mr Pirrie who appeared on behalf of several secured creditors did not oppose a short adjournment.

1. The matter was stood down to enable discussions to take place in respect of the proposal which would be put to creditors but those discussions did not result in any agreement to entertain any varied proposal.  I do not regard if as appropriate to grant an adjournment the major purpose of which is to enable the directors to attempt to negotiate by something akin to an auction process a proposal which is acceptable to the creditors.

1. Because Mr Marchesi has only been appointed several days ago, he has not yet completed his investigations of the defendant’s financial position, nor has he received a copy of the statement of affairs from the directors.  He states that on a preliminary view the proposal put forward by the directors provides a better return to creditors than would occur in liquidation. 

1. If I was considering this application on the basis that it was an application under s 440A(2), the onus would be on the defendant to demonstrate by persuasive evidence that it is in the interests of the defendant’s creditors that the administration continue rather than a liquidation ensue[4].  The material which has been put forward would not discharge the onus which the company bears.  This, however, is not an application under s 440A, rather it is what Santow J described in Deputy Commissioner of Taxation: in the matter of First Netcom Pty Ltd[5] as an “intermediate case” where:

…where it is in the interests of the company’s creditors for there to be a sufficient time by way of a brief adjournment of the winding up application for the possible prospect of greater benefit to creditors to be investigated, usually involving a deed of company arrangement.  The result may be either that this prospect proves fruitless or that this prospect becomes sufficiently probable that the matter should be left finally to creditors to decide usually by voting on a deed of company arrangement.  I am satisfied that this is such a case both because of the very great potential and comparative benefits if the administrator’s recommendation turns out to be well-founded when he has opportunity to investigate further its necessary underpinning and because the adjournment needed to do this is relatively modest.

In my view, there is not even the basis for “optimistic speculation”, much less “persuasive evidence” that an adjournment, even for a week, is in the interests of creditors as it is most unlikely indeed that an acceptable proposal might emerge[6].

[4]See Creevey v DCT (1996) 19 ACSR 456; See DCT v Yeates Security Services Pty Ltd (1997) 26 ACSR 629.

[5][2000] NSWSC 989.

[6]Waste Recycling and Processing Services of New South Wales v Local Government Recycling Cooperative Limited (1999) 32 ACSR 194.

1. In Re Intag International Limited and the Corporations Law,[7] Young J considered that the Court in this type of situation should ask itself four questions:

(a)Is the company insolvent?

(b)Is the company salvageable?

(c)Is the proposed salvation in the interest of creditors?

(d)Is the proposed salvation in the public interest?

[7][1999] NSWSC 571.

1. The defendant is clearly insolvent.  As to its salvagability, I would not understand that the proposal involves the company being resurrected as a trading entity.  What would be occurring is the sale of the remaining properties owned by the company and, so far as is possible, the discharge of its secured debts.  By a modest injection of funds (when one has regard to the amount of the deficiency to unsecured creditors) the deed would operate to discharge the unsecured debts of the company for four cents in the dollar.   I agree with the plaintiff and the supporting creditor that the sum proposed is derisory.

1. The creditors, who appeared in this application and who represent over 90% of the unsecured creditors, and who stand to benefit by the proposed deed of company arrangement, are adamant that they will vote against it if it is put to a meeting of creditors, and say there is no point to the company incurring the expenditure of convening a meeting of creditors for that purpose.  There is no element of public interest involved.  A liquidator appointed to the defendant will perform any public interest requirements. 

1. In my view, the application for the adjournment should be refused, the administration of the company terminated and a winding up order made. 

1. I will make orders as follows:

As a separate order, I order that the administration of the company, which commenced on 27 May 2011, be terminated pursuant to s 447A of the Corporations Act 2001. 

As a distinct set of orders, I order:

1.Gateway Developments (Vic) Pty Ltd ACN 127 962 832 be wound up in insolvency under the Corporations Act2001;

2.Gess Michael Rambaldi be appointed liquidator in the winding up;

3.The costs of the supporting creditors M. and C. Aldred, Melanie Aldred and Cheryl Aldred as supporting creditors are costs in the winding up. 

I note that Ms O’Brien, who appeared on behalf of the Deputy Commissioner of Taxation, did not make any application for the costs of the Deputy Commissioner of Taxation as supporting creditor.

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