Matthew David Woods and Hayden Leigh White as Joint and Several Liquidators of Little Tiger Pty Ltd (in Liq) as trustee of the BPH Trust v Little Tiger Pty Ltd (in Liq)
[2014] WASC 372
•7 OCTOBER 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF LITTLE TIGER PTY LTD (IN LIQ) AS TRUSTEE OF THE BPH TRUST -v- LITTLE TIGER PTY LTD (IN LIQ) [2014] WASC 372
CORAM: PRITCHARD J
HEARD: 11 & 12 SEPTEMBER 2014
DELIVERED : 12 SEPTEMBER 2014
PUBLISHED : 7 OCTOBER 2014
FILE NO/S: COR 174 of 2014
BETWEEN: MATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF LITTLE TIGER PTY LTD (IN LIQ) AS TRUSTEE OF THE BPH TRUST
First Plaintiff
MATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF GWYNGALCHU PTY LTD (IN LIQ) AS TRUSTEE FOR THE BPS TRUST
Second PlaintiffMATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF NEREUS PTY LTD (IN LIQ) AS TRUSTEE FOR THE BPM TRUST AND AS TRUSTEE FOR THE JSM TRUST
Third PlaintiffMATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF ESSFOR PTY LTD (IN LIQ) AS TRUSTEE FOR THE BLAH TRUST
Fourth PlaintiffMATTHEW DAVID WOODS AND HAYDEN LEIGH WHITE AS JOINT AND SEVERAL LIQUIDATORS OF TRECCO BAY PTY LTD (IN LIQ) AS TRUSTEE FOR THE GOODBOND PARTNERSHIP TRUST
Fifth PlaintiffAND
LITTLE TIGER PTY LTD (IN LIQ)
First DefendantGWYNGALCHU PTY LTD (IN LIQ)
Second DefendantNEREUS PTY LTD (IN LIQ)
Third DefendantESSFOR PTY LTD (IN LIQ)
Fourth DefendantTRECCO BAY PTY LTD (IN LIQ)
Fifth Defendant
Catchwords:
Corporations Law - Winding up - Application by liquidators to wind companies up in insolvency - Application for approval of entry into Sale Agreement and Security Agreement where obligations to be performed more than three months after agreements entered into - Application for directions regarding liquidators' remuneration and accounts to be maintained - Principles to be applied
Legislation:
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
First Plaintiff : Mr J C Vaughan SC & Mr C D Belyea
Second Plaintiff : Mr J C Vaughan SC & Mr C D Belyea
Third Plaintiff : Mr J C Vaughan SC & Mr C D Belyea
Fourth Plaintiff : Mr J C Vaughan SC & Mr C D Belyea
Fifth Plaintiff : Mr J C Vaughan SC & Mr C D Belyea
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Solicitors:
First Plaintiff : Clayton Utz
Second Plaintiff : Clayton Utz
Third Plaintiff : Clayton Utz
Fourth Plaintiff : Clayton Utz
Fifth Plaintiff : Clayton Utz
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Cases referred to in judgment:
Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334
Brown v DML Resources Pty Ltd (in liq) (No 7) [2002] NSWSC 162; (2002) 41 ACSR 299
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321
Chamberlain v RG&H Investments Pty Ltd (No 2) [2009] FCA 1531; (2009) 76 ACSR 415
Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529
Commonwealth of Australia v Emanuel Projects Pty Ltd (1996) 21 ACSR 36
Dean-Willcocks v Soluble Solutions Hydroponics Pty Ltd (1997) 42 NSWLR 209
Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180
Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394
Elfic Ltd v Macks [2001] QCA 219; [2003] 2 Qd R 125
Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99
Jones, Saker, Weaver and Stewart (liquidators), in the matter of Great Southern Ltd (in liq) [2012] FCA 1072
Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94;(1960) 107 CLR 411
Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163
Re 7 Steel Distribution Pty Ltd (in liq) (Receivers and Managers Appointed) [2013] NSWSC 669
Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409
Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117
Re Carson; Hastie Group Ltd (No 4) [2012] FCA 968
Re FAI Traders Insurance Co Pty Ltd [2002] NSWSC 1080
Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 30
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re Great Southern Managers Australia Ltd (in liq); Ex parte Martin Bruce Jones, Darren Gordon Weaver and James Henry Stewart (In their capacity as Liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312
Re HIH Insurance Ltd [2004] NSWSC 5
Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375
Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247
Re Opel Networks Pty Ltd [2013] NSWSC 1245
Re Pinata Pty Ltd (in liq); Killen v Hamilton [2012] NSWSC 162
Re Read [2007] FCA 1985; (2007) 164 FCR 237
Re Sparad Ltd (1993) 12 ACSR 12
Re The Bell Group Ltd (in liq); Ex parte Woodings (as liquidator of The Bell Group Ltd (in liq)) [2009] WASC 235
TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (admins apptd) [2012] NSWSC 766; (2012) 91 ACSR 17
Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464; (2006) 57 ACSR 525
Worrell, Re Reg 5.6.06 of the Corporations Regulations 2001 [2010] FCA 934; (2010) 189 FCR 59
Table of Contents
Introduction
1. Factual background
The Partnerships
Sale of the Accounting Practice
The Sale Agreement
The Security Agreement
Provisions which concern obligations continuing for a period longer than three months
2. The application for orders that the companies be wound up in insolvency
(a) The orders sought by the Liquidators
(b) Dispensation from requirements for advertising and service
(c) The insolvency of the companies and the appointment of the Liquidators
(d) Leave to the Liquidators to seek appointment as liquidators in the winding up in insolvency
3. The application for approval of the companies' entry into the Sale Agreement and the Security Agreement
(a) The orders sought by the Liquidators
(b) The principles in relation to the grant of approval under s 477(2B) of the Act
(c) Approval for the companies' entry into the Sale Agreement and the Security Agreement
(d) Validity of the application for approval of the Liquidators' entry into the Sale Agreement
4. The application for the ancillary orders
(a) The orders sought by the Liquidators
(b) Principles in relation to directions under s 479(3) of the Act
(c) The direction in relation to the Liquidators' performance of the Sale Agreement
(d) The direction in relation to the Liquidators' remuneration
(e) The direction in relation to the accounts to be maintained in the winding up
(f) Costs and liberty to apply
PRITCHARD J:
Introduction
Mr Woods and Mr White (the Liquidators) are the joint and several liquidators of the defendant companies (the companies) pursuant to a resolution of the members of each of the companies to voluntarily wind up these companies. By an amended Originating Process dated 9 September 2014 (the Application), the Liquidators sought relief of three broad kinds: first, orders that the companies be wound up in insolvency under s 459A of the Corporations Act 2001 (Cth) (the Act) and that the Liquidators be appointed the liquidators of the companies; secondly, approval and directions relating to the Liquidators' decision to cause the companies to enter into a sale agreement (the Sale Agreement) for the sale of an accounting practice known as Barringtons (the Accounting Practice) and approval to enter into a general security agreement (the Security Agreement); and finally, various ancillary orders in relation to the liquidation of the companies.
Each of the companies is a private company which acts as the trustee of a trust. Little Tiger Pty Ltd (in liq) as trustee of the BPH Trust, Gwyngalchu Pty Ltd (in liq) as trustee for the BPS Trust and Nereus Pty Ltd (in liq) as trustee for the BPM Trust, are partners (the BYBA Partners) in the Barringtons Your Business Advisors Partnership (BYBA Partnership). Essfor Pty Ltd (in liq) as trustee for the Blah Trust, Trecco Bay Pty Ltd as trustee for the Goodbond Partnership Trust and Nereus as trustee for the JSM Trust, are partners (the BP Partners) in the Barringtons Partnership (BP Partnership).
The BYBA Partnership and the BP Partnership (the Partnerships) together conduct the Accounting Practice.
In the course of the hearing of the Application, it became clear that the financial position of the Accounting Practice, and in turn of the Partnerships, and of the companies, was such that the Partnerships would no longer be able to trade if the Sale Agreement did not complete within days, and if the Partnerships ceased to trade the Sale Agreement would not complete. The outcome in that event would very likely be (as I explain later) that the companies' creditors, including the employees in the Accounting Practice, would lose their only existing prospect of recovery in the liquidation.
In these circumstances, at the conclusion of the hearing, I expressed my view that I was satisfied that the orders sought by the Liquidators should be made, that I would do so immediately, and that in due course I would publish my reasons for making those orders. These are those reasons.
In these reasons for decision I deal with the following matters:
1.Factual background;
2.The application for orders that the companies be wound up in insolvency;
3.The application for approval of the companies' entry into the Sale Agreement and the Security Agreement; and
4.The application for the ancillary orders.
Factual background
In support of the Application, the Liquidators relied on affidavits sworn by Mr Woods on 1 September 2014, 4 September 2014, 6 September 2014 and 12 September 2014. The following factual outline is drawn from those affidavits.
On 29 May 2014, the shareholders of the companies resolved to place each of the companies in voluntary liquidation, to appoint Mr Woods and Mr White as the liquidators of the companies, and to effect a dissolution of the Partnerships. At that time, Mr Rick Hopkins was the director and secretary, and the sole shareholder, of Little Tiger, Mr Brynley Scott was the director and secretary of Gwyngalchu and Ms Lisa Scott was its sole shareholder, Mr Justin Manolikos was the director and secretary, and the sole shareholder, of Nereus, Mr Hopkins was the director and secretary, and the sole shareholder, of Essfor, and Mr Scott was the director and secretary of Trecco Bay, while its two classes of shares were owned by that company itself, and by Ms Lisa Scott, respectively.
Prior to the resolutions to voluntarily wind up the companies, the directors of each of the companies signed solvency declarations.
The Partnerships
Mr Woods deposed that as a result of the inquiries and investigations he has undertaken since his appointment as a liquidator of the companies, he has gained an understanding of the operation of the Partnerships. The corporate and trust structures behind the Partnerships are complex.
Mr Woods' understanding is that the sole purpose of each of the companies is to act as the trustee of the trusts which comprise the Partnerships, that the BYBA Partnership is the operating entity behind the Accounting Practice, and that another company, Barringtons Your Business Advisors Pty Ltd (BYBA Pty Ltd) acted as the agent of, and solely for and on behalf of, the BYBA Partnership. The Liquidators (in their capacity as liquidators of the companies comprising the BYBA Partners) appointed BYBA Pty Ltd as their agent in order to ensure that the Accounting Practice continued to operate through the process of the voluntary winding up of the companies.
Mr Woods' understanding that the BYBA Partnership is the operating entity behind the Accounting Practice was based on an analysis of the trading and profit and loss statements, and balance sheets for the BYBA Partnership (the BYBA Financials). Those documents indicate that fees and disbursements (generated by accounting services to clients) are recorded in the BYBA Financials, all salary costs and payroll tax for employees are recorded as expenditure in the BYBA Financials (despite the fact that employees are recorded as being employed by BYBA Pty Ltd) and the rent and outgoings for the premises occupied by the Accounting Practice is also recorded as expenditure in the BYBA Financials (although the lessee is another company). In addition, bank facilities provided by the Commonwealth Bank (CBA) for use in the Accounting Practice have been provided to BYBA Pty Ltd but Mr Woods' understanding is that those facilities are regarded by the CBA as borrowings for the benefit of the BYBA Partnership (and not for BYBA Pty Ltd), are recorded in the BYBA Financials, and are secured in part by guarantees given by the BYBA Partners.
Mr Woods has also analysed the trading and profit and loss statement, and balance sheet, for the BP Partnership (the BP Financials). The only income of the BP Partnership is a licence fee paid by the BYBA Partnership. Even after he reviewed the BP Financials, the purpose or function of the BP Partnership remained unclear to Mr Woods.
Sale of the Accounting Practice
Mr Woods deposed that he had formed the view that it was preferable that the Accounting Practice be sold as a going concern, and in an expedited fashion, in order to maximise the value of the assets of the business. Mr Woods' view was that it was also preferable to sell the Accounting Practice as a whole because the complex trust and corporate structure behind the Partnerships meant that it was not possible to determine and divide the assets of the Partnerships between the companies with any degree of certainty.
Since his appointment as liquidator in the voluntary winding up, Mr Woods has had multiple weekly discussions with Mr Hopkins, Mr Manolikos, Mr Scott, and representatives of former partners in the Partnerships, Mr Napoli and Mr Addison. (Mr Napoli and Mr Addison, and companies with which they are associated, are parties to several actions in this Court arising out of disputes concerning the Partnerships.) Mr Woods said they agreed with his assessment that the Accounting Practice should be sold.
Since late June 2014, Mr Woods has engaged in a public tender process for the sale of the Partnerships' business. He deposed that between July and August this year he engaged in extensive negotiations with two parties following written expressions of interest by those parties. Mr Woods executed the Sale Agreement on behalf of the companies on 27 August 2014.
The Sale Agreement
The parties to the Sale Agreement are the Sellers (namely the BP Partners and the BYBA Partners), the Buyer - a company called Barringtons Accounting Pty Ltd in its capacity as the trustee for three trusts, namely the OAU Trust, the JSMop Trust and the Caeldfwich Trust (BA Pty Ltd) - and the directors of BA Pty Ltd, namely Mr Hopkins, Mr Manolikos and Mr Scott (the Directors). The sole shareholder of BA Pty Ltd is a company called Sentinel Assets Pty Ltd (of which Mr Hopkins, Mr Manolikos and Mr Scott are the directors), while the sole shareholder of Sentinel Assets Pty Ltd is Melidan Pty Ltd, of which Mr Hopkins, Mr Manolikos and Mr Scott are the directors and the shareholders.
The Sale Agreement contains a confidentiality clause which requires the Sellers and the Buyer to keep the existence and terms of the Sale Agreement confidential (subject to certain exceptions, including disclosure to the Court for the purposes of the Application). In order to preserve some utility in that clause, I mention only the key features of the Sale Agreement, and in somewhat truncated terms.
On completion of the Sale Agreement, the Buyer will buy the 'Assets' of the Accounting Practice in consideration for payment of the purchase consideration. Those Assets include the unbilled WIP, the goodwill of the Accounting Practice, the information technology assets, the stock, the intellectual property rights owned by the Sellers and used in relation to the business, the records of the business (save for certain excluded records pertaining to the specified debtors, to which I refer below) and the 'Rights'.[1] The Assets do not include certain excluded assets, including the 'remaining debtors' (to which I refer below).
[1] The 'Rights' means the actions the Sellers have against a third party who has made a claim against the Directors or their related entities in connection with the business or the Assets.
The Buyer is required to carry on the business of the Accounting Practice and collecting the remaining WIP over the 24‑month period following completion of the Sale Agreement.
The purchase consideration is the purchase price plus the assumption by the Buyer of certain liabilities of the Accounting Practice to which I refer below. The purchase price is the greater of either a fixed sum, or 50% of converted WIP minus another fixed sum. The bulk of the purchase price will be paid to the BYBA Partnership. The purchase price is to be paid in initial instalments over 18 months, and subsequently monthly until all the WIP which can be collected has actually been collected. It is anticipated that that collection will be completed in around two years.
The Sellers will retain ownership rights to the remaining debtors, which will be collected by the Buyer, as the agent of the Sellers, at the Buyer's cost. Mr Woods expects that this collection will realise a relatively significant sum. The Buyer will be obliged to use its reasonable endeavours to collect all remaining debts owed to the BYBA Partners. As an incentive to undertake that collection, the Buyer will be entitled to receive a collection fee. The Buyer cannot compromise any of the remaining debts without the written approval of the Sellers. If the Sellers decide to abandon any of the remaining debts, then the Buyer may acquire those abandoned debts, but it will be required to pay the Sellers a portion of what is ultimately collected.
There is also a separate class of specified debtors, comprising clients of Mr Napoli. The Sale Agreement contains a call option for the Buyer to purchase these specified debtors on certain conditions (which include the consent of the CBA, and the settlement of the litigation involving Mr Napoli and the Sellers).
As I have already mentioned, on completion the Buyer will assume certain liabilities. These include liability for the entitlements of the Partnerships' employees. The employees' entitlements constitute a significant component in the liabilities of the BYBA Partnership. In addition, the Buyer will be obliged to make an offer of employment to each existing employee on terms no less favourable than their existing terms of employment, and to treat the service of each employee with the Partnerships as service with the Buyer.
There are a number of safeguards within the Sale Agreement designed to protect the Sellers. The first seeks to ensure the payment of the purchase price, given that it is to be paid in instalments. As security for the payment of the purchase price the Buyer is required to give the Sellers a first ranking security interest over all of the assets and undertakings of the Buyer. That is required to be effected by the execution of the Security Agreement. If the Buyer seeks to re‑finance the Accounting Practice on an ongoing basis, then it may request that the Sellers execute a deed of priority to give its financier priority over the assets and undertakings of the Buyer. However, at all times the Buyer must maintain a first ranking security for the Sellers over billed and unbilled WIP, and over WIP which has been recovered.
Other safeguards in the Sale Agreement are designed to ensure that the Buyer complies with its obligations under the Sale Agreement, and to enable the Liquidators to confirm that the Buyer has properly accounted to the Sellers for WIP and debts which may be collected. In addition, the Directors will provide a guarantee to the Sellers that they will cause the due and punctual performance of the Buyer's obligations under the Sale Agreement. There is no express guarantee of the payment of all moneys due under the Sale Agreement.
The Sale Agreement contains some conditions precedent. Some of the Sale Agreement's key terms ‑ namely those dealing with the sale and purchase of the Assets, the call option and the date for completion - are of no force and effect until the CBA consents both to the Sale Agreement, and to the release of its existing security over the Assets, and until the Court makes directions or orders concerning the Sale Agreement in substantially the same form as orders sought by the Liquidators. Those conditions precedent may only be waived by the Sellers, and the Sellers would be entitled to terminate the agreement if those conditions were not satisfied. The CBA has consented to the Sale Agreement and agreed to release its security over the Assets at completion of the Sale Agreement on certain conditions satisfactory to the Sellers.
The Sale Agreement expressly operates as a deed poll for the benefit of the Liquidators, so that they may rely upon clauses to their benefit (particularly their release from any claim the Buyer may have against the Liquidators arising out of the Sale Agreement) despite the fact that the Liquidators are not a party to the Sale Agreement.
The Security Agreement
As I have observed, the Security Agreement is designed to provide security for the payment by the Buyer of the purchase price under the Sale Agreement. The Security Agreement has not been entered into. An executed copy of the Security Agreement must be provided by the Buyer to the Sellers at completion.
A copy of the proposed Security Agreement is an attachment to the Sale Agreement. The Security Agreement is in the form of a security deed. The parties to the deed will be BA Pty Ltd in its capacity as trustee for the OAU Trust, the JSMop Trust and the Caledfwich Trust (the Grantor) and each of the companies (the Secured Parties). The terms of the Security Agreement reflect the obligations of the Buyer under the Sale Agreement in relation to the Security Agreement. The Security Agreement will operate as a deed poll for the benefit of the Liquidators who are granted a release by the Grantor from any claims the Grantor may have which are connected with, or which arise out of, the Security Agreement.
Provisions which concern obligations continuing for a period longer than three months
As is apparent from the discussion above, the Sale Agreement contains a number of obligations which may be discharged by performance more than three months after that Agreement was entered into. These include those concerning the payment of the purchase price, the collection of the WIP and debts, the provision of access to the Buyer's records for audit purposes, and the provision of security, including those terms concerning changes to the security in the event of a re-financing of the Accounting Practice.
The Security Agreement contains obligations which will endure for the duration of the Grantor's (that is, the Buyer's) obligations to pay the purchase price to the companies under the Sale Agreement.
The application for orders that the companies be wound up in insolvency
In this section of my reasons, I deal with:
(a)The orders sought by the Liquidators;
(b)Dispensation from requirements for advertising and service;
(c)The insolvency of the companies and the appointment of the Liquidators; and
(d)Leave for the Liquidators to seek appointment as liquidators in the winding up in insolvency.
(a) The orders sought by the Liquidators
In relation to that part of the Application which was concerned with orders for the winding up of the companies in insolvency, the orders sought by the Liquidators were:
1.Pursuant to s 467(3)(b) of the Act the following notices or steps usually required on a winding up application in this Honourable Court are dispensed with:
(a)the requirement under s 465A to serve a copy of the application on the Defendants;
(b)the requirements under s 465A(c) of the Act and r 5.6 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Rules) to publish advertisements as to the making of the application; and
(c)the requirement under r 5.5(3)(b) of the Rules to serve a copy of the liquidators' consents to act on behalf of the Defendants.
2.The Defendants be wound up in insolvency under s 459A of the Act.
3.Pursuant to s 532(2)(c) of the Act leave is granted, nunc pro tunc, for Matthew David Woods and Hayden Leigh White (Plaintiffs) to seek to be appointed, and to act, as joint and several liquidators of the Defendants.
4.Pursuant to s 472(1) of the Act the Plaintiffs are appointed as joint and several official liquidators of the Defendants.
(b) Dispensation from requirements for advertising and service
An applicant for an order that a company be wound up in insolvency must lodge a notice in the prescribed form, serve a copy of it on the company and cause a notice setting out prescribed information about the application to be published.[2] The Court has power to dispense with the requirement for notices to be given or steps to be taken under the Act or the Rules.[3]
[2] Corporations Act 2001 (Cth) s 465A; see also Supreme Court (Corporations) (WA) Rules 2004 (WA) r 5.6.
[3] Corporations Act 2001 (Cth) s 467(3)(b).
In this case I formed the view that no useful purpose would be served[4] by insisting on compliance with the notification requirements. Given that the companies' officers, the Liquidators, have brought the Application, there can be no question that the companies are aware of the Application.
[4] Re Sparad Ltd (1993) 12 ACSR 12, 14 (McLelland J); see also Re Carson; Hastie Group Ltd (No 4) [2012] FCA 968 [35] (Emmett J).
A person must not be appointed as a liquidator by the Court unless the person has, prior to the appointment, consented to act as liquidator of the company, and that consent must be in accordance with a prescribed form.[5] The applicant for the order that the company be wound up must file a copy of the liquidator's consent and serve a copy of that consent on the company.[6] There is clearly no issue that the companies are aware of the Liquidators' consent to act given that the companies' officers, the Liquidators, have brought the Application.
[5] Corporations Act 2001 (Cth) s 532(9); Supreme Court (Corporations) (WA) Rules 2004 (WA) r 5.5(2).
[6] Supreme Court (Corporations) (WA) Rules 2004 (WA) r 5.5(3)(b).
As for the requirement to advertise, the only other class of persons who would potentially be notified of the Application through an advertisement would be the creditors of the companies. It was apparent that the secured creditor, the CBA, was already aware of the Application. As for the other creditors, I concluded that no useful purpose would be served by the advertisement of the Application. In reaching that conclusion I took into account whether the interests of the creditors would be affected, having regard to the nature of the orders sought in the Application. In this respect, I took into account the fact that the companies are already in liquidation. In practical terms, the interests of the creditors in the winding up would not be affected by an order that the winding up be one in insolvency, or by the making of the others sought, with one possible exception which is as follows. Because the Liquidators chose (as they were entitled to do) to bring the Application, the dispensation from an advertisement would mean that the creditors would not have an opportunity to make submissions in relation to the appointment of a particular liquidator. In contrast, in the event that the liquidators had held a meeting of the companies' creditors,[7] rather than applying to the Court for an order that the companies be wound up in insolvency, it would have been open to the creditors to appoint another person or persons to be the liquidator of the companies. However, one of the orders I made on the Application was an order granting liberty to any party to make an application to the Court. Should any creditor wish to apply for the appointment of a different liquidator, that course will be open through the grant of liberty to apply.
[7] Corporations Act 2001 (Cth) s 496(1)(c).
In considering the advertising requirement, I also took into account the fact that the Liquidators sought that the Application be heard as quickly as possible, because of the need for some orders to be made expeditiously. As I noted above, by the time of the hearing, Mr Woods' evidence was that if the Sale Agreement did not complete in a matter of days, there would be insufficient funds to pay employee entitlements and the Partnerships would no longer be able to trade, and if the Partnerships ceased to trade, the Sale Agreement would not complete. Given the overlap in the evidence adduced in support of the various orders sought, I concluded that it was appropriate for the entire Application to be dealt with at the one time, and that it was appropriate to dispense with the requirement to advertise the Application in so far as it concerned the orders sought for the companies to be wound up in insolvency.
(c) The insolvency of the companies and the appointment of the Liquidators
In the course of their work in the voluntary winding up, the Liquidators formed the opinion that, notwithstanding the declaration of solvency previously made in respect of the companies, each of the companies would not be able to pay or provide for the payment of its debts in full within the period stated in the solvency declaration. Having formed that opinion, it was incumbent upon the Liquidators to take one of the steps set out in s 496(1) of the Act. A liquidator of a company is entitled to apply to the Court for that company to be wound up in insolvency[8] and in this case, as I have observed, the Liquidators chose to make an application under s 459P for such an order. On an application under s 459P of the Act, the Court may order that an insolvent company be wound up in insolvency.[9]
[8] Corporations Act 2001 (Cth) s 459P(1)(e).
[9] Corporations Act 2001 (Cth) s 459A.
The Act recognises that in some circumstances it will be appropriate for a voluntary winding up to become a winding up by the Court.[10] One of those circumstances ‑ reflected in s 459P(1)(e) - is where a liquidator in a voluntary winding up forms the view that the company is insolvent.[11]
[10] Corporations Act 2001 (Cth) s 467B.
[11] Compare Commonwealth of Australia v Emanuel Projects Pty Ltd (1996) 21 ACSR 36, 40 (Branson J) in relation to s 467B and s 496 of the Corporations Law; see also Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529, 535 (Moore J).
If a company is being voluntarily wound up by its creditors, an order that the company be wound up in insolvency will not ordinarily be made unless there is good reason to do so. But that is because there is little practical difference between the winding up in each case.[12] The position is different when the company is being wound up voluntarily by its members in circumstances where there has been a declaration of solvency by the directors of the company. In that case, the making of an order by the Court for the company to be wound up is based on a fundamentally different premise ‑ namely the insolvency of the company ‑ and the consequence is different because the liquidator appointed will act as an officer of the Court. If such an order is made, it is not necessary that an order be made terminating the voluntary winding up.[13]
[12] Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394 [17] (Besanko J).
[13] Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394 [12] (Besanko J).
Having regard to the evidence set out in Mr Woods' affidavits, I was satisfied that the companies are insolvent. A company is insolvent if it is unable to pay all its debts as and when they become due and payable.[14]
[14] Corporations Act 2001 (Cth) s 95A.
Mr Woods is an accountant, he has acted as the liquidator of the companies since late May 2014, and as a result of his work as the liquidator of the companies has had the opportunity to examine the financial records pertaining to the Partnerships and the companies, and to investigate the operation of the Partnerships and of the Accounting Practice. He believes that the Partnerships will not be able to pay their debts as and when they fall due, and not within the time specified in the solvency declarations, namely within 12 months of the commencement of the voluntary winding up.
Mr Woods deposed that as at 31 August 2014, the BYBA Partnership had significant debts comprising trade creditors, statutory liabilities, a significant liability for employee entitlements including superannuation (for which Mr Woods believes the BYBA Partnership is ultimately liable, as principal, notwithstanding that BYBA Pty Ltd, as its agent, employs those employees), a debt to the Australian Taxation Office, a debt to the CBA, and debts to aged creditors. Mr Woods deposed that the liabilities of the BYBA Partnership include debts which are past due in the amount of $786,000.
There also exists a potential debt to the former partners of the Partnerships, although that liability is contingent on the outcome of the litigation involving the former partners.[15] It was not necessary for me to rely upon this potential debt in order to reach the conclusion that the companies are insolvent.
[15] Cf Corporations Act 2001 (Cth) s 459D.
There was no cash on hand. As at 6 September 2014, the bank account maintained by BYBA Pty Ltd was overdrawn by $32,000.
I also took into account Mr Woods' evidence that on 6 August 2014, the Liquidators entered into a loan with the current directors of the companies as there were insufficient funds available to pay wages for the employees working for the BYBA Partnership. Mr Woods' view was that the Accounting Practice would need a further capital injection during September 2014 if it was to be able to meet its ongoing obligations, particularly employees' wages.
Having regard to Mr Woods' evidence, which I accepted, I was satisfied that the existence of the debts which are past due, having regard to the lack of funds immediately available to the BYBA Partnership, established that the companies which are the BYBA Partners ‑ namely Little Tiger, Gwyngalchu and Nereus ‑ are insolvent.
For completeness I note that Mr Woods deposed that the BYBA Partnership has aged debtors of more than $1.125 million, including almost $800,000 in debts of over 120 days or more, although he notes that that figure must be seen in the context of a history of doubtful debts of the BYBA Partnership of about 30% of all debts. To the extent that the BYBA Partnership may be able to recoup some of what is owed by these debtors, that process will clearly take some time. The existence of that possibility does not, of course, detract from the immediate conclusion that the companies who are the BYBA Partners are insolvent.
Given its present financial position, the BYBA Partnership is clearly not in a position to pay the licence fee to the BP Partnership. Mr Woods' belief is that if that licence fee is not paid, the BP Partnership will also be insolvent. The BP Financials suggest that the BP Partnership has current liabilities of over $33,000 and virtually no cash on hand. Its assets include an unsecured loan to the BYBA Partnership of over $368,000. (It was not entirely clear whether that loan equated to the BYBA Partnership's licence fee.) In any event, clearly there is no capacity for the BYBA Partnership to repay that loan in the immediate future.
I was satisfied that in these circumstances the BP Partnership is presently insolvent, and accordingly that the companies which are the BP Partners ‑ namely Essfor and Trecco Bay (in addition to Nereus, to which I have already referred) - are insolvent.
Accordingly, it was appropriate to make an order that the companies be wound up in insolvency under s 459A of the Act.
On an order being made for the winding up of a company, the Court may appoint an official liquidator to be the liquidator of the company.[16] A person must not be appointed as liquidator of a company unless the person is a registered liquidator or is registered as a liquidator of that company.[17]
[16] Corporations Act 2001 (Cth) s 472(1).
[17] Corporations Act 2001 (Cth) s 532(1).
Mr Woods and Mr White are already acting as the liquidators of the companies, and clearly consent to continuing to do so.
There was nothing before the Court to suggest that the Liquidators should not be appointed as liquidators in the winding up in insolvency. There was no evidence of any business association with the companies or any social contact with persons associated with the companies which would render them unsuitable for appointment.
Accordingly I was satisfied that an order should be made appointing Mr Woods and Mr White as the joint and several liquidators of the companies.
(d) Leave to the Liquidators to seek appointment as liquidators in the winding up in insolvency
The Liquidators sought a grant of leave pursuant to s 532(2)(c) of the Act, nunc pro tunc, to permit them to seek appointment, and to act as the liquidators of the companies.
Section 532(2) of the Act provides that a person must not, except with the leave of the Court, seek to be appointed, or to act, as liquidator of a company. Under s 532(2)(c) a person is prohibited from seeking appointment, without leave, if:
(i)the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); or
(ii)the person is an officer or employee of any body corporate that is a secured party in relation to property of the company; or
(iii)the person is an auditor of the company; or
(iv)the person is a partner or employee of an auditor of the company; or
(v)the person is a partner, employer or employee of an officer of the company; or
(vi)the person is a partner or employee of an employee of an officer of the company.
The Liquidators sought leave because of an apprehension that they might fall within the prohibition in s 532(2)(c)(v), on the basis that each of them (as a liquidator) is an officer of each of the companies, and they are in partnership.
Although an 'officer' of a corporation includes a liquidator of that corporation,[18] in my view it is strongly arguable that s 532(2)(c)(v) does not apply in this case, for two reasons. First, because a liquidator himself or herself is excluded from the prohibition in s 532(2)(c)(i), it is arguable that a partner of that person cannot be considered a partner of an 'officer' of the corporation under s 532(2)(c)(v). Secondly, putting the same argument in a slightly different way, it is arguable that the phrase 'officer or employee of the company' in s 532(2)(c) must be read in each case where it appears in that paragraph as including the exception for liquidators in s 532(2)(c)(i) of the Act. It would be absurd if s 532(2)(c)(v) were construed otherwise. However, there was no need to determine the point for the purposes of the Application and I was content to deal with the issue by granting leave nunc pro tunc to permit the Liquidators to apply for appointment as liquidator, pursuant to s 532(2)(c) of the Act.
The application for approval of the companies' entry into the Sale Agreement and the Security Agreement
[18] Corporations Act 2001 (Cth) s 9.
In this section of my reasons I deal with:
(a)The orders sought by the Liquidators;
(b)The principles in relation to the grant of approval under s 477(2B) of the Act;
(c)Approval for the companies' entry into the Sale Agreement and the Security Agreement; and
(d)Validity of the application for approval of the Liquidators' entry into the Sale Agreement.
(a) The orders sought by the Liquidators
Initially, the Liquidators sought a direction pursuant to s 479(3) of the Act that they were justified in causing the companies to enter into the Sale Agreement and the Security Agreement. However, in the course of the hearing, counsel for the Liquidators explained that the Liquidators no longer sought a direction that they would be justified in causing the companies to enter into those agreements.[19]
[19] ts 2 (11 September 2014).
In relation to that part of the Application which was concerned with orders granting the Court's approval to enter into the Sale Agreement and the Security Agreement, the orders sought by the Liquidators were:
6.If and to the extent that it is required, pursuant to s 1322(4)(d) of the Act the period for the making of an application for the Court's approval under s 477(2B) of the Act for the Companies to enter into the Sale Agreement that is attachment 'MDW1' to the affidavit of Matthew David Woods sworn 4 September 2014 [the Sale Agreement] is extended to the date of the hearing of this application.
7.Pursuant to s 477(2B) of the Act the Plaintiffs as liquidators of the Defendants have approval to enter into the following agreements on the Defendants' behalf:
(a)a sale agreement in the terms of the [Sale Agreement] (such approval to take effect nunc pro tunc from the date that the Plaintiffs caused the Defendants to enter into the [Sale Agreement], being 27 August 2014); and
(b)a general security agreement substantially in the form of the general security agreement that is attachment 5 of the sale agreement at page 69 of the affidavit of Matthew David Woods sworn 4 September 2014 [the Security Agreement].
8.Pursuant to s 1322(4)(a) of the Act it is declared that the Companies' entry into the [Sale Agreement], and the [Sale Agreement] itself, are not invalid by reason of the Companies having entered into the [Sale Agreement] without the prior approval of the Court which is required under s 477(2B) of the Act.
(b) The principles in relation to the grant of approval under s 477(2B) of the Act
Section 477(2B) of the Act prohibits a liquidator from entering into an agreement on the company's behalf if the term of the agreement may end, or the obligations of a party to the agreement may be discharged by performance, more than three months after the agreement is entered into, save with the leave of the Court, or of the committee of inspection or of a resolution of the creditors. The court, the committee of inspection and the general body of creditors are alternative approving authorities under s 477(2B) of the Act.[20] A committee of inspection has not been appointed in respect of any of the companies in his case. Accordingly, in order to enter into the Sale Agreement, the Liquidators required either the Court's approval or a resolution of the creditors authorising that step. The Liquidators chose the former path.
[20] Elfic Ltd v Macks [2001] QCA 219; [2003] 2 Qd R 125; Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99 [135] ‑ [140] (the Court); Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163,165 [12] (Barrett J), referred to (without criticism) on appeal in Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180 [28] ‑ [32] (Giles JA & Handley AJA, Spigelman CJ agreeing).
The application for approval under s 477(2B) was not made on notice to the creditors of the companies. Notice was not required because an application for approval under s 477(2B) is not an endorsement of the agreement, but merely a permission for the liquidator to exercise his or her own commercial judgment to enter into it.[21] The grant of that approval alone does not exonerate a liquidator from personal liability for the decision to enter into the agreement.[22]
[21] Jones, Saker, Weaver and Stewart (liquidators), in the matter of Great Southern Ltd (in liq) [2012] FCA 1072 [49] ‑ [50] (Gilmour J); Re The Bell Group Ltd (in liq); Ex parte Woodings (as liquidator of The Bell Group Ltd (in liq)) [2009] WASC 235 [58] (Hasluck J).
[22] Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [26] (Brereton J).
As I noted in Re Great Southern Managers Australia Ltd (in liq),[23] the Court's powers under s 477(2A) and s 477(2B) of the Act are concerned to ensure that the court exercises some oversight of the liquidator's actions. One of the purposes of those powers is to serve the interests of those concerned in the winding up, namely the creditors. Another purpose is to do whatever needs to be done for the proper realisation of the assets of the company. While the considerations arising under both provisions are similar, s 477(2B) is concerned primarily to ensure that the timing of contractual obligations does not undermine the general objective that the winding up of a company will proceed as expeditiously as the circumstances permit.[24] In an application under s 477(2B) of the Act, the primary consideration will be the impact of the agreement on the duration of the liquidation, and whether that is, in all of the circumstances, reasonable in the interests of the administration of the company.[25]
[23] Re Great Southern Managers Australia Ltd (in liq); Ex parte Martin Bruce Jones, Darren Gordon Weaver and James Henry Stewart (In their capacity as Liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312 [76] ‑ [77].
[24] Re HIH Insurance Ltd [2004] NSWSC 5 [15] (Barrett J), and the cases there cited.
[25] Re Opel Networks Pty Ltd [2013] NSWSC 1245 [7] (Brereton J); Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [30] (Brereton J).
In Re Newtronics Pty Ltd; Ex parte Stewart,[26] Gordon J summarised the principles applicable to the grant of approval under s 477(2B) of the Act. Leaving to one side additional considerations with respect to litigation funding agreements (which are not presently relevant), the general principles that her Honour identified were as follows. The court does not simply 'rubber stamp' whatever is put forward by a liquidator, but on the other hand its role is not to conduct a review de novo of the decision, or to develop some alternative proposal which might seem preferable. Rather, the court's role is to review the liquidator's proposal, paying due regard to his or her commercial judgment and knowledge of the circumstances, satisfying itself that the agreement is a proper exercise of power - that there is no error of law or ground for suspecting bad faith or impropriety and that its terms are clear - and weighing up whether there is any good reason to intervene in terms of the expeditious and beneficial administration of the winding up.[27]
(c) Approval for the companies' entry into the Sale Agreement and the Security Agreement
[26] Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375 [26] (Gordon J).
[27] Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375 [26] (Gordon J).
Having regard to the evidence of Mr Woods, I was satisfied that approval should be given to the Liquidators to cause the companies to enter into the Sale Agreement and the Security Agreement. I reached that conclusion having regard to the following six considerations.
First, the terms of the Sale Agreement and the Security Agreement were clear.
Secondly, I was satisfied that the Agreements represented a proper exercise of the Liquidators' power as officers of the companies. In reaching that conclusion I took into account that at first blush, not all of the terms of the agreements appeared as advantageous to the companies as might be thought desirable. By way of example, the fixed minimum purchase price under the Sale Agreement appears to be modest, at least having regard to the income of the Accounting Practice in the past. Having regard to the quantum of debts of the BYBA Partnership in particular, that is of some significance. However, there can be no doubt that that minimum price reflects the Accounting Practice's present financial difficulties, and the limited attraction for potential purchasers in a business the main assets of which are WIP and debtors, and where no restraint of trade clause applies to the existing principals. Mr Woods' evidence was that the adverse publicity about the financial position of the Partnerships, and the loss of clients, had resulted in trading losses, and a continuing diminution in the value of the Partnerships' assets. I took into account Mr Woods' view that it is unlikely that a higher offer could be obtained from a potential purchaser of the Accounting Practice in these circumstances. On the other hand, I have also taken into account Mr Woods' belief that because of the quantum of unbilled WIP, the purchase price is likely to exceed the fixed minimum sum by a very considerable margin.
By way of further example, it was Mr Woods' evidence that the Buyer would not proceed with the Sale Agreement if the call option were omitted from it. I note, though, that because of the conditions for the exercise of the call option ‑ including settlement of some litigation involving the companies ‑ it was Mr Woods' belief that the creditors would not be prejudiced by the inclusion of the call option in the Sale Agreement.
In considering the terms of the Sale Agreement, I also took into account the fact that the Liquidators have clearly endeavoured to ensure that the Sale Agreement contains some safeguards to ensure the security of the payment of the purchase price, and to enable them to ensure that the Buyer accounts for the WIP, and pursues the debtors, in accordance with its obligations under the Sale Agreement.
As for the Security Agreement, I took into account Mr Woods' view that the security to be provided by the Buyer would protect the companies' interests in the purchase price under the Sale Agreement.
In all of the circumstances, I concluded that it could be inferred that the terms of the Sale Agreement and the Security Agreement represented the most favourable terms which the Liquidators were able to negotiate with the Buyer. Mr Woods' view was that the terms of the Sale Agreement were the best offer available to creditors of the Partnerships. I also relied on Mr Woods' evidence that he considers that entering into the Sale Agreement is in the best interests of creditors, including employees of the Partnerships and the CBA, and that it does not prejudice the interests of creditors. Mr Woods' view was that the Sale Agreement offered an opportunity for the employees and the CBA to be paid in full, but if the Sale Agreement did not complete, Mr Woods believed that the Partnerships would not have sufficient funds to satisfy these claims.
I was satisfied that the Liquidators had determined that the companies should enter into the Sale Agreement and the Security Agreement following an assessment of the best terms the Liquidators were able to negotiate, the benefits to creditors, and the surrounding circumstances. It is not the Court's role to 'second guess' the commercial judgment which the Liquidators have made in determining that the companies should enter into the Sale Agreement and the Security Agreement.
Thirdly, there is nothing to suggest any bad faith or impropriety on the part of the Liquidators in negotiating the Agreements with the Buyer. I placed reliance on the fact that the Liquidators are independent of the companies, they advertised the sale of the Accounting Practice in the print media, and engaged in a public tender and sale process for the Accounting Practice, and the Sale Agreement and the Security Agreement are the result of negotiations between the Liquidators and the Buyer. In addition, the Sale Agreement and the Security Agreement have been drafted by a large commercial law firm which acts on behalf of the Liquidators, and it can be inferred that the Liquidators have had the benefit of the advice of that firm in the preparation of those agreements.
The decision to sell the Accounting Practice to a company associated with the directors of the companies, also appears to have been reached by the Liquidators after having assessed the commercial realities of the situation at hand. One of the considerations taken into account by Mr Woods was that the ability to convert WIP to debtors, and to collect debts from debtors, would materially diminish if the Directors and existing employees were not part of that process.
Fourthly, the CBA consents to the Sale Agreement and to the Security Agreement. It was apparent that that consent was given with the benefit of legal advice having regard to the terms of the agreements.
Fifthly, under the Sale Agreement the position of the employees in the Accounting Practice will be protected in that the Buyer will offer employment on the same terms as are presently provided, and will assume responsibility for employee entitlements.
Sixthly, I took into account the fact that the primary obligations of the parties under the Sale Agreement and the Security Agreement are expected to be discharged within two years of the commencement of those agreements. That is a lengthy period in the context of a winding up of companies of the size and nature involved in this case. However, while approval under s 477(2B) is granted only where a transaction constitutes the proper realisation of the assets of the company or otherwise assists in the winding up of the company, the courts recognise that sometimes that process may require a somewhat circuitous route. As Young J observed in Re GA Listing and Maintenance Pty Ltd:[28]
The whole purpose of liquidation is, to borrow a metaphor ... to lead the horse back into the stable. The activities of the liquidator must always be directed towards reducing the company's assets to cash or divisible property, paying the debts and distributing any surplus to the members … However, human activity is so diverse that there will be situations where the liquidator cannot lead the horse back to the stable by the direct route …
If the court can see that the transaction that is to ensure past three months is really for the proper realization of the assets of the company or assists in its winding up, then the leave should be granted [under s 477(2B)]. … The court's duty is to see that despite the prolongation of the leading the horse home process, the transaction is in the interests of the company, the creditors and the community.
[28] Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308, 310 ‑ 311 (Young J); see also Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464; (2006) 57 ACSR 525 [58] ‑ [59] (Austin J).
In the present case, achieving any significant return to the creditors of the company will require the recovery of the WIP, and of debts owed to the BYBA Partnership, and that will take some time. To the extent that other provisions of the Sale Agreement (namely those concerned with access to the records of the Buyer) may operate for longer periods, that is also reasonable having regard to the need for the Liquidators to be able to enforce the Buyer's obligations under the Sale Agreement.
Having regard to all of the matters, I was satisfied that there was no good reason to refuse approval of the Sale Agreement and the Security Agreement in the interests of the expeditious and beneficial administration of the winding up.
(d) Validity of the application for approval of the Liquidators' entry into the Sale Agreement
Although the Sale Agreement is conditional upon the Court's approval, the Liquidators were concerned to avoid the possibility of future arguments to the effect that they should have obtained the Court's approval before entering into the Sale Agreement.
Because the operation of key provisions in the Sale Agreement are conditional on the Court's approval, it was perhaps arguable that no issue arose as to the Liquidators' entry into that Agreement prior to obtaining the Court's approval.[29] However, in order to avoid any argument about the invalidity arising from their entry into the Sale Agreement without the prior approval of the Court, the Liquidators sought the Court's approval under s 477(2B) nunc pro tunc.
[29] Cf Re FAI Traders Insurance Co Pty Ltd [2002] NSWSC 1080 [5] ‑ [6] (Barrett J).
While the Court's approval should normally be obtained in advance, it has been accepted that the Court has the power to give approval that operates from an earlier time.[30] In all of the circumstances, I was satisfied that it was appropriate to grant approval under s 477(2B) nunc pro tunc.
[30] Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [34] (Allanson J) and see the cases cited by his Honour.
The Liquidators also sought an order pursuant to s 1322(4)(d) of the Act to extend the time for them to make an application for approval under s 477(2B) to the date of the hearing. Under s 1322(4)(d) the Court may extend the period for doing any act or instituting or taking any proceeding under the Act. There is a divergence of opinion about whether it is appropriate for the court to order that the period for the liquidator to apply for the court's approval be extended.[31] However, that course has been adopted in other cases as an expedient means of resolving any lingering doubt that might arise.[32]
[31] Re Read [2007] FCA 1985; (2007) 164 FCR 237 [39] ‑ [41], referred to in Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [35] (Allanson J).
[32] Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [35] (Allanson J); Chamberlain v RG&H Investments Pty Ltd (No 2) [2009] FCA 1531; (2009) 76 ACSR 415 [22] ‑ [24] (Lindgren J).
The range of factors which will be relevant to the exercise of the Court's discretion under s 1322(4) of the Act will vary, depending upon the nature of the relief sought.[33] In the present case I was persuaded that it was appropriate to make an order extending the time for the Liquidators to make the Application until the date of the hearing, having regard to the merits of the Liquidators' application for approval under s 477(2B), to the circumstances in which the Liquidators had entered into the Sale Agreement in order to secure the Buyer's commitment to that agreement, and to the absence of prejudice to any other party by reason of the making of such an order.
[33] Cf Brown v DML Resources Pty Ltd (in liq) (No 7) [2002] NSWSC 162; (2002) 41 ACSR 299.
For the avoidance of any doubt, the Liquidators also sought an order pursuant to s 1322(4)(b) declaring that the companies' entry into the Sale Agreement, and the Sale Agreement itself, were not invalid by reason of the fact that the Court's approval was not given prior to the Liquidators entering into the Sale Agreement on behalf of the companies. The Court has power under s 1322(4)(b) to make an order declaring that any act, matter or thing purporting to have been done under the Act is not invalid by reason of any contravention of a provision of the Act. Given my view that it was appropriate to grant approval under s 477(2B) for the Liquidators to cause the companies to enter into the Sale Agreement, and to the order which I determined to make under s 1322(4)(d), it was also appropriate to declare that the companies' entry into the Sale Agreement, and the Sale Agreement itself, were not invalid by reason of the fact that the Court's approval was not given prior to the companies' entry into that Agreement.
The application for the ancillary orders
In this section of my reasons I deal with the following issues:
(a)The orders sought by the Liquidators;
(b)Principles in relation to directions under s 479(3) of the Act;
(c)The direction in relation to the Liquidators' performance of the Sale Agreement;
(d)The direction in relation to the Liquidators' remuneration;
(e)The direction in relation to the accounts to be maintained in the winding up; and
(f)The costs of the application.
(a) The orders sought by the Liquidators
In relation to that part of the Application which sought ancillary orders, the orders sought by the Liquidators (using the numbering in the Application) were:
5.Pursuant to s 479(3) of the Act it is directed that the Plaintiffs would be acting properly and are justified in:
(a)proceeding on the basis that, for the purpose of s 513A of the Act, the winding up of the Defendants is taken to have begun or commenced on 29 May 2014; and
(b)seeking that their remuneration as liquidators of the Defendants for the period from 29 May 2014 to the date of these Orders is determined by a resolution of the Defendants' creditors pursuant to s 473(3) of the Act (rather than a resolution of the members pursuant to s 495 of the Act).
...
9.Pursuant to s 479(3) of the Act it is directed that the Plaintiffs may act on the ASA as though the Companies had entered into the ASA with the prior approval of the Court under s 477(2B) of the Act.
10.Pursuant to reg 5.6.06 and reg 5.6.09 of the Corporations Regulations 2001 (Cth) for the purpose of conducting the winding up of each of the Defendants in their capacity as members of the following partnerships, namely:
(a)the Barringtons Your Business Advisors Partnership; and
(b)the Barringtons Partnership, (the Partnerships), the Court directs that the Plaintiffs are authorised to maintain a single bank account in relation to each Partnership. The Plaintiffs must pay into that account all money received by the Plaintiffs as liquidators of the Defendants as members of one or both of the Partnerships, and the plaintiffs may pay out of that account all lawful expenses and distributions in the windings up of the Defendants as members of the Partnership.
11.There be liberty to apply, including by any person affected by these Orders (on 48 hours' notice).
12.The costs of this application be a cost of the liquidations of the Defendants, divided jointly and severally between the Defendants.
(b) Principles in relation to directions under s 479(3) of the Act
A liquidator may apply to the Court under s 479(3) of the Act for directions in relation to any particular matter arising under a winding up. The section enables the liquidator, who is appointed by the Court, to obtain the Court's direction in relation to the manner in which the liquidator should act in carrying out his or her functions.[34]
[34] Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [38] (Allanson J); Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 (McLelland J).
A determination under s 479(3) cannot, of itself, bind anyone except the liquidator and the persons entitled to participate under the winding up. The effect of a direction or order under s 479(3) is not to determine rights and liabilities arising out of particular transactions, but to sanction a course of conduct proposed by a liquidator so as to protect the liquidator from liability for any alleged breach of duty as liquidator, to a creditor or contributory or to the company, in respect of anything done by the liquidator in accordance with the direction or order.[35] (However, that does not mean that the court cannot determine questions involving substantive rights in an application commenced as an application for directions under s 479(3), provided that all necessary parties have been joined or consent to that course.[36])
[35] Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 (McLelland J); Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 [44] (Goldberg J); Re The Bell Group Ltd (in liq); Ex parte Woodings (as liquidator of The Bell Group Ltd (in liq)) [2009] WASC 235 [47] (Hasluck J); Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [38] (Allanson J).
[36] Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 680 (McLelland J); Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334, 352 (Northrop J).
The protection afforded to the liquidator by virtue of a direction under s 479(3) is conditional upon the liquidator making 'full and fair disclosure of all relevant facts and circumstances before the court'[37] at the time the order is made.
[37] Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 [44] (Goldberg J).
A direction may be sought under s 479(3) in respect of any question arising in the course of a winding up, and the section should be interpreted widely to facilitate the liquidator's functions.[38] However, a direction will not be given merely because the liquidator has a feeling of apprehension or unease about the business decision and wants reassurance - it is not the Court's role to make what are regarded as commercial decisions for liquidators.[39] Consequently, there must be some issue which calls for the exercise of legal judgment so as to warrant its direction - whether that be a legal issue of substance or procedure, or an issue of power, propriety or reasonableness.[40]
[38] Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [33] (Brereton J), in relation to the analogous power of a liquidator to seek directions under Corporations Act 2001 (Cth) s 511.
[39] Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 [65] (Goldberg J).
[40] Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 [65] (Goldberg J); Re The Bell Group Ltd (in liq); Ex parte Woodings (as liquidator of The Bell Group Ltd (in liq)) [2009] WASC 235 [54] (Hasluck J); Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [39] (Allanson J).
The Court's directions are usually prospective, and are concerned with affording protection to the liquidator in connection with future action, not ratifying action already taken by the liquidator.[41] Directions under s 479(3) are conventionally expressed in terms that 'the liquidator would be justified' in adopting a particular course of action.
[41] Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [56], [60] ‑ [61] (Brereton J); Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 (McLellan J); but cf Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [43] (Allanson J).
Although applications under s 479(3) of the Act are often brought on notice to parties affected by the decision, there is no invariable rule that such an application cannot be brought on an ex parte basis.[42] Whether it is appropriate to deal with such an application without notice to other parties will depend upon the nature of the direction or orders sought. A failure to make the application on notice to parties from whom the court would need to hear to properly consider the application would be a reason for refusing to make the direction sought.[43]
[42] Dean-Willcocks v Soluble Solutions Hydroponics Pty Ltd (1997) 42 NSWLR 209, 212 ‑ 213 (Young J).
[43] See, for example, Re 7 Steel Distribution Pty Ltd (in liq) (Receivers and Managers Appointed) [2013] NSWSC 669 [21], [24] (Black J).
The application for directions under s 479(3) of the Act was made without notice being given to all of the companies' creditors. However, I did not consider that notice was required to be given in this case. The interests of the creditors were not liable to be affected by the making of the directions sought in relation to the Liquidators' remuneration, other than in a potentially advantageous way. (That is, if the direction were granted, the Liquidators' remuneration would, in accordance with s 473(3) of the Act, be determined by a committee of inspection, or by the creditors as a whole.) Similarly, the creditors' interests could not affected by a direction alleviating the Liquidators from the requirement to maintain separate accounts for the companies in the liquidation, or by the direction that the Liquidators' are justified in acting on the Sale Agreement as though the companies had entered into it with the prior approval of the Court under s 477(2B).
(c) The direction in relation to the Liquidators' performance of the Sale Agreement
As I have already observed, the Liquidators did not seek a direction under s 479(3) in relation to whether to enter into the Sale Agreement. They had already determined to take that step, and the decision to do so, and its terms, clearly involved commercial decisions about which it would not have been appropriate to seek the Court's direction.
Strictly speaking, I doubt that it was necessary for the Liquidators to seek approval under s 479(3) of the Act to act on the Sale Agreement as though it had been entered with the Court's prior approval. If the Court by its approval under s 477(2B) gave the Liquidators the authority to enter into the Sale Agreement (with that approval taking effect nunc pro tunc from the date the Liquidators caused the companies to enter into the Sale Agreement), and made the orders sought pursuant to s 1322(4), it would follow that the Liquidators must be justified in acting on the Sale Agreement as though the companies had entered into it with the prior approval of the Court. However, lest there be any doubt about the matter, I concluded that it was appropriate to give the direction sought by the Liquidators.
(d) The direction in relation to the Liquidators' remuneration
The direction sought in relation to the Liquidators' remuneration pertained to two legal issues, namely when the winding up in insolvency should be taken to have commenced, and more particularly, the implications of the commencement of the winding up in insolvency for determinations about their remuneration. The first of these issues is dealt with expressly in s 513A of the Act. Because the companies were already the subject of a voluntary winding up, the order to wind up the companies in insolvency is taken to have commenced when the voluntary winding up commenced[44] (that is, on the day the resolution was passed in relation to each company,[45] namely 29 May 2014).
[44] Corporations Act 2001 (Cth) s 513A(a).
[45] Corporations Act 2001 (Cth) s 513B(e).
The question, then, was how the remuneration of the Liquidators should be dealt with in these circumstances. In the case of a voluntary winding up, the remuneration of the liquidator appointed by the company in general meeting will be determined by the company in general meeting,[46] as occurred in this case. In contrast, the remuneration of a court-appointed liquidator is determined either by agreement between the liquidator and a committee of inspection or (if there is no committee, or agreement cannot be reached between the committee and the liquidator) by a resolution of the creditors, or failing that, by the Court.[47]
[46] Corporations Act 2001 (Cth) s 495(1).
[47] Corporations Act 2001 (Cth) s 473(3).
The Act does not expressly deal with the present situation. The effect of s 513A of the Act is that a liquidator will be taken to have been acting as a court-appointed liquidator from the commencement of a voluntary winding up. If the liquidator is to be treated as having been a court-appointed liquidator since the date on which the voluntary winding up commenced, that would suggest that the remuneration of the Liquidators during the entire period of the liquidation should be determined in accordance with s 473 of the Act. On the other hand, a question remains as to whether a resolution of members (in so far as it deals with the remuneration of a liquidator) will have any continuing effect after an order is made under s 513A (and if not, why that is so). Further, quite apart from the operation of s 513A of the Act, questions may also arise as to the contractual liability of a company to a liquidator for work done by the liquidator in the course of a voluntary winding up, prior to an order of the court under s 513A. None of these issues were the subject of submissions in the course of the hearing.
I formed the view that it was not necessary to resolve these issues for present purposes. That is because the Liquidators took the view that as the companies should be wound up in insolvency, it would be appropriate for their remuneration to be determined by the companies' creditors (or failing that, by the Court), rather than for the Liquidators to rely on the members' resolution pertaining to each voluntary winding up.[48] In other words, the Liquidators did not seek to enforce their rights arising under the terms of their engagement by the companies when they were appointed as liquidators in the voluntary liquidation of the companies. In those circumstances, it seemed to me that the matter could properly be dealt with on the basis that the remuneration of the Liquidators should be determined in accordance with s 473(3) of the Act, and I was prepared to grant a direction under s 479(3) to that end.
(e) The direction in relation to the accounts to be maintained in the winding up
[48] ts 14 (11 September 2014).
Subject to a direction by the Court or the committee of inspection, a liquidator must open a bank account ‑ to be known as the liquidator's general account ‑ and pay into that account all money received by the liquidator not later than seven days after it has been received.[49] A liquidator must open a separate bank account for each liquidation in which the liquidator is engaged.[50] The Court's discretion to order otherwise will be exercised as part of the winding up orders made with respect to the particular company concerned.[51]
[49] Corporations Regulations 2001 (Cth) reg 5.6.06(1).
[50] Worrell, Re Reg 5.6.06 of the Corporations Regulations 2001 [2010] FCA 934; (2010) 189 FCR 59 [83] (Greenwood J).
[51] Worrell, Re Reg 5.6.06 of the Corporations Regulations 2001 [2010] FCA 934; (2010) 189 FCR 59 [89] (Greenwood J).
The Court may authorise the liquidator to make payments into and out of a special bank account, for the time and on the terms, as it thinks fit.[52]
[52] Corporations Regulations 2001 (Cth) reg 5.6.09(2).
In order to warrant a departure from the general rule, it would need to be shown that circumstances existed in relation to a particular liquidation that warranted that course.[53] A relevant consideration would clearly be the potential that the use of a compound account for more than one liquidation may give rise to the risk that funds recovered in one liquidation may not be fully or accurately accounted to the company concerned, with the result that creditors and members may not receive their maximum or complete entitlement in the liquidation.
[53] Worrell, Re Reg 5.6.06 of the Corporations Regulations 2001 [2010] FCA 934; (2010) 189 FCR 59 [106] (Greenwood J).
In the present case, the Liquidators relied upon the fact that the companies operate the Partnerships, and on the fact that property owned by each of the Partnerships must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.[54] A partner's interest in partnership property has been described as a beneficial interest in every piece of property which belongs to the partnership, which consists not of a title to specific property but of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership.[55]
[54] Partnership Act 1895 (WA) s 30(1).
[55] Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94;(1960) 107 CLR 411, 453 (Kitto J); Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd[1974] HCA 22; (1974) 131 CLR 321, 327 ‑ 328 (McTiernan, Menzies & Mason JJ); Re Pinata Pty Ltd (in liq); Killen v Hamilton [2012] NSWSC 162 [44] (Hammerschlag J); TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (admins apptd) [2012] NSWSC 766; (2012) 91 ACSR 17 [30] ‑ [33] (Black J).
Mr Woods deposed that the companies do not individually have title to any specific property, and because the companies act only as trustees of the trusts which are either partners in the BYBA Partnership or the BP Partnership, the creditors of the companies are creditors of either the BYBA Partners or the BP Partners, and the debts incurred by them have been incurred as partners and not by the companies in their individual capacities. Mr Woods' view is that to divide the proceeds and debts between each of the BYBA Partners and the BP Partners will create difficulties, especially in relation to Nereus, which is the trustee of two trusts, one of which is a BYBA Partner and one of which is a BP Partner.
Accordingly Mr Woods believes that the only practical method to efficiently wind up the companies is to combine their accounts into one account for the BYBA Partners and one account for the BP Partners.
Having regard to these real practical considerations, I was persuaded that the Liquidators should be permitted to maintain a single bank account in relation to each of the Partnerships. That will not absolve the Liquidators from the obligation to account to the companies individually once the assets of the Partnerships are realised.
(f) Costs and liberty to apply
It was appropriate to make an order granting liberty to apply, for the reasons explained above.
The Liquidators also sought an order that the costs of the Application be a cost of the liquidations of the companies, divided jointly and severally between them. I was satisfied that the Application was properly brought and that an order in the terms sought should be made.
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