Mercantile Credits Ltd v Dallhold Investments Pty Ltd

[1991] FCA 396

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTIl WALES DISTRICT REGISTRY )	No.NG 3039 of 1991

1

GENERAL DIVISION )

BETWEEN :  MERCANTILE CREDITS LIMITED

Applicant

AND:	-	DALLHOLD INVESTMENTS PTY
LIMITED

Respondent

5 July 1991

REASONS FOR JUDGMENT

LOCKHART J.

This is the first return of an application to wind up the

company Dallhold Investments Pty Limited (A.C.N. - 008671878).

The company seeks to have the application to wind up

adjourned for a period of approximately three weeks so that it
can in the meantime propound a scheme of arrangement of the
company's affairs, and bring it before the Court, seeking

for a judgment to be entered in their favour against the

orders under section 411 of the Corporations Law.

The adjournment application is supported by a group of

cred~tors who have entered into a syndicated financial

arrangement, and they are, for convenience, best referred to

as the SULA Banks. The SULA Banks support the adjournment of

the application to wind up, but thelr expressed reason for this support is so that they may, later today apply to the Supreme Court of New South Wales in its Commercial Division

company, with the consent of the company, in the sum of some

$350 million.	I have the statement of claim and the points of
defence in evidence before me.	The claim has been hitherto
contested by the company.

The adjournment is opposed by two creditors appearing

today. First, the applicant for winding up, Mercantile

Credits Limited, opposes it. Mercantile Credits Limited is

admittedly owed some $671,000, but the evidence appears to
disclose also that, on the company's own material, it does not

dispute that the debt of the applicant is some $4.8 million

with $3.2 million oi that being unsecured debt. However, the

course that I think is proper to take would be the same,
whichever of those figures were to be taken into account.

Secondly, J.N. Taylor Finance Pty Limited (in liquidation),

also opposes the adjournment. That company (to which I shall

for convenience refer as "Taylors") is admittedly owed some

$100 million, but it claims it is owed in all some $700

million. The company apparently disputes the larger claim,

so that I may proceed on the basis that $100 million is not in

dispute.

The company has provided some material, though it is

rather scant, as to its financial position and from that
evldence it appears that the company asserts that its assets
have a value of somewhere between $33 and $40 million, based
however on what it describes in the evidence as a valuation
upon an orderly sale. The company further ascribes a
liquidation valuation to the assets of some $17 million,
roughly half. The company's own material discloses that it
has creditors owed some $1 billion. This does not take into
account certain of the disputed claims which if they are
correct would inflate that figure further. Thus the company
is one which is highly insolvent and has a huge excess of
liabilities over assets. It would appear on the company's own
material that the maximum dividend which unsecured creditors
might expect to receive would be the sum of approximately 4
cents in the dollar.

Prime facie then it is plain that the adjournment

application should be refused in accordance with well

established principles but there are other factors that must

be taken into account. First the views of creditors to which

I have already briefly referred with reference to their debts.

The applicant and Taylors oppose the adjournment and, taking

undisputed amounts, their claims are in the order of $101

million or $103 million as the case may be. The SULA Banks

support the adjournment. They assert a claim of some $1.3
billion against the company. A component of that is
approximately $350 million for money lent which is the subject
of the proceedings in the Supreme Court already referred to

and is the basis of the proposal for a consent judgment.

I take all those matters into account. It is on the one

hand initially attractive to grant the adjournment for the
three weeks period that is sought on the basis that the
company would in the meantime undertake not to dispose of its
assets otherwise than in the usual course of business (which
is an undertaking that the company through its counsel has

foreshadowed it is prepared to give). The details of the

prospective scheme of arrangement are at this stage only in
broad terms. They appear to have the result according to
counsel for the SULA Banks that those banks would in a scheme
of arrangement be prepared to claim some 50 per cent of the
net proceeds of realisation of the company's assets rather
than what they assert to be their entitlement to claim some 90
per cent; thus to forego about half their claim as against
other unsecured creditors, although the SULA Banks have some

security the precise ambit of which is not clear from the

evldence .

I must confess to having some misgivings about adjourning

an application on a basis, which has been quite frankly
outlined to me by counsel for the SULA Banks, whereby a term

of their opposition to immediate winding up is their obtaining

in effect immediately a consent judgment in the sum oi $350 million, a consent judgment which would be one entered with the concurrence of the directors oi a highly insolvent company

in whose hands the company presently is. I say nothing

whatever about the propriety oi that only to say that the
company in view of its parlous financial condition, should be
In all the circumstances in the hands of a liquidator. The
prima facie presumption to which I have referred that calls
for a refusal of the adjournment application is one which in
my view has plainly not been displaced. Accordingly I refuse
the adjournment.

The relevant material to support a winding up order has

been read to me and 1 am of a view that the case has been
established for the malcing of such an order. There has been
one small non-compliance with the rules as to an advertisement

in the government gazette which is of no significance and the

rules are accordingly dispensed with in that regard.

The Court orders that Dallhold Investments Pty Limited be

wound up by the Court under the provisions of the Corporation
Law.

Question arises as to who should be the liquidator.

Various names have been suggested by counsel and there has been more than one nomination by the Registrar for a number of

reasons which it is unnecessary to recite.	I do not think it
would be appropriate to mention each name and state why or why

not that particular person should be appointed. Whoever is
appointed should, so far as is practicable, have had no
relevant dealings with the company such as could either

disentitle that person from acting as liquidator or make it

appear that he should be disentitled.

The person whom in my vlew should be appointed as

liquidator is John Frederick Lord, a partner in the firm of
Duesbury's, chartered accountants. Accordingly the Court
orders that John Frederick Lord be appointed liquidator of the
company.

The Court also orders that the applicant and the

supporting creditor, J.N. Taylor Finance Pty Limited, have
their costs of the winding up and those costs are to be

treated for taxation purposes as separate costs.

Further the Court directs pursuant to order 71 rule 39

that the copies of the order for winding up and notice to
liquidator of appointment as initialled by me and dated today

for identification be sealed forthwith.

I certify that this and the
preceding five (5) pages are a
true copy of the reasons for
judgment herein of the

Honourable Mr. Justice Lockhart.

Associate

Dated: 5 July 1991

Counsel for the Applicant	G.C. Lindsay
Solicitors For the Applicant :	Dunhill Madden Butler
Counsel for J.N. Taylor
Finance Pty Limited	Mr Blue
Solicitors for J.N. Taylor
Finance Pty Limited	Fisher Jeffries

Counsel for the company : Mr Robinson

Solicitors for the company	Parker & Parker
Counsel ior HongkongBank of
Australia Limited	Mr Reeves
Solicitors for HongkongBank	Mallesons Stephen
of Australia Limited	Jaques
Date of Hearing	5 July 1991
Date of Judgment	5 July 1991