Mission Development Pty Ltd v Clover Dale Pty Ltd
[2011] VSC 148
•14 April 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List E
S CI 2011 00210
IN THE MATTER OF CLOVER DALE PTY LTD (ACN 006 837 243)
| MISSION DEVELOPMENT GROUP PTY LTD (ACN 104 027 867) | Plaintiff |
| v | |
| CLOVER DALE PTY LTD (ACN 006 837 243) | Defendant |
---
JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 April 2011 | |
DATE OF JUDGMENT: | 14 April 2011 | |
CASE MAY BE CITED AS: | Mission Development Pty Ltd v Clover Dale Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 148 | |
---
CORPORATIONS – Winding up on grounds of insolvency - Appeal from Order of Associate Judge – standing to bring appeal – whether evidence sufficient to rebut presumption of insolvency – whether abuse of process or contrary to public interest and commercial morality - Appeal dismissed - s 471A Corporations Act 2001.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Fary | Kliger Partners |
| For the Defendant | Mr J G Pennell | Heydon + O’Loghlen |
HER HONOUR:
On 23 March 2011, on the application of the plaintiff, Mission Development Group Pty Ltd, Gardiner AsJ, ordered that the defendant, Clover Dale Pty Ltd, be wound up in insolvency. Mr Warren White was appointed liquidator. A notice of appeal was filed by Heydon+O’Loghlen purportedly on behalf of Clover Dale. Mr John Trimble is the sole director and secretary of Clover Dale and it seems that it was on his instructions that the notice of appeal was filed.
The events leading to the appeal started with the entry of default judgment by Mission Development on 22 October 2010 against Clover Dale for an amount exceeding $1 million. The judgment related to a debt owed under a loan agreement between Mission Development (as lender), Clover Dale (as borrower) and Mr Trimble (as guarantor). Judgment was also entered against Clover Dale for recovery of possession of a property at Boldhead Road, King Island.
On 16 December 2010, Mission Development served a statutory demand on Clover Dale. The amount claimed in the demand was for the judgment debt, legal costs and interest. Clover Dale did not apply to set aside the demand and, as payment was not made, Mission Development applied to wind up Clover Dale on the ground of insolvency.
Clover Dale sought an adjournment of the winding up application when it first came on for hearing on 22 February 2011. Mr Trimble swore an affidavit in support of the adjournment application. He deposed that the person who had been responsible for the management of all bookkeeping and accounting records of Clover Dale had left the company in acrimonious circumstances. According to Mr Trimble, a large number of documents were missing and the accounting records were far from complete. Mr Trimble also deposed that he had always had a dispute with Mission Development (which he said was Clover Dale’s only creditor) as to the level of interest charged, costs and the like but not, it would seem, as to the principal amount advanced. Exhibited to his affidavit was an appraisal by Elders Real Estate which estimated the value of the King Island property at over $3 million. Mr Trimble deposed that he had endeavoured to obtain an alternative lender for the property and had retained the services of McComb Finance, a finance broker, to assist in obtaining an alternative source of finance. He believed that he would be able to obtain finance from the Commonwealth Bank within 4 weeks. The winding up application was adjourned to 23 March 2011.
On the return of the application, a further adjournment to 17 May 2011 was sought by Clover Dale. In support of that application, Mr James Wise, the solicitor for Clover Dale, swore an affidavit. Mr Wise deposed that Mr Trimble was still seeking refinance in an amount of $2.5 million and that, in addition to McComb Finance, he had engaged Howitt & Co to assist him. Mr Wise also swore that he had been advised by Ms Mia Marcus, an Associate Director of Howitt & Co, that the primary obstacle she had faced was that many of the financiers she approached would not consider an application for finance from Mr Trimble on moral grounds, in circumstances where two of the entities associated with him operate adult entertainment venues. Mr Wise further deposed that Ms Marcus had advised him that three finance companies had all made strong representations to her and that she expected to have a letter of offer for finance within 72 hours with finance being available in a further two to three weeks.
The application for an adjournment was refused and Gardiner AsJ made the winding up order. It is from that order that Mr Trimble, in the name of Clover Dale, seeks to appeal.
Two affidavits by the liquidator, Mr White, have been filed. Mr White has deposed that although he has sought from Mr Trimble a Report As To Affairs and Clover Dale’s books and records he has not received them. In those circumstances, he is not able to determine the identity of any creditors (other than Mission Development) nor has he been able to verify the debt claimed by Mission Development nor how much is owed to other creditors (if there are any). He has also not been able to identify any assets apart from the King Island property. In respect of that property, Mr White has obtained an updated appraisal from Elders Real Estate which estimates its value at approximately $2 million. Mr White’s costs in relation to the work so far performed by him in the liquidation are less than $10,000.
Mission Development also sought leave to rely on three affidavits that were not before the Associate Judge. Amongst other things, those affidavits go to issues concerning unsuccessful attempts by Mr Trimble to arrange refinance from as early as August 2010 and numerous changes to the solicitors representing Clover Dale since the time that the default judgment was entered against it by Mission Development. There is also an affidavit by the former staff member who Mr Trimble had stated had left the company in acrimonious circumstances. She denies the allegations made by Mr Trimble.
The additional affidavit material sought to be relied on by Mission Development does not take matters any further than the material that was before the Associate Judge.
Clover Dale also sought to rely on two affidavits that had not been before the Associate Judge. The first is an affidavit of Ms Marcus in which she deposes to having approached 35 lenders seeking funding for Mr Trimble and the status of each of those approaches. Twenty nine applications were rejected. The remaining 6 were pending as at 12 April 2011. Also exhibited to the affidavit was what was described as Howitt & Co’s business entity review which included financial reports for a number of entities associated with Mr Trimble. Included among the reports was a balance sheet for Clover Dale as at 30 June 2010 prepared by William Buck (Vic) Pty Ltd, chartered accountants. The balance sheet included as an asset the King Island property and attributed to it a value of $3 million. In current liabilities there was no reference to the debt owed to Mission Development, but there were loan liabilities totalling approximately $313,000 to Metropolis City Promotions Pty Ltd and Cameron Lane Unit Trust (both entities associated with Mr Trimble). Also included was the annual report for the year ended 30 June 2010 for Planet Platinum Limited and its controlled entities (which do not include Clover Dale). Planet Platinum is listed on the Australian Stock Exchange Limited with, it would seem, the majority of its shares held by Mr Trimble. The audited financial statements for Planet Platinum and its controlled entities on a consolidated basis are included in the annual report and disclose a debt of over $3 million owed by Mr Trimble with most of that debt owed for more than 3 months.
The second additional affidavit that Clover Dale sought to rely on was sworn by Mr Wise. Exhibited to the affidavit was a rural valuation report for the King Island property dated 29 March 2011 conducted by Brothers & Newton valuing the property at $1.46 million. The report had been commissioned by Cann-Ret Pty Ltd. Also exhibited to Mr Wise’s affidavit is a letter from Cann-Ret’s lawyer stating that Cann-Ret has and is prepared to advance $1.3 million to Mr Trimble.
There is a preliminary issue as to whether the appeal may be prosecuted. It was submitted that the Court has inherent jurisdiction to grant the appeal or alternatively, Mr Trimble in his capacity as director of Clover Dale retains residual power to appeal against the orders made by the Associate Judge. Mr Trimble relied on Brinds Ltd & Ors v Offshore Oil NL (No 2)[1], Arafura Finance Corporations Pty Ltd v Kooba Pty Ltd No 2[2] and Aetna Properties Ltd (in Liq) v G A Listing & Maintenance Pty Ltd[3].
[1][1986] VR 635.
[2](1987) 52 NTR 52.
[3](1994) 13 ACSR 422.
However, later authorities make it clear that the position now is that s 471A of the Corporations Act 2001 (Cth) prevents a director from filing a notice of appeal against a winding up order without first having obtained either the liquidator's written consent or the leave of the court.[4] Neither of those pre-requisites has been satisfied here.
[4]See Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85, Rock Bottom Fashion Market Pty Ltd (In liq) (1997) 2 Qd R 573.
In this regard, application was made on the hearing to seek the Court’s leave with retrospective effect. In considering whether such leave should be granted, the prospects of the appeal are relevant.
An appeal from the winding up order of an Associate Judge is by way of re-hearing.[5]
[5]Supreme Court (Corporations) Rules 2003 (Vic) r 16.5(1), Supreme Court (General Civil Procedure) Rules2005 (Vic) r 77.06(7).
As Clover Dale did not apply to set aside the statutory demand, it is presumed to be insolvent.[6] On the winding up application, if the company establishes its solvency, the presumption will be displaced.[7] If the company wishes to pursue this course, then the “fullest and best” evidence of solvency must be adduced.[8]
[6]Section 459C(2)(a) Corporations Act.
[7]Section 459C(3) Corporations Act.
[8]Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081. See also Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631; Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711.
The solvency test is essentially a cash flow test,[9] although the balance sheet position of the company is not completely irrelevant insofar as it throws light on the company’s ability to raise credit or realise assets to meet its liabilities as they become due and payable.
[9]Section 95A Corporations Act.
Here, there is no dispute that the debt owed to Mission Development is substantial and that without refinance or the sale of the King Island property, Clover Dale cannot pay that debt. The evidence as to the value of the property is the original and updated market appraisals by Elders Real Estate and the Brothers & Newton rural valuation report. There was no evidence as to how quickly that property could be realised. In relation to refinance, although it now seems that Mr Trimble has received an offer of finance for $1.3 million, there is no evidence that those moneys would be available to Clover Dale. The only balance sheet for Clover Dale is as at 30 June 2010 and there are no recent audited accounts. In respect of the balance sheet, as I have noted above, it does not include the liability to Mission Development and includes a figure of $3 million for the value of the King Island property which, on the basis of the most recent valuation, appears to be more than double its value. The only evidence that there are no other creditors (in addition to Mission Development) is the assertion to this effect by Mr Trimble. Against this is the 30 June 2010 balance sheet that includes two other creditors (albeit that they seem to be associated with Mr Trimble and the position may have changed since 30 June 2010). Mr Trimble has not provided the books and records of the company to the liquidator nor has he completed a Report as to Affairs to assist the liquidator in verifying the current financial position of Clover Dale.
There is simply insufficient evidence to rebut the presumption of insolvency.
However, it was also submitted on behalf of Mr Trimble that Mission Development’s application to wind it up was an abuse of process[10] and contrary to public interest and commercial morality[11] in the following circumstances:
[10] Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 69 NSWLR 374 at 385 - 387; Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VR 83 at 93.
[11] Re Data Homes Pty Ltd (in Liq) and the Companies Act [1972] 2 NSWLR 22 at 27.
(a) Mission Development had obtained a default judgment for recovery of the King Island property and for debt in the amount of $1,142,461.61;
(b) Mission Development had taken no steps to take possession of the King Island property;
(c) Mission Development had been informed by Clover Dale’s representative that it took issue with the judgment debt and that instructions had been given for the setting aside of the judgment;
(d) Mission Development is the only creditor of Clover Dale;
(e) the value of the property exceeds the judgment debt; and
(f) arrangements had been made to satisfy the demand by Mission Development;
(g) Clover Dale is a solvent company.
It was submitted that the only conclusion that can be made is that Mission Development issued the application to wind up in order to put Clover Dale under the maximum amount of commercial pressure rather than properly exercising its rights as mortgagee. Therefore, it was contended, Mission Development should exercise those rights as the more suitable remedy and the Court should exercise its discretion and not make an order to wind up Clover Dale.
I have already dealt with the matters raised in paragraphs [20] (d) and (g) above. As to the other matters raised in that paragraph, in regard to (a) and (b), a secured creditor, such as Mission Development, is not obliged to realise its security either instead of or ahead of resorting to a winding up application.[12] As to (c), the default judgment was entered on 22 October 2010; the statutory demand was not served until 16 December 2010; no application was made to set aside the judgment nor the demand. As to (e), the value of the property may exceed the amount of the judgment debt, but this is not certain. As to (f), I have dealt with the offer of finance above. I do note however, that this offer has only come after at least 29 unsuccessful applications for finance and that at the time the application to wind up was made and later when it was heard and determined by the Associate Judge, there was no offer of finance at all.
[12]Re Alexanders Securities Ltd (No. 2) (1983) 2 Qd R 597.
There is no abuse of process, nor any other reason that would prevent an order for winding up.
The appeal against the Associate Judge’s orders is doomed to failure. Consequently, there is no proper basis for granting an application for leave under s 471A of the Corporations Act. The appeal should be dismissed.
0
5
0