Molenaar v Nicol (No 2)

[2021] NSWSC 431

Supreme Court

New South Wales

Medium Neutral Citation:	Molenaar v Nicol (No 2) [2021] NSWSC 431
Hearing dates:	In Chambers
Date of orders:	27 April 2021
Decision date:	27 April 2021
Jurisdiction:	Equity
Before:	Robb J
Decision:	See par [48]
Catchwords:	CORPORATIONS – Winding up – Conduct of liquidation – Validity of proof of debt – Where plaintiff creditors undertake to seek leave to appeal defendant liquidator’s rejection of their proof of debt and fail to do so
Legislation Cited:	Civil Procedure Act 2005 (NSW)
Cases Cited:	Molenaar v Nicol [2020] NSWSC 674
Category:	Principal judgment
Parties:	Trevereaux Molenaar (first plaintiff) Molenaar Real Estate Pty Limited (second plaintiff) Steven Nicols as the Liquidator of Monarco Pty Ltd (in liquidation) & Ors (defendant)
Representation:	Counsel: M J Harris (first and second plaintiffs) Solicitors: Jemmeson & Fisher (first and second plaintiffs) Hunt & Hunt (defendant)
File Number(s):	2020 / 98710

Judgment

1. The plaintiffs commenced these proceedings by summons filed in the Duty List on 30 March 2020.

2. The plaintiffs claim to be creditors of the companies of which the defendant, Mr Nicol, is the liquidator.

3. By their summons, the plaintiffs sought an order that Mr Nicol, as liquidator of one of the defendants, Monarco Pty Ltd (in liquidation) be restrained from holding the creditors meeting that had been called for 31 March 2020.

4. The plaintiffs also sought an injunction restraining Mr Nicol from taking any action in the name of the companies in liquidation, pending the determination of the plaintiffs' proposed appeal from Mr Nicol's decision to reject part of the plaintiffs' proof of debt of $1,443,250.37.

5. Mr Nicol had been given notice of the application, and his solicitor appeared on the initial application by the plaintiffs that would otherwise have been ex parte.

6. I was not prepared to grant the interlocutory relief sought for the reason that the Court generally resists restraining the conduct of meetings of members or creditors of a corporation where the circumstances are that, if the holding of the meeting is restrained, it would prevent the creditors or members from demonstrating their wishes by voting on the proposed resolutions. This is also so in circumstances where the Court has power to set aside the resolutions if relevant invalidity is established.

7. Because of the time of day at which the application was made by the plaintiffs, it was necessary for the Court to deal with the application the following day.

8. On 31 March 2020, the Court made orders in chambers that permitted the meeting to be held but required that Mr Nicol keep a proper record of the voting, and that he be restrained from acting upon any resolution passed at the meeting of creditors until further order.

9. In addition, the Court recorded the following undertaking by the plaintiffs:

1. The plaintiffs undertake that within 14 days, they will file and serve an application under r 6.6.54 of the Corporations Regulations 2001, for leave to appeal and to appeal the rejection made on 20 November 2019 by Stephen Nicol, as liquidator of [the named companies] for the plaintiffs' claims for debt of $1,460,829.70 dated 19 June 2019.

10. A hearing took place on 3 April 2020, and I published my primary judgment on 1 June 2020: see Molenaar v Nicol [2020] NSWSC 674.

11. The balance of these reasons will assume knowledge of the primary judgment.

12. By the date of the hearing, the plaintiffs no longer sought an order restraining Mr Nicol from acting upon any resolution of creditors that authorised Mr Nicol's remuneration and expenses. The issue had become whether the Court should make an order as claimed in prayer 4 of the plaintiffs' summons, which would prevent Mr Nicol performing his duties as liquidator of the Monarco group companies until the plaintiffs' proposed appeal from his rejection of their proof of debt had been determined.

13. As stated at J [100], I declined to make the restraining order against Mr Nicol that was then sought by the plaintiffs.

14. It will be convenient to set out in full J [101]-[118], in order to explain the position that was reached at the end of the primary judgment. I said:

101   That raises for consideration what the Court should do with the present proceedings; particularly in respect of the plaintiffs’ application that they be transferred to the Corporations List.

102   I consider that the Court does not have sufficient information, at this stage, to rule on the plaintiffs’ application. I take it that the plaintiffs’ appeal should be commenced by interlocutory process in the proceedings in which each of the Monarco group companies has been ordered to be wound up. So far as I am aware, the Court has not been told whether the winding up orders have been made by this Court or by a Federal Court. It may be implicit in the plaintiffs’ request that the winding up orders were made by this Court, because otherwise the requested transfer would not involve a simple administrative order of this Court.

103   The principal concern that I have as to the appropriate future treatment of these proceedings arises out of what I consider to be the unsatisfactory evidence concerning the rejection of the plaintiffs’ proofs of debt.

104   Notwithstanding the confusion that I have considered above at [12], as to when the rejection of the proofs of debt occurred, I take it from the terms of the plaintiffs’ proposed order 3, set out above at [70], that in fact the rejection occurred on 20 November 2019.

105   Of all the paper tendered into evidence on this application, the evidence does not appear to include the actual notice by which Mr Nicols rejected the proofs of debt. There are other documents produced by Mr Nicols that comment on his reasons for rejecting the proofs of debt, but they do not contain the actual reasons.

106   In an administration in which there appears to be insufficient assets to fund any dividend to ordinary unsecured creditors, the Court should facilitate, if it can, the resolution of the dispute concerning the rejection of the plaintiffs’ proofs of debt.

107   It is not clear why Mr Nicols rejected the proofs of debt on 20 November 2019 without waiting to see the outcome of the plaintiffs’ proceedings against Mr Andonovski. It is clear that, if any of the Monarco group companies are liable to the plaintiffs under the Heads of Agreement, the discontinuance of the proceedings against them will have no effect on that liability. Further, it is immaterial that the companies may not have recognised the liability in their books and records.

108   As I have recorded above at [34] and [35], Sackar J appears to have made a declaration that at least Monarco Pty Ltd (in liq) was legally bound by the Heads of Agreement. I do not know what the position is in respect of the other Monarco group companies who were parties to the Heads of Agreement. That may depend upon the reasons for judgment that Sackar J delivers.

109   Complex questions may arise as to whether it is proper for Mr Nicols to accept the effect of Sackar J’s declaration in relation to the position of Monarco Pty Ltd (in liq). In some circumstances, it would be an abuse of the process of the Court for him to challenge the effect of the declaration in legal proceedings. I do not now express a view on that matter.

110   In pars 8 and 9 of their most recent submissions, the plaintiffs explain – though only in outline – certain issues that arise in relation to the validity of their proofs of debt that involve matters known to Mr Nicols but not the plaintiffs.

111   In these circumstances I do not propose, at this time, to dismiss the plaintiffs’ proceedings.

112   As I am seized of the issues that have been discussed above, it may be that the most cost efficient way to deal with the dispute is for it to remain with me and for appropriate case management orders to be made in these proceedings. However, I am unsure as to the most appropriate way to proceed, because I do not know what the position is in relation to the plaintiffs’ application for leave to appeal from Mr Nicols’ rejection of their proofs of debt. In particular, I do not know whether applications have already been made in the Corporations List.

113   I will invite the parties to provide brief written submissions to my associate within 14 days as to the most appropriate course to enable the real dispute between the parties to be dealt with in the most convenient and least expensive way possible.

114   An obvious problem is that it would be preferable that any further steps be deferred until after Sackar J has delivered his reasons for judgment. In saying this, I am assuming that in fact his Honour has reserved judgment and will in due course deliver one.

115   It remains necessary for the Court to deal with the costs of the proceedings to date. Mr Nicols has sought an order that his costs be paid by the plaintiffs, fixed in the sum of $11,500 payable forthwith.

116   The Court has not yet received submissions from the plaintiffs on the issue of costs.

117   In principle, in the present situation, the Court will be open to making a gross sum costs order, but it could only do so on proper, even if brief, evidence and submissions on that subject.

118   The parties should confer and submit draft short minutes of order to my associate to give effect to these reasons. They should also provide their responses in accordance with [113], [116] and [117] within 14 days of the delivery of these reasons for judgment.

15. The plaintiffs responded to the Court's invitation by delivering written submissions dated 15 June 2020, together with proposed short minutes of order.

16. If made, the effect of the short minutes of order would have been that there would be no order for costs of the interlocutory application. The proceedings would remain in the General Equity List before me for final determination. The short minutes of order contemplated that Mr Nicol would undertake to reconsider the plaintiffs' proof of debt, and then advise the plaintiffs of what remained to be done by Mr Nicol prior to the deregistration of the companies in liquidation. The plaintiffs would be required to inform Mr Nicol if they proposed to appeal his determination, and the matter would be listed for further directions on a later date.

17. Mr Nicol also delivered written submissions dated 15 June 2020, together with draft short minutes of order that provided as follows:

The Court orders that:

1.   Order 3 made on 30 March 2020 be set aside.

2.   The Summons be dismissed

3.   The plaintiffs pay the defendant's costs on an indemnity basis fixed in sum of $15,000, payable forthwith

18. By 15 June 2020, the time for the plaintiffs to lodge their appeal against Mr Nicol's rejection of their proofs of debt had elapsed. At the time of receipt of the submissions, I was not aware of whether or not the plaintiffs had complied with their undertaking. The draft short minutes of order delivered by the plaintiffs contemplated a regime for the commencement of an appeal that was inconsistent with their having complied with their undertaking. It assumed that Mr Nicol would undertake to re-determine the plaintiffs' proof of debt. Mr Nicol has never given any indication that he would voluntarily give such an undertaking. In the circumstances of the plaintiffs' application, the Court had no power to require Mr Nicol to re-determine the plaintiffs' proof of debt, in the absence of the plaintiffs succeeding on some appropriate application. Nothing had been done to release the plaintiffs from their undertaking.

19. The Court did not deal with the parties' submissions. That was in part because I assumed that the plaintiffs would in due course comply with their undertaking, and that after the appeal had been commenced, I would be in a position to consider whether there was any merit in my dealing with that appeal rather than it be dealt with in the Corporations List in the ordinary way.

20. The only reason that I entertained that possibility was, having regard to s 56 of the Civil Procedure Act 2005 (NSW), I had been required to familiarise myself with a significant amount of evidence, and it may have been more efficient for me to deal with the appeal so that the judicial effort that had been expended on the proceedings to date would not be wasted.

21. There was also the possibility that Sackar J would deliver judgment in proceedings by the plaintiffs against Jordan Peter Andonovski and others, being case number 2017/212491 in this Court. I will call this case the substantive proceedings. On 20 December 2019, Sackar J, by order 1, made a declaration that a heads of agreement dated 17 February 2017 was an enforceable agreement. The plaintiffs claimed that the debt, the subject of their proof of debt, arose under the heads of agreement so that, notwithstanding that the debtor companies had been dismissed from the proceedings because of the commencement of their winding up, Mr Nicol ought to have allowed the proof of debt.

22. As explained at J [36], I had been told at some stage during these proceedings that Sackar J had reserved judgment when he made order 1 on a summary basis. That belief has at no stage been confirmed by any statement made by Sackar J, and I simply acted on the information given that in due course his Honour would give reasons why he found that the heads of agreement created an enforceable agreement.

23. While it could not be known in advance, it seemed to be reasonable that the reasons given by Sackar J might bear upon, and even be determinative of, the issue of whether Mr Nicol ought to have accepted the plaintiffs' proof of debt. That is because the fact that the debtor companies were dismissed as parties to the proceedings did not exclude the possibility that, as they were parties to the heads of agreement, they were in fact indebted to the plaintiffs.

24. Unfortunately, my deferral of the need to determine the dispute between the parties, by waiting for the plaintiffs to lodge their appeal against Mr Nicol's rejection of their proofs of debt, and for Sackar J to deliver his reserved judgment, was misguided as neither event has occurred. I should make clear in relation to his Honour's judgment that I do not have any objective information that confirms that his Honour ever intended to deliver a further judgment.

25. The matter fell into abeyance until, on 4 February 2021, I arranged for my Associate to contact the parties by email, to note that I had not made final orders following the delivery of my primary judgment, and to ask for further responses from the parties.

26. On 16 February 2021, the solicitors for the plaintiffs sent a letter to my Associate in which they apologised for the delay in the proceedings and particularly for not keeping the Court apprised of developments.

27. The plaintiffs' solicitors advised the Court that on 8 July 2020, the plaintiffs formally requested that Mr Nicol revisit his rejection of the plaintiffs' proof of debt, and on 9 July 2020, the plaintiffs were advised by Mr Nicol's solicitors that he stood by his determination "unless and until satisfactory evidence is provided" of the validity of the debt.

28. The plaintiffs asserted that, in the absence of Sackar J's reasons for decision in the substantive proceedings, an appeal against Mr Nicol's decision to reject the plaintiffs' claim "would be fruitless at this time". The plaintiffs must first seek leave to appeal from Mr Nicol's determination out of time. The plaintiffs suggested that it would be necessary for them to reinstate the substantive proceedings against the debtor companies (given, as noted above, that they had been dismissed as parties following the commencement of their winding up).

29. The plaintiffs gave an explanation of the course of the substantive proceedings following the orders made by Sackar J, to which reference is made above, and asserted that any application made by the plaintiffs "would benefit from the reasons for decision made by Justice Sackar".

30. The plaintiffs ultimately requested that "the Summons be placed on the inactive list, pending the judgment of Sackar J in the substantive proceedings."

31. Mr Nicol's solicitors also responded to my Associate's email on 16 February 2021. They said that Mr Nicol is content to rely on his submissions filed on 15 June 2020 and seeks final orders be made in accordance with the draft orders annexed to those submissions.

32. The final communication received by my Associate from the plaintiffs' solicitors was an email dated 3 March 2021 advising that the plaintiffs had not yet filed their evidence in chief in the substantive proceedings and that they expected to do so shortly.

33. While I can see how the reasons for Sackar J having made order 1 on 20 December 2019 may be relevant to the merits of the plaintiffs' application for leave to appeal the rejection of their proofs of debt, and to the appeal itself if leave is given, it has not been explained how the balance of the substantive proceedings is relevant to the validity of the plaintiffs' proof of debt.

34. The first observation to be made in response to the plaintiffs' submissions in their letter of 16 February 2021 is that there is no such thing as an inactive matters list. The Court may stand a particular matter over for a relatively long time, if there is a specific and adequate reason for doing so. However, the plaintiffs have not in my view demonstrated an adequate reason for the Court to further defer the making of final orders on the plaintiffs' summons.

35. The Court has, in practical terms, dismissed the plaintiffs' application for relief in the form that was proposed at the time of the 3 April 2020 hearing. The plaintiffs did not demonstrate any reason that justified the Court in interfering with the performance by Mr Nicol of his duties as liquidator of the companies in the manner that he saw fit. Furthermore, it appeared that the only step that Mr Nicol might take that might prejudice the position of the plaintiffs was if he proceeded to cause the alleged debtor companies to be deregistered. That was something that Mr Nicol was unlikely to do while he understood that an application by the plaintiffs for leave to appeal his rejection of their proof of debt might be made.

36. This Court does not know whether in fact Sackar J has an outstanding reserved judgment in the substantive proceedings, but the fact is that his Honour made order 1 on 20 December 2019, and it cannot be known whether his reasons will be material to any application made by the plaintiffs in respect of the rejection of their proofs of debt, or whether the deferral by the plaintiffs of the making of their application was worthwhile.

37. More significantly, the plaintiffs are in breach of the undertaking that they gave to commence their application for leave to appeal the rejection of their proof of debt. No explanation for the breach can be considered adequate. It was incumbent upon the plaintiffs to make an application to the Court to be released from their undertaking, or for its variation if it were thought that there was good reason for deferring the commencement of the application.

38. Further, as the plaintiffs needed leave to appeal because of their delay in the first place, the further substantial delay will most likely compromise the plaintiffs' prospects of being given the leave to appeal that they may seek.

39. Finally, the most significant practical effect of the plaintiffs' delay in lodging their application for leave to appeal is that so much time has now elapsed since I was seized of the evidence relevant to the plaintiffs' application that there is no longer any real advantage in my contemplating the possibility of determining the plaintiffs' application. Any such application must now be made by the plaintiffs in the conventional way in the Corporations List.

40. It follows that in my view the proper course for the Court to take is to make an order dismissing the plaintiffs' summons.

18. Mr Nicol is entitled to an order that the plaintiffs pay his costs of the proceedings.

19. Mr Nicol seeks an order that his costs be paid on the indemnity basis and in the gross sum of $15,000. Annexure A to Mr Nicol's 15 June 2020 submissions was a printout of the detail of the legal costs incurred by Mr Nicol, showing on an itemised basis the lawyer engaged, the time spent, the costs per item and a short but intelligible narrative of the work done. The total amount of costs was $15,255.

20. As the plaintiffs' submissions were also filed on 15 June 2020, albeit about five hours after the defendants' submissions were filed, the plaintiffs had not responded in detail to Mr Nicol's submissions concerning the precise costs order that should be made.

21. I will give the plaintiffs seven days to serve and deliver to my Associate further submissions on the issue of costs. Mr Nicol will have a further seven days to reply. I will not put a page limitation on the submissions, but they should be concise.

22. It may assist in the resolution of the outstanding costs issue if I give the following indications concerning the determination of the appropriate costs order. First, I am in principle prepared to make a gross sum costs order. The litigious effort required on behalf of Mr Nicol was relatively confined, and as he is coming towards the end of the process of winding up the alleged debtor companies, it is preferable that he not be required to participate in a costs assessment. I consider that it was appropriate for most of the legal work to be done at partner-level, as the proceedings were required to be dealt with urgently. Further, the fact that a partner was engaged obviated the need for counsel to be briefed. I am satisfied that the legal work done on behalf of Mr Nicol was done efficiently.

23. However, I would require to be persuaded that the present is a matter that satisfies the criteria for the award of costs on the indemnity basis. It is also usual when a gross sum costs order is made for there to be some discount to reflect both the fact that the Court must determine the amount of costs to be paid on a broad basis, and also the fact that the costs of undertaking a costs assessment will be saved.

24. The parties are free to make submissions contrary to these observations if they so wish.

25. The orders of the Court are:

1. The plaintiffs' summons is dismissed.

2. The plaintiffs may serve and deliver to the Associate to Robb J brief written submissions on the defendant's application for costs within seven days.

3. The defendant may serve and deliver to the Associate to Robb J submissions in reply in a further seven days.

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Decision last updated: 07 May 2021