Molenaar v Nicols

[2020] NSWSC 674

Supreme Court

New South Wales

Medium Neutral Citation:	Molenaar v Nicols [2020] NSWSC 674
Hearing dates:	3 April 2020
Decision date:	01 June 2020
Jurisdiction:	Equity - Duty List
Before:	Robb J
Decision:	See pars [116] and [118]. Parties should provide their responses in accordance with [116] and [118] within 14 days of the delivery of these reasons for judgment.
Catchwords:	CIVIL PROCEDURE – interlocutory injunctions – where an injunction is sought to restrain a liquidator from taking any action in the name of the companies in liquidation – where an injunction granted in the Duty List should subsequently be vacated
Legislation Cited:	Corporations Act 2001 (Cth) Corporations Regulations 2001 Insolvency Practice Schedule (Corporations) Uniform Civil Procedure Rules 2005 (NSW)
Category:	Procedural and other rulings
Parties:	Trevereaux Molenaar (first plaintiff) Molenaar Real Estate Pty Ltd (second plaintiff) Steven Nicols as the Liquidator of each of Monarco Pty Ltd (in liq), Monarco Property Management Pty Ltd (in liq), Riviara Pty Limited (in liq), Monarco Property Management Services Pty Ltd (in liq), Cube Marketing Pty Ltd and Liberty Property Sales Pty Ltd (in liq) (defendant)
Representation:	Counsel: M J Harris (plaintiffs) C Bavin (sol) (defendant)   Solicitors: Jemmeson Fisher (plaintiffs) Hunt & Hunt (defendant)
File Number(s):	2020 / 98710

Judgment

1. The plaintiffs in these proceedings are Trevereaux Molenaar and Molenaar Real Estate Pty Ltd.

2. On 30 March 2020, I gave leave to the plaintiffs to commence these proceedings in the Duty List.

3. The defendant is Mr Steven Nicols. Mr Nicols has been sued in his capacity as the liquidator of five companies that may conveniently be described as the Monarco group. As I understand the evidence (although at this stage the Court does not have relevant documents for all of the Monarco group companies) Mr Nicols was appointed voluntary administrator of the companies on 28 March 2019, and the creditors resolved to place the companies into liquidation on 30 April 2019. Mr Nicols was appointed liquidator of the companies at that time.

4. By their summons, the plaintiffs sought the following substantive relief:

3. Pursuant to s.66 of the Supreme Court Act 1970 (NSW), the Defendant, Stephen Nicol, as the liquidator of each of (sic) Monarco Pty Ltd (in liquidation) A.C.N. 137 218 154 be stayed from holding the creditors meeting to be held at 11am on Tuesday, 31 March 2020 at the offices of Nicols + Brien, Level 2, 350 Kent Street, Sydney or by electronic means, until further order.

4.   An interlocutory injunction restraining the defendant from taking any action in the name of the companies in liquidation, pending the determination of the proposed Appeal from the liquidators’ decision 27 March 2020 reject the plaintiffs claim debt of $1,443,250.37.

5. As I understand it, prayer 3 only referred to Monarco Pty Ltd (in liq) because that was the only one of the companies for which Mr Nicols had convened a meeting of creditors. All of the documents in evidence that relate specifically to a meeting of creditors, or consist of reports to creditors, only concern Monarco Pty Ltd (in liq). The correspondence generally refers to other companies in the Monarco group, and there appears to be some ambiguity in the evidence concerning the companies in the group in whose winding up the plaintiffs have lodged proofs of debt that have been rejected in part by Mr Nicols. Prayer 4 uses the expression “the companies in liquidation” because the restraint sought concerns all of the companies.

6. The plaintiffs’ application was of pressing urgency because the meeting of creditors of Monarco Pty Ltd (in liq) that Mr Nicols had convened was due to take place at 11 AM on the day following the application, being 31 March 2020.

7. Because of recent changes in the manner in which the Court has been able to conduct hearings, it was necessary for the application to be made by telephone.

8. The Court did not have the benefit of a hard copy of the exhibit to the plaintiffs’ solicitor’s affidavit that was filed in support of the plaintiffs’ application. The plaintiffs had forwarded a copy of the exhibit to my associate electronically but arrangements were unable to be made to print it out. I will refer to the significance of this circumstance below.

9. As it happened, the plaintiffs were able to give notice of their application to Mr Nicols’ solicitor, who participated in the telephone hearing.

10. What then took place was, in practical terms, a contested application for the relief that the plaintiffs had originally intended to seek by their summons ex parte.

11. It will be sufficient at this stage to state in outline the facts that led the plaintiffs to make their application. As I understand it, on 19 June 2019, the plaintiffs lodged proofs of debt in the winding up of the Monarco group companies for debts of $1,460,829.70. Mr Nicols rejected the proofs of debt in the amount claimed. Mr Nicols admitted part of the debt claimed, but for a much smaller amount than was claimed by the plaintiffs.

12. I am not sure when Mr Nicols rejected the proofs of debt. The plaintiff said in par 1 of their 30 March 2020 written submissions that Mr Nicols rejected their proofs of debt on 27 March 2020, and also that the notice of rejection was served on the plaintiffs’ solicitors on the earlier date of 20 March 2020. The plaintiffs submitted that reg 5.6.54 of the Corporations Regulations 2001 gave them 14 days to appeal the rejection by Mr Nicols. The plaintiffs relied upon the document at Tab 4 of the exhibit to their solicitor’s affidavit for proof of the rejection, but the document at that tab is a copy of orders made by this Court on 20 December 2019. The document relied upon by the plaintiffs as the notice of rejection, being at Tab 7, is a report by Mr Nicols to the creditors of Monarco Pty Ltd (in liq) dated 16 March 2020. At page 5, Mr Nicols stated “I have now formally rejected” the plaintiffs’ proof of debt save for $28,612.00. This document does not appear to be the actual rejection of the proof of debt in respect of Monarco Pty Ltd (in liq).

13. I am not sure what the true position is. The hearing was conducted on the basis that the rejection of the proof of debt had occurred on some earlier date and the time for lodging an appeal had elapsed.

14. Mr Nicols convened a telephone meeting of the creditors of Monarco Pty Ltd (in liq) to be held on 31 March 2020, to vote on a number of resolutions proposed by Mr Nicols. If Mr Nicols had admitted the plaintiffs’ proofs of debt in full, then, according to the plaintiffs, the value of the plaintiffs’ claim would have been 72.10% of creditors. As it was, the admitted value of the plaintiffs’ claim was only 4.87% of creditors.

15. The plaintiffs asserted that Mr Nicols ought to have admitted their proofs of debt in full, and if he had done that, the plaintiffs would have had the voting power to call a meeting of the creditors of the Monarco group companies for the purpose of proposing a resolution that Mr Nicols be replaced as the liquidator of the companies, and to ensure that the resolution was passed by creditors.

16. It is not necessary to consider in detail the plaintiffs’ purpose in wishing to replace Mr Nicols. It is sufficient to note that the plaintiffs say that one or more of the Monarco group companies may have rights of recovery against entities associated with the former principal of the group, Mr Jordan Peter Andonovski, and that the plaintiffs may be prepared to fund a liquidator of the companies to pursue actions to recover assets, so that a greater dividend in the winding up of the companies could be paid to unsecured creditors, including the plaintiffs.

17. The essential reason for the plaintiffs having commenced the application, at least as it initially appeared, was to prevent the other creditors, by majority, approving resolutions that may have the effect that Mr Nicols may take actions in the winding up of the companies that would be prejudicial to the opportunity sought by the plaintiffs to appeal from Mr Nicols’ rejection of their proofs of debt, and then to take whatever course was available to them to cause Mr Nicols to be replaced as liquidator, and then to pursue available avenues to recover assets for the benefit of unsecured creditors.

18. The plaintiffs’ claims that the Monarco group companies were liable to them for the full debts claimed in their proofs of debt arose out of the fact that both plaintiffs were parties to a Heads of Agreement dated 17 February 2017. Mr Andonovski, the Monarco group companies, and a number of other companies, were also parties to the Heads of Agreement. The Heads of Agreement dealt with the restructure of certain businesses involving franchise agreements granted by a well-known real estate agency franchisor, in respect of which there were disputes between the parties as to whether the franchise agreements had validly been terminated.

19. Notwithstanding that subclause 1 of clause 2, headed “Restructure” required relevant parties to “enter into a binding legal agreement … to give effect to the Restructure” by a stated date, the chapeau to the Heads of Agreement provided: “The parties agree that the provisions of this Deed are binding on the parties on and from the date of this Deed”.

20. I note that, notwithstanding that there are two plaintiffs in these proceedings, subclause 2 of clause 2, provided: “The Restructure must include: a) payment of the settlement sum to Molenaar” (being Mr Molenaar). There followed a list of matters that were required to be included in the Restructure, including the making of certain payments to Mr Molenaar.

21. Clause 6 was entitled “Parties”, and relevantly provided: “If a party consists of more than one person, this Deed binds each of them separately and any two or more of them jointly”.

22. As I understand it, it is the plaintiffs’ case that, notwithstanding that the Monarco group companies were listed as separate parties to the Heads of Agreement, they in fact were “more than one person” for the purposes of clause 6, so that they were jointly liable to pay the money that was payable to Mr Molenaar in respect of the Restructure.

23. Subclause 1 of clause 2 provided “all parties to this Deed (save for [the Franchisor]) agree that they will enter into a binding legal agreement…to give effect to the Restructure. The plaintiffs’ argument may be that, when subclause 2 specified that the Restructure must include payment of the settlement sum to Molenaar, all of the parties other than the Franchisor became bound to pay the settlement sum.

24. In his report to creditors dated 16 March 2020, Mr Nicols made the following observations about the plaintiffs’ proof of debt:

As previously reported at the date of my last report I had received a proof of debt claim from this entity [strangely, being Molenaar Investment Pty Ltd], jointly together with Mr Trevor Molenaar, a former director of the company, for $1,460,829.70.

Creditors will recall that prior to my appointment the company was a defendant in litigation commenced by Mr Molenaar and Molenaar Investments Pty Ltd in regards to claims of funds payable by the company, other companies in the Monarco Group and also the director Mr Andonovski, to the Molenaar entities primarily in regards to a heads of agreement. The basis of the document was predicated on the funds required for the effective payout of Mr Molenaar and related entities for his/their interest in the Monarco Group. As previously reported, the companies in the group were released from the proceedings subsequent to negotiations with the plaintiffs which led to the matters being discontinued against the company.

The proof of debt filed in the administration essentially stems from the basis of claim under the heads of agreement which had been subject of the prior litigation. I determined that the proof was not substantially admissible in the liquidation and to this extent I have now formally rejected the proof of debt to the extent that [the] claim in the sum of $28,612.00 only is admissible.

25. Mr Nicols’ reference to the companies in the group being released from the proceedings refers to proceedings commenced by the plaintiffs on 12 July 2017 in this Court against Mr Andonovski and the Monarco group companies to enforce the Heads of Agreement. The companies of which Mr Nicols is the liquidator were the third, fourth, fifth, seventh and eighth defendants in the proceedings. The third defendant was Monarco Pty Ltd (in liq).

26. On 19 June 2019, the Registrar made a number of orders by consent in the proceedings, including the following: “5. Proceeding is to be discontinued against the third to eighth defendants with no order as to costs”.

27. As I understand the plaintiffs’ evidence, and the plaintiffs’ submissions, they discontinued the proceedings against the Monarco group companies at the request of Mr Nicols, because those companies had been placed into liquidation on 30 April 2019.

28. The plaintiffs rely upon Uniform Civil Procedure Rules 2005 (NSW) r 12.3(1), which provides: “A discontinuance of proceedings with respect to a plaintiff’s claim for relief does not prevent the plaintiff from claiming the same relief in fresh proceedings”. They say that the fact that they discontinued the proceedings against the Monarco group companies has no effect on the underlying liability of those companies to the plaintiffs, or Mr Molenaar, under the Heads of Agreement.

29. Although an order for sequestration in bankruptcy was made against the estate of Mr Andonovski, leave to continue the proceedings against Mr Andonovski was granted by the Federal Court of Australia on 18 December 2019.

30. On 19 December 2019, Mr Nicols wrote a letter to the plaintiffs’ solicitors in response to a letter dated 12 December 2019, which, among other things, referred to the pending proceedings in this Court, and the application in the Federal Court to proceed against Mr Andonovski, notwithstanding the making of the sequestration order against him, and requested that Mr Nicols defer ruling on the plaintiffs’ proofs of debt until the outcome of the proceedings in this Court was known. Mr Nicols’ response included:

…

It is clear from your letter that you assert your clients claim arises from obligations under the Heads of Agreement to which the various companies in the group were party.

I note in this regard that none of the companies subject to liquidation under my control are currently parties to the proceedings and have been specifically released by agreement from those proceedings. In these circumstances I am uncertain just as to how any judgment in your favour, assuming one is given, against Mr Andonovski or his related company will provide for any better right of claim against the companies then currently exists.

On the basis of currently available information the claimed rights under the Heads of Agreement are not substantiated by the books and records for the respective companies under my control.

If the only information you have available to you to refute my determination is the existence of the Heads of Agreement then I do not believe you have provided sufficient information to provide for me to amend my decision. Any judgment in favour of your client against Mr Andonovski does not change this position.

Given the matters noted I do not believe that my determinations on dealing with your clients claims are premature. The Notice of Rejections of Proof for your clients claims have already been made pursuant to the relevant notices and thus cannot, as you request, be deferred.

31. The basis of Mr Nicols decision to reject the greater part of the plaintiffs’ proofs of debt does not appear with complete clarity from the evidence. It seems that, in part, Mr Nicols took the view that the agreement that the Monarco group companies be “released” from the proceedings had the consequence that they could not be liable under the Heads of Agreement. Mr Nicols also appears to have acted upon the fact that the books and records of the companies did not acknowledge the liability that was originally claimed against them in the proceedings in this Court before that aspect of the proceedings was discontinued.

32. It is not necessary for the Court in these reasons to decide, or express any opinion on, the issue whether the Monarco group companies are indebted to the plaintiffs, or either of them, in the amount claimed. It is proper to observe, however, that the discontinuance of the proceedings did not have the effect of either discharging any such liability, or preventing the plaintiffs from asserting that the liability has arisen under the Heads of Agreement. That issue will depend upon the proper construction of the document.

33. Further, it cannot be determinative of the nonexistence of the debt claimed by the plaintiffs that the books and records of the Monarco group companies do not reflect the existence of a liability that they denied in the proceedings, before the proceedings were discontinued against them.

34. On 20 December 2019, Sackar J made orders in favour of the plaintiffs, in the following terms:

THE COURT ORDERS THAT:

1.   By declaration, the heads of agreement dated 17 February 2017 entered into by the Plaintiffs and the First Defendant, the former Second to Third Defendants…is an enforceable agreement.

…

3.    The First Defendant pay the Plaintiffs damages of $1,443,250.37 for breach of the Heads of Agreement and misleading and deceptive conduct under s.4 of the ACL…

35. Even though Monarco Pty Ltd (in liq) was no longer a party to the proceedings when the orders were made, the declaration in order 1 states that the Heads of Agreement were binding against that company. I am not sure what the position is in relation to all of the other Monarco group companies of which Mr Nicols is the liquidator.

36. Although his Honour made final orders, he did not deliver reasons for judgment. His Honour’s reserved judgment has not yet been published.

37. In due course, after certain correspondence was exchanged between the plaintiffs’ solicitors and Mr Nicols, the plaintiffs commenced these proceedings, after becoming aware that Mr Nicols had convened the meeting of the creditors of Monarco Pty Ltd (in liq) for 31 March 2020.

38. Because of the practical difficulties in dealing with the electronic PDF version of the plaintiffs’ solicitor’s exhibit, I was not aware, during the hearing on 30 March 2020, that, although the solicitor’s affidavit stated that the notice of meeting was included at specified pages of the exhibit, those pages only comprised Mr Nicols’ report to creditors, and the notice of meeting had been omitted.

39. Following the hearing on 30 March 2020, I considered the position overnight and, on the morning of 31 March 2020, before the commencement of the creditors meeting, I made a number of orders. I noted an undertaking by the plaintiffs that, within 14 days, they would file and serve an application under reg 5.6.54 of the Corporations Regulations 2001, for leave to appeal the rejection made on 20 November 2019 by Mr Nicols as liquidator of the Monarco group companies of the plaintiffs’ claims for debt of $1,460,829.70 dated 19 June 2019. The terms of this undertaking suggest that, by the time it was given, the parties understood that the rejection of the proofs of debt had occurred on 20 November 2019.

40. I was unwilling to make an order restraining Mr Nicols from conducting the creditors meeting. It is not the usual or most appropriate course for the Court to restrain company meetings, of any sort, in cases where the resolutions that may be made will not have any permanent and unalterable effect, and the Court has power in an appropriate case to make orders retrospectively preventing effect to be given to the resolutions. If the Court were to restrain the holding of meetings, then the Court would prevent the parties entitled to vote on resolutions from doing so, with the result that the Court’s order would have the effect of preventing any record being created of the preferences of the parties entitled to vote on the issue of whether the resolutions in the notice paper should be passed or not.

35. Accordingly, by order in 2, I ordered Mr Nicols, at the meeting of creditors to be held at 11 AM on 31 March 2020, to take notes that properly recorded which creditor voted for and against each resolution on the agenda identified in the notice of meeting and to retain such notes. In doing that, I noted in argument that it was probable that Mr Nicols would create this record in any event.

36. I then made the following order:

3.   Until further order, the defendant be restrained from acting upon any resolution passed at that meeting of creditors.

43. I stood the matter over to 2:30 PM on 3 April 2020 before myself as Duty Judge, so that the Court could deal with the matter in the light of what happened at the meeting of creditors.

44. As a result of a further affidavit of the plaintiffs’ solicitor, which was filed at 2:12 PM on 3 April 2020, I became aware of the terms of the resolutions that were put to the creditors at the meeting. The resolutions were set out in the minutes of the meeting of the creditors of Monarco Pty Ltd (in liq) that were annexed to the solicitor’s affidavit.

45. By Resolution 1, the creditors resolved to approve the remuneration of the liquidator and his staff for the period 24 June 2019 to 11 March 2020 in the sum of $24,739.20. The plaintiffs voted against the resolution; companies associated with the company in liquidation abstained, and the only other two creditors voted in favour of the resolution.

46. Resolution 2, which was passed in the same manner, approved the future remuneration of the liquidator and his staff for the period from 12 March 2020 to 30 September 2020 in the amount of $6,995.40.

47. Resolution 3 approved the payment of “internal disbursements” to the liquidator to an upper limit of $750.

48. When confronted with the realisation of what the actual terms of the resolutions in the notice to creditors of the meeting actually were, I was at a loss as to why the plaintiffs had gone to the trouble of seeking to restrain the holding of the meeting, and formed the provisional view that Mr Nicols should be permitted to pay himself the fees authorised by the creditors, subject to his willingness to repay those fees if the plaintiffs ever successfully challenged them.

49. However, at the hearing that took place on 3 April 2020, the thrust of the plaintiffs’ case changed. The plaintiffs’ counsel informed the Court that they did not oppose Mr Nicols implementing the resolutions in so far as they authorised him to pay fees properly due to his firm. Consequently, it then appeared to be appropriate for the Court to vacate order 3 made on 31 March 2020.

50. The issue then became whether the Court should make an order as claimed in prayer 4 of the plaintiffs’ summons, which is set out above at [4]. If made, that order would prevent Mr Nicols performing his duties as liquidator of the Monarco group companies until the plaintiffs’ proposed appeal from his rejection of their proofs of debt had been determined.

51. Prayer 4 raises difficulties. The most obvious is that the Court could not order a general restraint, because that would prevent Mr Nicols from responding to the plaintiffs’ appeal. Mr Nicols has both the right and the duty to decide how he should respond to that appeal, and if he thinks fit, to resist it. That thought leads to the general consideration that Mr Nicols is a statutory officeholder, who has duties and responsibilities, so the Court may not be justified in making any order that interferes with the due performance of Mr Nicols’ duties, or usurps the exercise of his discretion. The Court should not make any order, as sought by the plaintiffs, without understanding the basis in principle, if there be any, for restraining how Mr Nicols should perform his duties as liquidator. Finally, there is the question of the need for precision as to the conduct that Mr Nicols might be restrained from engaging in.

52. Late in the day on 3 April 2020, I started to deliver an ex tempore judgment. That endeavour proved to be a triumph of optimism over common sense, as it was too late in the day, in the particular circumstances of the Duty List on that day, to complete the judgment.

53. For reasons that I will now explain, I am not going to complete the partially finished judgment in accordance with the reasoning expressed on the day.

54. As I developed my reasons, I increasingly came to appreciate that the plaintiffs had not provided satisfactory submissions concerning the principles that govern an application by a creditor to restrain the conduct of the winding up of the company by a liquidator, particularly where the application was made by a creditor who wished to pursue an appeal against a partial rejection of the creditor’s proof of debt by the liquidator.

55. As I continued with my reasons, I realised that there was no evidence before the Court concerning the stage that the windings up had reached, or what remained to be done before the deregistration of the companies could take place.

56. This realisation was enhanced by an appreciation that Resolution 2 only provided for fees of $6,995.40 for the six month period to 30 September 2020. That rather suggested that the winding up was not a very active one at this stage.

57. Save for one issue raised by Mr Nicols, which I will consider below, I came to the realisation that it was premature for the Court to decide the plaintiffs’ application for an order in terms of prayer 4 of their summons in the Duty List on the material that was then before the Court.

58. The issue to which I refer was a submission made by Mr Nicols, based upon the operation of Rule 75-115 of the Insolvency Practice Rules (Corporations), made under s 105-1 of Schedule 2 to the Corporations Act 2001 (Cth). Sub-rule (1) has the effect that a resolution is passed at a meeting of creditors of a company if a majority of the creditors in number and a majority of creditors by value vote in favour of the resolution. Sub-rule (2) has the effect that a resolution is not passed if majorities of creditors by number and value vote against it. Relevantly, sub-rule (3) gives the person presiding at the meeting a casting vote at the meeting if the effect of sub-rules (1) and (2) is that no result is reached. Mr Nicols’ argument was that, even if the plaintiffs were given leave to appeal out of time, and their appeal was successful, that would make them 72.10% by value of creditors, but they would not constitute a majority by number of creditors. Thus, contrary to the position adopted by the plaintiffs, they could not ensure that any resolution proposed by them to replace Mr Nicols as liquidator would be passed. If a majority in number of creditors voted against the resolution, then Mr Nicols would have a casting vote. The argument put by Mr Nicols was, in those circumstances, that the premise upon which the plaintiffs asked the Court to make an order in terms of prayer 4 was to preserve the position in the winding up to give the plaintiffs an opportunity to pursue their appeal, and if successful, to propose a resolution that would lead to Mr Nicols’ replacement. Crucially, Mr Nicols submitted that the Court should not act upon the basis that success in their appeal would necessarily lead to the replacement of Mr Nicols, without the plaintiffs tendering evidence that other creditors, which would give the plaintiffs a majority in number of creditors, had already pledged themselves to vote in favour of the resolution foreshadowed by the plaintiffs.

59. As I did in my incomplete ex tempore reasons, I now repeat my rejection of Mr Nicols’ argument. It is not commercially realistic to expect that other creditors would now bind themselves as to how they will vote, if the plaintiffs ever achieve the position where they can propose a resolution to replace Mr Nicols as liquidator, in circumstances where they are the majority creditors by value. That is particularly so as one of the creditors is the Deputy Commissioner of Taxation. Furthermore, the whole issue of whether any one or more of the Monarco group companies may have rights of recovery that are worth pursuing is presently a speculative matter. The attitude of other creditors is likely to depend on whatever proposition is put to them at the relevant time in the future. Creditors who voted in favour of the resolutions on 31 March 2020 may be persuaded to cooperate with the plaintiffs in the future if they are prepared to fund any actions by a replacement liquidator to Mr Nicols.

60. Consequently, I was and am of the view that Mr Nicols’ argument is not a sound reason for refusing to make an order in the terms of prayer 4 of the summons.

61. However, the issues that I have set out above, which led me to realise late on 3 April 2020 that further consideration of the plaintiffs’ claim was required, remained relevant.

62. One relevant matter was that Sackar J had not had an opportunity to complete and publish his reasons. It is possible that, when his Honour does publish his reasons, they will express conclusions that aid the plaintiffs in their claim that the Monarco group companies, as well as Mr Andonovski, are liable under the Heads of Agreement for the $1,443,250.37. The Court would expect Mr Nicols, in that event, to be open to a reconsideration of his rejection of the plaintiffs’ proofs of debt, given that the discontinuance of the proceedings has no bearing on the companies’ liability at law for the amount claimed by the plaintiffs. The Court would also expect that Mr Nicols would not seek to reargue any point that was in fact determined by Sackar J’s judgment.

63. Another relevant matter was the uncertainty concerning what remained to be done in the winding up of the Monarco group companies, and accordingly what the practical effect of the making of an order restraining Mr Nicols in the manner of his performance of his duties as liquidator might be. That is in light of the need, in any event, to formulate any restraint with precision to identify precisely what constraints should be imposed upon Mr Nicols.

64. In part prompted by these considerations, and in part influenced by the fact that it had become impracticable to conclude the application on the day, I invited the legal representatives for the parties to confer in order to explore whether some sensible accommodation could be reached for the formulation of orders that provided limited protection to the plaintiffs, but did not involve an unwarranted intrusion into the manner in which Mr Nicols saw fit to perform his duties as liquidator.

65. On that basis, I invited the parties’ legal representatives to confer and to submit any agreed short minutes of order to my associate. I adjourned the application at 4:30 PM on the Friday afternoon.

66. Unfortunately, for the second time on the one day, my optimism proved to be unfounded!

67. On 6 April 2020, I arranged for my associate to enquire of the parties whether they had resolved their differences concerning the orders that should be made. My associate noted that, after I had paused in delivering my ex tempore judgment, it had come to my attention that the evidence included Mr Nicols’ 16 March 2020 report to creditors, which had not specifically been brought to my attention. Briefly, that report suggested that little remained to be dealt with in the winding up of Monarco Pty Ltd (in liq).

68. My associate’s email requested that the plaintiffs provide a draft order that was much more specific as to what Mr Nicols should be enjoined from doing than prayer 4 of the summons in its then absolute form. It also requested submissions concerning the legal principles that would justify the Court in interfering in Mr Nicols’ conduct of the winding up of the Monarco group companies. It asked the parties to confer and suggest a timetable for the outstanding matters to be dealt with. Finally, the email indicated that any short minutes of order should provide for the vacation of the existing interlocutory injunction.

69. On 7 April 2020, the plaintiffs’ solicitors provided draft short minutes of order and further submissions to the Court.

70. The plaintiffs’ draft short minutes of order provided for the following substantive orders:

1.   That these interlocutory proceedings be transferred to the Corporations List and the matter be returnable before the List Judge in [the] Corporations List.

2.   Order 3 made 31 March 2020 be varied in that:

(a)   Resolution 1 of the creditors meeting of 31 March 2020, the defendant is no longer restrained from acting on Resolution 1;

(b)   Resolution 2 of the creditors meeting of 31 March 2020, the defendant is restrained form (sic) acting on Resolution 2, except in circumstancesof (sic) future elegal (sic) costs associated with the Plaintiff Appeal, provided in Order 1 of this Court made on 31 March 2020; and

(c)   Resolution 3 of the creditors meeting of 31 March 2020, the defendant [i]s restrained from acting on Resolution 3 until further order of the Court.

3.   The Defendant be restrained, pending determination of the Appeal of the determination to reject the plaintiffs’ proof of debt from actually winding up each of the Monarco Group (in liq) until further order of the Court, but may continue to administrer (sic) the Monarco Group (in liq) by:

(a)   participating to the extent he considers necessary to any appeal by the Plaintiffs of the Defendant’s rejection of debt dated 20 November 2019;

(b)   complying [with] the information requirements under Division 70 of Schedule 2 – Insolvency Practice Schedule (Corporations);

(c)   holding meetings, which may be required under Division 75 of Schedule 2 – Insolvency Practice Schedule (Corporations);

(d)   have regard to directions from creditors under Division AT of Schedule 2 – Insolvency Practice Schedule (Corporations).

71. Order 4 of the draft short minutes of order provided for the plaintiffs to serve their written submissions in respect of prayer 4 of the summons on 7 April 2020. Order 5 provided for Mr Nicols to reply by 8 April 2020, and Order 6 sought that costs be reserved.

72. The draft short minutes of order therefore appeared to contemplate that the Court would make the substantive orders sought by the plaintiffs before the Court had received the parties’ submissions on the subject. I will treat proposed orders 1 to 3 as the orders contended for by the plaintiffs, after the Court has received the parties’ submissions.

73. On 7 April 2020, Mr Nicols’ solicitor responded to my associate’s email by advising that the parties had been unable to come to an agreement. He proposed that order 3 on 31 March 2020 be vacated, and that a particular timetable be fixed for the parties’ submissions.

74. Later on the same day, Mr Nicols’ solicitor sent a further email to my associate, apparently after he had received the plaintiffs’ solicitor’s email.

75. Mr Nicols submitted that the plaintiffs’ proposed order 1 was inappropriate in circumstances where I had commenced delivering my judgment.

76. Mr Nicols also objected to proposed order 2, on the ground that I had already directed that the orders to be made should include an order that order 3 made on 31 March 2020 be vacated. The plaintiffs’ order 2 would only have varied my order 3.

77. As to the plaintiffs’ proposed order 3, Mr Nicols noted that the order represented the terms of the limited prayer for relief in par 4 of the summons now sought by the plaintiffs.

78. Mr Nicols proposed that an order be made immediately that order 3 made on 31 March 2020 be vacated, and suggested a varied timetable for the delivery of submissions, limited to the issue of whether prayer 4 of the summons, as varied by the plaintiffs, should be made.

79. It will be convenient to deal first with what should be done in relation to the continuation of order 3 made by the Court on 31 March 2020.

80. That order was made on an interlocutory basis as an alternative to the inappropriate order of restraining Mr Nicols from holding the meeting of the creditors of Monarco Pty Ltd (in liq) that he had convened. On a short-term basis, the order prevented Mr Nicols from acting on any resolutions that were passed at the meeting. As I have explained above, in fact, the order was made in ignorance of the terms of the resolutions that were to be put to the creditors. After the order was made and the meeting was held, the Court was informed that the resolutions only concerned the fees and disbursements of Mr Nicols and his firm. The resolutions are set out above at [45] to [47]. As I have recorded above, at the hearing on 3 April 2020, the plaintiffs informed the Court that they did not oppose Mr Nicols implementing the resolutions in relation to his fees and disbursements. That is the reason that I indicated that order 3 should be vacated.

81. I can see no reason why the Court should now permit Mr Nicols to pay himself his fees and disbursements up to 11 March 2020, but not act on the creditors’ resolution concerning his subsequent fees, or the resolution concerning internal disbursements. The amount involved in Resolution 2 is only $6,995.40. That resolution probably contemplated that the work required of Mr Nicols and his firm in the six months from 12 March 2020 would be relatively uncontroversial. If Mr Nicols decides to resist the plaintiffs’ appeal from his rejection of their proofs of debt, it is certain that the costs involved will exceed those allowed by Resolution 2. Mr Nicols will probably have to make a judgment about the desirability of resisting the appeal; the availability of funds within the administration to pay for the resistance; and may have to propose to the creditors a further resolution concerning his conduct of the winding up.

82. Given the stance taken by the plaintiffs on 3 April 2020, it would not be appropriate for the Court to reopen the question of the implementation by Mr Nicols of the creditors’ resolutions. It would not be warranted for the Court to intrude upon Mr Nicols’ conduct of the winding up of any of the companies, in so far as it concerns the matter of his fees and disbursements. The evidence does not permit the Court safely to intrude on that aspect of Mr Nicols’ duties. In any event, there is no reason for the Court to expect that Mr Nicols will act other than in accordance with his professional duties in respect of his entitlement to fees and disbursements. The Court is entitled to infer that, if the plaintiffs ever establish that any amount of fees and disbursements authorised by the other creditors to be paid to Mr Nicols is excessive, he will reimburse the relevant companies.

83. It will be convenient to defer consideration of whether the Court should make order 1 sought by the plaintiffs, which would cause these proceedings to be transferred to the Corporations List, until I have dealt with the other outstanding substantive issue.

84. The question then is: what, if any order should be made, as an alternative to prayer 4 of the summons?

85. I start by observing that it would not be proper for the Court to issue any injunction against Mr Nicols that did not with adequate precision and in a positive way, identify the actions that Mr Nicols was restrained from undertaking. In this respect I accept Mr Nicols’ submission. Injunctions should never be issued that require the restrained person to exercise judgment involving indefinite considerations as to whether particular conduct will or will not involve a breach that would constitute contempt of the Court.

86. Consequently, I would not make an order in the terms of the order 3 sought by the plaintiffs in their most recent draft short minutes of order. That order provided for Mr Nicols to be restrained “from actually winding up each of the” Monarco group companies, but permitted him to continue to “administer” the companies by resisting the plaintiffs’ appeal and complying with identified divisions of Schedule 2 – Insolvency Practice Schedule (Corporations).

87. As winding up orders have already been made, I would assume the language used by the plaintiffs was intended to refer to the deregistration of the Monarco group companies.

71. The proposed order would require Mr Nicols to make judgments as to whether or not particular actions were necessary to comply with legal requirements that govern the administration of the winding up of the companies. That requirement should not be imposed on Mr Nicols.

72. The Court could not contemplate issuing an injunction against Mr Nicols without having sufficient evidence as to the steps that may be required to complete the winding up of the Monarco group companies to the stage of deregistration. In the conventional manner, the principles that govern the making of interlocutory injunctions would require the plaintiffs to identify particular steps, to establish that there is a prima facie case, or, as it is sometimes said, a serious question to be tried, that the taking of the step would involve some breach of duty by Mr Nicols. It would then be necessary for the Court to consider the balance of convenience.

73. It is to be noted that the present proceedings involve a claim by the plaintiffs for the issue of an interlocutory injunction against Mr Nicols. The proceedings are not constituted as an application for review of the external administration of a company under Division 90 of the Insolvency Practice Schedule (Corporations). It is true that s 90-5 authorises the Court “on its own initiative during proceedings before the Court” to inquire into the external administration of a company. Section 90-15(1) empowers the Court to make such orders as it thinks fit in relation to the external administration of a company. I do not consider these provisions to be applicable in the circumstances of the present case. In short, the Court has not undertaken any inquiry or extended to Mr Nicols the necessary procedural fairness for the Court to make any order sought by the plaintiffs upon the basis of Division 90 of the Insolvency Practice Schedule (Corporations).

74. The submissions of the parties at the two hearings that have taken place did not focus on any evidence as to the steps that remain to be undertaken by Mr Nicols in the winding up of the Monarco group companies.

75. The plaintiffs observed in their most recent submissions that the parties did not bring to the Court’s attention Annexure C to Mr Nicols’ report to creditors dated 16 March 2020, to which reference has been made above. Annexure C is entitled “Calculation of Remuneration”. In this annexure, Mr Nicols explained the steps remaining in the winding up of Monarco Pty Ltd (in liq) for which he sought prior approval for remuneration capped at $6,995.40. Relevantly, Mr Nicols said:

I have assumed the following matters when calculating the future remuneration:

There will be one final meeting of creditors to be convened on the 31/3/2020;

No further substantive investigation will be undertaken other than if required to satisfy the trustee of the bankrupt estate of Jordan Andonovski of the substance of claims lodged in the bankrupt estate by the liquidator;

Funds recovered from the bankrupt estate of Jordan Andonovski will not be sufficient to pay out priority claims of the ATO for unpaid superannuation guarantee proof lodged;

There will be a dividend paid to the ATO in regards to Superannuation Guarantee Charge claims; and

There will be no dividends paid to unsecured creditors of the company.

If the circumstances of the company change from information currently known then additional remuneration costs may be incurred in completing the winding up. If this eventuates further information concerning the additional remuneration claimed will be provided to creditors for approval prior to any additional remuneration being paid.

93. For completeness, I repeat that this evidence relates only to Monarco Pty Ltd (in liq), and the evidence does not appear to disclose what the position may be with the other companies in the Monarco group of which Mr Nicols is liquidator.

94. What Mr Nicols contemplated would be the final meeting has already taken place, as that was the meeting that the plaintiffs sought to prevent.

95. This statement by Mr Nicols appears to justify the assumption that the Court made based upon the fact that Mr Nicols estimated his future remuneration as being limited to $6,995.40.

96. The evidence does not disclose that Mr Nicols proposes to take any step in the winding up of Monarco Pty Ltd (in liq) that could, in any arguable way, be considered to be a breach of his duties as liquidator. Nor will any of the steps be detrimental to the plaintiffs, save for the final step of deregistering the companies.

97. As to this step, the plaintiffs noted in their latest submissions that, on 3 April 2020, Mr Nicols by his solicitor informed the Court that he would not proceed to deregister the companies in the Monarco group pending the determination of the plaintiffs’ appeal. The plaintiffs submitted that they would hold Mr Nicols to that statement. I have no doubt that Mr Nicols can be relied upon to adhere to the statement made by his solicitor to the Court as to his intentions in relation to the completion of the winding up of the companies.

98. In any event, Mr Nicols, in his written submissions, referred to the provisions of subdivision D of Division 6 of Part 5.6 of the Corporations Act 2001 (Cth), which govern the priority of payments to unsecured creditors in a winding up. This was on the basis that it followed that Mr Nicols could not complete the winding up until the plaintiffs’ appeal has been determined, because, until that has happened, Mr Nicols will not fully know who the creditors of the companies are.

99. I need not address the significance of the fact that Mr Nicols expects that no dividends will be paid to ordinary unsecured creditors of Monarco Pty Ltd (in liq). This is as I accept that, in fact, Mr Nicols will not cause any of the companies to be deregistered until the plaintiffs’ appeal has been determined.

100. Consequently, I will not make the restraining order against Mr Nicols that is now sought by the plaintiffs.

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.

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Decision last updated: 02 June 2020