Neha Impex International Pty Ltd v Mintz & Co Pty Ltd - [2003] WASC 196

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NEHA IMPEX INTERNATIONAL PTY LTD -v- MINTZ & CO PTY LTD [2003] WASC 196

CORAM: MASTER NEWNES

HEARD: 2 OCTOBER 2003

DELIVERED : 24 OCTOBER 2003

FILE NO/S: COR 142 of 2003

BETWEEN: NEHA IMPEX INTERNATIONAL PTY LTD
Plaintiff
AND
MINTZ & CO PTY LTD
Defendant

Catchwords:

Corporations Act - Application to wind up - Section 459A - Company in voluntary liquidation - Section 467B - Relevant principles - Turns on own facts

Legislation:

Corporations Act2001 (Cth), s 459A, s 467B, s 503

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr C J Martin
Defendant: Mr S G Scott

Solicitors:

Plaintiff: Chris Martin & Associates
Defendant: Stables Scott

Case(s) referred to in judgment(s):

Citrix Systems Inc v Telesystems Learning Pty Ltd (In liq) (1998) 28 ACSR 529
City & Suburban Pty Ltd v Michael John Morris Smith (Liquidator of Conpac (Aust) Pty Ltd (In liq)), unreported; Fed Ct (Merkel J); 9 July 1998

Case(s) also cited:

Nil

MASTER NEWNES: This is an application to wind up the defendant under s 459A of the Corporations Act2001 (Cth). It was pressed by the plaintiff although, on 17 July 2003, a meeting of creditors had resolved to place the defendant into voluntary liquidation and to appoint Messrs Melsom, Lopez and Verge of the accounting firm Melsom Robson Chartered Accountants, as liquidators. It was accepted by the parties that that did not prevent this application being pursued.
Section 467B of the Act provides:
"The Court may make an order under sections 246AA, 459A, 459B or 461 even if the company has already been wound up voluntarily."
The question on this application was whether the Court should make an order under s 459A in circumstances where the order was sought solely for the purpose of replacing the current liquidators with a liquidator appointed by the Court.
The current application arose in the following way. The defendant, then known as Mintz & Co Pty Ltd, trading as Isalia Diamonds, was indebted to the plaintiff in the sum of $81,796.18. The plaintiff obtained judgment for that amount in the District Court. On 24 January 2003, the plaintiff caused a statutory demand, pursuant to s 459E of the Act, to be served on the defendant. The defendant did not pay the amount demanded or apply to set aside the statutory demand.
On 9 May 2003, the plaintiff filed and served the current application to wind up the defendant. Subsequently, on 20 June 2003, before the plaintiff's application had come on for hearing, the sole director of the defendant, Mrs Thompson, appointed Messrs Melsom, Lopez and Verge as administrators of the defendant under Part 5.3A of the Act.
The plaintiff's application to wind up the defendant came before the Court on 23 June 2003 and was adjourned to 8 July 2003. At the hearing on 8 July 2003, an affidavit of one of the administrators, Mr Melsom, was produced by counsel who appeared on behalf of the defendant. In that affidavit, Mr Melsom noted that he, together with his partners Mr Lopez and Mr Verge, had been appointed joint and several administrators on 20 June 2003. He said that he considered it was in the interests of creditors that the administration be allowed to run its course. Mr Melsom referred to the work that had been done in the administration to that date and said that by the time of the second meeting of creditors the administration would be significantly advanced. He considered it was likely that at the second meeting the creditors would resolve that the company be wound up. Mr Melsom said that he did not consider it was in the interests of creditors for the company to be wound up in the meantime on the plaintiff's application.
The plaintiff's application was adjourned to 14 July 2003 and on that date was adjourned to 24 July 2003, pending the outcome of the second creditors' meeting, which was due to take place on 17 July 2003.
The creditors' meeting of 17 July 2003 was attended by representatives of the plaintiff and of the Deputy Commissioner of Taxation, by Mrs Thompson, the director of the defendant, and by Mr Melsom and Ms Regan on behalf of the administrators. Mr Melsom held proxies for the Commonwealth Bank of Australia, a creditor in the sum of $97,306.09, and for a firm of solicitors, Stables Scott, creditors in the sum of $2669.15. The Deputy Commissioner of Taxation was a creditor in the sum of $8622.
Mr Martin, who attended on behalf of the plaintiff, sought to have the creditors' meeting adjourned for a period of 21 days. His motion to that effect gained no seconder and, accordingly, lapsed. A resolution that the company be wound up was then passed, with Mr Martin abstaining. It was resolved that, pursuant to s 446 of the Act, the appointment of Messrs Melsom, Lopez and Verge as joint and several liquidators be ratified, with Mr Martin, on behalf of the plaintiff, voting against the motion.
This application by the plaintiff for an order winding up the defendant under s 459A came on for substantive hearing on 2 October 2003. It was accepted by counsel for each of the parties that, where, as here, the sole purpose of the application is for the purpose of replacing a voluntary liquidator with a court‑appointed liquidator, the approach to be taken by the Court is the same as on an application under s 503 of the Act: Citrix Systems Inc v Telesystems Learning Pty Ltd (In liq) (1998) 28 ACSR 529.
I was referred by counsel to Citrix Systems (supra) and to City & Suburban Pty Ltd v Michael John Morris Smith (Liquidator of Conpac (Aust) Pty Ltd (In liq)), unreported; Fed Ct (Merkel J); 9 July 1998 for the principles to be applied in determining this application. It appears from those cases, and the authorities to which they refer, that, relevantly for this application, the following principles are applicable:
(1)The appointment of a new liquidator is not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of a liquidator;
(2)cause is shown for removal of a liquidator whenever the Court is satisfied that it is for the general advantage of those interested in the assets of the company that the liquidator be removed;
(3)a liquidator must have no interest in and, be, and be seen to be, independent of any matter which the liquidator's duties require him or her to investigate and a liquidator should not continue to act where a conflict of interest and duty arises or appears to have arisen;
(4)a liquidator is not precluded from acting simply because he or she has had prior contact or involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator, or give rise to a reasonable apprehension that the liquidator might be impeded or inhibited, from acting impartially in the interests of all creditors
(5)the question in each case is whether there is a reasonable apprehension by any creditor of a lack of impartiality on the liquidator's part by reason of their prior association with a company, or those associated with it including creditors, or by reason of any other circumstances;
(6)a creditor who seeks the removal of a liquidator on the ground that the creditor believes the liquidator is not impartial must establish that that belief is reasonably based;
(7)fairness to the liquidator is not to be ignored, but the overriding concern is the substantial and real interests of the liquidation.
In the present case, the plaintiff says it believes the liquidators, by Mr Melsom, have not given the appearance of being independent. Counsel for the liquidators submitted that the circumstances belie any such belief and that the belief is not held bona fide. I accept, however, for the purposes of the present application, that the plaintiff holds that belief.
The question, of course, is not whether the liquidators are, in fact, independent, but simply whether the plaintiff's belief is reasonably based. A number of matters are said by the plaintiff to have given rise to its belief. They are, essentially, as follows:
(1)the notice of the meeting of 17 July 2003, although complying with the statutory requirements, did not give sufficient notice to creditors who were located in other States;
(2)the liquidators sold furniture, an asset of the defendant, to a former husband of the director of the defendant;
(3)the liquidators allowed the lease of the defendant's business premises to be assigned to the former husband of the director;
(4)the liquidators evinced a predisposition against pursuing any claim for insolvent trading although it was probable that the defendant did trade while insolvent;
(5)the liquidators did not consider that the adjournment of the creditors' meeting of 17 July 2003 might be in the interests of creditors and in a number of respects indicated indifference to the ability of creditors to express themselves in relation to the defendant's future;
(6)the liquidators accepted a change of name of the defendant and an assignment of the lease of its business premises without considering the effect that may have on any goodwill the defendant had;
(7)the liquidators apparently gave no consideration to selling the business or otherwise realising the goodwill of the business of the defendant;
(8)no explanation was given for the appointment of an administrator four days before the hearing of the plaintiff's application to wind it up, in circumstances where there was never any prospect of a deed of arrangement.
In relation to the notice of meetings, Mr Shah, a director of the plaintiff, says that on 11 July 2003 he was served with notice of the meeting of 17 July 2003 and a bundle of documents relating to it. He says that he was not given sufficient time to consider the agenda or to discuss with other creditors their voting intentions. He claims that, as a result of the failure properly to notify creditors of the meeting, a majority of the unsecured creditors remained unrepresented at the meeting.
Affidavits have been filed on behalf of three other creditors who support the plaintiff's application for a court‑appointed liquidator.
On behalf of Chubb Security, a creditor in the amount of $495.44, an affidavit of its legal officer, Mr Lockhart, has been filed. Mr Lockhart, who is located in New South Wales, says that Chubb Security did not receive notice of the first creditors' meeting of 27 June 2003 or the second creditors' meeting of 17 July 2003.
In an affidavit on behalf of Brinks, a New South Wales based company and a creditor in the sum of $1046.05, Ms Tara Mullins, operations manager, says that when Brinks received notice of the creditors' meeting of 27 June 2003 there was insufficient time to appoint a proxy or take other steps. Ms Mullins does not say when the notice was received. Notice of the creditors' meeting of 17 July 2003 was received by Brinks on 14 July and, according to Ms Mullins, Brinks had insufficient time to take any action or arrange for a representative to attend the 17 July 2003 meeting.
An affidavit has been sworn by a Mr Ivany, a director of ADTC, which is located in Victoria. ADTC is a creditor in the sum of $56,923. Mr Ivany says that notice of the meeting of 27 June 2003 was received by ADTC on 25 June 2003. On 26 June 2003, another director of ADTC, Mr Kiven, spoke by telephone to an employee of Melsom Robson who told him the defendant was going into voluntary liquidation. Mr Ivany says ADTC received notice of the 17 July 2003 meeting on 15 July 2003. ADTC decided not to appoint a proxy as it understood voluntary liquidation was a fait accompli. Mr Ivany says had it been given sufficient time to consider the issue and had it not been told the defendant was going into voluntary liquidation, ADTC would have objected to the voluntary liquidation. He does not say what the grounds of the objection would have been.
Mr Melsom says in response that, on 20 June 2003, a circular to creditors was sent to the 22 creditors then known to the administrators. Among those creditors was the plaintiff, Chubb Security (at its Perth office), Brinks and ADTC. The circular notified creditors of the appointment of the administrators and that a meeting of creditors was to be held on 27 June 2003. With it was enclosed a list of the names and addresses of the known creditors. Mr Melsom observes that s 436E(2) of the Act requires a meeting be held within five working days of the appointment of an administrator, the date of appointment in this case being 20 June 2003.
Mr Melsom says that, at the creditors' meeting on 27 June 2003, he informed those present that he considered the defendant would not be in a position to execute a deed of company arrangement and that, inevitably, at the second meeting of creditors, it would be wound up. A statement to that effect is contained in the minutes of the meeting. That view was also stated in Mr Melsom's affidavit of 8 July 2003.
Mr Melsom says that a further circular to creditors dated 9 July 2003 was sent on that day to each of the creditors, including the plaintiff, Brinks, Chubb Security and ADTC, advising of the meeting on 17 July 2003. A copy of the minutes of the meeting of 27 June 2003 was enclosed with the circular. Once again, the circular was sent to Chubb Security as its Perth address, no advice having been received from Chubb Security that it should be sent to any other address.
In relation to the telephone advice allegedly given to ADTC, Mr Melsom says that the employee concerned says, and Melsom Robson's diary records of the conversations confirm, that Mr Kiven telephoned the employee on 25 June 2003 and arranged for an extract of the Report as to Affairs to be provided to him. Nothing was said about voluntary liquidation. Mr Kiven spoke by telephone to the same employee on 30 June 2003, after the first creditors' meeting, and was told that it was likely the defendant would be wound up. Mr Melsom also observes that it is inherently unlikely that, on 25 June 2003, Mr Kiven would have been told that the defendant was to be wound up, as at that date it had not been determined what the ultimate fate of the defendant would be. I accept the version of events described by Mr Melsom. It appears that Mr Kiven has confused the two conversations.
I do not consider that, in the circumstances, the manner in which notice of the meetings was given could give rise to a reasonable belief that the liquidators were not acting independently.
The plaintiff also complains that, in their then capacity as administrators, the liquidators sold furniture owned by the defendant and allowed an assignment of the lease of the defendant's business premises to be assigned to the director's former husband.
It appears, however, from the evidence that the furniture had been sold, and the lease of the business premises assigned, without reference to the administrators. That occurred on or very shortly before the date of their appointment. It is also the case that the furniture was the subject of a debenture held by the Commonwealth Bank of Australia, which had apparently consented to the sale. The furniture was sold at the value assessed by an independent valuer as its value "in situ".
The plaintiff says its belief is also based on a failure by the liquidators, when acting as administrators, to realise the goodwill of the business and their conduct in permitting the defendant to change its name, without taking into consideration the effect that that may have on the goodwill of the business.
It appears, however, from the minutes of the first creditors' meeting on 27 June 2003 that the defendant had changed its name before the appointment of the administrators. At that meeting Mrs Thompson said that that was done because Mintz was her maiden name and she wanted to avoid any embarrassment to her family. Moreover, as counsel for the liquidators pointed out, the defendant had traded as Isalia Diamonds, so any goodwill is likely to have attached to that name, rather than the company name.
There was also no evidence that this business, or businesses of this sort, in which, despite the corporate structure, Mrs Thompson operated effectively as a sole trader, have any realisable goodwill. Counsel for the liquidators pointed out that the matter had not been raised on the plaintiff's affidavits and, therefore, the liquidators had not responded to it. He added that it was a reasonable inference that, had the liquidators considered that the business had any realisable value as a going concern, it would have been realised, given that the defendant has no funds and the liquidators are currently carrying significant expenses in the liquidation.
The concern that the creditors' meeting of 17 July 2003 was not adjourned at the request of the plaintiff's representative was not pursued with any enthusiasm by the plaintiff's counsel, who acknowledged that the motion had lapsed for want of a seconder.
The plaintiff also referred to what it described as the lack of an explanation for the appointment of administrators four days before the hearing of the plaintiff's application to wind up the company, in circumstances where there was never any prospect of a deed of arrangement being entered into.
The position, as it emerged on the evidence, was that the administrators had had no involvement with the company prior to their appointment as administrators. Mr Melsom's name was chosen at random by Mrs Thompson from a list of three names of possible administrators given to her by her solicitors. Mr Melsom said that, at the time of his appointment, he thought there might be some prospect of the company being saved. At that stage, Mrs Thompson had hopes of obtaining funds from overseas to inject into the defendant. Those funds did not materialise. Mr Melsom then quickly reached the view that the winding‑up of the defendant was inevitable and expressed that view at the first creditors' meeting on 27 June 2003. He maintained that position thereafter.
I do not think that the circumstances of the liquidators' initial appointment as administrators could give rise to any reasonable basis for concern as to their independence.
Finally, the plaintiff contended that the liquidators appeared predisposed against pursuing any claim for insolvent trading. A passage in the minutes of the second creditors' meeting of 17 July 2003 and a further passage in the administrator's report of 9 July 2003 were referred to in argument on this ground.
In the minutes of the meeting of 17 July 2003, there is the following passage:
"Mr Melsom advised that we would be looking at the history of the company regarding the possible breach by its directors for insolvent trading but would be concerned as to mounting an action in the absence of available funding given the Bank's secured charge over all the assets.
Mr Melsom again stated that he believed the accounts to be incorrect and if so, whether and when the Director was aware of the discrepancy and therefore the insolvency of the company and the extent of the liabilities incurred after that date [sic]."
Mr Melsom is reported earlier in the minutes as saying, in connection with the administrators' report, that the financial records of the defendant were obviously incorrect and that its accounts were not appropriate records on which to base decisions.
In the administrators' report of 9 July 2003, the following passage appears:
"There is also a probability that the director has allowed the company to incur credit while the company was insolvent. In that event, the director may be found personally liable for any debts so incurred in that period although a further cost/benefit analysis will be required prior to initiating further action.
We are not privy to the director's personal finances but having consideration for the cost of conducting such investigations, the legal costs of recovery and the potential recovery, we cannot state with any confidence that creditors would benefit significantly from an investigation and subsequent recovery action."

The estimated deficiency at the time of the latter report was somewhere between $250,000 and $380,000. The difference lay in a question as to the value of the stock, which might be (and as it turned out, was) subject to retention of title claims, including a claim made at the eleventh hour by the plaintiff.
The plaintiff submitted that the comments in respect of a possible claim for insolvent trading were unduly negative and also evinced a predisposition to accept that the director was not aware that the defendant was trading while insolvent. They reflected a lack of independence from the former director.
I do not consider that, in the circumstances, that is a reasonable view. It is well known that such claims are very often difficult and expensive to prove, whatever the initial impression as to their likely outcome. It appears from the minutes of 17 July 2003 that Mr Melsom had formed the view that the defendant's trading records were simply unreliable. That was obviously a significant factor to be taken into account in assessing the prospects of proving such a claim. In this case, any funds to pursue such proceedings would have to come from the creditors. The costs could be substantial. If an action were successful, the capacity of the director to meet any amount she might be ordered to pay was unknown. There was, therefore, a real prospect that the creditors would be throwing good money after bad.
Accordingly, I do not consider that the circumspect way in which the then administrators referred to such claims could reasonably lead to the belief that the plaintiff holds. The views expressed were, in my view, those of a careful and prudent administrator, familiar with the complexities, costs and inherent uncertainty of such proceedings.
The reasonableness of the plaintiff's belief as to the independence of the liquidators must also be viewed in the light of the circumstances of the liquidators' appointment. Mr Melsom, who is apparently substantially charged with the day‑to‑day conduct of the liquidation on behalf of the liquidators, is an experienced chartered accountant who has practised in the area of insolvency for the past 28 years. He is a registered trustee in bankruptcy and has been an official liquidator of this Court for 15 years. There is no suggestion that he or his partners had any involvement with the defendant, or any of those concerned in its affairs, prior to their appointment as administrators. On the evidence, Mr Melsom's name was simply taken at random from a list of possible administrators.
I do not consider that the matters relied upon by the plaintiff, either individually or cumulatively, are sufficient to make out a reasonable basis for the belief that Mr Melsom and his partners are not, or will not be, independent in the conduct of their duties as liquidators of the defendant.
I would therefore dismiss the application.