Northbuild Construction Pty Ltd v. ACN 103 753 484 Pty Ltd

[2008] QSC 182

SUPREME COURT OF QUEENSLAND

CITATION:

Northbuild Construction Pty Ltd v ACN 103 753 484 Pty Ltd [2008] QSC 182

PARTIES:

NORTHBUILD CONSTRUCTON PTY LTD
(applicant)
v
ACN 103 753 484 PTY LTD (IN LIQUIDATION)
(respondent)

FILE NO:

2588 of 2008

DIVISION:

Trial Division

PROCEEDING:

Civil application

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

19 August 2008

DELIVERED AT:

Brisbane

HEARING DATE:

6 August 2008

JUDGE:

Chesterman J

ORDER:

Order that:

1.   Mr Stephen Hundy and Mr Ezio Senatore be removed as liquidators of the respondent, ACN 103 753 484 Pty Ltd, and that Messrs David Michael Stimpson and Terry Grant Van Der Velde be appointed liquidators in their place.

2.   The liquidators’ costs of and incidental to the application be assessed on the indemnity basis and be paid from the assets of the respondent.

CATCHWORDS:

CORPORATIONS – WINDING UP – LIQUIDATORS –MATTERS RELATING TO APPOINTMENT – where the applicant seeks the liquidators be removed – whether the liquidators should be removed for alleged want of independence or impartiality – whether the liquidators should be removed due to their distant location

Legislation

Corporations Act 2001, s 436A, s503

Cases

Re Association of Land Financiers (1878) 10 Ch D 269

Re Eraville Pty Ltd (1980) 5 ACLR 203

Re Federal Bank of Australia Ltd [1894] 20 VLR 199

Re Keypak Homecare Ltd (1987) BSLC 409

COUNSEL:

Mr PW Hackett for the applicant

Mr C Wilson for the respondent

Mr Bowers for a creditor

SOLICITORS:

Crouch and Lyndon Lawyers for the applicant

Mullins Lawyers for the respondent

Nicholsons Lawyers for the creditor

1. The applicant, Northbuild Construction Pty Ltd (‘Northbuild’), is a builder which built a block of residential units at Caloundra for the respondent (‘ACN’) pursuant to a building contract made in January 2004.  ACN was formerly known as Blue Chip Development Corporation Pty Ltd and was a company incorporated for the specific purpose of having the unit block built.

1. Northbuild has been paid a little over $11,000,000 under the building contract but claims a further sum of $1,105,980.90 together with interest of $287,060.50.  It commenced proceedings in this Court (10255/05) to recover the outstanding sum, interest and costs.

1. Northbuild’s action was stayed by consent in February 2006 pending a determination of variation claims under the building contract by an arbitrator.  The arbitration concluded on 16 February 2006 but the arbitrator has not yet handed down his award.  Because of the arbitrator’s delay the order staying the action has been vacated, interlocutory applications brought and orders made in the proceedings.  On 9 November 2007 an order for costs in favour of Northbuild against ACN was made.  The costs were assessed subsequently in the sum of $11,253.75. 

1. In March 2008 Northbuild applied to wind ACN up on the ground of insolvency proved by its failure to comply with the statutory demand that it pay the amount of the assessed costs.

1. On 23 April 2008 ACN’s directors appointed Mr Stephen Hundy and Mr Ezio Senatore to be administrators of the company pursuant to s 436A of the Corporations Act 2001. On 16 May 2008 they were appointed liquidators of the company and commenced its winding up.

1. Northbuild seeks an order that the liquidators be removed.  A number of grounds were urged, principally an alleged lack of impartiality by the liquidators in their dealings with creditors, and Northbuild in particular, and their prior association with the directors of ACN.  There is, I think, no substance in that complaint.  The basis for it was that the liquidators had continued to use the firm of solicitors who had formerly acted for ACN and its directors prior to the winding up. 

1. On 6 May 2008 the administrators undertook to Northbuild that they would not utilise the services of those solicitors in the winding up.  It was thought that they had done so in breach of their undertaking but the evidence establishes no such breach.  The former directors of the company retained the solicitors and may have purported to do so on behalf of the company, but the liquidators were not party to the retainer.

1. There is, however, a ground of substance supporting their removal.

1. The liquidators reside and practise as accountants in Canberra.  ACN was incorporated there but it has no other connection with the Australian Capital Territory.  The remaining assets of ACN are in Queensland.  Its directors are in Queensland and any investigation into the affairs of ACN or its directors will occur in Queensland.  The liquidators have retained Brisbane solicitors and travel to Brisbane for meetings in connection with the winding up.

1. There is obviously a degree of additional expense and inconvenience generated by the distant location of the liquidators. 

1. ACN has four creditors.  They are:

(1)The National Australia Bank which is owed about $1,000,000 secured by a real property mortgage over the remaining unsold units in the development.

(2)Northbuild owed $1,406,382.

(3)The Australian Tax Office owed $144,815.

(4)Prime Property Investment Pty Ltd (‘Prime’) owed $800,000.

Prime is a company associated with one of ACN’s directors, Mr Knell. 

1. In addition to borrowing from NAB to fund the development, ACN borrowed monies from second mortgagees, so-called ‘Mezzanine Financiers’.  The second mortgagees were companies owned by or associated with directors of ACN.  Their debt has been paid in full giving rise to questions.  It is unusual, to say the least, that a second mortgagee should be paid in priority to a first registered mortgagee.  The circumstances of the payment require some investigation. 

1. There is some evidence that one of ACN’s directors, Mr Gregory Campbell, had ACN pay him $750,000 in March 2005 with which he bought land at Kawana Waters.  The land has since been developed by the construction of a substantial house and has improved in value.

1. Northbuild’s claim arises out of its performance of the building contract with ACN.  The liquidators will have to investigate the claim, and Northbuild’s performance under the contract, before they can decide whether to admit the debt, or part of it, to proof.  They have retained junior counsel in Canberra to ‘review’ Northbuild’s claim.  Counsel intends to fly to Brisbane to confer with relevant witnesses and ‘discuss the claim and to view documents as necessary’.

1. From this brief recital of facts it is apparent that the liquidation is likely to involve the oral examination of ACN’s directors who are in Brisbane or South-East Queensland and an examination of Northbuild’s officers and documents which are in Brisbane.  Although there was no particular evidence on the point I think it obvious that the liquidation could be more efficiently and economically conducted by liquidators resident in Brisbane.  Even with the facility of modern telecommunications and regular airline schedules between capital cities, there are still disadvantages in the conduct of a winding up in one city by liquidators in another.

1. Section 503 of the Corporations Act provides that ‘a court may, on cause shown, remove a liquidator and appoint another liquidator.’  The section requires an applicant to show cause why the liquidator should be removed.  An applicant must establish facts justifying the removal by satisfactory evidence.  See Re Eraville Pty Ltd (1980) 5 ACLR 203.

1. Applications for the removal of liquidators are often made on grounds alleging some misconduct or unfitness in the liquidators who have been appointed.  It is, however, not necessary to prove such a circumstance in order to obtain the removal of liquidators.  See eg Re Keypak Homecare Ltd (1987) BSLC 409 in which Millett J (as he then was) said that it would be:

‘... dangerous and wrong for a court to seek to limit or define the kind of cause which is required.  Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation.’

1. Sufficient cause is shown for the removal of a liquidator where it is proved that the removal would be in the best interests of the liquidation:  where the removal would allow for the better conduct of a winding up and which would therefore be to the general benefit of the creditors.  Since at least 1878 when Malins VC decided in Re Association of Land Financiers (1878) 10 Ch D 269 it had been accepted that it is a ground for the removal of a liquidator that another liquidator could conduct the winding up more cheaply. Enhanced efficiency has also been recognised as a ground justifying the replacement of liquidators: Re Federal Bank of Australia Ltd [1894] 20 VLR 199.

1. These considerations are present.  There is on the material no counter-balancing circumstance.  The winding up does not appear to have progressed very far.  Only the debt of the Australian Tax Office has been admitted.  The liquidators have expended only some $22,000 in the course of the liquidation though the value of work in progress has not been disclosed nor have the liquidators given any description of the extent of their endeavours so far.  No doubt this is explained by the fact that they resisted the application on the primary basis advanced:  that they had compromised their impartiality.  The ground which I think has substance did not take on any importance until the hearing of the application.  For that reason no doubt the relevant evidence is meagre.  Nevertheless neither party asked for an adjournment to supplement the affidavits.

1. In addition to the relatively modest amount of expenditure there is the point that the liquidators have not yet admitted three of the four debts, nor examined them for that purpose, nor examined the directors to ascertain the extent of any misapplication of company funds. 

1. Accordingly it is, I think, safe to infer that the liquidation has not progressed very far and that the removal and replacement of liquidators will not occasion great delay or additional expense. 

1. It is pointed out that the applicant consented to the appointment of the liquidators but this I think is a point of little moment.  There is no criticism of the liquidators personally or the circumstances in which they came to be appointed.  The question is whether it is in the best interests of the liquidation that they remain.

1. Another point raised was that the liquidators have retained Brisbane solicitors who have become familiar with the winding up. It was submitted that to retain another firm of solicitors would waste the effort, already paid for, of those solicitors and waste their knowledge and understanding of ACN’s affairs. Another firm which would be required to acquire the same level of knowledge and understanding would charge for its acquisition. There is no reason that I can see why new liquidators should not retain the present solicitors and every reason why they should. In the absence of an application under s 511 of the Corporations Act I cannot make a direction to that effect but I indicate my clear view that the replacement liquidators should maintain the retainer.

1. Northbuild seeks an order that Messrs David Michael Stimpson and Terry Grant Van Der Velde be appointed as liquidators in the place of Messrs Hundy and Senatore. 

1. Mr Knell, a director and creditor of ACN who appeared on the application in opposition to it, indicated that, if the liquidators were to be removed, their replacements should be ‘independent persons’ and not persons nominated by Northbuild.

1. No reasons were given for that stance and no material put forward to suggest that Messrs Stimpson and Van Der Velde are not appropriate liquidators.  Accordingly I order that Mr Stephen Hundy and Mr Ezio Senatore be removed as liquidators of the respondent, ACN 103 753 484 Pty Ltd, and that Messrs David Michael Stimpson and Terry Grant Van Der Velde be appointed liquidators in their place.

1. The former liquidators, Messrs Hundy and Senatore, are entitled to their costs of conducting the liquidation to date and of appearing to resist the application that they be removed.  There is, as I have said, no evidence indicating any misconduct or impropriety or ineffectiveness in their conduct of the winding up and no evidence of any lack of independence or impartiality.  The only ground made out for their removal is that provided by geography.  That fact was known to Northbuild when it consented to their appointment.  It is not, therefore, a ground for submitting that the inevitable inefficiency to which their location gave rise should deprive them of their costs incurred in the winding up.  They were, essentially, justified in resisting the application for their removal, predicated as it was, on grounds critical of them personally, which have not been made out.

1. Accordingly I order that the liquidators’ costs of and incidental to the application be assessed on the indemnity basis and be paid from the assets of the respondent.