Novak v Ipswich Markets P/L

[2006] QSC 194

SUPREME COURT OF QUEENSLAND

CITATION:

Novak v Ipswich Markets P/L [2006] QSC 194

PARTIES:

ARPAD PAUL NOVAK
(applicant)
v
IPSWICH MARKETS PTY LTD ACN 098 929 116
(respondent)

FILE NO:

BS7372 of 2005

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

28 July 2006

DELIVERED AT:

Supreme Court, Brisbane

HEARING DATE:

6, 20, 21 and 25 July 2006

JUDGE:

Wilson J

ORDER:

UPON the Respondent, by its Counsel, undertaking to the Court pending the outcome of the proceedings:

1.        not to do any act or thing, other than in the ordinary course of an ordinary business, without first giving the applicant not less than 14 clear days' notice of any such act or thing; and

2.        without limiting the generality of the first undertaking, not to take any steps to raise capital by the issue of shares pursuant to the share issue  document dated 9 January 2006 or otherwise.

AND UPON each of Lawrence Michael Cullen, David Stewart Tonkin, D & M Tonkin Pty Ltd ACN 075 712 994, TDG Pty Ltd ACN 060 297 672, Bundy Properties Pty Ltd ACN 099 294 283, Lawrence Michael Cullen and David Stewart Tonkin as trustees for the FDN Trust, and Macarthur Regional Constructions Pty Ltd ACN 083 387 857, by their Counsel, Mr. Morris QC and Mr. Kidston, undertaking to the Court:

1.        not to call up any loans owing by the Respondent (the 'Loans') at the date of this undertaking;

2.        not to exercise any powers they may be entitled to in the event of the Loans being in default; and

3.        not to require or accept payment of any interest in relation to the Loans;

pending further order of the Court or the determination of these proceedings.

THE ORDER OF THE COURT IS THAT:

1. The interlocutory application, in so far as it seeks the appointment of a provisional liquidator to the Respondent pursuant to s.472(2) of the Corporations Act 2001 (the "Act") is dismissed;

2. Pursuant to section 198F(2) of the Act and section 247A of the Act, the Respondent produce to the Applicant’s solicitors and representatives of the Applicant between 8.30am to 5.00pm on 18, 19, 20, 21 and 22 September 2006, at offices in Brisbane to be advised, for inspection and photocopying the following:

(a)   all of the books and records of the Respondent as described in the Order of McMurdo J in proceeding No. BS7372 of 2005 for the period 30 November 2001 to the present;

(b)  all and any agreements, correspondence or other source documents in relation to the payment or liability to make payment of any monies by the Respondent to Lawrence Michael Cullen or David Stewart Tonkin, or to any company or entity in which either of them is a shareholder, director, trustee or beneficiary, dating from 30 November 2001 to the present;

(c)   all invoices, receipts, bank statements, vouchers, ledgers, journals or other accounting documents recording or evidencing payment or liability to make payment of any monies by the Respondent to Lawrence Michael Cullen or David Stewart Tonkin, or to any company or entity in which either of them is a shareholder, director, trustee or beneficiary, dating from 30 November 2001 to present;

(d)  all and any agreements, correspondence or other source documents in relation to the loan or advance of funds to the Respondent by Lawrence Michael Cullen, David  Stewart Tonkin, or by any company or entity in which either of them is a shareholder, director, trustee or beneficiary, dating from 30 November 2001 to present;

(e)   all invoices, receipts, bank statements, vouchers, ledgers, journals or other accounting documents recording or evidencing the loan or advance of funds to the Respondent by Lawrence Michael Cullen, David  Stewart Tonkin, or by any company or entity in which either of them is a shareholder, director, trustee or beneficiary, dating from 30 November 2001 to present.

3. Pursuant to rule 14 of the Uniform Civil Procedure Rules 1999 (“UCPR”), the originating application filed 21 June 2006 continue as if started by claim;

4. Pursuant to rule 468 UCPR, the parties comply with the following directions to enable the originating application to be heard in an expedited manner:

(a)   the Applicant file and serve a statement of claim by 2 October 2006;

(b)  the Respondent file and serve its defence by 23 October 2006;

(c)   the Applicant file and serve any reply by 6 November 2006;

(d)  the parties are to confer, by 13 November 2006, on the prospect of jointly appointing an expert on any issue upon which either party considers that expert evidence should be given at the trial;

(e)   within 14 days after such conference the applicant shall write to the Registrar advising whether agreement has been reached, and if it has not, seeking a further directions hearing;

(f)    each party serve their lists of documents by 4 December 2006;

(g)   each party inspect the documents disclosed by the other party by 18 December 2006;

(h)  each party deliver copies of any disclosed documents requested by the other party by 5 January 2007;

(i)     any application for an order for non-party disclosure be filed and heard before 12 January 2007; and

(j)    the parties file a request for trial date by 2 February 2007; and

5.   the costs of and incidental to this application are reserved.

CATCHWORDS:

CORPORATIONS – WINDING UP – LIQUIDATORS – PROVISIONAL LIQUIDATORS – MATTERS RELATING TO APPOINTMENT – OTHER MATTERS – where there has been a falling out between directors/shareholders of a company – where there are prima facie breaches of fiduciary duty by two of the directors/shareholders – where the company is solvent and continues to operate – where a winding up order is unlikely – where the proposed provisional liquidator has a detailed long-term for the operation of the company – where the majority directors/shareholders give undertakings to maintain the status quo – whether or not to appoint a provisional liquidator

Corporations Act 2001 (Cth), s 202A

COUNSEL:

BD O’Donnell QC and C Klease for the applicant
AJH Morris QC, J Stevens and B Kidston for the respondent

SOLICITORS:

Holding Redlich for the applicant
Paul Bard for the respondent

1. Wilson J: On 21 June 2006 the applicant filed an originating application for the winding up of Ipswich Markets Pty Ltd (“Ipswich Markets”).  On the same date he filed an interlocutory application for the appointment of a provisional liquidator or in the alternative for the production of books and records of the company.

1. The applicant is a shareholder of Ipswich Markets.  He seeks to have the company wound up on the ground of insolvency, or alternatively on the grounds that the directors have acted in their own interests, or alternatively on the ground of oppression, or alternatively on the just and equitable ground.

1. The application for the appointment of a provisional liquidator came before the Court on 6 July 2006.  The hearing had only just commenced when it was adjourned because counsel for the respondent was disadvantaged by late notice of material to be relied on by the applicant.  Subsequently it was heard on 20, 21 and 25 July 2006. 

1. The company was incorporated on 30 November 2001.  There are 300 fully paid ordinary shares having a face value of $1 each.  Of those shares the applicant holds 100, Mr Cullen holds 100 and D & M Tonkin Pty Ltd (a company controlled by Mr Tonkin) holds 100.  The current directors of the company are Cullen and Tonkin.  The applicant was a director of the company until he resigned on 18 August 2003. 

1. Perpetual Trustee Company Limited (“Perpetual”) has a fixed and floating charge over the assets of the company which was registered on 9 January 2003.  There is also a fixed and floating charge in favour of Cullen and Tonkin (as trustees of the FDN Trust) which was registered on 5 September 2005. 

1. The three men (the applicant, Cullen and Tonkin) through various companies undertook property investments.  It was the applicant’s role to identify properties for purchase and manage and lease them through his company Novak Tonkin Pty Ltd.  Tonkin used his banking connections to organise finance, and Cullen provided mezzanine finance. 

1. In 2003 the relationship between the applicant on the one hand and Cullen and Tonkin on the other broke down.  Their investments were disposed of, by one buying out the other two or vice versa.  Ipswich Markets is the only remaining company in which the three of them are all interested. 

1. Ipswich Markets was incorporated with a view to the acquisition of Dimmey’s Plaza in Ipswich and its development and leasing in furtherance of a building plan.  It is a mixed retail shopping and office tower facility on the inner fringe of the Ipswich CBD.  There are four street level retail tenancies on Limestone Street including Dimmey’s Discount Department store, and nine internal mall tenancies, including a supermarket.  The office tower which is above the retail centre, is aligned to Gordon Street and provides office accommodation over three levels.  Tenants of the office accommodation include the Queensland Government and the local Council.  As at 23 May 2006 the value of the centre was $11.1 million.

1. Perpetual advanced $7,165,000.00 in January 2003.  It advanced a further $700,000.00 in May 2003. The total indebtedness fell due for repayment on 19 December 2005. It was not repaid and refinancing negotiations are on foot.  I note that the indebtedness is guaranteed by the three men.

1. As I have said, the applicant resigned as a director of Ipswich Markets on 18 August 2003.  At about the same time Novak Tonkin Pty Ltd ceased to be the property manager of Dimmey’s Plaza. 

1. The applicant received notice of Ipswich Markets’ annual general meeting to be held on 11 September 2003, but chose not to attend.  He deposes to not having received notice of annual general meetings or other shareholders’ meetings since. 

1. The applicant alleges that Cullen and Tonkin have failed to consult him about the affairs of the company and that they have failed to provide proper accounts and financial information.  He does not make any allegations of misappropriation. 

1. On 28 September 2005 the applicant obtained an order from Justice P McMurdo in the following terms: 

“1. Within 28 days the Respondent prepare and deliver to the Applicant a financial report and a directors’ report for the financial year ended 30 June 2004 in compliance with the requirements of sections 295 to 299 and 300 of the Corporations Act 2001.

2.          The Applicant, Mr Allan Robb (or another accountant engaged by the Applicant) and Mr Graham Ballard (or another person who is a member or employee of the Applicant’s solicitors) are authorised to inspect the books and records of the Respondent listed below, such inspection to take place at the Respondent’s registered office between the hours of 8.30am and 5.00pm between 3 and 7 October 2005:-

Description
(a)	The general ledger	Dating from 1 July, 2003
(b)	The trial balance of the company from which the purported accounts dated 9 June 2005, for the year ended 30 June, 2004, were made up
(c)	Each debtor’s ledger and creditor’s ledger of the company	Dating from 1 July, 2003
(d)	Bank statements for all bank accounts maintained by the company	Dating from 1 July, 2003
(e)	Cheque books and cheque butts for all accounts maintained by the company	Dating from 1 July, 2003
(f)	All loan agreements to which the company is or was a party	Dating from 1 July, 2003
(g)	All correspondence with any lender or financier under all loan agreements to which the company is or was a party	Dating from 1 July, 2003
(h)	All leases or agreements for lease in respect of the company’s property at Corner Limestone and Gordon Street, Ipswich, Queensland, known as Dimmey’s Ipswich Plaza	Dating from 1 July, 2003
(i)	All correspondence with all tenants under any such leases or agreements for lease	Dating from 1 July, 2003
(j)	All correspondence with any property manager or real estate agent in respect of such tenants or such leases or agreements for lease	Dating from 1 July, 2003
(k)	All and any agreements between the company and Lawrence Michael Cullen or David Stewart Tonkin in relation to the payment of consultancy fees, or remuneration of any kind, or for the reimbursement of expenses	Dating from 1 July, 2003
(l)	All invoices, receipts, vouchers, ledgers, journals or other accounting documents recording or evidencing payment of consultancy fees, or remuneration or any kind or for the reimbursement of expenses by the company to Lawrence Michael Cullen or David Stewart Tonkin	Dating from 1 July, 2003
(m)	All and any agreements between the company and Lawrence Michael Cullen or David Stewart Tonkin in relation to the loan or advance of funds by the company to Lawrence Michael Cullen or David Stewart Tonkin, or to any company in which either of them is a shareholder or a director	Dating from 1 July 2003
(n)	All invoices, receipts, vouchers, ledgers, journals or other accounting documents recording or evidencing any such loan or advance, and any payments or repayments of the same	Dating from 1 July 2003
(o)	All taxation returns	Dating from 1 July 2003
(p)	All documents recording GST or any other taxation liabilities of the company including BAS statements	Dating from 1 July 2003

3.          The Respondent provide to the Applicant copies of such of the above books and records which he may request in writing, such request to be made by 14 October 2005, and such copies to be provided within 7 days of receipt of the request.

4.          The Respondent pay the Applicant’s costs of and incidental to this application, including the reserved costs of and incidental to the appearance on 13 September 2005.

5.          The application is otherwise adjourned to a date to be fixed.”

The company retained an accountant to assist it in complying with the order. A report for the year ended 30 June 2004 was provided, and subsequently a report for the year ended 30 June 2005 was provided.  There were some delays in the provision of the other material and the applicant has complained about compliance with accounting standards. I cannot resolve his complaints on this application.  Suffice it to say that the documents were provided to his then solicitors by 3 January 2006. 

1. The applicant became involved in a dispute with his then solicitors with the result that he was unable to inspect and review the documents until the first week of May 2006 (after he had changed solicitors). 

1. In the meantime, in order to raise capital, on 9 January 2006 the company made an offer to each of the existing shareholders (the applicant, Cullen and D & M Tonkin Pty Ltd) of additional shares at the ratio of 10 shares for every one share held at $200 per share.  The applicant objected and expressed concern that the real purpose was to dilute his equity in the company.  On 24 February 2006 he offered to accept $2.5 million for his shares and a waiver of all debts owing to Coverking Pty Ltd (the corporate vehicle for one of their other, earlier investments).  This was rejected by Cullen and Tonkin who suggested that a valuer be appointed; he did not take up that offer.  They invited him to rejoin the board in April 2006, but he rejected that offer also. 

1. In the course of his oral submissions senior counsel for the applicant spent some time analysing the financial accounts and pointing to anomalies and/or matters which he submitted required further investigation.  For present purposes the following summary is relevant:

2005	2004
Current assets	70,168	65,519
Non-current assets	9,075,834	8,994,685
Total assets	$9,146,002	$9,060,204
Current liabilities	383,615	640,240
Non-current liabilities	10,628,476	9,730,155
Total liabilities	$11,012,091	$10,370,395
Net assets (liabilities)	($1,866,089)	($1,310,191)

1. The non-current liabilities, described as “interest bearing liabilities”, were particularised as follows:-

2005	2004
Unsecured loans related parties	1,865,155
Secured
Perpetual    Loans from related companies    Loans from FN Trust	7,865,000                  419,658           __2,343,818	7,865,000            _________
$10,628,476	$9,730,155

1. The principal concern of the applicant can be summarised as follows.  Dimmey’s Plaza is valued at $11.1 million and the secured liability to Perpetual is $7,865,000.00, leaving a balance of $3,235,000.00. The second ranking charge in favour of FDN Trust secures $2,343,818.00 (plus interest), leaving a surplus of a little over $890,000.00.  The applicant is concerned that on a sale of the property, after Perpetual was paid out a large part of the balance would go to the FDN Trust, leaving little if anything for him (a one-third shareholder). 

1. On 6 February 2002 the company entered a contract with Gardner Vaughan Group Pty Ltd (“Gardner Vaughn”) for refurbishment and new office construction at Dimmey’s Plaza.  By December 2003 it was in dispute with Gardner Vaughan as to whether the work had been completed and whether there were substantial defects.  Gardner Vaughan commenced proceedings in the Supreme Court claiming $419,658.80, and the company cross-claimed for $590,939.85.  After the proceeding was commenced Gardner Vaughan went into voluntary administration. 

1. Tonkin and Cullen negotiated a settlement with the administrator which resulted in the execution of a deed of assignment between Gardner Vaughan and Bundaberg Plaza Properties Pty Ltd (a company controlled by Cullen and referred to as “Bundy”).  Gardner Vaughan assigned the whole of its claim against Ipswich Markets to Bundy for $150,000.  Bundy was to perform the provisions of the contract binding upon Gardner Vaughan and indemnify Gardner Vaughan against any liability incurred by it as a result of any action by Ipswich Markets. 

1. By the terms of a Repayment Agreement made between Ipswich Markets and Bundy on 23 July 2004, Tonkin agreed to repay Bundy $419,658.80 in return for Bundy discontinuing the claim.  Ipswich Markets was to pay the $419,658.80 together with interest at 10% (or 15% in the event of default) on 22 July 2005.  It agreed to give a second ranking security in favour of Bundy.

1. On 5 September 2005 Bundy assigned the benefit of the repayment agreement to Cullen and Tonkin as trustees for the FDN Trust for $1.  Ipswich Markets gave a charge in favour of Cullen and Tonkin as trustees for the trust. 

1. The $419,658.80 has not been paid by Ipswich Markets.

1. Cullen and Tonkin did not disclose the proposed transaction to the applicant and did not seek shareholders’ consent. Prima facie they breached their fiduciary obligations as directors, and the obligations Ipswich Markets incurred thereby are voidable at its option or it may recover any benefits gained by Cullen & Tonkin.  The applicant submits that there is need for an independent person to investigate the transaction and to exercise the company’s rights of election.

1. On 7 January 2005 a Repayment Agreement was made between the FDN Trust and Ipswich Markets.  The following background was recorded by way of recitals to the agreement:-

“A.The Trust has acquired the Shareholders loans as recorded in the accounts of the Company for the year ending 30 June, 2003.

B.Also monies loaned to the Company by the Shareholders. Plus the rights to the interest accrued on the loans from January 24, 2003.

C.Any accounts paid by The Trust on behalf of the Company.

D.Ipswich has agreed to pay the Principal Sum plus any applicable interest to The Trust on the terms and conditions of this Agreement.”

The principal repayable under the agreement was $2,343,818.85. Interest was payable at 15% (or 18% on default).  The security to be provided was a second ranking mortgage and charge.  The repayment date was 7 January 2006, which has since been extended to 5 January 2007. 

1. The applicant complained that there is insufficient evidence in the financial records and other documents provided pursuant to the order of Justice P McMurdo to indicate what shareholder loans or other related party loans were assigned to the FDN Trust or how the liability increased to approximately $2.343 million.  He complained of there being no explanation for the interest rate being fixed as high as 15%.  The proposed repayment agreement was not disclosed to the shareholders, in particular the applicant, and their consent was not obtained.  Again, prima facie there was a breach of fiduciary duty and the transaction is voidable at the option of the company.

1. The next matter to which the applicant points is that of payments of $478,000.00 “interest” to the FDN trust.  The financial report for the year ended 30 June 2005 shows the following –

Interest paid to FDN Trust – prior years $202,656

Interest paid to FDN Trust – current year $276,007.

1. It will be recalled that under the repayment agreement made on 7 January 2005 rights to interest accrued under shareholder loans from 24 January 2003 were acquired by the FDN Trust.  The applicant complains of an absence of adequate source materials.  He complains there is no basis for the interest payment of $202,656.00 and questions the calculation of $276,007.00.  There have been no actual payments of interest – these amounts are by way of journal entries only.  Again breaches of fiduciary duty are alleged. 

1. By a board resolution made on 31 May 2005 Cullen and Tonkin were to be paid $30,000.00 each by way of directors’ fees for 2004 and 2005. As the applicant points out, a resolution of the company was required under s. 202A of the Corporations Act 2001.

1. The applicant submits that Ipswich Markets’ principal asset, Dimmey’s Plaza, is at risk.  On 21 August 2003 the company appointed Chesterton International (Qld) Pty Ltd (“Chesterton”) to manage the property.  At present two of the small retail outlets (a newsagent and a bottle shop) are untenanted and the supermarket is not operating.  The supermarket has been leased to Metcash Trading Ltd, a publicly listed company, which, until recently, caused it to be operated by one of its subsidiaries Valuemart Pty Ltd.  However Metcash Trading Ltd has continued to pay the rent and is apparently seeking a new tenant.  According to Mr McKenzie, Chesterton’s Director of Property Management with responsibility for Dimmey’s Plaza, the complex is best marketed as a “destination centre” rather than a general purpose shopping centre.  By this he means that it is better suited for retail outlets for bulky goods such as electrical goods, hardware, sports goods, toys, etc, rather than small retail outlets of food and household grocery type merchandise.  Referring to the supermarket and Metcash’s efforts to obtain a new tenant, he comments that Chesterton would not actively seek another supermarket because the facilities are not designed for a supermarket and there are other shopping centres in the vicinity with better supermarket facilities.

1. The applicant submits that there is no evidence that Cullen and Tonkin have taken any reasonable steps to secure new tenants and protect the value of the asset.  Against this it must be said that the rental income for the complex has increased by $500,000.00 in the past 12 months, and it would seem to be a commercial decision for the directors whether to terminate the lease with Metcash or to allow the present situation (where rent is continuing to be paid) to remain in the immediate future.

1. It is not usual to appoint a provisional liquidator in circumstances where a winding up order is unlikely.  Senior counsel for the applicant conceded that winding up may be an unlikely outcome in this case, the more likely outcome being that certain parties (probably the majority) would be ordered to buy out the others (probably the applicant).  This must be seen in the context of the applicant’s offer to sell his shareholding for $2.5 million.  Senior counsel for the respondent submitted that the applicant’s real objective may well be to facilitate an independent valuation of the shareholdings.  There is force in that submission. The alternative relief in the interlocutory application is for fuller access to the company’s accounting records, which senior counsel for the applicant acknowledged was sought so that an independent person could assess the company’s financial position and value its shares.

1. The applicant has proposed that Robert Eugene Murphy be appointed as provisional liquidator.  He is clearly very experienced in the affairs of companies in liquidation, receivership, administration etc.  He has sworn an affidavit in which he has set out in some detail the steps which he would propose taking if appointed: 

“9.If I was appointed as a provisional liquidator and/or liquidator I would, at a minimum, undertake the following steps, dealing with existing tenants and to obtain new tenants into Dimmeys Ipswich Plaza Shopping Centre (‘the Centre’) with a view to fully tenanting the Centre at market rates and to maximise market value:

(a)     Appoint a qualified party to report on the Centre, its opportunities and its shortcomings;

(b)     Assess the shopping and community needs around the location of the Centre;

(c)     Review currently available demographic study for the Centre;

(d)     Assess the need to arrange a further demographic study to obtain more specific information;

(e)     Analyse the conditions of the current leasing contracts and their adequacy and/or shortcomings;

(f)     Review all tenancies by:

(i)Classification;

(ii)Current size, location and relocation options;

(iii)Lease period, both fixed terms and options;

(iv)Lease rental review timing and basis; and

(v)Details of each tenant’s rental history, including defaults;

(g)     Undertake an assessment of the ‘anchor tenant’ status;

(h)     Assess possible effect of a ‘current market rental’ review;

(i)     Consider extent and adequacy of tenancy bonds held;

(j)     Obtain a ‘repairs and maintenance needed’ report for the Centre, with cost estimates;

(k)     Consider style/industry/image of current tenants and the mix of tenants contemplated;

(l)     Consider current image marketing and possible need for changes, including signage;

(m)    Identify features to be used to ‘market’ the Centre to tenants and the public;

(n)     Arrange a survey of shoppers in the Centre (and perhaps in other regional locations):

(i)Current attractions;

(ii)Current dislikes; and

(iii)Desirable changes;

(o)     Compile a list of desirable tenants to ‘head hunt’;

(p)     Consider abilities and performance of existing Centre leasing agent;

(q)     Consider abilities and performance of existing Centre manager;

(r)     Consider possible changes to either Centre leasing agent and/or Centre manager;

(s)     Conduct a mailout of available or possible tenancies for particular types of tenants to selected regional and local letting agents; and

(t)     Ensure that websites of appointed agents carry appropriate details to encourage future tenants to occupy the vacant premises.”

As senior counsel for the respondents submitted, this long term strategy is incompatible with the appointment of a liquidator on a provisional basis.  I doubt that there is reason to replace Chesterton as the property manager; at any rate I am not persuaded that the directors’ discretion whether to replace Chesterton should be displaced.  Be that as it may, it seems very unlikely that a provisional liquidator would be in a position to pursue the steps proposed by Mr Murphy.  The effect of the appointment of a provisional liquidator is very likely to be the appointment of a receiver by Perpetual.  What steps a receiver would take in the management of the property can only be speculated upon.  The appointments of a provisional liquidator and a receiver would result in considerable fees and expenses being payable out of the company’s assets.  As senior counsel for the respondents submitted, the appointment of either or both may well have a detrimental effect on the market value of the property. 

1. It is true that there is ill feeling, indeed acrimony, between the parties.  However the respondent has proffered the following undertakings to the Court pending the outcome of the proceeding:-

(a)      not to do any act or thing, other than in the ordinary course of an ordinary business, without first giving the applicant not less than 14 clear days’ notice of any such act or thing; and

(b)      without limiting the generality of the first undertaking, not to take any steps to raise capital by the issue of shares pursuant to the share issue document dated 9 January 2006 or otherwise. 

1. Further, the Cullen and Tonkin Group, consisting of Lawrence Michael Cullen, David Stewart Tonkin, D & M Tonkin Pty Ltd ACN 075 712 994, TDG Pty Ltd ACN 060 297 672, Bundy Properties Pty Ltd ACN 099 294 283, Lawrence Michael Cullen and David Stewart Tonkin as trustees for the FDN Trust and Macarthur Regional Constructions Pty Ltd ACN 083 387 857, has proffered the following undertaking -

“Provided a provisional liquidator is not appointed to the respondent, each of the Cullen Tonkin Group hereby undertakes, by their counsel Mr Morris QC and Mr Kidston:

1.not to call up any loans owing to the Respondent (the ‘Loans’) at the date of this undertaking;

2.not to exercise any powers they may be entitled to in the event of the Loans being in default; and

3.not to require or accept payment of any interest in relation to the Loans;

pending further order of the court or the determination of these proceedings.”

1. In these circumstances I am unpersuaded that the breakdown in relationship between the parties is such that unless the provisional liquidator is appointed, Cullen and Tonkin could not be trusted to run the company pending the determination of the application for winding up. 

1. The appointment of a provisional liquidator has been described as “a drastic interim measure”.[1]  Certainly the Court’s discretion is wide, but it will not be exercised lightly.  The learned authors of McPherson’s Law of Company Liquidation say:-

   [1]Gronow MGR & Mason R, McPherson’s Law of Company Liquidation, 5th ed, Thomson Lawbook Co, Sydney, 2006 at [6.10].

“The reason for the application is, on most occasions, that there is a perception that the assets and affairs of the company are in jeopardy  and that the ultimate effect of leaving the assets in the hands of the company may be that the creditors and/or members will be disadvantaged if the company is eventually wound up.  A common concern is that the company’s assets are in jeopardy due to the conduct and attitude of the directors and that there is a need immediately to displace them from their positions of authority to deal with the assets.  This might occur where a creditor is seeking to wind up the company or where there is a conflict between the directors and the company itself.  Nevertheless, provisional liquidators can be appointed in other categories of urgent case, for example to prevent an abuse of the corporate structure to promote a fraudulent scheme.

An order for the appointment of a provisional liquidator is not a formality – there must be strong grounds for it.  Before an order can be made there must be before the court a valid application to wind up a company and the application must disclose at least one good ground for a winding up.  A provisional liquidator is not usually appointed unless it is likely, given the material before the court, that a winding-up order will be made on the application.  It would only be in extraordinary circumstances that the court may make an order for the appointment of a provisional liquidator where it is unlikely that the company will finally be wound up in the pending application.  The application to wind up must be made for bona fide purposes and not, for example, to gain a collateral advantage in another proceeding.  Often an application for the appointment of a provisional liquidator is lodged contemporaneously with, or soon after, the filing of the application to wind up, and by the person who is the plaintiff in that application.

The exercise of the power to appoint is a serious intrusion on the company as the practical effect, from a commercial viewpoint, is ‘drastic’ and often to paralyse the company and, consequently, if other measures would be adequate to preserve the status quo, they should be invoked in preference to an appointment.

…

In considering any application, the court should also require that the applicant ‘point to some good reason for intervention prior to the final hearing’ and that ‘the appointment is needed in the public interest or to preserve the status quo in relation to the affairs of the company, or to protect the company’s assets’.  The court should examine the degree of urgency, the need established by the applicant and the balance of convenience.  The courts must balance the interests of the creditors against that of the company, which, if subject to an order, will be paralysed.  In addition, the courts must consider the public interest.  In ANZ Banking Group Ltd v Ringrong Pty Ltd (unreported, Sup Ct, Qld, Lee J, 15 October 1992) it was said that a company’s explanation of its position in response to an application for the appointment will cause a court to refrain from appointing unless the explanation fails to answer material issues raised by the applicant, the explanation is seemingly unreliable or there is direct evidence that there have been improper actions in management or conduct designed to defeat creditors.”[2]

[2]Gronow MGR & Mason R, McPherson’s Law of Company Liquidation, 5th ed, Thomson Lawbook Co, Sydney, 2006 at [6.10] and [6.20] (citations removed).

1. In the present case a winding up order does not seem likely.  In view of the steps being taken for the management of the principal asset Dimmey’s Plaza and the undertakings proffered to the Court I am unpersuaded that the assets and affairs of the company are in jeopardy. I decline to appoint a provisional liquidator. On the other hand, I am persuaded that the applicant is entitled to further access to the books and records of the company and I am prepared to make an order to that end. 

1. I have been asked to give directions for the further conduct of the winding up application.  It is appropriate to do so, and I propose asking counsel to try to agree on the terms of a draft order.  Clearly the production of the further records of the company should precede the obtaining of any valuation evidence. There should be a direction that the parties confer on the prospect of jointly appointing an expert to value the shares in the company pursuant to UCPR r 429G and Practice Direction No. 2 of 2005. Within a stated period after such conference the applicant should write to the Registrar advising whether agreement has been reached, and if it has not, seeking a further directions hearing.

1. I shall counsel on the form of order and on costs.