OPS Screening & Crushing Equipment Pty Ltd v Gold Valley Iron Pty Ltd (in Liq) [No 2]
[2023] WASC 109
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: OPS SCREENING & CRUSHING EQUIPMENT PTY LTD -v- GOLD VALLEY IRON PTY LTD (IN LIQ) [No 2] [2023] WASC 109
CORAM: TOTTLE J
HEARD: 28 MARCH 2023
DELIVERED : 31 MARCH 2023
FILE NO/S: CIV 1495 of 2020
BETWEEN: OPS SCREENING & CRUSHING EQUIPMENT PTY LTD
Plaintiff
AND
GOLD VALLEY IRON PTY LTD (IN LIQ)
First Defendant
RICHARD SCOTT TUCKER as joint and several liquidator of GOLD VALLEY IRON PTY LTD (IN LIQ)
Second Defendant
JOHN ALLAN BUMBAK as joint and several liquidator of GOLD VALLEY IRON PTY LTD (IN LIQ)
Third Defendant
JOHN ALLAN BUMBAK as joint and several liquidator of GOLD VALLEY IRON PTY LTD (IN LIQ)
Plaintiff by counterclaim
AND
OPS SCREENING & CRUSHING EQUIPMENT PTY LTD
Defendant by counterclaim
Catchwords:
Corporations Law - Winding up - Application by liquidators to enter into a deed of settlement under s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) - Whether settlement involved a debt - Whether confidentiality provision in the deed of settlement imposes an obligation after three months and will delay the completion of the winding up - Court approval unnecessary
Corporations Law - Winding up - Application by liquidators for a direction under sch 2 s 90-15 of the Corporations Act 2001 (Cth) - Direction given but operation suspended for 14 days from date of order
Legislation:
Corporations Act 2001 (Cth), s 477(2A), s 477(2B), sch 2 s 90-15
Corporations Regulations 2001 (Cth), reg 5.4.02
Personal Property Securities Act 2009 (Cth), s 267
Rules of the Supreme Court 1971 (WA), O 67B r 5(3)(b)
Result:
Application under s 477(2A) and s 477(2B) dismissed
Direction given
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | C Ko |
| First Defendant | : | J E Scovell |
| Second Defendant | : | J E Scovell |
| Third Defendant | : | J E Scovell |
Solicitors:
| Plaintiff | : | Trinix Lawyers |
| First Defendant | : | Lavan |
| Second Defendant | : | Lavan |
| Third Defendant | : | Lavan |
Counterclaim
Counsel:
| Plaintiff by counterclaim | : | J E Scovell |
| Defendant by counterclaim | : | C Ko |
Solicitors:
| Plaintiff by counterclaim | : | Lavan |
| Defendant by counterclaim | : | Trinix Lawyers |
Case(s) referred to in decision(s):
Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423
Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134
HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234
OPS Screening & Crushing Equipment Pty Ltd v Gold Valley Iron Pty Ltd (in liq) [2020] WASC 412
Re HIH Insurance Ltd [2004] NSWSC 5
Re Lewis [2020] FCA 841; (2020) 145 ACSR 459
Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86
Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247
Re Pascoe (No 2) [2021] FCA 426
TOTTLE J:
Introduction
The second and third defendants, the liquidators of the first defendant, Gold Valley Iron Pty Ltd (in liquidation) (the Company), sought the court's approval to enter into a deed settling the litigation between the Company and the plaintiff, OPS Screening & Crushing Pty Ltd (OPS). The court's approval was sought pursuant to s 477(2A) and s 477(2B) of Corporations Act 2001 (Cth) (the Act). In the circumstances described below the liquidators amended their application to include an application for a direction under sch 2 of the Act, being s 90-15 of the Insolvency Practice Schedule (Corporations) (the IPS).
The application was supported by three affidavits sworn by one of the liquidators, Mr Richard Tucker.[1] The liquidators applied for an order pursuant to O 67B r 5(3)(b) of the Rules of the Supreme Court 1971 (WA) to restrict access to one of Mr Tucker's affidavits (the Confidential Tucker Affidavit) on two bases. First, that it attaches the proposed settlement deed which imposes obligations on the parties to keep its provisions confidential and, secondly, it discloses confidential advice provided to the liquidators which is subject to legal professional privilege. I accepted that the Confidential Tucker Affidavit contains confidential matters and made an order pursuant to O 67B r 5(3)(b) that access to it be restricted.
[1] Affidavit of Richard Scott Tucker sworn 23 March 2023; confidential affidavit of Richard Scott Tucker sworn 23 March 2023; affidavit of Richard Scott Tucker sworn 27 March 2023.
For the reasons developed below I am not satisfied that the applications under s 477(2A) and s 477(2B) of the Act were necessary. I am, however, satisfied that the liquidators are justified, and would be acting reasonably, in entering into the settlement deed and will make a direction to that effect.
Background
The nature of the dispute between the parties and the legal issues raised by the dispute are described in detail in the reasons of the Court of Appeal in Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd.[2] For present purposes the following synopsis of the background will suffice.
[2] Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134.
The dispute between the parties arises out of five hire agreements made in December 2019 under which the Company hired five items of mining equipment from OPS. An administrator was appointed to the Company on 20 February 2020 pursuant to s 436C of the Act. The Company claimed that the hire agreements involved the grant by the Company to OPS of security interests in the equipment. The basis of this claim was that each hire agreement contained an option to purchase the equipment to which it related and OPS had failed to register perfected security interests. The Company claimed that the security interests vested in it by reason of the operation of s 267 of the Personal Property Securities Act 2009 (Cth) (the PPSA).
OPS commenced proceedings in this court seeking delivery up of those items of equipment that remained in the Company's possession and damages for the temporary detention of two items of equipment which OPS had repossessed. Subsequently OPS obtained possession of all of the equipment and sold it. The net proceeds of sale amounted to $1,554,274.
By its counterclaim the Company sought a declaration that the equipment had vested in it pursuant to s 267 of the PPSA on the basis I have outlined above.
The security interest issue was determined as a preliminary issue. At first instance OPS was successful.[3] On appeal the Company was successful and the first instance decision was reversed.[4] The Court of Appeal remitted the action to the General Division for the determination of the remaining issues in the proceedings. OPS made an application to the High Court for special leave to appeal. That application has yet to be heard.
[3] OPS Screening & Crushing Equipment Pty Ltd v Gold Valley Iron Pty Ltd (in liq) [2020] WASC 412.
[4] Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd.
In its amended defence and counterclaim filed on 3 February 2023 the Company sought various declarations including a declaration 'that the Equipment vested in Gold Valley pursuant to section 267 of the PPSA on 17 February 2020' and:
An order that the plaintiff pay the amount of $1,554,274.12, being the aggregate amount received by [OPS] from the sale of the Equipment less sale costs, to [Gold Valley] and [the Liquidators].
A settlement has been reached between OPS, the Company and the liquidators.
The terms of the settlement have been recorded in a proposed deed of settlement and release. The parties have agreed that the terms of the settlement are to be treated as strictly confidential. For present purposes it is not in fact necessary to refer to the terms other than to say that the only term recorded in the deed that has any operative effect for more than three months after the deed is entered into is the confidentiality provision. The confidentiality provision provides that the terms of the deed are 'strictly confidential' and subject to certain exceptions, the parties are not permitted to disclose the terms of deed without the other parties' prior written consent. It is the confidentiality provision that the liquidators are concerned necessitates the court's approval under s 477(2B) of the Act.
Sections 477(2A) and 477(2B) of the Act
The provisions and the principles guiding their application
Section 477(2A) of the Act prevents liquidators from compromising, without the approval of the court, committee of inspection or a resolution of the creditors' meeting, debts owed to the company of more than a specified amount. Liquidators must obtain approval where the debt owed exceeds $100,000.[5]
[5] Corporations Regulations 2001 (Cth) reg 5.4.02.
Section 477(2B) prevents liquidators from entering into, without the approval of the court, committee of inspection or a resolution of the creditors' meeting, an agreement on a company's behalf if the term of the agreement may end or the obligations of a party to the agreement may be discharged more than three months after the entering into of the agreement, even if the obligations under the agreement may be discharged within the three-month period.
It is unnecessary to refer to the principles guiding the applications of s 477(2A) and s 477(2B) at any length because I have concluded that the provisions do not apply to the compromise proposed by the liquidators. It is sufficient to say that the role to be played by the court is one of oversight. The provisions do not require the court to evaluate the commercial decisions of liquidators. Rather the court is concerned to ensure that a liquidator's decision to compromise a debt to the company is not based on impropriety, bad faith, an error of law or principle, and that there are no grounds for doubting the prudence of the liquidator's conduct.[6]
No debt to the Company
[6] Re HIH Insurance Ltd [2004] NSWSC 5 [15] (Barrett J); Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [26] - [30] (Brereton J); Re Lewis [2020] FCA 841; (2020) 145 ACSR 459 [16] (White J).
Section 477(2A) applies only in relation to a 'debt' strictly so called and if the claim is unquestionably not a debt then the correct approach is to dismiss any application as unnecessary.[7]
[7] Re One.Tel Ltd [63] (Brereton J).
A convenient summary of the law in relation to the meaning of 'debt' in the Act is found in the decision of Master Newnes (as his Honour then was) in HL Diagnostics Pty Ltd v Psycadian Ltd.[8]One of the issues in that case was whether an amount claimed by way of restitution was a debt that could be relied on for the purposes of a statutory demand served pursuant to s 459E of the Act. The Master stated:[9]
There is no definition of 'debt' in the Corporations Act, but there is authority for the proposition that the term bears its common law meaning: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64. It is clear that at common law a debt is distinct from a liability in damages or some other unliquidated obligation: Commonwealth Bank of Australia v Butterell (supra), Jelin Pty Ltd v Johnson (1987) 5 ACLC 463. The essence of a debt at common law is an obligation of one person to pay a certain, or liquidated, sum to another: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567. That is, the characteristic of a debt is that it is a liquidated sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future: In Re European Life Assurance Society (1869) LR 9 Eq 122 at 127; Webb v Stenton (1883) 11 QBD 518 at 526; Re Australia and New Zealand Savings Bank Ltd [1972] VR 690 at 692. In Rothwells Ltd v Nommack (No 100) Pty Ltd (1990) 2 Qd R 85 (at 86) McPherson J described a debt, for the purposes of a statutory demand, as a liquidated sum in money presently due, owing and payable by one person, called the debtor, to another person called the creditor.
In Hawkins v Bank of China (1992) 26 NSWLR 562, in considering the meaning of the word 'debt' in s 556 of the Corporations Law, Gleeson CJ observed (at 572) that the word 'debt' is not a word of precise and inflexible denotation and, wherever it appeared in s 556, it ought to be applied in a practical and commonsense fashion, consistent with the context and the statutory purpose. That observation appears to me, with respect, to be equally applicable to s 459E of the Corporations Act. See also Bank of Australasia v Hall (1907) 4 CLR 1514, where O'Connor J (at 1535) said:
'Where an ambiguity arises as to whether the legislature has used a general expression in its narrow or in its wider sense, the Court will place that meaning upon the expression which will most effectually carry out the object of the section. In such cases it becomes necessary to examine the context, the subject matter and the object and purpose of the enactment as disclosed by its provisions.'
[8] HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234.
[9] HL Diagnostics Pty Ltd v Psycadian Ltd [27] - [28] (Master Newnes).
The Master expressed his conclusion on the issues as follows:[10]
I do not consider that for the purposes of s 459E anything turns on the precise nature of the right available to the claimant to recover a sum of money, so long as the sum of money has the characteristics of a debt and is due and payable to the claimant.
[10] HL Diagnostics Pty Ltd v Psycadian Ltd [30] (Master Newnes).
It has been held that a preference claim is not to be regarded as a debt,[11] nor is a claim for equitable compensation.[12]
[11] Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86, 88 - 89 (Moynihan J).
[12] Re Pascoe (No 2) [2021] FCA 426 [12] - [15] (Lee J).
In support of their application the liquidators' solicitors filed an outline of submissions on 24 March 2023. This outline did not address whether the claim in respect of the sale of the equipment was a claim for a debt due to the Company. This issue was addressed in a supplementary outline filed in response to a request for submissions on both this question and the question of how s 477(2B) was engaged by the terms of the proposed settlement.
In the supplementary outline of submissions filed 27 March 2023 the liquidators' counsel, Mr Scovell, provided assistance by referring to the authorities on the meaning of 'debt' including the decision in HL Diagnostics Pty Ltd v Psycadian Ltd to which I have referred.
The supplementary submissions described the substantive relief sought by the Company as 'the vesting of the Equipment, alternatively, damages' and added that because the equipment had been sold, the claim was quantified and was 'more akin to liquidated damages than non‑liquidated damages'.[13]
[13] Defendants' supplementary submissions filed 27 March 2023 [11], [13].
Mr Scovell acknowledged that it was not clear whether the claim was for a debt owed to the Company and that the application had been brought out of an abundance of caution. No criticism can be made of the liquidators or their lawyers. As Lindgren J observed in Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6),[14] the 'debt/no debt question' falls to be resolved in 'unfavourable circumstances'.[15]
[14] Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423.
[15] Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [27] (Lindgren J).
The claim advanced by the Company and which the liquidators seek the court's approval to compromise is a claim for damages for conversion. So much is acknowledged by the liquidators. That the liquidators are prepared to accept that the amount of proceeds of sale received by OPS is the quantum of the Company's loss does not alter the nature of the claim. The claim is not for a liquidated sum immediately payable or which, by reason of a present obligation, will become payable in the future. A judgment of the court is required to establish both liability and quantum. If established there would be a judgment debt but until then the claim is a claim for damages.
Confidentiality provision does not necessitate s 477(2B) approval
Section 477(2B) of the Act enables the court to ensure that the winding up of a company is not delayed by a liquidator entering into long term agreements. This is why approval is required if the term of the agreement may end or the obligations of a party may be discharged by performance more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those three months.
The proposed confidentiality provision is as follows:
9Confidentiality
9.1The Parties agree that the terms and substance of this Deed and all matters associated with it are strictly confidential and are not to be disclosed without the other Party's prior written consent except for the Party's legal and financial advisors or bankers, insurers or insurance brokers (who are themselves required to keep such matters confidential) or where the disclosure is required by law, is to the Australian Taxation Office or the Financial Ombudsman Service, is to a regulatory authority such as the Australian Securities and Investments Commission or is to their accountants or legal advisers.
9.2The Parties may disclose the existence and terms of this Deed in enforcing this Deed or in a court proceeding arising out of or in connection with enforcement of this Deed.
9.3The Liquidators may disclose such information in relation to this Deed as they consider necessary or desirable to discharge their duties as current or former liquidators, administrators or receivers, including in respect of their reporting obligations.
The confidentiality provision is not a provision that will delay the completion of the winding up. It is a negative covenant. It is not a provision that imposes an obligation on any party that may be discharged by performance more than three months after the settlement deed is entered into.
Conclusion in relation to the s 477(2A) and s 477(2B) applications
In my judgment the applications under s 477(2A) and s 477(2B) are unnecessary and they should be dismissed.
Application for a direction under s 90-15 of the Insolvency Practice Schedule (Corporations)
On the return of the liquidators' s 477(2A) and s 477(2B) application I informed Mr Scovell of my provisional views, which are reflected in the reasons set out above. I added that on the evidence there was no reason for me to doubt the liquidators' commercial judgment in deciding to compromise the Company's claim against OPS in the terms proposed. I gave the liquidators leave to amend the application to include an application for a direction under s 90-15 of the IPS.
The application was amended to seek a direction that the liquidators would be justified, and would be acting reasonably, in entering into the settlement deed.
I am satisfied that such a direction should be given for the following reasons:
(a)The liquidators have received advice from their lawyers to the effect that the proposed settlement is a prudent commercial settlement.
(b)It is unlikely that there will be any return to unsecured creditors even if the Company was wholly successful in the action.
(c)There are insufficient funds in the liquidation to fund further participation in these proceedings or the proceedings in the High Court if special leave to appeal were granted.
(d)The settlement will assist in bringing the winding up to an end.
Notice of the s 477(2A) and s 477(2B) application was given to the creditors in an 'Update to creditors' sent to creditors by email on 24 March 2023.[16] Save for one query from a former employee of the Company no communication had been received by the liquidators from creditors by the time of the hearing on 28 March 2023.
[16] Affidavit of Richard Scott Tucker sworn 27 March 2023, 'Attachment RST-1'.
Mindful that creditors have not had very long to digest the 'Update to creditors' and consider the position, I will suspend the operation of the direction for a period of 14 days from the date of the order and direct that the liquidators give notice of the orders by email to the creditors. Parties to whom notice is given will have liberty to have the matter relisted on two business days in writing to the liquidators provided any party seeking to have the matter relisted does so within five business days after notice is given to them.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
OK
Associate to the Honourable Justice Tottle
31 MARCH 2023
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