Re Crafted Capitol Pty Ltd (In Liquidation)
[2021] ACTSC 190
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title:
Re Crafted Capitol Pty Ltd (In Liquidation)
Citation:
[2021] ACTSC 190
Hearing Dates:
16 and 17 August 2021
DecisionDate:
20 August 2021
Before:
Mossop J
Decision:
See [86]
Catchwords:
CORPORATIONS – WINDING UP – Interlocutory process – application to terminate the winding up of the first respondent – where the applicants made out a positive case for the exercise of the court’s discretion in their favour – statute allows consideration of stage of liquidation and resolution of underlying dispute – not appropriate to terminate the winding up – application dismissed
Legislation Cited:
Building and Construction Industry (Security of Payment) Act 2009 (ACT)
Corporations Act 2001 (Cth), ss 286(1), 482, sch 2 (Insolvency Practice Schedule (Corporations)) s 90-15
Corporations Regulations 2001 (Cth), rr 5.6.53, 5.6.54
Court Procedure Rules 2006 (ACT), sch 6, r 14.1(2)Insolvency Practice Rules (Corporations) 2016 (Cth), s 70-40
Cases Cited:
Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81
Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd (No 2) [2021] ACTSC 85
Capocchiano v Young [2013] NSWSC 879
In the matter of Azmac Pty Limited (in liquidation) [2020] NSWSC 204; 146 ACSR 113
In the matter of MWM Sydney Pty Limited (in liquidation) [2016] NSWSC 688Re Warbler Pty Ltd (1982) 6 ACLR 526
Parties:
Crafted Holdings Pty Ltd (ACN 168 210 624) (First Applicant)
Crafted Central Pty Ltd (ACN 605 053 709) (Second Applicant)
Crafted Capitol Pty Ltd (In Liquidation) (ACN 605 053 763) (First Respondent)
Henry Joseph Kazar in his capacity as joint and several liquidator of Crafted Capitol Pty Ltd (In Liquidation) (Second Respondent)
Lachlan MacArthur Abbot in his capacity as joint and several liquidator of Crafted Capitol Pty Ltd (In Liquidation) (Third Respondent)
Bloc (ACT) Pty Ltd (ACN 149 091 592) (Fourth Respondent)
Representation:
Counsel
B Katekar SC with K Petch (Applicants)
N Oram (First to Third Respondents)
A Greinke (Fourth Respondent)
Solicitors
Terracon Legal ( Applicants)
ERA Legal (First to Third Respondents)
Mills Oakley (Fourth Respondent)
File Number:
SC 79 of 2021
MOSSOP J:
Introduction
1. This is an application made by Crafted Holdings Pty Ltd (Holdings) and Crafted Central Pty Ltd (Central) to terminate the winding up of Crafted Capitol Pty Ltd (in liquidation) (Capitol). Holdings is a contributory and hence entitled to make an application under s 482 of the Corporations Act 2001 (Cth) for the winding up to be terminated: s‑482(1A)(a). The liquidators of Capitol are the second and third respondents. Bloc (ACT) Pty Ltd (Bloc), the company upon whose application Capitol was wound up, is the fourth respondent. The circumstances in which Capitol was ordered to be wound up are described in Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81 (Bloc (No 1)) and Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd (No 2) [2021] ACTSC 85 (Bloc (No 2)). The factual circumstances leading to the winding up of Capitol are set out in Bloc (No 1) and are repeated later in these reasons.
Application
2. The application to terminate the winding up of Capitol is dated 1 June 2021. It goes beyond simply an order under s 482 of the Corporations Act and seeks the following orders:
1. An order pursuant to s 482 of the Corporations Act that the winding up of Capitol be terminated.
2. An order that order 5 of the orders made in proceedings SC 79 of 2021 on 29 April 2021 (the Proceeds of Sale Freezing Order) is vacated.
3. An order that order 3 of the orders made in proceedings ES 9 of 2020 on 22 February 2021 (the Bank Guarantee Restraining Order) is vacated.
4. An order that the applicants pay the respondents’ costs of this application.
3. The Proceeds of Sale Freezing Order referred to in proposed order 2 was an interlocutory order preventing Central from encumbering certain units in the Capitol development (the unit titled building the construction of which is the source of the dispute between Capitol and Bloc). It was an order designed to temporarily freeze assets of Central that might be available to satisfy any liabilities to Capitol. It was only temporary because it was intended to apply only for such period as was necessary to permit the liquidator to consider the position and make any application necessary to protect Capitol’s position during the liquidation. On 26 May 2021, it was extended by consent of the parties up until the determination of any application to terminate the winding up under s 482 of the Corporations Act or further order of the court.
4. The Bank Guarantee Restraining Order referred to in proposed order 3 was an interlocutory order preventing Capitol from calling upon the bank guarantee provided under the construction contract between Capitol and Bloc.
Section 482 of the Corporations Act
5. The power to stay or terminate a winding up is provided by s 482 of the Corporations Act. That section provides:
482 Power to stay or terminate winding up
(1)At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
(1A) An application may be made by:
(a)in any case—the liquidator, or a creditor or contributory, of the company; or
…
(2)On such an application, the Court may, before making an order, direct the liquidator to give a report with respect to a relevant fact or matter.
(2A) …
(2B) …
(3)Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up.
(4)The costs of proceedings before the Court under this section and the costs incurred in convening a meeting of members of the company in accordance with an order of the Court under this section, if the Court so directs, forms part of the costs, charges and expenses of the winding up.
(5)Where an order is made under this section, the company must lodge an office copy of the order within 14 days after the making of the order.
Test to be applied
6. The principles applicable to an application to terminate a winding up under s 482 of the Corporations Act have been usefully summarised in the decision of Black J in In the matter of MWM Sydney Pty Limited (in liquidation) [2016] NSWSC 688 at [16]-[21] as follows:
16.… The Court's power to make an order terminating a winding up under s 482 of the Corporations Act is discretionary, as the case law has noted, and a person who seeks such an order must establish that the order is appropriate. The factors relevant to whether a winding up should be stayed or terminated were summarised by Master Lee QC of the Supreme Court of Queensland in Re Warbler Pty Ltd(1982) 6 ACLR 526 at 533 as follows:
“1. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary and Edmonton Land Co Ltd (in liq)(1975) 1 WLR 355 at 358–359 per Megarry J. See also sec 243 of the Act [ie, Companies Act 1961].
2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co(1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3. The nature and extent of the creditors must be shown, and whether or not all debts have been discharged: Krextile Holdings Pty Ltd v Widdows supra [[1974] VR 689]; Re Data Homes Pty Ltd supra [1971] 1 NSWLR 338].
4.The attitude of creditors, contributories and the liquidator is a relevant consideration: sec 243(1), Re Calgary and Edmonton Land Co Ltd supra.
5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding‑up is sought: Re a Private Company[1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598.
6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd, supra [[1903] 2 Ch 174].
7. The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows, supra.
8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to “commercial morality” or the “public interest”: Krextile Holdings Pty Ltd v Widdows, supra; Re Data Homes Pty Ltd, supra …”
17.Master Lee noted that this list was not intended to be exhaustive and should not be regarded as a series of rigid principles, and that proposition has subsequently been endorsed in later case law: Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 724, Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [5] and Von Riesefer v Mainfreight International Pty Ltd[2009] VSCA 129; (2009) 73 ACSR 427 at 438; Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq)[2013] NSWSC 465; 93 ACSR 683 at [4].
18.In Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70 at [47]–[51], Austin J in turn observed that:
“In considering an application to stay or terminate a court-ordered winding up under s 482, the court has regard to various categories of interests. First, the court considers the interests of creditors, taking into account whether they object to the proposed termination. But even if all the existing creditors agree, the court may take the view that the proposed termination puts at risk the interests of future creditors. For example, the court is likely to be concerned where the proposal preserves the existing debts but defers their payment, particularly if the deferment has no enforceable status: see the remarks of Street J at first instance in Re Data Homes Pty Ltd [1971] 1 NSWLR 338 at 341. Similarly, if the proposal is that the principal shareholder/creditor will pay out all the other creditors and seek recovery of his debt by installments [sic], the court is unlikely to permit the company to start trading again and thereby incur additional debts, since if the company fails again, recovery by the new creditors may be prejudiced by the existing debt. However, if the principal shareholder/creditor capitalises his debt, the court may well take a different view: Collins v G Collins & Sons Pty Ltd(1984) 9 ACLR 58.
The cases concerning the interests of creditors do not, in my opinion, establish inflexible rules. Specifically, I do not believe that there is any absolute rule that a winding up cannot be terminated as long as one or more debts remains undischarged. Instead, the cases identify the range of concerns which the court is likely to have in exercising its discretion when an application is made, and therefore give guidance as to the matters upon which the court will need to be satisfied.
Second, the court considers the interests of the liquidator, particularly with respect to costs. …
Third, the court considers the interests of contributories. Generally a stay or termination will not be granted unless each member of the company either consents or is otherwise bound not to object to it, or his or her rights are properly secured: Re Calgary and Edmonton Land Co Ltd (in liq) [1975] 1 All ER 1046. …
Finally, the court considers the public interest, including matters of commercial morality, taking the initial approach that insolvent companies should be wound up: Re Data Homes Pty Ltd [1972] 2 NSWLR 22.”
His Honour there also noted (at [53]) that the factors relevant to the exercise of that discretion were not "absolute rules" but "identify the range of discretionary concerns which the court will need to address".
19.Relevant factors were in turn identified by Austin J in Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292; (2006) 57 ACSR 103 at [17] as including the interests of the company's creditors, including future creditors; the interests of the liquidator, particularly with regard to costs; the interests of contributories and the interests of the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up.
20.Mr Spencer, who appears for Mr Hope, in turn refers to the helpful summary of the relevant principles by Brereton J in Re Glass Recycling Pty Ltd[2014] NSWSC 439 at [15]ff. In particular, his Honour observed at [18]-[19] (omitting citations) that:
“Essentially, on such an application, the court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists. Where the winding up was on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not, or is no longer, insolvent. This is usually the most significant consideration ... Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidators' costs and expenses are covered, and the members agree ...
However, the factors to which the cases refer demonstrate that more is necessary than merely establishing that the state of affairs that required the company to be wound up no longer exists. This appears from, inter alia, the references to "commercial morality" as a relevant consideration, and also from references to the interests of future as well as extant creditors. These factors illustrate that the second broad consideration that informs the exercise of the court's discretion – once satisfied that the state of affairs that originally required winding up no longer exists – is that it would be reasonable to entrust the affairs of the company, once again, to the directors under whose management it previously failed.”
21.In Re Glass Recycling Pty Ltd above, Brereton J referred to the observations of Bergin CJ in Eq in Re SNL Group Pty Ltd (in liq)[2010] NSWSC 797, which emphasised the importance of solvency in determining such an application. Her Honour there noted (at [24]) that:
“The other considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned to, or will be returned to solvency.”
In Re Glass Recycling Pty Ltd above, Brereton J also referred to Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 at [58] where Finkelstein J noted that an order terminating a winding up would usually be made if all the creditors are paid out, the liquidator's costs and expenses are covered and the members agree, although his Honour also recognised that there may be exceptional circumstances where that would not occur despite a company's solvency.
Evidence
7. A substantial amount of evidenced was read or tendered. It described the history of dealings and disputes between Bloc and Capitol, the relationship between Capitol, Central and Holdings and the transactions that have occurred since the making of the order for the winding up of Capitol.
8. Affidavits of Mr Peter Sarris described his state of mind following the registration of the adjudication certificate with the ACT Supreme Court. It was the failure to pay the judgment debt arising from the registration of the adjudication certificate that led to the winding up of Capitol. In an affidavit sworn on 1 June 2021, Mr Sarris describes that he obtained legal advice in relation to the interpretation of the contract, the expenses that Capitol was liable to pay, the commercial risk of paying and then recovering the progress claim amount and the steps that Capitol ought to take in relation to the disputed payment claim. The affidavit does not disclose what that advice was and expressly maintains privilege over that advice. It outlines his view that it was appropriate for Capitol to submit the dispute to expert determination rather than paying the adjudication sum to Bloc. Mr Sarris outlines a number of matters which he believed at the time at [24] of his affidavit. In affidavits sworn on 3 June 2021 and 25 June 2021 respectively, Mr Sarris also describes the financial position of Capitol prior to the winding up order as well as the proposal by Holdings and Central to pay the creditors of Capitol and recapitalise the company.
9. A report of Mr Eddie Senatore expressed the opinion that if the winding up was terminated, then so long as it had the continued support of Central, Capitol was solvent.
10. Central gave certain undertakings to the court and gave an irrevocable instruction to Terracon Legal (Terracon), the solicitors acting for Holdings, Central and the directors of Capitol, Mr Sarris and Mr James. The undertakings varied depending upon whether the s 482 application was successful or unsuccessful. In the case that it was successful, the undertakings were, in summary, to pay Bloc’s costs of proceedings SC 79 and SC 88 of 2021 and ES 9 of 2020, to pay Malcolm Gracie’s costs associated with the expert determination, to pay the liquidators’ costs and to pay $200,000 into the bank account of Capitol.
11. Central also gave an irrevocable instruction to Terracon that in the event that the Court terminated the winding up of Capitol, Terracon was to pay $2,442,532.33 presently in the Terracon trust account to Bloc.
12. In the case that the present application was unsuccessful, the undertaking given to the court was to pay the debts of Capitol as determined by the liquidators or any appeal from a decision of the liquidators and to pay the liquidators’ fees and disbursements subject to any review of those fees under the Insolvency Practice Schedule to the Corporations Act.
13. The giving of the undertakings was significant because by reason of the definition of “Project Costs” in the Development Deed between Central and Capitol, the payment of the liabilities going beyond those in the “Cost Plan” only became an obligation of Central if Central approved of them, making, so far as Central was concerned, any such liabilities discretionary.
14. The giving of the undertakings is consistent with an effort on the part of the directors of Capitol and Central to displace any impression that they were trying to use the special purpose vehicle structure of Capitol and the terms of the Development Deed in order to insulate Central from any obligation to meet the liabilities of Capitol by leaving it in an assetless position.
Findings
15. The facts up until April 2021 were outlined in my earlier decision, Bloc (No 1), at [3]‑[36] as follows.
3.Bloc is a builder. On 18 September 2018 Bloc entered into a Design and Construct Contract (the Contract) with Capitol to carry out construction works for the “Capitol Residences” development project on London Circuit.
4.On 27 March 2020 the construction reached practical completion, which was certified by the superintendent, Robert Speight, on 1 April 2020.
5.On 3 July 2020 Bloc served a payment claim pursuant to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the SOP Act) for a progress payment of $2,681,165.10 inclusive of GST.
6.On 15 July 2020 Capitol issued a payment schedule under the SOP Act, which was certified by Mr Speight as the superintendent of the Contract, scheduling a progress payment of $1,595,157.19 inclusive of GST. Capitol did not pay the amount certified in this payment schedule.
7.On 30 July 2020 Bloc lodged an adjudication application under the SOP Act with Adjudicate Today. On 28 August 2020 the adjudicator, Max Tonkin, issued a determination of a progress payment of $2,298,478.59 inclusive of GST. He also ordered that Capitol pay an amount of interest and fees bringing the total adjudicated amount to $2,350,612.05.
8.Capitol did not pay the adjudicated amount. Capitol has not sought to appeal from the adjudication decision or sought prerogative relief in relation to it.
9.Bloc obtained an adjudication certificate. Section 27(1) of the SOP Act provides: “an adjudication certificate may be filed as a judgment for a debt, and may be enforced, in any court of competent jurisdiction.”
10.On 23 October 2020 the adjudication certificate was filed with the Court. That entitled Bloc to enforce it as a judgment of the court for a debt of the amount stated in the adjudication certificate. The filing of the adjudication certificate commenced enforcement proceedings ES 9 of 2020.
11.This judgment remains unpaid except for a small amount recovered pursuant to a debt redirection order which is referred to below. Interest has continued to accrue on the total adjudicated amount.
12.On 16 October 2020 the superintendent purported to revoke his previous certificate of practical completion issued on 1 April 2020 and to retrospectively certify practical completion to have occurred on 20 August 2020. If valid, that step would have significant consequences for Bloc under the contract, substantially increasing its liability to pay liquidated damages.
13.The relationship between Mr Speight and Capitol is not clear. He had identified himself as being employed as the development manager of Capitol. However, a director of Capitol denied on oath that he knew who employed Mr Speight. That same director identified Mr Speight as being a friend of his.
14.On 28 October 2020 Bloc’s solicitors, Mills Oakley, responded to the purported revocation of the certificate of practical completion, giving notice to the superintendent disputing his purported revocation of the certificate of practical completion.
15.On 9 November 2020 Capitol’s solicitors, Terracon Legal, issued a notice of dispute under the Contract, which was received on 12 November 2020. Amongst other claims, this notice of dispute claimed that Bloc was liable for $1.65 million liquidated damages, as a result of the new date of practical completion.
16.On 3 December 2020 Mills Oakley wrote to Terracon Legal asserting that an agreement had been reached between the directors of Bloc and Capitol on 4 August 2020 to the effect that the agreed dispute resolution process would be by adjudication.
17.Despite Bloc’s objections, Capitol sought expert determination of its notice of dispute and on 11 December 2020 applied to the Resolution Institute to make a nomination of an expert referee. On 15 January 2021 Mills Oakley formally notified the Resolution Institute of its objection to the expert determination.
18.Because the judgment registered with the court remained unpaid, Bloc took steps to enforce the judgment, including holding an enforcement hearing before Registrar Kennealy on 3 February 2021, which was adjourned part heard.
19.The court required the directors of Capitol to provide statements of the Enforcement Debtor’s financial position. These statements disclosed that Capitol’s only asset was an account with the Commonwealth Bank of $3,446.97.
20.At the enforcement hearing, the directors of Capitol indicated that it held no other bank accounts or any other assets.
21.On 2 February 2021 the Resolution Institute nominated Malcolm Gracie as the expert referee. Following a preliminary conference with Mr Gracie on 19 February 2021, disputes arose between Bloc and Capitol as to the terms of Mr Gracie’s appointment. Bloc sought, as part of the agreement to appoint the expert, that Capitol provide security for any judgment arising from the expert determination but Capitol was not prepared to provide it.
22.On 4 February 2021 the court issued a debt redirection order in ES 9 of 2020 directed to the Commonwealth Bank of Australia. This debt redirection order was returned partially unsatisfied, with an amount of $3,432.09 paid by the bank to Bloc in answer to the order.
23.On 22 February 2021 Bloc sought and obtained an ex parte injunction restraining Capitol from calling upon a bank guarantee under the Contract.
24.Following a further conference held only with Capitol’s representatives on 26 February 2021, Mr Gracie dismissed Bloc’s objections to jurisdiction. Under the Contract the expert was required to make a determination in 20 business days.
25.On 1 March 2021 Bloc filed an Originating Process commencing proceedings SC 79 of 2021 which sought orders winding up Capitol on the grounds that it was presumed to be insolvent or was in fact insolvent.
26.On 2 March 2021 the court issued a debt redirection order against the monies transferred from Capitol to Terracon Legal. That was an amount of $100,000 which had earlier been transferred from Capitol’s bank account to the trust account of Terracon Legal.
27.On 5 March 2021 Bloc commenced proceedings in SC 88 of 2021 and on that day applied for an interlocutory order staying the expert determination. Also on that day Capitol applied to stay the further enforcement of the registered judgment in ES 9 of 2020.
28.The two applications were dealt with by Elkaim J, who made orders with the intention of expediting the determination of the expert determination dispute. The orders made included that there be a stay of enforcement proceedings and a stay of any further steps in the expert determination by Mr Gracie. The matter was to be listed before the Registrar “for the allocation of an expedited hearing date not before 26 March 2021”. His Honour noted that evidence could be completed in the three week period prior to 26 March 2021. However, when the matter came before the Registrar on 9 March 2021 it was only able to be allocated a hearing date on 1 and 2 June 2021.
29.On 10 March 2021 Capitol filed and served a notice of appearance in proceedings SC 79 of 2021. The stated grounds of the opposition to the winding up were:
1. The defendant is not insolvent.
2. The enforcement of the plaintiff’s interim judgment, registered on 23 October 2020, has been stayed by order of the Court, dated 5 March 2021.
3. The debt on which the interim judgment is based is disputed by the defendant.
30.Section 465C of the Corporations Act2001 (Cth) prevents a person, without leave of the court, from opposing an application for the winding up of a company unless both notice of the grounds upon which the person opposes the application and an affidavit verifying the matters stated in the notice is served within the period prescribed by the rules. Rule 2.9 of the Corporations Rules in Schedule 6 of the Court Procedures Rules 2006 (ACT) required the notice of appearance and any affidavit to be filed three days prior to the date set for the hearing. The date for the hearing set in the Originating Process was 16 March 2021. Capitol did not file any affidavit evidence in support of its grounds of opposition, arguing now that it took the view that it was not required to do so having regard to the stay on the proceedings. That approach is not obviously justified by the terms of the orders made by Elkaim J.
31.On 16 March 2021 the winding up application came before the Court. It was referred by the Registrar to Elkaim J. Elkaim J listed the matter before me on 26 March 2021 but also noted that Bloc was seeking a decision to allow it to proceed with the winding up and ordered that it provide a draft application in relation to the winding up of Capitol and an application in relation to the expert proceedings by Friday, 19 March 2021.
32.When the matter was before me on 26 March 2021 I directed the Registrar to accept for filing applications in proceedings or interlocutory processes in each of the proceedings. I then made directions for the hearing of the interlocutory applications in SC 79 of 2021, SC 88 of 2021 and ES 9 of 2020 and fixed a return date for subpoenas of 14 April 2021.
33.The application in proceeding filed by Bloc in ES 9 of 2020 (the enforcement proceedings) sought that the court itself determine the matters involved in the notice of dispute dated 9 November 2020 on a final basis and that this be heard on 1 and 2 June 2021. That would have the effect that, instead of merely determining the validity of the expert determination process, the court itself would determine the matters the subject of that expert determination process.
34.The interlocutory process filed in SC 79 of 2021 (the application to wind up Capitol) sought an order that Bloc may proceed with the winding up of Capitol, that it be wound up in insolvency and that Henry Kazar be appointed liquidator of the company. It also sought, in the alternative, a freezing order restraining Central from encumbering its remaining units in the development. Further or alternatively, it sought that the application that Capitol be wound-up be adjourned for final hearing and provided that if the adjudicated amount was paid into court then the application could be dismissed.
35.In proceeding SC 88 of 2021 (the challenge to the expert determination) the application in proceedings sought that the directions made on 9 March 2021 be set aside, that the hearing to commence on 1 June 2021 be vacated and that the proceedings be adjourned to a date to be fixed.
36.On 6 April 2021, in correspondence between the parties, Bloc sought security for the amount owing under any expert determination pursuant to the contract between Bloc and Capitol. On 7 April 2021 Central undertook to hold $2.3 million unencumbered as security for Bloc. The offer was rejected by Bloc on 16 April 2021.
16. A further finding of fact needs to be made in relation to the period prior to 6 April 2021, namely that on 30 August 2020 the superintendent, Mr Speight, had set in train a process that would have paid an amount to Bloc but one or other of the directors of Capitol caused that payment not to be made.
17. On 29 April 2021 I ordered that Capitol be wound-up: see Bloc (No 1) at [74]. That order was stayed until 30 April 2021. On 30 April 2021 a further application was made to stay and vary the orders so as to permit payment of the adjudicated amount to be made. For reasons that I gave at the time, I dismissed that application: see Bloc (No 2) at [10].
18. On 4 May 2021 Terracon indicated that its client intended to make an application pursuant to s 482 of the Corporations Act and asked the liquidator to keep fees to a minimum. The email asked the liquidators to immediately call for formal proofs of debt. On 6 May 2021 the solicitors for the liquidators wrote to Terracon and indicated that the liquidators were in the process of calling for proofs of debt but would not take any action to wind up the affairs of the company for a period of seven days so as to allow Terracon’s clients to file the foreshadowed termination application.
19. On 13 May 2021 Capitol’s directors lodged the Report on Company Activities and Property. The liquidators provided their circular to creditors on 26 May 2021. The boards of Central and Holdings met on 28 May 2021 and approved payment of all of Capitol’s creditors. PKS Kapitol Pty Ltd, a company controlled by Mr Sarris, agreed to lend money to Central to pay the creditors of Capitol.
20. On 11 May 2021 Terracon emailed the liquidators’ solicitors saying that they expected to file the termination application by 14 May 2021. On 14 May 2021 Terracon sent an email saying that senior counsel had been unable to settle the affidavit and evidence in support and they now expected to be able to file the application by 18 or 19 May 2021.
21. On 17 May 2021 the solicitors for the liquidators queried why, in the face of the deadline, Terracon’s client had chosen to brief Mr Katekar, rather than other capable and available senior counsel. The email indicated that the liquidators would now proceed with the winding up of the company.
22. On 28 May 2021 there was a further exchange of emails between the liquidators’ solicitors and Terracon. Terracon had communicated that it was the intention of Holdings and Central to file an application under s 482 of the Corporations Act and that the directors of the companies intended to pass resolutions approving the payments in full satisfaction of debts owing to the creditors of Capitol. It indicated that the proposed course of action had been delayed by Mr Katekar’s involvement in a case and then a week of leave. The solicitors for the liquidators asserted that the foreshadowed application was not complex and that there had been sufficient time to bring it. The solicitors for the liquidators indicated that the liquidators would proceed with the winding up and would engage with any application if and when it was brought.
23. As anticipated in Terracon’s correspondence, the directors of Central met on 28 May 2021 and resolved that Central would pay Capitol’s debts to Bloc (identified as being $2,429,158.38) and several other entities. The directors resolved a number of matters including “Central is prepared to treat the Capitol Debts as Project Costs as between it and Capitol”.
24. The directors of Holdings also met and resolved to instruct Central to make a payment into the trust account of Terracon in the amount of $550,000 being an amount sufficient to cover the estimate of Capitol’s 12-month future trading liabilities and to take steps to require the directors of Capitol to issue the equivalent of $200,000 in shares to Holdings if the ACT Supreme Court terminated the winding up.
25. On 31 May 2021 there was correspondence between the directors of Capitol that Central would borrow approximately $3.06 million from PKS Kapitol.
26. On 1 June 2021 Terracon wrote to Bloc’s solicitors indicating that Central intended to pay Bloc the full amount of the ACT Supreme Court judgment including interest. That was said to be a payment on account consistent with the regime under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOP Act). It indicated that the amount would be transferred into Bloc’s bank account. The letter also sought an estimate of Bloc’s costs payable by Capitol and Central pursuant to existing court orders as that amount was to be paid by Central into Terracon’s trust account.
27. Also on that day Terracon wrote to other creditors of Capitol indicating that Central was to pay the liability in discharge of the debt owed by Capitol and confirming the relevant bank details for the purposes of the funds transfer.
28. Terracon also wrote to the solicitors for the liquidators indicating that the application would be filed that day and that Central would make payments to Capitol’s creditors in amounts set out in the letter.
29. On 1 June 2021 Holdings and Central filed the interlocutory process seeking the termination of the winding up pursuant to s 482 of the Corporations Act as well as the other relief set out earlier in these reasons. Also on that day Mr Sarris paid the sum of $550,000 into Terracon’s trust account to allow for the recapitalisation of Capitol and for paying unliquidated debts of Capitol. Consistent with that intention, Terracon sought an estimate from Bloc of its costs payable pursuant to previous orders of the court so as to enable Central to pay those costs.
30. On 3 June 2021 Bloc terminated the building contract. The dispute resolution provision, clause 47 of the Construction Contract, survives termination. The only consequence of the termination of the contract which was identified by the parties was the possibility that claims by Capitol arising in the defects liability period which ends at the latest on 20 August 2021 may be avoided by the termination, although this was disputed as the rights arising from any defects were said to be accrued rights not affected by termination
31. Also on 3 June 2021 the solicitors for Bloc wrote to Terracon referring to the earlier letter foreshadowing payment. The letter noted that payment of $2,442,532.33 had been made to Bloc’s bank account on 1 June 2021. The letter raised a number of issues in relation to the payment:
(a)that in relation to the payment being “on account” Central was not in a position to dictate the operation of the contract between Bloc and Capitol but that was a matter for the liquidators;
(b)that if made by Central it may have been made in breach of the existing freezing orders and Bloc did not want to be involved in any conduct constituting contempt of court; and
(c)that if the payment was a payment of Project Costs under the Development Deed, then it ought to have been made directly to the liquidators not to Bloc.
32. The letter sought various details of the transaction, including where the funds came from and who was behind the entity from which the funds were obtained.
33. In response to the letter of 3 June 2021, on 4 June 2021 Terracon provided the information requested, including the minutes of the directors’ meeting of Central at which the payment was authorised. The letter also enclosed copies of the interlocutory process seeking termination of the winding up under s 482 of the Corporations Act and the supporting affidavit that had been filed.
34. On 8 June 2021 Bloc lodged a proof of debt with the liquidators and submissions in support of that proof. The proof document claimed a debt of $3,001,980.54.
35. Following the return to Terracon of stamped copies of the interlocutory process and supporting affidavits, they were served upon the creditors of Capitol and the liquidators.
36. On 10 June 2021 the solicitors for Bloc made a request pursuant to regulation 5.6.53 of the Corporations Regulations2001 (Cth) that the liquidators adjudicate Bloc’s proof of debt. Regulation 5.6.53 provides that a liquidator must admit or reject or request further evidence in support of a proof of debt within 28 days of receiving a request in writing from a creditor to do so. ASIC can allow a further period beyond the 28 days.
37. On 11 June 2021 the Registrar of the court made an order that the liquidators file and serve by 14 July 2021 a report of their investigations into the affairs of the company.
38. On 21 June 2021 the solicitors for Bloc wrote to Terracon indicating that Bloc did not accept the tender of the payment made by PKS. The letter referred to the absence of evidence as to the relationship between PKS and Central and Holdings and the possibility that it may constitute a voidable transaction. Further, in a paragraph which is not particularly clear, the letter indicated that Bloc was not prepared to accept as a condition of receipt of the funds participation in the expert determination involving Mr Gracie. The letter indicated that Bloc was “not prepared to be forced into some form of accord and satisfaction that would prejudice its rights”. The letter then indicated that if the payment was made on behalf of Central then the payment should have been made to the liquidators. The letter proposed that Bloc either pay the money to the liquidators with the consent of Central and PKS or otherwise return the payment to PKS.
39. On 23 June 2021 the solicitors for the liquidators made a request for further documentation or submissions in relation to a number of issues raised in the proof of debt.
40. On 25 June 2021 the amount of $2,442,532.33 paid to Bloc was repaid into Terracon’s trust account.
41. Bloc’s solicitors also provided supplementary submissions and additional documentation to the solicitors for the liquidators.
42. On 28 June 2021 Terracon provided submissions and supporting documentation (which appear to be on behalf of the directors of Capitol) to the liquidators in relation to Bloc’s proof of debt.
43. On 29 June 2021 the solicitors for the liquidators sought further submissions in relation to the question as to whether or not the performance bonds should be returned to Bloc. Further submissions were provided by Bloc and the directors of Capitol.
44. On 1 July 2021 the directors of Capitol provided supplementary submissions in relation to Bloc’s proof of debt.
45. On 9 July 2021 Bloc provided submissions in reply to the submissions made by the directors of Capitol. Those submissions included submissions directed to the entitlement of the liquidators to adjudicate the proof of debt and contending that the rights of appeal under s 90-15 of the Insolvency Practice Schedule to the Corporations Act applied. They contended that clause 47.9 of the Construction Contract did not exclude the entitlement to determine the claim made in the liquidation because it did not involve a court proceeding. However, the submissions also contended that there was no particular advantage in proceeding by way of expert determination, rather than the liquidators making a decision.
46. Mr Senatore provided his report on 12 July 2021.
47. On 14 July 2021 Central gave an irrevocable instruction to Terracon that should the application under s 482 of the Corporations Act be successful, Terracon was to make payment of the amount of $2,442,532.33 to Bloc.
48. On 14 July 2021 the liquidator finalised his report to the court, being the report directed to be made by order of the Registrar on 11 June 2021. That report indicated that as at the time of the liquidators’ appointment, the company’s solvency was dependent upon whether as a matter of fact its related entities were ready, willing and able to provide the company with the necessary financial support to mediate debts and that although the directors had subsequently recognised the need to pay Bloc’s judgment, “it appears that a decision was made by the Directors, in their capacity as directors of the Company and Central, not to put the Company in funds at the time of entry of the judgment to enable it to satisfy that debt”.
49. The liquidators expressed their preliminary view “that the Directors may have breached one or more of their statutory and fiduciary duties to the Company” by acting in multiple roles across related entities, not immediately recognising the judgment debt and causing Central to pay that debt immediately, causing the company to be assetless while engaging in extensive litigation with Bloc.
50. The report indicated that the liquidators were required to adjudicate on Bloc’s proof of debt by 6 August 2021. The report noted the directors’ submission that the proper course was to seek to progress the expert determination but that the liquidators were currently without significant funds and no offer to fund the company to proceed with the expert determination had been proffered by the directors or related entities. However, the liquidators continued:
Irrespective of the above, we are of the view that the proof of debt adjudication process will be the most efficient and costs effective forum for dealing with Bloc’s proof of debt in the winding up of the Company.
51. In support of that position, the liquidators referred to the receipt of detailed submissions and supporting material, the capacity to set off claims by the company against Bloc, the existence of a right of appeal against any decision of the liquidator for both Bloc or Central and the existence of Bloc’s challenge to the validity of the reference to the expert for determination with the potential that there be a two-stage process arising from the expert determination.
52. The report referred to the paying out of the other claims by creditors. The report also set out various other matters which is not necessary to record.
53. The liquidator also wrote to Central seeking payment of the amount of $2,425,576.74 as project costs shown in the company’s balance sheet as at 30 June 2021. It also identified that no monies had been received by Capitol for the developer’s margin under the Development Deed and sought a payment of $835,228.09. Finally, it sought the amount of $74,163.05 which appeared to have been withdrawn from Terracon’s trust account prior to payment of monies held in that account into the company’s liquidation bank account. A further demand was made of Crafted Real Estate Pty Ltd for an amount of $6579.90 being shown as an unpaid working capital loan in the Xero records of Capitol.
54. On 23 July 2021 the liquidators issued their statutory report pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth). That disclosed that the estimated return to unsecured creditors was 100 cents on the dollar. They expressed the preliminary view that the company’s records had been maintained in accordance with s 286 (1) of the Corporations Act. The report included the details of a request for approval of the liquidators’ remuneration.
55. As indicated in the report of 14 July 2021, the liquidators considered that they were bound to make a decision in relation to Bloc’s proof of debt by 6 August 2021.
56. On 28 July 2021 Terracon responded to the demands for payment made upon Crafted Real Estate Pty Ltd and Central indicating that a response would be provided when counsel was available to settle it and putting forward a number of reasons why a response was not required urgently.
57. On 3 August 2021 Terracon wrote to the liquidators’ solicitors disputing the liquidator’s claim against Central for the amount of $2,442,533.42, the developer’s margin claim, the costs claim and the claim against Crafted Real Estate Pty Ltd. The letter requested that the liquidator direct Central to make a payment of the judgment amount to Bloc on behalf of Capitol. This correspondence assumed that the claim for the approximately $2.4 million was for the SOP Act debt rather than, as the liquidator’s letter disclosed, a liability shown by the accounts of Capitol to be owed by Central.
58. On 5 August 2021 Central and Holdings requested the liquidators not to adjudicate on the proof of debt until after the application under s 482 of the Corporations Act was determined and that the liquidators seek an extension of time from ASIC in order to permit that course to be adopted.
59. On the afternoon of 5 August 2021 the liquidators’ solicitors indicated that the liquidators would not seek the approval of ASIC to extend the time in which to determine the proof of debt. The email said that the parties had an opportunity to make detailed submissions and provide material in support of or in opposition to the claim. The email said that the application to terminate the winding up did not prevent the adjudication process from proceeding. It indicated that in the absence of an injunction being received prior to 3pm the following day the liquidators would issue their determination.
60. On 6 August 2021 the liquidators gave their decision on Bloc’s proof of debt. Of the amount of $3,001,980.54 claimed, the liquidator found that amount of $2,668,902.53 had been proved. The notice of rejection of a formal proof of debt or claim was a 38‑page document. It included making particular findings about the date of practical completion and concerning the claim for landscaping.
61. On 11 August 2021 the solicitors for the liquidators wrote to Terracon identifying that the claim for approximately $2.4 million was because there was a liability recorded in Capitol’s accounts as being owed by Central to Capitol. It identified that the liquidators could not find a record of the developer’s margin having been actually paid, as opposed to accounting entries having been made. In relation to the legal costs deducted from the Terracon trust account, the liquidators sought invoices in relation to those costs. In relation to Crafted Real Estate, the amount was said to be shown in Capitol’s accounts as being a loan owed by Crafted Real Estate.
Consideration
62. The background to the winding up and the reasons for the winding up are sufficiently described in my factual findings above and in the reasons given for the making of the winding up order.
63. The affidavit of Mr Sarris sworn on 1 June 2021 indicates that following the adjudication and up to the determination of the winding up application, he sought legal advice on a number of occasions. He was careful in his evidence to maintain privilege over that legal advice. However, he said in his affidavit that he understood that it was open to him to challenge the liability to pay the amount of the judgment arising from the SOP Act adjudication and not pay the judgment amount in the meantime. It is difficult to understand how a lawyer could have advised him that this was the position that existed under the SOP Act. He now recognised that this was not the position.
64. Notwithstanding the difficulties associated with either the attitude of the directors of Central or, additionally or alternatively, the legal advice that was received, Central has largely been able to remedy the position in order to put itself in a good position for the purposes of the s 482 application. It has done that by paying out the known creditors of Capitol (except for Bloc) and making provision in relation to an anticipated claim by Mr Gracie. In relation to Bloc, it has attempted to make a payment directly to Bloc arising out of the SOP Act debt but, when that was refused, has declined to pay that money to the liquidator.
65. It has made provision for the payment of the amount of the SOP Act judgment in the event that the winding up is terminated. Central has also made provision for the costs of the liquidation, the costs of the Bloc in these proceedings and made provision for the recapitalisation of Capitol. In the event that the application is unsuccessful, an undertaking has been given by Central to apply funds held in trust by Terracon to the payment of the liquidators’ costs and any amount owing to Bloc. These measures provide a degree of assurance that Central is no longer intending to use the specific purpose vehicle structure of Capitol as a means to avoid liabilities.
66. In relation to the attempted payment to Bloc, the position adopted by each side cannot be characterised as inappropriate given the vigorous pursuit by each of its own self‑interest and the apparent lack of trust between the parties
67. So far as the Re Warbler Pty Ltd (1982) 6 ACLR 526 (Re Warbler) factors are concerned:
(1)The applicants have made out a positive case for the favourable exercise of the court’s discretion both through Mr Sarris’ evidence and the undertakings given and directions made by Central.
(2)The applicants have served the creditors.
(3)The applicants have shown the nature and extent of the creditors and have demonstrated that they have paid or attempted to arrange payment of the debts of Capitol.
(4)The only creditor that opposes the termination of the winding up is Bloc, the position of the liquidators being neutral.
(5)The current trading position and solvency of the company is a factor of limited significance given that since August 2020, the only activity of Capitol has been to resolve its disputes with Bloc. It would, however, be solvent if the winding up was terminated because of the proposed recapitalisation of the company.
(6)-(7) The applicant has provided an explanation for the approach taken by the directors of Capitol to the payment of the judgment debt which led to the winding up and an explanation of the general background and circumstances leading to the winding up order. Given the failure to expose what legal advice was received by the directors of Capitol, it is not possible to say whether the attitude adopted was one which was based upon erroneous legal advice or upon an attempt, despite legal advice, to use the corporate structures and contractual arrangements so as to achieve the most financially advantageous outcome for the interests of the directors and shareholders of Central and Holdings.
(8)By addressing the circumstances in which the judgment amount was not paid, the applicants addressed the question of commercial morality and the public interest. While some other minor matters possibly reflecting on commercial morality were identified by counsel for Bloc, they were not, in my view, matters of significance for the ultimate resolution of this application.
68. The decision in a Re Warbler provides significant guidance as to the appropriateness of the termination of a winding up. However, the statute is the ultimate source of authority for such a decision. It is within the scope of the statute to consider, in a case like the present, the stage that the liquidation is at and how the underlying dispute relating to the building contract between Bloc and Capitol is to be resolved.
69. As at the time of the making of the winding up order, the clear impression left by the conduct of the directors of Capitol was that the advantages of using Capitol as an assetless development vehicle were being fully exploited. The approach of the directors incrementally altered during the course of those proceedings but not in a way that avoided the winding up order. As pointed out above, they have now taken steps to rectify the position through payment or undertaking to pay all creditors, the liquidators and Bloc’s costs. There is also an undertaking to pay any amount ultimately determined to be owing to Bloc. By doing so, they hope to effectively wind back the clock so as to put Capitol back in the position of being able to have the dispute between the parties determined in accordance with the contractual mechanism, namely clause 47 of the Construction Contract. This would mean that the disputes between Capitol and Bloc would be determined by Mr Gracie or some other expert. That would also necessitate the final determination by the court of Bloc’s challenge in SC 88 of 2021 to the expert’s appointment prior to that process being undertaken.
70. If the winding up is not terminated, then the dispute about the amount due to Bloc will be determined by the court in an appeal from the liquidators’ decision of 6 August 2021 to accept, in part, Bloc’s proof of debt.
71. The parties made additional submissions about the operation of s 90-15 of the Insolvency Practice Schedule to the Corporations Act. That provision is more broadly worded than the now repealed s 1321. The parties agreed, consistently with the broad language of s 90-15, that this provision was sufficiently broad to accommodate the type of appeal previously provided for by s 1321: see In the matter of Azmac Pty Limited (in liquidation) [2020] NSWSC 204; 146 ACSR 113 (Azmac) at [41]. The same approach to the nature of an appeal as applied under s 1321 applies to an appeal under s 90-15: Azmac at [41]‑[42]. The approach was usefully summarised by Kunc J in Capocchiano v Young[2013] NSWSC 879 at [46]. In that case Kunc J said at [46]:
An appeal against the rejection of a proof of debt is a hearing de novo. The Court must take into account all relevant evidence, whether or not it was before the liquidator at the time the proof was rejected. The fundamental question is whether the claim sought to be proved is a true liability of the company enforceable against it according to law. Nevertheless, the claimant bears the onus to demonstrate that the liquidator was wrong in rejecting the proof. If that onus is not discharged, the Court will not overturn the liquidator’s decision. If the Court is unable to conclude either way whether the proof should be admitted, then the liquidator’s decision must stand.
72. For the purposes of s 90-15, the persons who may apply for an order are identified in s 90‑20. They include “a person with a financial interest in the external administration of the company” and “an officer of the company”. In the circumstances of this case that would include Central, Holdings, Mr Sarris and Mr James. Rule 14.1(2) of schedule 6 of the Court Procedures Rules 2006 (ACT) and the equivalent rule applicable in the Federal Court permit an appeal to be filed within 21 days after the decision or any further time allowed by the court. That is sufficient to address the position of the applicants, Mr Sarris and Mr James.
73. The position of Bloc is, on its face, governed by regulation 5.6.54 of the Corporations Regulations which applies to an appeal by a creditor from the rejection of all or part of a proof of debt. That provision permits an appeal within the period specified by the liquidator being not less than 14 days after the day of notice of the decision. In this case the period of 14 days was specified. Both under rule 14.1 of schedule 6 of the Court Procedure Rules and under regulation 5.6.54 of the Corporations Regulations the court has power to extend the time in which an appeal may be brought.
74. The court has made consent orders extending the time in which any such appeals may be brought so that the parties are able to make a decision about appeals in light of the decision on this application.
75. The result of this explanation of the operation of s 90-15 of the Insolvency Practice Schedule to the Corporations Act is that there is a reasonably available route by which the correctness of the determination by the adjudicator may be challenged by those who are affected by the acceptance by the liquidators of the bulk of Bloc’s proof of debt.
76. If the winding up is terminated, then it is the directors’ intention that Capitol pursue the expert determination process available under clause 47 of the Construction Contract. The applicants contended that the contractual process would be quicker and less expensive than the process following the determination of the liquidators. Under the contract, the expert is required to make a determination within “20 Business Days” unless the parties otherwise agree: clause 47.5. The expert appraisal is not an arbitration so that the expert may reach a decision from his or her own knowledge and experience: clause 47.5. The expert is entitled to conduct any investigation, engage and consult with legal or technical advisers, examine documents, make directions and make a determination in the manner that he or she considers suitable: clause 47.6. The determination must be in writing and except in the case of “manifest error” will be “final and binding on the parties”: clause 47.7.
77. Although speed may be reflective also of cost, there was no evidence addressing the likely difference in costs between the two processes. The applicants did emphasise that this was the contractually chosen process for dispute resolution. Apart from that, the applicants’ submissions did not demonstrate any clear advantages, in a case raising issues such as those raised in the present case, that the process contemplated by the contract would have over determination of the case by either this court or the Federal Court.
78. Plainly the parties have perceived that their interests will be advanced by different dispute resolution processes. They have devoted considerable legal resources to seeking to advance what they perceive to be their respective self-interests in achieving dispute resolution by one or other of the competing mechanisms. However, the respective advantages of those processes and why they favoured one party rather than the other were not made express during the course of the argument and are not otherwise obvious. If one of the unstated reasons for the directors wishing to avoid the continuation of the liquidation is because it may lead to criticisms of their conduct by the liquidators or proceedings against them (a proposition which Mr Sarris denied), that would not be a factor which favoured termination of the winding up because there is a public interest in liquidators identifying any wrongdoing on the part of directors and bringing any appropriate proceedings against them.
79. The issues in dispute between the parties are relatively confined. The large bulk of the amount in dispute can be attributed to two issues. The first is when the project was practically complete. That involves a contest between the initial date of practical completion identified by the superintendent and the date subsequently identified as a revised date of practical completion. The second is a dispute relating to landscaping costs. These involved a provisional sum amount. The amount claimed was some $500,000 in excess of the provisional sum. Some reference was made in submissions to liability for defects made under the Construction Contract between Bloc and Capitol. However, neither party placed emphasis on the possibility that rights of Capitol arising by reason of defects gave rise to an offsetting claim by Capitol against liabilities to Bloc. Any such liability on Bloc’s part was not raised as an offsetting claim in relation to Bloc’s proof of debt. I have therefore not placed significant weight upon the possibility of defects claims in relation to the determination of the application under s 482 of the Corporations Act.
80. In my view, whether or not to terminate the winding up is significantly influenced by practical questions associated with resolving the disputes between the parties. Since August 2020, the only activity of Capitol has been resolving its dispute with Bloc. Rather than make the application for termination of the winding up promptly, there was a delay of some four weeks after the making of the winding up order before any application to terminate the winding up was filed. While I accept that the termination application was always foreshadowed, the liquidators acted consistently with their duty in dealing with the liquidation in the manner that they did. In the period of the winding up, the liquidators have reached the point of making a decision about the proof of debt of Bloc. Given the progress of the winding up, the statutory deadline for the making of a decision on Bloc’s proof of debt and the lateness of any suggestion that an extension of time for the making of that decision should be sought from ASIC in order to accommodate the timing of the present application, it was reasonable for the liquidators to proceed to making the decision that they did.
81. The liquidators’ decision on the proof of debt means that the substantial issue in the winding up is now at a point where it may be determined by this court or the Federal Court. Allowing the liquidation to continue will avoid the necessity to determine Bloc’s challenge to the appointment of the expert. While it can be said as a matter of generality that an expert determination has increased flexibility and involves determination by a person with experience in resolution of construction disputes, the nature of the issues in the present case were not demonstrated to be such as to make significant that flexibility or construction‑specific expertise. While the court process involved in an application relating to the decision by the liquidators is likely to involve determination of the matter by a judge of this court or the Federal Court with less experience in determining construction disputes, a decision by a court will involve a decision by a body whose authority is not subject to challenge and hence bring to an end the fiesta of litigation that has arisen between the parties.
82. Further, the range of claims considered by the liquidators were broader than those that were subject to the reference to the expert and hence any review of that decision has the potential to quell a wider range of disputes between the parties than the existing reference to the expert. It is not possible to predict how additional references to either the same or different experts would play out, although the starting point must be that they have the potential to create further fronts in the ongoing war between the parties.
83. My conclusion is that it is not appropriate to make an order terminating the winding up of Capitol. In summary, the principal factors leading to that conclusion are:
(a)The termination of the winding up would not be for any trading purpose or any ongoing business but only for the purpose of dispute resolution between the company and Bloc.
(b)There are no employees or customers who would benefit from termination of the winding up.
(c)In so far as the directors of Capitol may be exposed to criticism by the liquidators if the liquidation continues, that is not a factor favouring termination of the winding up.
(d)No clear benefit of the expert determination process as a means for resolving claims as between Bloc and Capitol has been demonstrated over the processes provided for if the liquidation is allowed to continue, namely proceedings in a court to review the liquidators’ decision.
(e)Bloc, the directors of Capitol, and the liquidators have invested time and resources in the processes of the liquidation including the adjudication of Bloc’s proof of debt.
(f)The fact that, if the liquidation was terminated, Central would pay the liquidators’ costs and Bloc’s costs of the proceedings (and the related proceedings SC 88 of 2021 and ES 9 of 2020) is a relevant factor in so far as that reduces the detriments associated with abandoning the work done by the liquidators in relation to the dispute with Bloc and some of Bloc’s costs, but not sufficient to overcome the factors tending against termination. So too is the potential for substantial additional costs to be incurred by the liquidators.
(g)The liquidation process is likely to bring the disputes between the parties to an end more quickly with fewer proceedings than would be the case if the winding up was terminated.
Decision
84. For the reasons given above, the application for an order terminating the winding up of Capitol under s 482 of the Corporations Act will be refused.
85. There remain a number of outstanding issues, namely the application for an order discharging the freezing order over certain assets of Central (order 2 in the interlocutory process), an application to discharge the bank guarantee restraining order (order 3 in the interlocutory process), the question of the costs of these proceedings and two foreshadowed applications by Bloc in relation to proceedings ES 9 of 2020 and SC 88 of 2021. I will hear the parties as to how to deal with those outstanding issues. It appears to me that the freezing order referred to in order 2 in the interlocutory process will, as a result of the amended terms of that order, end as a result of the determination of the s 482 application but I will hear the parties on that issue.
Orders
86. The orders of the Court are:
1. The application for an order under s 482 of the Corporations Act 2001 (Cth) sought in the interlocutory process dated 1 June 2021 is dismissed.
2. The parties be further heard as to any other orders necessary to dispose of the interlocutory process dated 1 June 2021.
I certify that the preceding eighty-six [86] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop.
Associate:
Date: 13 October 2021
15
0