Re Dig-Iti Hire Pty Ltd and Dig-Iti Hire Assets Pty Ltd
[2022] VSC 39
•27 January 2022 (given ex tempore, revised)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 02368
IN THE MATTER of DIG-ITI HIRE PTY LTD (ACN 614 263 320) AND DIG-ITI HIRE ASSETS PTY LTD (ACN 615 268 267)
| TERRY CHAN & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| DIG-ITI HIRE PTY LTD (ACN 614 268 267) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 January 2022 |
DATE OF JUDGMENT: | 27 January 2022 (given ex tempore, revised) |
CASE MAY BE CITED AS: | Re Dig-Iti Hire Pty Ltd and Dig-Iti Hire Assets Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 39 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4A – Section 461(1)(k) – Winding up on just and equitable ground – Irretrievable breakdown of relationship – Lack of confidence in the conduct and management of the affairs of the company – Risk to the public interest that warrants protection – Financial position of company – Part 5.4B – Section 467(4) – Whether other remedy available.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Rogers | Hilton Bradley Lawyers |
| For the Defendants | No appearance |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 1
Legislative provisions....................................................................................................................... 4
Legal principles.................................................................................................................................. 4
Evidence and reasoning.................................................................................................................... 6
Conclusion......................................................................................................................................... 12
HIS HONOUR:
Introduction
Before the Court is an application by Mr Terry Chan (as first plaintiff) and Chan Family Group Pty Ltd (as proposed second plaintiff) (‘CFG’) to wind up Dig-Iti Hire Pty Ltd (the ‘Company’) and Dig-Iti Hire Assets Pty Ltd (the ‘Assets Company’) (collectively, the ‘Companies’) principally on the just and equitable ground in accordance with s 461(1)(k) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’). As discussed further below, other grounds are also relied upon and alternative relief is sought.
Background
Together, the Companies operated a business hiring out excavation and earthmoving equipment and offering related services (the ‘Business’). The Companies were incorporated in 2016 by Mr Chan and Mr Luca Mariani (the third defendant), who were long-time friends, for the purpose of running the Business. Through their respective corporate vehicles (CFG, which is owned and controlled by Mr Chan and Mariani Family Group Pty Ltd (‘MFG’), which was owned and controlled by Mr Mariani),[1] Mr Chan and Mr Mariani held equal shares in the Companies. Both Mr Chan and Mr Mariani are directors of the Companies. Additionally, the Company is the corporate trustee of the Dig-Iti Hire Unit Trust (the Trust‘’). CFG and MFG held equal units in the Trust. However, on 17 January 2021, MFG was deregistered and it is unclear whether its registration has since been reinstated. The Assets Company holds the machinery and equipment used to conduct the Business, some of which is encumbered by chattel mortgages arising from vendor finance and the subject of guarantees by the directors.
[1]For all intents and purposes, CFG is the alter ego of Mr Chan and MFG is the alter ego of Mr Mariani. Depending on context, some references in this judgment to Mr Chan and Mr Mariani should be taken to be references to those persons not only as directors of the Companies but also as directors, shareholders and personal representatives of CFG and MFG, respectively, who are the Companies’ shareholders.
The working relationship between the two directors began to deteriorate from late 2019. As a consequence, on 7 July 2021, Mr Chan commenced this proceeding. Following attempts by Mr Chan to resolve the situation with Mr Mariani, including by seeking a buy-out of his interests in the Business, Mr Chan left the Business in or around August 2021. The extent to which the Business is presently operating is unclear.
At the initial return of the matter on 23 July 2021, orders were made under s 47 of the Civil Procedure Act 2010 (Vic) directing the plaintiff and third defendant to meet with each other and their respective lawyers for the purpose of a without prejudice settlement conference. After extended negotiations, the parties apparently reached a settlement in principle, however, the settlement fell through and the matter has ultimately not resolved. Orders have also been made in the proceeding permitting the plaintiff to file and serve an amended originating process seeking, among other things, leave under s 459P(2) of the Corporations Act to wind up the Companies in insolvency, together with further affidavit evidence in support. Mr Mariani was also permitted to file any responsive material in opposition to Mr Chan’s application. He has not done so. Further, although lawyers were previously acting for Mr Mariani and the Companies, they filed notices of ceasing to act on 22 October 2021. Mr Mariani has been unrepresented since that time. When the matter was last before the Court on 29 November 2021, Mr Mariani failed to appear. Although he was clearly made aware that the matter was listed for final hearing today, there was no appearance by Mr Mariani when the matter was called on this morning. It appears that Mr Mariani has disengaged himself from the proceeding and does not wish to participate. In the circumstances, Mr Chan’s application is unopposed.
Whilst Mr Chan was required to file his amended originating process by 15 December 2021, the amended originating process was not accepted for filing when it was lodged because of the proposed addition of CFG as a party which was not contemplated by the Court’s earlier orders. The proposed amended originating process also:
(a) seeks to invoke the shareholder oppression provisions contained in ss 232 and 233 of the Corporations Act;
(b) seeks leave pursuant to s 459P(2) of the Corporations Act for Mr Chan and CFG (as director and shareholder of the Companies, respectively) to apply for an order for the winding up of the Companies in insolvency under ss 459A and 459P of the legislation;
(c) identifies alternative relief to a winding up order, namely the appointment of a receiver and manager over all of the assets of the Companies pursuant to s 233(h) of the Corporations Act on the basis that the conduct of the affairs of the Companies is oppressive or unfairly prejudicial to CFG; and
(d) seeks an alternative order directing the Companies to regularise their accounts, sell assets, pay creditors, and distribute any residual amounts to the members.
Counsel for Mr Chan and CFG confirm that the primary ground advanced in the application nevertheless remains the just and equitable winding up of the Companies.
Given the lack of any opposition by Mr Mariani to the proposed amendments to the originating process or any recent participation by him in the proceeding generally, at the hearing I extended time for Mr Chan to file the amended originating process and granted him leave to proceed with the application (as amended) today. I also made an order pursuant to r 9.03(1) and/or r 9.06(b)(i) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) permitting the joinder of CFG as the second plaintiff in the proceeding. I considered the joinder of CFG to be necessary and proper given it is a shareholder of the Companies and because CFG is entitled to seek the same relief sought by Mr Chan. The joinder is uncontroversial and merely serves to regularise the proceeding.
In support of the application, Mr Chan and CFG rely on two affidavits of Mr Chan affirmed on 5 July 2021 and 16 December 2021, respectively, together with their exhibits. The plaintiffs have also filed a consent to act as liquidator signed by Mr Stephen John Michell and written submissions in support of the application.
Legislative provisions
Section 461(1)(k) of the Corporations Act provides that the Court may order the winding up of a company if it ‘is of opinion that it is just and equitable’ to do so.
Section 467(4) of the Corporations Act is in the following terms:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a)the applicants are entitled to relief either by winding up the company or by some other means; and
(b)in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Legal principles
In Ebrahimi v Westbourne Galleries Ltd,[2] the House of Lords explained that the court’s jurisdiction under the just and equitable ground will commonly be engaged when one or more of the following circumstances are present:
(a)an association formed or continued on the basis of a personal relationship, involving mutual confidence …;
(b)an agreement, or understanding, that all, or some … of the shareholders shall participate in the conduct of the business; [and]
(c)restriction upon the transfer of the members’ interest in the company — so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.[3]
[2][1973] AC 360 (‘Ebrahimi’).
[3]Ibid 379 (Lord Wilberforce).
The categories of facts and classes of conduct which enliven the just and equitable jurisdiction are neither rigid nor closed.[4] The court must have regard to the factual matrix of the dispute in order to be satisfied whether sufficient reason exists to wind the company up.[5]
[4]Ibid. See also Australian Securities and Investment Commission (ASIC) v Kingsley Brown Properties Pty Ltd [2005] VSC 506, [96] (Mandie J); Australian Securities and Investment Commission (ASIC) v Storm Financial Ltd(recs and mgrs. apptd) (admin apptd) (2009) 71 ACSR 81, [65] (Logan J); Australian Securities and Investments Commission (ASIC) v Letten (No 10) [2011] FCA 498, [12] (Gordon J) (‘ASIC v Letten’); Re Docklands Chiropractic Clinic Pty Ltd [2020] VSC 364 [21] (Hetyey AsJ) (‘Re Docklands Chiropractic’); Re JSSP Holdings Pty Ltd [2021] VSC 33 [13] (Hetyey AsJ) (‘Re JSSP Holdings’).
[5]ASIC v Letten [2011] FCA 498, [14] (Gordon J).
In Re JSSP Holdings Pty Ltd,[6] I identified a number of matters relevant to the question of whether a just and equitable winding up order should be made as follows:
[6][2021] VSC 33 [14].
(a) a failure of the main object of the company’s formation;[7]
[7]Re Tivoli Freeholds Ltd [1972] VR 445.
(b) a deadlock in the management of the company;[8]
[8]Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426; Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394; Booker v You Run the Business Pty Ltd [2008] FCA 1762.
(c) a breakdown in the relationship between the shareholders;[9]
[9]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.
(d)a lack of confidence in the conduct and management of the affairs of the company;[10]
(e)where there has been fraud, misconduct or oppression in relation to the affairs of the company;[11]
(f)serious concerns about the company’s compliance with its statutory obligations, [12] including the filing of tax returns;[13]
(g)where there have been breaches of the Corporations Act, including breaches of directors’ duties or an inadequacy of accounts or recordkeeping;[14]
(h)questions of commercial morality in the conduct of the company’s affairs;[15] and
(i) a risk to the public interest that warrants protection.[16]
[10]Loch v John Blackwood Ltd [1924] AC 783, 788; Australian Securities and Investments Commission (ASIC) v ABC Fund Managers (2001) 39 ACSR 443, 469 [119] (Warren J) (‘ASIC v ABC Fund’).
[11]Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148 [11], [13] (Barrett J); Macquarie University v Macquarie University Union Ltd (No 2) [2007] FCA 844. See also B H McPherson, ‘Winding Up on the “Just and Equitable” Ground’ (1964) 27 Modern Law Review 282, 298-9.
[12]Australian Securities and Investments Commission (ASIC) v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; Australian Securities and Investments Commission (ASIC) v Drury Management Pty Ltd [2004] QSC 068.
[13]Entwisle v Minken Pty Ltd (recs and mgrs apptd) (2013) 97 ACSR 361, 364 (Elliott J).
[14]Australian Securities and Investments Commission (ASIC) v AS Nominees Limited (1995) 62 FCR 504, 532-3 (Finn J) (‘ASIC v AS Nominees’); ASIC v ABC Fund (2001) 39 ACSR 443, 469 (Warren J); Australian Securities and Investments Commission (ASIC) v International Unity Insurance Pty Ltd [2004] FCA 1059 [137], [140]-[142] (Lander J).
[15]Deputy Commissioner of Taxation (Cth) v Casualife Furniture International Pty Ltd (2004) 9 VR 549, 580 [494]‑[496], 582 [504] (Hansen J).
[16]ASIC v ABC Fund (2001) 39 ACSR 443.
In determining the relative justice of a winding up, the court will balance the respective interests of all parties potentially affected by it,[17] together with the broader public interest.[18]
[17]Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193, 201; Re Docklands Chiropractic [37]-[42] (Hetyey AsJ); Re JSSP Holdings [15] (Hetyey AsJ).
[18]Re Walter L Jacob & Co Ltd (1988) 5 BCC 244, 251 (Nicholls LJ); ASIC v AS Nominees Ltd (1995) 62 FCR 504, 530-1 (Finn J); Re JSSP Holdings [16].
In the exercise of its discretion, the court will also have regard to the financial position of the company and the availability of any alternative remedy. As Sifris J (as his Honour then was) said in Peter Extons & Anor v Extons Pty Ltd & Ors:[19]
Courts are ‘extremely reluctant to wind up a solvent company’ [International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc [No 2] (1994) 13 ACSR 368, 372 (Young J)]. As the Court of Appeal has observed, ‘[i]t is well accepted that the winding up of a solvent and flourishing company should be a last resort’ [French v Smith [2004] VSCA 207 at [122] per Charles and Chernov JJA and Harper AJA; Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 307 at [21] per Black J]. Courts will consider whether any other relief would be preferable to a winding up order [Turner v Ulicorp Pty Ltd [2007] NSWSC 206 at [24] per Barrett J; Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 at [67] per Hansen J].[20]
[19](2017) 53 VR 520.
[20]Ibid 545 [89]. See also Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247.
Even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, s 467(4) of the Corporations Act makes clear that the court must consider whether an alternative and less drastic form of relief is available.[21]
[21]Re Wyndham Park Estate Pty Ltd [2019] VSC 92, [40] (Sifris J, as his Honour then was).
Evidence and reasoning
It is apparent on the evidence that one or more of the factual circumstances identified in Ebrahimi are present here. The Company was incorporated on the basis of a personal relationship between Mr Chan and Mr Mariani and structured on the basis that it required mutual cooperation and trust between them. The arrangement between the parties entailed each of the directors (representing their respective shareholding interests) participating full-time in the conduct of the Business and sharing the profits equally. Prior to his departure, Mr Chan took a customer service and administration role within the Business, whereas Mr Mariani performed a more hands-on role including the delivery of critical equipment to customers. Initially, the parties worked well together, although any mutual cooperation has since eroded.
Given these threshold circumstances are present, the Court’s jurisdiction to wind up the Companies under s 461(1)(k) is engaged. Having regard to the underlying factual matrix, the following matters suggest a winding up order should be made in the exercise of the Court’s discretion.
First, the relationship between Mr Chan and Mr Mariani, as directors and representatives of their individual shareholding interests in the Companies, has plainly and irretrievably broken down. Mr Chan deposes that towards the end of 2019, Mr Mariani became unreliable in attending work. The parties then began having regular arguments about the management of the Business which culminated in shouting and strong language and resulted in them actively avoiding each other. By January 2020, Mr Mariani was failing to attend work for weeks at a time and would not respond to telephone calls or emails. There was difficulty in fulfilling jobs for clients. Communication between the parties became very strained. As a consequence, the management of the Business became dysfunctional. This, in turn, seriously impacted upon Mr Chan’s health and he was diagnosed with an anxiety disorder.
Further, the parties’ original objective that they would each be involved in the management and day-to-day operation of the Business has obviously failed. As already noted, Mr Chan ultimately formed the view that he needed to leave the Business. Despite his departure, he continues to have personal exposure to guarantees arising from vendor finance taken out against equipment and machinery owned by the Assets Company and, as a director, has a responsibility for the Companies’ outstanding taxation obligations (referred to further below).
Secondly, there is an obvious lack of confidence in the conduct of the affairs of the Companies. Mr Chan has given uncontradicted evidence that Mr Mariani began to regularly make withdrawals from the Company’s account for personal expenses, without consulting Mr Chan. Whilst they were not significant individual withdrawals, they accumulated over time. For example, it appears that for the financial year ended 30 June 2021, approximately $30,000 of the Company’s funds was spent by Mr Mariani on fast food and a further $100,000 was withdrawn by Mr Mariani from the Company’s bank account for other personal use. On 12 July 2021, Mr Mariani withdrew $5,000 from the Company which was apparently applied towards the legal costs of his family law proceedings.
Whilst there was a profit in the Company of almost $175,000 as at 30 June 2021, most of this has been taken by Mr Mariani with only approximately $45,000 remaining for distribution and/or payment of expenses. As a consequence, despite the arrangement between Mr Mariani and Mr Chan to split the profits of the Business equally as between CFG and MFG, Mr Mariani and MFG have taken more than their full share of the profits in a financial year where Mr Mariani’s participation in the Business has been sporadic. The extent to which any of these amounts taken by Mr Mariani have been repaid is unclear on the evidence. The conduct of Mr Mariani appears to be oppressive in nature and is contrary to the interests of CFG as a member. A liquidator would be ideally placed to investigate certain transactions involving the Companies, including whether any of the amounts withdrawn by Mr Mariani should be recovered.
At the hearing, the plaintiffs tendered a bundle of recent emails passing between the Companies and an insurance broker concerning the payment of insurance premiums to National Transport Insurance (‘NTI’) in respect of the Companies and the currency of that insurance.[22] The emails suggest, and Mr Chan confirmed by way of supplementary oral evidence, that following his departure from the Business there were delays by the Companies (and specifically by Mr Mariani and his partner) in making payment of the insurance premiums to NTI which resulted in the relevant policies being cancelled due to non-payment as at 29 December 2021. Mr Chan gave oral evidence that the insurance policies related to the machinery and equipment held by the Assets Company which had been insured for various risks, including damage and theft. According to Mr Chan’s understanding, the policies also included public liability insurance. The cancellation of the Companies’ insurance policies is a matter of significant concern. It exposes the Companies to losses in the event of damage or theft of Business equipment, some of which is still subject to vendor finance. But more importantly, it gives rise to a risk to the public interest, namely the safety of the public who may not have the benefit of a public liability insurance policy in the event of an accident. That risk is self-evident given the nature of the Business and the type and size of equipment it leases out. The safety of the community is a paramount public interest which may be protected by the making of a winding up order on the just and equitable ground.[23] There is no evidence that Mr Mariani has now organised the reinstatement of the relevant insurance policies, but even if that has belatedly occurred, the fact that the policies were allowed to lapse in the first place does not inspire confidence in the ability of Mr Mariani to properly manage the affairs of the Companies in the future.
[22]See MFI-1 bundle of emails between 17 August 2021 and 29 December 2021 concerning National Transport Insurance in respect of the second and third defendants.
[23]Re JSSP Holdings [61] (Hetyey AsJ).
Thirdly, the Court holds real concerns about the failure of the Companies to abide by their statutory obligations, particularly in relation to the payment of tax. The Company currently owes the Australian Taxation Office (‘ATO’) approximately $137,000 and the Assets Company owes the ATO around $60,000.[24] These debts include amounts owing from the financial year ending 30 June 2019, together with more recent liabilities. Mr Chan says that as a result of the breakdown in the relationship between himself and Mr Mariani, the parties have been unable to agree on a process for meeting the obligations to the ATO. The non-compliance with the Companies’ obligations to pay tax is exposing the Companies and both of the directors to adverse consequences which may be imposed by the ATO, including interest and penalties.
[24]At the hearing, the plaintiffs tendered a document confirming the amounts owing by the Companies to the ATO – see MFI-2 – email dated 4 November 2021 from Fox Partners to the first plaintiff concerning the taxation obligations of the second and third defendants.
Having regard to the respective interests of all parties potentially affected by a winding up order, it is apparent that such an order is in the interests of Mr Chan who, despite no longer being involved in the Business, remains a director of the Companies and faces potential exposure in respect of their increasing taxation liabilities and the guarantees in relation to vendor finance for equipment. By contrast, Mr Mariani has failed to adduce any countervailing evidence to illustrate the extent to which his interests may be adversely affected by a winding up order. Given the risk to community safety arising from the lapse of insurance policies held by the Business, the winding up of the Companies appears also to be in the public interest.
As previously noted, a winding up order is a remedy of last resort and will be declined in the case of an obviously solvent or flourishing company. However, I am unconvinced that the Companies in this case necessarily fit that description. Very little income was received into the Company’s bank account (the only account operated by the Business) throughout November and December 2021, which can be contrasted with an average monthly trading profit of approximately $40,000 for the financial year ended 30 June 2021. The bank statements also show a large number of automated payments to creditors throughout November and December 2021 which were dishonoured due to insufficient funds in the bank account. From at least 19 November 2021, the Company was periodically overdrawn in its bank account and, as at 13 December 2021, it was overdrawn in the sum of -$629. This not only suggests an inability of the Companies to meet the day-to-day costs of the Business, but also an incapacity of the Companies to meet their significant and outstanding taxation obligations.
The financial statements for the Companies in respect of the 2020 and 2021 financial years, which are only in draft and are unsigned, do not paint an especially positive picture. The income statement for the Company shows a nominal profit of approximately $175,000 as at 30 June 2021, however, as previously explained, the majority of this money has already been appropriated by Mr Mariani and applied towards his personal expenses. Whilst the Company appears to have a nominal surplus of assets as at 30 June 2021, almost $60,000 of its assets rely upon the recoverability of amounts relating to ‘Beneficiaries Accounts’[25] in the sum of approximately $374,000 which I take to refer to loans to the shareholders and unit holders of the Trust. The balance sheet also records ‘Beneficiaries Drawings’[26] in the sum of around $241,000. The recoverability of these amounts cannot be assumed. When the amounts for ‘Beneficiaries Accounts’ and ‘Beneficiaries Drawings’ are excluded from the Company’s balance sheet, the Company appears to have a net asset deficiency of around -$131,000. In addition to significant amounts owing to the ATO, there is also evidence that the Company owes a number of other trade creditors outstanding debts which have resulted in demands for payment. These debts include amounts owing to fuel card providers, a debt collection agency, and lubrication and gas suppliers.
[25]Which are treated in the draft accounts as negative non-current liabilities.
[26]Which are treated in the draft accounts as current liabilities.
As regards the Assets Company, although its draft financial statements show net assets of almost $90,000 as at 30 June 2021, the $60,000 debt to the ATO has not been included in its liabilities. Further, the assets of the Assets Company comprise machinery and equipment which would need to be sold in order to pay the ATO and other creditors. There is no certainty that this could occur quickly. Again, the net asset position of the Assets Company turns on the treatment and recoverability of director loans worth almost $64,000. When the director loans are excluded from the balance sheet, the asset position of this entity is significantly worse off and would not cover the ATO liability.
Having regard to the above, there is nothing about the financial position of the Companies which would militate against the exercise of the Court’s discretion to order a winding up on the just and equitable ground.
Section 467(4) of the Corporations Act makes clear that even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, it must consider whether some ‘other remedy’ is available and whether an applicant is acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy. In this case, I am satisfied that there is no less drastic remedy or order available which is appropriate in the circumstances. Despite protracted discussions between the parties, the negotiations have been exhausted and the parties have been simply unable to agree on a plan for the buying out of Mr Chan’s interest in the Business. Given the history of failed negotiations, the Court has little confidence the parties will be able to resolve the dispute even if further time was allowed. But more critically, there is no evidence of any proposal by Mr Mariani concerning a potential buy-out of Mr Chan’s interests. It would be inappropriate for the Court to adjourn or dismiss the proceeding and permit the Companies to remain in a state of limbo. The only viable solution is to wind the Companies up.
Given my conclusion, it is unnecessary to further consider the plaintiffs’ alternative ground for winding up under s 459A of the Corporations Act (and the need to grant leave to bring such an application under s 459P(2) of the legislation). Nor is it necessary for the Court to consider whether the Court’s jurisdiction under s 232 has been enlivened and whether an order should be made under s 233(h) for the appointment of a receiver and manager to the assets of the Companies. Whilst the appointment of a receiver and manager is no doubt a less drastic option than placing the Companies into liquidation, even if the Court’s jurisdiction to appoint a receiver and manager was engaged, it is questionable whether such an order would be appropriate. That is because of uncertainty as to whether the Business remains viable and the absence of insurance policies which might otherwise operate to protect a receiver and manager from exposure to potential claims.
Conclusion
I have determined, in the exercise of my discretion, to wind up the Companies on the basis that it is just and equitable to do so. Although there has been an approach taken in a number of earlier cases[27] where the Court would refrain from immediately pronouncing the Court’s orders to enable the parties to explore the possibility of a commercially acceptable settlement, I am not satisfied that such an approach is desirable in this case. As already explained, there is no current proposal for a buy-out before the Court. Given the absence of business insurance held by the Companies, I also accept the submission put by the plaintiffs’ counsel that there is sense in appointing a liquidator sooner rather than later so as to protect the community.
[27]See In re Straw Products Pty Ltd [1942] VLR 139; Re Wondoflex Textiles Pty Ltd [1951] VLR 458 and also the obiter comments of Young JA in Tomanovic & Anor v Global Mortgage Equity Corporation Pty Ltd & Anor (2011) 288 ALR 310, 382. See also Re TM Fresh Pty Ltd [2019] VSC 383 [49] (Hetyey JR) where this approach was also taken. Cf White Family No. 1 Pty Ltd v Organic Brands Pty Ltd & Anor [2011] VSC 247 in which Gardiner AsJ declined to postpone the making of a winding up order because his Honour was not confident the parties were capable of resolving the dispute.
I will order that pursuant to s 461(1)(k) of the Corporations Act, the first and second defendants be wound up and that Stephen John Michell be appointed liquidator for the purposes of the winding up. I will hear the parties on the question of costs.
SCHEDULE OF PARTIES
| S ECI 2021 02368 | |
| BETWEEN: | |
| TERRY CHAN | First Plaintiff |
| CHAN FAMILY GROUP PTY LTD | Second Plaintiff |
| - v - | |
| DIG-ITI HIRE PTY LTD (ACN 614 263 320) | First Defendant |
| DIG-ITI HIRE ASSETS PTY LTD (ACN 615 268 267) | Second Defendant |
| LUCA MARIANI | Third Defendant |