Re Dwyer Durack (A Firm)

[2024] WASC 77

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE DWYER DURACK (A FIRM); EX PARTE MERVYN JONATHAN KITAY as administrator of DWYERS LEGAL PTY LTD (ADMINISTRATOR APPOINTED) [2024] WASC 77

CORAM:   HILL J

HEARD:   1 MARCH 2024

DELIVERED          :   1 MARCH 2024

PUBLISHED           :   21 MARCH 2024

FILE NO/S:   COR 21 of 2024

MATTER:   IN THE MATTER OF DWYER DURACK (A FIRM)

EX PARTE

MERVYN JONATHAN KITAY as administrator of DYWERS LEGAL PTY LTD (ADMINISTRATOR APPOINTED)

Plaintiff

Catchwords:

Corporations - Insolvency - External administration - Application by administrator for directions under s 90-15 of sch 2, Corporations Act 2001 (Cth) - Whether administrator is entitled to indemnity secured by equitable lien against partnership assets of companies in administration carrying on business in partnership - Turns on own facts

Legislation:

Corporations Act 2001 (Cth) sch 2 s 90-15

Result:

Directions given

Category:    B

Representation:

Counsel:

Plaintiff : B S Panov

Solicitors:

Plaintiff : Mendelawitz Morton Commercial Lawyers

Cases referred to in decision:

Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409

Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674

Re GGA Lifestyle Pty Ltd (admin appt'd); ex parte Woodhouse [2019] WASC 167

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

1. This application concerns the legal partnership that previously traded as Dwyer Durack (Partnership).

2. On 19 February 2024, the plaintiff filed an originating process seeking orders under s 90‑15 of the Insolvency Practice Schedule (Corporations) (sch 2 to the Corporations Act 2001 (Cth)) (IPS) (the Act) in relation to the conduct of the voluntary administration of Dwyers Legal Pty Ltd (Administrator Appointed) (ACN 119 804 714) (Company).

3. The originating process came on for hearing before me on an urgent basis on 23 February 2024.  At the time, I raised a number of matters with counsel who appeared on behalf of the plaintiff.  Counsel for the plaintiff requested an adjournment of the originating process for seven days to enable consideration to be given to these matters.

4. At today's hearing, counsel for the plaintiff only sought an order that the plaintiff, as administrator of the Company, would be acting properly and is justified in proceeding to conduct the voluntary administration of the Partnership on the basis that he is entitled to an indemnity secured by equitable lien against the assets of the Partnership (including the proceeds and ongoing proceeds of realisation of those assets) for all costs and expenses, including remuneration, reasonably incurred in caring for, preserving and realising the assets of the Partnership.

5. In support of the application, the plaintiff relied on two affidavits: an affidavit of Mervyn Jonathan Kitay filed 19 February 2024 and an affidavit of service of Boika Simeva Panov filed 22 February 2024.  Counsel for the plaintiff confirmed the originating process and affidavit of Mr Kitay had been served on the Australian Securities and Investments Commission (ASIC).

Factual background

1. By trust deeds dated 22 May 2006 and 30 September 2011 respectively, the MLK Practice Trust (MLK Trust) and the PLF Practice Trust (PLF Trust) (collectively, the Trusts) were established. The Company was appointed as the trustee of both trusts (Trustee).

2. Mr Kitay believes that the Partnership comprised of the Company as trustee for the MLK Practice Trust and PLF Practice Trust as equal partners.

3. Mr Kitay's evidence is that the Company did not trade or hold any assets other than in its capacity as Trustee and that the Trusts did not trade or hold any assets, other than their respective interests in the Partnership.  His evidence is that there is some added complexity in relation to the administration of the Company given the complex nature of the Partnership, as well as the fact that the Partnership operated a legal practice.

4. Each of the Trust Deeds includes a clause entitling the Company to be indemnified out of the assets of the Trust for any liabilities incurred in the performance of the trust, with the exception of fraud or wilful default.[1]

   [1] Affidavit of Mervyn Jonathan Kitay filed 19 February 2024, 'MK-6' cl 10.6; 'MK-25' cl 8.

5. On 2 February 2024, the plaintiff was appointed as the administrator of the Company pursuant to s 436A of the Act.  On 8 February 2024, the Legal Practice Board appointed managers to the Partnership.[2]

   [2] Affidavit of Mervyn Jonathan Kitay filed 19 February 2024, 'MK-5'.

6. Mr Kitay's evidence is that he intends to seek potential buyers for the business of the partnership and will also explore the possibility of the execution of a deed of company arrangement.

Legal principles

1. Section 90-15(1) of the IPS is in wide terms and allows the court to make such orders as it thinks fit in relation to the external administration of a company.

2. The approach of the court on an application for directions by an external administrator is well‑established.  As Goldberg J stated in Re Ansett Australia Ltd (No 3):[3]

   There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, that decision.  It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised.

   [3] Re Ansett Australia Ltd (No 3)[2002] FCA 90; (2002) 115 FCR 409 [65].

3. Subject to the liquidator making full and fair disclosure of the material facts, the effect of a direction is to protect the liquidator from claims that they have acted unreasonably, inappropriately, or in breach of their duties; it does not determine rights and liabilities that arise out of the proposed transaction.[4]  Put another way, the order of the court sanctions a proposed course of conduct by the liquidator.[5]

   [4] Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 - 680.

   [5] Re GB Nathan & Co Pty Ltd (in liq) 679 ‑ 680.

4. As was noted by Vaughan J in Re GGA Lifestyle Pty Ltd (admin apptd); ex parte Woodhouse:[6]

   A direction that an external administrator may properly and justifiably carry out a proposed course of conduct is used to signify that it is appropriate that he or she do so.  It is a conventional form of direction in common use.  It is implicit in such an order that the court is approving the proposed conduct.  Often a proposed direction in this form will raise an issue of propriety or reasonableness.  Directions are available and appropriate on that basis. (citations omitted)

   [6] Re GGA Lifestyle Pty Ltd (admin appt'd); ex parte Woodhouse [2019] WASC 167 [23].

Disposition

1. I accept that the plaintiff has standing to bring the application.  I am also satisfied that the application, together with the affidavit of Mr Kitay, has been served on ASIC and that ASIC has been given a reasonable opportunity to appear but has not done so.

2. For the following reasons, I am satisfied it is appropriate to give the direction sought by the plaintiff that they would be justified and acting properly in conducting the voluntary administration on a particular basis. 

3. I accept that the issue raised by this is one that calls for the exercise of a legal judgment which will be of utility to the conduct of the administration.  In establishing by a direction of the court that the plaintiff may properly and justifiably conduct the administration of the Company on this basis, the plaintiff will have additional certainty as to his position and in considering options for the sale of the business of the Partnership or the execution of a deed of company arrangement.  In that respect, I accept that the order may assist in achieving the object of Part 5.3A of the Act, as set out in s 435A of the Act.

4. In Re GGA Lifestyle Pty Ltd, Vaughan J summarised the relevant authorities considering whether voluntary administrators have a right of indemnity for the costs of caring for, preserving and realising assets, secured by an equitable lien.  In that case, his Honour held they were.[7]  I agree with his Honour's conclusion.

   [7] Re GGA Lifestyle Pty Ltd [53] - [56].

5. I accept that the steps reasonably taken and costs and expenses reasonably incurred by the plaintiff as administrator in the care, preservation and realisation of the Partnership property will benefit the Partnership creditors and the Company as trustee of the partners in the Partnership.  It is just that the plaintiff's costs and expenses, including remuneration, of doing so are recouped from the Partnership property in priority to the claims of the Partnership creditors and the partners themselves.  To the extent that they are reasonably incurred, expenses incurred for the care, preservation and realisation of the Partnership property should be borne by that property.

Conclusion

1. For these reasons, orders will be made in terms of 'Annexure A'.

'Annexure A'

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JN

Associate to the Honourable Justice Hill

21 MARCH 2024