Re Essendon Apartment Developments Pty Ltd (in liquidation) (No 1)

[2013] VSC 209

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST

No. S CI 00720 2013

IN THE MATTER OF an application by RICHARD TRYGVE ROHRT (in his capacity as liquidator of Essendon Apartment Developments Pty Ltd (in liquidation)

RICHARD TRYGVE ROHRT (in his capacity as liquidator of Essendon Apartment Developments Pty Ltd (in liquidation)	Plaintiff
v
DANIELLE LEIGH McGUIRE	Defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	20 February 2013
DATE OF RULING:	20 February 2013
CASE MAY BE CITED AS:	Re Essendon Apartment Developments Pty Ltd (in liquidation) (No 1)
MEDIUM NEUTRAL CITATION:	[2013] VSC 209

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CORPORATIONS LAW – Application by liquidator for directions – directions sought regarding contact of sale of land – direction sought not merely in a commercial or business matter – direction given in amended form – Corporations Act 2001, s 479(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M.A.J. McKillop	Partners Legal
For Ms D. McGuire and Mr C. Kanati	Mr E.W. Alstergren SC with Mr P.A. Clark	D.E. Phillips Solicitor
For the First Mortgagee	Mr G. Potenza	Cornwall Stodart
For the Second Mortgagee and Mr A. Iskaff	Mr T. Zervas	Stonnington & Zervas Lawyers

HIS HONOUR:

1. I propose to give my reasons in this matter and my decision ex tempore.

1. Mr Richard Rohrt, the plaintiff, is the liquidator of Essendon Apartment Developments Pty Ltd (Essendon).  Essendon was wound up in insolvency on 5 December 2012.  It has a significant deficiency of liabilities over assets of more than $2m.  Essendon is the registered proprietor of a development site for residential apartments at 1048 to 1060 Mt Alexander Road, Essendon.  The land is Essendon’s only asset.  Essendon is not in a position to develop it.

1. Mr Rohrt seeks a direction under s 479(3) of the Corporations Act 2001 that he would be justified entering a contract to sell the land to a third party, Mr Antonio Iskaff. He says the sale will achieve a much higher price for the land than is expected at a mortgage sale and will also deliver the possibility of a significant payment to unsecured creditors.

1. Mr Rohrt says that the application is being made because he has come under attack from interests associated with the shareholders of Essendon in relation to his handling of the sale.  It has been suggested that he is in breach of his duties as a liquidator.

1. In particular, the allegation is being made on behalf of Danielle Lee McGuire and Mr Kanati, who (particularly Ms McGuire) have a longstanding association with the development of this property in Essendon.

1. If the sale by Mr Rohrt does not proceed, then the land will be sold by the first mortgagee at auction, and that has been confirmed today by the mortgagee (who is represented by Mr Potenza).  Mr Potenza has also sworn and filed an affidavit, in which he says he is instructed to consent to the sale proposed sale by the plaintiff.

1. Mr Rohrt has had regard to a valuation of the land obtained by the prior receiver.  The receiver had a valuation from Charter Valuation(a property valuer) of $4m in a sale in the ordinary course and $3.5m in a forced sale.  The liquidator has obtained valuations that a price of $3.5m might be achieved in a sale in the ordinary course and a reduced price received in a forced sale.

1. The land is heavily encumbered.  It has three registered mortgages.  There are also 14 caveats on title.  The First Mortgagee of the land took possession by action of the Sheriff on 31 January 2013 and remains in possession.  There have been two offers for the purchase of the property received by the liquidator, and Mr Rohrt identified two interested parties whom he was negotiating with in attempt to sell the land rather than see the land sold by the First Mortgagee on a forced sale.

1. Mr Rohrt has given evidence that he does not have the resources or the time available to market the property in the usual way in view of the little moneys he has got and the fact that the First Mortgagee has indicated that, unless there is a sale forthcoming in the near future, it will sell the property itself.

1. The first offer that the liquidator deals with is one from Mr Antonio Iskaff, who he says was an unsecured lender to Essendon who helped finance the acquisition of the land.  He also says he has entered into a contract to purchase the land on 15 May 2012 and that he has allegedly paid a deposit.  I will come back to this issue of the contract of sale shortly.

1. Mr Rohrt has determined that it is in the interests of creditors to accept a further offer from Mr Antonio Iskaff to purchase the land.  He says that the offer, if completed, will pay all or some of the claims of the mortgagees.  It would also leave a fund of $500,000 from the future development process of the land available to unsecured creditors.  As to the competing offer from Ms McGuire – the liquidator acknowledges that she claims to be a beneficial owner of the shares in the company.  He says that her offer in most respects is similar or superior to the offer of Mr Iskaff.

1. Mr Rohrt, however, has determined that Ms McGuire is not financially in a position to complete a contract of sale if he accepts her offer.  But Mr Rohrt is also not satisfied that Ms McGuire or her associates are in other respects qualified buyers.  The main issues that Mr Rohrt has experienced in considering Ms McGuire’s offers are as follows:

(a)When invited to make an offer, Ms McGuire was asked to produce the whole, or substantially the whole of her offer price and pay it to his interest account, and she was unable to produce any funds.

(b)She or her associates claimed on two occasions that her associate, Mr Snowden, had made an EFT payment to Mr Rohrt’s trust account and no such funds appeared.

(c)A further $200,000 was produced by way of cheque by Mr Snowden, drawn by Cambridge Aged Care.  When banked, the cheque bounced.

(d)Mr Rohrt’s investigations have revealed that the offer of finance that was produced to demonstrate bona fides to obtain completion finance appears not to be genuine.

(e)It further appears that Mr Snowden is a former bankrupt and also facing pending serious financial dishonesty criminal charges and appears to be involved with (at least from media reports) the recent collapse of Cambridge Aged Care facilities.  As to Ms McGuire, he says she has convictions relating to drug offences including trafficking.

1. Now, I will return to those facts in a moment, because it was put by Mr Alstergren on behalf of Ms McGuire that there is an explanation for those facts and that the true state of affairs is significantly different.  The liquidator referred to correspondence between himself and Ms McGuire’s solicitors, and says that in substance she has claimed that Mr Rohrt has not offered her or her associates an opportunity to make an offer to purchase the land.

1. Ms McGuire claims that her offer has been rejected without foundation.  She claims that the deposit moneys allegedly paid by Mr Iskaff prior to his appointment were not in fact deposit payments at all.  It is claimed that Iskaff’s contract signed at 15 May 2012 is backdated or a fraud.  All those matters have been ventilated before me today, in addition to the affidavit evidence (which I will address in a moment).  Mr Rohrt rejects these attacks.  He says that he has offered Ms McGuire an opportunity to make an offer, but conditionally he required a payment into his trust account of all or a substantial part of the purchase price, and Ms McGuire was unable to produce the funds.

1. Mr Rohrt says that he rejected the offer because he was not satisfied about the financial ability of Ms McGuire to complete, or the background of her and her associates.  Mr Rohrt has investigated the circumstances of the 15 May 2012 contract and he has satisfied himself that the deposit was paid and that the contract does not appear to be backdated.  Mr Iskaff, through his company Iris Apartments, has acquired the second mortgage and supports the application.

1. Before I come to deal with what Ms McGuire has put before me today, I should clarify what my function is.  On an application for directions, the court is not entitled to give directions on solely commercial decisions made by a liquidator.  Commercial decisions are solely for the liquidator to make.  The Court is only entitled to give directions where it is satisfied that there is some legal issue or principle at stake.

1. This position was set out by Goldberg Jin Re Ansett Australia Ltd (No 3).[1]  His Honour said there:

This review of the authorities satisfies me that the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. 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, the 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. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator’s or administrator’s unease. There must be an issue calling for the exercise of legal judgment.[2]

[1] (2002) 115 FCR 409.

[2]Ibid, [65].

1. But for the suggestion by Ms McGuire that the liquidator would be in breach of his duty in selling the Essendon land to Mr Iskaff, there would be no warrant for the court to give directions, as there would be no legal issue before the Court.  So long as the liquidator is acting reasonably and with propriety, there is no warrant for the Court to second-guess whether the liquidator should accept one offer or another for the sale of the land.

1. The liquidator has doubts about whether Ms McGuire is an appropriate buyer and would be able to complete the contract.  Secondly, the liquidator has very few resources at his disposal, due to the fact that the company has only one asset at the moment (that is, the land).  The liquidator has the pressure of the First Mortgagee.  He is faced with an allegation by Mr Iskaff that he purchased the property under a contract of sale dated 15 May 2012.  He has made a commercial decision that – taking all those matters into account – it is in the best interests of the company to accept Mr Iskaff’s offer.  There is no suggestion that Mr Rohrt is acting with any impropriety.

1. It is submitted, however, by Ms McGuire that Mr Rohrt is acting unreasonably.  To the extent that it is suggested that his unreasonableness amounts to acting improperly or illegally, that is the issue which I am to decide.  Any decision I make is not as to what is in the best interests of the company - that is not my job, that is a decision of the liquidators.

1. Ms McGuire says in her affidavit that she in good faith relied on Mr Snowden to deposit monies with the liquidator and that she was not aware of the failed transfers until after the event and the cheque bouncing.  She feels that she had been let down by associates and let down by Mr Snowden, and that was not a mistake of her doing, which I accept.  She has since deposited $200,000 in her solicitors’ trust account to indicate that she is acting in good faith in making the offer that she does.  She has also put forward further evidence to support her contention that she has the financial resources and ability to complete the transaction.

1. Ms McGuire has also raised queries about the validity of the sale to Mr Iskaff on 15 May 2012.  She has also raised issues about the contract of sale of the 15th of May.  That issue is important to Ms McGuire and she has suspicions about it.  She refers to the fact that two days after the purported sale, Ms Shaw, the alleged defalcating director, appointed Mr Iskaff a director of the company, and also that a deed of trust that Mr Zervas drafted was executed which appointed the company as trustee and under the terms of the trust 60 per cent of the units were to be held by Mr Iskaff and 40 per cent by Ms Shaw, and under the terms of the trust all financial and other decisions was to be made by majority of the unit holders.

1. Ms McGuire also points to the fact that it was only after that trust document was executed that the payments were made to the First Mortgagee on 18 May, 23 May, 4 June and 26 June,  and even 10 July, none of which seem to be a deposit because they exceeded significantly what was required as a deposit.

1. On the other hand, Mr Zervas has now produced an email trail which he says - and I am not expressing a view one way or the other – confirms that, in fact, a contract of sale for the land was signed on 15 May 2012.

1. The liquidator was asked by me this morning how it was that he was offering the property for sale when it had already been sold to Mr Iskaff.  He said that there were doubts about that sale.

1. The effect of a direction by me will be to exempt or excuse the liquidator from any liability that might arise from the sale to Mr Iskaff.  One of the other aspects of a direction will be that it provides some guidance to the liquidator about a difficult legal issue that he has to address.

1. If I do give the direction, what is implicit in the direction is that Mr Rohrt would not be breaching his duty as the liquidator in selling the land for the slightly lower price, if he genuinely believes that that is in the best interests of the liquidation.  His affidavit says he does genuinely believe that and I accept that.

1. Ms McGuire may ask why such a direction should be made.  The Court has heard evidence that she has made a higher offer.  It has heard her explanations as to why the initial payments were not made.  It has now heard evidence about her good faith in putting $200,000 with her instructing solicitor.  It has got evidence that she has got shares in 2up.com.  It has got evidence that she has finance available.

1. All these things were open to the liquidator to consider.  I am satisfied that, in carrying out his duties, the liquidator has had regard to those matters.

1. For those reasons, I will make the direction sought.  I will not make any direction at this stage that it is proper for the liquidator to enter into a contract which has been put forward by both Ms McGuire and Mr Iskaff that certain moneys be set aside to pay the unsecured creditors.  That may or may not be done.  It is a novel situation, I have not come across it before, and it may require some further thought by the solicitors.

1. It was something put forward by both sides so, therefore, I do not think that that is a reason for preferring one bid over the other.  It is something that both Mr Iskaff and Ms McGuire have sought to address, obviously for the best of reasons.  It is an open question as to whether a liquidator, who has got an asset, can deal with it in that way.  If the mortgagees agree, that will solve the whole problem.

1. For those reasons I propose to make the directions sought by the liquidator, save for endorsing the payment to the unsecured creditors (unless the secured creditors agree).