Re Frond Pty Ltd; P. Aker Flowerbulbs Pty Ltd v Livadaras
[2004] VSC 142
•28 April 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 5418 of 2004
| IN THE MATTER OF Frond Pty Ltd (in liquidation) | |
| P. AKER FLOWERBULBS PTY LTD & ORS | Plaintiff |
| V | |
| SPIROS LIVADARAS & ORS | Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 April 2004 | |
DATE OF JUDGMENT: | 28 April 2004 | |
CASE MAY BE CITED AS: | Re Frond Pty Ltd; P. Aker Flowerbulbs Pty Ltd & ors v Spiros Livadaras & ors | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 142 | |
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CORPORATIONS – creditors’ voluntary winding up – appointment of liquidators where person presiding at creditors’ meeting failed to exercise casting vote for an alternative liquidator and exercised casting vote in favour of liquidators nominated by members – application by creditor pursuant to ss.600B and 600C of the Corporations Act 2001 (Cth) to set aside resolution appointing liquidators and/or to give effect to resolution appointing alternative liquidator – matters to be taken into account
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. W. McGarvie | Ann E Gambetta & Associates |
| For the First Defendant | Mr S. Bond | Schetzer Brott & Appel |
| For the Second and Third Defendants | Mr R. S. Randall | Thomas Egan |
HIS HONOUR:
By originating process dated 7 April 2004, the plaintiffs, who are creditors of Frond Pty Ltd (in liquidation) (“Frond”), seek an order pursuant to s.600C (alternatively s.600B) of the Corporations Act 2001 (Cth) (“the Act”) in relation to resolutions which were put at a creditors’ meeting of Frond. The plaintiffs wish to achieve the replacement of the present liquidators (being the second defendant (“Mr Yeo”) and the third defendant (“Mr Rambaldi”)) their own nominee (“Mr Rathner”).
On 25 March 2004, pursuant to s.495 of the Act, the members of Frond in general meeting resolved to appoint Mr Yeo and Mr Rambaldi as liquidators for the purpose of the winding up of Frond. The directors of Frond had not made a declaration of solvency pursuant to s.494 of the Act. Accordingly, the winding up had to be a creditors’ voluntary winding up.[1] A meeting of creditors of Frond was held on the same day following the members’ meeting. This meeting had been convened by a notice to creditors dated 16 March 2004.
[1]See s.9 of the Act for the definitions of “members’ voluntary winding up” and “creditors’ voluntary winding up”.
The papers sent to the creditors in relation to the creditors’ meeting comprised a circular to creditors on the letterhead of Pitcher Partners, Accountants, signed by Mr Yeo as a partner, the notice of meeting, a summary of affairs of Frond and a list of creditors. The agenda for the creditors’ meeting included an item “To confirm the appointment of Andrew Reginald Yeo and Gess Michael Rambaldi as Joint & Several Liquidators or to nominate another person as Liquidator in his place.” The agenda also included an item for the appointment of a Committee of Inspection. The accompanying summary of assets and liabilities of Frond showed “nil” assets and unsecured creditors to the value of $270,942.12. The list of names and addresses of creditors contained 27 names but two of them, the directors of Frond (Mr J E De Groot and Mr J J De Groot), had no amounts placed against their names. The largest creditor shown on the list was the first plaintiff ($184,135.59). The second plaintiff was shown as a creditor to the value of $29,778.30 and the third plaintiff was shown as a creditor to the value of $19,453.50. Other creditors listed included the Australian Taxation Office, Origin Energy, VicRoads, Victoria Police and Victorian Farmers’ Federation.
The solicitors for the plaintiffs had been acting for the first plaintiff since 10 February 2004. They were instructed to prepare a creditors’ statutory demand, which had been served on Frond. Mr Liakopoulos, a solicitor employed by the solicitors for the plaintiff, had prepared an application for the winding up of Frond and was proposing to file it when he received the said circular from Pitcher Partners and the attached papers. Mr Liakopoulos then received instructions from the first plaintiff to attend the creditors’ meeting and to seek the appointment of Mr Gideon Rathner (of Lowe Lippmann, Chartered Accountants) as liquidator of Frond. Mr Liakopoulos was further instructed to contact other creditors named on the list of creditors and to obtain proxies from them supporting the appointment of Mr Rathner. Mr Liakopoulos contacted a total of fifteen creditors, including two persons who were not on the list of creditors but who, he was instructed, had approached the first plaintiff and said that they were creditors. Of the fifteen persons approached by Mr Liakopoulos, eight gave him proxies to be exercised in favour of a resolution for the appointment of Mr Rathner and two others informed Mr Liakopoulos that they agreed to support the resolution, but would vote personally at the meeting. Thus, Mr Liakopoulos was able to attend the meeting knowing that he had support for a resolution to appoint Mr Rathner of creditors with a majority in value and approaching a majority in number.
Mr Liakopoulos attended the creditors’ meeting with Mr Rathner. When Mr Liakopoulos went to sign the attendance register prior to the commencement of the meeting, he saw a bundle of documents with a list recording a large number of persons as having provided proxies to a Mr Spiros Livadaras (the first defendant). Only one of the 22 persons recorded as having provided proxies to Mr Livadaras appeared on the initial list of creditors which had been attached to the notice of meeting.
Minutes of the creditors’ meeting are in evidence. At an early stage of the meeting, Mr Rathner expressed concern that there were a number of creditors (about 20) that appeared on the list of proxies but were not on the initial list of creditors. Mr Rathner said that this was a material omission that might prejudice the interests of creditors, and he questioned whether any evidence existed to substantiate whether or not each of the parties claiming to be creditors at the meeting were in fact creditors. Mr Rathner said that the creditors who were not on the initial list should not be given the opportunity to nominate and vote on an alternative liquidator. Mr Rathner said that those proxies were significant, with one claiming to be a creditor in the vicinity of $200,000. Mr Rathner further expressed concern over the fact that the two directors had stated that they were not owed money by Frond, but were now claiming to be creditors. Mr Rathner questioned the validity of the additional creditors’ claims, stating that they made a material difference in both number and value. Mr Yeo said that this would be a matter for the chairman, who was not entitled to disallow the right of additional creditors to vote, whether or not they were originally listed.
Mr Livadaras, who represented a creditor which was on the original list of creditors, namely a firm of accountants known as “Deckker Partners” or “Stantins”, nominated himself to be chairman of the meeting and was elected on a show of hands.
When it came to voting on resolutions concerning the liquidators, there was a good deal of discussion which ended with the chairman stating that he would permit each of the creditors to vote on the basis of the amounts now claimed in their proofs of debt. He added that he could not explain why many creditors had been omitted from the initial list. The first resolution put was that Mr Rathner be appointed liquidator, and the result of the poll on this resolution was that there were 10 votes in favour with a value of $332,835.35 and 22 votes against with a value of $262,697.47. The 22 votes against included 21 proxies held by Mr Livadaras. They were mainly small creditors, the largest of which was Stantins ($10,000). The twenty-second creditor was a company related to Frond, Manie Pty Ltd, with a claimed debt of $197,363.05. Mr Liakopoulos requested that it be noted that his ability to gain proxy votes for the meeting had been hampered by the fact that the initial creditors’ list was deficient by approximately twenty creditors. Mr Livadaras advised that the poll was deadlocked (ie, supported by a majority in value, but not by a majority in number) and that he would not exercise his casting vote. It was then moved that Mr Yeo and Mr Rambaldi be appointed liquidators. Mr Livadaras advised the meeting that the poll was a mirror of the previous poll and was deadlocked, and that in his capacity as chairman he would exercise his casting vote to appoint Mr Yeo and Mr Rambaldi as liquidators. I note, as indeed was noted at the meeting, that the second resolution was not necessary because the failure of the first resolution meant that the members’ appointment of Mr Yeo and Mr Rambaldi stood.[2]
[2]See s.499(1) of the Act.
A number of questions were then asked of the directors and, in particular, Mr Rathner asked whether there had been a sale of assets or a sale of the business of Frond. One of the directors said that there had been a sale of the assets, and Mr Rathner asked who the purchaser was. Mr Livadaras then advised the meeting that Manie Pty Ltd (the related company and creditor) was the purchaser. Mr Rathner then asked what the consideration for the sale was, and Mr Livadaras said that this information, including the contract of sale, could be provided to Mr Rathner at a later date. Mr Yeo then said that the obligation of the directors was to provide all the books and records to him as liquidator, not to Mr Rathner. Mr Rathner asked Mr Yeo whether he had seen the contract of sale and Mr Yeo replied that he had not, but would be demanding same. Mr Livadaras advised that the sale took place at arm’s length and was based on an auction valuation of the assets. A number of further questions were asked concerning the sale of the business and how it was now being conducted but it is unnecessary to detail the discussion. Mr Rathner then asked how Manie Pty Ltd became a creditor and Mr Livadaras said that this was something the liquidator would need to explore, but there had been an assumption of certain liabilities, particularly in respect of a secured creditor.
After discussion of a number of further matters, a Committee of Inspection was appointed, comprised of Mr Liakopoulos, Mr Livadaras and Mr Van Egdom (the manager of the second plaintiff).
The liquidators have since obtained a copy of what purports to be the executed Sale of Business agreement (undated). Under the agreement, Frond sells its plant and equipment and motor vehicles (valued at $12,798), market stand (valued at $16,686), stock (valued at $58,212) and goodwill (valued at $20,050) and debtors of $85,468 for valuable consideration as defined: the consideration is expressed to be the taking over by the purchaser of certain liabilities of Frond, namely, liabilities described as follows:
“A Bank Overdraft (Wesfarmers) $129,025
B Loan – Wesfarmers $249,286
C Liquidator’s Fees Payable $16,500
$394,811”
Section 600C of the Act applies, inter alia, where a proposed resolution is not passed because the person presiding at a creditors’ meeting in connection with winding up a company refuses or fails to exercise a casting vote. In the present case, Mr Livadaras refused to exercise his casting vote on the resolution for the appointment of Mr Rathner as liquidator, and as a result, the resolution was not passed. Section 600B of the Act applies, inter alia, where a resolution is passed because the person presiding at such a meeting exercises a casting vote. In the present case, Mr Livadaras exercised his casting vote on the resolution for the appointment of Mr Yeo and Mr Rambaldi as liquidators, and as a result the resolution was passed. In those circumstances, the plaintiffs are entitled[3] to apply to the Court for an order that the resolution appointing Mr Rathner as liquidator is taken to have been passed[4] and for an order that the resolution appointing Mr Yeo and Mr Rambaldi as liquidators be set aside.[5]
[3]See ss.600C(2) and 600B(2) of the Act.
[4]See s.600C(3) of the Act.
[5]See s.600B(3) of the Act.
It was submitted by counsel on behalf of the plaintiffs that the process of calling the creditors’ meeting was “tainted” because Frond had failed to give the creditors of the company a list of “all creditors” as required by s.497(2)(b)(ii) of the Act. This deficiency had been drawn to the attention of the defendants by Mr Rathner at the creditors’ meeting. It was further said that it would appear that the directors and each of the defendants had committed a strict liability offence under s.497 of the Act (see s.497(4) and (7A)) by failing to provide a list of “all creditors”. It was submitted that the plaintiffs had been unfairly deprived of the opportunity to obtain proxies from a number of the smaller creditors and the voting at the meeting might thereby have been different.
It was next submitted on behalf of the plaintiffs that the Court had a “wide but not untrammelled discretion” under ss.600C and 600B[6] and that a person exercising a casting vote must exercise it honestly and in accordance with what the person believed to be in the best interests of those affected by the vote, and that the Court should have available to it all the material that was available to the chairman in deciding how to exercise the casting vote. In the present case Mr Livadaras, by providing no material, had made no attempt to explain or justify his failure to exercise his casting vote on the first resolution or his exercise of a casting vote on the second resolution. There was no evidence that he exercised his voting power honestly or that he did so in accordance with what he believed to be in the best interests of those affected by the vote. The plaintiffs were by far the major unsecured creditors in value, their resolution was opposed by the company’s directors and their external accountant (Mr Livadaras) and no creditor would suffer prejudice as the result of the appointment of a different liquidator (Mr Rathner). In addition, the present liquidators had admitted that they had no funds, whereas the plaintiffs were prepared to fund Mr Rathner.
[6]See Re Coaleen Pty Ltd (administrator appointed) (1999) 30 ACSR 200, 202.
The solicitor who appeared for Mr Livadaras announced that he would abide the decision of the Court.
Counsel who appeared for Mr Yeo and Mr Rambaldi submitted that there was no reason why it would conducive to the better conduct of the liquidation for Mr Yeo and Mr Rambaldi to be replaced by Mr Rathner. The present liquidators were qualified and no criticism had been made or could be made of their conduct. Therefore, the Court should, in its discretion, refuse the relief sought by the plaintiffs.
In Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 12 ACLC 594, a major creditor was concerned about a company’s solvency and was proposing that a particular registered liquidator be appointed administrator. The company appointed a different person as administrator, and at a meeting of creditors, a majority by value voted for the removal and replacement, but a majority in number voted against it. The appointed administrator declined to exercise a casting vote and declared the resolution not to have been passed. The creditor applied for relief which would replace the administrator. Hayne J (as he then was) refused the application. His Honour said that the administrator should only be removed if it was demonstrated that such an order would be for the better conduct of the administration. It was necessary for the applicant to show some reason, other than the bare consideration of majorities, why an order for removal should be made. The frustration of the strong and desired preference of the largest creditor did not of itself show that the failure to pass the resolution was contrary to the interests of creditors, either as a whole, or of those creditors who desired the removal and replacement.
In Re Coaleen Pty Ltd (administrator appointed) (1999) 30 ACSR 200, a company was in administration and a resolution was passed at a creditors’ meeting that the company enter a deed of arrangement. The resolution was passed on the casting vote of the chairman. A major creditor had been opposed to the deed of company arrangement proposed by the administrator, and preferred that the company be wound up. A creditor applied to the Court to set aside the resolution. The Court set aside the resolution based on a number of considerations. The first consideration was that the applicant was a major creditor. The next was that there was no prejudice to creditors if the resolution was set aside because the applicant had offered to pay them the difference between what they would have received under a deed and what they would receive on a winding up. The next consideration was that the creditor had raised legitimate concerns about the material raised in the administrator’s report which recommended the deed. Although the court referred to the fact that it was the major creditor who had made the application, it is clear that the court’s conclusion was also based on substantive considerations relating to the choice between a deed and a winding up. It is very different to a case in which the company is being wound up in any event and the only dispute is about the identity of the liquidator.
In Metal Manufacturers Ltd v ACN 063 086 126 Pty Ltd (in liq) [2001] QSC 106, a creditor sought orders setting aside the appointment of liquidators nominated by the members and replacing them with its own preferred liquidator. At the creditors’ meeting, a majority in value, but not in number, voted in favour of the proposed replacement liquidator and the chairperson did not exercise a casting vote. The dissatisfied creditor relied on two sections of the Act. The argument concerning s.600A is irrelevant for present purposes. In relation to s.600C, the court said that the chairperson was under no obligation to exercise a casting vote and had not acted fraudulently or unreasonably in not doing so. It appears that the court found no independent reason for disturbing the status quo.
In Young v Sherman [2002] NSWCA 281, a decision of the New South Wales Court of Appeal, Sheller JA, at [48]–[55], approved statements that there was no general rule that an administrator should exercise a casting vote so as to prefer the view of the majority in value and that the correct approach was to weigh up all relevant factors. In the same case, Hodgson JA said, obiter:
“In so far as the appellant sought a review pursuant to s.600B of the Corporations Act of the exercise of the casting vote, there is a question as to the role of the Court. However, whether the role extends to reconsideration of matters of commercial judgment, or is limited to intervention if some other serious error is detected, I am inclined to think that the Court should have available to it all the material that was available to the administrator in deciding how to exercise the casting vote. In this case, that included the instructions given by the directors as to the facts alleged to give rise to the cause of action, the legal advice on which the administrator acted, and (if known) the terms of the proposed litigation funding. However, I note that this point was not taken either below or on appeal, and could not have been give effect to in this decision.”
In that case, the subject matter of the resolution was such that it made sense to speak of the material which might be available to the administrator in deciding how to exercise his casting vote. In the present case, the choice between one registered liquidator or another was hardly a matter upon which the chairman would be likely to have had any material. The failure of Mr Livadaras to go on oath to explain his reasons for not exercising his casting vote in one instance and then exercising his casting vote in the other does not, in my view, justify any inference that he was not acting bona fide or honestly or in accordance with what he believed was in the creditors’ interests. [7]
[7]See Kirwan v Cressvale Far East Limited (in liq) (2002) 21 ACSR 44 at [366]–[372].
Importantly, there is here no suggestion of bias, or the appearance of bias, or any allegation of actual or threatened misconduct by the appointed liquidators. Indeed it was conceded that they were well-qualified to perform their duties and there is no reason to expect or to suspect that they will not do so in a proper manner. I accept the submission of Counsel for the plaintiffs that they may have been disadvantaged in obtaining Mr Rathner’s appointment as a result of their inability to canvass the initially unlisted creditors for their support or for their proxies. The position of Manie Pty Ltd also causes me some unease. However I do not think that any disadvantage suffered by the plaintiffs is a ground for removal of the present liquidators when there is no basis for contending that their appointment is, or even might be, contrary to the interests of the creditors as a whole, or of the plaintiffs in particular. Apart from the issue of funding, there is no evidence that the appointment of the present liquidators will or may cause the plaintiffs any prejudice, or, at this juncture, that their replacement by Mr Rathner would make any material difference to the conduct of the liquidation.
The present liquidators recognise that the nature and circumstances of the Sale of Business agreement require investigation and there is no reason to think that they will not properly investigate all relevant matters. In addition, the plaintiffs are well represented on the Committee of Inspection. The plaintiffs say that they would fund Mr Rathner, but that they will not fund the present liquidators. That decision is a matter for them, but it does not, ipso facto, create a ground for removal of Mr Yeo and Mr Rambaldi.
In my opinion, the plaintiffs have not established any good reason for the Court to exercise its discretion in relation to the two resolutions so as to replace the liquidators. The originating process is therefore dismissed. I will hear submissions as to costs.
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