Re Glenisia Investments Pty Ltd (in liq)
[1995] FCA 1098
•25 AUGUST 1995
C A T C H W O R D S
COMPANIES - external administration - winding up - creditors funding recovery action by liquidator - whether contributing creditors entitled to advantage over other creditors - extent to which contributing creditors should share in proceeds of recovery action.
Corporations Law s.564
Re Kyra Nominees Pty Ltd (1987) 5 ACLC 811
Re Ken Godfrey Pty Ltd (1994) 12 ACLC 1071
Re Cartco Pty Ltd (1994) 12 ACLC 766
IN THE MATTER OF SECTION 564 CORPORATIONS LAW and
IN THE MATTER OF GLENISIA INVESTMENTS PTY (IN LIQUIDATION) (ACN 009 059 474) and MAURICE HODGSON LYFORD (AS LIQUIDATOR OF GLENISIA INVESTMENTS PTY LTD)
No. WAG 3034 of 1995
CARR J.
PERTH
25 AUGUST 1995
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION ) No. WAG 3034 of 1995
B E T W E E N: IN THE MATTER OF SECTION
564 CORPORATIONS LAW
and
IN THE MATTER OF GLENISIA
INVESTMENTS PTY (IN
LIQUIDATION) (ACN 009 059 474)and
MAURICE HODGSON LYFORD
(AS LIQUIDATOR OF GLENISIA
INVESTMENTS PTY LTD)
Applicant
CORAM: CARR J.
PLACE: PERTH
DATE: 25 AUGUST 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The net proceeds recovered by the applicant as liquidator of Glenisia Investments Pty Ltd (In Liquidation) ("the Company") from Commonwealth Bank of Australia Ltd in application WAG 3030 of 1993 in this Court after payment of any priority debts and the costs and expenses of the winding up be paid rateably to Plummers Industries Pty Ltd and Barfield Pty Ltd in proportion to the sums owed to them by the Company.
The applicant's costs of this application including reserved costs be part of the costs, charges and expenses of the winding up of the Company.
NOTE:Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 3034 of 1995
GENERAL DIVISION )
B E T W E E N: IN THE MATTER OF SECTION
564 CORPORATIONS LAW
and
IN THE MATTER OF GLENISIA
INVESTMENTS PTY (IN
LIQUIDATION) (ACN 009 059 474)and
MAURICE HODGSON LYFORD
(AS LIQUIDATOR OF GLENISIA
INVESTMENTS PTY LTD)
Applicant
CORAM: CARR J.
PLACE: PERTH
DATE: 25 AUGUST 1995
REASONS FOR JUDGMENT
Introduction
This is an application by the liquidator of Glenisia Investments Pty Ltd ("the Company") for an order under s.564 of the Corporations Law. The order sought is that the net proceeds (after payment of legal costs and liquidator's expenses) recovered by the applicant as a result of certain proceedings against the Commonwealth Bank of Australia ("the Bank") be paid rateably to two unsecured creditors of the Company, Plummers Industries Pty Ltd and Barfield Pty Ltd, in proportion to the sums owed to them by the Company. I shall refer to those two creditors as the Contributing Creditors.
Section 564 of the Corporations Law provides as follows:
"564.Where in any winding up:
(a)property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of moneys or the giving of indemnity by creditors; or
(b)expenses in relation to which a creditor has indemnified a liquidator have been recovered;
the Court may make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them."
The application is supported by four affidavits filed on behalf of the liquidator and it is unopposed, although notice of the application was given to all of the unsecured creditors of the Company. The affidavits disclose the following facts.
The applicant was appointed as liquidator on 14 April 1993. At that time the Company had no assets whatsoever and the amount owing to unsecured creditors was $1,240,519.00. The Company now has no secured creditors.
The amounts owing to Plummers Industries Pty Ltd and Barfield Pty Ltd at the date of liquidation were (and still are) $166,647.90 and $122,264 respectively. Both those debts were incurred while the Company continued to trade and in the normal course of business. The Contributing Creditors funded the inquiries made on behalf of the applicant into all of the circumstances of the insolvency of the Company and the giving of certain securities, being two mortgages, to the Bank.
On a date prior to 21 October 1993 Plummers Industries Pty Ltd and a company called the McLernon Group Ltd as agent for Barfield Pty Ltd agreed to fund an action against
the Bank to recover an alleged preference.
On 21 October 1993 the applicant wrote to the unsecured creditors of the Company advising that he had received legal advice confirming that there was a strong possibility of a successful recovery of the alleged preference from the Bank. The applicant stated in that letter that he had no funds and it was anticipated that costs of the proposed recovery proceedings would be in the vicinity of up to $50,000 and that in addition there would need to be provision for the other party's costs in the event that the proceedings were unsuccessful. The letter also referred to an offer described as having been made by Plummers Industries Pty Ltd and its agent to fund the proposed recovery proceedings and to provide an indemnity to the applicant in respect of continuing costs on the basis that they receive a priority in respect of their outstanding claims against the company from any of the moneys recovered. The letter invited all creditors to contribute to the cost of the proposed proceedings and to provide an indemnity and in return to be entitled to participate in a like manner in the event that the action was successful. Only Plummers Industries Pty Ltd and Barfield Pty Ltd agreed to contribute towards the cost of the proposed proceedings.
On 7 December 1993 the applicant, Plummers Industries Pty Ltd and the McLernon Group Ltd executed a deed of indemnity. The evidence is that the McLernon Group Ltd executed that deed as the agent of Barfield Pty Ltd. Under the terms of that deed the applicant undertook to institute and prosecute proceedings against the Bank for recovery of the alleged preferential payments. Plummers Pty Ltd and the McLernon Group Ltd, for their part, agreed to indemnify the liquidator in respect of all legal and other costs
(including the liquidator's remuneration) and expenses in respect of the proposed proceedings. The indemnity was unlimited.
The Contributing Creditors and the McLernon Group Ltd have in equal shares paid $36,000 to date in respect of legal fees, experts' reports and court fees incurred by the applicant in pursuit of the recovery proceedings. Had those proceedings been wholly unsuccessful or had the Bank's cross-appeal been successful, the Contributing Creditors would have been exposed to expenditure of approximately $126,000 in respect of their costs in those proceedings together with an order for payment of the Bank's costs at first instance and on appeal.
The applicant sued the Bank in this Court to set aside the securities referred to above.
The result of those proceedings was that insofar as the securities held by the Bank were fixed, they were declared void and set aside but insofar as they were held to be floating charges they were not set aside. With the financial support of the Contributing Creditors, the applicant instituted an appeal. The Bank cross-appealed.
The proceedings against the Bank were settled on terms which included the Bank making payment to the applicant of the sum of $260,000 and agreeing neither to lodge a claim for dividend in the liquidation nor to oppose an application that the Contributing Creditors be paid out in priority.
Out of the sum of $260,000 there has to be paid an amount of approximately $18,250 for liquidator's fees and approximately $90,000 in legal expenses. Mr Brickhill of counsel for the applicant has this morning told me from the bar table that the balance remaining is approximately $114,000.
The applicant has given notice to the other unsecured creditors of his intention to apply to this Court under s.564 of the Corporations Law to distribute the whole of the net proceeds of the recovery proceedings against the Bank to the Contributing Creditors which, as stated in that letter would result in them receiving a return of approximately 52.45 cents in the dollar. No creditor has notified the applicant or his solicitors of any opposition to the proposed distribution of the whole of the net proceeds of the recovery proceedings to the Contributing Creditors. If all unsecured creditors shared equally in the net proceeds there would be a dividend of approximately 9 cents in the dollar which would yield Plummers Pty Ltd about $15,000 and Barfield Pty Ltd about $11,000. Mr Brickhill also referred to the costs involved in administering such a distribution.
As Hayne J. observed in Re Ken Godfrey Pty Ltd (1994) 12 ACLC 1071 at pp.1072-1073, the discretion conferred by s.450 of the Companies (Victoria) Code which was the predecessor of s.564 of the Corporations Law under which this application is brought, is a broad and general one that is to be exercised having regard to the desirability in the public interest of encouraging creditors to indemnify liquidators who desire to pursue claims in the winding up of companies.
In Re Cartco Pty Ltd (1994) 12 ACLC 766 at p.767, Young J. referred to the fact that s.564 derives from provisions of the Bankruptcy Act which now find their place as s.109(10) of that Act. His Honour referred to a tendency in some of the more modern decisions under the bankruptcy provision towards a more liberal attitude in favour of creditors giving indemnity rather than being influenced by the degree of risk. An assessment of the degree of risk would seem to include consideration (where possible) of the prospects of the proposed recovery proceedings being successful and the respective amounts ventured or put at risk by the Contributing Creditors.
It is not possible for me to make any precise assessment of the degree of risk of the proposed recovery proceedings being unsuccessful at the time when they were proposed. I have already noted that legal advice had been obtained to the effect that there was a strong possibility that the proceedings would be successful. Even so, I am prepared to accept that there were the normal hazards of any litigation. The applicant was only partially successful at first instance and with the financial assistance of the Contributing Creditors mounted an appeal. There was, as I have noted above, a cross-appeal.
It is clear that the whole of the financial risk of the proceedings at first instance and on appeal was carried by the Contributing Creditors. The Contributing Creditors took on a substantial risk of losing a great deal of money.
I am satisfied that the other unsecured creditors were given the same opportunity to contribute to the proposed proceedings and participate in the advantages which were offered to the Contributing Creditors.
In Re Kyra Nominees Pty Ltd (1987) 5 ACLC 811 at p.819 Franklyn J., when dealing
with an application under s.292(10) of the Companies Act (which was a similar, though by no means identical provision to s.564 of the Corporations Law), had regard to various matters including:
.the not insubstantial risk involved;
.the course of the action;
.its total financing; and
.the refusal of the remaining creditors to contribute
when he made an order that out of the residue of the funds in the hands of the liquidator certain Contributing Creditors be paid a dividend three times that of all the other unsecured creditors.
In Re Cartco Pty Ltd, where the amounts involved were relatively small, Young J. made an order that the whole of the benefit of the amount recovered be distributed to the Contributing Creditors in proportion to their contribution to the funding of the action. In Re Ken Godfrey Pty Ltd Hayne J. made an order that half of the fund there available be paid to the Contributing Creditors (who represented approximately 18% of the total unsecured creditors) and the remainder to the other unsecured creditors.
In the present application I consider that it is fair and reasonable that the whole of the net proceeds of the recovery proceedings against the Bank be distributed to the Contributing Creditors in the manner sought in this application. In coming to that decision I have had regard to the fact that the Contributing Creditors financed the initial inquiries, all of the creditors were given an equal opportunity to contribute and participate in the advantage,
the Contributing Creditors took a substantial risk and financed the whole of the proceedings and the liquidator's expenses and there has been no adverse response to the proposed distribution from any of the unsecured creditors.
There will be orders accordingly.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of Justice Carr.
Associate:
Date: 25 August 1995
Counsel for the Applicant: Mr T.H. Brickhill
Solicitors for the Applicant: Williams & Hughes
Date of Hearing: 14, 25 August 1995
Date of Judgment: 25 August 1995
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