Re Gulf Aboriginal Development Company Ltd

Case [2021] QSC 310

SUPREME COURT OF QUEENSLAND

CITATION:

Re Gulf Aboriginal Development Company Ltd [2021] QSC 310

PARTIES:

IN THE MATTER OF GULF ABORIGINAL DEVELOPMENT COMPANY LIMITED
ACN 080 906 805

AAPC PROPERTIES PTY LTD ACN 065 560 885 AS TRUSTEE FOR SHAKESPEARE CAIRNS OASIS BUSINESS TRUST TRADING AS NOVOTEL CAIRNS OASIS RESORT

(applicant)

v
GULF ABORIGINAL DEVELOPMENT COMPANY LIMITED
ACN 080 906 805

(respondent)

FILE NO/S:

10915/19

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

26 November 2021

DELIVERED AT:

Brisbane

HEARING DATE:

17 November 2021

JUDGE:

Freeburn J

ORDERS:

1.   The application is dismissed.

2.   The parties are to be heard on costs.

CATCHWORDS:

CONTRACT – DEED OF COMPANY ARRANGEMENT – WINDING UP – application to terminate winding up of company pursuant to s 482(1) of the Corporations Act 2001 (Cth) – Where the application is opposed by various former creditors and entities associated with a stipulated mine – Whether judicial discretion ought to be exercised to order that the winding up of a company should be terminated.

Corporations Act 2001 (Cth), s 482(1).
Native Title Act 1993 (Cth), s 192.

Mabo v Queensland (No 2) (1992)175 CLR 1, cited.
Wik Peoples v Queensland (1996) 187 CLR 1, cited.
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, cited.
Burns Philip Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642, mentioned.
Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783, mentioned.
Re MWM Sydney Pty Ltd (in liq) [2016] NSWSC 688, mentioned.
Re Nature Springs Pty Ltd (in liq) (1994) 13 ACSR 50, mentioned.

COUNSEL:

M Jones
(applicants)

G Coveney
(contradictors)

SOLICITORS:

Tucker & Cowen
(applicants)

Ashurst Australia
(contradictors)

REASONS

Introduction

  1. Almost two years ago, on 28 November 2019, Gulf Aboriginal Development Company Ltd (“Gulf”) was ordered to be wound up in insolvency.  Todd William Kelly was appointed liquidator.  Gulf had failed to comply with a statutory demand for $18,373 issued by a company that operated the Novotel Cairns Oasis Resort.

  2. Now, pursuant to s 482(1) of the Corporations Act 2001 (Cth), Mr Kelly and GADC No 2 Pty Ltd, a creditor of Gulf, apply for an order that the winding up of Gulf be terminated. In other words, the applicants seek the resuscitation of Gulf as a corporate entity. The application is opposed by various former creditors and by various entities associated with the Century Zinc Ltd mine.[1]

    [1]The contradictors are identified by a list which became exhibit 1. The roles of the creditors and Century Zinc Ltd are explained in more detail below.

  3. Gulf is no ordinary trading company or commercial enterprise. Prior to its liquidation it performed a specific role. Gulf is governed by a Constitution and the Gulf Communities Agreement of 13 February 1997 (the Agreement).

    Gulf’s Role Before its Demise

  4. Mr Nigel King is a director of Gulf as well as a director of the four Subordinated Creditors – whose role I will explain below.…

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Details
AGLC
Re Gulf Aboriginal Development Company Ltd [2021] QSC 310
Case
[2021] QSC 310
Decision Date

CaseChat Overview and Summary

The case of Re Gulf Aboriginal Development Company Ltd involved the Gulf Aboriginal Development Company Ltd, which was in the process of being wound up, and the applicants who sought to terminate the winding up under section 482(1) of the Corporations Act 2001 (Cth). The primary dispute centred on whether the judicial discretion should be exercised to order the termination of the winding up of Gulf. Various former creditors and entities associated with a stipulated mine opposed the application.

The central legal issues revolved around the exercise of judicial discretion under section 482(1) of the Corporations Act 2001 (Cth) to terminate the winding up of a company that was insolvent and had no viable means of trading profitably. The court had to consider several factors, including the opposition from significant creditors, the stance of Century (the source of funds), the opposition from native title groups who were intended beneficiaries, allegations of mismanagement, the lack of an independent report on solvency or a business plan, and the presence of substantial debts. The applicants had the burden of demonstrating that the company could trade profitably into the future and that it was in the public interest to terminate the winding up.

The court determined that the applicants had not satisfied the onus of showing that the exercise of discretion to terminate the winding up was appropriate. The company was insolvent, had no intention to trade, and had no source of ongoing funding. There was no evidence demonstrating how the company could trade solvently or explaining the failure to maintain proper financial records. The opposition from creditors, Century, and native title groups, along with the allegations of mismanagement and the lack of a business plan, weighed heavily against the application. Consequently, the court refused to exercise its discretion and dismissed the application. The court also noted that the parties would be heard on the matter of costs.

The final orders of the court were that the application to terminate the winding up was dismissed, and the parties were to be heard on the issue of costs.

Orders

Orders of the court

1. The application is dismissed.

2. The parties are to be heard on costs.

Background

Background to the litigation

Interestingly, there is no evidence that suggests that Gulf has some continuing goodwill or value as a going concern. Indeed, the evidence rather suggests that Gulf does not have a solid reputation and that community confidence in Gulf has been lost over the past few years.Factor 7 – The Background to the Winding Up There should be an explanation of the general background and circumstances which led to the winding up. There is certainly some evidence of mismanagement and a lack of governance. However, it is fair to say that the record of Gulf and its management has not been raked over in any detail. It has been thought sufficient to, in effect, propose to hang out the ‘under new management’ sign. That is a partial response. However, the absence of a detailed, or expert, or independent examination of Gulf’s affairs, and the absence of a business or similar plan for the future, mean that a revival of Gulf would be subject to considerable, uncertainty. To give only one example, it may be that a close examination of Gulf’s financial affairs would disclose that Gulf operates under a business model that is flawed, because, for example, the income it anticipates receiving from Century may not be received, or it may be insufficient to offset Gulf’s continuing costs, or it may be that the mere ‘clearing house’ function has little potential for profit or even sufficient cost recovery. It is worth noting that, even on counsel for the applicants’ ‘rough profit and loss statement’ there is barely sufficient income to support one employee.[65][65]Of course, there are other corporate expenses that would ordinarily be incurred by even the most frugal of companies. The explanation for the company’s demise might be divisive in some cases. Here, there is no clear explanation. Mismanagement may be one factor. There may be others.Factor 8 – The Nature of the Business The nature of the business carried on by the company should be demonstrated and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’. The nature of Gulf’s business is explained by Mr King. Certainly, one of the complaints about Gulf’s conduct was that the directors’ fees and expenses were disproportionate to the income. Again, the applicants point to the fact that there are entirely new directors. Again, it may be accepted that there is unlikely to be a repetition of the relevant conduct. However, in this case that merely neutralises a factor against reviving the company. It does not assist in positively persuading the court that it ought to positively exercise the discretion to revive the company. There are some other aspects relevant to commercial morality and public interest. A failure to pay commercial debts and a failure to pay tax causes disruption to commerce. Creditors incur significant expense, and expense that is not recoverable, in pursuing debts, attending creditors’ meetings, proving debts and in writing off debts. Here, just short of 50% of the creditors received 28 cents in the dollar and it is now proposed that the same entity will be given a new lease of life and will continue to trade.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

There is, in my view, considerable force in several of the points made in the final paragraph of the contradictors’ submissions:Conclusion43. [Gulf] is insolvent. It does not intend to trade and has no source of ongoing funding which would allow it to pay any new liabilities which it might incur. There is no evidence showing how it could trade solvently. There is no explanation for the failure of the directors to ensure that the company’s financial records were properly maintained. If an order terminating the winding up was made, it is likely that [Gulf] would be insolvent from the moment it incurred its first debt. The court should not exercise its discretion to terminate the winding up. And so, having looked at the eight factors, the applicants have the onus to make out a positive case for the exercise of the discretion in circumstances where:(a)A significant body of the creditors (or former creditors) are against the revival of the company;(b)Century, the source of funds, is against the idea;(c)Importantly, the native title groups who are the intended beneficiaries are against the idea and have made other arrangements with Century which involve direct payments to the native title groups;(d)Immediately before its demise, Gulf consistently traded at a loss and there are some strident allegations of mismanagement – which have not been fully investigated;(e)There is no independent report on solvency or a business or other plan which demonstrates that Gulf can trade profitably into the future;(f)There is likely to be an entirely new board, but that does not assist in persuading the court to exercise its discretion; it is a neutral factor; and(g)Even on the first day of its revival Gulf will be lumbered with approximately $60,000 of debts which it has no obvious means of paying. In the circumstances, having regard to the eight factors, the applicants have not satisfied the court that this is an appropriate case to exercise the discretion to terminate the winding up under s 482(1) of the Corporations Act 2001 (Cth). The application is refused. I will hear the parties on costs.

Ratio Decidendi

Legal Principle Established

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