Re Gulf Aboriginal Development Company Ltd

[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.  Mr King has sworn an affidavit in support of the application.  As Mr King’s affidavit explains, prior to its liquidation, one of Gulf’s functions was to receive payments from a mine operated by Century Zinc Ltd (now called Century Mining Ltd but for convenience referred to as “Century”).  Those payments were made pursuant to the Agreement.  The parties to the Agreement were:

   (a)   The Waanyi People;

   (b)   The Mingginda People;

   (c)   The Gkuthaarn People;

   (d)   The Kukatj People;

   (e)   The State of Queensland; and

   (f)    Century.

5. The first four of those parties are native title groups. Certain ‘eligible bodies’ represent those groups. The Gkuthaarn and Kukatj people are grouped together for the purposes of the Agreement. 

6. Under the Agreement, Century is obliged to make certain payments for the benefit of native title groups in specified proportions to ‘eligible bodies’ representing those groups.  Mr King describes Gulf as acting as a clearing house in the sense that it obtains payments on trust from Century which it then distributes to eligible bodies.

7. However, as the applicants emphasise, the distribution of money was not the only function of Gulf under the Agreement.[2]  Gulf had a cultural and heritage role requiring it to represent the cultural and heritage concerns of the native title groups, receive reports of the discovery of human remains on the mine site to serve a role in advocating for the preservation Magazine Hill, being a sacred site to the Waanyi native title group located on the mine site, and to confer certain rights under the Agreement in relation to the excavation of human remains.

   [2]The non-monetary role of Gulf was explained in paragraphs 21, 22 and 23 of Mr King’s affidavit.

8. Gulf also had an environmental role which required it to represent, and protect, the environmental interests of the native title groups over their traditional lands, to communicate and liaise with the mine in relation to environmental management, and to commence proceedings on behalf of the native title groups under relevant environmental legislation.

9. Lobbying was also a function Gulf was to perform under the Agreement. In broad terms, Gulf was to lobby governments to maximise the allocation of government resources to the mine’s employment and training plan and to function as a contact point for the mine to advise Gulf of contracting and tendering opportunities, for the benefit of the native title groups.

10. The extent to which Gulf actually performed those roles is not clear from the evidence.

    The Agreement and its Context

11. The Agreement was executed on 13 February 1997 – almost 25 years ago. Native title law and practice has developed significantly since February 1997. The High Court’s decision in the Mabo Case[3] was only decided in June 1993. The Native Title Act 1993 (Cth) commenced on 1 January 1994. The High Court’s decision in the Wik Case[4] was decided about two months before the Agreement was struck. 

    [3]Mabo v Queensland (No 2) (1992) 175 CLR 1.

    [4]Wik Peoples v Queensland (1996) 187 CLR 1.

12. It seems likely that when the Agreement was signed in February 1997, the mine had an expected life of 20 years. That is the horizon that appears in schedule 7 (explained below).

13. In April 1997, a few months after the Agreement was signed, native title was determined for the first time on the Australian mainland for the native title holders in the Crescent Head, New South Wales.[5] There were extensive amendments to the Native Title Act 1993 in May 1997, September 1998, April 2007, and September 2009. Two of the native title groups mentioned above have become successful native title claimants for their respective heritage lands in 2010 and 2020.[6] By the time of the Agreement a number of ‘eligible bodies’ had been established to represent the native title groups; the Agreement contemplated that more would be established, including a body to represent the Mingginda native title group.[7]

    [5]This is known as the Dunghutti People Consent Determination.

    [6]Transcript T1-23 line 44. There is a publicly available National Native Title Register established under s 192 of the Native Title Act 1993 (Cth).

    [7]Clause 13 of schedule 7 of the Agreement.

14. That history matters because it is likely that the past 25 years have meant that mining companies and native title groups, and their leaders, have gained experience and skills in dealing with native title issues. Of course, the 1997 Agreement set up a two-level structure whereby the mining company dealt with Gulf which then dealt with the different native title groups. As will be explained below, neither the mining company nor the native title groups see any utility in that two-level structure.

15. Curiously, at the time the Agreement was struck, Gulf was not yet in existence. The Agreement contemplates that Gulf would be formed,[8] and it would take on the roles described above. The Agreement also provided that any annual payments due to be paid to Gulf before it was established would be held by Century in an interest-bearing account and, upon Gulf becoming registered, the sum and interest would then be paid by Century to Gulf.

    [8]It was contemplated that Gulf was to be established in accordance with the Agreement as soon as practicable (outlined in detail at Schedule 8 of the Agreement).

16. That scheme raises two points worth noting. The first is that, at least at the outset, Gulf did not act as the intermediary between Century and the native title groups.[9] And, as will be explained, in the two years since Gulf fell into liquidation, Century and the native title groups have operated without the services of Gulf as an intermediary.

    [9]Gulf was first registered on 1 December 1997 (see NTK-1 to Mr King’s affidavit) and so the Agreement operated from 13 February 1997 to 30 November 1997 before Gulf was registered. As to commencement of the Agreement see clause 5 and 6 of the Agreement (page 156 of Mr Goodwin’s affidavit).

17. The second is that because Gulf is not a party to the Agreement, Gulf has no direct contractual right to sue under the Agreement. The Agreement does contain a provision to the effect that the native title groups agree that Gulf, when it is established, will be required by its constitution to execute and be a party to the Agreement in its capacity as agent or representative of the native title groups.[10] However, it is not clear whether Gulf did in fact become a party to the Agreement.[11]

    [10]Clause 12 of schedule 8.

    [11]Counsel for the contradictors made the submission that Gulf was not a party. Counsel for the applicants did not dispute that. However, clause 12 of schedule 8 envisages that Guld would become a party.

18. Gulf may have an indirect remedy consistent with the disparate principles in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,[12] or it may be that the native title groups have a contractual right to require Century to make payments either direct to them or on their behalf to Gulf. However, any remedy that Gulf possesses under the Agreement is not a direct contractual remedy.

    [12](1988) 165 CLR 107.

19. Those two points illustrate Gulf’s somewhat peripheral role as an intermediary in the contractual arrangements between Century and the native title groups.

    Gulf’s Corporate Character

20. It is necessary to say something about Gulf’s corporate character.

21. The Agreement constitutes the blueprint for Gulf and its functions. Schedule 8 of the Agreement sets out, in some detail, the establishment, proposed constitution, objects, powers, functions, and funding of Gulf. Importantly, for present purposes, the board or governing committee of Gulf was to ‘at all times be representative of the Native Title Groups’.[13] Membership of Gulf and membership of Gulf’s board or governing committee is restricted to members of the native title groups.[14] A person appointed to membership of the governing structure was required to be appointed as a representative of a native title group.[15]

    [13]Schedule 8 at clause 4.

    [14]Schedule 8 at clause 7.

    [15]Schedule 8 at clause 8.

22. The representative nature of Gulf is reinforced by clauses 14, 15 and 16 of schedule 8 of the Agreement:

    [14][Gulf] will act at all times in carrying out its functions under this Agreement, for and in the interests of the Native Title Groups in accordance with this Agreement.

    [15]Where the exercise of a function involves the taking of an action in relation to land, or the payment or application of moneys paid under the Agreement, [Gulf] will use its best endeavours to ascertain the wishes, and only act in accordance with the views, of the relevant Native Title Group or Groups.

    [16][Gulf], acting on the wishes of the relevant Native Title Group may act as:

    (a)    a clearing house for moneys payable to a Native Title Group or Groups;

    (b)    an agent; or

    (c)    a trustee manager of funds on behalf of a Native Title Group or Groups.

    [17][Gulf] may arrange for the creation or establishment of a trust at the request of a Native Title Group to received payments to which that Native Title Group is entitled.

23. Gulf’s constitution was required to contain a provision to the effect that, if a native title group no longer wishes to be represented by Gulf, then Gulf is to promptly notify Century and advise Century of the name and address of an eligible body nominated by that native title group to receive any moneys payable to that group in accordance with clause 5 of Schedule 7, and Century may thereafter pay those monies to that other eligible body nominated by that native title group.[16]

    [16]Schedule 8 clause 6.

24. Gulf’s articles of association largely conforms to the requirements of the Agreement.[17] Thus, Gulf’s corporate character was that it functioned as the representative of or agent for the native title groups, and it did so largely for so long as the native title group wished it to undertake that role.

    [17]See page 72 and following of the exhibit to Mr King’s affidavit. See, in particular, clause 69 at page 82.

    The Monetary Rights under the Agreement

25. The native title groups, and Gulf as their representative, possess two broad rights to payments under the Agreement. One is a yearly fee and the other is an administration fee.

26. The yearly fee payable by Century to Gulf is specified in schedule 7 of the Agreement. That schedule specifies that Century will pay a yearly fee to Gulf of $750,000 for the first 3 years and $500,000 per annum thereafter, with those sums to be indexed. The annual payments were contemplated to be made until the later of 20 years[18] or the economic life of the project. The yearly fee is to be paid to Gulf or in accordance with the direction of the native title groups in the following proportions:

    (a)   60% to the Waanyi Peoples;

    (b)   30% to the Mingginda Peoples; and

    (c)   10% to the Gkuthaarn and Kukatj Peoples.

    [18]The 20 years is measured from the date the Fundamental Project Rights are satisfied. It seems common ground that occurred and that the payments under the agreement commenced in 1997.

27. The administration fee is payable to Gulf under schedule 8 of the Agreement. Century is to provide an initial sum of $100,000 in 1997, a further initial sum of $50,000 earmarked for the establishment of Gulf, and thereafter $50,000 per annum.[19] The annual sum of $50,000 is indexed and is presently approximately $70,000. Again, the horizon is the later of 20 years or the economic life of the project.   

    [19]Clause 24 of schedule 8 of the Agreement. Note that the Queensland Government also agreed to provide a sum for the establishment and funding of Gulf (Clause 25).

28. Mr Jones, counsel for the applicants, submitted that there is an important distinction between the yearly payment under schedule 7 and the annual administration payment under schedule 8. The annual payments under schedule 7 are payable to either Gulf or to an eligible body on behalf of a native title group. Mr Jones contends that is in contradistinction to the annual administration payment under schedule 8 which is payable only to Gulf.

29. The provisions of schedule 8 are not particularly clear about this. Clause 23 of the Agreement explains the rationale: ‘The consultation and establishment process will require adequate funding and the operation of [Gulf] will need to be adequately funded so as to enable it to effectively perform its functions under the Agreement.’

30. Then, clause 24 provides that Century will provide the sums ‘for administrative purposes.’ The Agreement is not explicit about who the money is to be paid to. That may be deliberate. The Agreement expressly provides that in the interim period, that is until Gulf is incorporated, Gulf’s functions (other than its function of receiving annual fees) are to be performed by certain persons who are representatives of the native title groups.[20] Thus, it would have created problems if the draftsperson had specified that the administration expenses shall be paid by Century to Gulf.

    [20]Clause 5 of schedule 8.

31. Certainly, it is true that, unlike schedule 7, schedule 8 does not contain a clause to the effect that Century may pay to either Gulf or to an eligible body for a native title group. However, it may well be that the intention of the parties to the Agreement was to merely oblige Century to pay the sums for the purpose of the administration expenses. It may well have been the intention to, for example, pay those expenses direct to a contractor, or to one of the native title groups that incurred administration charges or to some other party who incurred expenses of that character.

32. It is not necessary to decide this issue of the proper interpretation of the Agreement. This peripheral issue was not fully argued. It is sufficient to note the accuracy of Mr Jones’ submission that the Agreement expressly contemplates that the right to annual payments under schedule 7 can be transferred to the native title groups, but the Agreement does not contain an equivalent provision permitting the transfer of the right to administration payments under schedule 8 from Gulf to the native title groups. 

33. Clause 26 of schedule 8 provides that, if the native title groups agree, the Carpentaria Land Council can act in place of Gulf and can perform its functions under the Agreement. However, as Mr Jones noted, clause 26 envisages that the Carpentaria Land Council would assume all of Gulf’s functions. During the liquidation, which I discuss below, Carpentaria Land Council assumed some but not all of Gulf’s functions and the evidence does not suggest that clause 26 has been activated.

34. Having explained the Agreement and Gulf’s role, it is now necessary to explain Gulf’s corporate performance and its demise.

    Gulf’s Performance and its Demise

35. It is worth focussing on the financial years prior to Gulf falling into liquidation. An affidavit of Shane Michael Goodwin, the Head of Corporate Affairs and Social Responsibility of New Century Resources Ltd, Century’s holding company, explains that for each of the financial years 2016, 2017, and 2018 sums exceeding $800,000 were paid by Century pursuant to the Agreement.  Most of those payments, however, were paid to the eligible bodies for the native title groups directly at their request – bypassing Gulf.[21]  Thus, by this time, Gulf’s role as a trustee distributing to the native title groups had diminished.

    [21]See Mr Goodwin’s affidavit at [26] and [27].

36. Of interest is Mr Goodwin’s evidence that the dominant role of direct payments are due to a concern that Gulf has in the past, or may not in the future, distribute money to eligible native title groups.[22]  That suggests a lack of confidence in Gulf.

    [22]Ibid at [27].

37. In the financial years 2013, 2014, and 2015 Gulf’s income – almost exclusively from Century, was $148,000, $204,000, and $291,000.[23]  The corresponding figures for directors’ fees and travel expenses in each of those financial years was $214,000, $222,000, and $65,000.  With other expenses the losses for those financial years were $375,000, $183,000, and $87,000.

    [23]Ibid at [33] and [34].

38. Mr Goodwin exhibits a University of Queensland report which revealed that Gulf had poor performance, poor governance, and a failure to actively represent the eligible bodies in a meaningful way.  Mr Goodwin refers to the liquidator’s own report of 4 February 2020, which records that the liquidator’s investigations were hampered by a lack of co-operation received from the then directors.

39. According to Mr Goodwin, each of the three native title groups[24] who are parties to the Agreement have resolved that:

    (a)   they do not wish to be represented by Gulf under the Gulf Communities Agreement; and

    (b)   Gulf should not receive any progress payments on their behalf.[25]

    [24]Three native title groups are referred to because in the Agreement the Gkuthaarn and Kukatj peoples are grouped together.

    [25]Mr Goodwin’s affidavit at [76].

1. By the time a winding up order was made on 28 November 2019, Gulf had amassed debts of approximately $600,571 as well as a debt owed to the Australian Taxation Office of $44,590.[26] Thus, the quite lengthy list of creditors totals roughly $645,000.

   [26]See the liquidator’s reports on Gulf’s affairs exhibited to Mr Goodwin’s affidavit filed on 20 September 2021. See, in particular, page 26 which shows an ATO debt of $35,528 but that ATO debt seems to be updated to $44,591 (see page 43 of Mr Ward’s affidavit filed 20 September 2021).

   Financial Mismanagement

2. Counsel for the contradictors highlighted aspects of the evidence that suggested that it was likely that, prior to its winding up, Gulf suffered from financial mismanagement.

3. First, Gulf’s status as a registered charity was revoked in 2016, backdated to July 2013, following a review of Gulf’s governance practices by the Australian Charities and Not-for-Profits Commission (ACNC).[27]  Mr Goodwin says that the backdating was due to ACNC’s report showing mismanagement was apparent from at least July 2013.

   [27]Mr Goodwin’s affidavit at [39].

4. Second, in December 2015 the ACNC issued an Information Memorandum (“IM”) for the assistance of all Gulf ‘members’.[28]  The wording of the IM is extraordinary. With admirable (and surprising) bluntness ACNC made this criticism of Gulf’s conduct and the conduct of its directors:

   [28]Presumably the reference to ‘members’ is to the members of the native title groups.

   Our concerns with [Gulf] as a charity

   1.   Gulf looks like it has a history where people have been able to misuse the organisation’s money (for example, allegations of fraud have been made)

   2.   Sometimes it is not clear why Gulf’s money has been spent by the directors, and if it was spent for the benefit of the members

   3.   Gulf’s directors appear to have unfairly benefited from Gulf, receiving loans and advance payments

   4.   Gulf has very high travel and accommodation costs and these appear to only benefit the directors

   5.   Gulf’s auditors have raised concerns for years about how your money is used – but nothing has changed

   6.   Gulf needs to be clear about how and which money is spent, and the reasons why (using separate bank accounts would help)

   7.   Gulf does not keep records of all its operations and all transactions, and it needs to[29]

   [29]Mr Goodwin’s affidavit at page 386. For clarity I have substituted ‘Gulf’ for the ACNC’s abbreviation for Gulf (GADC).

5. Third, the liquidator’s reports to creditors consistently showed that the directors, with only one exception, failed to comply with requests to provide a Report on Company Activities and Property.[30]  That is, the directors were unwilling or unable to properly report on the affairs of the company they managed. The directors also appear to have failed to ensure that Gulf maintained appropriate books and records and they failed to provide such books and records to the liquidators.[31]

   [30]Mr Goodwin’s affidavit at page 576 (BDO report of 4 February 2020) and at page 627 (BDO report of 30 April 2020).

   [31]Mr Goodwin’s affidavit at page 630.  See also the affidavit of Mr Ward, the Administrator at page 44.

   Gulf in Liquidation

6. Once Gulf was placed into liquidation, the liquidator’s task was a grim one. There were 26 creditors whose debts totalled approximately $645,000.[32] There was only $40,133 in assets which was entirely consumed by the liquidator’s remuneration and expenses as well as legal fees and the petitioning of the creditor’s costs.[33] And, the company had few proper records of its transactions.[34]

   [32]See the liquidator’s report to creditors of 17 March 2021 exhibited to Mr Ward’s affidavit at pages 41-43. The number of creditors varies a little. The minutes of the creditors meeting on 31 May 2021, for example, list 26 creditors: see Mr Ward’s affidavit at page 152 and 153. See also the list of proofs of debt exhibited to Mr Ward’s affidavit at page 220.

   [33]Mr Goodwin’s affidavit at page 41.

   [34]Mr Ward’s Affidavit at page 44.

7. Four of the creditors, some of whom appear to be related parties, proposed a Deed of Company Arrangement (“DOCA”). Those four creditors are Waanyi Advancement Ltd, Waanyi Aboriginal Corporation, GADC No. 2 Pty Ltd, and WAL Corporate Pty Ltd. Their debts total $320,000.[35] On 18 February 2021, the liquidator appointed administrators so that the creditors could consider the proposed DOCA.

   [35]The total debts for these creditors is also said to be $303,000 (deed poll at page 44 of the exhibits to Ms Astin’s affidavit) but the difference is not material.

8. On 31 May 2021, the creditors resolved to enter into the DOCA.  However, a number of the ordinary creditors, who together are the Contradictors on this application, say that the resolution was passed by a ‘thin majority’ in number and amount.[36]  They also contend that the majority – in number and amount – included a number of related parties.

   [36]See the contradictors’ submissions at [9].

9. Mr Goodwin records that, at the creditors’ meeting on 31 May 2021, the resolution that Gulf enter into the proposed DOCA was passed in this way:

   ·in favour - $310,041 (50.86%) – 13 in number (54.17%)

   ·against - $299,565 (49.14%) – 11 in number (45.85%)

   ·abstained - $44,590 (Australian Taxation Office)

10. On 8 June 2021, the DOCA was entered into by Gulf with Christopher Richard Cook and Adam Francis Ward as the Administrators of Gulf.[37]

    [37]The DOCA is exhibited to Mr King’s affidavit. 

11. The DOCA divides Gulf’s creditors into two classes.  One class of creditors are Subordinated Creditors, comprising the four creditors, listed above at [46], whose debts total approximately $320,000.  Those creditors are largely related companies.  Under the DOCA, the debts of the Subordinated Creditors are deferred until all other creditors are paid their dividend under the DOCA, or until July 2022.

12. The second class of creditors are those creditors who are not Subordinating Creditors.  Those creditors, who I will refer to as the ordinary creditors, have a right to lodge a claim in the administration.  Those who lodge a valid claim may be entitled to receive a dividend in the same way, and in accordance with the priorities, as would be the case in a winding up.  Of course, the administrators’ costs and remuneration are paid in priority.[38] The timing of dividends is at the discretion of the administrators.  The amount available to ordinary creditors is $93,000.[39]

    [38]Clause 2.6 of the DOCA.

    [39]Clause 2.6.1.2 of the DOCA.

13. A comparison of clauses 2.4, 6.1 and 6.4 of the DOCA makes it clear that the debts of ordinary creditors are discharged once a dividend is paid – whatever the amount of the dividend.  The debts of subordinated creditors are not discharged by the DOCA.

14. Mr King deposes that, because a dividend has now been paid, all claims of the ordinary creditors have now been released and that only the claims of the subordinated creditors remain.[40]

    [40]Mr King’s affidavit at [34].

15. The dividend was paid on 24 August 2021. The dividend comprised a full dividend of $11,000 paid to priority creditors and the balance of $82,000 shared amongst the other ordinary creditors.

16. On my calculation, the payment to ordinary creditors totalling $93,000 represented a payment to each ordinary creditor of approximately 28.62 cents in the dollar.[41]  That assumes the creditors comprised $600,000, plus an Australian Taxation Office debt of $45,000, with the subordinated creditors of $320,000 excluded.

    [41]Note that during argument, I put this rough calculation to the parties’ legal teams. Neither demurred. In fact, the priority creditors (employee claims) received 100 cents in the dollar and the other ordinary creditors received approximately 25 cents in the dollar.

17. I will return to the way in which the two different classes of creditors are treated.  For present purposes, however, it will be noted that the effect of the DOCA is that the so-called subordinated creditors have the ability to recover their deferred debts and remain entitled to 100 cents in the dollar.  The fate of the unsecured creditors is that under the DOCA they are entitled to a dividend, but their debts are discharged.

18. To add insult to injury, the liquidator now resists those ordinary creditors having a right to be heard on this application.  That right to be heard is resisted on the basis that, by reason of the provisions of the DOCA, the debts of the ordinary creditors are now discharged and, as a matter of law, they now have no debt.[42] 

    [42]See the applicants’ submissions at [6].

    The Deed Poll

19. One of the recent developments is that, on 20 October 2021, the four subordinated creditors executed a document described as ‘Deed Poll of Release and Subordination’.[43]  By that document, said to be made in favour of Gulf and its creditors from time to time, the subordinated creditors agree to reduce their debts to 20% of their admitted amounts.  That partial release operates in the event that this court makes an order terminating the winding up.

    [43]Ms Astin’s affidavit at page 41.

20. The effect of the deed poll, if it comes into effect, is to reduce the admitted subordinated debts from $303,501[44] to $60,700, i.e. reduced to 20%.

    [44]The debts owed to the subordinated creditors are variously stated to be $303,501 and $320,000.

21. Of course, a deed poll or a simple contractual subordination between the company and creditors is peculiarly susceptible to alteration.  That is illustrated by a number of decisions referred to me by counsel.  For example, in Re Nature Springs Pty Ltd (in liq)[45] McLelland CJ in Equity took the view that a simple contractual subordination between the company and the proposed deferred creditors did not provide a sufficient or safe mechanism for the protection of future creditors of an insolvent company so as to justify termination of the winding up.  The relevant subordination contract was described by His Honour as being ‘inherently susceptible to being varied or discharged by a further agreement between the same parties, or to being simply ignored.’[46]

    [45](1999) 13 ACSR 50.

    [46]This decision was followed and applied by Barnett J in Sutherland v Rahme Enterprises Pty Ltd (in liq) [2003] 46 ACSR 458 at [22]. See also O’Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40 at [76]-[82].

22. The transitory effect of a deed poll was explained by Priestly JA in Burns Philp Hardware Ltd v Howard Chia Pty Ltd:

    By this submission the lessor says that it has consented in advance to any request the lessee may ever make in regard to use of the premises for any purpose.  It is submitted that the consent is irrevocable because the lessor has said so by deed.  However, an undelivered deed poll is no more in law than a soliloquy under seal.  Although the deeds here were sent to the lessee, I think the facts I have earlier narrated show that delivery was not accomplished in the sense that they were accepted by the lessee as documents either having legal effect or upon the lessee could act.[47]

    [47](1987) 8 NSWLR 642 at 659D.

23. For the applicants, Mr Jones contends that here, the deed poll will be buttressed by an equivalent undertaking to the court.  Certainly, in Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd,[48] White J was prepared to assume that the undertakings offered to the court might mean that the Agreement would not be varied.  However, His Honour acknowledged the possibility of the undertakings being ignored or circumvented.

    [48][2004] NSWSC 783 at [12], [18].

24. For my part, in this case, I am prepared to assume that the subordinated creditors here would not vary or alter the deed poll and would abide by any undertaking to the court.

25. However, before leaving this topic it is necessary to emphasise that the debts owed to the subordinated creditors totals approximately $320,000 or $303,000.[49] Only in the event that the court orders that the winding up be terminated will those debts be reduced to $60,000 (approx.). I mention that because, as counsel for the applicants emphasised, much of the focus in applications under s 482 of the Corporations Act2001 (Cth) is prospective in the sense that there is a public interest in the court having some confidence that, if the company were revived, it would trade profitably. In particular, the court is concerned to ensure that, if Gulf is permitted to resume trading, its new creditors would be paid and that those new creditors would not be prejudiced by having to compete in a later winding up with the existing subordinated creditors[50] - whether their debts total $60,000 or $320,000.

    [49]The liquidator’s reports refer to the higher amount, but the deed poll refers to the lower amount.

    [50]cf Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd (in liq) [2004] NSWSC 783 at [15].

26. I hasten to add that $60,000 is a significant sum in the context of this company.  Counsel’s ‘rough prospective profit and loss statement’ of Gulf estimates an annual profit of $14,000 with a gross income from Century of only $75,000.

    The Legal Principles

27. The principles to be considered in deciding whether to terminate a winding up are not in doubt.  The principles were comprehensively explained by Master Lee QC in Re Warbler Pty Ltd,[51] a case which has been followed and applied in Re Hughes, in the matter of Substar Holdings Pty Ltd (in liq) (No 2).[52]  Those eight factors relevant to the exercise of the discretion were restated by Black J in RE MWM Sydney Pty Ltd (in liq).[53]

    [51](1982) 6 ACLR 526.

    [52][2021] FCA 658.

    [53][2016] NSWSC 688 at [16].

28. The eight factors relevant to the discretion are as follows (with references omitted):

    1.   The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay;

    2.   There must be service of notice of the application for a stay on all creditors and contributories, and proof of this;

    3.   The nature and extent of the creditors must be shown, and whether or not all debts have been discharged;

    4.   The attitude of creditors, contributories and the liquidator is a relevant consideration;

    5.   The current trading position and general solvency of the company should be demonstrated.  Solvency is of significance when a stay of proceedings in the winding-up is sought;

    6.   If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given;

    7.   The general background and circumstances which led to the winding-up order should be explained;

    8.   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’.

29. Of course, the list is not intended to be exhaustive or a rigid set of principles.[54] The eight factors, as they apply to this matter, are individually considered below.

    [54]Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533.

    Factor 1: Discretion and Onus

30. As Master Lee QC explained, the granting of a stay, or the termination of a winding up, is a discretionary matter and there is a clear onus on the applicant to make out a positive case.

    Factor 2: Service on Creditors and Contributories

31. It is not contested that this application has been brought to the attention of creditors – that is persons or companies who are creditors and contributories. The liquidator, Mr Kelly, sent a circular to creditors advising of an intention to make this application in the future.[55] And either all, or most, of the creditors are represented on this application. 

    [55]Mr Kelly’s affidavit of 20 September 2021 exhibits (at page 26) the circular.

32. As counsel for the applicants pointed out, the service of the application on all creditors and contributories is not an absolute requirement.[56]

    [56]State Debt Recovery Office v Veraz Enterprises Pty Ltd [2001] NSWSC 900 at [7].

    Factor 3: Nature and Extent of Creditors

33. The nature and extent of the creditors must be shown, and whether or not all debts have been discharged.

34. The affairs of Gulf show that it was likely to have been insolvent (even apart from the deemed insolvency) at the time of the winding up order, and possibly before that. Gulf’s debts totalled $645,000, while its assets only totalled $41,000.

35. The requirement that the court consider the ‘nature and extent of the creditors’ and ‘whether or not all debts have been discharged’ means that this factor is both forward and backward looking. The enquiry is as to what creditors have been paid, what creditors are unpaid, and to what extent.

36. A court might be inclined to revive a company where the debts have been paid or substantially paid, provided its prospects were sound. On the other hand, the fact that many creditors remain unpaid would be a factor against the revival of the company. The fact that the court is obliged to consider the nature and extent of the creditors, and whether those creditors have been paid, means that it is logical that the court is entitled to consider the views of those creditors. And the court is not disqualified from considering the views of the creditors if the debts of those creditors have been discharged. It would be absurd if the court were not entitled to consider the views of disappointed creditors whose debts had been discharged after they received a dividend of, say, one cent in the dollar, but were entitled to consider the views of creditors whose debts were preserved and were likely to be paid in full. Therefore, in my view, on applications to revive a company under s 482(1) of the Corporations Act 2001 (Cth) the court is entitled to consider the views of creditors, whether their debts are discharged or not, as well as the extent to which their debts are discharged or affected by the liquidation.

37. It is proper to consider the views of Gulf’s ordinary creditors, even though their debts are now discharged. They are not a small minority. They comprise roughly 50% of Gulf’s creditors. The DOCA was imposed on them against their wishes and the effect of the DOCA was that they received only a fraction of the sums due to them, whilst the debts of the subordinated creditors were preserved. In those circumstances, it seems perfectly reasonable that the court take into account their views on whether Gulf should be revived. Their views are set out below.

    Factor 4: Attitude of Creditors, Contributories and Liquidator

38. The liquidator makes this application to revive Gulf and obviously supports it.  The administrators also support the application, as do the four subordinated creditors.

39. The ordinary creditors oppose the application.

40. All of those views should be taken into account. However, at least as important in the circumstances of this case, is the attitude of the native title groups. Gulf’s primary function is to act as trustee and to distribute the entitlements from Century to the native title groups.  In other words, in the present application, given the function of Gulf, the court’s exercise of its discretion should be informed by those who are the beneficiaries.

41. Mr William Stanley Doomadgee, the director and chairperson of one of the native title groups, the Waanyi Native Title Aboriginal Corporation, has sworn an affidavit.  He deposes that, at a meeting on 19 April 2018 – that is before Gulf fell into liquidation – his group had a meeting of 101 members.  The unanimous vote was in favour of the native title group’s payments being paid directly to Waanyi’s eligible bodies, rather than through Gulf as an intermediary.

42. Further meetings are deposed to by Mr Doomadgee, including a meeting on 28 November 2019 (the same day as Gulf was placed into liquidation).  That meeting, attended by 50 members, resolved unanimously to appoint Waanyi Native Title Aboriginal Corporation to perform the functions of Gulf.

1. The views of Mr Doomadgee, and those that stand behind him, must be accorded considerable respect.  In a real sense, the Waanyi Native Title Group has expressed a strong desire to directly handle its entitlements.

2. The application is also opposed by the Carpentaria Land Council Aboriginal Corporation (“Carpentaria”).  Mr Kevin Murphy, Carpentaria’s Principal Legal Officer, has sworn an affidavit.  He deposes to the community meetings of, firstly, the Gkuthaarn and Kukatj Native Title Groups and, secondly, the Mingginda Native Title Group.  Both meetings lasted approximately two hours, on 28 April 2021.  There was then a joint meeting of all three native title groups chaired by Mr Murphy.

3. All three native title groups unanimously resolved that Gulf should no longer represent them for the purposes of the Agreement.  They do not want Gulf to emerge from liquidation and to represent them again.  They have appointed their own corporations to represent them and to receive monies payable under the Agreement.

4. Finally, the liquidator’s report to creditors, of 15 March 2021, records the following:

   We have been advised by Ashurst, on behalf of New Century Resources and Century Mining Limited, that there have been three Native Title Group Meetings held to consider the role of [Gulf] in relation to the Gulf Communities Agreement.

   We understand that the Waanyi, Mingginda and Gkuthaarn/Kukatj Native Title Groups have all resolved that they no longer wish to be represented by [Gulf] under the Gulf Communities Agreement.

   Accordingly, the resolutions passed at these community meetings do call into question [Gulf’s] ongoing purpose and ability to continue. Despite [Gulf’s] future purpose being likely to be substantially different to its original intended purpose, it remains important to consider more prominently the best outcome for creditors at this point in time.[57] [emphasis added]

   [57]Mr Ward’s affidavit at page 84 of the exhibits.

5. All of those views of the native title groups deserve considerable respect. As the Agreement records, Gulf was required to act in the interests of those native title groups.[58]

   [58]See clause 14 of schedule 8.

   Factor 5 – Solvency

6. As explained above, it is likely that Gulf was insolvent in November 2019, even apart from the deemed insolvency, and it is likely to be insolvent now in November 2021.

7. An important aspect of this factor is the likely financial strength of Gulf were it to be revived and resume trading.  In other words, the important question is what the company’s future trading prospects look like.

8. No independent expert evidence is offered on the issue of insolvency or on Gulf’s future prospects. No business plan or similar document is proffered. The only document that comes close is the ‘rough balance sheet’ and the ‘rough profit and loss statement’ that forms part of the applicant’s submissions.[59] The ‘rough balance sheet’ shows only proposed working capital/assets of $35,000 and liabilities of $60,000. The proposed working capital is to be supplied by one of the subordinated creditors, GADC No 2 Pty Ltd.[60] The basis on which that capital is to be supplied is not clear.[61] The ‘rough profit and loss statement’ shows expected administration payments from Century of $75,000 with estimated operating expenses of $61,000. Thus, a profit of only $14,000 is roughly estimated.

   [59]Applicant’s submissions at [27], [28]. These documents are prepared based on the affidavit evidence.

   [60]Mr King’s affidavit at [39].

   [61]It is not said for example that there is binding contract to contribute $35,000 or that the provision of the funding will be a gift or a loan pending receipt of the administration payments from Century, or on some other basis. It is merely deposed to that “Should this application be successful, it is intended that GADC 2, will provide a minimum of $35,000 to the Company to meet its expenses and carry out its duties under the (Agreement) prior to receiving the administration funding from the Mine.” (Mr King’s affidavit at [39].)

9. The anticipated profit is modest, and the exhumed company will still be burdened by a debt of at least $25,000. The company would be revived only to re-commence as an insolvent company. And those mediocre prospects are entirely dependent on the continued income stream from Century. There is no guarantee that the income stream will continue. Already, Century has been paying a proportion of the administration fee direct to the native title groups, and Century proposes to pay the entire administrative payment to the native title groups in the agreed proportions.[62] Thus, Gulf’s entitlement to that income stream of administration payments may not occur, or may only occur after negotiation or litigation.[63] Without the prospect of significant payments from Century, it is difficult to see how Gulf will be able to pay its on-going costs and expenses.      

   [62]See Mr Goodwin’s second affidavit at [7] and [8].

   [63]That negotiation or litigation is likely to involve Century and the native title groups – who appear to be cooperative with each other.

10. Importantly also, there is no report or investigation of the demise of Gulf. Its demise may be due to the problems with management, or due to the shrinking funds it was managing, or due to some other cause. It is even possible that, with the best management and with a core of loyal native title groups, the role of an intermediary like Gulf is inherently unprofitable.  

11. Mr King’s affidavit, quite properly, portrays Gulf’s role as akin to that of a trustee.  The central problem, though, is that the beneficiaries of the present trust have decided to manage their own funds, and they have been doing so for the past two years.  There is no suggestion that they are unable to do so efficiently and properly. To a large extent, Gulf’s role as trustee has become redundant.

12. It is true that Gulf’s role involves more than just its role as a trustee. Gulf has heritage, cultural, environmental and lobbying functions. However, for the past two years, those functions have either not been performed or have been undertaken by others. And, given the evident cooperation between Century and the native title groups, there is every reason to assume that, if Gulf remains in liquidation, arrangements will be made between Century and the native title groups to have those roles performed by the native title groups themselves or by others, such as the Carpentaria Land Council. Indeed, the demise of Gulf and the nearly 25 years that has passed since the execution of the Agreement may well mean that Century, the native title groups, and the Queensland Government may be keen to amend or update the Agreement.   

13. In the circumstances, the trading position of Gulf, and its trading prospects, do not favour a revival of the company. To reinstate Gulf would offend what McLelland CJ in Equity described as a long established principle:

    It is a long established principle that it is contrary to the public interest to terminate the winding up of a company if after the termination the company would remain insolvent in the sense that its liabilities will substantially exceed its assets, even if there is a contractual subordination of all existing debts to future debts.[64]

    [64]Re Nature Springs Pty Ltd (in liq) (1994) 13 ACSR 50 at 51.

14. Of course, this is only one of the factors to be considered, but it is a factor of some significance.

    Factor 6 – Breach of Statutory Duties

15. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing of a statement of affairs, a full explanation of the reasons and circumstances should be given.

16. As explained above, there has been an almost complete lack of co-operation from the directors.  The applicant’s response to that factor has been to appoint an entire new board of directors and management.  It is a good response.

17. There is, however, one exception. The only person from the previous management of Gulf who would have a role in Gulf, in the event that it is revived, is Ms Francine George.

18. The evidence of Ms George’s role in Gulf before its demise is that, from 6 January 2013, Ms George was the co-chair and a director of Gulf.  She was also company secretary, apparently on an acting basis, from 30 November 2013.  There is no evidence as to whether or when those roles ceased. However, it is conceded that Ms George still holds the role of company secretary. 

19. Counsel for the contradictors highlighted Ms George’s continued presence as a remaining member of the ‘old guard’. That was a serious concern because of the financial mismanagement that had taken place prior to the order winding up Gulf in November 2019.  The submission made for the contradictors is that Ms George must bear at least some of the responsibility for that mismanagement, but she remains in her role.

20. Counsel for the applicants informed me that the administrators of Gulf have no power to remove the company secretary, but the proposed new management was determined to sever the connection with the past operations and past management of Gulf.  Given the stance taken by the applicants, I have little doubt that Ms George’s role as company secretary is likely to end shortly.

21. Thus, the relevance of Ms George’s present position as company secretary is that the previous management has not yet been completely swept aside. However, a clean sweep is likely to occur.

22. That said, the existence of an entirely new board means that Gulf will be managed as it would if it were a newly formed company.  That is not a strong factor in favour of reviving the old company. It merely means that a strong factor against the revival of Gulf, namely the potential for continued poor management, has been negated. The end result is that this factor is neutral. 

23. 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

24. There should be an explanation of the general background and circumstances which led to the winding up.

25. 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.

26. 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.

27. 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

28. 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’.

29. 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.

30. 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.

31. 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.

32. But it will do so weighed down by $60,000 of debts, or perhaps $25,000 in debts, without a guaranteed income, and without a business plan or any expert forward planning.

    Conclusions

33. There is, in my view, considerable force in several of the points made in the final paragraph of the contradictors’ submissions:

    Conclusion

    43. [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.

34. 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.

35. 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.