Re Intag International Ltd (in Liq): ex parte Westpac Banking Corporation

[1999] NSWSC 645

CITATION:	Re Intag International Ltd (in Liq): ex parte Westpac Banking Corporation v Intag International Limited [1999] NSWSC 645
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	1144/99
HEARING DATE(S):	28/06/99, 29/06/99
JUDGMENT DATE:	29 June 1999
PARTIES :	Westpac Banking Corporation (ARBN 007 457 141) (P) Intag International Limited (ACN 009 270 188) (D)
JUDGMENT OF:	Santow J

COUNSEL :	ex parte J Priestley (D)
SOLICITORS:	ex parte Dunhill Madden Butler (D)
CATCHWORDS:	CORPORTIONS — Terminating winding-up under s482(1) of Corporations Law — Relevant principles — Moulding orders and undertaking to ensure public interest and commercial morality not jeopardised — Self-executing order putting company back into liquidation if payments not received by company under Deed of Company Arrangements — Solvency considerations — Future directorial and financial control.
ACTS CITED:	Corporations Law s436B(2); s482(1);
CASES CITED:	Re Data Homes Pty Ltd [1972] 2 NSWLR 22 Re Elvi Pty Ltd; Re Fullin Enterprises Pty Ltd (1983) 1 ACLC 910 Re Mascot Home Furnishers Pty Ltd (in liq) [1970] VR 593 Re Skay Fashions Pty Ltd (in liq) (1987) 5 ACLC 46 Re Telescriptor Syndicate Ltd [1903] 2 Ch 175
DECISION:	Winding-up terminated.

Intag.29June99 — 29 June, 1999: Re Intag International Ltd (in Liq): ex parte Westpac Banking Corporation v Intag International Limited

5

REVISED — 29 June, 1999
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 1144/99
In the matter of INTAG INTERNATIONAL LTD (in Liq) (ACN 009 270 188) and the Corporations Law
WESTPAC BANKING CORPORATION (ARBN 007 457 141)
Plaintiff
INTAG INTERNATIONAL LIMITED (ACN 009 270 188)
Defendant
JUDGMENT — ex tempore

29 June 1999 1 What follows are my reasons for making the orders to-day that the winding-up of the Defendant be terminated pursuant to s482(1) of the Corporations Law, such orders being expanded to include relevantly orders 2, 3 and 4 quoted below, with liberty to apply to cater for unforeseen circumstances.

“2. Intag, without further order of the Court, be wound up in the event that the assignment of receivables as referred to in the letter of AAIL to Sims Lockwood dated 17 June 1999 and annexed hereto and marked “ A ” is not executed by 7 July 1999;
3. Intag, without further order of the Court, be wound up in the event that $2 million is not received by it in cash by 31 December 1999, such sum being the sum referred to in the paragraph numbered 2 of the undertaking of AAIL filed herein and dated 29 June 1999;
4. in the event of Intag being wound up pursuant to orders 2 and 3, the Court appoints the administrator and liquidator, Mr Anthony Sims as the liquidator;”

2    By way of background, I set out the applicant’s chronology and elaborate on certain aspects below:

Date	Event
18.11.97	Company seeks to raise $1.2M with Ausasean
24.07.98	Further attempt by company to raise funds with Ausasean
16.11.98	Ausasean Raise only $300K $82K borrowed from two related companies
01.12.98	Mr Tom Ovnerud appointed director of Intag
17.03.99	Trading in company’s shares suspended for non compliance with ASX rules
22.03.99	Company appoints Vince Barilla as administrator
22.03.99	Applicant appointed liquidator of company, thus terminating administration. Order was made on application of Westpac re a 70K debt
02.06.99	Liquidator appoints self as administrator with leave of court
09.06.99	First meeting of creditors per Pt 5.3A
15.06.99	Notice of second meeting and 439A report sent to creditors
21.06.99	Davison removed by administrator as director
23.06.99	Second meeting of creditors per Pt 5.3A
23.06.99	Creditors resolve to enter DCA
25.06.99	DCA executed

3    These orders have been made following undertakings which deal with several matters bearing upon the proper exercise of the Court’s discretion. Not only must the solvency of the Company be sufficiently assured, though that is of critical importance. In addition, the Court must consider whether such a termination will be conducive or detrimental to commercial morality and the interests of the public at large, as has been settled by a long line of authority. Thus, see Re Telescriptor Syndicate Ltd [1903] 2 Ch 175; Re Mascot Home Furnishers Pty Ltd (in liq) [1970] VR 593; Re Data Homes Pty Ltd [1972] 2 NSWLR 22; Re Elvi Pty Ltd; Re Fullin Enterprises Pty Ltd (1983) 1 ACLC 910; Re Skay Fashions Pty Ltd (in liq) (1987) 5 ACLC 46. 4 Those considerations were also clearly present in the mind of Young J when this matter came before him on 2 June 1999 by way of an application under s436B(2) of the Corporations Law for leave for the Liquidator to be appointed Administrator. Indeed it is from the efforts of the Liquidator in that dual role that a salvage proposal has emerged leading to the execution of a Deed of Company Arrangement (“DCA”) on 25 June 1999 in a commercial context and with the subventions elaborated in the Liquidator’s report of 28 June 1999. The Liquidator concludes that the best return to the unsecured creditors of the Company will be achieved if the DCA is implemented and which can only occur if the liquidation is terminated. At para 31 the Liquidator concludes:

“31. Based upon information available to me from both the board of directors of the Company and AAIL, I am reasonably satisfied that AAIL will be able to meet its financial commitments pursuant to the Deed of Company Arrangement, that the Company will be in a position to pay its debts as and when they fall due if the liquidation of the Company is terminated and that based upon the projected cash flow, the Company should be in a position to trade solvently.”

5    It is apparent from the DCA that there are a number of critical steps which depend upon liquidation terminating. These essentially relate to payments elaborated in the DCA from a listed company Australian Authorised Investments Limited (“AAIL”). AAIL is engaged in the telecommunications business whilst Intag is involved in what are called smartcards, being cards in which is embedded a microchip for various uses such to effect payments by computer. 6    The undertakings which I have required are directed at the following:

(a) ensuring that AAIL makes the payments which are said to be sufficient for Intag’s future solvency, and

(b) ensuring that a board is in place which includes

(i) no director who has been the subject of criticism in the Liquidator’s report earlier referred to and the Administrator’s report pursuant to s438D dated 25 June 1999 though in Dr Solomon’s case not precluding his future non-directorial involvement under proper arrangements whereby his expertise can be made available though not at senior executive level, and
(ii) a director still to be appointed with requisite commercial experience and of good standing and reputation to be added to the newly appointed His Royal Highness Tunku who is, I understand, a leading Malaysian businessman.

7    In addition, the undertakings require that a competent independent financial controller of good standing and reputation is immediately appointed on an acting basis, to be replaced by a permanent appointment by 30 September 1999. 8    As further assurance that the relevant payments will be received, and in particular the critical payment of $2 million to be derived from the assignment of receivables and to be paid in cash by 31 December 1999, the orders provide that Intag will be wound up without further order should either:

(a) the assignment of those receivables not be executed by 7 July 1999, or

(b) the payment therefrom in an amount of not less than $2 million fail to be received in cash by 31 December 1999.

9    It will be appreciated that the interests of the public at large and commercial morality are best served by precluding the return from liquidation of companies whose solvency is still questionable or whose past insolvency is the result of mismanagement where no adequate steps have been taken to correct it including removal of those responsible from directorial or senior executive responsibility. Thus it is important to have adequate assurance that the restored company has arrangements in place to correct for the future those causes of its past failure. 10    It is therefore not enough merely to look to solvency though that is a necessary condition of terminating liquidation. I am satisfied that in the present case, there is a sufficient basis of assurance that the Company has put in place adequate arrangements to address both solvency and future management for me to make the earlier orders. While certainty in these matters is not possible, there is the sanction of a self-executing order that the Company returns to winding-up if that assurance is disappointed. If perfect certainty were required, the intention of permitting administration to see if a company were salvageable would be frustrated. **********

Last Modified: 06/30/1999