Re JML Holdings Ltd

[1996] QSC 44

IN THE SUPREME COURT
OF QUEENSLAND

No.1637  of 1995

Brisbane

Before the Hon. Justice Mackenzie

[Re JML Holdings Ltd]

IN THE MATTER OF THE CORPORATIONS LAW  

- and -

IN THE MATTER OF JML HOLDINGS LIMITED
  (RECEIVER AND MANAGER APPOINTED)
  (IN LIQUIDATION) (ACN 007 714 570)
  (formerly, JAMES McEWAN LIMITED

JUDGMENT - MACKENZIE J. - CHAMBERS

Judgment delivered 22/3/1996

CATCHWORDS:     RECEIVERS - LIQUIDATORS - dispute over the transfer of possession of company records - 1,195 cartons of documents - liquidators claim only 162 cartons are relevant to their duties - whether liquidators must take possession of all records.

Counsel:K.N. Wilson for applicant

P. Roney for respondent

R.J. Ladley for Australian Securities Commission

Solicitors:Feez Ruthning for applicant

Watkins Stokes Templeton for respondent

Australian Securities Commission

Hearing date:               11 March 1996

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane  No.1637 of 1996

Before the Hon. Mr Justice Mackenzie

[re. JML Holdings Ltd]

IN THE MATTER OF THE CORPORATIONS LAW

- and -  

IN THE MATTER OF JML HOLDINGS LIMITED
  (RECEIVER AND MANAGER APPOINTED)
  (IN LIQUIDATION)  (ACN 007 714 570)
  (formerly, JAMES McEWAN LIMITED)

JUDGMENT - MACKENZIE J. - CHAMBERS

Judgment Delivered 22 March 1996

This is an application by the receiver and manager of JML Holdings Limited pursuant to s.1321 of the Corporations Law. The orders sought are that the liquidators of the company take possession forthwith of the books and records of the company, which are presently in the possession of the applicant, and be responsible for any ongoing costs of possession of books and records. Alternatively an order is sought that the books and records of the company be destroyed forthwith by the liquidators at the liquidators' cost. The company went into receivership on 11 August 1992. The liquidators were appointed on 14 April 1993. The receiver and manager is ready to retire as such but deposes that he is unable to do so because he has been unable to make satisfactory arrangements with respect to the books and records. They are said to comprise 1,195 cartons of documents distributed through three States. The company was a hardware supplier and there is a huge quantity of documents relating to individual transactions. Storage costs are about $2,200 per month and to date about $72,300 has been spent on storing them. The problem that brought the matter before the court is that the liquidators, on the basis of an inspection by their staff, believe that only 162 of the cartons are relevant to the performance of their remaining functions. There has been a good deal of correspondence since 1993 about the books and in particular whose responsibility they are. There had been an application in September 1993 for a direction that the liquidators were justified in not taking possession of all of the books and records of the company. On the basis of the information then before him the Chamber Judge took a view that subsequent events have falsified as being too optimistic. He expressed the view that the best course was to wait until the end of the receivership, which was then believed to be no more than 12 months away, in the hope that the liquidation itself might be nearing completion so that some short term holding arrangement could then be made with respect to the books.
I was assisted by helpful submissions by the legal representatives of the parties and the Australian Securities Commission. However that help did not establish any clear way through the constraints imposed by the Corporations Law.
The basis of the liquidators' reluctance to take physical possession of the books and records is that they have no funds with which to pay for storage or to transport the records. The liquidator wishes to take possession only of the 162 cartons and to be excused from any obligation in respect of the remainder. Until recently the receiver and manager had not been prepared to release only that part of the records asked for by the liquidator. Section 474(1) of the Corporations Law obliges a liquidator to take into custody or control all the property to which the company is or appears to be entitled. Section 545 absolves the liquidator from liability to incur any expense in relation to the winding-up of a company unless there is sufficient available property. Section 545(2) provides that the Court may on the application of a creditor or contributory direct a liquidator to incur a particular expense on condition that the applicant indemnifies the liquidator in respect of the recovery of the amount expended. Section 545(3) declares that neither of the foregoing provisions relieves a liquidator of any obligation to lodge a document (including a report) with the Commission by reason only that expense would be incurred in performing the obligation. The report under s.533 of the Corporations Law has not yet been made but there is no dispute that the liquidators are obliged to do so. I was informed verbally that once the liquidators have the documents, the work necessary to compile the report should be completed within about a month.
The Victorian regional office of the Australian Securities Commission has inspected about 6 boxes of the books and records for the purpose of examining specific complaints by creditors of the company but no action was taken with respect to the complaints. The remaining cartons of records have not been examined by the ASC. The ASC at this point does not have any reason to examine the records further but points out that this situation may change if the liquidators' report under s.533 raises any infringements of the Corporations Law. The ASC took the position that it was in the public interest that the books and records should be preserved and that ultimately it was the liquidators responsibility to do so unless excused from such responsibility.
           With respect to the alternate order for destruction of the books and records s.542(2) requires the liquidator, if a company has been wound-up, to retain the books for a period of 5 years from the date of dissolution.  At the end of that period, subject to Income Tax Assessment Act 1936, they may be destroyed. Section 542(3) provides that when a company has been wound up the books may be destroyed within a shorter period if the court directs (in the case of a winding up by the court, which the present case is.) The ASC submits that an order for early destruction of the books could only be made upon dissolution of the company. It submits that the liquidators have not finalized their administration and cannot do so until they have possession of the 162 cartons of relevant documents. Because the ASC has not received a report from the receiver under s.422(1) or the liquidators under s.533(1), the Commission would be handicapped in the event that it felt obliged to investigate aspects of the company's affairs on the basis of the reports if the records had been destroyed.
On the view I have reached it is unnecessary to examine in detail several of the matters argued on behalf of the liquidators. One of those matters concerns the applicant's standing to apply under s.1321. I am prepared to assume, without deciding, that the standing exists. On the facts before me I am satisfied that the liquidators cannot be obliged to take the documents into their physical possession. They have indicated that they intend to take into possession the 162 cartons which are necessary, in their opinion, to complete their statutory functions. I have been told that once the books are obtained the process of liquidation is expected to be completed within a comparatively short time. I am satisfied that it is premature, having regard to the terms of s.542, to order premature destruction of the documents. However such an application may be made once the liquidation is complete and in view of what I have been told in these proceedings there is now no impediment to obtaining the 162 cartons. In that case, having regard to what has been said about the time required to complete the liquidators' functions, the liquidators' responsibility is to do so promptly so that a clearer picture emerges as to the need for retention of the remaining records. The result is that a right to the orders sought has not been established and the application is therefore dismissed with costs to be taxed.