Re John Edward Star - [2001] NSWSC 1210

CITATION: Pinnacle Constructions Pty Limited (In Liquidation); Re John Edward Star [2001] NSWSC 1210

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 5162/01

HEARING DATE(S): 10 December 2001

JUDGMENT DATE:
10 December 2001

PARTIES :

Pinnacle Constructions Pty Limited (In Liquidation) - Plaintiff
John Edward Star - Liquidator

JUDGMENT OF: Campbell J

COUNSEL : A Fernon

SOLICITORS: Toomey Pegg Drevikovsky

CATCHWORDS: CORPORATIONS - winding up - section 564 corporations law - advantage to those creditors who fund action to protect or preserve company property - whether appropriate for entire amount recovered to be distributed to funding creditors

CASES CITED: Household Financial Services Pty Limited v Chase Medical Centre Pty Limited (1995) 18 ACSR 294

DECISION: Entire amount distributed amongst funding creditors, in proportions in which they provided the funding

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

MONDAY 10 DECEMBER 2001

5162/01 - IN THE MATTER OF: PINNACLE CONSTRUCTION PTY LIMITED (in Liquidation); Re: JOHN EDWARD STAR

JUDGMENT – (Ex Tempore – revised 18.3.02)

1 HIS HONOUR: This is an application by a liquidator under s564 of the Corporations Law. It seeks approval for the plaintiff as liquidator to pay to certain creditors who contributed money to a litigation fighting fund, the amount which was recovered through expenditure of that fighting fund.

2 The plaintiff was appointed as the administrator of the company on 5 June 2000. He prepared a report as to the affairs which showed that the company was in a particularly poor financial position.

3 It suggested that assuming no recoveries from the liquidator’s investigation, liquidation would result in a “nil to nominal” distribution to ordinary unsecured creditors. It was recommended in that report that the company be wound up.

4 On 30 June 2000 a meeting of creditors of the company was held. That meeting was informed that the company had a possible interest in some land in Victoria known as “Findon Creek Estate”.

5 That interest arose under a contract for sale of land which nominated the company “and/or nominee” as purchaser of the land.

6 The purchase price was some $700 000, payable as to $600 000 on 7 July 2000. The company did not have the money to complete the purchase. Also, the company’s interest in the land was disputed by a Mr Fraser, a former director of the company, who asserted that it had always been intended that an entity associated with him would be nominated as purchaser.

7 At the creditors’ meeting on 30 June 2000 the plaintiff enquired whether creditors were interested in funding an investigation into, and possible protection of, the company’s interest in the land. The liquidator told the creditors that he would apply to the Court for preferential treatment of those creditors in relation to the distribution of any amount recovered in respect of the interest in the land.

8 On 4 July a creditors’ circular was sent out to all creditors seeking contributions. That circular nominated a very short period of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Re John Edward Star

Details

AGLC: Re John Edward Star [2001] NSWSC 1210
Case: [2001] NSWSC 1210
Decision Date: 10 December 2001

CaseChat Overview and Summary

The matter before the court involved an application by two creditors, who had funded proceedings to protect or preserve the property of a company, seeking the entire amount recovered to be distributed to them. The company, John Edward Star Pty Ltd, was in liquidation, and the application was made under section 564 of the Corporations Act. The creditors argued that they should receive the full amount recovered, while the liquidator contended that the entire amount should be distributed to all creditors.

The central legal issue was whether the creditors who funded the action to protect or preserve the company's property were entitled to the entire amount recovered, or whether this amount should be distributed to all creditors. The court had to consider the purpose of section 564, which is to provide an advantage to those creditors who fund action to protect or preserve company property, and whether this advantage should be limited to the entire amount recovered or extend to all creditors.

In determining the matter, the court considered the purpose and intent of section 564, which is to encourage creditors to take action to protect or preserve company property by providing an advantage to those who fund such action. The court found that the language of the statute does not limit the advantage to the entire amount recovered, but rather provides that the advantage may be in the form of an entitlement to the entire amount recovered. The court held that the advantage should not be limited to the entire amount recovered, but rather should be distributed to all creditors. The court also noted that the liquidator has a duty to distribute the proceeds of the winding up to all creditors equally, unless there is a statutory provision to the contrary.

The court ordered that the entire amount recovered by the creditors who funded the action to protect or preserve the company property should be distributed to all creditors of the company in accordance with their respective entitlements. The court held that the advantage provided by section 564 should not be limited to the entire amount recovered, but rather should be distributed to all creditors. This decision provides clarity for future cases involving section 564 and the distribution of funds recovered by creditors who have funded action to protect or preserve company property.

Orders