Re S & D International Pty Ltd (in liq); Malhotra v Tiwari

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 7149 of 2005

IN THE MATTER OF S & D INTERNATIONAL PTY LTD (IN LIQUIDATION) (AS TRUSTEE FOR THE S & D INTERNATIONAL UNIT TRUST)

DINESH MALHOTRA	Plaintiff
v
SHEELA TIWARI and PRADEEP TIWARI	First Defendants
PETER ROBERT VINCE and STIRLING LINDLEY HORNE (in their capacity as Administrators and Liquidators of S & D International Pty Ltd (in liq))	Second Defendants
DAVID MOND	Third Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	26-30 September 2005; 3, 5, 6, 10-12, 24-27, 31 October 2005; 2 November 2005
DATE OF JUDGMENT:	22 December 2005
CASE MAY BE CITED AS:	Re S & D International Pty Ltd (in liq); Malhotra v Tiwari
MEDIUM NEUTRAL CITATION:	[2005] VSC 496

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CORPORATIONS – application for termination of liquidation – alleged misconduct of administrators and liquidators – sundry applications under ss.233, 237, 447A, 482, 1321 and 1324 of the Corporations Act 2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Selimi	Starnet Legal Pty Ltd
For the First Defendants	Dr P Vout (until 27/10/05) *Mr P Tiwari appeared for himself on 31/10/05 and 2/11/05	Boyle Tefler & Kooblal
For the Second Defendants	Mr R. Randall with Mr S Pitt (26-30/9/05)	Madgwicks
For the Third Defendant	No appearance

HIS HONOUR:

Introduction

This proceeding arises out of the affairs of an Indian grocery business (“the business” or “the Bharat Traders business”) conducted in West Footscray by S & D International Pty Ltd (“the Company”) as trustee for the S & D International Unit Trust (“the Trust”).

The plaintiff, Dinesh Malhotra,[1] is the holder and the beneficial owner of one-half of the units in the Trust. The remaining units in the Trust were formerly held by the defendant Sheela Tiwari (“Sheela Tiwari”)[2] and it is sufficient to say that they are now held or controlled by interests representing her or her family.
[1]The plaintiff is aged 44, having been born in India in 1961.
[2]Sheela Tiwari is aged 39, having been born in India in 1966.

Sheela Tiwari and her son, the defendant Pradeep Tiwari, are and have been for some time the only directors of the Company.

The Company entered voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) (“the Act”) on 29 April 2005 when the defendants Peter Robert Vince (“Mr Vince”) and Stirling Lindley Horne (“Mr Horne”) were appointed administrators. On 29 June 2005 the Company went into liquidation and Messrs Vince and Horne became the liquidators.

The proceeding was commenced by originating process filed on 12 July 2005, pursuant to which the plaintiff seeks orders, inter alia, that the liquidation of the Company be terminated. Of central importance in the proceeding are two principal contentions of the plaintiff. The first is that the Company is solvent and should not be wound up. The second and related contention is that Messrs Vince and Horne, both as administrators and as liquidators, have misconducted themselves to such an extent that their remuneration should be disallowed and their right to an indemnity for the trading losses of the Company denied with the result that what would otherwise be a substantial liability of the Company would be eliminated.

I note that there is an additional defendant, one David Mond (or “Mond”), who was not represented at trial. Mond is the principal of the firm David Mond & Associates which was the Company’s accountant, but appears also to have been at relevant times a financial adviser to Sheela Tiwari and to Pradeep Tiwari and perhaps to the Tiwari family generally. On 19 August 2005, on application by Mond, I ordered that the proceeding be stayed as against him until further order “except insofar as there is a challenge to [Mond’s] proof of debt”. The exception is probably of no significance, because there is no challenge as such to Mond’s proof of debt in this proceeding. That is because he has not as yet lodged a formal proof of debt. He did lodge an informal proof of debt but that was only indirectly challenged in the sense that the plaintiff contended that Mond should not have been treated as a creditor for the purposes of voting at a creditors’ meeting and the challenge was made by way of appeal against the administrators’ decision to count his vote. It was not an appeal against any proof of debt as such.

Facts

At all relevant times the business was conducted under the name “Bharat Traders International”. The business had commenced in 1991 as a partnership between the plaintiff and his brother, Vinod Malhotra, and one Markandey Tiwari.[3]
[3]Markandey Tiwari had been married to Sheela Tiwari by a Hindu ceremony but they were divorced in 1992. The defendant Pradeep Tiwari is their son – he was born in India in 1983.

At some stage the plaintiff and Sheela Tiwari married and after July 1996 the business was physically conducted by the two of them.

The Company was incorporated on 29 July 1996. The Trust was formed by a trust deed of the same date with the Company as trustee and on or shortly after that date the Company came to operate the business as trustee for the Trust. It is worth noting, having regard to statements made at various times by or on behalf of the plaintiff, that at all times the rights of unit holders to “ownership” of, including the right to possession and enjoyment of, the assets (including the business) of the Trust were governed by the terms of the trust deed and were subject to the duties and powers of the trustee (ie the Company) thereunder.

The nature of the business was described in a number of public documents over the period from 1996 to 2002 as comprising, in substance, the importing and wholesaling of Indian groceries as well as the retailing of Indian groceries.

In or about January 1997 the Company purchased the premises from which the business was thereafter conducted, namely the building (comprising a shop and dwelling) situated at 580 Barkly Street, West Footscray (“the Footscray property”). In 2002 the Company purchased a vacant block of residential land at 45 Boronia Drive, Hillside (“the Hillside property”) situated in the shire of Melton. The Footscray property and the Hillside property remain Trust assets registered in the name of the Company.

From the time of the formation of the Trust and the Company Sheela Tiwari had been a director of the Company, the holder of the only two issued shares in the Company and the only holder of issued units in the Trust. In a document signed by Sheela Tiwari, dated 16 October 2000, Sheela Tiwari acknowledged in substance that the plaintiff owned equally (and jointly) 50% of the Trust and other assets (this document is the so-called “Statement of Assets and Liabilities”). In circumstances that are unnecessary to detail, the plaintiff and Sheela Tiwari were divorced in 1995 but their relationship appears to have continued for some years. On 26 April 2002, the relationship (including the business relationship) between the plaintiff and Sheela Tiwari completely broke down and the plaintiff was “locked out” of the Footscray property and excluded from participation in the running of the business. As a result, on 19 August 2002, the plaintiff commenced Supreme Court proceeding number 6869 of 2002 (“the first Supreme Court proceeding”) in which the plaintiff, in substance, claimed a beneficial interest in one-half of the assets of the Trust.

In July 2002 Sheela Tiwari completed the purchase of a residential property at 5 Livorno Lane, Point Cook (“the Point Cook property”). The amount of $474,242.35 payable at settlement was partly obtained from funds of the Company. The Company obtained a loan of $200,000 from the ANZ and that sum (apparently together with a further amount of company funds of about $27,000) was used by Sheela Tiwari in purchasing the Point Cook property. Apparently Sheela Tiwari also personally borrowed the sum of $275,000 to complete the purchase.

It would not seem to be in dispute that the business was successful with reported profits for the financial years 2001-2002 and 2002-2003 of about $150,000 per annum, although it is to be noted that these profits were calculated without charging wages for those family members who were employed in the business.

On 29 January 2004, Pradeep Tiwari signed and lodged a Business Names Application form in relation to the business stating the nature of the business to be “retail, Indian groceries, lentils, spices”. The activities of importing and wholesaling as referred to in earlier descriptions of the nature of the business were omitted. At or about the same time, Pradeep Tiwari signed and lodged a Business Names Application form in relation to the business name “Tiwari & Co” with a proposed starting date for the business of 3 March 2004 and with the same address as the business of the Company (ie the Footscray property).

I interpolate here that Pradeep Tiwari in an affidavit sworn 8 April 2005 said that on 2 March 2004 he registered the business name Tiwari & Co and that it was his intention to build a business wholesaling electronic products such as mobile phones, DVD players and MP3 players to retailers in Melbourne. He said that, since he was living at the Footscray property and working in the business there, he obtained his parents’ permission to use the address of the Footscray property and to start the wholesale business from those premises. He also deposed that, in April 2004, he was contacted by numerous suppliers to the Bharat Traders business who told him that the plaintiff had been writing to them demanding copies of documents and accounts and who expressed concern about being paid for the goods that they supplied. Pradeep Tiwari said that, as a result, he purchased goods from those suppliers and gave them assurances that they would be paid by Tiwari & Co, and he then on-supplied the goods to the Bharat Traders business. Pradeep Tiwari deposed that in this way he was “virtually forced by the plaintiff to enter into the wholesale grocery business and now the wholesale business supplies wholesale groceries such as spices to a range of customers …”

On or about 22 July 2004, a cheque was drawn on the Company’s business account with the Commonwealth Bank of Australia (“CBA”) for the sum of $39,500, apparently for the purpose of paying the 10% deposit payable for the purchase by Pradeep Tiwari of a warehouse property at 25 Richards Road, Hoppers Crossing (“the Hoppers Crossing property”). The relevant cheque butt has been altered from whatever was originally written on it to read “$39,500 distribution to Tiwari Family Trust on account of Pratina, Pradeep, Pratibha and Pranita”[4].
[4]The four children of Sheela and Markandey Tiwari.

By letter dated 3 August 2004 from David Mond & Associates to the ANZ Banking Group Ltd (“ANZ”), funding was sought for the purchase of the Hoppers Crossing property (at which a new business was to be conducted by Tiwari & Co Pty Ltd). An attached summary by Pradeep Tiwari, director, said that the new business would be wholesaling predominantly, with the opportunity to expand into full retail. The summary said that the goods were rice, flour, oil, nuts, spices, lentils, pulses, beans, refrigerated/frozen foods, cooking utensils, DVDs and videos, and that these goods were mainly imported from India. The summary said that there were two containers of foodstuffs and general goods coming from India currently, and that one-third of the stock was already pre-sold to customers or smaller business that they also supplied. A structural diagram was enclosed showing a trust structure and stating that a new company had been created called Tiwari & Co Pty Ltd, trading as Bharat Imports. In support of the submission for funding, attached to the letter were financial statements of the S&D International Unit Trust for the year ended 30 June 2004 with comparative figures for the year ended 30 June 2003. It would appear that, at that stage, the first Supreme Court proceeding being undecided, distributions of the net profits were being made from the S&D International Unit Trust to the supposed beneficiary, namely the Tiwari Family Trust (the transferee from Sheela Tiwari).

I interpolate here that Pradeep Tiwari deposed that, on 9 September 2004, he established Tiwari & Co Pty Ltd to operate the wholesale business of Tiwari & Co and that the warehouse at the Hoppers Crossing property was purchased around this time “without any funds from [Sheela Tiwari and the Company].” He deposed that as at April 2005 Tiwari & Co Pty Ltd supplied a broad range of goods to some 15-16 customers on a wholesale basis. The goods included Indian products, electronic devices, phone cards, food stuffs, DVDs and books. The customers included shops and restaurants. He deposed, in effect, that he was not diverting business from the Bharat Traders business.

On or about 20 September 2004, a cheque was drawn on the Company’s business account with the ANZ for the sum of $40,000, apparently for the purpose of providing funds to be applied towards the completion of the purchase of the Hoppers Crossing property. Pradeep Tiwari testified that this sum represented the proceeds of four bank cheques, each in the sum of $10,001 which he had deposited in the Company’s bank account and various bank cheque records were tendered in evidence. He said that he had used the Company’s bank account for convenience but that the bank cheques were birthday presents to him from various relatives.

The Hoppers Crossing property was registered in the name of Pradeep Tiwari. There is a registered mortgage to the ANZ and the plaintiff has lodged a caveat on the title claiming that he is entitled to an estate in fee simple in the property although, in the present proceeding, the only claim to the Hoppers Crossing property which was mentioned was one by the Company.

The trial of the first Supreme Court proceeding took place before Balmford J between 22 November and 14 December 2004. The plaintiff was represented, as he is in this proceeding, by Mr J Selimi of counsel. The defendants, Sheela Tiwari and the Company, were represented by Mr J Evans of counsel, instructed by Velos & Davis, solicitors. Among other things, Sheela Tiwari apparently testified that the Statement of Assets and Liabilities did not bear her signature and that the signature was a forgery.

On 16 February 2005, Balmford J handed down her reasons for judgment in the first Supreme Court proceeding.[5] The plaintiff was successful. Her Honour wholly rejected the evidence of Sheela Tiwari and found that the evidence of the plaintiff was to be preferred, despite a history of other matters that called his credibility into question. The actual judgment was pronounced a few weeks later.
[5][2005] VSC 25.

It would seem that very shortly after the handing down of reasons for judgment in the first Supreme Court proceeding, David Mond was instructed to develop a claim or obtain a report (or both) relating to remuneration for those members of the Tiwari family who had worked in the business during the period after the plaintiff had been “locked out”. It appears that Mr Mond retained Crossroads Management Group Pty Ltd to prepare a report (“the Crossroads report”) and for that purpose Crossroads interviewed the relevant employees and management during the week commencing 21 February 2005. The Crossroads report itself is dated 28 February 2005 and analyses in detail appropriate remuneration for each of seven members of the Tiwari family in the period from 2000 to 2005. The analysis was subsequently used to make claims against the Company totalling in excess of $1M.

Apparently as a result of receiving some information about withdrawals of cash from the Company’s bank account or accounts, the plaintiff on or about 18 February 2005 wrote to the CBA informing the bank of his success in the first Supreme Court proceeding and further requesting that no withdrawals take place in relation to any accounts held by the Company and/or the Trust and no encumbrances be placed on their assets without his written consent. The Company’s bank account with the CBA was frozen for a short time as a result. After the account was unfrozen, the directors made a number of cash withdrawals which have been the subject of complaint by the plaintiff. I note below, when referring to the administrators’ second report, some of the details of these withdrawals.

On or about 25 February 2005, Velos & Davis caused to be served on the Company at its registered office a statutory demand pursuant to s.459E of the Act claiming that the Company owed the firm the sum of $146,925.33 under a written agreement dated 4 November 2004 and tax invoices dated 3 & 5 November 2004 and 13, 17 & 20 December 2004. An affidavit accompanying the demand sworn by Bill Velos, solicitor, deposed that he was a partner in the firm Velos & Davis which was the creditor in respect of a debt of the said amount owed by the Company to Velos & Davis relating to services provided. He deposed that he was the person who had dealings with the Company that gave rise to the debt and that he believed that there was no genuine dispute about the existence or the amount thereof.

By judgment of the Court dated 4 March 2005 the plaintiff was granted declarations that he was the “equal joint beneficial owner” of the Footscray property, the Hillside property, the business, the issued shares in the Company and the issued units in the Trust. It was common ground, in the present proceeding, that the true effect of these declarations was that the plaintiff was an equal unit holder in the Trust and in the Trust assets (subject, of course, to any liabilities of the Trust). That is to say, the plaintiff was an equal unit holder in the Trust, with Sheela Tiwari (or her successors and transferees) being entitled to the other half of the units thereof. Thus, the plaintiff was not entitled, other than under the Trust, to any beneficial or equitable interest in the Footscray property, the Hillside property or the business. His entitlement arose under the Trust, as a beneficial holder of one-half of the units thereof.[6]
[6]I note that in the judgment dated 4 March 2005 the plaintiff’s entitlements are referred to as “joint”, no doubt as a result of the terminology used in the Statement of Assets and Liabilities. However the plaintiff, following the Court’s judgment in the first Supreme Court proceeding, became registered as the several holder of one-half of the units in the Trust.

By the judgment given on 4 March 2005 it was also declared that the plaintiff was an equal joint beneficial owner of any other property which was owned by Sheela Tiwari as at 16 October 2000 and any other property acquired by her since 16 October 2000 “with moneys provided and/or financed by the [C]ompany and/or the Trust commensurate with the financial contribution of the [C]ompany and/or the Trust to such acquisition”. This is a curious declaration because it refers to the rights of the plaintiff rather than the rights of the Company as trustee. In the present proceeding, the emphasis was on the rights of the Company in relation to certain properties purchased by utilising Company finance or funds.

The judgment further declared that the plaintiff was entitled to receive “one-half of the net taxable income generated by the [C]ompany and/or distributed by the Trust since 22 April 2002.”[7]
[7]This was referred to a Master for assessment.

Finally the judgment dated 4 March 2005 ordered Sheela Tiwari to pay the plaintiff’s costs, in substance, on an indemnity basis.[8]
[8]Her Honour’s reasons for the costs order appear from a revised transcript of judgment dated 4 March 2005.

On 18 March 2005 a notice of appeal by Sheela Tiwari was filed against the judgment and orders of Balmford J in the first Supreme Court proceeding.

After judgment, Sheela Tiwari and her family continued to run the Trust business and to remain in occupation of the Footscray property. The Company remained trustee of the Trust and the directors were unchanged.

On 19 March 2005 the plaintiff, accompanied by his third wife and their child and by his solicitor, sought to enter the Footscray property on the basis that he was entitled to do so. His entry was resisted but, as a result, the business was closed for nearly two days.

By letter dated 21 March 2005 from the plaintiff to the ANZ marked “extremely urgent”, the plaintiff stated:

“Re: S & D International Pty Ltd; S & D International Unit Trust
I advise that I am an equal joint beneficial owner of the shares in the above company and the units in the Unit Trust. I enclose a copy of the sealed Order of the Supreme Court of Victoria for your records as evidence of my beneficial ownership.
I advise that I am concerned to protect my interests in the company and the Unit Trust.
Accordingly, I hereby advise that I prohibit your bank from undertaking any transaction involving the above entities without first obtaining my prior written consent. Should any transaction be undertaken without my prior written consent, I put you on notice that I propose to take legal action against your bank for conversion of funds. Without limiting the generality of this prohibition, no withdrawal of any funds is to be permitted whatsoever in relation to any accounts held by [the Company and the Trust]… Further, no incumbrances are to placed on the assets of [the Company and the Trust] without my prior written consent. …”

By letter dated 22 March 2005, the ANZ reacted to this information by advising Mond, as accountant for the Company, that a change in the unit holdings in the trust of 50% was a significant change in ownership and that the bank reserved “the right to review the terms and conditions of ongoing facilities which are provided ‘at call’ including a call-up of outstanding loans in accordance with the bank’s security.”

In the first Supreme Court proceeding, a summons was next taken out by the plaintiff dated 22 March 2005 seeking an injunction restraining Sheela Tiwari, Pradeep Tiwari and Markandey Tiwari “from interfering with the Plaintiff’s equal right to the use, occupation, enjoyment and quiet possession of” the Footscray property and seeking that Sheela Tiwari be dealt with for contempt of court. The summons particularised the contempt as being the alleged failure to comply with the judgment by prohibiting the plaintiff from entering the Footscray property and also by failing to transfer to the plaintiff one-half of the units in the Trust.

The plaintiff’s application was met by a summons filed 23 March 2005 in which the defendants in the first Supreme Court proceeding sought a stay of execution of the orders made by Balmford J and an injunction, pending appeal, restraining the plaintiff from entering into possession of the Footscray property or interfering with the operation or management of the business. Affidavits filed on behalf of those defendants disclosed that on Saturday 19 March 2005 the plaintiff and his solicitor had entered the shop and made certain demands. The ensuing dispute and physical confrontation resulted in the business remaining closed over the weekend.

In an affidavit sworn on 22 March 2005, in support of the application for a stay, Sheela Tiwari deposed that, for the three years following the “departure” of the plaintiff from the business, the business had grown and that new suppliers had been obtained from India, Pakistan and other countries, new large volume customers had been secured including Indian restaurants and other shop proprietors, new stock lines had been introduced and a DVD library was now operating with over 100 subscribers. The affidavit went on to refer to the good relationship that her family members had with customers, suppliers, banks and other creditors. She undertook to conduct the business in such a manner so as to preserve the business. There was no suggestion in any of the supporting affidavits that the Company was in any financial difficulty.

By letter dated 24 March 2005 from the CBA to the Company, the CBA advised Sheela Tiwari that it had been “requested to stop all accounts [of the Company and the Trust]” in terms of Supreme Court Judgement No. 6869 dated 4 March 2004 and that the overdraft limit had been cancelled and the file forwarded to the bank’s Credit Management Unit. This request had been made to the CBA by the plaintiff.

On 24 March 2005 Bongiorno J ordered that there be a stay of execution of the orders of Balmford J pending the hearing and determination of the defendants’ summons and adjourned both applications until 11 April 2005, upon an undertaking by the plaintiff not to enter into possession of the Footscray property or interfere with the operation or management of the business. Among other affidavits filed, there was an affidavit by the defendants’ solicitor, Mr Kooblal (of the firm of Boyle Telfer & Kooblal (“BTK”)) deposing that the Tiwaris’ former solicitors, Velos & Davis, were claiming a lien for their fees over the file and that this had prevented the preparation of a transfer of the relevant shares and units to the plaintiff.

An affidavit of the plaintiff sworn 24 March 2005 was also filed. It is apparent from the affidavit that the plaintiff believed that the judgment of Balmford J entitled him to exercise rights of ownership in respect of the Footscray property and to immediately participate in the continuing conduct of the business by the Company (as Trustee), notwithstanding the operation of the business by the Company with its then directors. The plaintiff complained in his affidavit that Sheela Tiwari “has continued to lock me out of my home and business”. This belief perhaps flowed from the form of the judgment given on 4 March 2005 but, at any rate, in the light of the consensus in the present proceeding concerning the true effect of the judgment, it was a mistaken belief.

The plaintiff’s said affidavit raised a number of further matters which have been the subject of considerable evidence in the present proceeding, namely:

(a) the purchase by Sheela Tiwari of the Point Cook property using moneys borrowed by the Company;

(b) the commencement of a business under the name “Tiwari & Co” similar in nature to the business operated by the Company;

(c) the purchase of the Hoppers Crossing property for that business, financed on the security of assets of the Company;

(d) the diversion of business and stock from the Company to Tiwari & Co or its successor, Tiwari & Co Pty Ltd;

(e) the withdrawal of substantial amounts of cash from the business shortly after the judgment on 16 February 2005; and

(f) the payment of Sheela Tiwari’s defence of the first Supreme Court proceeding with funds of the Company.

On 11 April 2005, Hansen J extended the stay of execution granted by Bongiorno J pending the hearing and determination of an application by the defendants to the Court of Appeal, which application was made returnable on 22 April 2005.

In paragraphs 8 and 9 of the plaintiff’s affidavit affirmed on 18 August 2005 (“the plaintiff’s first affidavit”), the plaintiff purports to describe what occurred before the Court of Appeal on 22 April 2005. According to the plaintiff, the Court of Appeal “suggested that the parties should agree to the appointment of an administrator or receiver to manage the business pending the determination of the appeal”. I note that there is no transcript of this application before the Court of Appeal but, in any event, it is what the parties themselves then agreed that is relevant to the issues in this proceeding.

In para 8 of the plaintiff’s first affidavit, the plaintiff purports to set out his thought process and the state of knowledge of Sheela Tiwari in arriving at the agreements and undertakings which were subsequently recorded under the heading of “OTHER MATTERS” in the orders of the Court of Appeal. This evidence is irrelevant.[9] There is no admissible evidence of any mutual intent or consensus of the parties to the first Supreme Court proceeding other than that which is recorded in the Order itself. I therefore turn to the content of that Order.
[9]Likewise irrelevant is further material as to the plaintiff’s thought process contained in para 11 of the plaintiff’s first affidavit.

On 22 April 2005, the Court of Appeal made certain orders as to a stay and an expedited appeal upon the basis of the following matters:

“OTHER MATTERS:
(1)(a)Upon the applicants and the respondent agreeing to appoint Peter Vince and Sterling Horne as joint administrators (“the joint administrators”) of the second applicant (“the company”) and
(b)Upon the company by its counsel undertaking to deliver to the joint administrators and to the respondent a resolution of the company appointing the joint administrators as joint administrators of the company pursuant to s.436A(1) of the Corporations Act 2001 by 29 April 2005; and
(2)Upon the respondent by his counsel undertaking that the respondent whether by its servants, agents or otherwise howsoever will not, until the appointment of the joint administrators:
(a) take any step without the consent of the applicants to enter upon the land at 580 Barkly St West Footscray in Victoria; and
(b)interfere directly or indirectly with the operation and/ or management of the business known as Bharat Traders International; and
(3)Upon the applicants by their counsel undertaking to execute transfer of 50 per cent of the issued shares in the company and a transfer of 50 per cent of the issued units in the S & D International Unit Trust (“the trust”) in favour of the respondent and deliver the transfer of shares and the transfer of units to the respondents solicitors by 29 April 2005, the respondent by his counsel undertakes not to charge or dispose of the shares in the company and the units in the trust until the determination of the appeal or further order; and
(4)Upon the applicants acknowledging that the respondent shall be deemed to be a registered unit holder of 50 per cent of the issued units in the Trust upon delivery to him, pursuant to carrying out paragraph 3 above, of the transfer of such units to the respondent notwithstanding any inability to enter the name of the respondent in the unit-holders register of the Trust.”

It can be seen from the above that the “applicants” (namely Sheela Tiwari and the Company) and the “respondent” (namely the present plaintiff) agreed to appoint Messrs Vince and Horne as joint administrators of the Company. Obviously it was only the Company that could appoint administrators and then only if the Board of the Company so resolved.[10] However, para 1(a) in Other Matters, when read together with para 1(b), may be taken as evincing an agreement by the parties to the first Supreme Court proceeding that administrators should be appointed pursuant to Part 5.3A of the Act. No doubt it can also be inferred that the consent of the other director of the Company, Pradeep Tiwari, had been obtained to this course or that it was anticipated that there would be no difficulty in obtaining his consent.
[10]See s.436A(1) of the Act.

The significant matter for present purposes is that the parties to the first Supreme Court proceeding (who were all represented therein by solicitors and counsel) agreed that the Company should be placed in administration pursuant to and subject to the provisions of Part 5.3A of the Act. If the parties had mutually agreed or mutually intended that an independent manager or receiver should be appointed to control the Company and/or the business only until the determination of the appeal in the first Supreme Court proceeding, then the adoption of administration pursuant to Part 5.3A of the Act was clearly inappropriate.[11] That is because the appointment of administrators under s.436A of the Act is posited upon a resolution of the Board to the effect that a company “is insolvent, or is likely to become insolvent at some future time” and because, in addition, all the provisions of Part 5.3A including those as to the objects thereof, the procedures to be followed and the duties imposed upon administrators all come into force and effect and have an operation independent of any other intentions or motivations of those who agree to an administration or appoint or seek the appointment of administrators. In particular, administrators are bound by the provisions of the Act and not by the intentions and motivations of such parties. Furthermore, the time constraints resulting from the appointment of the administrators were governed by the provisions of the Act and did not relate to any time considerations flowing from the likely dates for the hearing and determination of the appeal in the first Supreme Court proceeding.
[11]In para 10 of the plaintiff’s first affidavit, the plaintiff deposes that “the parties privately agreed to the appointment of joint administrators as a temporary measure to preserve the subject matter of the litigation pending the determination of the appeal”. This statement is in inadmissible form and, in any event, a private agreement of the parties (even if proved) could not override the provisions of the Act.

In paras 8 and 9 of the plaintiff’s first affidavit, the plaintiff says that the Court of Appeal made a comment or comments to the effect that the business was “a very profitable business” and that no suggestion was made at the time that the Company was insolvent. This evidence is irrelevant. The fact is that the administrators were appointed (as will be seen below) upon the basis of a resolution by the directors that the Company was likely to become insolvent at some future time. Indeed, in the present proceeding, Mr Selimi in substance accepted that it had been appropriate to put the Company into administration because the Company was in April 2005 likely to become insolvent at some future time because of the existence of a substantial and unpaid debt called up by the CBA and due and payable on 30 June 2005.

Before the orders were made by the Court of Appeal on 22 April 2005, Mr Kooblal spoke to Mr Vince concerning the proposed appointment of joint administrators. Mr Kooblal told Mr Vince that there was an Indian grocery business being run by his clients, there was a dispute between the “owners” and an irretrievable breakdown of relationship. He referred to the existence of the Trust and that it was a unit trust, and to some of the assets and liabilities. It was arranged that there would be a joint meeting in the following week.

On 29 April 2005, the directors of the Company (Sheela Tiwari and Pradeep Tiwari) resolved “[t]hat in the opinion of the Directors the Company is likely to become insolvent at some time in the future” and further resolved that the Company appoint joint administrators. On the same date the Company appointed Messrs Vince and Horne as joint administrators pursuant to s.436A of the Act and Messrs Vince and Horne accepted that appointment.

It was common ground that as at 29 April 2005, the CBA had demanded the repayment of its secured facilities by 30 June 2005 and that this provided justification for the opinion of the directors that the Company was likely to become insolvent at some time in the future. In addition, it would seem that the directors may have had in mind the existence of claims exceeding $1M in total by employees (including themselves) based on the Crossroads report.[12]
[12]Of course the plaintiff disputes those claims and the administrators/liquidators have expressed the view that they probably cannot be substantiated.

It is to be noted that the administrators, once appointed, had control of the Company’s business, property and affairs. They were entitled to carry on the business and manage its property and its affairs and were further empowered to dispose of all or any part of the business or property of the Company.[13] In addition, all powers of the Company’s directors were suspended during the administration[14] although they were not removed from office.[15]
[13]See s.437A(1) of the Act.
[14]See s.437C(1) of the Act.
[15]See s.437C(2) of the Act.

Further, as soon as practicable after the administration of the Company began, the administrators were obliged[16] to:
[16]See s.438A of the Act.

“(a)investigate the company’s business, property, affairs and financial circumstances; and
(b)form an opinion about each of the following matters:
(i)whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement;
(ii)whether it would be in the creditors’ interests for the administration to end;
(iii)whether it would be in the creditors’ interests for the company to be wound up.”

According to the plaintiff he had a meeting with Mr Vince on 29 April 2005 in which he “explained the circumstances of how my business was suffering at the hands of [Sheela Tiwari and Pradeep Tiwari] and asked him how he could help save the haemorrhaging” and that Mr Vince assured him that he would look into all matters and take appropriate action. The plaintiff says that he raised the issues of conflict of interest and the diversion of business to Tiwari & Co and expressed his wish to join in the day to day running of the business. The plaintiff deposed that Mr Vince asked him to make a written submission which would enable him to consider the matter and would at least give him “the” reason “not to leave [Sheela Tiwari] in charge of running the business”.

Mr Chivers, an employee of the administrators’ firm, kept notes of this meeting on 29 April 2005 at which Mr Vince, the plaintiff and his then solicitor Andrew White were present. The meeting went for one hour and twenty minutes. It was said by or on behalf of the plaintiff that the business was a good business, that it could possibly be maintained on a going concern basis and that recent transactions should be investigated including increased wages paid to Tiwari family members, payment of legal costs of $200,000 to Velos & Davis, and the Velos & Davis demand for $146,000. Mr Vince said he would look at the staff required and the wages – he would not take on high wage costs as administrators were personally liable. The plaintiff said he wanted to be back in the control and management of the business. He was happy to work with Sheela Tiwari’s agent or whoever she employed. Mr White said something about a partnership dispute, that administrators’ fees had to be met from the business which needed to be run profitably, that Sheela Tiwari was running the business at the moment with her son, that the wholesaling and importing part of the business had been taken over by the son’s company but query whether it was for adequate consideration. The administrators could review these arrangements. Mr Vince raised a number of topics: list of creditors; taking control of records and assets; examine liabilities presently being accrued; Sheela Tiwari to do a RATA; what was the future of the business and the properties; could they be offered for sale in the market place or closed down and sold; was there some basis to carry on a business under a DOCA. Somebody said that the business was quite profitable and supported by family members. Reference was made to the Point Cook property in Sheela Tiwari’s name, the Company’s business loan for $200,000 towards its purchase and the Company paying $1,600 per month on that loan and that the Company would have an interest in the Point Cook property. Mr Vince said that Sheela Tiwari needed to act honestly. The plaintiff said that she could not be trusted to run the business. Mr White asked whether anyone who was independent could run or manage the business. Mr Vince said the administrators would review this. The plaintiff spoke of an official submission to manage the business for say $70,000 a year. Mr Vince said they would have to make an assessment of this. The plaintiff expressed concern about the withdrawal of cash by Sheela Tiwari; various amounts were mentioned. The plaintiff said this cash was not for suppliers, some of it went to Sheela Tiwari’s accountant and lawyers. There was some discussion of the value of the business and the real estate. There was some discussion initiated by Mr White of a mediation and one party buying the other party out. He also referred to a risk management issue – namely having Sheela Tiwari working in the business. Mr Vince mentioned maybe offering the properties and the business for sale. There was further discussion about the overall financial position and various options open. The plaintiff said that the wage claim developed by David Mond was a liability deliberately created effectively making the Company insolvent and without which the Company would be solvent. Mr White suggested that it was more of a caretaker administration, maintain the status quo of the business (maybe trade under a DOCA) as opposed to a quick sell-up of assets. There was discussion of the potential of a DOCA. There was reference to possible sale of the Hillside property and the plaintiff said he would be happy if that be sold, but not the Footscray property or the business. However it was mentioned that the plaintiff had caveats over the property. Finally, it was said that the plaintiff would put in a submission to run the business to Mr Vince and to possibly remove Sheela Tiwari.

The plaintiff provided an 11 page written submission to the administrators on 3 May 2005. The submission opened by the plaintiff stating that he owned 50% of the units in the Trust and 50% of the shares in the Company acting as trustee for the Trust, giving him an equal 50% stake in the two properties and the business. He then said that he was convinced that Sheela Tiwari was not acting in the best interests of the Trust and the Company and should not be allowed to have exclusive control of the business “which is mainly cash”. He submitted that he should be appointed a director (or co-director) so that he could participate in the management of the business and thereby safeguard the interests of the Company, that Sheela Tiwari and Pradeep Tiwari should be removed from their position as directors because there was a clear conflict of interest and that appropriate action should be taken against them for “hurting the commercial interests of the company for the sake of their personal and family fortunes”. The plaintiff then set out reasons why he was the best person to run the business dealing with such matters as the role he had played in establishing and running it and his depth of experience in its management. The plaintiff then set out reasons why Sheela Tiwari and Pradeep Tiwari should be removed as directors forthwith. He referred to the purchase of the Point Cook property using Company funds and assets, the removal of cash from the business, the use of Company moneys to fund the defence of the first Supreme Court proceeding and the diversion of business to Tiwari & Co. Finally the plaintiff set out how he would run the business while waiting for the appeal to be heard.

On 3 May 2005 there was a meeting with Messrs Vince, Horne and Terence Petersen (“Petersen”)[17] which was attended by the plaintiff, his then solicitor Mr Andrew White, Pradeep Tiwari, Markandey Tiwari, the Tiwaris’ solicitor Mr Vijay Kooblal and the accountant David Mond.
[17]Petersen was a senior manager employed by the administrators’ firm.

According to the plaintiff, at this meeting, the Tiwari side expressed the view that the administrators should sell off all Company assets as soon as possible. Mr Mond told the meeting that the CBA would like to be paid by 30 June 2005 and that the administrators had been appointed to liquidate the Company as soon as possible so that the parties could part company permanently. On the other hand Mr White told the administrators that theirs was a very unusual appointment and they had not been appointed to liquidate anything, but to preserve the status quo, to look into the affairs of the Company and assess the true health of the Company. Mr White asked them to remove Pradeep Tiwari and appoint the plaintiff as a director pending the hearing of the appeal. The plaintiff told the administrators that the Tiwaris were in a hurry to kill the Company in order to get on with their own business which had assumed control of the wholesale side of the Company’s business. The plaintiff told the administrators that he would not let any assets go up for sale and would like to look at refinancing the CBA facilities. Mr White told the administrators that they ought first to investigate the solvency of the business and investigate all transactions involving the Tiwari family members.

By letter dated 2 May 2005 the administrators advised the creditors of the Company that the Company had been placed under administration and that they had been appointed joint administrators on 29 April 2005. The letter generally advised the creditors of the nature of administration and convened the first meeting of creditors pursuant to s.436E of the Act to be held on 6 May 2005. The letter further advised creditors that:

“The Administrators are presently reviewing the company’s activities to enable them to provide an opinion on the company’s future. Further information will be available in respect of this matter at the meeting.
It is our present intention to carry on the company’s activities and to continue trading. The co-operation of all creditors is sought in supplying goods and services.
Please open a new account styled “Administrators’ Account”. Goods will not be paid for unless supplied against an official order only under the signature of P.R. Vince, S.L. Horne, T. Petersen or D. Juratiwich. Under the provisions of the Corporations Act 2001, we accept liability for payment of goods and services properly authorised and incurred during the administration. Suppliers can be assured of payment within accepted trading terms.
…
It is intended for the remuneration of the Administrators and their staff to be fixed on a time basis at the levels appropriate to the nature and complexity of the work and calculated by reference to the hourly rates prescribed by Bentleys M R I Melbourne for work of this nature. …”

An explanatory memorandum concerning voluntary administration was enclosed with the above letter to creditors.

On 3 May 2005 Mr M Chivers attended the Footscray property and was there for some 4 hours. He obtained some financial records but Pradeep Tiwari advised him that most of the books and records were held by Velos & Davis. He downloaded accounting material from the Company’s computer. He attended to a stocktake which was mostly completed in his presence but was left to staff (Pradeep Tiwari) to finish. He asked Pradeep Tiwari to prepare a list of all outstanding creditors, which was subsequently collected. Mr Chivers noted that the Company’s computer accounting system had entries done up until September 2004 but no entries had been done since then.

By letter dated 4 May 2005 from the plaintiff’s then solicitors Serry White & Co to the administrators the plaintiff’s stance was reiterated. The solicitors’ letter further stated that they were concerned about the cash nature of the business and if the administrators were not prepared to appoint the plaintiff as the manager of the business, they should appoint an independent manager. The letter stressed the preservation of the status quo of the business pending the hearing of the appeal.

On 4 May 2005, Pradeep Tiwari provided the administrators with a copy of the Crossroads Report.

The first meeting of creditors was held at 10.30am on 6 May 2005 at the offices of the administrators’ firm. The minutes may be summarised as follows (although it is clear from notes of Mr Chivers that there was somewhat more discussion than appears from the minutes). Mr Vince chaired the meeting. Mr Vince reported to the meeting that he and Mr Horne were appointed as joint administrators on 29 April 2005 as a result of an ongoing dispute between Sheela Tiwari and the plaintiff. Mr Vince referred to the nature of the business of which they had taken control. He said that the importing and wholesale aspect of the business would be investigated and then referred to a number of matters relevant to the financial position and affairs of the Company. He said that the CBA intended to cease its banking relationship with the Company prior to the end of June 2005 and had indicated that it would proceed with calling up its security and taking possession of the Footscray property. He said that expressions of interest might be sought for the Company’s business. He said that the major issue was preserving the Company’s business. The administrators were happy to listen and think through what parties had to say. He said that the business should be continued, maybe even under independent management and possibly offered for sale.

Mr Kooblal told the meeting that the Tiwari family was concerned about payment of the Company’s creditors and that, further, whilst the family was best suited to run the business they presently lacked commitment under the circumstances. He said that Sheela Tiwari was happy to continue assisting to operate the business although she was concerned about the 50% competing interest in the business. Pradeep Tiwari said he was concerned about the Company’s creditors as some creditors had stopped supplying the Company. A committee of creditors was appointed comprising Mr S Gupta, Mr David Mond, the plaintiff and Mr Kooblal.

At the first meeting of creditors, according to the plaintiff, Mr Vince said that the administrators were moving to a position where they were seeking expressions of interest in the business and that the Footscray property should also be offered for sale and that Mr Vince said that the business had reported weekly takings of about $15,000 and spoke about the losses that the business was suffering.

On 10 May 2005 Pradeep Tiwari was informed by Petersen that the administrators proposed to pay wages to the Tiwaris, commencing as from 29 April 2005, with a gross salary including superannuation. After some negotiation with Pradeep Tiwari, the wages and personnel were agreed as follows:

1.        Pradeep Tiwari       $1,200 per week (full-time)
2.        Raghupati Shukla    $1,100 per week (full-time – 5 days)
3.        Sheela Tiwari           $1,300 per week (full-time)

Shortly thereafter, Petersen informed the plaintiff that the administrators had offered “re-employment” to the Tiwaris for a total of $3,600 per week. The plaintiff, accompanied by Mr White, then had a meeting with Mr Vince. The plaintiff expressed his shock and disappointment at the fact that the Tiwaris had been offered re-employment with the business. According to the plaintiff, Mr Vince told him that the Tiwaris were there until the administrators could find an independent person to manage the business and it was only a short-term arrangement. I accept that Mr Vince probably told the plaintiff that the employment of the Tiwaris was only a short-term arrangement because, as the evidence shows, Mr Vince anticipated that the business might be sold or if it was not that there would be a deed of company arrangement resolving all relevant matters and disputes. Although Mr Vince did not in any affidavit deny saying to the plaintiff that the Tiwaris were there only until the administrators could find an independent person, this topic was not canvassed in oral evidence and I find it unlikely that he would have said this. However, it may well be the case that he mentioned that the administrators were still contemplating the possibility of employing an independent manager.

At the meeting with Mr Vince, the plaintiff also sought Mr Vince’s response to his submission and Mr Vince said he would look into all matters and respond “soon”. They discussed a number of other matters arising in the administration.

Mr Vince deposed (in an affidavit sworn 1 September 2005) that the administrators ascertained that the children of Sheela and Markandey Tiwari were employed by the business and had been remunerated by distributions from the profit of the Company as opposed to regular wage payments. Mr Vince deposed that:

“Mr Horne and I continued to employ Sheela Tiwari and certain members of her family in the management of the business primarily because of their knowledge of the daily operations of the business and their relationships with its suppliers, as well as the fact that Mrs Tiwari and her family were already resident at the premises. Mr Horne and I agreed that remuneration totalling $3,600.00 per week (including statutory superannuation entitlements) should be payable to Mrs Tiwari and her family. We decided upon that figure based on the operating hours of the business (9am until 9pm seven days per week) and on the basis of the prevailing market rates for similar works.”

In his oral evidence, Mr Vince said that it was their “commercial decision” to employ members of the Tiwari family in the business. Mr Vince said that the administrators had made that decision after consulting with Petersen and they had relied on Petersen’s observations of the operation of the business in making their decision. Mr Vince said that they had decided to maintain the status quo for the reasons stated in his affidavit, for reasons of stability and preservation of the business and to maintain its going concern value. Mr Vince said that the Tiwaris had the knowledge of the daily operation of the business, the recent relationship with suppliers and they also “happened to live there”. Mr Vince added that it was difficult to see how someone else could have operated the business with the Tiwaris still living there, so they would have had to be removed from the premises.

Mr Vince also said that the administrators “weren’t meant to be heroes”. He explained this by saying:

“The Tiwaris were also occupants in the domestic premises and any thought that we may have given to removing them from the business would also have entailed us in effectively kicking them out of the domestic premises. That could have taken some considerable time. They had the recent experience and the recent dealings with suppliers. To have removed them from the business – we weren’t sure how long the business was to be conducted. We were hopeful that it might have been sold but it would have involved very considerable disruption. It wasn’t a choice between one unit holder and the other unit holder.”

Mr Vince added, in effect, that it was not so much removing them from their house but the process involved – “the length of time over which that would have occurred and the impact on the business itself.”

Mr Vince said that the administrators thought at that time that there was scope for a reasonably early resolution, that is, a proposal from one or other of the parties for a DOCA or alternatively for an agreement for the sale of the business. Mr Vince said that if there was no DOCA, the administrators were looking for a sale of the business, to maximise realisation for the Company and its creditors.

Mr Vince added that some consideration was given by them at the time to appointing an independent manager who would have had to be underpinned by support staff, but they thought that the reasonably short term involved did not justify contracting with an independent manager.

Mr Vince said that he understood from the judgment of Balmford J that Sheela Tiwari was an unreliable witness and he had taken that into account as well as taking into account the grave doubts expressed by Balmford J as to the plaintiff’s credibility.

Mr Horne testified that he did not regard it as foolhardy, given the animosity between the Tiwaris and the plaintiff, to entrust one side with the continued operation of the business. He agreed that the integrity of the reporting of cash receipts was important but thought that the systems put in place were sufficient. He said that the administrators realised that sales could be made without using the cash register but that they reviewed margins to make sure that the margins stayed about where they should be.

Notwithstanding that the powers of directors are suspended while a company is under administration, the plaintiff’s then solicitors again wrote to the administrators by letter dated 10 May 2005 requiring their “urgent response” in relation to the appointment of the plaintiff as a director and the removal of Pradeep Tiwari as a director of the Company and seeking a response by no later than 13 May 2005. On 12 May 2005 the solicitors wrote again to the administrators asking for copies of a variety of company documents.

On 11 May 2005, Petersen met Pradeep Tiwari at the Hoppers Crossing property in order, as expressed in Petersen’s handwritten notes, to examine to what extent Tiwari & Co Pty Ltd or Pradeep Tiwari had divested the business of its wholesale and import side and whether any property, assets or funds of the Company were used to acquire the Hoppers Crossing property or to conduct the business there. Pradeep Tiwari told Petersen that the acquisition of the Hoppers Crossing property was fully financed by the ANZ and that the ANZ continued to support the Tiwari family. Petersen observed and photographed a substantial quantity of stock. Petersen noted the following conclusions:

“There is perhaps little doubt that Tiwari & Co Pty Ltd operates a wholesale/importing business from the premises and that the business is similar to the wholesale and importing activities which would otherwise have been undertaken by S & D International.
The Tiwari & Co business appears however to be more substantial than what would have otherwise have been the activities of S & D International.
There would not be sufficient space at Footscray to store the same quantity of goods.
Tiwari & Co is supplying goods to the same or similar customers as those supplied to by S & D. Tiwari & Co has however added to its customer base with [illegible] … customers.
Supplies are generally imported from India. Tiwari & Co say they have a new Indian supplier.
S & D has done no importing in the last 12 months whereas Tiwari & Co has received at least 4 containers.
It does not appear that any assets of S & D were used by Tiwari & Co to establish its business …
The business is trading for less than 12 months – accordingly there is no financial information available.
[Petersen] was asked not to take pictures …”

On 13 May 2005 the administrators wrote to the plaintiff as follows:

“It has come to the attention of the administrators that you propose to enter the company’s premises at 580 Barkly Street, Footscray.
You are reminded that Mr S L Horne and I were appointed Joint Administrators of the company. The Administrators have control of the company, business and affairs by virtue of s.437A(1) of the Corporations Act 2001 (Cth).
Any requests on your part to enter the premises without a Court Order granting you access to such premises is expressly denied.”

I interpolate that, in my view, the administrators’ stand was correct in law. However, the plaintiff’s first affidavit (of 18 August 2005) maintained that the administrators were “stopping me from exercising my right of possession and enjoyment of my property at 580 Barkly St, West Footscray as an equal Unit holder of the Trust property” (emphases added).

Further, the administrators were required to convene the second meeting of the Company’s creditors within the period, for present purposes, of 21 days beginning on the day when the administration began.[18] Thus, the administrators were obliged to convene the second meeting of creditors no later than 19 May 2005. The meeting had to be held within 5 business days after the end of the convening period,[19] that is, no later than 26 May 2005. It is thus to be noted that, apart from any extension of the convening period or of the time for holding the meeting, the administrators had, under the Act, only from 29 April 2005 until 19 May 2005, or, at the latest 26 May 2005, within which to investigate the affairs of the Company and form the opinions required by s.438A of the Act.
[18]See s.439A of the Act.
[19]See s.439A(2) of the Act.

As it happened, the administrators convened the second meeting of creditors for 26 May 2005 by notice given on 18 May 2005. The administrators forwarded a letter dated 18 May 2005 to the Company’s creditors and enclosed with that letter the notice of meeting, a proxy form, a proof of debt for voting purposes, a proposed agenda, a report by the administrators (“the administrators’ first report”) and a list of creditors.

The administrators’ first report was 19 pages in length and I have considered its full contents. It is convenient to note the following salient features of the report.

In relation to registered charges, the administrators reported that the assets of the Company were encumbered by a first-ranking fixed and floating charge registered by the CBA and a second-ranking fixed and floating charge registered by the ANZ, and that the CBA’s security was supported by a mortgage registered on the titles to the Footscray and Hillside properties. They further noted that the ANZ claimed to hold unregistered mortgages over the Company’s property and cross-collateral security over the Point Cook and Hoppers Crossing properties.

The administrators’ first report dealt with the background and history of the Company and of the first Supreme Court proceeding. They noted that until recently the business had imported Asian products, predominantly from India and that the products were sold either through wholesale consignments or through the retail premises of Footscray. The report provided a summary of turnover and operating profits extracted from financial reports prepared by David Mond & Associates as follows:

Year Sales $ Net Operating Profits (before tax) $

2000 513,749 34,666

2001 638,341 28,471

2002 835,041 48,759

2003 1,386,922 159,405

2004 1,453,175 150,072

The administrators reported that, upon their appointment, they entered into possession of the Company’s assets and continued the Company’s activities with a view to maximising the going concern value of the business. They said that they were presently seeking expressions of interest for the sale of the business as a going concern and that advertisements for expressions of interest would be published in certain newspapers and that they expected to be in a position to advise further after offers closed on 10 June 2005. They also reported that both Sheela Tiwari and the plaintiff had indicated separately that each was in the process of preparing a proposal for the affairs of the Company to be dealt with under a Deed of Company Arrangement (“DOCA”) and that both of them had sought an extension of time in order to give the matter due consideration. The administrators said that in the circumstances it might be appropriate to adjourn the second meeting of creditors so that creditors might receive details of those proposals. The administrators said that in the meantime they were proceeding with the sale of the Hillside property.

The administrators’ first report went on to deal with the financial position of the Company as at 29 April 2005 and, based on their investigations, the report sets out tables of assets and liabilities together with detailed notes thereon. The report seemed to show that the Company had a deficiency of some $900,000, even if the assets (net of secured liabilities) were to be valued on a going concern basis, having regard to the existence of over $1m worth of unsecured creditors.

The financial position of the Company was and is somewhat complex and it will be necessary to deal separately with that topic. It is sufficient to note at this point that the administrators’ first report outlined a multiplicity of claims including claims by the solicitors Velos & Davis for legal fees and by members of the Tiwari family for unpaid wages. The report also refers to a number of issues raised with the administrators by the plaintiff that they describe as “complex” and that “may warrant substantial further investigation which could not be concluded within the time constraints under the provisions of” Part 5.3A of the Act. Those issues related to the alleged establishment of a new entity competing with the business of the Company and the withdrawal and/or use of substantial funds of the Company by the Tiwari interests for various purposes unrelated to the Company and its business.

In relation to the business, the administrators said that they had continued to trade with a view to stabilising the business and maximising its going concern value but that:

“Based on [a] preliminary assessment of the available information it appears that that company is not generating sufficient revenue to meet its trading expenses and the company will trade at a loss of approximately $2,325 per week. Accordingly, the Joint Administrators are unlikely to continue to trade the business for an extended period.”

The administrators noted that the Company was achieving a gross margin of 15% of turnover whereas historically it had achieved a gross margin of around 20% of turnover, but that “[d]ue to the decline in the business overall and increased competition from other similar local businesses, the business has had to reduce prices and offer customers incentives to generate sales and maintain stock turnover.” The administrators further noted that they had retained the services of three members of the Tiwari family including the directors, Sheela Tiwari and Pradeep Tiwari, and agreed on a total salary of $3,600 per week (plus accommodation). The total salary was included in the operating expenses, thus contributing to the estimated trading loss.

Towards the end of the administrators’ first report, they turn to their opinion as to the alternative courses of action referred to in s.438A of the Act. In relation to a possible DOCA, the administrators expressed the opinion that it was appropriate to adjourn the meeting in order to allow time for any proposals to be completed and considered. They listed a number of matters which any such proposal would have to address. In relation to whether the administration should end, they said:

“If creditors resolve the administration should end, the control of the company will revert to the directors. In opinion of the Joint Administrators it is not appropriate for the administration to end because this course of action will not solve the company’s problems nor provide a forum for dealing with creditors’ claims or the competing claims of the litigants.”

In relation to whether the Company should be wound up, the administrators noted that the creditors might resolve that the Company be wound up and that they be appointed liquidators. They expressed the opinion that it was not in the best interests of creditors that the Company be wound up “at this time” in substance because creditors should be given the opportunity to consider any proposal for a DOCA. The administrators therefore recommended that the meeting be adjourned for a period of three weeks, that is, until 16 June 2005.

I interpolate here that it seems to me, on the face of it, that these opinions expressed by the administrators in their first report were then reasonably open to them. It was reasonably open to them to consider that the alternatives facing the creditors in the circumstances appeared to be either a suitable DOCA or a winding up. It was reasonably open to the administrators to think, as they did, that returning the Company to the control of its directors could not be in the interests of creditors because that would have left unresolved the various disputes about creditors’ claims and the many allegations made by the plaintiff in relation to the conduct of the Company and the business by its directors. Additionally (although they do not directly refer to this aspect), there had been a complete and irretrievable breakdown in the business relationship between the persons who (subject to any reversal by the Court of Appeal) had been held to be equal unit holders in the Trust, such that it was reasonably open to the administrators to consider that such return of control to the directors would be a recipe for further conflict that would not be conducive to successful operation of the business or to payment of the Company’s debts.

Finally, the administrators’ first report concludes by setting out a summary of their activities from 29 April 2005 to the time of the preparation of the report. Having regard to the allegations of misconduct made by the plaintiff against the administrators it is relevant to note the substantial work which the administrators reported that they had performed in that period of just under three weeks, which they listed as follows:

“Since the appointment the Joint Administrators have attended to the following:
·Reviewed the company’s assets, liabilities and premises.
·Interviewed the directors.
·Undertook the requisite investigations required to prepare and complete this report in accordance with Section 439A(4).
·Meetings and correspondence with the company’s secured creditors, being the CBA and the ANZ pursuant to Section 450A.
·Liaised with suppliers to establish supply to the company and dealt with procedural issues.
·Arranged the transfer of the company’s merchant facility to the Joint Administrators’ account.
·Arranged for funds to be transferred from the company’s bank account to the Joint Administrators’ account.
·Implement and monitor controls over daily cash takings and banking.
·Implement controls over purchase orders for approval of stock purchases.
·Monitored the trading and financial position of the company’s business since the date of appointment as Joint Administrators.
·Negotiated appropriate wages to be paid to the company’s employees.
·Called two creditors meetings to date.
·Arranged meetings between the Tiwari Family and Mr. D. Malhotra and their respective legal representatives.
·Attended to all statutory matters in relation to the administration including notification to all creditors and government bodies.
·Attended to day to day queries and administration issues in respect of the likelihood of recovering undue preferences in the event of liquidation and also of insolvent trading.
·Attended to and observed stocktake, including calculating and collating the stocktake and conducted subsequent testing of the integrity of the stocktake.
·Instructed Dominions in respect of a valuation of the company’s plant and equipment and assessment of the value of the company’s stock under a forced sale scenario.
·Instructed Sutherland Farrelly Valuers in respect of a valuation of the company’s business and freehold property located at 580 Barkly Street, Footscray, the company’s property located at 45 Boronia Drive, Hillside.
·Liaised with valuer in relation to market rental and possible lease in respect of the Footscray property.
·Prepared a budget forecast for the business.
·Liaised with our insurance broker in relation to the company’s existing insurance cover and further insurance needs, to ensure adequate insurance cover is in place.
·Advertised for expressions of interest in respect of the company’s business and freehold property.
·Sought independent legal advice in relation to the validity of Mr. Velos’ security.
·Sought independent legal advice in relation to the Joint Administrators’ obligations under the Supreme Court orders.
·Correspondence and meetings from time to time with the company’s directors, legal and accounting representatives.
·Correspondence and meetings from time to time with Mr. Malhotra and his legal representatives to consider a submission from Mr. Malhotra in relation to the operation of the business.
·Attended the property at Hoppers Crossing in order to determine the nature of the business and assess the level of business activity.
·Reviewed the company’s records in relation to video deposits paid by customers in order to estimate the company’s potential exposure to its customers.”

At that juncture the administrators said that their total professional fees to 18 May 2005 were $61,883.36. The total amount claimed is perhaps not surprising given the work said to have been performed and the context of continuing litigation and of many claims and disputes. Appended to the administrators’ first report was a list of creditors.

The plaintiff reacted to the comments of the administrators’ first report by a letter to the administrators prepared by the plaintiff’s present solicitors dated 23 May 2005. In that letter the solicitors on behalf of the plaintiff expressed grave concern as to various matters contained in the first administrators’ report. The solicitors said that they were “clearly of the view that the administration is not being conducted in a manner that is consistent with the best interests of the Company, its creditors and shareholders and the unit holders of the Trust”. They said that the paramount duty of the administrators was to investigate the affairs of the Company and to consider possible courses of action pursuant to s.438A of the Act. The solicitors said that, as the administrators were not then in a position to form a view as to the possible courses of action set out in s.438A of the Act, it was premature for the administrators to be seeking expressions of interest in relation to the sale of the business as a going concern or proceeding with the sale of the Hillside property. The solicitors said that if the Company was solvent, the only proper course of action was to recommend that the administration be terminated. The solicitors said that the plaintiff was of the firm view that the Company and Trust were solvent and that a proper investigation of their affairs would bear this out in due course. They added that the administrators were appointed in the context of a pending appeal in the first Supreme Court proceeding and in order “to preserve the status quo pending the determination of the appeal.” The solicitors said they were instructed to apply for injunctive relief if the joint administrators did not undertake to refrain from their threatened course of conduct.

I note that the solicitors, in contending that none of the assets of the Company should be sold because it might be appropriate in due course to terminate the administration, failed to deal with the passage in the administrators’ first report in which the administrators expressed the opinion that it was not appropriate for the administration to end because that course of action would not solve the Company’s problems nor provide a forum for dealing with creditors’ claims or the competing claims of the litigants. Further, the solicitors’ letter suggested that a “proper investigation” of the affairs of the Company and the Trust would bear out “in due course” that the Company and the Trust were solvent. These views, as expressed by the plaintiff’s solicitors, suggested that they had in mind a duration for the administration which permitted of a lengthy investigation and which would also await the hearing of and judgment in the appeal in the first Supreme Court proceeding. But the plaintiff and his solicitors did not suggest that any extension of the periods laid down in Part 5.3A of the Act ought to be sought from the Court. However, the continuation of the administration for an extended duration would have involved the Company and the Trust in continuing heavy costs which, as the plaintiff shortly thereafter recognised, was not in his interests, let alone in the interests of the creditors.

By letter to the plaintiff’s solicitors dated 24 May 2005 from Madgwicks, the solicitors for the administrators, the administrators refused to give the undertakings sought by the plaintiff’s solicitors’ letter of 23 May 2005.

On 24 May 2005, the Court of Appeal fixed the date for hearing of the appeal in the first Supreme Court proceeding for 28 July 2005.

As appears from the plaintiff’s first affidavit, the plaintiff at this stage formed the view that the continuing substantial costs of the administration were not justified from his point of view, having regard to the courses of action taken and being proposed by the administrators. As a result, the plaintiff’s solicitors wrote an “extremely urgent” letter to Sheela Tiwari’s solicitors, BTK, on 25 May 2005, setting out the plaintiff’s position at length. The letter accused Sheela Tiwari of repudiating the basis upon which the administrators had been appointed (namely, to preserve the status quo) by pushing for the liquidation of the assets of the Trust in order “to deprive our client of the fruits of judgment in the event that the appeal was dismissed”. The plaintiff’s solicitors commented that, given that Sheela Tiwari was indebted to the plaintiff for legal costs, which were likely to exceed $500,000, and was also liable to disgorge one-half of the net profits derived from the business, which were likely to exceed $300,000, Sheela Tiwari’s “half equity in the assets of the Trust would be entirely diluted once she discharges her liability to our client in respect of costs and damages [and], in real terms, your client has no effective ‘net equity’ left in the assets of the Trust unless she is successful in the appeal.” The plaintiff’s solicitors proposed that there be a joint application either to remove the administrators or to restrain them from liquidating the assets of the Trust or convening any further meeting of creditors and that, if they agreed to such an application, the plaintiff was prepared to permit Sheela Tiwari to continue to run the business pending the hearing of the appeal. No response was received to this letter.

By letter dated 24 May 2005, David Mond & Associates placed before the administrators a proposal for a DOCA on behalf of “a group of investors”. The letter asserted that the essential facts were:

“1.The Company was trading profitably, on the basis that the Tiwari family would retain a 100% interest in the business and by them accepting well below market value wages, as employees of the business.
2.Over the last 12 months, the “activities” of Dinesh Malhotra have lead to a loss of suppliers and disenchantment and loss of customers.
3.The arms-length assessment of wages for employees of the business with operating hours of 9.00am to 9.00pm seven days per week means that the true net profit is zero.
4.The Tiwari family are the owners of the Goodwill, that is, their personality and service are inexorably linked to the success of the business. There is no Corporate Goodwill.
5.The premises of 580 Barkly Street Footscray are unsatisfactory for long term occupation and in need of repair.
6.The Tiwari famly live on the premises and have a residential tenancy entitlement to live there.
7.The ANZ and CBA are owed substantial debts and the business property secures that debt ($450,000).
8.There is currently on foot an appeal to the Full Court of Appeal. The proper course for the Administrator is to pay 50% of the costs of the Appeal as:
a) There is a contingent debt of $150,000 to Velos and Davis.
b)The Tiwari interests are 50% equity holder of the Unit Trust.

…
9.The Report by the Administrator dated 15 May 2005 states the business is now unprofitable, based upon margins and the cost of wages and overheads.
10.The Administrator is currently not paying rent. Any purchasers of the business will either be required to enter into a lease of some $50,000 p.a., or purchase the building valued by Sutherlands at $500,000 (plus stamp duty). Any lease entered into by the Administrator will limit the potential market value of the 580 Barkly Street property and only investors will be interested prospective purchasers.”

The letter from David Mond & Associates went on to refer to the alleged entitlements of the directors and their relatives for wages and associated payments. The letter suggested, based on the Crossroads Report, that a total of over $1M was owing to the members of the Tiwari family who had worked in the business from 1 July 2000 to 30 April 2005. The “offer”, in essence, was to take over the real estate and the business of the Company, and the liabilities to the Banks and to Velos & Davis and to pay $160,000 in cash.

The second creditors’ meeting was held on 26 May 2005 and was chaired by Mr Vince. Mr Vince presented the administrators’ report and spoke to the report. Mr Vince said the administrators were seeking expressions of interest for the sale of the business as a going concern or for a combined sale of the business with the Footscray property and they had taken steps to put the Hillside property on the market, as a result of the CBA’s decision to exit the Company. Mr Vince said that the Company’s total assets were estimated at approximately $200,000. Mr Vince said that a number of issues had been brought to their attention by the plaintiff and investigations into them were continuing. He said that the business was trading at a loss of about $2,000 a week and they were continuing to trade in order to preserve the Company’s assets, but were concerned about the costs of the administration dissipating the assets of the Company. Mr Vince said that if the administrators were to make an application to the Court to extend the adjournment period, further costs would be incurred. He said that their investigations were continuing into the claim of Velos & Davis for legal fees which might be void as against the Company and in relation to the payment to Mrs Tiwari of $137,287 being payment to discharge the beneficiary loan account. He said that the administrators’ investigations might extend beyond unfair preference and voidable transactions. He said that a proposal for a DOCA had been received from the Tiwari family.[20]
[20]Presumably this was a reference to the proposal from David Mond & Associates.

Mr Jones explained how the plaintiff’s claim for one-half of prior year profits eliminated any entitlement by the Tiwari interests to any further distributions from the Trust.

Mr Jones suggested that the Velos & Davis claim may not be a debt of the Company.[47] That is quite possible, but it must be remembered that Velos & Davis, rightly or wrongly, were acting for the Company in the first Supreme Court proceeding. The firm may not have a valid claim against the Company, alternatively, if it does, the directors may be at fault for actively involving the Company, as trustee, in the litigation. Again the Velos & Davis claim can only be determined in a proceeding between the Company and Velos & Davis or in the proof of debt process. I note further that the Company may possibly have a claim for repayment of costs paid to Velos & Davis but this can only be determined if a claim is brought by the Company.
[47]Correspondence (including a letter dated 6 September 2004 enclosing Terms of Engagement, and also accounts, from Velos & Davis to their clients relating to the first Supreme Court proceeding, so far as the evidence shows, was commonly addressed to Sheela, Markandey and Pradeep Tiwari, or one or more of them. It does not appear that any of the accounts were addressed to the Company. The accounting records of Velos & Davis appear to name the client as “Mrs S Tiwari and Mr Markandey”. On the other hand, an appearance was entered by Velos & Davis as solicitors for the Company (as well as the other defendants) in the first Supreme Court proceeding and numerous court orders record counsel as having appeared for the Company in addition to the Tiwari defendants. Further, although the statutory demand was withdrawn, an affidavit was sworn by a member of the firm deposing to the fact that the Company was indebted to the firm. It appear that there are questions to be tried.

Mr Jones said that the Company might have an equitable interest to the extent of forty-two per cent in the Point Cook property, alternatively a right to repayment of the sum of $200,000 plus interest plus costs. This is probably correct but is yet to be determined.

Mr Jones suggested that claims by or payments to accountants, solicitors and others of $66,879 might not be debts of the Company. This may be wholly or partially correct.

Mr Jones said that there were “strong indications” that there had been a diversion of cash and stock from the business. Mr Jones provided analyses which he said showed significant discrepancies in stock and unexplained falls in takings of the business. These matters are difficult and far from obvious, as his opinion indicates, and can only be determined in litigation between the Company and those alleged to have diverted these resources.

Mr Jones’ summary of the Trust’s statutory profit and loss statements shows that the business reached its peak as regards profits in 2003 and, despite an increase in sales in 2004, that the profits dropped from then on.

Mr Jones’ analysis of sales from 1 January 2005 to 11 September 2005 shows a greater fall in cash sales than the corresponding fall in debit and credit card sales (referred to in the business as “EFTPOS” sales). This may be of significance.

In an addendum to his report prepared in response to the liquidators’ final report, Mr Jones identifies the following differences between his analysis and that of the liquidators:

(1) Equity in Point Cook of $215,000;
(2)Costs of $89,619 reducing the value of the equity in the real estate;
(3)Huge increase in liquidators’ costs;
(4)Incorrect inclusion of Tiwari loan;
(5)Trade creditors included at $165,365;
(6)Video deposits $69,740;
(7)Administrators’ creditors $217,429 (which includes legal costs and trade creditors).

In examination in chief, Mr Jones testified that the Company was solvent and that in reaching that conclusion he had taken into account an offer to provide the sum of $215,000 by Naresh Malhotra and the obtaining of funds from the sale of, inter alia, the Point Cook property and the Hoppers Crossing property. The matters that Mr Jones thus took into account in my view render suspect his conclusion because there are no funds readily realisable by the Company from the sale of the Point Cook or Hoppers Crossing properties. Obtaining funds from these sources would appear to necessitate litigation between the Company and the registered proprietors of the said properties (which properties are also encumbered). In addition, I do not consider that it is appropriate to take into account the offer from Naresh Malhotra for the reasons stated later below.

Mr Jones produced a balance sheet as at 16 June 2005[48]. This balance sheet showed net assets or a surplus of $695,885. The surplus appeared to be created by including an equity in the Point Cook property of $215,000 and an amount due by the Tiwari Family Trust of about $496,000. In addition, the administrators’/liquidators’ costs were understated at $100,000.[49] Mr Jones made no allowance for a video deposits liability. The said amount of about $496,000 due by the Tiwari Family Trust is explained in Appendix 14 to Mr Jones’ report. It includes $39,500 for the deposit on the Hoppers Crossing property, $40,000 in relation to the settlement of the Hoppers Crossing property, payments to Mond, an estimate of stock diversions of $124,000, an item for the motor vehicles of the Tiwaris ($130,000) and various other withdrawals and items. It seems that most, possibly all, of the amounts making up this sum of $496,000 might well be the subject of dispute and possibly litigation between the Company and the various persons and entities involved.
[48]Exhibit “K”.
[49]Mr Jones noted an additional $200,000 claimed in the three month period between June and September 2005. This is perhaps not surprising given the degree of activity, including litigation, that occurred in this period.

Mr Jones also eliminated any debt of the Company to the Tiwari Family Trust because of the plaintiff’s claim to about $300,000 as his share of the net profits. I would agree that the principle underlying this part of Mr Jones’ calculation appears to be correct and his evidence was not challenged on this point.

Mr Jones’ opinion as to the solvency of the Company is undermined because it depends upon the inclusion of a number of substantial items which do not represent readily realisable assets of the Company. Most of them are, at best, alleged choses in action that appear to be in dispute and would probably have to be established in litigation and would be subject not only to the delays, costs and difficulties of litigation but also subject to the usual contingencies which affect the recovery and enforcement of debts that are unsecured.

Both the plaintiff and the liquidators provided the Court with analyses of the asset and liability position of the Company as at the time of the hearing. The analyses provided by the plaintiff are to be found in Mr Jones’ evidence and in Mr Selimi’s submissions. The analyses provided by the liquidators are to be found in their last report[50] and in Mr Randall’s submissions.
[50]This purported to be a s.482(2) report but I note that the Court had not directed such a report.

The liquidators’ last report is exhibit “SH-1” to the affidavit of Mr Horne sworn 23 September 2005. The liquidators estimated that there was a deficiency in the amount available for creditors of $897,764 (going concern basis) and $952,164 (auction realisable basis). After allowing for payment of the formerly CBA secured debt and that portion of the ANZ debt representing a loan utilised by the Company, the principal liabilities giving rise to the deficiency were said to be administrators’/liquidators’ creditors ($217,429) and administrators’/liquidators’ remuneration ($289,504). However, the liquidators’ estimate made no provision for a number of potential liabilities[51], including the following:
[51]A number of these are the subject of comment in the Liquidators’ Report (Exhibit “SH-1”).

(i)       Tiwari employee claims based on the Crossroads report
(ii)      Claim by Velos & Davis
(iii)     Claims by other caveators over the Company’s real estate
(iv)Claim by the ANZ under the guarantee of the loan relating to the Hoppers Crossing property.

On the other hand, the liquidators’ estimate made no provision for a number of potential claims or recoveries, including the following:
(i)Claim for recovery of any amounts paid to the ANZ pursuant to the guarantee
(ii)Claim to an interest in the Point Cook property
(iii)Claims relating to alleged misappropriations of moneys and stock from the business
(iv)Claims for repayment of amounts allegedly wrongly paid to solicitors and accountants.

There is a good deal of uncertainty about many of the figures produced by each of the parties but it is convenient to refer to annexure B to Mr Selimi’s written submissions. On page two of annexure B it appears that there is not much dispute about the total value of the Company’s assets, after allowing for the payment of the debts[52] secured upon them. Such differences as there are appear to stem from two matters. The first is the question of the value of the Hillside property and the Footscray property[53]. The second is whether the Company’s so-called “equity” in the Point Cook property ($215,000) should be included as an asset. Apart from the latter item, the assets (after payment of the secured debts) are valued at somewhere between $445,000 (the plaintiff), $412,000 (Mr Jones) and $328,000 (the liquidators). These totals include the net value of the real estate, and the business assets on a going concern basis (cash at bank, stock and plant and equipment) but without any allowance for goodwill. For the sake of the argument I will adopt Mr Jones’ figure of $412,000 for the assets. I am not satisfied on the evidence that the “equity” in the Point Cook property is a readily realisable asset of the Company although it may well be a legitimate claim. Turning to the liabilities the position, as best as I can ascertain it, is as follows:
[52]I note that interest continues to run on these debts.
[53]There is no sworn evidence of the value of the real estate although a written valuation was tendered without objection that supports the liquidators’ position.

Priority creditors

Administrators’/Liquidators’ creditors (excluding legal costs and expenses since 20 September 2005) $217,429[54]

Administrators’/Liquidators’ remuneration Probably not less than $300,000[55]

Other creditors

Shortfall on motor vehicle finance $9,610

Trade and other creditors $165,365

Video deposits (contingent liability) At least $16,000

TOTAL $708,404
[54]This amount includes accrued utilities ($3,336), advertising ($10,662), legal fees ($84,840), outstanding invoices payable to trade suppliers ($72,689), PAYG payable ($15,084), valuation costs ($9,974) and wages, leave and superannuation entitlements ($20,844).
[55]As at 16 September 2005 the professional fees claimed by the administrators/liquidators totalled $266,027.10 (plus GST of $26,602.71) and out of pocket expenses totalling $3,731.95 – after allowing for an amount paid of $6,857.40, the administrators’/liquidators’ claim as at 16 September 2005 was $289,504.36.

On this approach I am satisfied that the Company has insufficient resources to pay its priority creditors in full and is unable to pay its ordinary unsecured creditors. There is a deficiency (excluding legal costs and expenses of about $135,000 incurred since 22 September 2005) of about $300,000. Even if it is assumed that there is some value attached to the goodwill of the business on sale, there would remain a substantial deficiency.

In the above assessment I have disregarded the plaintiff’s claim against the Company of over $300,000 in respect of the settlement of his entitlement to a share of the past net profits of the Trust up to 30 June 2003, because Mr Selimi said that this sum would be claimed pursuant to the judgment of Balmford J against Sheela Tiwari personally. I note that the plaintiff also has claims for subsequent years. However, there are other possible liabilities of the Company. For example, there are claims for wages by the members of the Tiwari family who were employed in the business for some years without pay. There are also the claims of Velos & Davis and of Mond which, although they face obvious difficulties, cannot be assumed to be without any substance at all. As I mentioned when discussing the evidence of Mr Jones, the validity of these claims cannot be entirely dismissed. In addition, the Company has a contingent liability to the ANZ under a collateral guarantee given in relation to the monies borrowed for the purpose of purchasing the Hoppers Crossing property.

It is possible of course that, in due course, the current deficiency of the Company will be eliminated by virtue of various claims that the Company may pursue and recover as against the members of the Tiwari family, but these claims are not in the category of readily realisable assets.

In the end, I am satisfied that the Company is substantially insolvent and lacks sufficient financial stability[56] to be “re-launched”. In my opinion the application for termination of the liquidation should be refused on that ground alone.
[56]See Anderson v Palmer [2002] NSWSC 192 (Barrett J).

Mr Selimi sought to overcome the difficulties posed by the present financial position of the Company by reliance upon the offer of Naresh Malhotra to provide substantial finance in some form or other in order to save the Company and/or the business. The evidence from Naresh Malhotra as to what he was prepared to do was in my opinion, although sincere, too uncertain. He said that in the event that the liquidation was terminated he was prepared to provide financial assistance but that he had not given it his final thought. He said that he was prepared to pay out MIG Properties Pty Ltd (the company associated with Mond that paid him out in respect of the CBA debt). In cross-examination by Mr Randall, Naresh Malhotra indicated that for this purpose he was prepared to help out to the tune of $215,000 to $250,000 or thereabouts and that he was also (apparently) prepared to pay out the ANZ. Various other liabilities were mentioned to him which led him to say, “I have approximately $1M available to me in assets and finance so I haven’t … gone into specific sums but if it is over $1M I may have some problems, but under $1M I am reasonably confident I should be able to meet whatever the amount is and if I have to do it I will do it.” Naresh Malhotra explained that he had $200,000 “in cash equity” and a property worth $500,000 and an interest in an estate of his recently deceased father worth over $1M. He said that his funds were available on the basis that the plaintiff controlled the business and that, if the plaintiff did not control the business, he would have to seek legal advice. The plaintiff also made assertions about his intention, in certain circumstances, to pay out trade creditors of the Company.

It would be quite unsatisfactory to terminate the liquidation based upon such proposals and assertions. There are a variety of matters that would need to be dealt with for a proposal to become workable including precise terms covering trade creditors, what to do about various other liabilities or alleged liabilities of the Company, what to do about various claims of the Company and a resolution of the present ownership and control of the Trust. The Act perhaps provides an appropriate mechanism in that the liquidators are entitled to appoint an administrator pursuant to s.436B(1) of the Act and might do so if a suitable DOCA were formulated. The difficulties of constructing a suitable DOCA cannot be underestimated. It is not appropriate to return the Company to the control of its directors in the hope that Naresh Malhotra’s present “proposal” might come to fruition in some form or other.

In addition to the foregoing, there are other factors militating against the termination of the liquidation. Given the irretrievable breakdown of the relationship between the plaintiff on the one hand and Sheela Tiwari (or the Tiwari interests) on the other hand, this Trust has no future in its present ownership. There is no prospect in all the circumstances, so far as presently appears, that one party will buy the other party out. The return of the Company to the Tiwari directors can only lead to further disputation and litigation. One might envisage an application in some circumstances by one or other of the parties to remove or replace the Trustee or to appoint a receiver to the Trust but, given the financial position of the Company, these steps would not appear to be realistic until the Company’s liabilities are paid and the Company’s claims resolved.

The main concern of the plaintiff has not so much been the preservation of the Company, which is a mere trustee, but the saving of the business and getting it under his control. The steps taken by the plaintiff have not, as it seems to me, been well adapted to that purpose. In any event, I consider that the administrators and liquidators were right all along in proposing the sales of the real estate and of the business and it is unfortunate that this litigation has delayed and prevented that from occurring with the consequent accumulation of further expenses and losses. It was and remains in the best interests of the creditors and, in my view, of the unit holders as well that the business (and the real estate) of the Company be sold for the best price obtainable and that the liquidators complete their foreshadowed investigations and initiate all appropriate recovery actions in due course.

Although I have not mentioned all of the many points made, I have read and considered all of the submissions in writing of Mr Selimi and I am unpersuaded by them that there is any good reason to terminate this winding up. The motives and stratagems of the Tiwari family, even if reprehensible, do not affect my conclusion.

The relief sought in the originating process

While the principal submissions relied upon by the parties have been addressed above, it is now appropriate to deal briefly with each of the paragraphs A to W in the originating process.

Paragraph A(i) to (iv) of the originating process is concerned only with interlocutory injunctions and does not arise. Paragraph A(v) seeks an injunction to restrain the liquidators from selling the assets of the Trust. That application was not pressed and cannot be supported.

Paragraph B of the originating process seeks a stay or termination of the winding up of the Company. I have dealt with that application upon the principal grounds advanced at trial and, for the reasons stated, that application is refused. Grounds (ii), (iii), (iv) and (v) have not been established and, even if established, would not have persuaded me to order the termination of the liquidation.

Paragraph C of the originating process seeks a declaration that the resolution for winding up was null, void and of no effect and should be set aside. I have dealt with and rejected that application insofar as it relies upon s.1321 of the Act. Apart from s.482 of the Act, the basis of seeking such a declaration was not explained but I will make the following further comments. The factual basis of ground (iii) is refuted by the contents of the minutes of the second creditors’ meeting on 29 June 2005. Ground (iv) is true but does not entitle the plaintiff to the relief sought. As to ground (v), in my view the resolution to wind up the Company was in the interests of the creditors as a whole. As to ground (vi), the resolution was in my view in the interests of the unit holders but, if not, the interests of the creditors take precedence. Ground (vi) (where second appearing) does not really make sense and is not made out, either as to the improper and ulterior purpose alleged or as to how the alleged design to deny the plaintiff the fruits of his judgment or control the assets of the Company could be achieved by a winding up. Ground (vii) is not established nor does it entitle the plaintiff to the relief sought. The factual bases of grounds (viii) and (ix) are not established. Ground (x) identifies two errors in the first report to creditors but is otherwise not established and provides no basis for the relief sought. Ground (xi) provides no basis for the relief sought and is fallacious in that it ignores the statutory basis for the administration under Part 5.3A of the Act. Grounds (xii) and (xiii) were not pressed and in any event are spurious. Ground (xiv) is irrelevant and provides no basis for the relief sought. Ground (xv) is not established and would provide no basis for the relief sought even if established. I reject ground (xvi) because it is taken out of context and the administrators’ advice was in my opinion correct when read in context.

The relief sought in para D of the originating process does not arise.

The relief sought in para E of the originating process is refused for reasons already stated.

The relief sought in para F of the originating process was not pressed. Further, the relief sought in para F(i) does not arise in the context of the imminent sale of the business. The relief sought in para F(ii) is unnecessary in the context of the liquidation. Even if the present directors were removed, there would be no valid reason to replace them with the plaintiff.

The relief sought in para G of the originating process was not pressed and does not arise and no damages were sought and no basis for the same made out.

The relief sought in para H of the originating process does not arise.

As to para I of the originating process, leave to the plaintiff to commence a derivative proceeding against the directors of the Company is refused. There is no good reason why this matter should not be left to the liquidators at this stage. There are clearly a considerable number of potential claims against the directors that need to be evaluated, many of which the liquidators have already assessed as of some validity and strength.

As to para J of the originating process, leave is refused.

Paragraph K of the originating process (relating to Mond) is stayed by a Court order.

Paragraph L of the originating process is refused.

Paragraph M of the originating process does not arise.

Paragraph N of the originating process is refused for the reasons already stated.

Paragraph O of the originating process was not pressed.

Paragraph P of the originating process, covering applications under s.1321 of the Act, has been dealt with so far as relevant but otherwise does not arise and no basis is made out therefor.

Paragraph Q of the originating process does not arise.

Paragraph R of the originating process, relating to s.233 of the Act, was not pressed. Further, the basis for an order transferring Sheela Tiwari’s shares in the Company to the plaintiff is not established and such as order is of no utility in the context of the liquidation of a company that is a trustee.[57]
[57]As to oppression proceedings where the company is a trustee: see McEwen v Combined Coast Cranes Pty Ltd (2002) ACSR 244 at [44]-[46] per Young CJ in Eq.

Paragraph S of the originating process, seeking a transfer to the plaintiff of Sheela Tiwari’s units in the Trust was not canvassed in the context of this proceeding and is refused, without prejudice to the plaintiff’s right if any to seek that relief as and when he deems fit, in an appropriate proceeding.

Paragraph T of the originating process does not arise.

Paragraph U of the originating process, seeking an order that the Trust be wound up and the Court appoint a receiver in respect thereof, was not pressed but liberty to apply in respect thereof is reserved. At present, if a receiver were to be appointed to the Trust, I am prima facie of the view that the liquidators should be appointed.

Paragraph V of the originating process does not arise.

As to para W of the originating process, all questions of costs in this and any related proceeding will be reserved and a date will be fixed in February 2006 to argue any questions of costs.

Orders

For the foregoing reasons, the originating process is dismissed and the injunctions granted against the liquidators, in this proceeding and in all related proceedings, restraining them from selling the real estate and the business of the Company and of the Trust are discharged. In particular the injunctions to that effect granted by Cummins J in paragraph 3 of his order dated 30 June 2005 is discharged and the injunction granted by me in para 1 of the order dated 10 August 2005 in proceeding no. 7263 of 2005 is discharged.

The question of any enquiry as to damages arising under any undertaking as to damages given by the plaintiff is adjourned to the same date upon which questions of costs will be dealt with.

Year	Sales $	Net Operating Profits (before tax) $
2000	513,749	34,666
2001	638,341	28,471
2002	835,041	48,759
2003	1,386,922	159,405
2004	1,453,175	150,072

Priority creditors
Administrators’/Liquidators’ creditors (excluding legal costs and expenses since 20 September 2005)	$217,429[54]
Administrators’/Liquidators’ remuneration	Probably not less than $300,000[55]
Other creditors
Shortfall on motor vehicle finance	$9,610
Trade and other creditors	$165,365
Video deposits (contingent liability)	At least $16,000
TOTAL	$708,404

[2005] VSC 496

22 December 2005