Re Savage River Pty Ltd; Vartelas v Theodorakakos (No.2)
[1998] VSC 126
•6 November 1998
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION
Not Restricted
No. 4736 of 1997
IN THE MATTER OF SAVAGE RIVER PTY LTD
(ACN 060 574 727)
IN THE MATTER OF FORDCORP INDUSTRIES PTY LTD
(ACN 064 863 001)
IN THE MATTER OF AN APPLICATION BY PAUL VARTELAS Applicant v. JOHN THEODORAKAKOS and ORS Respondents
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JUDGE: Byrne, J. WHERE HELD: Melbourne DATE OF HEARING: 20 October 1998 DATE OF JUDGMENT: 6 November 1998 CASE MAY BE CITED AS: Re Savage River Pty Ltd; Vartelas v Theodorakakos (No.2) MEDIA NEUTRAL CITATION: [1998] VSC 126
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Corporations - leave to approve compromise.
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APPEARANCES: Counsel Solicitors For the Applicant Mr T. Irlicht Irlicht & Broberg For the first Respondent Mr Leonidas ComLaw For the third and fourth Mr R.D. Seifman Ella Gorenstein
Respondent
HIS HONOUR:
In March 1997 the applicant, Paul Vartelas, was appointed by the order of the court to be the receiver and manager of the assets and undertakings of Savage River Pty Ltd and Fordcorp Industries Pty Ltd.
On 3 September 1998 I pronounced orders in accordance with reasons for judgment given on 14 August 1998: [1988] VSC 33. In these orders I declared that any debt payable by Savage River to the firstnamed respondent, John Theodorakakos, was secured by a debenture charge and a second mortgage granted to him by the company. There remained the question whether there was any such debt was owing and I ordered:
“3.
Order that the question of what sum, if any, is owing by Savage River Pty Ltd or Fordcorp Industries Pty Ltd to John Theodorakakos or by John Theodorakakos to either or both of those companies, be referred to a Master.”
Other orders made on that day which bear upon the present application were these:
“4.
Declare that, subject to the rights of priority creditors and secured creditors, if any, the proceeds of the sale of the freehold be paid to the creditors of Savage River Pty Ltd, and the proceeds of sale of the business be paid to the creditors of Fordcorp Industries provided that the receiver is entitled first to deduct and pay the commission, expenses, remuneration and legal costs referred to in paragraph 4 of the heads of agreement being exhibit JT6 to the affidavit of John Theodorakakos sworn 27 August 1998.
7.
Order that the remuneration of the receiver and manager and his costs and expenses of the administration be assessed by a Master and paid to him out of the assets of Savage River Pty Ltd and Fordcorp Industries Pty Ltd.
8.
Order that costs and expenses of the applicant of this application including any reserved costs and the costs of transcribed notes be taxed on a solicitor and client basis and that the amount of such costs be expenses of the administration.
9.
Order that the costs of the firstnamed respondent of this application including reserved costs and the costs of transcribed notes be taxed and paid by the thirdnamed respondent.”
The application now before the court is brought by summons filed on 8 October 1998. In it the receiver and manager seeks the leave of the court to settle certain claims between Mr Theodorakakos and the companies. The terms of the proposed settlement are the following:
“This is to confirm that subject to Court approval an agreement has been reached between Mr. Paul Vartelas as Receiver & Manager of the abovenamed companies and Mr. John Theodorakakos as Mortgagee over the assets of Savage River Pty Ltd. The parties agree as follows:
1. The Receiver & Manager will pay Mr. John Theodorakakos the sum of $55,000.00 from the assets of Savage River Pty Ltd (Receiver & Manager Appointed) in consideration and in full and final settlement of Mr. Theodorakakos' claims pursuant to his mortgage, debenture or otherwise against Savage River Pty Ltd and Fordcorp Industries Ply Ltd or either of them.
The said payment is also in full and final settlement and release of any claims which Savage River Ply Ltd and Fordcorp Industries Ply Ltd or either of them may have against the said Mr. Theodorakakos.
2. Mr. Theodorakakos will withdraw all objections in the Receivership of Savage River Pty Ltd (Receiver & Manager Appointed) and will consent to any Orders sought by the Receiver & Manager with respect to his remuneration, disbursements and legal fees.
3. Mr. Theodorakakos will withdraw all objections and consent to any Orders by the Receiver & Manager of Fordcorp Industries Pty Ltd (Receiver & Manager Appointed) with respect to is remuneration, disbursements and legal fees.
4. Both the Receiver & Manager and Mr. Theodorakakas release each other from all obligations, claims. either present or future with respect to the affairs of Savage River Pty Ltd and Fordcorp Industries Pty Ltd.”
The application supported by Mr Theodorakakos but opposed by the thirdnamed respondent, Eleni Tzimas, and the fourthnamed respondent, Sophie Tellios. No other party appeared.
In order to understand the significance of the positions adopted by the parties, it is necessary to have regard to the history of the disputes between Mr Theodorakakos, Mrs Tzimas and Mrs Tellios which I have set out in my judgment of 14 August. There is a good deal of hostility between these parties and the two women contend that no indebtedness exists between Mr Theodorakakos and either of the companies. Among the papers before me at the trial there were two reports to the court by the receiver and manager. In that dated 27 November 1987 he points to the uncertainties attending Mr Theodorakakos’ claim to be a creditor of Savage River. There is little in the way of documentation and such documentation as there is is of doubtful value. Moreover, his claims are passionately disputed by the two women. The receiver and manager now says that, in the circumstances, his task of disputing the indebtedness of Savage River to Mr Theodorakakos in the claimed sum of $200,000 recorded in the mortgage will be difficult, expensive and uncertain of outcome.
Reliance was placed by the receiver and manager upon the financial position of the companies.
Savage River The assets of this company have been realised and its debts paid. As a consequence, the receiver and manager holds a fund of $90,452.20. Against this fund there are a number of expenses outstanding. These expenses and their estimated amounts are the following:
(a)
the legal costs of Mrs Tzimas and Mrs Tellios of their application for the appointment of the receiver and manager - $2,700;
(b)
one half of the legal costs of the receiver and manager of the trial ordered to be paid out of the assets of the companies - $16,000;
(c)
the receiver and manager’s remuneration - $105,688. The sum of $10,000 has already been taken from the fund towards this item and its final amount remains to be assessed. Under the proposed compromise Mr Theodorakakos will not oppose the receiver and manager’s figure. It is conceded that it remains open to Mrs Tzimas and Mr Tellios to oppose the receiver and manager’s bill if they are so minded;
(d)
the receiver and manager’s disbursements - $2,040. These, too, remain to be fixed;
(e)
Mr Theodorakakos’ claim. He asserts that it exceeds $200,000. Under the proposed settlement it is fixed at $55,000;
(f)
a claim by an unsecured creditor, Sporting Publications, for $44,065. This debt is disputed;
(g)
the claim of Mrs Tzimas and Mrs Tellios to be unsecured creditors in the sum of $35,000. No proof of this debt has been lodged.
Fordcorp Industries The assets of this company have been realised and its debts paid. As a consequence, the receiver and manager holds a fund of $36,057.25. Against this fund there are a number of expenses outstanding. These expenses and their estimated amounts are the following:
(a)
the legal costs of Mrs Tzimas and Mrs Tellios of their application for the appointment of the receiver and manager - $2,700;
(b)
one half of the legal costs of the receiver and manager of the trial ordered to be paid from the assets of the companies - $16,000;
(c)
the receiver and manager’s remuneration - $58,702. The sum of $10,000 has been taken from the fund on account of this item which remains to be assessed. Under the proposed compromise the Mr Theodorakakos will not oppose the receiver and manager’s figure. It is conceded that it is open to Mrs Tzimas and Mrs Tellios to oppose the receiver and manager’s bill if they are so minded.
(d)
the receiver and manager’s disbursements - $779. These, too, remained to be fixed.
(e) unsecured creditors - $157,957.
So far as Savage River is concerned, it will be apparent that if all these expenses are properly payable in full, or even in part, there will be insufficient funds to pay them all. The amount of the receiver and manager’s remuneration and his legal costs are subject to assessment but it would surprise me if they were not substantial. The amount of Mr Theodorakakos’ debt is, of course, in contest. There exists an issue, too, between him and the receiver and manager as to whether his secured debt, when quantified, ranks ahead of the receiver and manager’s claim for remuneration and expenses. Again, the relatively modest fund available makes this contest a critical one for them both.
Counsel for Mrs Tzimas and Mrs Tellios oppose the approval of the compromise saying first that the application is tantamount to an abuse of process inasmuch as it seeks to circumvent my order referring to a Master the quantum of Mr Theodorakakos’ secured debt. This rather extravagant submission is misconceived. It is always open to disputing parties to compromise a claim. The fact that the approval of the court is sought shows that the parties to the compromise are concerned that their conduct be seen to be above board. It is apparent to me from my familiarity with the facts of this case that the reference to the Master will be long and expensive and, given the informal way in which the venturers conducted their affairs, its outcome is uncertain. In these circumstances, it is not unreasonable for the two parties with the primary interest in the fund to compromise rather than to consume the fund in legal costs.
Counsel for Mrs Tzimas and Mrs Tellios said that the compromise is, in effect, a deal between the receiver and manager and Mr Theodorakakos which denies to his clients their rightful entitlements. It is therefore necessary to examine what those entitlements may be. They claim to be unsecured creditors of Savage River in the sum of $35,000. This claim was asserted by their counsel at the trial in August but no formal proof has been submitted. Their counsel at trial said that their claim had been “verbally admitted” by the receiver and manager. He denies this. I do not attempt to resolve this dispute. It was put by counsel for the receiver and manager that this claim had never been substantiated or even particularised and that I should ignore it. The manner in which the claim has been placed before the court certainly does not inspire any confidence in its validity. I shall, nevertheless, for the purposes only of dealing with this claim, treat them as if they are unsecured creditors of Savage River in that sum.
I approach the application, therefore, on the basis that the unsecured creditors of Savage River including Mrs Tzimas and Mrs Tellios, amount of $84,065. The sole creditor other than these women has taken no part in any of these proceedings. The entitlements, of the unsecured creditors of Savage River to receive any dividend will therefore depend upon the reduction of the secured and priority creditors below $94,452 or below such lesser sum as may be available following the incurring of the further expenses necessarily involved in determining the amount of Mr Theodorakakos’ debt, if any, and the priority issue between him and the receiver and manager.
The receiver and manager’s claims for remuneration and expenses of administration including legal costs of both companies including those sums already appropriated, amount to $127,991 for Savage River and $65,581 for Fordcorp, a total of $193,572. For present purposes I am only concerned with those for the administration of Savage River. While it is possible that they might be reduced on taxation it is likely that they will consume all or most of the available funds in that company.
Mr Theodorakakos’ debt is in contest. He, too, has incurred legal costs at the trial in August which are said to amount to $66,106.78. Although he has obtained an order for payment of party and party costs against Mrs Tzimas and Mrs Tellios, these have not been taxed or paid. On his behalf, his solicitor pointed out that under the debenture, he is entitled to add to the secured debt his solicitor and client costs of protecting the security. Leaving aside, therefore, the disputed debt, Mr Theodorakakos is likely to be entitled to recover a substantial sum from the assets of Savage River. I have not overlooked the possibility that, upon the reference, it will appear that in fact he is indebted to Savage River. If that should be the case and if the debt is paid, this will augment the fund and increase the chance that the unsecured creditors will receive a dividend. The difficulty with this is that it is no more than a possibility; on the evidence before me I cannot put it higher. The receiver and manager does not propose to pursue this claim and he has no sufficient funds to do so.
The position, therefore, is this. The receiver and manager is faced with expensive litigation with no funds in hand. Two of three unsecured creditors who are keen to dispute Mr Theodorakakos’ claims make no proposal to fund him in this task. Their status as unsecured creditors is not beyond argument. Under the compromise Savage River releases Mr Theodorakakos from claims it might have against him. The receiver and manager has neither the means nor the inclination to pursue any such claims. If the litigation is permitted to proceed, there will be nothing for anybody. The receiver and manager has made a commercial decision to terminate the litigation at the personal cost to himself of conceding to Mr Theodorakakos priority for his reduced debt over the receiver and manager’s own remuneration and expenses which will not now be paid in full as claimed. I do not think I should gainsay what appears on its face to be a sensible commercial decision on his part.
I turn now to Fordcorp. Under the compromise Mr Theodorakakos releases any claims which he has against this company or it has against him. He is not shown as a creditor on the receiver and manager’s list. I am not aware of any claim by him against Fordcorp or any specific claims by Fordcorp against him. This company has available assets of $54,757.87 only. The receiver and manager has neither the inclination nor the means to pursue these claims or any claims against Mr Theodorakakos.
Mrs Tzimas and Mrs Tellios again oppose this aspect of the compromise. The unsecured creditors who have lodged proofs total $4,950.21 and those who have not lodged proofs total $121,506.97. In addition there is a claim by Mr George Tzimas, the son of Mrs Tzimas, that he is a loan creditor in the sum of $31,500. This claim is disputed. Mrs Tzimas and Mrs Tellios are not included in the list of creditors or claimed creditors of Fordcorp. Mrs Tellios has an interest only as director of the company. No creditor opposes the compromise. Again, the compromise seems to me to be a sensible commercial result. Given the likely amount of the receiver and manager’s remuneration and expenses, there may be a small dividend for unsecured creditors of Fordcorp. It is better that it be distributed to them rather than be consumed in further litigation.
Insofar as the leave of the court is required or desirable for the compromise, I will give it.
As to the question of costs, it has been necessary or expedient for the receiver and manager to make this application. He shall have his costs of doing so out of the funds in his hands, two thirds to be paid from the assets of Savage River and one third from those of Fordcorp. Mr Theodorakakos who appeared to support the application will, likewise, have his costs from the assets of the two companies in the same proportions. As to the unsuccessful parties, I have been assisted by the submissions presented on their behalf in my task of understanding what might be said against the proposed compromise. For that reason I will not order that they pay the costs of the other parties. They will bear their own.
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