Re Stewart; Newtronics Pty Ltd

Case [2007] FCA 1375

FEDERAL COURT OF AUSTRALIA

Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375

CORPORATIONS – application by liquidator for retrospective approval of agreements under s 477(2B) of the Corporations Act 2001 (Cth) – considerations relevant to exercise of Court’s discretion

Corporations Law 2001 (Cth) ss 477(2B), 1322(4)

Anstella Nominees Pty Ltd v St George Motor Finance Ltd (2003) 21 ACLC 1,347 cited
Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1,642 cited
Empire (Aust) Nominees Pty Ltd v Vince (2000) 18 ACLC 738 cited
Re ACN 076 673 875 Ltd (2002) 20 ACLC 1,551 cited
Re Gate Gourmet Australia Pty Ltd (in liq) (2005) 23 ACLC 834 cited
Re HIH Insurance Group Ltd (2001) 19 ACLC 1,102 cited
Re Spedley Securities Ltd (In liq) (1992) 10 ACLC 1,742 cited
Re United Medical Protection (No 4) (2002) 20 ACLC 1,647 cited
Seeley International Pty Ltd v Newtronics Pty Ltd [2001] FCA 1862 cited

Warne v GDK Financial Solutions; Peridon Village Nominees (2006) 24 ACLC 1,019 cited

In the matter of Newtronics Pty Ltd (ACN 061 493 516) (Receivers and Managers Appointed (in liquidation); James Henry Stewart (in his Capacity as Official Liquidator of Newtronics Pty Ltd (Receivers and Managers Appointed) (in liquidation) (ACN 061 493 516))

VID 751 OF 2007

GORDON J
28 AUGUST 2007
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 751 OF 2007
IN THE MATTER OF NEWTRONICS PTY LTD (ACN 061 493 516) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

JAMES HENRY STEWART (IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF NEWTRONICS PTY LTD) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 061 493 516))
Plaintiff

JUDGE:

GORDON J

DATE OF ORDER:

28 AUGUST 2007

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.Pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (“the Act”), the period for making an application under s 477(2B) of the Act for approval of the entry by the plaintiff into each of the following agreements is extended:

(a)the indemnity agreement between Seeley International Pty Ltd (“Seeley”) and James Stewart dated 22 March 2002;

(b)the Deed of Indemnity made between Seeley and James Stewart dated 27 March 2006;

(c)the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 10 July 2006;

(d)the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 13 December 2006;

(e)the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 16 March 2007; and

(f)the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 6 June 2007,

(collectively “the Agreements”).

2.Pursuant to s 477(2B) of the Act, approval is given to the plaintiff to enter into each of the Agreements.

3.Pursuant to s 1322(4) of the Act, none of the Agreements is invalid by reason of having been entered into by the plaintiff prior to obtaining the approval of the Court.

4.Exhibits PAP-1, PAP-3, PAP-5, PAP-6, PAP-7 and PAP-8 to…

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AGLC
Re Stewart; Newtronics Pty Ltd [2007] FCA 1375
Case
[2007] FCA 1375
Decision Date

CaseChat Overview and Summary

In the case of Re Stewart; Newtronics Pty Ltd, the primary dispute centred around the retrospective approval of agreements entered into by James Stewart, the liquidator of Newtronics Pty Ltd, with Seeley International Pty Ltd. Newtronics, a designer and vendor of electronic controls, had faced significant financial difficulties, culminating in its liquidation. The liquidator, Mr Stewart, had engaged in investigations and legal proceedings with funding provided by Seeley, one of Newtronics' creditors. The central issue before the court was whether Mr Stewart required retrospective approval from the court to enter into the agreements with Seeley, and if so, whether such approval should be granted. The court had to determine the validity of the agreements under the Corporations Act 2001 and whether they were void due to being entered into without prior court approval.

The court examined the nature of the agreements between Mr Stewart and Seeley, which included indemnities for investigating and pursuing claims on behalf of Newtronics. It was noted that Mr Stewart had commenced significant actions, including examinations and legal proceedings, funded by Seeley, without obtaining the necessary court approval. The court recognised the urgency and necessity of the liquidator’s actions, considering the urgency in protecting the assets and pursuing claims to the benefit of all creditors. The court acknowledged that the liquidator had acted in good faith and in the best interest of all creditors, including Seeley, who stood to benefit from the liquidator’s actions. The court granted the liquidator retrospective approval for the agreements, ensuring their validity and enabling the continuation of the investigations and legal actions initiated by Mr Stewart.

In light of the above considerations, the court ruled that Mr Stewart’s entry into the agreements with Seeley should be approved retrospectively. The agreements, including the initial indemnity agreement and subsequent variations, were deemed not invalid due to the lack of prior court approval. The court also ordered that certain documents be sealed and not available for inspection without further court order. Finally, the costs of the application were to be treated as costs in the winding up of Newtronics Pty Ltd. This decision allowed for the continuation of the liquidator's actions, ensuring the protection and recovery of assets for the benefit of all creditors.

Orders

Orders of the court

1. Pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (“the Act”), the period for making an application under s 477(2B) of the Act for approval of the entry by the plaintiff into each of the following agreements is extended:

(a) the indemnity agreement between Seeley International Pty Ltd (“Seeley”) and James Stewart dated 22 March 2002;

(b) the Deed of Indemnity made between Seeley and James Stewart dated 27 March 2006;

(c) the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 10 July 2006;

(d) the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 13 December 2006;

(e) the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 16 March 2007; and

(f) the deed of variation to the Deed of Indemnity made between Seeley and James Stewart dated 6 June 2007,

(collectively “the Agreements”).

2. Pursuant to s 477(2B) of the Act, approval is given to the plaintiff to enter into each of the Agreements.

3. Pursuant to s 1322(4) of the Act, none of the Agreements is invalid by reason of having been entered into by the plaintiff prior to obtaining the approval of the Court.

4. Exhibits PAP-1, PAP-3, PAP-5, PAP-6, PAP-7 and PAP-8 to the affidavit of Penelope Alice Pengilley sworn on 3 August 2007 and filed herein and the affidavit of Penelope Alice Pengilley sworn on 23 August 2007 and filed herein be sealed up and not be available for inspection by any person unless the Court otherwise orders.

5. The costs of this application be costs in the winding up of Newtronics Pty Ltd (receivers and managers appointed) (in liquidation).

Background

Background to the litigation

For the reasons that follow, I would grant Mr Stewart retrospective approval to enter into the Agreements.BACKGROUND From October 1993, Newtronics carried on business as a designer, manufacturer and vendor of electronic controls. In October 1993, Atco Controls Pty Ltd (“Atco”) acquired 51% of the issued shares in Newtronics. In April 1998, Atco acquired the remaining issued shares. In September 1998, Atco (and therefore Newtronics) became a wholly owned subsidiary of an Austrian Group, the Zumtobel Group. On 12 February 1998, Seeley commenced proceedings in the Federal Court against Newtronics seeking damages arising from the supply of faulty products by Newtronics to Seeley. On 21 December 2001, the Honourable Justice O’Loughlin ordered Newtronics to pay Seeley $8.9 million together with interest and costs: Seeley International Pty Ltd v Newtronics Pty Ltd [2001] FCA 1862. Interest was later fixed at $5 million. On 8 January 2002, Atco served a demand upon Newtronics pursuant to a mortgage debenture and appointed receivers to Newtronics. On 26 February 2002, Mr Stewart was appointed the liquidator of Newtronics by an order of this Court on the application of Seeley. At the time of his appointment, Newtronics had no tangible assets and its creditors included Atco (in the sum of approximately $20 million but which was apparently secured), Seeley (in the sum of $19 to $20 million and which was unsecured) and other unsecured creditors (for approximately $60,000). Newtronics’ assets position and principal creditors have not changed. Seeley is Newtronics’ judgement creditor and remains Newtronics’ largest unsecured creditor. From the time of his appointment, Mr Stewart retained legal advisers to act on his behalf in relation to the liquidation of Newtronics. Initially, Mr Stewart retained Mr Rydon of Thomson Playford. That retainer was terminated on or about 22 October 2002. On the same day, Mr Stewart retained Mr Jonathon Kramersh, then a partner of Holding Redlich and from 1 February 2003, a partner of Corrs Chambers Westgarth. After Mr Stewart’s appointment as liquidator of Newtronics, Mr Stewart was approached by Seeley and it was agreed that Seeley would provide him with funding to carry out certain investigations. In Mr Stewart’s first report to creditors dated 17 February 2003, Mr Stewart advised the creditors that he had obtained an indemnity from Seeley in relation to his investigations to date. The report went on to state that “in the absence of funding from Seeley or other creditors, [Mr Stewart had] no other means of funding the cost of any investigation into Newtronics’ affairs.” Three other creditors agreed to offer Mr Stewart an indemnity to the extent of $6,600 although there was real doubt about the availability of those indemnities except to the extent of $1,000. On 22 March 2002, an Agreement to Indemnify was executed by Mr Stewart and Frank Seeley on behalf of Seeley by which Seeley agreed to indemnify Mr Stewart “to investigate, and if [Mr Stewart] considers appropriate, recover assets and property of Newtronics or damages owed to Newtronics by exercising powers available to [Mr Stewart] under the Corporations Act2001 and otherwise available pursuant to statute, at common law or in equity” (Recital C) (“the Agreement to Indemnify”).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

GORDON J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: GORDON J

On 22 March 2002, an Agreement to Indemnify was executed by Mr Stewart and Frank Seeley on behalf of Seeley by which Seeley agreed to indemnify Mr Stewart “to investigate, and if [Mr Stewart] considers appropriate, recover assets and property of Newtronics or damages owed to Newtronics by exercising powers available to [Mr Stewart] under the Corporations Act2001 and otherwise available pursuant to statute, at common law or in equity” (Recital C) (“the Agreement to Indemnify”). Preliminary investigations into the affairs of Newtronics were carried out by Mr Stewart including:(1) requesting officers of Newtronics to meet with him in accordance with s 530A(2) of the Act. No such meetings were ever held; and(2)seeking to have the books and records of Newtronics delivered to him pursuant to s 530B(4) of the Act. On 16 May 2003, Mr Stewart made application to the Federal Court to examine 17 persons pursuant to ss 596A and 596B of the Act. Examinations of 16 persons were conducted by Mr Stewart in August and September 2003. On 15 June 2004, Mr Stewart made a further application to the Federal Court to examine 9 persons pursuant to ss 596A and 596B of the Act. Examinations of those 9 persons were conducted by Mr Stewart in July, August and September 2004. The costs of these examinations were funded pursuant to the Agreement to Indemnify. From about September 2004 and following the investigations, a draft statement of claim was prepared and Mr Stewart’s then legal adviser (Mr Kramersh of Corrs Chambers Westgarth) commenced discussions with Seeley seeking an indemnity to pursue various causes of action. On 11 May 2005, Mr Stewart engaged Ms Penelope Pengilley, a partner of Holding Redlich and the legal file was transferred to her. On 1 December 2005 and in the absence of an indemnity to issue proceedings, Mr Stewart commenced proceedings in the Supreme Court of Victoria by way of Writ and General Indorsement (Proceeding No 9670 of 2005) against Giorgio Gjergja and Gary Tescher to preserve certain causes of action in case of limitation issues (“the Directors’ Action”). The general indorsement alleged that Mr Gjergja and Mr Tescher were both directors of Newtronics during specified periods and that each of them had, during those specified periods, breached his duties as a director of Newtronics. On 27 March 2006, Seeley and Mr Stewart executed a Deed of Indemnity (“the Deed of Indemnity”). By that Deed, Seeley agreed to provide Mr Stewart with a further indemnity to commence proceedings on behalf of Newtronics against Atco seeking to enforce an agreement between Newtronics and Atco allegedly recorded, inter alia, in a letter of support dated 21 July 2001 from Atco to Newtronics (“the Promise of Support Action”). On 3 April 2006, Mr Stewart commenced the Promise of Support Action against Atco in the Supreme Court of Victoria, Proceeding No 2015 of 2006, Folio 5947. Atco was served on the same day. On 13 April 2006, administrators were appointed to Atco and the Promise of Support Action was stayed in accordance with s 440D of the Act.