Re W Media Holdings Pty Ltd - [2021] QSC 208

SUPREME COURT OF QUEENSLAND

CITATION:

Re W Media Holdings Pty Ltd [2021] QSC 208

PARTIES:

IN THE MATTER OF W MEDIA HOLDINGS PTY LTD ACN 601 487 414

MARCUS WATTERS AS LIQUIDATOR OF WINTER ONE INVESTMENTS PTY LTD (IN LIQUIDATION)

(first applicant)
WINTER ONE INVESTMENTS PTY LTD (IN LIQUIDATION)
ACN 603 454 628
(second applicant)

v
W MEDIA HOLDINGS PTY LTD
ACN 601 487 414

(first respondent)
MARK ANDREW WILLIAMS
(second respondent)

FILE NO/S:

BS 9870 of 2020

DIVISION:

Trial

PROCEEDING:

Application

DELIVERED ON:

27 July 2021 (ex tempore)

DELIVERED AT:

Brisbane

HEARING DATE:

27 July 2021

JUDGE:

Bradley J

ORDER:

PURSUANT TO SECTION 588FF(1)(h) OF THE CORPORATIONS ACT 2001 (CTH), THE COURT DECLARES THAT:

1.   The written loan agreement between the Second Applicant and the Second Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made.

2.   The written loan agreement between the Second Applicant and the First Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made.

THE COURT ORDERS THAT:

3.   Leave is granted to the Applicants to make an application pursuant to 459A of the Corporations Act 2001 (Cth) for the winding up of the first respondent.

4.   Costs reserved.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES AND VOIDABLE TRANSACTIONS – UNREASONABLE DIRECTOR-RELATED TRANSACTIONS – where the second applicant has entered into separate written loan agreements with the first respondent and the second respondent – whether the two loan agreements are unreasonable director-related transactions within the meaning given under s 588FDA of the Corporations Act 2001 (Cth)

CORPORATIONS – WINDING UP – APPLICATIONS FOR WINDING UP BY COURT – GENERALLY – where the applicants apply for leave under s 459P to wind up the first respondent pursuant to s 459A of the Corporations Act 2001 (Cth)

Corporations Act 2001 (Cth), s 459A, s 459P, s 588FDA, s 588FF(1)(h)

Crowe-Maxwell v Frost [2016] NSWCA 46; (2016) 91 NSWLR 414
Re Emanuel (No 14) Pty Ltd (in liq) (1997) 147 ALR 281
Re Winter One Investments Pty Ltd [2020] QSC 233

Vasudevan v Becon Constructions (Aust) Pty Ltd (2014) 41 VR 445

COUNSEL:

P O’Brien for the applicants
C Jennings QC for the respondents

SOLICITORS:

Morgan Conley for the applicants
Russells for the respondents

This is an application seeking a finding that each of two written loan agreements is an unreasonable director-related transaction within the meaning in s 588FDA of the Corporations Act 2001 (Cth) (the Act) and for associated declaratory relief under s 588FF(1)(h) of the Act. There is also a related application to wind up the corporate debtor.
The first applicant Mr Watters is a registered liquidator. The second applicant is Winter One Investments Pty Ltd (WOI). On 7 August 2020, WOI was placed in liquidation and Mr Watters was appointed its liquidator.
The alleged transactions

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2021] QSC 208
Decision Date: 27 July 2021 (ex tempore)

CaseChat Overview and Summary

In the case of Re W Media Holdings Pty Ltd, the dispute arose between various parties, including W Media Holdings Pty Ltd (WMH) and other respondents, regarding the validity of certain loan agreements. The applicants sought relief under the Corporations Act 2001 (Cth), including a declaration that the loan agreements were void and an order for the winding up of WMH. The court had to determine whether the loan agreements constituted unreasonable director-related transactions under section 588FDA of the Act and whether leave should be granted to wind up WMH under section 459P. The legal issues centred on the nature of the loan agreements, their reasonableness, and the solvency of WMH.

The court examined the circumstances surrounding the loan agreements, noting that a director's duty to the company and its creditors should be paramount. The agreements in question involved loans made to the director or companies for his benefit, which conflicted with his duty to avoid such conflicts of interest. The court found that the terms of the loan agreements altered the rights and property of the company, WOI, without conferring any benefit to it. Instead, the agreements resulted in a detriment to WOI by making the loans practically unenforceable. The court concluded that the loans were unreasonable director-related transactions, as they fixed terms that bore no interest, denied recourse to the borrower’s assets, and effectively made the loans unrepayable until the borrower chose to repay them. Consequently, the court found that the agreements were void under section 588FF(1)(h) of the Act.

Regarding the winding up of WMH, the court considered the financial statements and determined that there were grounds to believe WMH might be insolvent. While the applicants provided some evidence of insolvency, the matter was uncertain, and no expert evidence had been presented. The court highlighted that WMH was a significant enterprise with numerous employees and investments, suggesting a complex winding-up process. The court granted leave for the applicants to seek a winding-up order, pending further evidence of solvency. The court reserved costs pending the outcome of further proceedings.

The court issued an order declaring the written loan agreements between the second applicant and the second and first respondents to be void from the date they were made. It also granted leave for the applicants to apply for the winding up of WMH under section 459A of the Corporations Act 2001 (Cth). The court reserved the issue of costs.

Orders

Orders of the court

PURSUANT TO SECTION 588FF(1)(h) OF THE CORPORATIONS ACT 2001 (CTH), THE COURT DECLARES THAT:

1. The written loan agreement between the Second Applicant and the Second Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made.

2. The written loan agreement between the Second Applicant and the First Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made.

THE COURT ORDERS THAT:

3. Leave is granted to the Applicants to make an application pursuant to 459A of the Corporations Act 2001 (Cth) for the winding up of the first respondent.

4. Costs reserved.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

In such circumstances, a director of a company owes duties not only to the shareholders of the company, but also to the company’s creditors – it is their interests that ought to be paramount in any such decision-making. It must have been obvious to Mr Williams, at the time that he was acting as a director of WOI, that he had a duty to the company. It must have been equally obvious to him that he had an interest in the loans because many of them were to him personally, or to another company, for his benefit and for the benefit of his close associates. His obligation was to avoid such a conflict of duty and interest. In any event, that did not occur. Conclusion on declaratory relief I am satisfied that the terms of the loan agreements changed the rights and the property of WOI. I am also satisfied that the benefit conferred on WMH was conferred for the benefit of Mr Williams, his wife and his daughter. There was no benefit to WOI from either written loan agreement. Each caused WOI a detriment, but making each of the existing loans practically impossible to enforce against the debtor. Mr Williams and WMH benefited from their respective loan agreements by freeing them from any practical obligation to repay the loans. Having regard to these circumstances, I am satisfied a reasonable person in the circumstances of WOI would not have entered into either written loan agreement. The purpose, it is said, of s 588FDA is to strip a director or close associate of the unreasonable component of a transaction. Each of the loan agreements was a departure from normal commercial practice. The unreasonable component of each of the transactions here is the fixing of terms for the loans such that they bear no interest, that deny the lender recourse to the assets of the borrower to recover the loans and, in effect, to make the loans unrepayable until such point in time as it appears the borrower wishes to do so. Those benefits ought to be stripped away from each transaction. In the circumstances, I propose to make an order declaring the whole of each of the loan agreements to have been void at and after the time when it was made. Winding up WMH The last question before the Court is the winding up of WMH. There are some grounds shown as to why WMH ought to be wound up as insolvent, on the basis of its financial statements. So, pursuant to s 459P of the Act, I will give the applicants leave to bring their petition pursuant to s 459A. None of the contending parties here has proffered any expert evidence as to the question of whether the company is solvent. There is a level of uncertainty about what the effect of setting aside the loan agreement might be on its solvency. That matter may need to be considered by anyone seeking to express a view about its solvency. The reason I think there are grounds for considering that it might be insolvent is its position with respect to current assets and current liabilities and the net cashflow from its operations. Those all seem to indicate that it may be the case that the company cannot meet its expenses as and when they fall due. But it is a significant enterprise. It has employees and there appear to be many others who find work through consulting to it or undertaking some work for it. It has investments in a large number of subsets of the business in which it has invited other equity contributions, so there is complexity involved in its winding up. For those reasons, I think the parties ought to have an opportunity to obtain, if they wish, expert evidence about the solvency of WMH, which really means the solvency of the business that it operates as trustee of the Unit Trust.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

CITATION:	Re W Media Holdings Pty Ltd [2021] QSC 208
PARTIES:	IN THE MATTER OF W MEDIA HOLDINGS PTY LTD ACN 601 487 414 MARCUS WATTERS AS LIQUIDATOR OF WINTER ONE INVESTMENTS PTY LTD (IN LIQUIDATION) (first applicant) WINTER ONE INVESTMENTS PTY LTD (IN LIQUIDATION) ACN 603 454 628 (second applicant) v W MEDIA HOLDINGS PTY LTD ACN 601 487 414 (first respondent) MARK ANDREW WILLIAMS (second respondent)
FILE NO/S:	BS 9870 of 2020
DIVISION:	Trial
PROCEEDING:	Application
DELIVERED ON:	27 July 2021 (ex tempore)
DELIVERED AT:	Brisbane
HEARING DATE:	27 July 2021
JUDGE:	Bradley J
ORDER:	PURSUANT TO SECTION 588FF(1)(h) OF THE *CORPORATIONS ACT 2001* (CTH), THE COURT DECLARES THAT: 1. The written loan agreement between the Second Applicant and the Second Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made. 2. The written loan agreement between the Second Applicant and the First Respondent dated 9 May 2019 has been void at all times from 9 May 2019 when it was made. THE COURT ORDERS THAT: 3. Leave is granted to the Applicants to make an application pursuant to 459A of the *Corporations Act 2001* (Cth) for the winding up of the first respondent. 4. Costs reserved.
CATCHWORDS:	CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES AND VOIDABLE TRANSACTIONS – UNREASONABLE DIRECTOR-RELATED TRANSACTIONS – where the second applicant has entered into separate written loan agreements with the first respondent and the second respondent – whether the two loan agreements are unreasonable director-related transactions within the meaning given under s 588FDA of the Corporations Act 2001 (Cth) CORPORATIONS – WINDING UP – APPLICATIONS FOR WINDING UP BY COURT – GENERALLY – where the applicants apply for leave under s 459P to wind up the first respondent pursuant to s 459A of the Corporations Act 2001 (Cth) Corporations Act 2001 (Cth), s 459A, s 459P, s 588FDA, s 588FF(1)(h) Crowe-Maxwell v Frost [2016] NSWCA 46; (2016) 91 NSWLR 414 Re Emanuel (No 14) Pty Ltd (in liq) (1997) 147 ALR 281 Re Winter One Investments Pty Ltd [2020] QSC 233 Vasudevan v Becon Constructions (Aust) Pty Ltd (2014) 41 VR 445
COUNSEL:	P O’Brien for the applicants C Jennings QC for the respondents
SOLICITORS:	Morgan Conley for the applicants Russells for the respondents