Re Wanari

[2006] NSWSC 404

CITATION:	Re Wanari; application of Nemeth [2006] NSWSC 404
HEARING DATE(S):	8 May 2006
JUDGMENT DATE :	10 May 2006
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Liquidator appointed, and leave granted.
CATCHWORDS:	CORPORATIONS - winding up - application to appoint liquidator and grant him leave to appoint himself administrator - purpose of administration is to consider a proposal under which the winding up would be terminated or permanently stayed - whether liquidator should be appointed - whether leave should be granted to permit liquidator to appoint himself administrator, to consider the proposal
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 436B, 445C, 473(7) Supreme Court (Corporations) Rules 1999, rule 7.2
CASES CITED:	Mercy & Sons Pty Ltd v Wanari Pty Ltd (subject to deed of company arrangement) (in liq) (2000) 35 ACSR 70
PARTIES:	Katherine Eva Nemeth (P)
FILE NUMBER(S):	SC 2006/06
COUNSEL:	Mr M J Stevens (P)
SOLICITORS:	Abbott Tout (P)

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

AUSTIN J

WEDNESDAY 10 MAY 2006

2006/06
IN THE MATTER OF WANARI PTY LTD PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)(IN LIQ); APPLICATION OF KATHERINE EVA NEMETH

JUDGMENT

1 HIS HONOUR: This is an application, by originating process, for the following relief in respect of the company, Wanari Pty Ltd (in liq):

"1. There being no liquidator presently acting, Riad Tayeh be appointed official liquidator of the company.
2. That the said Riad Tayeh as liquidator be granted leave pursuant to s 436B(2) of the Corporations Act to appoint himself as administrator of the company.
3. Declaration that the Deed of Company Arrangement dated 26 April 2000 terminated on 2 August 2000 as a consequence of orders made by this Court."

2 The plaintiff is a former director and shareholder of the company. In August 1991 the court ordered that the company be wound up and that Hugh Thomas be appointed its liquidator.

3 In January 2000, in circumstances recounted in my judgment in Mercy & Sons Pty Ltd v Wanari Pty Ltd (subject to deed of company arrangement) (in liq) (2000) 35 ACSR 70, the present plaintiff (Dr Nemeth) asked Mr Thomas to appoint Ronald Dean-Willcocks to be the administrator of the company, under s 436B, and he later did so. Mr Dean-Willcocks, as administrator, placed before creditors a proposal for the company to enter into a deed of company arrangement, and the creditors approved the proposal. Under the deed $5,000 was paid to the administrator for distribution pari passu amongst participating unsecured creditors, who were owed $158,563.84. There were also some contingent claims which may have amounted to $1.05 million, and some non-participating or related creditor claims in the sum of $7.701 million.

4 Clause 7 of the Deed of Company arrangement was in the following terms:

"Conditions for the Deed to Continue in Operation (s 444A(4)(f))
7. The Deed continues in operation unless terminated:
a. pursuant to any provision of this Deed; or
b. Because the company and all of its members have not executed the Non Participating Creditors' Deed within such time as the Administrator shall consider reasonable or
c. The Court refuses to terminate or stay indefinitely the winding up of the Company."

5 Although the syntax is imperfect, clause 7c clearly has the effect that if an application is made to the court for termination or stay of the winding up and the court refuses to do so, then by virtue of that refusal the deed of company arrangement is terminated. In my judgment in Mercy v Wanari I held that the approval and execution of a Deed of Company arrangement does not automatically terminate a pre-existing court-ordered winding up (at [46]). I rejected Dr Nemeth's application for an order terminating the winding up, on the ground that it was clearly deficient (at [57]). I adjourned the notice of motion for a short time to give the applicants time to amend their proposal, but a perusal of the court’s records reveals that no amended proposal was placed before the court for consideration. I made an order dismissing the notice of motion on 17 August 2000.

6 In my opinion, the court’s orders had the consequence, under clause 7c of the deed, that the deed was thereby terminated. That conclusion is reinforced by s 445C(c), which confirms that a deed of company arrangement terminates, where the deed specifies circumstances in which it is to terminate, when those circumstances exist.

7 The plaintiff now seeks a declaratory order to the effect that the deed was terminated on 2 August 2000, the date of publication of my reasons for judgment. In fact, the deed was terminated by virtue of clause 7c on the date when I made an order pursuant to that judgment, namely 17 August 2000. I am happy to express that opinion in the text of these reasons the judgment, but I do not think it appropriate to make a binding declaration of right in a proceeding that is nothing more than an ex parte application by a contributory/director, to which the administrator who is a party to the deed has not been joined and in which the company is not separately represented.

8 The other orders sought in the originating process are for the appointment of a new liquidator and for leave for that liquidator to appoint himself administrator.

9 As to the appointment of a new liquidator, the position is that Mr Thomas, who was appointed by the court as liquidator, retired on 12 October 2001. By a letter of that date he advised the Australian Securities and Investments Commission that the affairs of the company had been fully wound up, and he requested ASIC to initiate deregistration of the company. But a company search made on 24 March 2006 indicates that ASIC has not yet deregistered the company. Mr Dean-Willcocks, appointed administrator on 15 June 2000 and deed administrator on 26 April 2000, retired as deed administrator on 21 March 2006, according to the evidence before me. Therefore at the present time there appears to be no-one in effective control of the company.

10 Section 473(7) of the Corporations Act provides that a vacancy in the office of liquidator appointed by the court must be filled by the court. Rule 7.2 of the Supreme Court (Corporations) Rules provides that if, for any reason, there is no liquidator acting in a winding up, the court may (in the case of a winding up by the court) appoint another official liquidator whose written consent in accordance with Form 8 has been filed. Mr Tayeh has provided a written consent in accordance with Form 8. The straightforward application of the statutory provision and the rule means that the court should appoint him liquidator of the company forthwith, as there is no liquidator currently acting.

11 Section 436B(1) empowers a liquidator to appoint an administrator, if the liquidator thinks that the company is insolvent or likely to become insolvent at some future time. Subsection (2) permits the liquidator to appoint himself or herself as administrator, with the leave of the court. The plaintiff seeks an order granting leave to Mr Tayeh to appoint himself administrator, so that he can consider a proposal under which, it is said, all "external" creditors will be paid out in full.

12 During the course of my reasons for judgment in Mercy v Wanari, I had occasion to observe that the application under consideration was lacking in detail, and raised many questions that were left unanswered (see, for example, at [55]). The same must be said of the proposal placed before the court now. The only evidence of it is a letter from Finn Warner & Associates, the plaintiff's accountants, dated 17 March 2006. Under the proposal, upon the "reinstatement" of the company, funds will be "injected" by a company called Vida Group Holdings Pty Ltd. All "external" creditors will be will be paid out in full from those proceeds. Internal related creditors will be "paid out of ongoing proceeds from development operations". Those creditors are to subordinate their debt "by agreement". The letter says that Vida wants to be involved because of the tax losses in the company, and is confident that those losses can be utilised in the revived business it proposes to have the company conduct. It is intended that the shareholding of Wanari will be 50% to Dr Nemeth and 50% to Vida. The reconstituted company will continue to operate as a developer, said to be the same business as Wanari was conducting before its liquidation. It is said that "Vida warrants that it will inject sufficient funds to ensure that Wanari is solvent at all times and any new creditors will not be prejudiced", and that there will need to be a "binding agreement between the parties".

13 I infer that the implementation of this proposal will require that the winding up of Wanari be terminated or permanently stayed. In its present vague form, the proposal falls well short of what the court would require for termination or permanent stay of the winding up. Included in those requirements is the one I discussed at [47]-[48] of my reasons for judgment in Mercy v Wanari. There I explained that the court considers the interests of future as well as existing creditors, and is likely to be concerned if a proposal preserves existing related-creditor debts, since the continued existence of those debts means that if the company starts trading again and incurs additional debts, recovery by the new creditors may be prejudiced by the existing debts. I noted that one way of overcoming the problem would be for the related creditors to capitalise their debts.

14 In his affidavit supporting the application, prepared with his characteristic clarity and thoughtfulness, the late Peter Somerset stated that he had advised the plaintiff that it would be unacceptable for the proposal to contemplate paying out related creditors from the ongoing proceeds of development operations. He said:

"The subordination of debts, in my opinion, still leaves a liability and this needs to be attended to if an application is to be made for a permanent stay of the winding up. To that end I have advised the plaintiff that it will be necessary to capitalise the related company's debts and to effectuate a reduction of capital so that the Company can be rendered solvent and the potential purchaser could then buy into the Company and have shares allotted to it."

15 This is not the occasion to say whether these steps would be necessary, or sufficient, to secure the approval of the court to an application for termination or permanent stay of the winding up. It is an appropriate to remark, however, that Mr Somerset's advice is consistent with my reasons for judgment in Mercy v Wanari.

16 However, at the present time there is no application before the court for termination or a permanent stay of the winding up. The only issue is whether leave should be granted to permit Mr Tayeh to appoint himself as administrator so that he can investigate the present position of the company and the details of the proposal sketched in the letter presently before the court, and produce a report to creditors on the basis of which they can make a decision. I cannot say, on the basis of the letter that is before me, that administration would be a waste of time. There is a non-negligible prospect that the creditors may obtain something from such a process, and in the circumstances my view is that I should grant leave so that an administration can go ahead.

17 I have therefore decided to make the orders sought in paragraphs 1 and 2, but not paragraph 3, of the originating process.

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