Re Watch Works Australia Pty Ltd (in liq); ex parte Francis - [2020] WASC 6

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE WATCH WORKS AUSTRALIA PTY LTD (IN LIQ) & ANOR; EX PARTE FRANCIS & ORS [2020] WASC 6
CORAM:   VAUGHAN J
HEARD:   29 NOVEMBER 2019
DELIVERED          :   20 JANUARY 2020
FILE NO/S:   COR 183 of 2019
BETWEEN:   IAN FRANCIS as joint and several liquidator of WATCH WORKS AUSTRALIA PTY LTD (IN LIQUIDATION)
KATHRYN WARWICK as joint and several liquidator of WATCH WORKS AUSTRALIA PTY LTD (IN LIQUIDATION)
DANIEL WOODHOUSE as joint and several liquidator of WATCH WORKS AUSTRALIA PTY LTD (IN LIQUIDATION)
IAN FRANCIS as joint and several liquidator of COBBLER PLUS SERVICES PTY LTD (IN LIQUIDATION)
KATHRYN WARWICK as joint and several liquidator of COBBLER PLUS SERVICES PTY LTD (IN LIQUIDATION)
DANIEL WOODHOUSE as joint and several liquidator of COBBLER PLUS SERVICES PTY LTD (IN LIQUIDATION)
First Plaintiffs
WATCH WORKS AUSTRALIA PTY LTD (IN LIQUIDATION)
COBBLER PLUS SERVICES PTY LTD (IN LIQUIDATION)
Second Plaintiffs

Catchwords:

Corporations – Pooling order sought under s 597E Corporations Act 2001 (Cth) – Whether pooling order would materially disadvantage eligible unsecured creditors – Whether just and equitable to make a pooling order - Ancillary order pursuant to s 579G(1)(d)

Legislation:

Corporations Act 2001 (Cth), s 597E, s 597G(1)(d)

Result:

Application for pooling order granted
Application for ancillary order dismissed

Category: B

Representation:

Counsel:

First Plaintiffs	:	T Langdon
Second Plaintiffs	:	T Langdon

Solicitors:

First Plaintiffs	:	HWL Ebsworth Lawyers
Second Plaintiffs	:	HWL Ebsworth Lawyers

Case(s) referred to in decision(s):

Allen v Feather Products Pty Ltd [2008] NSWSC 259; (2008) 72 NSWLR 597
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 368 ALR 390
Cook v Italiano Family Fruit Company Pty Ltd [2010] FCA 1355; (2010) 190 FCR 474
Devaynes v Noble (Clayton's Case) (1816) 1 Mer 571, 608; 35 ER 781
Director of Public Prosecutions v Kingswell [2011] NSWCA 91; (2001) 51 NSWLR 461
Elfic v Macks [2001] QCA 219; [2003] 2 Qd R 125
Kirby Street (Holding) Pty Ltd; Re Lombe [2011] NSWSC 1536; (2011) 87 ACSR 84
Lofthouse v Environmental Consultants International Pty Ltd (in liq) [2012] VSC 416
Re Australian Hotel Acquisition (in liq) [2011] NSWSC 1374
Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq); Jones v Matrix Partners Pty Ltd [2018] FCAFC 40; (2018) 354 ALR 436
Re Kirby Street (Holdings) Pty Ltd [2011] NSWSC 1576
Re Walker [2015] FCA 146

VAUGHAN J:

Overview

The first plaintiffs are the joint and several liquidators of the second plaintiffs, Watch Works Australia Pty Ltd (in liq) (Watch Works) and Cobbler Plus Services Pty Ltd (in liq) (Cobbler Plus) (collectively 'Companies').
By an amended originating process dated 30 October 2019 the plaintiff liquidators sought orders pursuant to s 579E(1) of the Corporations Act 2001 (Cth) that the court determine that Watch Works and Cobbler Plus are a pooled group. The plaintiffs also sought an ancillary order under s 579G(1)(d) to modify the operation of the Act in relation to the winding-up of the companies in the group so that, in addition to the ordinary operation of s 579E(2)(b), the assets of a trust of which Watch Works was the trustee (the Watch Works Australia Trust) became available to meet each debt payable by, and each claim against, Watch Works and Cobbler Plus.
For the reasons that follow I will make a pooling determination. However, the ancillary order is unnecessary. I will refuse the application for the ancillary order.

Background facts

The plaintiffs relied on affidavits of Daniel Woodhouse sworn 17 September 2019, 3 October 2019, 30 October 2019 and 25 November 2019. Mr Woodhouse is the third-named first plaintiff and is one of the liquidators of the Companies. Based on that affidavit evidence I record the following matters.
On 27 June 2018 Mr Woodhouse, along with Ian Francis and Kathryn Warwick, were appointed as joint and several administrators of Watch Works and Cobbler Plus. On 1 August 2019 the creditors of Watch Works and Cobbler Plus passed resolutions that the Companies be wound up. Mr Francis, Ms Warwick and Mr Woodhouse became joint and several liquidators of the Companies.
Before going into administration the Companies conducted a cobbler and watch repair business trading under the names 'Watch Works Australia' and 'Cobbler Plus Services'.
Between them the Companies operated a total of 120 outlets across Australia. Watch Works operated 57 outlets; Cobbler Plus operated 63 outlets. Although operating under different trading names both Companies provided cobbler services, watch repair services, key cutting facilities and sold related accessories. The sole director of each of the Companies was an Eric Soderberg. Another company of which Mr Soderberg was the sole director, Soderberg Group Pty Ltd (in liq), provided a head office function to the Companies.
In terms of the corporate structure:
1.Mr Soderberg was at all relevant times the owner of all of the issued shares in Watch Works.
2.Watch Works was the trustee of the Watch Works Australia Trust (WWA Trust). The WWA Trust was established by a unit trust deed dated 10 February 1992 (attachment 'DHW-23') as subsequently varied (attachment 'DHW-24'). Based on financial statements for the year ended 30 June 2017 (attachment 'DHW‑6'), business name and ABN records (attachment 'DHW‑22') and various banking records (attachment 'DHW-26') I conclude that the assets and liabilities of Watch Works were held and incurred, and the income of Watch Works was received, in its capacity as trustee of the WWA Trust. While there are some other records that do not refer to the WWA Trust, as referred to at par 22 of Mr Woodhouse's affidavit sworn 30 October 2019, those records do not affirmatively suggest that Watch Works held assets or carried on business in its own right.
3.The issued shares in Cobbler Plus were held by a company called Attitude Watches Australia Pty Ltd. The ownership of Attitude Watches Australia Pty Ltd was not dealt with directly in the evidence. There is, however, a suggestion in an ASIC search at attachment 'DHW-4' that Attitude Watches Australia Pty Ltd was the trustee of the Soderberg Family Trust. Accordingly, I infer that Attitude Watches Australia Pty Ltd was associated with Mr Soderberg.
The Companies produced their own annual financial statements. Mr Woodhouse deposes, however, that he has significant reservations as to the accuracy of those financial statements. The annual financial statements were not prepared or audited by an external accountant.
In terms of the Companies' businesses:
1.Management accounts were generated on a consolidated or manual store-by-store basis. The accounting package as used by the Companies - referred to as 'Triumph' accounting software - did not have the capability to produce accurate entity specific reports.
2.Area and store managers were responsible for managing both Watch Works and Cobbler Plus branded stores.
3.Watch Works employed all employees working for both the Watch Works and Cobbler Plus branded businesses. There was, however, some separation in the payroll records in the management accounts maintained using Triumph. This was by way of cost allocation. Accrued employee entitlements were not recognised in the 2017 financial statements for either Watch Works or Cobbler Plus.
4.The Companies maintained a number of bank accounts. These were in names approximating the Companies' names. However, some of the accounts received income from both Watch Works and Cobbler Plus. Moreover, all EFTPOS receipts (for both Watch Works and Cobbler Plus) were banked into a single account held by Watch Works. The EFTPOS receipts represented over half of the Companies' combined income. Regardless of which bank account received store income, all funds were routinely swept into a single Watch Works' bank account referred to as the 'Comingled Account'.
5.Funds in the Comingled Account were used to pay both Companies' operating expenses.
6.Stock-in-trade held by and used in the Companies' businesses was controlled by the head office (Soderberg Group Pty Ltd (in liq)) and dispatched to Watch Works and Cobbler Plus stores as required.
7.The Companies had separately identifiable equipment and depreciation schedules. However, Mr Woodhouse deposes to reservations as to the accuracy of the schedules. The source of the funds to purchase plant and equipment is unclear. Mr Woodhouse considers it likely that at least some of the plant and equipment was purchased using funds from the Comingled Account.
8.The Companies' records did not delineate between creditors by reference to the two specific entities. Instead creditors were accounted for in one combined trade creditor report. It was, however, possible for Mr Woodhouse to prepare a schedule identifying the landlords for the 120 stores (attachment 'DHW‑11'). Historically rent had been paid from the Comingled Account. Such payments were consolidated, ie where a landlord had both Watch Works and Cobbler Plus stores it received a single global payment rather than separate payments by each of Watch Works and Cobbler Plus.
Mr Woodhouse deposes that, as a result of the intermingling and inaccuracies in the Companies' books and records, he is unable to reconcile various inconsistencies and rectify the deficiencies in the Companies' record keeping. Accordingly, Mr Woodhouse is unable to say with certainty what assets were owned by, and which liabilities are attributable to, one or both of Watch Works and Cobbler Plus.
The catalyst for the appointment of the first plaintiffs as administrators, and the eventual winding-up of the Companies, was a final demand from a landlord for payment of rental arrears due in respect of 26 premises (15 sites being Watch Works stores and the other 11 sites being Cobbler Plus stores).
As mentioned, the first plaintiffs were appointed as administrators of the Companies on 27 June 2018. The circumstances of the appointment are relevant to the pooling application. Before the appointment, also on 27 June 2018, Mr Soderberg withdrew $496,600.09 from the Comingled Account (leaving a balance of $10,123.77 in the account). In Mr Woodhouse's third affidavit he deposes that, on the same day, Mr Soderberg transferred the sum of $401,100 into the first plaintiffs' accounting firm's trust account for the purpose of funding the administration costs of Watch Works and Cobbler Plus. Although derived from the Comingled Account, Mr Woodhouse refers to this as the 'Soderberg Funding' having earlier, in his first affidavit, stated that the first plaintiffs were provided with an indemnity in respect of both Companies (said to be in the amount of $397,600 rather than the $401,100). In the first affidavit Mr Woodhouse does not disclose that the so-called 'indemnity' was in fact apparently sourced from funds initially derived from the Comingled Account.
Following their appointment as administrators, the first plaintiffs continued to trade 48 stores in order to seek expressions of interest for the sale of the Companies' assets. Over time the stores that continued to trade reduced to 40 stores (17 Watch Works stores and 23 Cobbler Plus stores).
The trade-on was conducted by the first plaintiffs as administrators, and subsequently as liquidators, for about two and a half months. Mr Woodhouse explained that he and his co-appointees conducted the trade-on of the Companies' businesses on a consolidated basis. Reasons were provided for doing so. In any case, as a result of the trade-on, the plaintiff liquidators were able to realise the Companies' businesses and preserve the employment of some 70 employees. The sale agreement completed on 11 September 2018. The sale price was modest ($40,000 and a $35,000 extension payment). However, there were other benefits to the Companies in the form of the purchaser assuming employee entitlements and the non-crystallisation of substantial redundancy and payment in lieu of notice obligations.
The purchase price was paid to the Companies as joint vendors. There was no distinction drawn between the two Companies, ie the purchase price was not allocated as between Watch Works and Cobbler Plus. So far as the purchase price was received in cash it was paid into a liquidation bank account operated by the plaintiff liquidators in respect of Watch Works.
All other funds made available in the windings-up of the two Companies have also been paid into the Watch Works' liquidation account.
As at 30 October 2019 the Watch Works' liquidation account held $183,608. Apart from the purchase price from the sale of the Companies' businesses, the evidence refers to three main sources of funds in the Watch Works' liquidation account. First, the residue of the so-called Soderberg Funding. Mr Woodhouse deposed that he and his co-appointees had 'used most of the Soderberg Funding' to meet costs, remuneration and expenses associated with the administration and liquidation of Watch Works and Cobbler Plus.[1] By implication, however, it is inherent in that statement that not all of the Soderberg Funding has been consumed in the trade-on. In at least some respect the balance of the Watch Work's liquidation account is referrable to the $401,100 in Soderberg Funding. Second, the $35,000 extension payment. Third, all remaining income from the trading of the Companies' businesses by the first plaintiffs.
[1] Affidavit of D H Woodhouse sworn 30 October 2019 par 7.
The $35,000 'extension payment' was a payment made by the purchaser of the Companies' businesses to extend settlement of the sale so as to cover trading losses being incurred by the plaintiff liquidators.
Mr Woodhouse deposes that:
The Soderberg Funding and the Extension Payments were received for the purpose of meeting the ongoing costs of the administration and liquidation of each Company, including the trading of the businesses until the Sale was completed.
The Purchase Price was received as the proceeds of realising the businesses and assets of Watch Works and Cobbler Plus.[2]
[2] Affidavit of D H Woodhouse sworn 30 October 2019 pars 11 - 12.
On behalf of the plaintiff liquidators it is said that they have formed the view that it is desirable that the Companies be treated as a pooled group. It is said that the Companies were under the control of a common director (Mr Soderberg), were intertwined and were operated as one entity. Mr Woodhouse also says that it is difficult to prepare a detailed estimated return to creditors in respect of the Companies. No apportionment has yet been made as to trading losses, the application of the indemnity funds and the proceeds of the sale of the Companies' businesses. It is suggested that no apportionment can reasonably or confidently be prepared. Nevertheless, Mr Woodhouse has caused to be prepared an estimated statement of position providing his estimate of the return to priority and unsecured creditors for each of Watch Works and Cobbler Plus in both pooled and un-pooled scenarios.
The statement of position (attachment 'DHW-13') is as follow:

Based on the statement of position, Mr Woodhouse deposes, and I accept, that:
1.The priority unsecured creditors of Watch Works (consisting of employee entitlements) stand to benefit from pooling - in a pooled scenario they will receive a dividend of approximately 81.71 cents in the dollar as opposed to approximately 78.43 cents in the dollar in a stand-alone liquidation.
2.The ordinary unsecured creditors of Cobbler Plus will be disadvantaged by pooling - on a winding-up of Cobbler Plus as an individual entity they will receive 1.47 cents in the dollar, but will not receive any return in a pooled scenario.
Two other things are apparent from the statement of position (although not highlighted in either the text of the affidavit material or the plaintiff liquidators' submissions at the time that the application initially came on for hearing on 8 November 2019).
First, there is no suggestion that pooling will result in any cost savings. The estimated future remuneration and legal fees in a pooled scenario is a range of $187,000 to $275,000. On windings-up of Watch Works and Cobbler Plus on an individual basis the estimates are $93,500 to $137,500 for each liquidation. A common justification for a pooling application is that a winding-up on a pooled basis will result in reduced costs of administration generally and thus result in a better return for all creditors. That is not the present case.
Second, any return to creditors is entirely dependent on the outcome of contemplated unfair preference recovery actions. That is evident from the 'low' estimate in the two windings-up on a non-pooled basis. In that scenario the main difference in terms of realisations is that there are no unfair preference recoveries. The total realisations are then insufficient to meet the estimated professional fees and costs. With Watch Works there is a deficiency of $101,979 (the deficiency if the lesser estimates of professional fees and disbursements are applied only reduces to $57,979). With Cobbler Plus there is a deficiency of $87,251 ($43,251 using the lesser estimates of professional fees and disbursements).
Initially the affidavit evidence contained no information about the contemplated unfair preference recovery actions.
When the matter first came on for hearing I drew this deficiency to the attention of counsel appearing for the plaintiff liquidators. I questioned whether there was a real, as opposed to hypothetical, prospect of assets being available for a distribution to creditors. In the absence of a real prospect of distribution it was difficult to see the utility of a pooling determination. Counsel for the plaintiff liquidators sought and obtained an adjournment to put on further affidavit material. This resulted in Mr Woodhouse's affidavit sworn 25 November 2019. That affidavit discloses that the contemplated unfair preference actions are against the Deputy Commissioner of Taxation. While the further affidavit material sufficies to demonstrate reasonably arguable claims on the part of Watch Works and Cobbler Plus there is no evidence as to intention to proceed or - apart from the limited funds currently available in the liquidations - the available funds to proceed with such claims.
When account is taken of existing claims for remuneration and expenses the available assets in the windings-up are insubstantial: $12,518 in Watch Works and $29,514 in Cobbler Plus (using the low figures in Mr Woodhouse's statement of position).
The plaintiff liquidators gave written notice to creditors of the application for a pooling order. I am satisfied that the notice was sufficient for compliance with s 579J of the Corporations Act 2001 (Cth). No response was received from any creditor. There is no objection to the application or the pooling orders as sought by the plaintiff liquidators.

Statutory framework and legal principles

Ordinarily a winding-up is conducted on a stand-alone specific entity basis. However, since 31 December 2007 the Corporations Act 2001 (Cth) has made express provision for pooling determinations in relation to groups of companies. A liquidator may himself or herself make a pooling determination (s 571). Alternatively, a liquidator may make application for a pooling order by the court (s 579E(11)). On such an application the court may, if satisfied that various conditions are met and that it is otherwise just and equitable to do so, by order determine that a group of companies is a pooled group for the purposes of s 597E of the Corporations Act 2001 (Cth).
Relevantly, s 597E(1) provides:
(1)If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies:
(a)each company in the group is being wound up;
(b)any of the following subparagraphs applies:
(i)each company in the group is a related body corporate of each other company in the group;
(ii)apart from this section, the companies in the group are jointly liable for one or more debts or claims;
(iii)the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;
(iv)one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;
the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section.

Accordingly, there are various formal matters of which the court must be satisfied. First, there must be a group of two or more companies. Second, each company in the group must be being wound up. Third, one of the sub-paragraphs in s 579E(1)(b) must apply. Fourth, as previously mentioned, by s 579E(11) the court may only make a pooling order on the application of the liquidator or liquidators of the companies in the group. Once the pre-conditions are satisfied the court may make a pooling order if the court is satisfied that it is just and equitable to do so. As will be seen, s 579E(12) specifies a number of mandatory considerations in assessing whether it is just and equitable to make a pooling order. Section 579E(10) also specifies two situations in which the court must not make a pooling order.
The consequences of a pooling order determination are provided for by s 579E(2). First, each company in the group is taken to be jointly and severally liable for each debt payable by and claim against each other company in the group. Second, each intra-group debt and claim is extinguished. These two consequences of a pooling order apply to all debts and claims whether present or future, certain or contingent and whether ascertained or sounding only in damages (s 579E(3)). However, the debt or claim must be admissible to proof as against the company (s 579E(4)). The usual order of priority applicable under s 556, s 560 and s 561 is not altered (s 579E(4)).
In this way the available assets in each winding-up become available to satisfy the external debts of all of the companies in the pooled group. So far as external creditors are concerned the separate windings-up are administered as if they were a single winding-up. The available assets from all of the windings-up are applied to the external debts and claims of all companies rateably as if the external creditors were the creditors of a single company.
A group exists for the purposes of s 579E(1) if two or more companies are identified.[3] Any requirement of connectedness comes from other aspects of s 597E.[4] Accordingly, the Companies may be considered to constitute a group within the meaning and for the purposes of s 579E(1).
[3] Allen v Feather Products Pty Ltd [2008] NSWSC 259; (2008) 72 NSWLR 597 [9]; Kirby Street (Holding) Pty Ltd; Re Lombe [2011] NSWSC 1536; (2011) 87 ACSR 84 [8].
[4] Allen v Feather Products Pty Ltd [9].
Section 579E(1)(a) requires that the court be satisfied that each company in the group is being wound up. That too is satisfied.[5]
[5] The transitional provisions that affected the outcome in Allen v Feather Products Pty Ltd have no application where the relevant windings-up commenced in 2018.
As to s 579E(1)(b), the court must be satisfied that one of sub-par (i) to sub-par (iv) applies. The plaintiff liquidators only seek to rely on sub-par (iv). The focus of the inquiry under sub-par (iv) is the actual state of affairs.[6] One or more of the companies must own 'particular property' that is or was used, or for the use, by any or all of the companies in the group in connection with, among other things, a business carried on jointly by the companies in the group. In the present case the plaintiff liquidators pointed to the funds in the Watch Works' liquidation account as being the relevant particular property.
[6] Allen v Feather Products Pty Ltd [14].
It is convenient to first outline the related requirements of ownership and use.
Section 579E(1)(b)(iv) refers to property that one or more of the companies 'own' that is or was 'used' or 'for use' in the relevant way. In relation to the use of property the language of sub-par (iv) directs attention to both the present (whether property 'is … used, or for use') and the past (whether the property 'was used, or for use'). Conversely, in relation to ownership, sub-par (iv) only refers to the ownership of property in the present tense. Accordingly, the words of sub-par (iv) have the effect that the provision is only concerned with particular property that is now owned.[7]
[7] Kirby Street (Holding) Pty Ltd; Re Lombe [40]. See also at [44] - [47].
This construction of s 579E(1)(b)(iv) has a limiting effect on the scope of the provision. The limitation is apparent from the outcome of Re Australian Hotel Acquisition (in liq)[8] (as was endorsed by Barrett J in Kirby Street (Holding) Pty Ltd; Re Lombe).[9] There a secured creditor had sold hotel premises and businesses previously carried on by the relevant companies. So far as that property had been sold it was no longer particular property now owned. It was held that:
The ordinary construction of (iv) requires the property to be now owned not previously owned so the particular mortgage transactions do not assist under (iv). The evidence is that the property now held in the companies is the surplus money available after sale of the Parramatta Hotel and any surplus from sale of North Ryde Hotel … These surplus funds are not particular property within (iv). As I have said if there were any particular property it no longer exists. Again the requirements of (iv) are not made out.[10]
[8] Re Australian Hotel Acquisition (in liq) [2011] NSWSC 1374.
[9] Kirby Street (Holding) Pty Ltd; Re Lombe [44], [47].
[10] Re Australian Hotel Acquisition (in liq) [44].
The plaintiff liquidators accepted that I should not depart from the construction of s 579E(1)(b)(iv) adopted in Re Australian Hotel Acquisition (in liq) and Kirby Street (Holding) Pty Ltd; Re Lombe. That concession was properly made. It cannot be suggested that the decisions are plainly wrong. To the contrary, the text of s 579E(1)(b)(iv) compels the conclusion reached in those decisions. The consequence is that s 579E(1)(b)(iv) requires that the plaintiff liquidators identify some presently existing 'particular property' owned by one or both of Watch Works or Cobbler Plus which was relevantly used in connection with a business, scheme or undertaking carried on jointly by the companies. The proceeds of realisation from the sale of the Watch Works and Cobbler Plus businesses will not suffice.[11]
[11] Kirby Street (Holding) Pty Ltd; Re Lombe [26].
Some additional observations have been made by the courts in relation to the 'particular property' requirement under sub-par (iv):
1.It is not a requirement that the property is owned by all of the companies in the group.[12] All that is required is ownership by 'one or more' companies in the group.
2.It is not a requirement that the property that is or was used is tangible. The provision includes intangible property.[13]
[12] Kirby Street (Holding) Pty Ltd; Re Lombe [69].
[13] Kirby Street (Holding) Pty Ltd; Re Lombe [58].

Where property is owned it may be regarded as being 'used' simply by being held where the mere holding can be regarded as the source of some advantage.[14]
[14] Kirby Street (Holding) Pty Ltd; Re Lombe [61].
Sub-paragraph (iv) also requires that the property be or have been used 'in connection with' the relevant business, scheme or undertaking. This requirement will be satisfied by ancillary or incidental use to the business, scheme or undertaking.[15] There is also a requirement that the business, scheme or undertaking be or have been carried on jointly. For the purposes of sub-par (iv) it is not required that the companies be acting in unison.[16] Separate acts of separate companies acting together for a common purpose are sufficient to meet the requirement.[17] It is enough if there is coordinated or cooperative action with the separate acts of each participant complementing or supplementing acts of others.[18]
[15] Kirby Street (Holding) Pty Ltd; Re Lombe [65].
[16] Allen v Feather Products Pty Ltd [14].
[17] Re Australian Hotel Acquisition (in liq) [39] ‑ [40].
[18] Kirby Street (Holding) Pty Ltd; Re Lombe [26].
In order for the discretion to be enlivened the court must also be satisfied that making a pooling order is just and equitable. Regard must be had to the matters specified in s 579E(12). The direction to have regard to the specified matters requires that the court give weight to those matters as a fundamental element in coming to a conclusion. The inquiry in the course of which of the specified matter must be given that weight is as to what is 'just and equitable'.[19]
[19] Kirby Street (Holding) Pty Ltd; Re Lombe [71].
The specified matters under s 579E(12) are as follows:
(a)the extent to which:
(i)a company in the group; and
(ii)the officers or employees of a company in the group;
were involved in the management or operations of any of the other companies in the group;
(b)the conduct of:
(i)a company in the group; and
(ii)the officers or employees of a company in the group;
towards the creditors of any of the other companies in the group;
(c)the extent to which the circumstances that gave rise to the winding up of any of the companies in the group are directly or indirectly attributable to the acts or omissions of:
(i)any of the other companies in the group; or
(ii)the officers or employees of any of the other companies in the group;
(d)the extent to which the activities and business of the companies in the group have been intermingled;
(e)the extent to which creditors of any of the companies in the group may be advantaged or disadvantaged by the making of the order;
(f)any other relevant matters.
It is relevant to whether creditors will be advantaged or disadvantaged that by conducting the windings-up as a pooled group the companies will avoid expenses associated with unravelling the intermingled finances of the companies.[20]
[20] Kirby Street (Holding) Pty Ltd; Re Lombe [76].
Section 579E(10) outlines circumstances in which the court is precluded from making a pooling order. The relevant sub-section in the present case is s 579E(10)(a) (the Companies are not being wound up under a members' voluntary winding-up). Under s 579E(10)(a) a pooling order must not be made if the court is satisfied that it would materially disadvantage an eligible unsecured creditor where that creditor has not consented to the making of the order. For present purposes an eligible unsecured creditor is relevantly an unsecured creditor who is not a company in the group (s 579Q(1)(a)).[21] Accordingly, excepting Watch Works and Cobbler Plus, all other priority and ordinary unsecured creditors of the two Companies are eligible unsecured creditors.
[21] So far as the matter might be affected by the regulations (see s 579Q(1)(b) and s 579Q(2)) the relevant provision, reg 5.6.73 of the Corporations Regulations 2001 (Cth), is inapplicable.

The plaintiff liquidators' contentions

The plaintiff liquidators contended that Watch Works and Cobbler Plus are a group of companies for the purposes of s 579E(1). They further contended that the Companies are being wound up for the purposes of s 579E(1)(a). For the reasons already given those submissions are accepted.
The plaintiffs then submitted that the factual circumstances before the court satisfied the requirements of s 597E(1)(b)(iv). In that respect the plaintiff liquidators acknowledged that:
•one or more of the Companies must now 'own' particular property;
•the property so identified must be or have been 'used';
•the Companies must have 'carried on jointly' a business (the plaintiff liquidators relied on there being a business rather than a scheme or undertaking); and
•the property so identified must be or have been used 'in connection with' that business.
On ownership the plaintiff liquidators contended that specified funds within the Watch Works' liquidation bank account was the relevant 'particular property' that is now owned for the purposes of s 579E(1)(b)(iv). Acknowledging Re Australian Hotel Acquisition (in liq) and Kirby Street (Holding) Pty Ltd; Re Lombe, the plaintiff liquidators did not contend that the funds received from the sale of the businesses satisfied the requirements of sub-par (iv). It was said, however, that the residue of the Soderberg Funding and the extension payment were for the purpose of carrying on the Companies' businesses and therefore satisfied s 597E(1)(b)(iv). It was said that those funds were and are relevantly owned by Watch Works.
As to whether there was a business 'carried on jointly', the plaintiffs contended that this requirement was satisfied for several reasons. First, the lack of demarcation between the businesses of Watch Works and Cobbler Plus. Second, that Watch Works employed the employees of both businesses. Third, that the management accounts of the Companies were consolidated and the assets and liabilities were treated jointly. Finally, the Companies had the Commingled Account in the name of Watch Works into which all the Companies' income was transferred and from which expenses were paid. Based on those matters the plaintiff liquidators submitted that the management of the Companies effectively operated the businesses as a single undertaking.
The plaintiffs submitted that the Soderberg Funding and the extension payment were intended to be used to cover the costs of carrying on the trading of the businesses. Thus, according to the submission, the funds were held for use for the purpose of meeting the ongoing costs of trading-on the businesses of Watch Works and Cobbler Plus.
The plaintiff liquidators contended further that it would be just and equitable to make a pooling order. They pointed to the following factors:
1.The extent to which there were shared management and operations between the Companies.
2.The Companies did not delineate between the creditors of Watch Works and the creditors of Cobbler Plus.
3.The Companies had administrators, and subsequently liquidators, appointed at the same time.
4.The intermingling of the businesses of the Companies.
5.The minimal impact on ordinary unsecured creditors and the benefits to priority unsecured creditors.
6.The businesses' assets were sold together with no apportionment of the sale proceeds between Watch Works and Cobbler Plus.
The plaintiff liquidators also submitted that the size of the prejudice to the unsecured creditors of Cobbler Plus was outweighed by the benefit to Watch Works' priority unsecured creditors.
Finally, the plaintiff liquidators contended that the court should make an ancillary order under s 579G. They relied on s 579G(1)(d) which provides:
If the Court makes a pooling order in relation to a group of 2 or more companies, the Court may, if the Court is of the opinion that it is just and equitable to do so, do any or all of the following things:
…
(d)by order, modify the operation of this Act in relation to the winding up of the companies in the group.
The effect of the order sought was that the assets of the WWA Trust, and the proceeds of realisation thereof, would be available to meet debts payable by and claims against one or both of Watch Works and Cobbler Plus. The plaintiff liquidators submitted that such an order should be made pursuant to s 579G(1)(d) because it was not clear which assets and liabilities of Watch Works were held in its capacity as trustee of the Trust. It was also said that it would be inequitable if the pooling regime could not apply because one of the Companies carried on its business as a trustee.

Disposition

The formal requirements under s 579E are satisfied. First, a group of two or more companies has been identified (s 579E(1) introductory words). Second, each company in the group is being wound up (s 579E(1)(a)). Third, the application has been brought by the liquidators of the companies in the proposed pooled group (s 579E(10)). Finally, written notice of the application has been provided to the eligible unsecured creditors of the companies in the proposed group (s 579J).
The issues of substance concern:
1.Whether the requirements of s 579E(1)(b)(iv) have been met (the plaintiff liquidators not seeking to rely on any of sub-par (i) to (iii))?
2.Whether a pooling order would materially disadvantage an eligible unsecured creditor of a company in the proposed group (no express consents to the making of the order having been adduced in evidence) (s 579E(10)(a))?
3.Whether it is just and equitable to determine that the proposed group is a pooled group for the purposes of s 579E (s 579E(1) and s 579E(12))?
4.Whether, if a pooling order is made, the court should make the ancillary order as sought by the plaintiff liquidators so that assets of the WWA Trust are available to meet debts payable by and claims against one or both of Watch Works and Cobbler Plus (s 579G(1)(d))?

The requirements of s 579E(1)(b)(iv)

Section 579E(1)(b)(iv) has a number of integers. While the integers may be ordered in various ways it is convenient to address them as follows. First, was there a business carried on jointly by the Companies (the plaintiff liquidators not relying on the concepts of 'scheme' or 'undertaking')? Second, have the plaintiff liquidators identified relevant 'particular property' owned by one or more of the Companies? Third, was that particular property used, or for use, by one or both of the Companies in connection with the business?
I am satisfied that there was a business that was carried on jointly by the two Companies. The Companies carried on like businesses under two different names. However, when one stands back and considers the facts as a whole I accept the plaintiff liquidators' submission that, in substance, the Companies by their common management operated the businesses as a single undertaking. While the stores were differently badged the employees were all engaged by Watch Works. Area and store managers were responsible for both Watch Works and Cobbler Plus stores. There was a common directorship and a single head office function as fulfilled by Soderberg Group Pty Ltd (in liq) (another company of which Mr Soderberg was the sole director). The Companies used the same accounting package, produced consolidated management accounts, and income from the Companies' operations was combined in the Comingled Account and made available to meet the operating expenses of both entities. Creditors - particularly the landlord creditors - were dealt with by the two Companies without differentiation based on the specific entity involved.
The more difficult question is whether the other two sub-par (iv) integers are satisfied.
The plaintiff liquidators pointed to the Watch Works' liquidation account as the particular property that is now owned by one or both of the Companies for the purposes of s 579E(1)(b)(iv). Specifically, reliance was placed on the funds comprised in: (1) the residue of the Soderberg Funding; and (2) the $35,000 extension payment. It was argued that these funds were intended to be used to cover the costs of carrying on trading while the Companies were in administration and liquidation until the businesses were sold. As such, according to the plaintiff liquidators' argument, the funds (rather than the liquidation account more generally) were 'for use' in connection with the relevant business as carried on jointly by the Companies.
I accept that the 'particular property' for the purposes of s 579E(1)(b)(iv) may be tangible or intangible. As Barrett J explained in Kirby Street (Holding) Pty Ltd; Re Lombe:
[T]here is nothing in the legislation confining the provision to tangible property. Intangibles such as patents and trade marks might well be used in connection with a business, undertaking or scheme. And debts could properly be regarded as items of property 'used' - in the sense of being turned to profitable account - in, say, a factoring or mercantile agency business, undertaking or scheme.[22]
[22] Kirby Street (Holding) Pty Ltd; Re Lombe [58].

To that I add that the s 9 definition of 'property' includes a 'thing in action'. The definition applies unless the contrary intention appears. For reasons consistent with Barrett J's observations the contrary intention does not appear. Accordingly, in some circumstances a chose in action as constituted by a bank account may be 'particular property' relevantly used or for use in connection with a business for the purpose of s 579E(1)(b)(iv). For example, take a cash deposit which is required by way of back-to-back security so that a financial institution will provide a company with a bank guarantee which is required to fulfil a contractual commitment as part of the company's business operations. The chose in action as represented by the cash deposit is owned by the company and may properly be regarded as being used in connection with the company's business.
However, the plaintiff liquidators' contention directs attention to particular funds - the Soderberg Funding and the $35,000 extension payment.
The relevant particular property is not the funds as paid into the Watch Works' liquidation account. Rather, the bank is a debtor of Watch Works for the whole of the amount standing to the credit of the liquidation account from time to time. The bank's obligation to its customer is a chose in action which constitutes the relevant particular property. The amounts paid into the account form one unblended fund; the individual amounts - as represented by each payment in to the bank account - no longer have any distinct existence on the amounts being credited to the account.[23]
[23] Devaynes v Noble (Clayton's Case) (1816) 1 Mer 571, 608; 35 ER 781, 793.
At the most it may be accepted that a credit balance in a bank account is personal property that is naturally divisible (it being fungible).[24] But there is no evidence in the present case that the division has been carried out or even attempted.
[24] Director of Public Prosecutions v Kingswell [2011] NSWCA 91; (2001) 51 NSWLR 461 [16].
In the circumstances I do not accept that there is any 'particular property' now owned by one or both Companies in the form of the residue of the Soderberg Funding and the $35,000 extension payment. Instead attention must be directed to the bank account that is the Watch Works' liquidation account. This is plainly particular property owned by Watch Works. But ought it be found that the chose in action as represented by the liquidation account was used, or for use, by one or both of Watch Works and Cobbler Plus in connection with the business carried on jointly by the Companies? Given Mr Woodhouse's evidence as to the purpose of the Soderberg Funding and the $35,000 extension payment I am persuaded that I should accept that this is the case. The position would have been clearer had there been an earmarked special purpose liquidation account, ie an account for the specific purpose of indemnifying the Companies in relation to expenses arising from trading-on the businesses. Nevertheless, Mr Woodhouse has explained on oath that the Soderberg Funding and the $35,000 extension payment as deposited in the liquidation account was for a purpose that included trading-on the businesses until the sale was completed. In the circumstances of the deposits, and Mr Woodhouse's evidence, I am satisfied that the account itself should be characterised as having a purpose that accords with the purpose of the receipts as deposited into the account - thus being used and for use for that purpose.
There is nothing to suggest that this use of the Watch Works' liquidation account involved any artifice with a view to an eventual pooling application. To the contrary Mr Woodhouse provided reasons for trading-on on a consolidated basis. And, so far as a single liquidation account was employed rather than separate liquidation accounts for each company, the process adopted was functionally equivalent to the pre-administration practice of sweeping the proceeds from all bank accounts into the Comingled Account. Indeed, in a practical sense - given the source of the Soderberg Funding - the Watch Works' liquidation account was the successor of the Comingled Account.
In any case, when regard is had to the burden of Mr Woodhouse's evidence, as a matter of commercial reality the Watch Works' liquidation account was used, and was for use, by both Watch Works and Cobbler Plus in connection with the continuation of the businesses as traded-on following the voluntary administrations. In continuing to trade the plaintiff liquidators relied on the account as providing the means to meet the costs of carrying on the businesses.
I am thus satisfied that the condition in s 579E(1)(b)(iv) is satisfied.
There is no doubt that the chose in action comprised by the liquidation account was not just for trade-on use and was in fact used for uses other than the trade-on. Mr Woodhouse's evidence confirms as much. Mr Woodhouse says that the Soderberg Funding and the extension payment were received for purposes including trading the businesses until the sale was completed. There is, however, no legislative requirement that the particular property as owned be used, or for use, exclusively by one or more of the companies in the group in connection with the business. It is enough if it was used or for use conformably with sub-par (iv). The legislative requirement is satisfied if - on the actual state of affairs - the particular property was, among other things, used or for use in the way described in s 579E(1)(b)(iv).

No material disadvantage to eligible unsecured creditors

By s 579E(10)(a) the court must not make a pooling order if:
(i)the Court is satisfied that the order would materially disadvantage an eligible unsecured creditor of a company in the group; and
(ii)the eligible unsecured creditor has not consented to the making of the order.
Section 579E contemplates that a pooling order may result in advantage to some creditors of companies in the group but disadvantage to others. The just and equitable factors in s 597E(12)(e) require the court to consider the extent to which creditors may be advantaged or disadvantaged by the making of the order. But, in the case of material disadvantage, without consent on the part of the relevant eligible unsecured creditors who suffer disadvantage the court must decline the application for the pooling order. By contrast a disadvantage that is non-material is something that the court must consider in assessing the just and equitable criteria. However, such disadvantage will not necessarily preclude the making of a pooling order.
The statement of position prepared by Mr Woodhouse demonstrates that a pooling order as sought by the plaintiff liquidators:
1.Is expected to advantage the priority unsecured creditors of Watch Works (on the 'high' range their anticipated dividend distribution increases by 3.28 cents in the dollar).
2.Is neutral for the ordinary unsecured creditors of Watch Works (they will not receive a dividend in any scenario).
3.Is expected to disadvantage the ordinary unsecured creditors of Cobbler Plus. (In a non-pooled scenario Mr Woodhouse's 'high' range estimates that these creditors will receive a dividend of 1.47 cents in the dollar. With pooling these creditors will no longer receive a dividend. If, however, there are no unfair preference recoveries, the pooling order is neutral: in that scenario the Cobbler Plus ordinary unsecured creditors will receive no dividend either way.)
The pooling order as sought is without utility unless the plaintiff liquidators proceed to augment the available assets in the windings-up by effecting unfair preference recoveries. For that reason I consider the appropriate comparator to be the position of the ordinary unsecured creditors of Cobbler Plus in the 'high' range (ie where, on a non-pooled scenario, a dividend is received). Based on Mr Woodhouse's evidence the pooling order will result in disadvantage to the Cobbler Plus ordinary unsecured creditors: they will no longer receive a distribution of some 1.47 cents in the dollar which is otherwise expected to be forthcoming under the 'high' range scenario. Those creditors are eligible unsecured creditors who have not consented to the making of the pooling order. If the disadvantage to be suffered is properly characterised as a 'material disadvantage' I must not make the pooling order.
It is likely that, if such 'material disadvantage' were found, the court could not come to a positive conclusion on the 'just and equitable' question in any event.[25] Nevertheless, the legislation seems to contemplate that it may be just and equitable that a pooling order be made while precluding the court from making the order because the order will produce manifest disadvantage within s 579E(10).[26]
[25] Kirby Street (Holding) Pty Ltd; Re Lombe [82].
[26] Kirby Street (Holding) Pty Ltd; Re Lombe [81].
I was not directed to any authorities that have considered the concept of material disadvantage per se. The plaintiff liquidators' submissions went no higher than to assert that the potential prejudice to the ordinary unsecured creditors of Cobbler Plus was outweighed by the benefit to the priority unsecured creditors of Watch Works (reference also being made to those creditors, as employees, having contributed to the assets of Cobbler Plus). That submission is no more than an attempt to distract the court from the true issue. The question of material disadvantage is not one of weighing whether the advantage to one group of creditors outweighs the disadvantage to another. All the more so it is not a question of assessing whether one group of creditors is more meritorious than another. For the purposes of s 579E(10)(a) the relevant enquiry is confined to whether a pooling order would materially disadvantage the ordinary unsecured creditors of Cobbler Plus.
Disadvantage is material where it is considerable or significant; it must have real importance or consequences. Disadvantage will not be material where it is unimportant, insignificant or inconsequential. Necessarily the enquiry is evaluative and involves a question of degree.
With some reservation I have concluded that the loss of a potential dividend distribution of 1.47 cents in the dollar is not a material disadvantage. In coming to that view I have taken into account that there is uncertainty as to whether there will be an unfair preference recovery that will enable the plaintiff liquidators to make any distribution. The model comprised in Mr Woodhouse's statement of position is also very sensitive to the future costs. For example, there will be no or only a very minor dividend if the unfair preference claim is settled at half of its face value. Similarly, if the future remuneration and expenses is at the low range value, rather than the high range value, there will also be no or only a very minor dividend. So understood the 1.47 cents in the dollar is an optimistic upper estimate. The actual dividend may turn out to be nothing or considerably less than the 1.47 cents. In all the circumstances I am not satisfied that the pooling order will materially disadvantage the Cobbler Plus ordinary unsecured creditors.
No doubt 1.47 cents in the dollar is better than nothing. However, when distributed among a creditor base of $3.8 million to $4.5 million the effect for each of the ordinary unsecured creditors of Cobbler Plus, viewed individually, is likely to be minimal. Consistent with the principle that the law does not bother with small and insignificant matters I consider the potential loss of a dividend of 1.47 cents in the dollar not to constitute a material disadvantage for the purposes of s 579E(10)(a).
That conclusion is bolstered when it is understood that the average value of the Cobbler Plus unsecured creditors' claims is $87,746.78 (across all unsecured creditors) or $23,241.72 (excluding the landlord creditors).[27] Adopting the 1.47 cents the average dividend distribution is in the order of $340 (excluding the landlord creditors) to $1,290 (across all unsecured creditors).

The just and equitable factors

[27] Affidavit of D H Woodhouse sworn 17 September 2019 par 57.

I am satisfied that it is just and equitable to determine that Watch Works and Cobbler Plus are to be a pooled group for the purposes of s 579E. In terms of the s 579E(12) criteria:
1.Mr Soderberg was the common sole director of both Companies. Moreover, the head office function for both Companies was performed by another company of which Mr Soderberg was also the sole director. Area and store managers, although employed by Watch Works, also managed the Cobbler Plus stores. Similarly employees of Watch Works worked in the Cobbler Plus Stores.
2.The Companies dealt with creditors without differentiation as to whether an individual creditor was a creditor of Watch Works or a creditor of Cobbler Plus: there was a single trade creditor report and landlord creditors received a global payment on behalf of both Companies. The Comingled Account was used to pay both Companies operating expenses.
3.Each Companies' administration and eventual winding-up was attributable to a common failure on the part of both Watch Works and Cobbler Plus to meet their obligations to a landlord creditor.
4.The businesses of the two Companies were intermingled. That is apparent from the matters already referred to: the common management, the circumstance that Watch Works employees carried on the operations of the Cobbler Plus stores and the operation of the Comingled Account (which meant that the Companies' receipts were combined and led to the creditors being treated as one without delineation between the individual Companies). As well as this management accounts were prepared on a consolidated basis. Indeed, the accounting package used was incapable of producing accurate entity specific reports. For practical purposes, as Mr Woodhouse states, the affairs of the two Companies were intertwined and operated as a single entity.
5.The extent of the respective advantage and disadvantage to creditors from pooling has been addressed at [77] above. In assessing whether the pooling order sought is just and equitable something that weighs heavily against the making of the order is the disadvantage suffered by the ordinary unsecured creditors of Cobbler Plus. Moreover, this disadvantage results in the priority unsecured creditors of Watch Works accruing an advantage. In economic terms a pooling order will effect a wealth transfer from the ordinary unsecured creditors of Cobbler Plus in favour of the priority unsecured creditors of Watch Works.
Ordinarily it would not be just and equitable for one group of creditors to benefit at the expense of another. Accordingly, the circumstance that the pooling order will disadvantage the Cobbler Plus' ordinary unsecured creditors, while effecting a countervailing advantage to the Watch Works' priority unsecured creditors, is something that must be justified. In this case the justification arises in the fact that the claims of the Watch Works' priority unsecured creditors involve employee entitlements. In addressing situations of insolvency the consistent policy of Australian parliaments has been to introduce measures to protect employees. This long held position reflects a view that it works undue hardship on employees to fail to afford them priority.[28] The unusual feature of the present case is that there are no employees of Cobbler Plus. Rather, across the two businesses the employees were formally employed by Watch Works, while providing their services to both Watch Works and Cobbler Plus.
[28] Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq); Jones v Matrix Partners Pty Ltd [2018] FCAFC 40; (2018) 354 ALR 436 [216] - [221] (esp [216] - [217]).
If the windings-up are conducted on a stand-alone specific entity basis the Cobbler Plus' ordinary unsecured creditors will benefit only because no account will be taken of the services provided to Cobbler Plus by the employee priority unsecured creditors of Watch Works.
It would be one thing to facilitate a wealth transfer simpliciter. The position is different here. Insofar as the employees of Watch Works provided services to Watch Works and Cobbler Plus alike it is, in my view, just and equitable that - by means of a pooling order - those creditors are afforded an advantage due to their priority status that would not otherwise ensue. To the extent that there is a corresponding disadvantage to the ordinary unsecured creditors of Cobbler Plus it is justified on the basis that the benefit that otherwise accrues to the Cobbler Plus creditors is a result of the group's arbitrary determination to engage all employees through Watch Works even though the same employees also performed services for Cobbler Plus. It is just and equitable that the available assets in the winding-up of Cobbler Plus are made available to meet the debts and claims of employees - applying the usual priorities - insofar as the employees generally contributed to the business and operations of Cobbler Plus.
A further issue arises insofar as the return to creditors is dependent on the outcome of unfair preference proceedings against the Deputy Commissioner of Taxation.
Pooling will be irrelevant in the absence of successful unfair preference recoveries. In circumstances where a pooling order may lack any utility a question arises as to whether - at the moment - it is just and equitable to make a pooling order. The application could be considered premature. It may be better to await the outcome of the unfair preference claims. Accordingly, one option is to adjourn the application allowing it to be revived in the event that the unfair preference claims are successful and a pooling order will have real work to do. Against that, however, is a concern that has informed the plaintiff liquidators' decision to bring the application at this juncture: were the asset that satisfied the 'particular property' criteria in s 579E(1)(b)(iv) to be exhausted - through application of the portion of the Watch Works' liquidation account that is attributable to the Soderberg Funding and the extension payment - the court may no longer have power under s 579E to make a pooling order.
That concern could be dealt with by the plaintiff liquidators electing not to apply the current balance of the Watch Works' liquidation account. On fuller consideration, however, I am satisfied that this is not a good reason to defer the making of a pooling order. The application has been brought and heard. If, because of concerns as to utility, the final determination of the application was stood over pending the outcome of the unfair preference claims, there would be two adverse effects.
First, the plaintiff liquidators would not be able to apply the available balance in the Watch Works' liquidation account to meet their remuneration and expenses as are currently payable. The services provided by insolvency practitioners in winding-up an insolvent company are integral to the proper and effective functioning of the corporations legislation. It is important that insolvency practitioners be fairly and reasonably remunerated so as to ensure that there are appropriate qualified and experienced professionals who are willing to provide such services. The court should not introduce unnecessary obstacles in the way of the plaintiff liquidators that will have the effect of thwarting payment of their remuneration and expenses in a timely way.
Second, at [29] I noted the limited available assets in the windings-up. It is likely that those assets must be resorted to if the plaintiff liquidators are to pursue the unfair preference claims. Requiring that the plaintiff liquidators maintain the Watch Works' liquidation account intact, so that there is continuing power to make a pooling order after recovery of the unfair preference recoveries, places the plaintiff liquidators in a 'Catch-22' paradoxical situation: without applying the Watch Works' liquidation account the plaintiff liquidators are unlikely to be able to effect the unfair preference recoveries. It is not in the interests of the beneficial windings-up of the Companies that the court perpetuate this situation.

For these reasons I am satisfied that it is just and equitable to determine, by order, that Watch Works and Cobbler Plus are a pooled group for the purposes of s 579E of the Corporations Act 2001 (Cth). Moreover, I am satisfied that it is just and equitable to so determine now rather than await the outcome of the plaintiff liquidators' attempt to effect recovery of the unfair preference claims. To the extent, if any, that there is a residual discretion to be exercised after being satisfied that the relevant criteria are met - including that the order is just and equitable - I would, for the reasons that I consider the order to be just and equitable, exercise that discretion in favour of making the pooling order.

The s 579G(1)(d) ancillary order

The ancillary order sought under s 579G(1)(d) is novel. The research of counsel for the plaintiff liquidators did not identify any decided cases where s 579G(1)(d) had been so employed. There are decisions which have applied s 579G(1)(d) to modify the application of the Corporations Act 2001 (Cth) in relation to the windings-up of companies in a pooled group.[29] However, none of those cases has explored the metes and bounds of s 579G(1)(d).
[29] See eg Re Kirby Street (Holdings) Pty Ltd [2011] NSWSC 1576; Re Walker [2015] FCA 146. See also Lofthouse v Environmental Consultants International Pty Ltd (in liq) [2012] VSC 416 [48].
The plaintiff liquidators sought the ancillary order so that there was no potential issue about the assets of the WWA Trust, and the proceeds of realisation thereof, being applied towards debts payable by or claims against either Company. This could have had the result that debts payable by or claims against Cobbler Plus (for which, on a pooling order, Watch Works would be taken to be jointly and severally liable) could be met out of the assets of the WWA Trust. Prima facie, however, where - as here - a corporate trustee is relying on its right of exoneration, the assets of the WWA Trust cannot be applied to meet non-trust liabilities.[30]
[30] Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 368 ALR 390 [44], [92], [156], [162].
Counsel for the plaintiff liquidators presented an elaborate argument with a view to seeking to persuade me that s 579G(1)(d) was sufficiently broad to modify the application of the Corporations Act2001 (Cth) in relation to the windings-up of the Companies so as to permit what is otherwise precluded under the general law.
I do not propose to repeat those submissions or address the question of power. Even if - which I do not decide - the power under s 579G(1)(d) enables the court to make an order of the type sought, I would decline the order in the exercise of discretion. There are two reasons why I would not make an ancillary order in the terms as sought.
First, as the plaintiff liquidators' supplementary written submissions candidly accept, based on the evidence available it is likely that it will not be necessary to rely on the order sought under s 579G(1)(d).[31] Mr Woodhouse's statement of position evidences that, in a pooled scenario, the Watch Works priority unsecured creditors are the only creditors that are likely to receive a dividend distribution. The relevant debts and claims are referrable to the employee entitlements for which Watch Works is liable. But on the evidence it is likely that all the Watch Works' employees were employed by Watch Works in its capacity as trustee of the WWA Trust.
[31] Plaintiffs' further outline of submissions dated 25 November 2019 par 7.
Second, there will be no dividend distribution from assets realised in the Watch Works' winding-up unless and until there are unfair preference recoveries. The amounts so distributed will come from the proceeds of the unfair preference claims. The prevailing view is that unfair preference proceeds are property of the company.[32] It will not be a situation where assets of the WWA Trust, or the proceeds of realisation thereof, are being applied towards non-trust liabilities.
[32] Elfic v Macks [2001] QCA 219; [2003] 2 Qd R 125 [96] - [98]; Cook v Italiano Family Fruit Company Pty Ltd [2010] FCA 1355; (2010) 190 FCR 474 [42]. See also Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq); Jones v Matrix Partners Pty Ltd [93] - [94].
For these two reasons the ancillary order sought under s 579G(1)(d) is not required. Assuming, without deciding, that such an order is permissible, I would decline to make the order as being unnecessary on the evidence before the court. The application for the ancillary order is refused.

Conclusion and orders

Subject to hearing from counsel for the plaintiff liquidators, I propose to make orders to the effect that:
1.Pursuant to s 579E(1) of the Corporations Act 2001 (Cth) the second plaintiffs (namely Watch Works Australia Pty Ltd (in liq) ACN 054 620 889 and Cobbler Plus Services Pty Ltd (in liq) ACN 009 393 686) are a pooled group for the purposes of section 579E of the Act.
2.The application is otherwise dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
OE
Research Orderly to Judge
20 JANUARY 2020