Re Window Decor Australia Pty Ltd (in admin); Giouzeppos v Window Decor Australia Pty Ltd & Anor
[2008] VSC 306
•12 August 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 7531 of 2008
IN THE MATTER OF: WINDOW DÉCOR AUSTRALIA PTY LTD (ACN 102 558 823) (IN ADMINISTRATION)
BETWEEN:
| MANUEL GIOUZEPPOS | Plaintiff |
| v | |
| WINDOW DÉCOR AUSTRALIA PTY LTD & ANOR | Defendants |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 and 12 August 2008 | |
DATE OF JUDGMENT: | 12 August 2008 | |
CASE MAY BE CITED AS: | Re Window Decor Australia Pty Ltd (in administration) | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 306 | |
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CORPORATIONS – Winding up – Application to appoint a provisional liquidator – Company under administration – Company solvent – Application refused.
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Beatty v Brashs Pty Ltd (1998) 79 FCR 551
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Herskope | Kalus Kenny |
| For the First Defendant | Mr L Glick SC | D.E. Phillips |
| For the Second Defendant | Mr L Watts | Belleli King & Associates |
TABLE OF CONTENTS
INTRODUCTION.............................................................................................................................. 2
SECOND MEETING......................................................................................................................... 7
THE EVIDENCE................................................................................................................................. 8
APPOINTMENT OF PROVISIONAL LIQUIDATOR............................................................. 12
CONSIDERATION OF EVIDENCE............................................................................................ 13
HIS HONOUR:
INTRODUCTION
The plaintiff, Manuel Giouzeppos, has applied by originating process dated 29 July 2008 to wind up the defendant, Window Décor Australia Pty Ltd (“Window Décor”) under, inter alia, the just and equitable ground and pending the hearing and determination of that application that a provisional liquidator be appointed.
The application was returnable before Master Efthim at 4.15pm on Monday 4 August 2008. On Friday 1 August 2008, without notice to the plaintiff, a secured creditor of the company, Bibby Financial Services Australia Pty Ltd (“Bibby”) appointed Stephen Robert Dixon and Laurence Andrew Fitzgerald joint and several administrators of the company, Window Décor. Mr Dixon is an official liquidator of the Supreme Court of Victoria.
I have been informed that the secured creditor claims that its charge had become and is still enforceable because of the plaintiff’s application to wind up the company. Bibby is not a party to the proceedings and was not represented before me.
On Monday 4 August 2008, the application to appoint a provisional liquidator was adjourned by Master Efthim to 10.00am on 11 August 2008. On that occasion, Mr Watts of counsel instructed by Belleli King & Associates appeared on behalf of the administrators of the defendant.
On Monday 11 August 2008, the matter came on for hearing before Master Efthim. On this occasion Mr Glick SC appeared for the administrators. The Master ordered that Navratnam Nadarajamoorthy (known as Mr Moorthy) be added as the second defendant. Mr Watts of counsel instructed by Belleli King & Associates appeared for Mr Moorthy.
Mr Herskope, who appeared for the plaintiff, made an application to the Master ore tenus that the administration should end. Master Efthim did not have jurisdiction to make an order ending the administration and therefore referred the application to me for hearing and determination. I note that the Master’s order stated that Mr Watts appeared for the company, Window Décor. When he appeared before me, he announced he appeared for the second defendant, Mr Glick appeared for the administrators and Mr Herskope for the plaintiff.
For reasons I shall shortly state, when the matter came on before me, Mr Herskope did not persist with his application. Nevertheless, I note s 447A of the Corporations Act 2001 (“the Act”) provides:
GENERAL POWER TO MAKE ORDERS
(1) General powers of Court. The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2) For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions of this Part are being abused; or
(c) for some other reason;
the Court may order under subsection (1) that the administration is to end.
Section 435C of the Act provides:
(1) When administration begins and ends. The administration of a company:
(a) begins when an administrator of the company is appointed under section 436A, 436B or 436C; and
(b) ends on the happening of whichever event of a kind referred to in subsection (2) or (3) happens first after the administration begins.
(2) Normal outcome of administration. The normal outcome of the administration of a company is that:
(a) a deed of company arrangement is executed by both the company and the deed's administrator; or
(b) the company's creditors resolve under paragraph 439C(b) that the administration should end; or
(c) the company's creditors resolve under paragraph 439C(c) that the company be wound up.
(3) Other ways administration may end. However, the administration of a company may also end because:
(a) the Court orders, under section 447A or otherwise, that the administration is to end, for example, because the Court is satisfied that the company is solvent; or
(b) the convening period, as fixed by subsection 439A(5), for a meeting of the company's creditors ends:
(i) without the meeting being convened in accordance with section 439A; and
(ii) without an application being made for the Court to extend under subsection 439A(6) the convening period for the meeting; or
(c) an application for the Court to extend under subsection 439A(6) the convening period for such a meeting is finally determined or otherwise disposed of otherwise than by the Court extending the convening period; or
(d) the convening period, as extended under subsection 439A(6), for such a meeting ends without the meeting being convened in accordance with section 439A; or
(e) such a meeting convened under section 439A ends (whether or not it was earlier adjourned) without a resolution under section 439C being passed at the meeting; or
(f) the company contravenes subsection 444B(2) by failing to execute a proposed deed of company arrangement; or
(g) the Court appoints a provisional liquidator of the company, or orders that the company be wound up.
(4) During the administration of a company, the company is taken to be under administration.
I informed Mr Herskope that I would be reluctant to entertain an application to end the administration without Bibby being informed of the application.
Under s 435C(3)(g) of the Act, the administration of the company would end if the court appoints a provisional liquidator of the company. Accordingly, if I accede to Mr Herskope’s application, the administration of the company will end.
Mr Glick informed the court that the first meeting of creditors is to be held on Wednesday 13 August 2008 and at that meeting the administrators will resign. In those circumstances, Mr Herskope did not press for an order that the administration is to end.
From what Mr Herskope submitted, I took it that Mr Herskope may have been relying on the grounds that the company is solvent (s 447A(2)(a)) and/or because provisions of Part 5.3A are being abused (s 447A(2)(b)).
I should say something about the solvency ground. Part 5.3A is entitled “ADMINISTRATION OF A COMPANY’S AFFAIRS WITH A VIEW TO EXECUTING A DEED OF COMPANY ARRANGEMENT”. Section 435A of the Act provides:
OBJECT OF PART
The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence--results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
Thus, the Part provides a mechanism for assisting an insolvent company to continue in existence or result in a better return for creditors. My preliminary view is that it is not intended to be used in a management and control dispute over an otherwise solvent company. See generally Beatty v Brashs Pty Ltd. [1]
[1](1998) 79 FCR 551 per Finkelstein J at 553-555
Both the plaintiff and the second defendant (who own 50 per cent of the company each) assert that the company is solvent. If it is solvent, then it may not have been appropriate to put the company into administration.
I will not make any comment on whether or not Mr Dixon and Mr Fitzpatrick should have accepted the appointment in those circumstances.
In any event, Mr Herskope is not seeking an order to end the administration at this stage, but persisted with his application to appoint a provisional liquidator (which would have the effect of ending the administration in any event).
Mr Herskope has made an application that the order appointing the provisional liquidator not take effect until after the administrators resign on Wednesday.
If it was assumed that the administration would end upon the resignation of the administrators, that appears to be not necessarily so.
Section 449C(1) of the Act provides:
VACANCY IN OFFICE OF ADMINISTRATOR OF COMPANY
(1) Administration dies, etc. Where the administrator of a company under administration:
(a) dies; or
(b) becomes prohibited from acting as administrator of the company; or
(c) resigns by notice in writing given to his or her appointer and to the company;
his or her appointer may appoint someone else as administrator of the company.
Thus, Mr Dixon and Mr Fitzpatrick are able to resign but their appointer Bibby may appoint someone else as administrator of the company.
Section 449C(6) provides:
(6) Court may appoint administrator. Where a company is under administration, but for some reason no administrator is acting, the Court may appoint a person as administrator on the application of ASIC or of an officer, member or creditor of the company.
Thus, it appears that the mere resignation of Messrs Dixon and Fitzpatrick may not bring the administration to an end.
I have yet to hear argument on this issue, but my preliminary view is that the administration will not be ended by their resignation and some other means such as an order under s 447A or the appointment of a provisional liquidator may need to be invoked to end the administration.
It is also important to note what the creditors are able to do at the first meeting.
Section 436E(1) of the Act provides:
PURPOSE AND TIMING OF FIRST MEETING OF CREDITORS
(1) Purpose of meeting. The administrator of a company under administration must convene a meeting of the company’s creditors in order to determine:
(a) whether to appoint a committee of creditors; and
(b) if so, who are to be the committee’s members.
Section 436E(4) provides:
(4) Removal of administrator. At the meeting, the company’s creditors may also, by resolution:
(a) remove the administrator from office; and
(b) appoint someone else as administrator of the company.
I should also refer to the creditors’ powers at the second meeting.
SECOND MEETING
Division 5 of the Act provides:
MEETING OF CREDITORS DECIDES COMPANY’S FUTURE
SECTION 439A Administrator to convene meeting and inform creditors
439A(1) [Administrator to convene meeting] The administrator of a company under administration must convene a meeting of the company’s creditors within the convening period as fixed by subsection (5) or extended under subsection (6).
Section 439C provides:
WHAT CREDITORS MAY DECIDE
At a meeting convened under section 439A, the creditors may resolve:
(a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or
(b) that the administration should end; or
(c) that the company be wound up.
It appears to be the position that the administration will proceed irrespective of whether the administrators resign, that the creditors do not have power at the first meeting to end the administration, that if the company is solvent it may be the case that the administrators should not have been appointed in the first place, and that there is power in the court to end the administration in the event that the company is solvent or there has been an abuse of the provisions of Part 5.38.
I will now turn to the evidence that Mr Herskope relies on.
THE EVIDENCE
Mr Herskope relies on the affidavit of the plaintiff of 28 July 2008. As indicated above, the plaintiff holds 50 per cent of the issued shares and the two defendants hold 50 per cent. The company carries on business wholesaling fabrics for curtains and blinds. The company is very successful. According to the plaintiff, the company has made –
Year ending 30 June 2006 ($50,352.40)
30 June 2007 $124,831.03
30 June 2008 $282,659.17
The second defendant says the 30 June 2008 result is overstated.[2]
[2]Para 34 of affidavit of Mr Moorthy sworn 7 August 2008
The plaintiff says he subscribed $185,000 to the company. He says that these were by way of loans. The second defendant says the sum was $154,000.[3]
[3]Para 18 of affidavit of Mr Moorthy sworn 7 August 2008
It is undisputed that the plaintiff and the second defendant have fallen out. As quasi partners, the company may be wound up under the just and equitable ground.
The plaintiff claims he was evicted from the company on 20 June 2008 and told not to come back. He claims the second defendant’s solicitor, Mr Jerry Belleli, telephoned him on Monday 23 June 2008 and told him he was not to come back to the company’s office.[4] The second defendant denies the plaintiff has been shut out.[5]
[4]Para 32 of affidavit of Mr Giouzeppos sworn 28 July 2008
[5]Para 44 of affidavit of Mr Moorthy sworn 7 August 2008
The plaintiff says he retained Kalus Kenny as his solicitors on 1 July 2008. He says the Mr Kenny of his solicitors arranged for him to have unfettered access to the books and records of the company, but when he attended the company’s premises on 2 July 2002 with an accountant, Mr Dib, Mr Moorthy was not present and the cheque books were locked in Mr Moorthy’s office and he was unable to access them.
The plaintiff also says that he kept a backup of all the company’s records on a laptop computer that he owned at the premises but the laptop was missing when he went on the inspection.
He said that he was in the practice of backing up information from his laptop onto a hard drive, but all the data that he had maintained on the hard drive had been erased when he took it home and searched the hard drive.
As I have mentioned, the plaintiff says he was evicted from the company’s premises on 20 June 2008. The plaintiff says he was evicted subsequent to Mr Moorthy accusing him of forging Mr Moorthy’s signature on certain leasing and financing documents and purchasing a BMW 3 series for the plaintiff’s use out of company money.
The plaintiff admits inserting the signature of Mr Moorthy and his daughter (who was also a director) in the leasing documents without their knowledge or permission.
The second defendant informed the financiers, Macquarie Bank, of the alleged fraud and also reported the alleged fraud to the Victoria Police.[6]
[6]Para 31 of affidavit of Mr Moorthy sworn 7 August 2008
The plaintiff alleges that the second defendant appointed his daughter a director of the company without the plaintiff’s knowledge or consent. The plaintiff says he only agreed to her acting as an alternate director. The second defendant denies those allegations.
The plaintiff says the company operates two bank accounts with the National Australia Bank.[7] The company also has a current account with the Commonwealth Bank of Australia.
[7]Para 51 of affidavit of Mr Giouzeppos sworn 28 July 2008
He says that:
52. On or about 23 June, 2008 I instructed the NAB not to permit any payments to be made from the accounts, without my written consent. I made the same request of the CBA shortly thereafter.
53. On 10 July, 2008 I received an email from the CBA informing me that Moorthy has asked the bank to remove me as a signatory of the Company’s account and to operate the account solely on his signature. Now produced and shown to me and marked “MG15” is a copy of the email, and another email I received from the bank later that day.
54. Since 23 June 2008, I have been communicating by email with Shammi who is Moorthy’s bookkeeper, about paying some of the Company’s obligations, such as its major supplier and trade creditor, Berkaert Australia, the ATO and wages.
55. On 28 July, 2008 at about 10 am I received a telephone call from a man named Thilik, who has called me before on behalf of Moorthy since 20 June, 2008. I told Thilik that communications from Moorthy should be from his solicitor to my solicitor. I told him that my solicitor was preparing papers for an application for a provisional liquidator to the company. Thilik called me back a few minutes later and told me that if I did not agree to accept $150,000.00 for the sale of my shares in the Company to Moorthy, Moorthy would liquidate the Company today, and then I could do what ever I liked to the Company. I repeated my request that the communications be through the solicitors.
56. When I was evicted on 20 June, 2008, the Company had stock on hand worth about $150,000.00.
57. I am very concerned that the Court intervene and appoint a provisional liquidator given that:
(a)Moorthy has in the past taken stock belonging to the Company;
(b)The Company does not have a functioning board;
(c)I have been shut out of the management and day to day conduct of the Company’s business;
(d)Moorthy has no real relationship with either customers or suppliers of the Company;
(e)The Company has money owing to it by debtors and by Moorthy and his companies, and that money should be called in and applied to pay the Company’s creditors. I do not trust Moorthy to do so given his failure to date to repay, reduce or discharge his indebtedness to the Company, or to have his companies do so.
(f)Only someone independent can take steps to call in the Moorthy Group debts.
(g)Due to the irretrievable breakdown in the relationship between Moorthy and myself, the underlying basis for the Company continuing in business has been lost. As previously deposed to by me, we agreed to undertake this business as 50% partners. That is no longer possible in the circumstances as outlined above by me.
The second defendant says:
53. I refer to paragraphs 50 to 54 (inclusive) of the Giouzeppos Affidavit. The business of Window Décor operates almost entirely from the account held by it with the National Australia Bank (“NAB”). Since Manuel has declined to come to work, he has been approving payments from the NAB account of Window Décor via facsimile transmission or email. The business of Window Décor has continued to operate and I am informed by customers and suppliers of the company and verily believe that Manuel continues to have contact them from time to time.
54. I refer to paragraph 55 of the Giouzeppos Affidavit. Thilik and Manuel are friends and any discussions between them were not instigated by me.
55. Window Décor currently owes various suppliers approximately $200,000.00 for which Yarlini and I as well as Manuel have given personal guarantees. However, the supply is based on my asset backing not any assets owned by Manuel.
56. In addition, the Australia Taxation Office is owed approximately a substantial amount. There are other amounts owed to me such as rent as discussed above and outstanding superannuation entitlements of approximately between $30,000.00 to 40,000.00. It also appears that Manuel has received approximately $39,000.00 in cash from a customer and failed to account to Window Décor for this money. The customer is Mem Blinds Werribee.
57. In approximately May 2008, Window Décor needed to restructure its financial arrangements to satisfy suppliers and a finance facility of $400,000.00 was obtained from Bibby. The finance arranged involved me and my daughter, Yarlini signing a personal guarantee for the finance facility. The finance facility was provided o the strength of my assets. Manuel was also requested to give the guarantee but it was recognised at the time that he had no assets of any significance and the finance provided was based on the strength of my asset position. I understand that Manuel has caused a default under the security documentation with Bibby by having issued the current proceeding and that Bibby has since appointed an Administrator.
58. I am unable to say at this time exactly what amount is owed to Bibby Financial Services Australia Pty Ltd or which amounts listed in the Aged Receivables Summary at MG 16 have been funded by them.
59. In about January 2008 Window Décor entered into an agreement with Berkaert (Australia) Pty Ltd (“Berkaert”). Berkaert agreed to supply a particular fabric to Window Décor exclusively within Australasia. Now produced and shown to at the time of swearing this my affidavit and marked NN-7 is a copy letter setting out the agreement with Berkaert dated 8 January 2008. Berkaert is the major supplier of Window Décor. The business of Window Décor is capable of surviving financially but the agreement with Berkaert is important to that survival and this may be lost to Window Décor if orders are made for the winding up of the company. I believe that Manuel wishes to destroy the ongoing business of Window Décor and the goodwill built up by the company since it was commenced by me in 2002. I have offered to purchase Manuel’s share in the company and intend to seek orders to that effect at final Hearing. However, negotiations to do so have been subsumed by this application for the appointment of a provisional liquidator and by Manuel’s poor understanding of the company accounts and apparent inability to obtain proper advice in this regard.
60. I have been informed by Bibby and verily believe that if a provisional liquidator is appointed then a Receiver and Manager may be put in place and that this would result in a lack of continuity of business and harm the resulting outcome for creditors and shareholders.
61. I also intend to put forward a Deed of Company Arrangement to the current Administrators and that the terms of the Deed would be likely to include an amount of one hundred (100) cents in the dollar being paid to creditors. This would be a quicker and better dividend than in a winding up.
62. I deny in the strongest possible terms that I have taken stock from Window Décor, that I have shut Manuel out of the day to day management of the company or that I have done anything to cause Manuel to distrust me in conducting the affairs of Window Décor. There is no sensible reason being put forward by Manuel for the Court to intervene prior to the final Hearing.
63. Window Décor is capable of operating properly and for the benefit of shareholders, and I respectfully request this Honourable Court dismiss the application herein.
APPOINTMENT OF PROVISIONAL LIQUIDATOR
Section 440A of the Act provides:
WINDING UP COMPANY
(1) No voluntary winding up. A company under administration cannot be wound up voluntarily, except as provided by section 446A.
(2) Winding up application to be adjourned. The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
(3) Provisional liquidator. The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than have a provisional liquidator appointed.
Section 472(2) provides:
(2) Provisional appointment. The Court may appoint an official liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision in the appeal is made.
CONSIDERATION OF EVIDENCE
The evidence before me indicates that the company is profitable and solvent, but that the appointment of a liquidator could adversely affect its profitability and solvency.
The main purpose of appointing a provisional liquidator is to preserve the assets of the company and maintain the status quo pending the determination of the winding up application. I have no doubt that I have jurisdiction to appoint a provisional liquidator in the circumstances alleged by the plaintiff (see para 5.4.0411 of Australian Corporation Law Principles & Practice Vol 2).
Nevertheless, there is evidence that the appointment of a provisional liquidator could harm the goodwill of the business. A major supplier, Berkaert, has informed Mr Rewell, a solicitor employed by Belleli King & Associates as follows:
4. On 11 August 2008 I made telephone contact with Mark Lennox, Account Manager of Berkaert. He was aware of the current proceedings.
5. I am informed by Mr Lennox and verily believe that:
a.he is aware of these proceedings brought by the Plaintiff;
b. the Defendant is indebted to Berkaert in the sum of $165,000.00 and that such amount is currently outside the company’s terms of trade;
c.Berkaert has ceased supply to the Defendant pending an arrangement in place for payment of the debt referred to above;
d. Berkaert is prepared to deal with the Administrator in order to put arrangements in place for payment of the outstanding amount; and
e.If the Defendant is going to be liquidated then supply will cease permanently.
Mr Moorthy says:
59. In about January 2008 Window Décor entered into an agreement with Berkaert (Australia) Pty Ltd (“Berkaert”). Berkaert agreed to supply a particular fabric to Window Décor exclusively within Australasia. Now produced and shown to at the time of swearing this my affidavit and marked NN-7 is a copy letter setting out the agreement with Berkaert dated 8 January 2008. Berkaert is the major supplier of Window Décor. The business of Window Décor is capable of surviving financially but the agreement with Berkaert is important to that survival and this may be lost to Window Décor if orders are made for the winding up of the company. I believe that Manuel wishes to destroy the ongoing business of Window Décor and the goodwill built up by the company since it was commenced by me in 2002. I have offered to purchase Manuel’s share in the company and intend to seek order to that effect at final Hearing. However, negotiations to do so have been subsumed by this application for the appointment of a provisional liquidator and by Manuel’s poor understanding of the company accounts and apparent inability to obtain proper advice in this regard.
60. I have been informed by Bibby and verily believe that if a provisional liquidator is appointed then a Receiver and Manager may be put in place and that this would result in a lack of continuity of business and harm the resulting outcome for creditors and shareholders.
61. I also intend to put forward a Deed of Company Arrangement to the current Administrators and that the terms of the Deed would be likely to include an amount of one hundred (100) cents in the dollar being paid to creditors. This would be a quicker and better dividend than in a winding up.
62. I deny in the strongest possible terms that I have taken stock from Window Décor, that I have shut Manuel out of the day to day management of the company or that I have done anything to cause Manuel to distrust me in conducting the affairs of Window Décor. There is not sensible reason being put forward by Manuel for the Court to intervene prior to the final Hearing.
63. Window Décor is capable of operating properly and for the benefit of shareholders, and I respectfully request this Honour Court dismiss the application herein.
I am not satisfied that the appointment of a provisional liquidator would be in the interests of the company or is otherwise necessary. I am not satisfied the assets are in jeopardy. The company is able to function. The appointment of a provisional liquidator would provide an independent manager. On the other hand, I believe the appointment of a provisional liquidator could do material damages to the business. The cost of the liquidator would be a material burden on the company.
I am prepared to entertain any reasonable application to enjoin Mr Moorthy from repaying any loans to himself or any companies associated to him or paying any rent or making any payments to him whatsoever until the hearing and determination of the winding up application.
I will entertain any application by the plaintiff or the defendant to end the administration if proper notice is given to Bibby.
I make the following orders:
1. I refuse the application to appoint a provisional liquidator.
2. I refer the winding up application to Master Efthim for hearing forthwith.
3. I reserve the costs of the application.
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