Rignanese v Rignanese Pty Ltd (in Liquidation) - [2005] SASC 38

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
RIGNANESE v RIGNANESE PTY LTD (IN LIQUIDATION)
Reasons for Decision of The Honourable Justice Anderson
4 February 2005
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF LIQUIDATION - PROCEEDINGS BY OR AGAINST COMPANY - LEAVE TO PROCEED
During the early stages of trial the first defendant company was wound up - proceedings against first defendant stayed pursuant to s500(2) of the Corporations Act 2001 (Cth) - plaintiff applied for leave to proceed against the first defendant - whether appropriate for the plaintiff to continue with the litigation or to pursue their claim by lodging a proof of debt - liquidator indicated that company had insufficient funds to satisfy its creditors - held: no good reason for the granting of leave, application dismissed.
Corporations Act 2001 (Cth) ss500(2), 553, 554(3); Corporations Regulations 2001 (Cth), referred to.
Viscariello v Bernsteen Pty Ltd (In Liquidation) [2004] SASC 266, applied.

RIGNANESE v RIGNANESE PTY LTD (IN LIQUIDATION)
[2005] SASC 38
Civil

ANDERSON J On 26 November 2004 I refused an application by the plaintiff for leave to proceed against the first defendant in liquidation, and I indicated that I would publish brief reasons. I reserved the question of costs on that refusal until the delivery of my reasons.
The application for leave is required pursuant to s500(2) of the Corporations Act 2001 (Cth) (“CA”) which provides as follows:
“After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court imposes.”
In this matter the plaintiff seeks a declaration that the company in liquidation holds various properties as trustee for the benefit of both the plaintiff and the second and third defendants.
A further declaration is sought to the effect that the second and third defendants hold one of the properties as trustee for the benefit of the plaintiff and themselves.
Another declaration is sought to the effect that the plaintiff is entitled to an interest in the properties, as beneficiary of the company and the second and third defendants, and that plaintiff has a caveatable interest in the properties.
The decision of the Full Court in Viscariello v Bernsteen Pty Ltd (In Liquidation) [2004] SASC 266 is relevant. Besanko J at [21] summarises the principles governing the discretion under s500(2) of the CA. I set out and adopt with respect his Honour’s statement:
“Before considering the reasons of the Master and of the Judge, it is convenient to outline the principles which govern the exercise of the discretion under s 500(2) of the CA. In Ogilvie-Grant v East (1983) 7 ACLR 669, McPherson J (with whom Campbell CJ and Sheahan J agreed) discussed the principles relevant to the exercise of the discretion under an earlier analogue of s 500(2). I respectfully agree with his Honour’s analysis which in my opinion applies with equal force to s 500(2). The question is whether a claimant should be permitted to proceed by action or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge. The question is one of choosing between alternative forms of procedure. The effect of s 500(2) is to require the claimant to adopt the course of lodging a proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute. It is impossible to state exhaustively all the circumstances in which it may be appropriate to grant leave to proceed. Relevant factors are the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and, if proceedings have already been commenced, the stage to which those proceedings may have progressed. The fact that the company is insolvent and will not be able to satisfy a judgment is a factor against the grant of leave (Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318) because the Court will not give its imprimatur to fruitless proceedings. Nor will leave be granted if the claimant does not have a genuine claim. On the other hand, the fact that the claimant has an arguable claim for proprietary relief against the assets of the company is a factor in favour of a grant of leave (Robins Haigh McNeill Pty Ltd v Nichols-Cumming Advertising Australia Pty Ltd (in liq) [2001] VSC 427).”
As can be seen, the current relief which the plaintiff seeks is proprietary relief in relation to the land in question. That relief, in my view, is available to the plaintiff by following the course of lodging a proof of debt which the liquidator would then deal with under the provisions of s553 and s554(3) of the CA and the related regulations. Regulation 5.6.37 of the Corporations Regulations 2001 (Cth) in particular states:
“Regulations 5.6.39 to 5.6.57 (inclusive) apply to the establishment of a title to priority as if it were a debt or claim.”
The plaintiff can and should lodge a proof of debt in the liquidation if he decides to pursue his claims any further. He has the ability to do that because of the provision of the CA and the regulations.
In my view, the other principles in relation to the granting of leave all tend to militate against leave being granted in this case. The expense of this litigation and its futility, especially having regard to the statement by the liquidator in his affidavit, is compelling.
The liquidator states that:
“7.Based on my investigations and the investigations of my staff to date I understand that:
7.1.the most significant asset owned by the Company is the land comprised in Certificates of Title Volume 5720 Folios 515, 516 and 517 (Land);
7.2.the Land is subject to a registered mortgage in favour of Farmer No 1 Pty Ltd (Mortgagee);
7.3.the Company granted in favour of the Mortgagee a charge over all of its property, which charge is registered in the Australian Register of Company Charges;
7.4.the Mortgagee has asserted that the amount owing to it is in excess of $1,800,00.00 (although I have not investigated in detail the validity of that claim);
7.5.if the amount owing to the Mortgagee is in excess of $1,800,00.00 it appears unlikely that a sale of the Land would result in any funds being available to the Company (although I have not obtained a formal valuation of the Land); and
7.6.the plaintiff’s solicitors have advised my solicitors that the Company may have a substantial claim against Barry Mead Farmer as Mr Farmer has been occupying a portion of the Land for approximately 2 years without paying rent (although I have not considered this claim in any detail at this time).”
The liquidator goes on to conclude that:
“it is unlikely that the unsecured creditors of the Company will receive a dividend in the liquidation that will be sufficient to discharge their claim in full.”
Finally, in relation to the balance of convenience, I adopt, with respect, the statement in McPherson – The Law of Company Liquidation (1999 4^th ed) at page 254 as follows:
“In Century Mercantile Co v Auckland Provincial Fruitgrowers Society, the court adopted from Lindley on Companies the statement that in determining whether leave to proceed should be granted:
“The only material question to be considered is whether there are any circumstances which render it necessary that the action should be continued, or whether the claim of the plaintiff is not one which can be as easily dealt with in the winding up as in any other way.”
According to this principle, the question is fundamentally one of expedience and convenience, and leave will not be granted where the proposed action raises issues which are able to be dealt with in the liquidation proceedings with equal convenience and less delay and expense.” (footnotes omitted)
I refused leave therefore because I found that the plaintiff could lodge a proof of debt to cover his claim, that the futility of the litigation having regard to the deficit in the fund supported this and finally on the balance of convenience there were no factors which outweighed these matters referred to above.
In my view, the plaintiff should pay the costs of the liquidator fixed in the sum of $1,000.00.