Saker, Jones, Weaver and Stewart v The Persons Named in Schedule 1 (Being Certain Members of the Great Southern 2007 Wine Grape Income Project) - [2012] WASC 284

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SAKER, JONES, WEAVER & STEWART -v- THE PERSONS NAMED IN SCHEDULE 1 (BEING CERTAIN MEMBERS OF THE GREAT SOUTHERN 2007 WINE GRAPE INCOME PROJECT) [2012] WASC 284

CORAM: MASTER SANDERSON

HEARD: 24 JULY 2012

DELIVERED : 9 AUGUST 2012

FILE NO/S: COR 86 of 2012

BETWEEN: ANDREW JOHN SAKER, MARTIN BRUCE JONES, DARREN GORDON WEAVER and JAMES HENRY STEWART IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF GREAT SOUTHERN MANAGERS AUSTRALIA LTD (RECEIVERS AND MANAGERS APPOINTED) (in liq)
Plaintiffs
AND
THE PERSONS NAMED IN SCHEDULE 1 (BEING CERTAIN MEMBERS OF THE GREAT SOUTHERN 2007 WINE GRAPE INCOME PROJECT)
Defendants

Catchwords:

Corporations Act 2001 (Cth) - Application by liquidators for directions - Whether receivers and managers can amend Scheme Constitution after windingup commenced

Legislation:

Corporations Act 2001 (Cth), s 511, s 601NC(3), s 601GC(1)(b)

Result:

Directions given

Category: A

Representation:

Counsel:

Plaintiffs: Mr J C Vaughan
Defendants: No appearance

Solicitors:

Plaintiffs: Middletons
Defendants: No appearance

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

Dean‑Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209
Great Southern Managers Australia Ltd (in liq) in its Capacity as Responsible Entity of the Managed Investment Schemes Listed in Schedule 1 v Thackeray [No 3] [2011] WASC 195
Hanberg v MIG Property Services Pty Ltd [2010] VSC 336
Mentha v GE Capital Ltd (1997) 154 ALR 565
Re Anglican Insurance Ltd [2008] NSWSC 41
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re Timber Corp Securities Ltd (2010) 77 ACSR 291
Saker, In the Matter of Great Southern Managers Australia Ltd (receivers and managers appointed) (in liq) (No 3) [2011] FCA 1192
Wilmott Forests Ltd, In the matter of Wilmott Forests Ltd (receivers and managers appointed) (in liq) [2011] FCA 1517

MASTER SANDERSON: This is an application by the joint and several liquidators of Great Southern Managers Australia Ltd (Receivers and Managers Appointed) (in liq) (GSMAL) for directions under s 511 of the Corporations Act 2001 (Cth) (the Act).
Under s 511, the court may, where it is satisfied the determination of the question or the exercise of the power will be just or beneficial:
(a)determine any question arising in the winding‑up of a company; or
(b)exercise all or any of the powers that the court may exercise if the company were being wound‑up.
In the present application, the liquidators seek directions under s 511 of the Act that the liquidators would be acting properly and are justified in:
(a)causing GSMAL in its capacity as the responsible entity of the Great Southern 2007 Wine Grape Income Project (Scheme) to surrender or terminate the Lease and Management Agreements identified in sch 2 of the amended originating process dated 15 June 2012 - such agreements being between GSMAL and each grower in accordance with cl 36.7(d) of the Scheme constitution; and
(b)executing a deed of surrender in respect of each Head Lease identified in sch 3 of the amended originating process dated 15 June 2012 between Great Southern Vineyard Holdings Pty Ltd (receivers and managers appointed) (in liquidation) (GSVH) as lessor and GSMAL as lessee.
Before dealing with the facts in this case, it is necessary to say something about the nature of the power to give directions under s 511. The power under the section is generally confined 'to circumstances in which advice may be given as to the proper course of action in liquidation': Saker, In the Matter of Great Southern Managers Australia Ltd (receivers and managers appointed) (in liq) (No 3) [2011] FCA 1192 [9].
The power under s 511 should be exercised where the resolution of an issue arising in the course of a winding‑up would be an advantage in the winding‑up and should not be exercised to determine whether a particular course of action would be commercially appropriate: see Dean‑Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, 212 ‑ 213 (Young J).
Subject to the liquidator making full and fair disclosure of the material facts, the effect of such an order is to protect the liquidator from claims that he or she has acted unreasonably, inappropriately or in breach of duty. In effect, it sanctions a proposed course of conduct by a liquidator: see Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 ‑ 680; Re Anglican Insurance Ltd [2008] NSWSC 41 [38] ‑ [39]; Hanberg v MIG Property Services Pty Ltd [2010] VSC 336.
It is to be noted the power to give directions is not unfettered. This picks up the limitation the directions should not deal with what, in a particular circumstance, may be commercially appropriate. In Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409, Goldberg J said:
There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, that decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised [65].
As his Honour said, there must be 'an issue calling for the exercise of legal judgment': see Re Ansett Australia Ltd (No 3) [65].
The directions sought in this case are in terms that the liquidators may 'properly and justifiably' take certain action. As such, there is an issue of propriety or reasonableness. This is a case where directions are available and it is appropriate such directions be made.
A direction that an external administrator may 'properly and justifiably' carry out a proposed course of conduct is used to signify that it is appropriate that he or she do so. It is a form of direction in common use. See, for example, Mentha v GE Capital Ltd (1997) 154 ALR 565, 571 ‑ 572.
In this case, there is an additional question as to whether the power provided by cl 36.7 of the Scheme Constitution can be validly exercised by the liquidators. Accordingly, there is an issue which calls for the exercise of legal judgment. That provides an additional basis on which directions are appropriate in this case.
Clause 36.7(d) of the Scheme Constitution provides that GSMAL may deal with (including by terminating or surrendering) any Agreement or other deed or Agreement (including any head lease) in relation to the Scheme if GSMAL reasonably determines that:
(a)it is unlikely to be able to obtain valuable consideration or benefit for growers from any such dealing; or
(b)the costs likely to be incurred in seeking to obtain such valuable consideration or benefit for growers are likely to be greater than the valuable consideration or benefit for growers that is likely to be obtained from any such dealing; and
(c)it is necessary or appropriate for such a dealing to occur to enable the winding‑up of the Scheme to be brought to a conclusion and for the Scheme to be terminated.
The receivers and managers commenced the winding‑up of the Scheme on 11 January 2010, pursuant to s 601NC(3) of the Act and cl 35 and cl 36 of the Scheme Constitution. Clause 36.7(d) was inserted in the Scheme Constitution at the instigation of the receivers and managers, who at the time controlled GSMAL in its capacity as the responsible entity of the Scheme.
Section 601GC(1)(b) of the Act provides that the responsible entity may modify the constitution of a registered scheme if the responsible entity reasonably considers the change will not adversely affect the members' rights. The changes to the Scheme were effected by what is described as the 'Fourth Deed of Variation' dated 28 January 2010. The recitals to this deed contain a statement that GSMAL considers the amendment of the Scheme to include cl 36.7 will not adversely affect the rights of members.
From time to time courts have upheld the amendment of scheme documents by external administrators of a responsible entity under s 601GC(1)(b), to provide for a power to extinguish the rights of members of a scheme. Two examples are provided by Re Timber Corp Securities Ltd (2010) 77 ACSR 291, 298 (Davies J) and Wilmott Forests Ltd, In the matter of Wilmott Forests Ltd (receivers and managers appointed) (in liq) [2011] FCA 1517 [117] (Dodds‑Streeton J).
However, there does not appear to be any authority which considers the issue of whether the power in s 601GC(1)(b) can be exercised after the commencement of winding‑up of a registered scheme. On behalf of the liquidators, it was submitted as there was no express limitation on the power contained in the section, no such limitation should be read into the power. That is to say, the fact the Scheme was being wound up did not prevent GSMAL, by the receivers and managers, modifying the constitution by inserting cl 36.7(d) by exercise of the power under s 601GC(1)(b).
That submission ought to be accepted for two reasons. First, there is no warrant for putting a gloss on the section. If the legislature had determined no amendment should be made to a scheme constitution after a winding‑up was commenced, then such a limitation could be inserted. There is nothing in the context of this part of the Act which would require for consistency some such limitation. Secondly, the whole aim of these sections is to allow for the proper and orderly winding‑up of schemes. If a party's rights are unfairly affected by a step taken by an administrator, there is ample scope within the presently existing legislative provisions to ensure the injustice is put to rights. It is a matter of taking a holistic approach. Looking at what the administrators are doing, what they are attempting to achieve and how the rights of individuals are affected. Any interpretation of these sections which places an impediment in the way of the winding‑up of the Scheme is to be avoided.
It follows, then, the insertion of cl 36.7 by the then receivers and managers was a valid exercise of the power under s 601GC(1)(b). The liquidators may rely on cl 36.7(d) of the Scheme Constitution to terminate or surrender the lease and management agreements.
The Lease and Management Agreements specified in sch 2 of the amended originating process comprise a portion of the vine lots allocated to growers in the Scheme. The land the subject of the Lease and Management Agreements, in addition to land the subject of other managed investment schemes for cultivation of wine grapes of which GSMAL was previously the responsible entity, is subject to an agreement for sale on an unencumbered basis. On 15 June 2012, GSMAL and the liquidators, among others, entered into a Deed of Settlement to facilitate the sale of the land on an unencumbered basis. This required the termination or surrender of the Lease and Management Agreements and the surrender of the Head Lease to occur by no later than 27 July 2012.
The land the subject of the Head Leases is subject to Lease and Management Agreements for the Scheme and also the GSV Schemes. Primary Securities Ltd (PSL) is, and has been since on or about 9 February 2010, the responsible entity for the GSV Schemes. PSL consents to the surrender of the Head Leases by the liquidators.
Neither GSMAL nor any person on behalf of GSMAL or the growers of the Scheme have taken steps to comply with the Head Leases in respect of the land the subject of the Scheme. No person has entered an appearance to the liquidators' application. No grower has corresponded with the liquidators in relation to the application. Accordingly, the matter proceeded on an undefended basis.
The liquidators submit that they would be acting properly and are justified in terminating or surrendering the Lease and Management Agreements for the following reasons:
(a)GSMAL is unlikely to be able to obtain valuable consideration or benefit for the growers from any such dealing; or
(b)the costs likely to be incurred in seeking to obtain such valuable consideration or benefit for the growers are likely to be greater than the valuable consideration or benefit for the growers that is likely to be obtained from such dealing.
In support of these two submissions, the liquidators refer to a number of matters. First, since October 2009, no maintenance work has been carried out on the Scheme land as a result of lack of funding to meet the costs of the Scheme. Secondly, the Scheme land cannot be operated as a commercial vineyard and is not generating income for growers or GSMAL. Thirdly, GSMAL is in continuing breach of the Head Leases and, due to its insolvency, cannot remedy these breaches. Fourthly, the Scheme cannot be operated profitably without significant operational and maintenance expenditure by GSMAL. Fifthly, GSMAL is insolvent with no material assets and no capacity to borrow funds.
All of these matters fully support the submission the liquidators would be acting properly in terminating or surrendering the Lease and Management Agreements. Further, it is necessary for these dealings to occur to enable the winding‑up of the Scheme to be brought to a conclusion and for the Scheme to be terminated. The Lease and Management Agreements are an integral component of the Scheme. They must be brought to an end in winding‑up the Scheme.
In Great Southern Managers Australia Ltd (in liq) in its Capacity as Responsible Entity of the Managed Investment Schemes Listed in Schedule 1 v Thackeray [No 3] [2011] WASC 195 [46], Le Miere J determined where notice of default is given for failure to perform a maintenance contract and where there is no means for it to be performed and it is not performed that was sufficient basis to terminate the lease. It follows, then, there is sufficient basis in this case for the liquidators to terminate the leases. There is no prospect of the defaults being cured retrospectively or prospectively. That is clear from the evidence.
In summary, then, GSMAL has failed to comply with its obligations under the Head Leases in relation to the land the subject of the Scheme and these breaches have been continuing since at least 1 October 2009. Despite notifying the growers of the Scheme, on 28 June 2010 that GSMAL was in breach of the head leases and without funding, the liquidators have not received any response from any grower. In the circumstances, the liquidators would be acting properly and are justified in executing a deed of surrender in respect of each Head Lease identified in sch 3 of the amended originating process.