Sawna Home Inc v Knight

[1996] QCA 19

COURT OF APPEAL	[1996] QCA 19
PINCUS JA DAVIES JA McPHERSON JA
CA No 191 of 1995 Application No 346 of 1995
DONALD JOHN CREEVEY and
RONALD NOEL MATHESON	Appellant (Respondents)
and
DEPUTY COMMISSIONER OF TAXATION	Respondent (Applicant)
BRISBANE ..DATE 28/03/96 280396 T6/KE M/T COA58/96

McPHERSON JA: On 30 August 1995, Mr Justice Fryberg in the Supreme Court ordered that the company in this matter, the name of which is Queen Park Development Pty Ltd, be wound up.

On this appeal, which is brought by the directors of that company against the order made by Mr Justice Fryberg, it is argued that the order for winding up ought not to have been made. The reason advanced is that an administrator had been appointed under s. 436A of the Corporations Law. The Judge ought, it is said, to have adjourned the winding-up application to provide all creditors with an opportunity to consider whether the administration should continue.

In support of that proposition, reference was made to
s. 440A(2) of the Corporations Law, which provides that 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.

It is evident from the terms of that subsection that before it applies the Court must be satisfied not only that there is an administration but also, as the subsection says, that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. The Judge in the present case was not satisfied that it was in the creditor's interests for the administration to continue and it is his decision to that 280396 T6/KE M/T COA58/96

effect that is challenged here.

The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other.

In order to satisfy the Court of the matter referred to in
s. 440A(2) of the Corporations Law, one would expect that
there would have to be some persuasive evidence to enable it
to be seen that there were assets which, if realised under
one form of administration rather than the other, would
produce a larger dividend, or at least an accelerated
dividend for the creditors.

Far from that being shown in the present case, there is no, or practically no evidence, that the company has any assets whatsoever. It has liabilities that are very large; it owes $1.4 million or thereabouts to the Deputy Commissioner for Taxation, who is the applicant for the winding-up order; and it owes some lesser, but by no means small, amounts to other creditors, including the State Revenue Office.

As against those liabilities, only two items are identified as being assets that the company has, or has a potential to obtain. One is a sum of $40,000, which is described simply as "retention money". Its true character and the terms on which it is held by the company do not appear with any degree of particularity from the material; but, whether or 280396 T7/HMH M/T COA58/96

not it is to be considered an asset, the sum of $40,000 falls very far short of the amounts that are owed to creditors in this case, and in particular to the principal creditor, the Deputy Commissioner.

The other item to which reference has been made in the character of a potential asset of the company is a right of action that has been commenced or is capable of being instituted, so it is said, not by the company itself but by one of its directors Donald John Creevy, who is an appellant in this case. It is said that that action is capable of producing a judgment to an amount of some $1.5 million, and that Mr Creevy is prepared to assign to the company his rights in or under that action in order to put into effect a scheme of arrangement which would benefit all the creditors.

That scheme or proposal is, of course, only as good as the value of the rights of action which it is proposed should be assigned to the company for the purposes of the scheme.

So far as that is concerned, we have either nothing or very little indeed to explain to us what the nature of the action is, and what the value of the right is likely to be. Paragraph 23 of an affidavit of Mr Creevy, which was referred to the Judge in the course of the proceedings below, says simply that the action seeks damages for breach of a written contractual warranty in the sum of $1.5 million against two individuals, who are named; and that Mr Creevy, the deponent of the affidavit, has been advised by his solicitors that they consider that the action has good prospects of success. That falls a long way short of 280396 T7/HMH M/T COA58/96

showing that the right of action is worth $1.5 million or, indeed, is worth anything at all. For my part, therefore, I think the Judge was right in not being satisfied, by that or other evidence placed before him, that any benefit would accrue to creditors if the proceedings before him were adjourned and a meeting called in order to consider that rather threadbare proposal.

In the result, I can see no basis on which this application can possibly succeed. In order for it to be successful, it would have to be demonstrated that the Judge was wrong in concluding that he was not satisfied that it was in the interests of the company's creditors for the company to continue under administration rather than be wound up. In fact, there was no basis before him on which he could have been satisfied that an administration would have benefited the creditors, either at all or more than a winding up.

That being so, the appellant has failed on the threshold point needed in order to carry the appeal to success. I would dismiss the appeal with costs.

DAVIES JA: I agree.

PINCUS JA: I agree.

McPHERSON JA: Are you satisfied with the order as to costs?

MR HACK: Yes, Your Honour.

McPHERSON JA: And I think, Mr Martin, you will be left to take your costs out of the assets, if there are any, and if you are entitled to them. It is a matter, I think, of 280396 T7/HMH M/T COA58/96

passing your accounts, if that is what you have to do,

before the relevant officer of Court.

MR MARTIN: Thank you, Your Honour.

McPHERSON JA: Mr Justice Pincus has pointed out that I have not, in fact, made an order dismissing the appeal.

The appeal is dismissed with costs.

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