Scarborough Hospitality 2000 Pty Ltd (in Liq) v Cabarita Pacific Holdings Pty Ltd

[2006] QSC 401

[2006] QSC 401

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

ROBIN A/J

No 8307 of 2006

SCARBOROUGH HOSPITALITY 2000 PTY LTD (In Liquidation) ACN 106 478 880	First Plaintiff
and
JOHN WILLIAM CUNNINGHAM and JOHN RICHARD PARK	Second Plaintiffs

and

CABARITA PACIFIC HOLDINGS PTY LTD     First Defendant
ACN 104 025 658

and

JENELLE SARAH KURVINK                Second Defendant

and

FREDERICK JOHN BRILMAN               Third Defendant

BRISBANE

..DATE 30/10/2006

ORDER

CATCHWORDS:  Interlocutory injunction to protect proceeds of sale of plaintiff's former business - whether plaintiff had a business at all, as opposed to a collection of assets - plaintiff in liquidation - whether injunction should be limited to aggregate debts of identified creditors of plaintiff - plaintiff's damages undertaking secured by bank guarantee

MR MORRIS:  By consent it was directed that the respondents file and serve any material on which they intend to rely by 4 p.m. on the 20th of October.

HIS HONOUR:  And what was your operative bit, to stop them doing something?

MR MORRIS:  The operative bit was an interim injunction expiring at 4 p.m. today restraining the disposition of a hotel and business and the keeping of accounts until further order.

HIS HONOUR:  Just to be on the safe side, I will extend the existing injunction until further order at the moment.

MR MORRIS:  Thank you, your Honour.

...

HIS HONOUR:  The application came on today as one for an

interlocutory injunction preventing the defendants from

disposing of what is said to be the "business" of the

corporate plaintiff.  The individual plaintiffs are its

liquidators pursuant to a members' resolution for winding up

of 16 January this year grounded on the company's insolvency.

It is contentious what "business", if any, the company had.

Mr Logan's subtle argument, based on American authority,

approved by the High Court in Federal Commissioner of Taxation

v Murry 193 CLR 605, 614 was that there really was no

business.  His reference was to Haberle Crystal Springs

Billing Co v. Clarke (1929) 30 Federal Reporter 2d 219 at

221-222.

There were indicia that imply the plaintiff company did

indeed conduct a business as explained, for example, in

Minister for Employment and Workplace Relations v. Gribbles

Radiology Pty Ltd [2005] HCA 9 at paragraph 39. Both of those

decisions have a special context, as did Murry.

The indicia pointed to by Mr Morris include a 10 year lease

with a 10 year option in respect of the freehold hotel

premises to run until 2023, if the option is exercised, the

plaintiff's being the licensee for purposes of the liquor

legislation and the gaming legislation and, at a more mundane

level, for the purpose of serving customers on the footpath.

It had employees and paid workers' compensation premiums of

some $22,000 per annum and, more importantly, incurred trading

debts.  It had a telephone account with Telstra.  The company

was taken out of the picture towards the end of last year by

transfer of various of the accounts and licences mentioned

above, something easily achieved by reason of there being

common directorships with the transferee company, which is the

first defendant.

Less trouble was taken to look after the plaintiff's

creditors, who have been left languishing.  Mr Logan's

submission is that the plaintiff company simply dropped out of

the picture, that whatever right it might have in particular

assets, such as the lease in registrable form (but not

registered), is, on analysis, irrelevant to whether the

company really had a business.  Such balance sheets as are

available, which were not for the close of financial year, as

is customary, showed no entries for items such as goodwill.

The lack of a business, I suppose, would impact on the

injunction as originally sought.  The relief sought has now

been refined and confined to the proceeds of sale of the

business, assuming that one which is due for completion within

weeks to a company called Charismatic proceeds.

The material relied on by Mr Logan tends to support the legal

argument he mounted.  It supports the contention that the

plaintiff company provided no funds, indeed, that it never

paid the rent reserved under the lease, that it was set up as

a vehicle to introduce management services for the hotel at

the time when the first defendant using only its own resources

acquired it.  At one stage, the services were provided through

the efforts of a Mr Sheriff.

Some documents, including a shareholders' trading agreement

dated 23 October 2003 and two deeds of variation to which the

present corporate parties were party (and also a company called Pubco Investments Pty Ltd, although it did not execute the second deed of variation), support the view that the plaintiff company was seen as a convenience for the other participants and not as an entity with interests of its own.  There is some support for the theory that, to the extent it appeared to hold any assets, it held them as a trustee.

I am not persuaded that considerations of that kind defeat the

present application, which depends on the plaintiffs' having a sufficiently arguable case.  The corporate plaintiff was established in the hotel and played exactly the kind of role one would expect an entity running a hotel business in leased premises on its own account to carry on.  Importantly, it contracted debts - creating a group of creditors, whose interests have to be accorded recognition, if not primacy.

It is the duty of the plaintiff liquidators to get in the company's assets and preserve them.  In principle I cannot see that that should be limited to the amount of the creditors' claims or the amount of creditors' claims inflated by the likely costs of the liquidation.

Liquidators frequently lack funds - a phenomenon encountered here, which has been overcome by the provision of funding by a company called Addenbrooke Pty Ltd, which interestingly had some years back contracted with the first defendant to purchase both the business and the hotel.  It has a large claim of $1.25 million in respect of a deposit paid for its purchase. 

There is an order of Muir J in proceeding S3430 of 2006 in this Court between Cabarita and a company called Scarborough Waters Pty Ltd, which was associated with Addenbrooke.  The order of the 5th of June 2006 required the $1.25 million to be paid into Court if any other sale "of the land" eventuated, the sale to Addenbrooke having fallen through.

It is no doubt correct that the liquidators will have to be particularly punctilious if it falls to them to assess any claims that Addenbrooke may present in the liquidation.  I cannot see any particular relevance of the funding arrangements for present purposes.

Mr Logan argues that there is no justification, if any relief is granted, for impounding the whole of the proceeds of the sale to Charismatic.  It does not appear, on the evidence presently available, that there is any embarrassment likely to affect completion of that sale if the proceeds are impounded in full.  The transaction does not include any sale of the land for all that appears.

Mr Logan contends that the extent of the interest the liquidators are really protecting is $300,000 or so, being the extent of creditors indicated by the second and third defendants in the Statement of Affairs prepared for ASIC.  To that one might add Addenbrooke's claims and (I suppose) the costs of the liquidation. 

Mr Morris has, with justification in the circumstances in my opinion, argued that it is not possible to feel a high level of assurance that the creditors have been fully identified.  The liquidators have been in the saddle, so to speak, since the 22nd of January this year.  In theory they ought to have unearthed further creditors but there is a real possibility that, for lack of funds, they have not located all creditors.

On the basis indicated, Mr Logan's clients have offered an undertaking to retain from the sale proceeds $300,000.  I am not satisfied that amount would be sufficient.  Also I think that there are difficulties in holding the plaintiffs to what was presented as the minimum protection which the liquidators required, security to the extent of $2.85 million, being the $300,000 trade creditors, $2.2 million for Addenbrooke Pty Ltd and "approximately $350,000 for the estimated costs of the winding up, should it proceed as we currently anticipate, with your clients refusing to acknowledge their objections."

The contract price is said to be $5.5 million.  The point may well be reached where it is inappropriate to have impounded a sum of that order, far in excess of the likely just claims upon it.  I think that today is not the occasion for working out those matters. 
I propose to make an order in terms of the initialled draft which has been handed up, which, with the addition of a paragraph 3:  "Liberty to apply generally and to the defendants, in particular, to apply for relief in respect of the full amount of the balance contemplated in paragraph 2(b) above."

...

HIS HONOUR:  I will reserve the costs.

...

HIS HONOUR:  I ought to note that one of my considerations in inviting the defendants to come back is that the undertaking as to damages is hardly confidence-inspiring, measured against the $5.5 million price, in that it comes from a company in liquidation.  Its real value lies in its being secured by a bank guarantee in the amount of $350,000.

APPENDIX

The draft order handed up by counsel provided:

"Upon the first plaintiff, by its counsel, giving the usual undertaking as to damages, such undertaking secured by the bank guarantee deposited with the Principal Registrar on 27 October 2006.

The order of the court is that, until final determination of these proceedings:

1.The defendants, by themselves, their servants, agents or otherwise howsoever, shall:

(a)  Not dispose of the business carried on in

Landsborough Avenue, Scarborough and known as "The Scarborough Hotel" ("the Hotel Business") (including but not limited to the chattels, licences and things in the schedule to the statement of claim filed in these proceedings on 29 September 2005 ("the Hotel Assets")) or mortgage, encumber or otherwise deal with the hotel business and the hotel assets save in the ordinary course of business or as provided in paragraph 2 below.

(b)Keep and maintain all proper accounts and records of the trading of the hotel business, including the hotel assets, in accordance with the requirements of Chapter 2M of the Corporations Act 2001.

(c)Keep and maintain all the hotel assets in good order and repair.

2.In the event that the first defendant seeks to complete the business sale contract exhibited as FJB1 to the affidavit of Frederick John Brilman filed by leave on 30 October 2006, the defendants must pay into court the complete sale proceeds, without other deduction, as to:

(a)$1,250.00 in proceedings S3430/06

(b)the balance in these proceedings, 8307 of 2006.

3.Liberty to apply generally and to the defendants in particular to apply for relief in respect of the full amount of the balance contemplated in paragraph 2(b) above.

4.Costs reserved."

Before the seeking (or engrossment) of any order, the parties

representatives determined they had misapprehended the effect

of Muir J's order and agreed upon the following as suitable to

embody the conclusions expressed above:

"SUPREME COURT OF QUEENSLAND

REGISTRY:  Brisbane              NUMBER:    8307 of 2006  

First Plaintiff:            SCARBOROUGH HOSPITALITY 2000 PTY LTD (IN LIQUIDATION) ACN 016 478 880

AND

Second Plaintiffs:          JOHN WILLIAM CUNNINGHAM AND JOHN RICHARD PARK

AND

First Defendant:            CABARITA PACIFIC HOLDINGS PTY LTD ACN 104 025 658

AND

Second Defendant:           JENELLE SARAH KURVINK

AND

Third Defendant:            FREDERICK JOHN BRILMAN

ORDER

Before:Robin AJ

Date:30 October, 2006

Initiating document:  Application dated 29 September 2006

UPON the First Plaintiff, by its Counsel, giving the usual undertaking as to damages, such undertaking secured by the Bank Guarantee deposited with the Principal Registrar on 27 October, 2006.

THE ORDER OF THE COURT IS THAT UNTIL FINAL DETERMINATION

OF THESE PROCEEDINGS:

1.The Defendants, by themselves, their servants, agents or otherwise howsoever, shall:

(a)not dispose of the business carried on in Landsborough Avenue, Scarborough and known as "The Scarborough Hotel" ("the Hotel Business") (including but not limited to the chattels, licences and things in the schedule to the Statement of Claim filed in these proceedings on 29 September, 2006 ("the Hotel Assets")) or mortgage, encumber or otherwise deal with the Hotel Business and the Hotel Assets (save in the ordinary course of business or as provided in paragraph 2 below;

(b)keep and maintain all proper accounts and records of the trading of the Hotel Business, including the Hotel Assets, in accordance with the requirements of Chapter 2M of the Corporations Act 2001;

(c)keep and maintain all the Hotel Assets in good order and repair.

2.In the event that the First Defendant seeks to complete the Business Sale Contract exhibited at "FJB1" to the Affidavit of Frederick John Brilman filed by leave on 30 October, 2006, the Defendants must pay into court the complete sale proceeds.

3.Liberty to apply generally and to the Defendants in particular to apply for relief in respect of the full amount of the sum to be paid into court, contemplated in paragraph 2 above.

4.Costs reserved."

On 17 November 2006 an order was made in those terms.

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