Starmaker (No 51) Pty Ltd v Majda & Ors - [2005] SASC 234

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
STARMAKER (NO 51) PTY LTD v MAJDA & ORS
Reasons for Decision of The Honourable Justice Debelle
29 June 2005
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF LIQUIDATION - PROCEEDINGS BY OR AGAINST COMPANY - LEAVE TO PROCEED
Application to join company in liquidation and its liquidator as defendants to action - applicant seeking to litigate issues already arising in separate action brought by company against applicant - leave to join refused.

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PARTIES
Joinder of parties - application to join company in liquidation and its liquidator as defendants - applicant seeking to litigate issues already arising in separate action brought by company against applicant - leave to join refused.
Corporations Act 2001 (Cth) s 471B; Corporations Law (SA) s 553, s 588FB, s 588FD, s 588FE, s 1321; Corporations Regulations (SA) reg 5.6.53, reg 5.6.56; Supreme Court Act 1935 (SA) s 27; Supreme Court Rules 1987 (SA) r 27.05, referred to.
Ogilvie-Grant v East (1983) 7 ACLR 669, applied.
Re Quatrovision Pty Ltd (in liq) [1982] 1 NSWLR 95, distinguished.
Re A J Benjamin Ltd (in liq) [1969] 2 NSWR 374; (1969) 90 WN (Pt 1) (NSW) 107; J N Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432, considered.

STARMAKER (NO 51) PTY LTD v MAJDA & ORS
[2005] SASC 234
Civil:

DEBELLE J. In this action the plaintiff Starmaker (No 51) Pty Ltd (“Starmaker”) seeks orders in the nature of declarations that each of the six defendants is not a creditor of Mawson KLM Holdings Pty Ltd (in liq) (“Mawson”). For convenience I will call it “the Starmaker action”.
On 4 November 1997 Mawson was wound up by order of this Court and Mr John Irving was appointed liquidator. I will refer to Mr Irving as “the liquidator”. Neither Mawson nor the liquidator have been joined as defendants in the Starmaker action.
The Starmaker action was commenced on 19 August 2004 and a number of interlocutory orders have been made. In particular, it is necessary to note that on 13 October 2004 an order was made declaring that the first, second and third defendants are not and have never been creditors of Mawson.
Starmaker now makes three applications. They are:
1. That Mawson and the liquidator be joined as parties to this action.
2.That Mawson and the liquidator are bound by the order made herein on 13 October 2004 declaring that the first three defendants are not creditors of Mawson.
3. That the fourth defendant is not a creditor of Mawson.
Before proceeding further, it is necessary to note that more than four and a half years ago the liquidator had instituted an action against the plaintiff. It is action number 883 of 2000. In that action the liquidator sought, among other things, a series of declarations in respect of certain transactions entered into by Starmaker and Mawson. For convenience I will call it “the liquidator’s action”. Shortly stated, the liquidator sought:
1.a declaration pursuant to s 588FD of the Corporations Law that a loan made by Starmaker to Mawson was an unfair loan;
2.a declaration pursuant to s 588FE (6) of the Corporations Law that the said loan is a voidable transaction of Mawson;
3.a declaration pursuant to s 588FB (1) of the Corporations Law that the transaction comprised in an option agreement made between Starmaker and Mawson is an uncommercial transaction;
4.a declaration pursuant to s 588FE (3) of the Corporations Law that the transaction comprised in the option agreement is a voidable transaction;
5.a declaration pursuant to s 588FB (1) of the Corporations Law that the transaction comprised in a joint venture agreement made between Starmaker and Mawson is an uncommercial transaction of Mawson; and
6.a declaration pursuant to s 588FE (3) of the Corporations Law that the transaction comprised in the joint venture agreement is a voidable transaction of Mawson.
The liquidator also sought a number of other orders for ancillary relief. The pre‑trial processes in that action have been advancing slowly. The action has not yet been set down for hearing.
Some of the issues in the liquidator’s action are of particular relevance to the application by Starmaker for joinder. One of the issues for determination in the liquidator’s action is whether Mawson was insolvent at the time when the parties entered into the transactions which have been challenged by the liquidator. That is a consequence of the definition of “voidable transactions” in s 588FE of the Corporations Law which was the legislation in force at the time when Starmaker and Mawson entered into the challenged transactions.
The Court has the discretion to order joinder. An order for joinder is not made as a matter of course. The object of ordering joinder is to avoid a multiplicity of proceedings: see s 27 of the Supreme Court Act and J N Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432. The existence of an actual lis, in the sense of proceedings between the parties, is not a requisite for an order for joinder: J N Taylor Holdings Ltd (in liq) v Bond at 441 so that the fact that Starmaker seeks orders in the nature of declarations is not in itself a bar to joinder.
Ms Nelson QC, who appeared for Starmaker, began her submissions with two complaints concerning the liquidator’s administration of the winding up. She submitted that the matters of which she complained were relevant for the purpose of determining whether an order for joinder should be made.
The first complaint was that the liquidator had failed to deal with Starmaker’s proof of debt within the period of 28 days prescribed by reg 5.6.53 of the Corporations Regulations. She submitted that the period of 28 days is mandatory. It is not. It is simply a prescribed time. If the liquidator fails to deal with the request within 28 days, there is no deemed consequence of that failure. Instead, the creditor may apply to the Court for a decision: reg 5.6.53 (2). Starmaker has not applied to the Court pursuant to reg 5.6.53 (2) but, instead, has appealed to this Court against the manner in which the liquidator has dealt with its proof of debt. That appeal will be heard on 30 June. Issues arising out of Starmaker’s proof of debt are not relevant to the application for joinder.
Ms Nelson’s second complaint was that the liquidator had been very dilatory in dealing with applications to withdraw proofs of debt by the three creditors who had consented to the order in the Starmaker action that they are not creditors of Mawson. The liquidator has been dilatory. However, he has decided not to permit those three creditors to withdraw their respective proofs of debt. A letter dated 31 May 2005 from the solicitors for the liquidator informed the solicitors for Starmaker that the liquidator:
… does not consent to the withdrawals of the proofs of debt of Mr and Mrs Majda, Mr Harry, Mr Jeffrey or any other person who has lodged a proof of debt with him in the above capacity.
Mr and Mrs Majda and Mr Harry are the three defendants who consented to an order that they are not creditors of Mawson. Mr Jeffrey is the fourth defendant. Regulation 5.6.56 of the Corporations Regulations provides:
A proof of debt or claim may be withdrawn, reduced or varied by a creditor with the consent of the liquidator.
The liquidator is, therefore, entitled to withhold his consent. Other correspondence from the liquidator’s solicitors states that he will decide whether to accede to the applications to withdraw the proofs of debt once the liquidator’s action has been heard and determined. There can be no legitimate criticism of the liquidator for taking that course. As already mentioned, the question whether Mawson was insolvent is an issue in the liquidator’s action. It is Starmaker’s case in the liquidator’s action that Mawson was not insolvent at the time when it entered into the challenged transactions. Part of the proof of that fact is to establish that the six defendants in the Starmaker action were not creditors of Mawson. The liquidator does not accept Starmaker’s contention that the six defendants were not creditors of Mawson. This provides substantial justification for the liquidator’s refusal to grant his consent to the application to withdraw the proofs of debt. The manner in which the liquidator has been and is dealing with the proofs of debt by the first four defendants is, therefore, irrelevant to the question of joinder.
I turn to the other grounds upon which Starmaker founded its application for joinder, not necessarily dealing with those submissions in the order that they were argued.
Ms Nelson contended that, if Mawson and the liquidator are not joined, Starmaker will have to undertake a long, complex and costly trial to determine whether the six defendants in this action are creditors of Starmaker. She was referring to the issues in the liquidator’s action. There are several reasons why that submission must fail.
First, the question whether the defendants were in fact creditors of Mawson is an issue which will be examined in the liquidator’s action. As Ms Nelson emphasised in her submissions, Starmaker contends that, if the six defendants in this action are not creditors of Starmaker, Starmaker was not insolvent when Starmaker and Mawson entered into the challenged transactions. Starmaker, therefore, seeks to litigate in the Starmaker action an issue which will be litigated in the liquidator’s action. The liquidator should not be compelled to contest the same issues in two separate actions. There is a real question whether the Starmaker action constitutes an abuse of process. However, it is not necessary to determine that issue at this time.
A second reason for rejecting Ms Nelson’s submission is that the question whether the defendants were creditors of Mawson is an issue which is likely to occupy the same length of time in either action. There is no material advantage in litigating the matter in the Starmaker action.
A third reason for rejecting Ms Nelson’s submission lies in the provisions of the Corporations Law. The Corporations Law and the Corporations Regulations together prescribe a legislative régime by which creditors lodge proofs of debts, liquidators adjudicate on the proofs of debts, and disputes between creditors and liquidators are resolved. It is sufficient to refer to s 553 (1) of the Corporations Law and regs 5.6.39 – 5.6.57 of the Corporations Regulations. Disputes between creditor and liquidator are dealt with in s 1321 of the Corporations Law. This application for joinder is an attempt to obtain an adjudication on proofs of debt in a way not contemplated by the Corporations Law in that it seeks orders that certain persons were not in fact creditors of Starmaker. The liquidator has called for proofs of debt and has dealt with them. He has admitted the proofs of debt of the defendants in the Starmaker action. The liquidator has prepared a report on insolvency dated 13 August 2002 in which he states that all six defendants in the Starmaker action are creditors of Mawson. He has refused his consent to the withdrawal of the proofs of debt by the three defendants who consented to the orders in the Starmaker action that they are not creditors of Mawson. As already noted the liquidator is acting within his powers in refusing consent. The liquidator is entitled not to adjudicate the application to withdraw the proofs of debt until the liquidator’s action has been heard and determined. There may be occasions when it is permissible for a person to bring proceedings against a liquidator in respect of a proof of debt but this certainly is not one such occasion. A creditor should have good reason for departing from the régime prescribed by the Corporations Law and the Corporations Regulations: Ogilvie-Grant v East (1983) 7 ACLR 669 per McPherson J at 672. Starmaker cannot demonstrate that it has a good reason.
All of the other arguments on which Ms Nelson relies are in one way or another related to the question of seeking to adjudicate in the Starmaker action the question whether the six defendants in this action are creditors of Mawson and to bind Mawson and the liquidator to that decision. All of Ms Nelson’s contentions must fail for the above reasons.
Rule 27.05 of the Supreme Court Rules 1987 (SA) lists criteria to which the Court may have regard when considering an application for joinder. The only criteria which might apply in the circumstances of this application are those prescribed in paras (c), (e) and (f). However, they cannot and do not permit joinder where a party is seeking to litigate issues which are already issues in existing proceedings between the applicant for joinder and the party sought to be joined.
Although the discretion to order joinder is relatively wide, proper grounds much exist for such an order. Starmaker has not demonstrated there is any justifiable ground on which to join Mawson or the liquidator. The application for joinder must therefore be dismissed.
If Starmaker seeks to proceed against Mawson and the liquidator, it must also obtain leave pursuant to s 471B of the Corporations Act 2001(Cth) in addition to a grant of leave under r 27 of the Supreme Court Rules. Section 471B provides:
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a)a proceeding in a court against the company or in relation to property of the company; or
(b)enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
The primary purpose of s 471B is to prevent a company in liquidation from being subjected to a multiplicity of actions which would be both expensive and time consuming: Re A J Benjamin Ltd (in liq) (1969) 90 WN (Pt 1) (NSW) 107 at 109 per Street J. This application for joinder flies directly in the face of that purpose in that the very issue which Starmaker seeks to litigate in its action is already an issue in the liquidator’s action. Where an action is already on foot between the liquidator and named parties, one of those parties is not entitled to a grant of leave to sue the company in liquidation in another set of proceedings for the purpose of relitigating the same issue. Starmaker has not applied for leave under s 471B of the Corporations Act. Even if it had, for the reasons already expressed, I would not grant the application. As leave cannot be obtained under s 471B, this is a further ground on which to dismiss the application for joinder.
For these reasons, neither Mawson nor the liquidator are necessary parties in this action.
Is the Liquidator Bound?
The next question is whether the liquidator is bound by the order made on 13 October 2004 that the first three defendants in the Starmaker action are not creditors of Mawson. The order was made by consent. I made that order. On one view, the order should not have been made unless the liquidator had been joined. That consideration is to be weighed with the fact that it is open to the plaintiff and the defendants to consent to judgment if that is their wish, notwithstanding that any judgment ordered cannot bind either Mawson or the liquidator who are not parties. Whatever fault might exist in the order of 13 October 2004, in no sense can that order bind either Mawson or the liquidator.
Counsel for the liquidator emphasised that the orders should not bind the liquidator because there may have been factors which caused the defendants to consent to judgment apart from the merits of the issue. It is unnecessary to decide that question for the simple reason that the orders do not bind the liquidator.
The liquidator relied on the decision in Re Quatrovision Pty Ltd (in liq) [1982] 1 NSWLR 95 and contended that he is not estopped from adjudicating a proof of debt founded on a judgment. The principle has no application in the particular circumstances of this case. It is sufficient for the liquidator to rely on the fact that neither he nor Mawson is a party to the action and is, therefore, not bound by the consent order.
The Fourth Defendant
The application by Starmaker for an order that the fourth defendant is not a creditor of Mawson was not argued. Starmaker has indicated that it did not wish to proceed with the application until the question of the joinder of Mawson and the liquidator had been determined.
Conclusion
For these reasons, the application to join Mawson and the liquidator is dismissed. In addition, the application that Mawson and the liquidator are bound by the order in the Starmaker action made on 13 October 2004 is dismissed. I will fix a date for the hearing of the application by Starmaker for an order that the fourth defendant is not a creditor of Mawson.