Starmaker (No 51) Pty Ltd v Mawson KLM Holdings Pty Ltd - [2005] SASC 313

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
STARMAKER (NO 51) PTY LTD v MAWSON KLM HOLDINGS PTY LTD
Judgment of The Honourable Justice Layton
17 August 2005
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF LIQUIDATION - PROOF AND RANKING OF CLAIMS
CORPORATIONS - WINDING UP - LIQUIDATORS
Appeal against orders of a Master of the Supreme Court - whether appellant a creditor or aggrieved person for the purposes of Corporations Act (Cth) and Corporations Regulations - whether liquidator complied with Regulations to deal with a formal proof of debt of the appellant - whether rejection of proof of debt invalid - whether appellant has standing to institute an appeal against the liquidator's refusal to admit the proof of debt - consideration of the duties of liquidators - whether the liquidator can refuse to admit a proof of debt on the basis of offsetting a claim for damages in a separate action 883 of 2000 - appeal allowed for the limited purpose that the decision on the formal proof of debt or claim (general form) to be heard and determined at the same time as the hearing and determination of action 883 of 2000.
Corporations Act 2001 (Cth) s 1321, s 536 and s 553; Corporations Regulations 2001 (Cth) reg 5.6.48, reg 5.6.53, reg 5.6.54 and reg 5.6.12; Supreme Court Rules 1987 (SA) r 106.05, referred to.
Austin Securities Ltd v Northgate & English Store Ltd [1969] 1 WLR 529; Chilia Properties Pty Ltd (Administrator Appointed) (1997) 73 FCR 171; CCA v Harvey (Liquidator of Timberlands Ltd (in Liq)and Equitable Forestry Services Pty Ltd (in liq) [1980] VR 669 ; Columbia Picture Industries Inc v Robinson [1987] Ch 38; Duffy v Super Centre Development Corporation Ltd (1967) 1 NSWLR 382; Lofthouse v Australian Securities and Investments Commission (2004) 82 ALD 481; Marriner v Smorgon [1989] VR 485; Re Jay-O-Bees Pty Ltd; Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd [2004] NSWSC 818; Re: House Property and Investment Co (1954) Ch 576; Simto Ltd v Court as Liquidator of Carob Industries Pty Ltd (in Liq) (1997) 138 FLR 232; Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332; Victor Charles Court and Australian Securities Commission and AAT No 12710 [1998] AATA 169, considered.

STARMAKER (NO 51) PTY LTD v MAWSON KLM HOLDINGS PTY LTD
[2005] SASC 313

LAYTON J: This is an appeal by Starmaker (No 51) Pty Ltd (“Starmaker”) against some but not all orders made by a Master of the Supreme Court on 19 November 2004. The major subject of appeal is the rejection by the Master of the direction sought by Starmaker, that Mr John Irving (“the Liquidator”) of Mawson KLM Holdings Pty Ltd (in liquidation) (“Mawson”) admit the Proof of Debt submitted by Starmaker on 12 May 1998.
The appeal concerns the interpretation of the Corporations Act 2001(Cth), the statutory responsibilities of a liquidator when dealing with a proof of debt and the rights of a creditor whose debt is rejected. These issues are raised in the context of complex litigation which involves not only this action but other court proceedings between the parties.
In summarising the dispute between the parties to this point, Mawson was wound up on the application of Starmaker following the non-payment of taxed costs ordered in its favour in another action. Subsequently this action was instituted by the Liquidator of Mawson against Starmaker seeking declarations that three transactions between Mawson and Starmaker namely a loan, an option agreement and a joint venture agreement be declared as either an unfair, uncommercial or an insolvent transaction under the Corporations Law and accordingly that remedies should be granted by the Court. Starmaker is defending the action by denying the allegations and also making alternative contentions of illegality, statutory non-compliance and set off. There have been many applications made in this action and this appeal is but one.
Preliminary Procedural Issues
This matter was initially listed for hearing before the Full Court but at the request of both parties, I heard the appeal as I had already been appraised of the subject matter of this action as a consequence of having heard two other matters in related actions. More importantly as a matter of jurisdiction, the Chief Justice on 30 May 2005 ordered that this matter be heard before me as a single judge pursuant to R106.05(2)(b) of the Supreme Court Rules 1987 (SA).
There is a further preliminary procedural issue which arises. The Notice for Specific Directions which was before the Master is dated 2 September 2004. This was the notice which he considered and upon which he made orders on the 19 November 2004. Between the time of the filing of the Notice for Specific Directions and the hearing and orders made by the Master, leave was given by the Master on 21 September 2004 for the Notice for Specific Directions to be amended. The Amended Notice for Specific Directions was not filed in the Supreme Court until 27 January 2005, being after the date when the Master delivered his decision and made the orders.
The Amended Notice for Specific Directions added a further ground, namely: “that the decision of Mr Irving of 9 September 2004 to reject the Formal Proof of Claim (General Form) submitted by Starmaker dated 12 May 1998, be revoked and otherwise set aside.” This was numbered paragraph “1” and the previous paragraph 1 was altered to read paragraph “1.A". The amendment was done by consent and it arose as a consequence of the Liquidator rejecting Starmaker’s Formal Proof of Debt against Mawson, which is referred to more particularly later in these reasons.
No point is being taken by the Liquidator that a separate application should have been taken out to challenge the Liquidator’s decision to reject the Formal Proof of Debt. I have therefore, for procedural convenience, treated this appeal as a consequence of the amendment to include an appeal against the rejection of proof of debt by the Liquidator. My reason for doing so is that there has already been a plethora of applications taken out in this action and other related actions between the parties, without unnecessarily adding to them.
In summary the amendment to the Notice for Specific Directions opens up the opportunity for Starmaker to not only appeal against the decision by the Master but also in the alternative to appeal against the decision by the Liquidator to reject Starmaker’s Proof of Debt.
History
The history of this action is very detailed, but so far as this appeal is concerned, the following chronology of matters is relevant.
On 12 February 1997, Starmaker obtained an order for costs against Mawson which were subsequently taxed in the sum of $32,508.30 on 1 October 1997.
On 4 November 1997 by an order of this Court, Mawson was wound up on the application by Starmaker.
On or about 12 May 1998, Starmaker lodged a Proof of Debt for $32,508.
On 7 May 2004 by letter to the Liquidator of Mawson, Starmaker requested that the Liquidator deal with the proof within 28 days pursuant to regulation 5.6.53(1) (a) of the Corporations Regulations 2001 (Cth).
On 10 May 2004, the solicitors for the Liquidator sent a letter to Starmaker indicating that it was seeking instructions on how to deal with the Proof of Debt.
The Liquidator did not deal with the Proof of Debt within the 28 days as requested by Starmaker in the 7 May 2004 letter.
From May to August 2004, there was written correspondence between the Liquidator’s solicitor and the solicitors for Starmaker in which Starmaker requested that the Liquidator admit Starmaker’s Proof of Debt and further that the costs allocatur be the basis for Starmaker’s Proof of Debt.
On 2 September 2004, Starmaker filed an application in this Court by way of a Notice for Specific Directions pursuant to ss 477(6), 485, 511, 531 of the Corporations Act 2001 (Cth) (“the Act”) and regulation 5.6.53 (2) to have the proof of debt admitted.
On 9 September 2004, the Liquidator rejected the Proof of Debt in the following terms:
1. Your claim against the company set out in the formal proof of debt of Starmaker made on 12 May 1998 has been wholly disallowed.
2. My grounds for disallowance are as follows:
I admit the sum of $32,508.30 is owing to you as particularised in the proof of debt lodged. However Starmaker is indebted to the Company for a sum yet to be quantified but which well exceeds $32,508.30. Pursuant to Section 553C of the Corporations Act, an account has been taken of the respective debts and accordingly the proof has been rejected.
On 13 September 2004, the Liquidator’s solicitors sent the notice of rejection to Starmaker’s solicitors and Starmaker. The Liquidator also set out the appellant’s rights of appeal to this Court against the Liquidator’s determination.[1]
[1] Corporations Regulations2001(Cth) 5.6.53 (2).
On 15 October 2004 a Master of this Court directed that the Liquidator file an affidavit explaining the basis of the rejection of the Proof of Debt.
On 4 November 2004 an affidavit of the Liquidator was filed.
On 19 November 2004 on a rehearing of the application, the Master rejected Starmaker’s application that the Formal Proof of Debt be admitted. This being the subject of this appeal.
Grounds of Appeal
The Notice of Appeal filed on 26 November 2004 seeks the following orders:
1.1that the decision of Mr John Irving (“Mr Irving”) of 9 September 2004 to reject the Formal Proof of Debt or Claim (General Form) submitted by the appellant dated 12 May 1998 be revoked and otherwise set aside;
1.2that the Formal Proof of Debt or Claim (General Form) submitted by the appellant dated 12 May 1998 be admitted;
1.3that the resolutions of the alleged creditors of Mawson KLM Holdings Pty Ltd (In Liquidation ) (“Mawson Holdings”) of 31 March 2004 be set aside;
1.4that Mr Irving produce a costs agreement between John Irving, as liquidator of Mawson Holdings, and Cowell Clarke, Commercial Lawyers;
1.5that this Honourable Court fix a date on which creditor(s) of Mawson Holdings are to prove their debt(s) or claim(s), and after which such creditors(s) will be excluded from the benefit of any distribution.
These grounds of appeal allege a number of erroneous findings by the Master which underpin the orders which are the subject of appeal. The major argument of Starmaker in relation to the appeal against the Master contends that his Honour was in error in dismissing Starmaker’s application. Further that his Honour should have ordered that the decision of the Liquidator of 9 September 2004 to reject the Formal Proof of Debt, be revoked and set aside.
There are two bases put forward by Starmaker as to why the appeal should be allowed. First, that the Liquidator failed to deal with the Formal Proof of Debt filed by Starmaker within the 28 days as required by sub regulation 5.6.53 (2) of the Corporations Regulations 2001 (Cth) (“the Regulations”) and that the subsequent decision to reject the Proof of Debt was invalid. Second, in the alternative, Starmaker seeks to rely on either s 1321(d) of the Act or regulation 5.6.54 to appeal against the rejection of the Proof of Debt by the Liquidator.
I will address these main arguments first before then considering some other specific grounds of appeal.
Failure of liquidator to comply with regulation 5.6.53 and later purported rejection of Proof of Debt on 9 September 2004
The orders sought by Starmaker in paragraphs 1.1 and 1.2 of the Notice of Appeal are premised on the alleged consequences of the failure of the Liquidator to comply with the requirement in Regulation 5.6.53 (1) to respond to the Formal Proof of Debt within 28 days as requested.
Regulation 5.6.53 (1) and (2) provides as follows:
(1) A liquidator must, within:
(a)     28 days after receiving a request in writing from a creditor to do so; or
(b)     if ASIC allows — any further period;
in writing:
(c)     admit all or part of the formal proof of debt or claim submitted by the creditor; or
(d)     reject all or part of the formal proof of debt or claim; or
(e)     require further evidence in support of it.
(2) If the liquidator does not deal with a request under subregulation (1) in accordance with that subregulation, the creditor who submitted the proof may apply to the Court for a decision in respect of it.
It can be seen that sub-regulation (1) contains a mandatory provision whereby a liquidator must within 28 days of receiving a request in writing from a creditor either admit, reject or require further evidence in relation to a formal proof of debt or claim submitted by the creditor.
The above history indicates that the Liquidator did not comply with that sub-regulation and that Starmaker applied to the Court in accordance with sub-regulation (2) for a decision. After this application was taken out, the Liquidator subsequently decided to reject the claim.
Starmaker argues that as the Liquidator had not complied with sub-regulation (1) and Starmaker had taken out an application in Court, that the Court was then appraised of the issue and any purported subsequent rejection of the Proof of Debt by the Liquidator was invalid.
In support of this argument, counsel for Starmaker referred firstly to the overall structure of the Act and the Regulations (“Corporations Law”) in conjunction with the quasi-judicial role and fiduciary obligation of the liquidator. It was submitted that one of the roles of the Court in the structure of the Corporations Law, as set out in s 536, is a supervisory role over liquidators who had not performed their duties. Further it was submitted that regulation 5.6.53, and in particular sub regulation (2), was indicative that if a liquidator had failed to comply with its mandatory duties with respect to a formal proof of debt or claim, it was for the Court, upon application being made by the creditor, to make “a decision in respect of it”. It was submitted that once such an application had been made, it was for the Court alone to make the decision with regard to the Proof of Debt. Further, if sub regulation (1) was not complied with, any later purported determination by the Liquidator was invalid.
Counsel for Starmaker relied on a case of Simto Ltd v Court as Liquidator of Carob Industries Pty Ltd (In Liq).[2] Simto considered whether the liquidator's duty pursuant to regulation 5.6.53 of the Corporations Regulations are mandatory and further whether the exercise of the duty was dependent upon the liquidator having called for a formal proof of debt. In the course of deciding that it was not necessary for the application of the regulation for the liquidator to have called for a formal proof of debt under regulation 5.6.48, observations were made by Bredmeyer M as to the effect of the two sub-regulations, (5.6.53 (1) and 5.6.53 (2)) the subject of consideration here.
[2] (1997) 138 FLR 232 and subsequently endorsed by the Administrative Appeals Tribunal in, Victor Charles Court and Australian Securities Commission and AAT no 12710 [1998] AATA 169.
In finding that a liquidator is required to deal with a proof of debt notwithstanding that there was no formal offer that proofs of debt be proffered, Bredmeyer M aptly summarised the interpretation of 5.6.53 (1) and 5.6.53 (2) as follows;
…whether in response to the liquidator calling for formal proof of claims or not- the liquidator is required by that subregulation [(1)] to deal with the claim in the manner prescribed…the plain meaning of the word “must” is mandatory and I am not persuaded that the somewhat odd provision of subregulation (2), immediately following (1), alters that view. I say (2) is odd because it contemplates that a liquidator will not do what subregulation (1) says he must do. The interpretation which I favour is I think consistent with the general duties of a liquidator…the liquidator being in a fiduciary relationship [and]…when determining the debts of the company, the liquidator acts not for the company but in a quasi-judicial position for the purpose of all the creditors generally as claimants on a fund being administered by the court.[3]
[3] Simto Pty Ltd v Court as Liquidator of Carob Industries Pty Ltd (in Liq) (1997) 138 FLR 232.
In Simto, the Master was persuaded by arguments of the plaintiff that subregulation (2) is a concession to human frailty on the basis that,
…human nature being what it is, there may be a liquidator who neglects or fails to carry out that duty and sub-regulation (2) gives the creditor an opportunity to side-step that inaction and apply to the court and get a decision on his claim from the court.[4]
[4] Ibid at p 8.
This interpretation has subsequently been followed in Victor Charles Court and Australian Securities Commission and AAF No 12710.[5]
[5] (1998) AATA 169.
There is nothing contained in these passages which suggests that if a liquidator subsequently does become active and decides to either admit or reject all or part of a formal proof of debt or claim, that such a decision would be invalid. I agree with the Master that sub-regulation 5.6.53 (2) provides a remedy to a creditor to overcome inaction by a liquidator. If a liquidator fails to comply, the creditor may seek a decision from the Court to remedy that failure. However neither the Act nor the rules prevent the liquidator subsequently, either admitting or rejecting the formal proof of debt or claim, which, after all, is the desired outcome. If subsequent to an application made by a creditor under sub-regulation 5.6.53 (2), a liquidator makes a determination, an order for costs or some other order may flow on that application. If a liquidator albeit belatedly and not in accordance with sub-regulation (1), decides to reject the formal proof of debt, regulation 5.6.54 provides a separate remedy and allows a creditor to appeal to the Court against the rejection within 14 days after service of the Notice.
To have a contrary interpretation such as the one which is proffered by Starmaker, would produce rather absurd results. If there had been an unfortunate oversight of a written request to adjudicate a proof of debt and the creditor applied to the Court and subsequently the liquidator decided to admit the whole of that proof of debt or claim, that decision also would be invalid and would require a court decision. In my view that is not the intention of the Regulation.
Counsel for Starmaker relied on a second argument, namely, that the later rejection by the Liquidator after the expiration of the 28 days, had no status as the adjudication of the proof of debt became a matter for the Court and not the Liquidator. It was argued that once the Liquidator had failed to comply with the mandatory requirement of the 28 days and the appellant instituted action in the Court, that this was the end of the Liquidator’s jurisdiction, particularly when the Liquidator had not taken up the opportunity to extend the period in which to act provided for by s 70 of the Act. Therefore it was contended that the Liquidator acted without capacity and outside the framework of time provided for in the regulations and that the Supreme Court alone had jurisdiction.
The efficacy of this contention is dependant in part upon the same arguments as to the interpretation of sub-regulations 5.6.53 (1) and (2) discussed above. The Court has by sub-regulation 5.6.53 (2), jurisdiction on appeal to make a “decision”. If no decision has been made by the Liquidator on the proof of debt, then this Court is empowered to make a decision in lieu of the Liquidator. However, if a decision has already been made by the Liquidator, albeit after 28 days, there is no useful primary remedy which can be given by the Court, (other than for example costs) as the decision has already been made. A court will usually refuse to make orders which would be redundant or meaningless.[6]
[6] Columbia Picture Industries Inc v Robinson [1987] Ch 38; Marriner v Smorgon [1989] VR 485.

Further support for this interpretation is found in the existence of the code which is provided within regulation 5.6.54 for an appeal from a decision by the Liquidator to reject a proof of debt. This is a separate proceeding with specific procedural requirements.
In addition, counsel for the respondent pointed out that Starmaker was still supplying information to the Liquidator about the debt only a short time prior to it taking out the application in this matter. Therefore the Liquidator was continuing to act in his capacity as Liquidator in relation to the Proof of Debt, after the 28 days had passed.
For these reasons I therefore reject the appellant's argument on this point.
Appeal from Liquidator’s rejection of proof of debt.
Counsel for Starmaker submitted that if I find that the Liquidator was able to reject the Proof of Debt out of time, then the alternative contention of the appellant is that this Court should find that the Liquidator wrongly rejected the Proof of Debt. This is effectively seeking to appeal to this Court against the rejection of the Proof of Debt by the Liquidator, which remedy is sought through the amendment to the Notice for Specific Directions. Counsel for Starmaker argued that such an appeal could be made either pursuant to s 1321 of the Act because it was an aggrieved person or alternatively, pursuant to regulation 5.6.54. because it was a creditor.
As indicated previously, the Liquidator took no issue that a separate application would normally have been required by Starmaker to challenge the rejection.
Status of Starmaker as a creditor or aggrieved person
In relation to this aspect of the appeal, Starmaker contends that it is a creditor as Mawson owes it a judgment debt in Supreme Court Action number 2227 of 1996 of $32,508.30 and that this debt is the subject of the Formal Proof of Debt dated 12 May 1998. It further contends that it still remains a creditor subsequent to the rejection of the Formal Proof of Debt and therefore it has standing.
It is to be noted that the word “creditor” is not defined either in the Act or in the Regulations. In the context of a winding up in insolvency under Part 5.6 of the Regulations, from the process commencing from the convening of meetings of “members, creditors or contributories” of a company, the Regulations do not use the term “creditor” as meaning only a person or body which has a judicially recognised legal entitlement. Instead the term is used in its ordinary sense as a person or body which claims to be owed money by a company that is a putative creditor. This lack of confirmed legal entitlement is made manifest by the process of “proof of debt or claim”, which is a quasi-judicial function of the Liquidator.[7] In the framework of regulation 5.6.54 which permits a “creditor” to appeal against the rejection of a proof of debt, it is in my view used in that regulation, in its non-technical sense. It would be a very circular argument to contend that a person or body which has a proof of debt claim rejected by a liquidator on the basis that it is not adjudged by the liquidator to be a creditor, can be said to have no status as a “creditor” to seek a remedy to appeal the rejection under regulation 5.6.54.
[7] Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 338-340.
I therefore accept that Starmaker has status to seek a remedy as a creditor under regulation 5.6.54 to appeal against the rejection by the Liquidator of its proof of debt.
In the alternative, even if that interpretation was incorrect, s 1321 of the Act may be utilised. That section provides:
1321 A person aggrieved by any act, omission or decision of:
…
(d) a liquidator or provisional liquidator of a company;
may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.
By reason of s 1321, Starmaker could be regarded as being an aggrieved person in that it claimed to be a creditor and had its proof of debt wrongfully rejected pursuant to s 553 of the Act. There is judicial support for this interpretation in the case of Re Jay-O-Bees Pty Ltd; Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd[8] At paragraph 46 of that case, Campbell J, after setting out the principles concerning appeal to the Supreme Court NSW in respect of a liquidator’s rejection of a proof of debt, concluded that an appeal to the Court from a liquidator’s rejection of a proof of debt arises under s 1321. His Honour did not specifically direct his attention to regulation 5. 6. 54.
[8] [2004] NSWSC 818.
For the above reason I am satisfied that Starmaker has the status to appeal in relation to the rejection of the Proof of Debt and there is jurisdiction for this Court to consider its appeal.
Liquidator’s grounds for rejection
The grounds for rejection of the Proof of Debt are set out in the affidavit of the Liquidator sworn on 3 November 2004. In summary the Liquidator deposes that he formed the opinion that Starmaker was indebted to Mawson in the order of $460,000 plus a further amount of $1,190,000 as a consequence of the following matters. First the Liquidator had formed the opinion that a loan from Starmaker to Mawson was an “unfair loan” as provided in s 588FD of the Act. Second that there was an arrangement between Starmaker and Mawson which was an “uncommercial transaction” as provided in s 588FB of the Act. Third that there was “uncommercial transaction” as provided in s 588FB of the Act in relation to a Joint Venture Agreement to which a Court could make orders pursuant to s588FF of the Act. The Liquidator deposed that as a consequence he had set off the amount of Starmaker’s Proof of Debt of $32,508 against the much larger amounts which he concluded were owed by Starmaker to Mawson and therefore rejected the Proof of Debt.
The issues of whether or not there was an “unfair loan” and whether there were “uncommercial transactions”, are the subject of Action number 883 of 2000 commenced in this Court on 15 September 2000. Therefore Starmaker in appealing against the rejection by the Liquidator of the Proof of Debt, seeks to raise the very same subject matters which are sought to be litigated in the fully fought Action 883 of 2000 between these same parties.
I consider that it is inappropriate on this appeal to decide whether or not the subject matter of Action 883 of 2000 is or is not reasonably arguable. That would mean in effect a preliminary decision on a matter which would later be the subject of a far more detailed argument, albeit with a different burden of proof. I therefore consider that it is inappropriate for this Court at this point to decide on this issue. Instead, I consider that the appeal on the rejection of the Proof of Debt in this action and whether or not that Proof of Debt should be admitted, (including the issue of whether or not these amounts are appropriately to be set off within the meaning of s 553C of the Act), should be dealt with at the same time as the hearing and determination of Action 883 of 2000. Therefore there is no need for me to consider whether the affidavit of the Liquidator is sufficient to constitute an arguable set off for the purpose of this appeal.
I will now address the other remaining orders which are the subject of appeal and specific grounds of appeal raised in the Notice of Appeal.
Set aside the resolutions of creditors of 31 March 2004
Appeal Order 1.3, Ground 1.4 and Order 4 of the orders sought in the Notice of Appeal.
Starmaker argues that the resolutions of the alleged creditors of Mawson on 31 March 2004 should be set aside and that the Master was wrong in rejecting this order which was sought in paragraph 2 of the Notice for Specific Directions.
On 31 March 2004, a meeting of creditors of Mawson’s was held with the following agenda:
·to consider a report from the Liquidator regarding the conduct of the liquidation
·to consider, and though fit, grant approval for the Liquidator to enter into a contract for litigation funding.
·to obtain creditor’s instructions concerning further investigations.
·to approve the remuneration of the Liquidator
·any other business.
The appellant seeks that the resolutions be set aside on the basis that pursuant to regulation 5.6.12, the Liquidator was required to provide Starmaker with written notice of the proposed meeting of creditors of 31 March 2004, by delivering the notice personally or by sending by prepaid post or by facsimile transmission. Starmaker says that the written notice of the meeting was addressed to 193 West Terrace Adelaide SA when it was known by the Liquidator from the Proof of Debt that a solicitor was acting. Further, counsel for Starmaker submits that given the passage of 7 years since the lodging of the Proof of Debt and the meeting of the creditors the Liquidator should have done more to comply with the requirements of regulation 5.6.12.
Counsel for the Liquidator on the other hand argues that it did send the notice to the address shown on the Proof of Debt and that in any event the resolution should not be set aside because “there were other creditors present who voted in favour of the resolution”. The Liquidator also argues that Starmaker does not have standing to make the application to challenge the validity of the Meeting of Creditors.
In its submissions, Starmaker appears to use the lack of notice as a springboard to challenge whether or not there were in fact any true creditors at the Meeting of Creditors. Certain information and criticism was given from the bar table concerning other alleged creditors who were said not to be creditors at all. I was referred to Action no 1037 of 2004 in which Starmaker obtained orders that Majda & Associates and Bruce Harry & Associates were not and never were creditors of Mawson. I note that the Liquidator was not a party to those proceedings.
I have nothing before me on this and it is inappropriate for me to surmise as to what persons were or were not present at the Meeting of Creditors and whether they represented true creditors. The fact that Starmaker was not given notice of the meeting, in my view, does not of itself suggest that the Meeting of Creditors would be invalid and thereby required to be set aside. It seems to me that the onus is on Starmaker to make good the proposition and not merely point to the failure of the Liquidator to give appropriate notice to it. On the information before me I am not satisfied that there is an appropriate basis to set aside the resolutions of the Meeting of Creditors. That conclusion in my view is sufficient to reject this ground of appeal without the need to address the more technical issue of whether or not Starmaker had standing to seek to set aside the resolutions by reason of the combination of ss 536 and 1321 of the Act.
The liquidator be required to produce the costs agreement
Appeal Order 1.4, Ground 1.5 and Order 5 of the orders sought in the Notice of Appeal.
It is common ground between the parties that the litigation funding agreement (with percentages and amounts blanked out), has been supplied to the solicitors of Starmaker. The issue concerns the production of a costs agreement between the Liquidator and his solicitors. It was submitted by Starmaker that it is entitled to inspect a copy of the costs agreement entered into between the Liquidator and the lawyers acting on behalf of the Liquidator.
In my view this assertion is dependant on whether Starmaker is successful in its challenge of the rejection by the Liquidator of its Proof of Debt and whether it is successful in having the Court determine that the Proof of Debt be admitted. In this case whether or not there is an inspection of a costs agreement, must await a decision of the Court on the Proof of Debt as discussed earlier. I appreciate that this may not occur for some time, but that to me appears to be the only practical solution. I therefore reject this argument as being tenable at this point in time.
Fixing a date on which creditors are to prove their debts
Ground 1.6 and Order 6 of the orders sought in the Notice of Appeal.
This submission relates to the determination by the Liquidator not to adjudicate proofs until the outcome of Supreme Court Action number 883 of 2000 as there will be no dividend to meet the Formal Proof of Debt unless the Liquidator’s action succeeds.
Counsel for Starmaker argued that one of the duties of a liquidator is to complete the administration of assets within a reasonable time and not to protract the liquidation unduly. [9] Further that the duty of a liquidator includes inquiring into all claims to determine their foundation,[10] to protect the interests of unsecured creditors[11] and to act to a standard required of a court or judge.[12] Overall, Starmaker asserts that it is entitled to have certainty as to the identity of the parties making a claim upon the fund constituting the assets available to the creditors of the company. A number of authorities were cited in support of this proposition including the case of Lofthouse v Australian Securities and Investments Commission.[13] In Lofthouse the Administrative Appeals Tribunal considered the duties of a liquidator and quoted Marks J in Timberlands, in which he said:
He is clearly not an employee of the Court but the nature of the appointment makes a representative of it. As Street J said in Duffy v Super Centre Development Corporation Ltd the decisions the liquidator makes from time to time are in effect made under the authority of the Court itself. The winding up is by the Court which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper despatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court o[r] of a judge. (citations omitted) [14]
[9] Re: House Property & Investment Co (1954) Ch 576 at 612; CCA v Harvey (liquidator of Timberlands Ltd (in Liq) and Equitable Forestry Services Pty Ltd (in liq) [1980] VR 669.
[10] Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529.
[11] Chilia Properties Pty Ltd (Administrator Appointed) (1997) 73 FCR 171
[12] Duffy v Super Centre Development Corporation Ltd (1967) 1 NSWLR 382.
[13] (2004) 82 ALD 481.
[14] Ibid at [15].
It was submitted that Starmaker as a creditor is entitled to have certainty as to the identity of the parties making a claim upon the fund constituting the assets available to the creditors of the company. However an order setting a date for creditors to prove debts can not be made in isolation without having regard to the fact that the outcome of Action no 883 of 2000 will determine whether or not there is anything to distribute.
This seems to me to be contingent upon Starmaker being successful in relation to the admission of the Proof of Debt. More importantly, I see force in the argument put by counsel for the respondent that there is no purpose to setting such a date to adjudicate the Proof until such time as the outcome of Supreme Court Action 883 of 2000, because unless the Liquidator is successful in the action there will be no dividend which is relevant for distribution.
I therefore reject this ground of appeal.
The Amended Proof of Debt
The final matter to be addressed is the Amended Proof of Debt dated 28 June 2005, in which Starmaker claims an amended sum of $1,599,337.20 against Mawson.
In support of this argument, counsel for Starmaker sought to tender two affidavits to verify the basis and quantum of the claim. Counsel for the Liquidator objected to these affidavits being tendered on the appeal. I indicated that I would consider the argument as a matter of law and that the question of their admission could await the outcome of that deliberation.
Starmaker submits that the Court in making any orders setting off claims between Starmaker and Mawson pursuant to s 553C of the Act, should do so by reference to the Amended Proof of Debt of 28 June 2005 and not the Proof of Debt dated 12 May 1998. The Amended Proof of Debt claims that the quantum due by Mawson to Starmaker is ($1,599,337.20) which exceeds any claim being asserted by Mawson, therefore it was submitted that any set off by the Court would leave a net balance owing by Mawson to Starmaker.
The principle argument put on behalf of Starmaker was twofold. First that as the Liquidator had rejected the 1998 Proof of Debt, it was no longer acting in a quasi judicial role but in an adversary role in this Court and therefore cannot now consider any amended Proof of Debt. Secondly, as this Court had jurisdiction to decide on the proof of debt dated 12 May 1998 which included any issue of set off, the jurisdiction to consider that Amended Proof of Debt now resided with this Court.
Counsel for the Liquidator in response submitted that the Amended Proof of Debt was not appropriately before this Court and the appeal is limited to the decision of the Liquidator refusing the Proof of Debt of 12 May 1998. Counsel argued that regulation 5.6.56 states that an amendment to a proof of debt requires consent of the liquidator and that this process was required to be followed before there was any issue which could be raised in this Court on the amended debt.
In considering these arguments, I have already concluded that the Liquidator was not prevented from making a decision on the Proof of Debt of 12 May 1998 notwithstanding that 28 days had elapsed and therefore the rejection of the Proof of Debt was within his statutory powers. I have also concluded that the amendment of the Notice of Specific Directions enables Starmaker to appeal against the rejection of its Proof of Debt by the Liquidator but that this should be heard at the same time as the hearing and determination of Action number 883 of 2000.
Counsel for Starmaker indicated that the Amended Proof of Debt of 28 June 2005 was not on the same subject as the Proof of Debt dated 12 May 1998, and that it did not include that sum. It was indicated, however, that the debt arose out of the same matters which are due to be determined in Action number 883 of 2000. Whilst the role of the Liquidator changes from quasi-judicial to adversary once it begins defending it’s rejection of a proof of debt, this does not mean that any amended proof of debt which is based on a different subject matter, may not properly be regarded as part of the quasi-judicial function of the Liquidator. The Liquidator has a statutory duty to decide whether or not to consent to a variation of the proof of debt pursuant to regulation 5.6.56.
For these reasons I conclude that the appropriate process is for the Liquidator to consider the Amended Proof of Debt and consider whether to consent either in whole or in part. It is not appropriate for the Amended Proof of Debt to be considered by this Court prior to this process being undertaken.
Conclusion
For the above reasons I therefore make the following orders:
1.I allow the appeal for the limited purpose of directing that the issue of whether the rejection by the Liquidator of the Proof of Debt of Starmaker dated 12 May 1998 should be revoked and whether the said Proof of Debt should be admitted, be heard and determined at the same time as Action number 883 of 2000.
2.I dismiss the orders sought in paras 2, 3, 4, 5 and 6 of the orders sought in the Notice of Appeal filed on 26 November 2004.
3. I will hear the parties on any orders as to costs.