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Sutherland v Rahme Enterprises Pty Ltd

Sutherland v Rahme Enterprises Pty Ltd

Case [2003] NSWSC 673 23 July 2003

Insolvency Law

Contract Formation

Repudiation & Termination

Corporate Law & Governance

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Reported Decision:
(2003) 46 ACSR 458
(2003) 21 ACLC 1385

Supreme Court

CITATION: Sutherland v Rahme Enterprises [2003] NSWSC 673 revised - 25/07/2003

HEARING DATE(S): 21/07/03

JUDGMENT DATE:
23 July 2003

JURISDICTION:
Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Termination of winding up refused

CATCHWORDS: CORPORATIONS - winding up - application for termination of winding up following execution of deed of company arrangement - deed extinguishes some debts but leaves substantial related party debts - purported contractual subordination - contract terminable or variable by mutual consent - whether future financial stability sufficiently assured

LEGISLATION CITED: Corporations Act 2001 (Cth), ss.444A, 444B, 444D. 444G, 445C, 482

CASES CITED: Brolrik Pty Ltd v Sambah Holdings Pty Ltd (2001) 40 ACSR 361
Collins v Collins & Sons Pty Ltd (1984) 9 ACLR 58
Re Data Homes Pty Ltd (1971) 1 NSWLR 338; (1972) 2 NSWLR 22
GIO Workers' Compensation (NSW) Ltd v Advance International Pty Ltd [2002] NSWSC 261
Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70
MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636
Re Nature Springs Pty Ltd (1994) 13 ACSR 50

PARTIES :
Roderick Mackay Sutherland - Plaintiff
Rahme Enterprises Pty Ltd (In Liquidation) - Defendant

FILE NUMBER(S): SC 2736/03

COUNSEL: Mr D R Stack - Plaintiff

SOLICITORS: Nash O'Neill Tomko Lawyers - Plaintiff

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY 23 JULY 2003

2736/03 - RODERICK MACKAY SUTHERLAND v RAHME ENTERPRISES PTY LTD (IN LIQUIDATION)

JUDGMENT

1 By an originating process filed on 9 May 2003 the plaintiff, Mr Sutherland, as liquidator of the defendant, Rahme Enterprises Pty Ltd, sought two substantive orders: first, and order that he have leave to appoint himself administrator of the defendant; and, second, an order that the winding up of the defendant be terminated.

2 The application for the first of these orders was heard by Austin J on 10 June 2003. His Honour made the order as sought. He did so in circumstances where an entity associated in a general sense with the principals of the defendant had communicated an intention of proposing a deed of company arrangement which, on the face of things, would produce a better return for creditors than a winding up.

3 The shares in the defendant company are held by Mr Maroun Rahme and his wife. They are the only directors. Mr Rahme is a bankrupt. Mr Rahme and Mrs Rahme are parties to proceedings in the Family Court. The person who has been instrumental in proposing the deed of company arrangement is Mr Maroun Rahme's father, Mr George Rahme, whom I shall call “Mr Rahme Sr”.

4 The company has debts of some $1.3 million, of which $1.13 million is owed to related party creditors and $188,000 is owed to creditors who are not associated with the company or its principals. The possible outcomes for creditors were dealt with in paragraph 6 of Austin J's judgment…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Sutherland v Rahme Enterprises Pty Ltd

Details

AGLC: Sutherland v Rahme Enterprises Pty Ltd (in liq) [2003] NSWSC 673
Case: [2003] NSWSC 673
Decision Date: 23 July 2003

CaseChat Overview and Summary

The applicants, Sutherland, sought to have the winding up of the respondent, Rahme Enterprises Pty Ltd, terminated. The winding up had been ordered after an application by a creditor of the company, and the applicants sought to argue that the company was solvent and therefore able to continue its operations. The respondents argued that the company was not solvent as it had substantial debts owed to related parties that remained unpaid. The applicants also relied on a purported contractual subordination agreement, which sought to prioritise certain debts over others.

The legal issues before the court were whether the applicants could successfully argue that the company was solvent and able to continue its operations, and whether the contractual subordination agreement was valid and enforceable. The court had to determine whether the company's future financial stability was sufficiently assured to warrant the termination of the winding up, and whether the contractual subordination agreement was effective in subordinating the debts of the related parties.

The court found that the applicants had not satisfied the criteria for the termination of the winding up. The court held that the contractual subordination agreement was ineffective as it was terminable or variable by mutual consent, and therefore not binding on the related parties. The court also found that the company's financial position was not sufficiently stable to warrant the termination of the winding up. The court was not satisfied that the company had made adequate arrangements for the payment of its debts, and that the company's future financial stability was not sufficiently assured.

The court dismissed the application for the termination of the winding up. The court found that the company was not solvent and that its financial position was not sufficiently stable to warrant the termination of the winding up. The court held that the applicants had not satisfied the necessary criteria for the termination of the winding up, and that the application should be dismissed.

Orders