Tomlinson v Cut Price Deli Mykytowych v Cut Price Deli Novamaze Pty Ltd v Cut Price Deli
[1995] FCA 676
•29 AUGUST 1995
CATCHWORDS
PRACTICE AND PROCEDURE - Mareva injunction - application by voluntary administrator for dissolution of Mareva injunctions granted prior to commencement of administration - application dismissed
Corporations Law - Part 5.3A, ss 435C(2), 437A, 439C, 440C, 440F
K/S A/S Admiral Shipping v Portlink Ferries Ltd. [1984] 2 Lloyd's Rep 166 Referred to
Peter John Tomlinson and Jean Tomlinson
v Cut Price Deli Pty Limited & Ors
QG 72 of 1991
Bohodar Mykytowych and Lesta Mykytowych & Anor
v Cut Price Deli Pty Limited & Ors
QG 18 of 1994
Novamaze Pty Limited & Ors
v Cut Price Deli Pty Limited & Ors
QG 149 of 1994
Drummond J
Brisbane
29 August, 1995
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 72 of 1991
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: PETER JOHN TOMLINSON and
JEAN TOMLINSON
Applicants
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND: ENZO SGAMBELLONE
Second Respondent
AND:HARRY MALOVANY
Third Respondent
AND:PETER HOEFLER
Fourth Respondent
AND:RON HARMER
Fifth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Sixth Respondent
AND:CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
Cross Applicants
AND:PETER JOHN TOMLINSON and
JEAN TOMLINSON
Cross Respondents
MINUTES OF ORDERS
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 29 August, 1995
WHERE MADE: Brisbane
THE COURT ORDERS THAT:
The notice of motion filed 21 August, 1995 be dismissed.
The voluntary administrator, Mr. J. Star, pay the respondents' costs of and incidental to the notice of motion.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 18 of 1994
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: BOHODAR MYKYTOWYCH and
LESTA MYKYTOWYCH
First Applicant
AND:VANUXI PTY. LIMITED
Second Applicant
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND:CUT PRICE DELI FRANCHISING PTY. LIMITED
Second Respondent
AND: ENZO SGAMBELLONE
Third Respondent
AND:HARRY ALBERT MALOVANY
Fourth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Fifth Respondent
MINUTES OF ORDERS
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 29 August, 1995
WHERE MADE: Brisbane
THE COURT ORDERS THAT:
The notice of motion filed 21 August, 1995 be dismissed.
The voluntary administrator, Mr. J. Star, pay the respondents' costs of and incidental to the notice of motion.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 149 of 1994
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: NOVAMAZE PTY. LIMITED
First Applicant
AND:DARRYL PAUL WEEDMAN and
ELAINE MARGARET WEEDMAN
Second Applicants
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND: ENZO SGAMBELLONE
Second Respondent
AND:LUZETTE McKENZIE
Third Respondent
AND:BERNE NO. 7 PTY. LIMITED
Fourth Respondent
AND:RUSSELL GORDON DONALD and
VIVIAN ANNE DONALD
Fifth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Sixth Respondent
MINUTES OF ORDERS
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 29 August, 1995
WHERE MADE: Brisbane
BY CONSENT THE COURT ORDERS THAT:
The notice of motion filed 21 August, 1995 be dismissed.
The voluntary administrator, Mr. J. Star, pay the respondents' costs of and incidental to the notice of motion.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 72 of 1991
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: PETER JOHN TOMLINSON and
JEAN TOMLINSON
Applicants
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND: ENZO SGAMBELLONE
Second Respondent
AND:HARRY MALOVANY
Third Respondent
AND:PETER HOEFLER
Fourth Respondent
AND:RON HARMER
Fifth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Sixth Respondent
AND:CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
Cross Applicants
AND:PETER JOHN TOMLINSON and
JEAN TOMLINSON
Cross Respondents
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 18 of 1994
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: BOHODAR MYKYTOWYCH and
LESTA MYKYTOWYCH
First Applicant
AND:VANUXI PTY. LIMITED
Second Applicant
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND:CUT PRICE DELI FRANCHISING PTY. LIMITED
Second Respondent
AND: ENZO SGAMBELLONE
Third Respondent
AND:HARRY ALBERT MALOVANY
Fourth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Fifth Respondent
IN THE FEDERAL COURT OF AUSTRALIA ) No. QG 149 of 1994
QUEENSLAND DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN: NOVAMAZE PTY. LIMITED
First Applicant
AND:DARRYL PAUL WEEDMAN and
ELAINE MARGARET WEEDMAN
Second Applicants
AND: CUT PRICE DELI PTY. LIMITED
(Voluntary Administrator appointed)
First Respondent
AND: ENZO SGAMBELLONE
Second Respondent
AND:LUZETTE McKENZIE
Third Respondent
AND:BERNE NO. 7 PTY. LIMITED
Fourth Respondent
AND:RUSSELL GORDON DONALD and
VIVIAN ANNE DONALD
Fifth Respondent
AND:CUT PRICE DELI (AUST) PTY. LIMITED
(Voluntary Administrator appointed)
Sixth Respondent
Coram: Drummond J
Dates: 29 August, 1995
Place: Brisbane
REASONS FOR JUDGMENT
This is an application by the voluntary administrator of a number of companies to dissolve Mareva injunctions granted by Kiefel J on 23 June last. Kiefel J ordered that each of Cut Price Deli Pty. Limited ("CPD") and Cut Price Deli (Aust) Pty. Limited ("CPD (Aust)") be restrained from disposing of, encumbering or in any other way dealing with their assets, otherwise than for certain limited purposes.
The injunctions were sought because CPD, the company liable on judgments obtained by certain CPD franchisees and also the company facing other litigation at the suit of other francishees, transferred a substantial part of its assets to CPD (Aust) in 1994, an action that only became known when
various notices of assignment were given by CPD (Aust) to franchisees in May 1995. Kiefel J said:
"Counsel for CPD submit that, whatever conclusions are reached about the transactions, it remains in a position to meet the judgments, and it cannot be shown that they will be further disputed. The short answer to that is that I have no confidence that CPD will retain what assets it now has. It has already acted in what I can, on the present state of the material, only conclude is a manner designed to protect its assets from judgments. And the dearth of information and paucity of explanation is not brought about by insufficient time in which to place such material before the Court."
The proceedings were heard before Kiefel J on 8, 16 and 22 June, 1995, with judgment being given on 23 June, 1995. The subsequent course of those proceedings was as follows: on 30 June, 1995 CPD and CPD (Aust) ("the companies") filed an application for leave to appeal the judgment. This application was set down on 7 July, 1995 for hearing in the Full Court, due to commence later that month. The solicitors for the companies advised the parties who had obtained the injunctions on 14 July, 1995 of the companies' intention to abandon this application for leave to appeal and, on 27 July, 1995, a consent order was made dismissing the application. There the matter rested for a further three weeks, when those persons controlling the companies, whose actions had led to the granting of the Mareva injunctions, appointed Mr. Star to be voluntary administrator of three Cut Price Deli companies, including the two companies the subject of the injunctions.
The application for dissolution of these injunctions has been presented on behalf of Mr. Star as one that needs to be dealt with extremely urgently. Two arguments were advanced in support of the application: firstly, it was said that the reason for the Mareva injunctions has gone, now that those formerly in control of the companies have been displaced by the administrator; secondly, it was said that it is inconsistent with the provisions of Part 5.3A the Corporations Law, and particularly with s. 437A under which the voluntary administrator has power to dispose of the companies assets and businesses for the purposes of his administration, for the injunctions to remain in place.
Mr. Star was, as I have said, appointed voluntary administrator of both companies on 18 August last, as well as voluntary administrator of a third company, Cut Price Deli Franchising Pty. Limited. On the same day, 18 August, 1995, he swore an affidavit in support of this application. The application was prepared by Messrs. Snelgrove & Partners of Sydney. It is dated 17 August, 1995, although it was not filed until 21 August, 1995. Messrs. Snelgrove & Partners were the solicitors for CPD and CPD (Aust) in the proceedings before Kiefel J. The material does not reveal who gave them the instructions that caused them to prepare this application the day before Mr. Star was appointed administrator. But they were prescient in realising that Mr. Star, before he was appointed and before he had any opportunity to assess the position of the companies, would want to have the Mareva injunctions dissolved. The only reason Mr. Star gave in his first affidavit for seeking dissolution of the injunctions was:
"In order that I can discharge my obligations under the Corporations Law, inter alia, having regard to Section 435A (Objects), 437A(1) (Role and Power of Administration) and 442A (Additional Powers of Administrator), I request this Honourable Court that the Injunctions be dissolved urgently so as to enable me to deal with the assets of CPD and CPD (Aust) the subject of the Injunctions without limitation and in accordance with the powers reposed in me under the Corporations Law."
In response to a query from the Brisbane Registry of the Court why an urgent hearing was sought, Messrs. Snelgrove & Partners, in their letter of 22 August, 1995 to the District Registrar, set out the reasons why they said the matter should be heard that same day. In the course of this letter they said:
"We are instructed by Mr. Star that he is in the course of negotiating with interested parties in relation to the sale of the business and/or participation in a Deed of Company Arrangement and these and related matters will be discussed by him at the creditors' meeting this Thursday."
In his second affidavit sworn the same day, 22 August, 1995, Mr. Star also said:
"6.I am presently negotiating with interested parties in relation to the sale of the business and/or effecting a Deed of Company Arrangement and with the meeting of creditors scheduled for Thursday this week I need to be able to advise
those interested parties and the creditors that the Mareva Injunctions are dismissed.
7.The administration is complex because of:-
a)The activities and business of the two companies concerned are carried on in New South Wales, Queensland and Victoria;
b)There are in excess of 100 franchised shops;
c)There are in excess of 100 leased shops premises with many different landlords;
d)There are many shop equipment leases with different lessors/financiers;
e)There are many unsecured creditors;
f)CPDH Pty. Limited carries on business in its own right as a shop operator;
g)Many of the shops in (f) are loss making and I am in the process of assessing those to be closed;
h)There is significant litigation against CPDH Pty. Limited and CPD (Aust) Pty. Limited by landlords and some franchisees and some suppliers.
8.For the reasons above referred unless I get into unencumbered and unfettered control of the property of the two companies concerned and before the creditors' meeting scheduled for Thursday this week I am apprehensive that the negotiations I am presently involved upon may falter. ..."
According to his evidence, and according to what Messrs. Snelgrove & Partners said in their letter of 22 August, 1995, Mr. Star, very soon after his appointment to what he describes as a complex administration and even before the first meeting of creditors was held, at which his appointment would be confirmed or set aside, was apparently negotiating for the sale of the companies' businesses. It is difficult to accept this evidence on which Mr. Star relies in support of his claimed need to have the injunctions dissolved, unless negotiations for the sale of the companies' assets were opened prior to Mr. Star's appointment by those then in control of the companies and Mr. Star was merely continuing what those other persons had started. I am unable, however, on the evidence before me, to reach a concluded view on whether this may be the true position.
This application first came before me late on the afternoon of 22 August, 1995. I gave directions for the filing of material and for the matter to be heard yesterday morning. Further material was filed by Mr. Star. He said in this material:
"7.By way of overview on a forced or liquidation basis it is in my opinion unlikely that sufficient assets will be realised from the three companies to pay the costs of the Administrator/Liquidator.
8.On a going concern basis I am unable to estimate the value of the assets of the three (3) companies, suffice to say that interest has been expressed by a number of parties in the purchase of the Cut Price Deli franchise system. ... I have had meetings with a number of parties who have expressed interest in the purchase of the said system.
9.On Tuesday 22nd and Wednesday 23rd August 1995 I met with Cut Price Deli franchisees in informal meetings held in Brisbane and Sydney. ... It was apparent to me from those meetings and the first meeting of creditors convened today (at which certain franchisees were represented) that there are a number of franchisees seeking to opt out of the franchise system. Their position may well be facilitated by the liquidation of the companies. It was also apparent to me from those meetings that there are a number of franchisees who wish to stay in the franchise system and that they support me in my administration and the proposals.
...
11.From the above it is clear that the principal assets of the company from which creditors will benefit on realisation is the sale of the franchise system of Cut Price Deli. It is important that a sale be concluded as soon as possible to protect the position of that franchise system and its going concern value. ..."
Although Mr. Star's application for dissolution of the injunctions which he tried unsuccessfully to bring on before the Court here on 22 August, 1995 was to be heard yesterday, 28 August, 1995, Mr. Star set about trying to achieve that same object in Sydney. On Friday, 25 August, 1995, he engaged a different firm of Sydney solicitors from Messrs. Snelgrove & Partners, viz., Messrs. Gillis Delaney Brown, to make an urgent ex parte application to the Court in Sydney for what was, in effect, a declaration that the injunctions granted on 23 June, 1995 were enforcement proceedings for the purposes of s. 440F the Corporations Law and thus not binding on Mr. Star as voluntary administrator. This point was not argued in the proceedings before me. In his affidavit in support of the application made to the Court in Sydney, Mr. Star swore as follows:
"5.Annexed hereto and marked "A" is a copy of notes of orders made by Justice Kiefel on 23 June, 1995 (the "Orders") in proceedings No. QG72 of 1991 (the "Proceedings").
6.I understand that the Brisbane registry of the Federal Court has listed the Proceedings for hearing on Monday 28 August, 1995 to consider the merits of the Orders.
7.I have not consented, in writing or otherwise, to the Proceedings being proceeded with."
There is no other reference in this affidavit to Mr. Star's dissolution application that was then pending before the Court in Brisbane.
This affidavit, which was not relied on by Mr. Star in the proceedings before me, was put before me by the respondents. When Mr. Star's senior counsel indicated he wished to call Mr. Star to give oral evidence, I invited him to give consideration to why I should not conclude that paragraphs 5 to 7 of this affidavit, which I have just read, were designed to mislead the Court in Sydney as to what was on foot in Brisbane. Mr. Star gave the following oral evidence with respect to paragraphs 6 and 7:
"What did you intend to convey by those two paragraphs?‑‑‑To inform the Federal Court in New South Wales as to the proceedings in the Federal Court in Brisbane.
All right.Now, you, of course, are a deponent, that is, these proceedings that you are referring to, is not it?‑‑‑That's right.
And you are a deponent to affidavits in these proceedings?‑‑‑That's right.
Now, it could be read, those paragraphs might be read as saying that you have not consented to today's proceedings if you look at paragraph 7?‑‑‑Right.
Did you intend to convey that?‑‑‑No. I consent - I'm here today for these proceedings."
[I interpolate that the evidence before me shows that Mr. Star was given notice by the respondents requiring his attendance then for cross-examination.]
"And you were represented by counsel at those proceedings, were you?‑‑‑That's right.
Were you present in the proceedings?‑‑‑No, I wasn't.
When you mention in paragraph 7 that you have not consented to proceedings ‑ ‑ ‑?‑‑‑Yes.
‑ ‑ ‑ you are referring to the principal proceedings, that is the claims by Mr Tomlinson and ‑ ‑ ‑?‑‑‑That's the section 52 claims.
Under section 52?‑‑‑Yes."
This exchange took place before Whitlam J and Mr. Star's counsel in the proceedings in Sydney on 25 August, 1995:
"HIS HONOUR: Mr Van Aalst, if someone wants to make an application in relation to the orders made on 23 June they should be made directly.
MR VAN AALST: Well I appreciate that your Honour but my client was not a party to those proceedings. The confirmation of his appointment only took place yesterday. He practises in this state, the business of the company is conducted here, the persons with whom he wishes to negotiate are in Sydney, as I understand it, and it is perceived appropriate to seek the directions which the act enables him to do in these circumstances."
Later, as counsel took his Honour through the material, counsel said this:
"If your Honour goes to the next page your Honour will see there in the second paragraph a notice is given to the creditors of the appointment of the administrator prior to it that the companies were involved in a litigation subject to a Mareva injunction restricting their operation and that he has instructed solicitors to have the injunction uplifted to enable negotiations to be undertaken with interested parties. There are a number of interested parties in the business and he is confident of the sales being concluded in the short term. The next paragraph is concerned with claims by employees and secured creditors."
A little while later, his Honour queried counsel about what counsel had mentioned as to the instructions given by the administrator to have the injunctions uplifted, and this exchange took place:
"HIS HONOUR: Just before you do that, what happened to the application to lift the Mareva injunction?
MR VAN AALST: As I understand it, it is before the Court on Monday and it is an application which my client is not a party to and it involves creditors and companies."
[I interpolate that the application is, of course, one by Mr. Star personally, the only person who could bring it in view of Part 5.3A the Corporations Law.]
In any event his Honour did not accept what Mr. Van Aalst had to say to him and continued to press the matter:
"HIS HONOUR: What does he mean when he says, `I've given instructions to solicitors to have the Mareva injunction uplifted forthwith.'
MR VAN AALST: I am instructed, your Honour, there is an application before the Federal Court in Brisbane by the Administrator for a discharge of the injunction on Monday."
Whitlam J refused to make the orders sought and adjourned the proceedings before him to today for directions.
Inconsistent statements by Mr. Star's counsel and that counsel's failure to tell the Court when he first mentioned the Brisbane application what it appears he well knew, until he was closely questioned by the judge, viz., that the Brisbane application was Mr. Star's own application, do not engender confidence in what Mr. Star has urged on me to the effect that there are proper reasons for the urgent dissolution of the Mareva injunctions.
In his affidavit read before Whitlam J but not by him in the proceedings before me, Mr. Star sought to justify the urgency of his need for the relief he then sought on this basis:
"12.Now exhibited to me, at the time of swearing this affidavit, is a true copy of a letter addressed to me dated 24th August 1995 comprising an offer to purchase all of the assets and goodwill of the business of the Companies. That offer expired at 5.00 pm Thursday 24 August 1995. I have been informed that I am to receive from the offeree therein, another offer which is to expire with short notice. Accordingly, I require to be in a position to be able to negotiate with the offeree to sell all or any of the assets and/or goodwill comprised in the offer as it is my opinion to do so will be in the best interests of the creditors of the Companies. ..."
Unless those formerly in control of the Cut Price Deli organisation had been involved, prior to Mr. Star's appointment, in negotiations that produced this offer, it is difficult to accept that such an offer to buy all the assets and goodwill of the companies, received only a few days after the voluntary administration was established at the instigation of those same persons previously in control of the various Cut Price Deli companies, was an offer worth serious consideration by Mr. Star as the person responsible for what he himself describes as a complex administration. I also mentioned these concerns to counsel before Mr. Star gave oral evidence before me. This is what Mr. Star had to say:
"MR LYONS: Now, in paragraph 12 of the same affidavit, reference is made to an offer which was made on Thursday, 24 August, the terms of which have not been put before this Court. Is there any reason why the terms of the offer have not been put before this Court?---It's confidential. I can give you an indication of the - within a framework - the size of the offer if that helps the Court."
[I interpolate that, notwithstanding its alleged confidentiality, the offer was put before the Court in Sydney, albeit with a request that it be kept confidential.]
"MR LYONS: I do not particularly propose to ask you ...
BY HIS HONOUR: A matter for you, Mr Lyons, how you deal with the matter.
MR LYONS:Yes. When you say it is confidential, what are you indicating by that?‑‑‑Well, from my point of view on the negotiation process, I don't want to be disclosing to other parties totally the
interest parties and the exact dollar amounts that we're talking about negotiating.
But can you tell his Honour why you do not want to discuss those matters?‑‑‑It may adversely affect the negotiation process.
You indicated before that you could give some indication of the range within which that offer falls. What is that range?‑‑‑Can I say that it is in excess of $1 million."
It is difficult to accept that a person at arms length from the Cut Price Deli organisation would be prepared to make a serious offer, open for less than 24 hours, to Mr. Star to buy the business of CPD and CPD (Aust) for in excess of $1 million, unless the offerer had had discussions with the principals of Cut Price Deli prior to Mr. Star's appointment and time to obtain accurate information about the Cut Price Deli companies' businesses. In any event, Mr. Star did not seek to rely on this potential sale before me, in contrast to his position before Whitlam J. But the episode reinforces my concerns as to whether I can have confidence in what Mr. Star has had to say to me about the need for the urgent dissolution of the injunctions.
In oral evidence, he expanded on what he touched on briefly in paragraph 9 of his affidavit filed 24 August, 1995, read in these proceedings, about the need to sell quickly to preserve the value of the franchise business of the various Cut Price Deli companies. On the first occasion he went into the witness box, he identified a number of considerations which made it more appropriate, as he put it, to have the injunctions dissolved rather than to have them modified, if the occasion of a sale arose, to allow any such sale to be completed with the injunctions attaching only to the sale proceeds. Mr. Star said he wants to effect the sale simultaneously with a deed of company arrangement to enable difficulties created by the sale in 1994 by CPD of the CPD franchise system to CPD (Aust) (a transaction at the centre of the litigation before Kiefel J) in the way of identifying the Cut Price Deli employees with priority claims over the CPD major secured creditors, Australia and New Zealand Banking Group ("ANZ Bank") and Australian Guarantee Corporation, to be overcome. ANZ Bank apparently asserts that this sale of the franchise system by CPD to CPD (Aust) was improper. Mr. Star says that if a sale can be effected in conjunction with an appropriate deed of company arrangement, the potential dispute between ANZ Bank and CPD and CPD (Aust) can be resolved and the priority claims of the employees vis-a-vis the secured creditors' claims can all be accommodated consensually.
I can accept that these sorts of problems may have flowed from the CPD to CPD (Aust) sale in 1994. I can also accept that, if all involved can be persuaded to agree to a deed of company arrangement, the settlement of complicated disputes may also be achieved. But I cannot at the moment see why this at present speculative solution that Mr. Star has in mind trying to achieve is dependent on the injunctions being dissolved now. In this regard Mr. Star said:
"... if you have the situation where, for example, the Mareva injunction stays and I propound the deed and the terms of uplifting of the Mareva injunction are different to what is propounded under the deed, then I would have to call another meeting to have it reconsidered."
But he immediately added:
"Now, that doesn't cause a problem per se."
He went on to say:
"... I have a particular problem in this administration in that I have no funds, in the sense that all of the existing franchisees within the franchise system are not paying those franchise [fees]."
I observe that Mr. Star has, despite what he says here, apparently been able to afford the luxury of retaining two different Sydney firms of solicitors to make contemporaneous applications in Brisbane and Sydney in an attempt to free his administration from the injunctions.
Mr. Star went on in the course of oral evidence to identify a more substantial ground for concern that, unless he sells quickly, the value of the franchise system is likely, quickly, to be dissipated. He said that a large number of CPD franchisees have already stopped paying their franchise fees to CPD (Aust) and Mr. Star expects a considerable number will pull out of the Cut Price Deli chain and negotiate new leases of their existing shop premises with the various landlords. At present one or other of the companies is the lessee of all these premises and the franchisees have some form of tenure from the lessee company. What Mr. Star has to sell at the moment is a franchise operation with about 100 stores linked into it. He said:
"... What we're seeking to do is to preserve an asset which is going to dissipate and go to the four winds unless I close out very quickly because what happens is if you've got a group of franchisees in the system - say there's 100 there now and people want to get their own lease, I could end up with down to a group of five or ten or whatever that want to stay there, and suddenly the system has got no value at all, so the asset disappears in front of me and I'm standing there holding the bag as to the personal liability. That's along with the sale process, the reason why I have to do it very quickly because I've got problems as far as the creditors are concerned."
However, the moratorium that prevents the head lessors taking possession from the lessee companies of the shop premises in question will end when the administration comes to an end. (See s. 440C). In the absence of an order extending the administration, this will occur within 21 days of 18 August, 1995, i.e., on 8 September next. (See ss. 435C(2) and 439C). Mr. Star's opinion appears to be that, unless he can put a deed of arrangement and sale in place by then, he is likely to have little to sell because of the likelihood that a large number of franchisees will desert the CPD franchise system.
All that may very well be true, but it is difficult to see how, given the nature of what Mr. Star has to sell at the moment, an informed purchaser would be prepared to pay substantially more now than he would pay after the disaffected franchisees have cut their ties with the Cut Price Deli organisation. In any event, I cannot see how the maintenance for the present of the injunctions, which the Court would very likely modify to allow a sale to proceed if a bona fide sale of any of the companies' businesses could be achieved by Mr. Star, is any real impediment to Mr. Star achieving what he says he hopes to achieve.
Moreover, Mr. Star does not put any acceptable evidence before me to suggest that there is any likelihood of a sale of any of the Cut Price Deli organisation's businesses in the foreseeable future. I have referred to the so-called offer of 24 August, 1995. Mr. Star also said in this regard:
"I believe that there will be a number of parties who will show some interest in the business. I have indicated that I have one that wanted to submit an offer. I've also had two or three other people who said to me that they will be interested in submitting an offer. Whether they submit an offer or not, I don't know ..."
He did not provide any other detail that might tend to suggest that there is a genuine potential buyer or buyers around. He could have done so on the same confidential basis he put evidence before the Court as to the list of organisations he initially approached to see if he could elicit interest in buying the Cut Price Deli assets.
When I mentioned the concerns I still had at understanding why the lifting of the injunctions was so important in the circumstances revealed by Mr. Star in oral evidence, his senior counsel recalled him, with leave, to provide a further reason for that being the position, a reason that had not hitherto been mentioned. Mr. Star, in this regard said:
"There has been some concern expressed about whether what is being offered has value, in view of the relationship between the franchisees and the franchisor. What facts are there that suggest that nevertheless a potential purchaser may be prepared to pay a substantial amount to obtain the benefit of the association with the franchisees?---In operating the franchise system that we have at the moment, Cut Price Deli, there are in excess of 100 stores under the franchise system, and in the past the revenue has been earned by a franchise fee, companies selling off shops where they take a position a shopping centre and sell the shop off, and it's clear that, at the moment, the franchisees, because of the problems that are associated with the franchise, will not or cannot pay the franchise fee. So, a number of interested parties have been speaking about proposals whereby distribution is put in place in the major centres, in other words where you have a lot of shops in one area, for example, Brisbane or Sydney. And in fact in March this year [a] distribution system was set up on the central coast of New South Wales outside of Sydney, and under the distribution set-up there, just to give you an idea of the value, the third party paid in the order of $950,000 for the rights for the central coast one, plus one in Mascot to do the city area. And under the distribution arrangement, the distributor pays a sum to the franchisor and there are supplier rebates."
The organisations said to be interested in buying not the dubious right to future fees from franchisees, but the Cut Price Deli organisation's own right to supply product to those same franchisees, were not identified, nor was any detail given identifying the extent to which negotiations may have progressed. Moreover, Mr. Star gave this further evidence about this particular topic:
"The distributor surely would only pay money if he was assured of having a sufficient number of tied stores to distribute to ...?---Yes.
To make it worth his while, is that not so?---That is right."
The evidence concerning this further reason to have the injunctions dissolved, lately emerging, does not answer my concerns.
The Mareva jurisdiction is not intended to be a means whereby an unsecured creditor can improve his status in comparison with other creditors of the particular respondent: K/S A/S Admiral Shipping v Portlink Ferries Ltd. [1984] 2 Lloyd's Rep. 166. But the circumstances of this case are such that, until the Court has a clearer picture than that now available of what the administrator can realistically hope to achieve and some information about the creditors who are entitled to control the future of the companies now under administration, the status quo should be preserved.
My reluctance to lift the Mareva injunctions stems from the following considerations: firstly, despite the short time within which Mr. Star says he must sell if he is achieve a good price, there is no acceptable evidence that there was anyone seriously interested in buying any of the companies' assets or businesses. Secondly, there is no good reason advanced for thinking that the Mareva injunctions present any real impediment at the moment to a bona fide sale of the companies' assets, given the likelihood that the administrator would be readily able to procure a modification of the injunctions to allow a bona fide sale to proceed. Thirdly, there is the administrator's conduct in pursuing this application, prepared prior to his appointment by the solicitors who acted for the companies in the proceedings in which the injunctions were granted, simultaneously with his application in Sydney. Both applications were designed to achieve the same objective. That is justification, in the absence of cogent explanation for his doing that, for thinking that the injunctions should remain, at least until the administrator is prepared to put before the Court a bona fide proposal for the purchase of some or all of the Cut Price Deli organisation's assets presently in his charge.
I should also mention that the point was made that Mr. Star will soon be facing personal liability for debts incurred by the companies. I do not regard that, in the circumstances of this case, as any reason for lifting the injunctions.
The application is dismissed.
I certify that this and the preceding 21 pages are a
true copy of the reasons for judgment herein of the
Honourable Justice Drummond.
Associate:
Date: 29 August, 1995
Counsel for the applicant: Mr. P.J. Lyons, Q.C.
and Mr. P.W. Hackett
Solicitors for the applicant: Snelgrove & Partners
Counsel for all respondents: Mr. F.W. Redmond
Solicitors for all respondents: Lynch & Co.
Date of Hearing: 28 August, 1995
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