Viropoulos v Falcon G.T. Pty Limited
[2011] NSWSC 1509
•09 December 2011
Supreme Court
New South Wales
Medium Neutral Citation: Viropoulos v Falcon G.T. Pty Limited [2011] NSWSC 1509 Hearing dates: Thursday, 17 November 2011 Decision date: 09 December 2011 Jurisdiction: Equity Division - Corporations List Before: White J Decision: Refer to paras [64] and [65] of judgment.
Catchwords: CORPORATIONS - liquidators - application for removal of liquidators - whether liquidators validly appointed - where liquidators appointed to fill vacancy at creditors meeting convened by resigning liquidator - whether creditors can fill vacancy arising from liquidator's resignation only at a meeting of creditors convened by any two creditors pursuant to s 499(5), Corporations Act 2001 (Cth) - power to convene meeting of creditors to fill vacancy arising from liquidator's resignation pursuant to s 499(5), Corporations Act 2001 (Cth) facultative and not only way in which creditors can meet to appoint liquidator to fill vacancy - meeting validly convened by resigning liquidator - whether resigning liquidator entitled to exercise casting vote - Corporations Regulations 2001 (Cth), regs 5.6.17 and 5.6.21 - where resolution passed at creditors meeting after creditor approval of liquidator's resignation - Corporations Regulations 2001 (Cth), reg 5.6.21(4) gives casting vote to chairperson presiding at meeting not to the holder of a particular office - resolution appointing liquidators to fill vacancy validly passed
CORPORATIONS - liquidators - application for removal of liquidators - whether reasonable apprehension that liquidators lack impartiality - whether liquidators biased in favour of major creditor - where major creditor not prepared to provide funding for examination of director to any liquidator other than liquidators nominated by them - where former partner of liquidators provided advice to major creditor when partner of liquidators - where liquidators have been involved in administrations where major creditor petitioning creditor - impartiality of liquidators not compromised - application dismissedLegislation Cited: Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)Cases Cited: Condon v Watson [2009] FCA 11; (2009) 174 FCR 314; (2009) 27 ACLC 1
Little v Edwards Concreting Pty Ltd [2010] NSWSC 185
Re Allebart Pty Ltd and The Companies Act [1971] 1 NSWLR 24
Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) [1998] FCA 1050; (1998) 28 ACSR 529
Commonwealth v Irving (1996) 19 ACSR 459
Network Exchange Pty Ltd v MRG International Communications Pty Ltd (1994) 12 ACLC 594 at 599; Bovis Lendlease v Wiley [2003] NSWSC 467; (2003) 21 ACLC 1737Texts Cited: BH McPherson, M Gronow, R Mason, McPherson's Law of Company Liquidation, Thomson Reuters Legal Online Category: Principal judgment Parties: Nicholas Viropoulos (Plaintiff)
Falcon G.T. Pty Limited (In Liq) (Defendant)Representation: M Rosenblatt, solicitor (Plaintiff)
L Harris, solicitor (Defendant)
Somerset Ryckmans (Plaintiff)
Back Schwartz Vaughan (Defendant)
File Number(s): 2011/245706
Judgment
HIS HONOUR : This is an application under s 503 of the Corporations Act 2001 (Cth) to remove the second and third defendants (Messrs Turner and Whittingham) as liquidators of the first defendant ("Falcon") and appoint a new liquidator to Falcon.
The grounds of the application are:
(a) that Messrs Turner and Whittingham were not validly appointed as liquidators of Falcon; and
(b) there is a reasonable apprehension that they lack impartiality and are biased in favour of the major creditor, Fonterra Brands (Australia) Pty Ltd ("Fonterra") against whom Falcon has a claim for damages.
I have concluded that neither ground is made out.
Background to voluntary administration
The plaintiff, Mr Viropoulos, is the sole director and a creditor of Falcon. Prior to going into voluntary administration Falcon was in the business of supplying dairy products to retailers in certain parts of Sydney. In 2001 it entered into an exclusive supply agreement with Murrumbidgee Dairy Products Pty Ltd ("Murrumbidgee") to distribute Murrumbidgee's products to the eastern suburbs of Sydney. According to Mr Viropoulos, by 2005 its distribution area had expanded to include Sydney's inner west, the CBD and the St. George area.
Fonterra acquired Murrumbidgee in about September 2007 and Falcon continued as distributor. There were no written distribution agreements. In 2008 and 2009 there were disputes between Fonterra and Falcon about distribution arrangements. According to Mr Viropoulos, Fonterra pressed Falcon to enter into a written distribution agreement, but the parties could not agree on terms. The disputes included disputes about the areas in respect of which Falcon should have the right to distribute dairy produce. Mr Viropoulos sought recognition of, or compensation for, goodwill that he claimed Falcon had acquired and would acquire in the future.
On 16 January 2009 Fonterra gave notice that it might terminate its relationship with Falcon if Falcon did not satisfactorily address a number of issues, including Falcon's agreement to sell dairy products only in a distribution territory stipulated by Fonterra, and that Falcon's account with Fonterra be brought up to date. Mr Viropoulos objected to Fonterra's stipulation. He contended that Falcon had developed substantial goodwill with customers outside the territories to which Fonterra said Falcon should be confined. There were disputes concerning a product recall. There was a further dispute in relation to Falcon's endeavour to provide dairy products in the Wollongong area which Fonterra said was outside Falcon's territory.
In December 2008 Falcon lodged a complaint with the Australian Consumer and Competition Commission ("the ACCC") in relation to alleged anti-competitive behaviour by Fonterra. On 19 December 2008 the ACCC advised that it had decided not to take action in relation to the complaint. It noted that that decision did not affect any private right of action Falcon might have to recover compensation if it could establish that it suffered loss by illegal conduct.
No claim was brought by Falcon against Fonterra. There were further disputes during 2009. On 25 September 2009 Fonterra gave notice that its distribution arrangements with Falcon would be terminated on 25 March 2010. Fonterra asserted that Falcon had not complied with its requests for co-operation in a review of its Sydney distributors and had continued to solicit business outside its designated territory.
Mr Viropoulos regarded termination of supply as being unlawful. He also complains that Fonterra approached Falcon's customers and stated that First Choice (Falcon's trading name) was in breach of its contract and would no longer be supplied milk and that the customers would have to buy milk from another distributor. He contends that these statements were misleading or defamatory.
Voluntary administration and reports to creditors
As a result of Fonterra's threatened termination of its distributorship arrangement with Falcon, Mr Viropoulos concluded that Falcon's business was no longer a viable ongoing commercial enterprise. On 20 January 2010 he resolved to place Falcon into voluntary administration. Mr Grahame Hill was appointed voluntary administrator. A meeting of creditors was convened for 26 February 2010 and was adjourned to 5 May 2010. Mr Hill recommended that in the absence of a proposal for a deed of company arrangement Falcon should be wound up. On 5 May 2010 the creditors resolved that the company be wound up. Mr Hill was appointed liquidator.
In a supplementary report to creditors dated 27 April 2010 Mr Hill raised issues concerning the administration of the company's affairs. He reported that in October 2009 and January 2010 Falcon had entered into two agreements for the sale of plant and equipment and other assets of the company to FCD Holdings Pty Limited, a company of which Mr Viropoulos was a director. He advised creditors that by the first agreement, Falcon had purported to sell all of its plant and equipment at a price described as a " Forced Liquidation Value ", and that by the second agreement Falcon had agreed to sell other assets including certain debtors, and that although stock did not appear to be subject to that agreement, stock had been transferred to FCD Holdings Pty Limited. Mr Hill said that there was a material discrepancy between trade debtors disclosed in the company's financial statements to 30 June 2009 ($1,208,863) and trade debtors disclosed in the sale agreement of January 2010 ($237,235). He said he had been provided with a list of bad debts, but had had been unable to verify their validity. He said that even if the list of bad debts was valid, there was nonetheless an unexplained discrepancy of $800,406 between the estimated sales and collections and receipts. Mr Hill stated that he had been advised that some debtors were banked directly into a related entity's bank account and subsequently transferred to Falcon's account, but there had been no full accounting for all moneys received on the company's behalf.
Mr Hill also reported that accounting records were missing and that according to Mr Viropoulos the company's accounting records had been kept on computers that had been stolen and that no backup copy had been maintained.
Meeting of 5 May 2010
At the adjourned meeting of creditors held on 5 May 2010 there was no disagreement that Falcon should be wound up. There was disagreement as to who should be appointed liquidator. The solicitor for Fonterra, Mr Tom Mutavdzijo, moved a resolution that Mr John Lord of PKF Chartered Accountants ("PKF") be appointed liquidator. There were 27 creditors attending at the meeting in person or by proxy. Fonterra is the largest creditor. Its debt was admitted to the value of $1,205,971. The admitted debts of the other creditors totalled $819,542. Fonterra's resolution that Mr Lord of PKF be appointed liquidator was rejected on the voices. Fonterra demanded a poll where it had 59.5 per cent of the value of the debts. Mr Hill as chairman of the meeting exercised his casting vote against the resolution. Accordingly it was not passed. Mr Hill was appointed liquidator. His reasons for using his casting vote in favour of his own appointment as liquidator and against the appointment of Mr Lord of PKF included that:
" A conflict may arise if the Fonterra nominated liquidator has an action against Fonterra under Trade Practices Legislation. "
At the meeting on 5 May 2010 Mr Lord said to Mr Viropoulos and Mr Hill words to the effect that Mr Viropoulos was responsible for the damage to the company and that Mr Hill was connected to Mr Viropoulos through his accountant. Mr Lord said to Mr Hill that he should resign and that he (Mr Lord) should be appointed as the liquidator. Mr Hill said that he would take a vote and the creditors could decide. According to Mr Viropoulos Mr Lord appeared to be angry. In his oral evidence Mr Viropoulos said that he observed Mr Lord going into a private room with representatives of Fonterra to consult with them. He formed the belief that Mr Lord was providing advice to Fonterra. According to the list of persons present at the meeting, Mr Mutavdzijo, a solicitor with James Partners, was representing Fonterra. A Mr Bill Guzzo, barrister, was also in attendance representing Fonterra. No officer or employee of Fonterra was present.
Meeting of 13 May 2011
On 28 April 2011 Mr Hill convened a further meeting of creditors of Falcon. The notice of meeting stated that the purpose of the meeting was to:
" (a) Resolve to approve Grahame Hill resigning as liquidator of the company.
(b) Resolve to appoint a liquidator(s) of the company to fill the vacancy.
(c) Consider any other matters which may be properly brought before the meeting. "
In a supplementary report to creditors also dated 28 April 2011 Mr Hill stated that:
" A meeting of creditors will be held on 13 May 2011 ... . The meeting has been convened to, inter alia, obtain creditor approval for me to resign as Liquidator and for the creditors to appoint another liquidator as resolved by the creditors of the company to fill the vacancy. I have received a consent to act from Mr Whittingham and Mr Turner. This is attached as Annexure 2 together with PKF Chartered Accountants schedule of hourly rates. "
Mr Whittingham and Mr Turner are partners of PKF. On 5 May 2010 and in April and May 2011 Mr Lord was also a partner of PKF.
In his report to creditors Mr Hill provided a summary of the work that he had done. This included obtaining approval to enter into a funding agreement with Fonterra and applying for an examination summons and for orders for production of documents against Mr Viropoulos. He noted that he had received correspondence from Fonterra on 17 February 2011 raising concerns as to his independence as a liquidator arising from his appointment as administrator of other companies of which Mr Viropoulos was or had been a director. Mr Hill gave reasons for rejecting the challenges to his independence. He stated that Fonterra had failed to provide funding in accordance with the funding agreement made with it. Mr Hill stated:
" Given that I am currently unfunded and Fonterra has terminated the funding agreement I am unable to progress the investigation into the company's affairs.
Fonterra has indicated it is willing to fund the proposed new joint liquidators and accordingly they should be in a position to progress the investigations, including possibly holding the public examination.
Subject to the condition that no other creditor is willing to fund the examination of the director or any other matters outlined in my previous report to creditors and in the circumstances when Fonterra will fund the proposed new liquidators, I am of the opinion creditors should vote in favour of the proposed resolution as it is in the best interests of the creditors for the investigations to be pursued. In doing so, I refute I have lack of independence in continuing to act as liquidator of Falcon. "
At the time Mr Hill was appointed as administrator, Falcon had cash assets of approximately $265,000. By 5 April 2011 all but about $7,000 had been spent on fees, legal costs and expenses of the administration.
Messrs Turner and Whittingham gave their consents to being appointed as liquidators. They signed a "Declaration of Independence, Relevant Relationships and Indemnities" that is required if a liquidator is required to convene a meeting under s 497 of the Corporations Act . They stated that they had undertaken a proper assessment of the risks to their independence and had identified no real or potential risks to their independence. They stated that Mr Lord (also of PKF) attended meetings with Fonterra and its advisors for the purposes of obtaining information about the company and to provide his consent to act in connection with the creditors' meeting held on 2 February 2010. They recorded that Mr Lord had received remuneration of $3,272.50 for this involvement with Fonterra. They stated that their relationship with Fonterra was that they understood that if they were appointed as liquidators, a similar funding agreement to that which had been made with Mr Hill would be provided to them for the same purpose. They also stated that within the preceding 24 months their relationship with Fonterra was a professional business relationship with the solicitor acting for Fonterra where they had acted as bankruptcy trustees and external administrators on various administrations where Fonterra was the petitioning creditor.
The meeting to approve Mr Hill's resignation and to appoint a liquidator to fill the vacancy was held on 13 May 2011. Mr Hill advised that in his capacity as liquidator and convener of the meeting, he would be chairing it. A solicitor for Mr Viropoulos, Mr Ryckmans, stated that in his view the meeting was not properly convened and queried the validity of any resolutions that might be passed. He said that creditors' approval was not needed for Mr Hill to resign as liquidator and that the Corporations Act outlined a procedure for creditors to appoint another liquidator should Mr Hill resign. Mr Hill stated that the meeting had been validly convened.
Mr Ryckmans, representing Mr Viropoulos, stated that Mr Viropoulos had serious concerns about the independence of Messrs Turner and Whittingham from PKF as Mr Lord, a partner from PKF, had previously acted for Fonterra by attending previous creditors' meetings with representatives of Fonterra and had provided advice to Fonterra about Falcon.
Mr Hill tabled a "Consent to Act" and a "Declaration of Independence" from Mr Free of Jirsch Sutherland. Mr Free had had no previous involvement with Fonterra. Mr Hill noted that Mr Viropoulos had agreed to provide funding up to $15,000 if Mr Free of Jirsch Sutherland was appointed liquidator. He said this would not be sufficient to fund an examination of Mr Viropoulos, but would only cover fees for carrying out statutory duties.
A resolution was moved by Mr Mutavdzijo representing Fonterra to " approve Grahame Hill resigning as liquidator of the company ". Fonterra was the only creditor that voted on the motion. There were ten other creditors present personally or by proxy. They abstained on the basis that it was an invalid resolution. Mr Ryckmans indicated that if his client and the creditors, other than Fonterra, were required to vote on the resolution on the basis that it was a valid resolution, they would have voted against it.
The minutes do not record that Mr Hill thereupon tabled a written notice of resignation, or said words to the effect that he resigned. According to the minutes the next matter to occur was that Mr Hill advised the meeting that it could determine to appoint another liquidator. The consent of Messrs Turner and Whittingham to act as liquidators was tabled. Mr Mutavdzijo moved a resolution that they be appointed joint liquidators. The voices were against the resolution and it was not carried. Mr Mutavdzijo for Fonterra demanded a poll. The results of the poll were as follows:
Number
Value
$
In Favour
1
1,205,971
Against
10
764,560
Mr Hill advised that he was exercising his casting vote in favour of the resolution and declared that the resolution was carried. He gave the following reasons or explanations in respect to the use of his casting vote:
" The DIRRI'S received from both Mr Whittingham and Mr Turner and Mr Free stated they had no conflicts of interest and were independent. No information or documentation had been provided to the Chairperson to indicate these statements were incorrect and he had no reason to believe they were incorrect.
Fonterra has undertaken to fund Mr Whittingham's and Mr Turner's remuneration and the costs of the examination of the director of the company. Mr Free had received a limited indemnity from the director which would not allow investigation issues to be progressed, including the Trade Practices Act allegations.
The liquidator was no longer in funds and the liquidation can only be progressed by a funded liquidator. Only Mr Whittingham and Mr Turner would be properly funded to progress the liquidation.
The courts have held a Chairperson should use a casting vote to resolve a deadlock, unless there are good reasons not to.
The Chairperson noted all parties maintained their rights to challenge the validity of the meeting, the validity of the resolutions passed at the meeting, the use of the Chairperson's casting vote and whether Mr Turner and Mr Whittingham were independent of Fonterra. "
On 13 May 2011 a notice of appointment of liquidators was lodged with ASIC that stated the appointment was effective on that day. On 16 May 2011 a notification of resignation of liquidator was lodged with ASIC stated to be effective on 13 May 2011.
No procedural irregularity
The application to remove Messrs Turner and Whittingham as liquidators of Falcon was filed on 29 July 2011.
At the hearing Mr Rosenblatt of Somerset Ryckmans appeared for Mr Viropoulos. Mr Harris of Back Schwartz Vaughan appeared for the liquidators.
Mr Rosenblatt submitted that the resolution was invalid on procedural grounds. He also submitted that there was an appearance that Messrs Turner and Whittingham were not or would not be impartial. He submitted that on that ground Mr Hill should not have exercised his casting vote in favour of their appointment, and they should be removed by the Court.
The Corporations Act contemplates that liquidators appointed in a voluntary winding-up can resign (ss 495(3), 499(5) and 537(2)). The Act does not specify how that is to be done. Liquidators appointed by the court may also resign (s 473(1)). In the case of court appointed liquidators a resignation is effective upon a memorandum of resignation being filed with the Registrar and lodged with ASIC (Supreme Court (Corporations) Rules, r 7.1).
The Corporations Act does not require that the liquidator in a creditor's voluntary winding-up have the approval of creditors before he or she resigns. A resignation would be effective upon clear and unconditional notice of resignation being given to the company ( Condon v Watson [2009] FCA 11; (2009) 174 FCR 314; (2009) 27 ACLC 1 at [49], [66], [67], [76]; Little v Edwards Concreting Pty Ltd [2010] NSWSC 185 at [6]-[9]).
Subsection 499(5) provides:
" 499 Liquidators
...
(5) If a liquidator, other than a liquidator appointed by or by the direction of the Court, dies, resigns or otherwise vacates his or her office, the creditors may fill the vacancy and, for the purpose of so doing, a meeting of the creditors may be convened by any 2 of their number. "
Mr Rosenblatt submitted that because Mr Hill did not need the approval of creditors in order to resign, his stated determination of his intention to resign had effect as a resignation and he therefore had no power to convene the meeting held on 13 May 2011. Alternatively, he submitted that s 499(5) provides the exclusive means by which creditors may fill the vacancy following the liquidator's resignation. As the meeting was not convened by two creditors, it was not a valid meeting.
Mr Rosenblatt also submitted that even if Mr Hill had not resigned before the commencement of the meeting, he must be taken to have resigned immediately after the resolution was passed approving his resigning and before the resolution was put for the appointment of Messrs Turner and Whittingham as liquidators. He submitted that at that point Mr Hill ceased to be entitled to exercise a casting vote.
Regulations 5.6.17 and 5.6.21 of the Corporations Regulations (2001) Cth provide:
" 5.6.17 Chairperson
(1) If a meeting is convened by
(a) a liquidator; or
(b) a provisional liquidator; or
(c) an administrator of the company under administration or of a deed of company arrangement; or
(d) a liquidator mentioned in paragraph 579L (1) (e) of the Act;
that person, or a person nominated by that person, must chair the meeting.
(2) In any other case, the persons present and entitled to vote at a meeting must elect one of their number to be chairperson of the meeting.
...
5.6.21 Carrying of resolutions after a poll has been demanded at a meeting of creditors
(1) This regulation applies to a poll taken at a meeting of creditors.
(2) A resolution is carried if:
(a) a majority of the creditors voting (whether in person, by attorney or by proxy) vote in favour of the resolution; and
(b) the value of the debts owed by the corporation to those voting in favour of the resolution is more than half the total debts owed to all the creditors voting (whether in person, by proxy or by attorney).
(3) A resolution is not carried if:
(a) a majority of creditors voting (whether in person, by proxy or by attorney) vote against the resolution; and
(b) the value of the debts owed by the corporation to those voting against the resolution is more than half the total debts owed to all creditors voting (whether in person, by proxy or by attorney).
(4) Subject to subregulation (4B), if no result is reached under subregulation (2) or (3), then:
(a) the person presiding at the meeting may exercise a casting vote in favour of the resolution, in which case the resolution is carried; or
(b) the person presiding at the meeting may exercise a casting vote against the resolution, in which case the resolution is not carried; or
(c) if the person presiding at the meeting does not exercise a casting vote, the resolution is not carried.
... "
Mr Hill had not resigned prior to the meeting of 13 May 2011. The notice of meeting and accompanying report stated his intention to resign if he obtained creditor approval for that course. It was not an act of resignation. Mr Rosenblatt submitted that the statement in the report to creditors that Mr Hill was unable to progress the investigation into the company's affairs because he was currently unfunded amounted to a resignation. I do not agree. It was simply a statement that he could not take the liquidation further without funds. Mr Hill did not thereby purport to vacate the office of liquidator.
Although a liquidator can resign without the approval of creditors, there is no reason that a liquidator cannot seek approval. In BH McPherson, M Gronow, R Mason, McPherson's Law of Company Liquidation , Thomson Reuters Legal Online at [8.3130], the learned author says:
" There is no express provision for the resignation of a liquidator appointed in voluntary winding up, though it is clearly contemplated by the Corporations Act 2001. As a matter of strict law the consent of creditors and contributories may not be necessary, but if it is not obtained the liquidator may be liable for breach of contract and, possibly for this reason, it is the practice to tender the resignation at meetings of creditors and contributories. That can also allow for the immediate appointment of a replacement under s 495(3) or 499(5) as applicable and prevent any difficulties being caused by an ' interregnum ' ."
Section 499(5) empowers the creditors to fill a vacancy arising from the liquidator's resignation. The next question is whether that can only be done by a meeting of creditors convened by any two creditors pursuant to s 499(5).
There is nothing in the text of s 499(5) to suggest that creditors can only fill a vacancy at a meeting convened by any two of their number. The subsection provides that a meeting of creditors " may be convened by any two of their number " (emphasis added). This language shows that the power to convene a meeting is facultative and is not the only way in which the creditors can meet to appoint a liquidator to fill a vacancy. " May " is permissive, not mandatory. If a vacancy could only be filled at a meeting convened by creditors, one would expect the provision to read to the effect that " if a liquidator, other than a liquidator appointed by or by the direction of the Court, dies, resigns or otherwise vacates his or her office, the creditors may fill the vacancy at a meeting of creditors convened by any two of their number ". The subsection does not so provide and is not to be construed as if that were its meaning.
The interpretation for which Mr Rosenblatt submitted would not be conducive to an efficient administration of a company's affairs. There would necessarily be an interregnum between the liquidator's resigning and the holding of the meeting of creditors to fill the vacancy. At least ten business days' notice of the meeting would be required (Corporations Regulations, reg 5.6.11(2)(a)(i) and 5.6.12(1)(a) and (3)). The creditors would have to elect a chairperson (to use the language of the Regulations). If, as in the present case, there was a deadlock between the creditors by number and the creditors by value, the meeting would be deadlocked because no-one would have a casting vote on the question as to who should be appointed to chair the meeting.
For these reasons it is not necessary to construe the words " a meeting of the creditors may be convened " as if they provide the exclusive means for convening a meeting in order to avoid what might otherwise be unbusinesslike consequences.
I conclude that the meeting was validly convened by Mr Hill for the creditors to consider the resolution to approve of his resigning as liquidator.
Mr Hill was chairman of the meeting by reason of reg 5.6.17. It appears to have been common ground that he resigned, or is taken to have resigned, before the resolution was put for the appointment of Messrs Turner and Whittingham as liquidators. Mr Rosenblatt argued that because Mr Hill had ceased to be liquidator at the time that resolution was put, he was not entitled to exercise a casting vote. Mr Harris for the liquidators did not contest the premise of this submission. He argued that Mr Hill remained chairman of the meeting because he was the person reg 5.6.17 stipulated to be the person to chair the meeting because he convened it as liquidator. I agree with that submission. Regulation 5.6.21(4) gives the casting vote to the person presiding at the meeting. It does not give the casting vote to the chairperson because he or she holds a particular office at the time the resolution is put to the meeting, but because the person presides at the meeting. Who presides at the meeting depends on whether the meeting has been convened by a person described in reg 5.6.17(1), or otherwise on who has been elected to preside. It is the fact that the person presides at the meeting that gives him or her a casting vote, not the office which he or she holds at the time the meeting is convened.
I was troubled by the question whether there was a vacancy in the office of liquidator when the creditors resolved to fill the vacancy through Messrs Turner and Whittingham. Had Mr Hill tabled his notice of resignation immediately after the creditors voted to approve his resignation, or had he then stated that he resigned as liquidator, that should have been recorded in the minutes. There was no such record. I can take it that there was no such express resignation.
Mr Rosenblatt did not argue that the resolution appointing Messrs Turner and Whittingham was invalid because the creditors' power was only to fill a vacancy and there was no vacancy when the resolution was passed.
It can be inferred from the fact that Mr Hill advised the meeting that it could determine to appoint another liquidator after it had approved his resigning as liquidator, that he did not merely confirm his intention to resign at some time in the future, but impliedly conveyed his intention that his resignation had then come into effect. Alternatively, the creditors were asked to appoint Messrs Turner and Whittingham as liquidators upon his resignation taking effect. Either resolution would have been authorised by s 499(5). In either case Mr Hill was entitled to exercise a casting vote as the person presiding at the meeting. As Mr Hill subsequently filed with ASIC his notice of resignation stated to be effective as at 13 May 2011, being the same day as the appointment of Messrs Turner and Whittingham as liquidators, the resolution of appointment of liquidators was effective whether Mr Hill is taken to have resigned immediately before the resolution to appoint Messrs Turner and Whittingham as liquidators was passed or not.
For these reasons I conclude that the procedural objection to the appointment of Messrs Turner and Whittingham fails.
No reasonable apprehension of partiality
It is not in issue that a liquidator must be, and must manifestly be seen to be, independent and impartial ( Re Allebart Pty Ltd and The Companies Act [1971] 1 NSWLR 24 at 30). Properly, Mr Rosenblatt did not submit that Messrs Whittingham or Turner had any animus against Mr Viropoulos, nor that they would be likely to show favour to Fonterra by being disinclined to bring proceedings against it if they received legal advice that such proceedings were warranted and there was funding for them. However, Mr Rosenblatt did submit that there was an appearance of a lack of impartiality that warranted their removal.
I accept that Mr Viropoulos believes that Messrs Turner and Whittingham would not be impartial or independent because they have been appointed by Fonterra with whom he is at loggerheads. The question is whether that belief is reasonably based ( Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) [1998] FCA 1050; (1998) 28 ACSR 529).
The apparent absence of independence or impartiality is said to be derived from the following matters:
a) that Fonterra was not prepared to provide funding for the examination of Mr Viropoulos to any liquidator other than the liquidators nominated by Fonterra;
b) Mr Lord, it should be inferred, provided advice to Fonterra when he was a partner of PKF and a partner of Messrs Turner and Whittingham;
c) personal animus said to have been displayed by Mr Lord towards Mr Viropoulos at the creditors' meeting on 5 May 2010;
d) work done by Messrs Turner and Whittingham as trustees in bankruptcy or liquidators where Fonterra was the petitioning creditor; and
e) failure to investigate Falcon's claims against Fonterra subsequent to their appointment as liquidators on 13 May 2011.
I do not conclude from the fact that Fonterra was only willing to provide funding for the examinations to liquidators nominated by it that it could reasonably be apprehended that those liquidators would lack impartiality in relation to claims against it. All creditors, including Fonterra, had reason to be concerned that the funds available to Mr Hill (approximately $265,000) were apparently insufficient to fund necessary investigations and examinations. No adverse inference can be drawn from the fact that Fonterra declined to proceed with its arrangements with Mr Hill to fund examinations given the apparent lack of progress made. It is unsurprising that Fonterra should be unwilling to provide funding otherwise than to liquidators in whose ability it has confidence.
Messrs Turner and Whittingham have had no prior direct dealings with Fonterra. They have dealt with Fonterra's solicitors, James Partners, in connection with other administrations. There have been no dealings with Fonterra that would raise any suspicion that they would not properly assess the strength of any claim that Falcon might have against Fonterra. The fact that Fonterra is apparently unwilling to fund other liquidators to conduct an examination of Mr Viropoulos is not a basis for inferring that they lack independence.
No evidence was adduced by Messrs Turner and Whittingham as to the nature of advice given by Mr Lord to Fonterra in May 2010. Mr Turner says that it can be inferred that no advice was given because if advice were given, the firm's practice is that a note of the advice would have to be kept. There is no such note. The only relevant documents are timesheets and invoices that simply state Mr Lord's attendance at the meetings of 2 and 26 February 2010 and 5 May 2010 for a total of five hours. Mr Rosenblatt submitted that it was unrealistic to think that Mr Lord had done no more than attend the meetings and it was probable that he provided advice to Fonterra. That inference should be more readily drawn because neither Mr Lord nor Fonterra gave evidence.
I think it is likely that some advice was given by Mr Lord to Fonterra. However, not all advice would compromise a prospective liquidator's impartiality (see e.g. Commonwealth v Irving (1996) 19 ACSR 459 at 464).
In any event, Mr Lord was not appointed liquidator. Although he was a partner of Messrs Turner and Whittingham, the appointments of individuals as liquidators are personal appointments. If any advice was conveyed by Mr Lord to Fonterra, it has not been disclosed to Messrs Turner and Whittingham. Mr Lord is no longer a partner of Messrs Turner and Whittingham. Their impartiality is not compromised.
For the same reasons, the impartiality of Messrs Turner and Whittingham is not compromised even if Mr Lord had shown a personal hostility to Mr Viropoulos. I have set out at para [14] above the effect of words spoken by Mr Lord to Mr Viropoulos at the creditors' meeting of 5 May 2010. I do not think that that conversation shows any partiality by Mr Lord. I infer that he was expressing his views based upon Mr Hill's report to creditors from which it could reasonably be inferred that Mr Viropoulos was responsible for damage to the company. The transactions referred to in Mr Hill's report to creditors at least called out for explanation.
Mr Viropoulos also said that Mr Lord addressed him in an angry tone and was red-faced. That is not surprising when Mr Viropoulos told Mr Lord that he, Mr Lord, was in his own strife and should not be practising. It can be inferred that Mr Viropoulos was aware of inquiries concerning Mr Lord. On 26 August 2011 ASIC announced that it had cancelled Mr Lord's registration as liquidator for having failed to disclose conflicts of interests in more than 100 administrations. Neither that fact, nor Mr Lord's communications with Mr Viropoulos, cast any doubt on the integrity or the impartiality of Messrs Turner and Whittingham.
Mr Turner is the lead partner in the administration of Falcon. He, or he and another partner from PKF, have been appointed as trustees in bankruptcy of individual bankrupts on eight occasions between 8 July 2010 and 20 October 2011, in cases where Fonterra has been the petitioning creditor. They have also been appointed as liquidator to two companies on 2 February and 21 September 2011 in cases where Fonterra has been the petitioning creditor. I do not consider that that fact is capable of giving rise to a reasonable apprehension of lack of independence or impartiality. One expects experienced insolvency practitioners to be involved in different administrations where they have given consents to act to the same petitioning creditor. That is no basis for inferring that they would not act impartially in the administration.
The number of administrations in question forms only a small proportion of Messrs Turner and Whittingham's work, and not a profitable proportion. Mr Turner is in the course of seeking to recover a payment made by one of the bankrupts to Fonterra as a voidable preference. These appointments could not reasonably be believed to affect the impartiality of Messrs Turner and Whittingham.
Mr Turner was asked about the extent to which, since being appointed liquidator, he has investigated Mr Viropoulos' complaints against Fonterra. He estimates that about a third of the time spent on the administration has been addressed to that question. Legal advice has been sought. At the moment the administration is without funds. Mr Turner said that if the legal advice was that Falcon had a good claim against Fonterra, he would seek funding from the creditors other than Fonterra in order to bring such a claim. I accept that evidence. There is no reason to think he would do otherwise. It is not clear what precisely the claim against Fonterra would be. At the meeting of creditors of 13 May 2011 Mr Hill stated that despite repeated requests by him to Mr Viropoulos for additional information to support allegations that Fonterra had breached the Trade Practices Act 1974 (Cth), no additional information had been received from Mr Viropoulos, and hence the obtaining of counsel's advice could progress no further. No adverse inference can be drawn against Messrs Turner and Whittingham because any such claim has not been progressed.
The question under s 503 is whether the court is satisfied that it is for the general advantage of creditors that the liquidators be removed ( Network Exchange Pty Ltd v MRG International Communications Pty Ltd (1994) 12 ACLC 594 at 599; Bovis Lendlease v Wiley [2003] NSWSC 467; (2003) 21 ACLC 1737 at [364]). In the present case, as Mr Hill rightly acknowledged when exercising his casting vote, it is in the interests of creditors considered as a whole that funds be available for the examination of Mr Viropoulos. It appears that Fonterra is the only potential source of those funds, given that the cash resources of the company have been exhausted. It is in the creditors' interests that the administration not start over again for a third time with a new liquidator who would have to start afresh.
As there is no reasonable basis for the apprehension that Messrs Turner and Whittingham would not act independently, and it is desirable that they remain in office, the application for removal should be dismissed.
Orders
For these reasons I order that the originating process be dismissed. I will hear the parties on costs.
The court book and exhibits may be returned to the plaintiff's solicitors, but are to be retained pending the time for appeal or application for leave to appeal, and if such an appeal or application is filed, until it has been determined. Any subpoenaed material may be returned forthwith.
Decision last updated: 09 December 2011
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