Watts v Albany Marine Centre Pty Ltd
[2006] WASC 22
WATTS -v- ALBANY MARINE CENTRE PTY LTD & ANOR [2006] WASC 22
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 22 | |
| Case No: | COR:2/2006 | 13, 19 & 30 JANUARY 2006 | |
| Coram: | EM HEENAN J | 30/01/06 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application for appointment of provisional liquidator refused but with liberty to be renewed if material change in circumstances | ||
| B | |||
| PDF Version |
| Parties: | DAVID WATTS ALBANY MARINE CENTRE PTY LTD (ACN 098 290 352) THOMAS CHRISTOPHER HOWDEN |
Catchwords: | Corporations Application for appointment of provisional liquidator Administrators recently appointed by company because of insolvency Some possibility that goodwill and assets may be sold by administrators to advantage of creditors and shareholders |
Legislation: | Corporations Act 2001 (Cth), s 440A |
Case References: | Australian Prudential Regulation Authority v Rural and General Insurance Ltd [2004] FCA 185; (2004) 136 FCR 149 Lubavitch Mazal v Yeshiva Properties (No 1) & Others [2003] NSWSC 535; (2003) 47 ACSR 197 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
ALBANY MARINE CENTRE PTY LTD (ACN 098 290 352)
First Defendant
THOMAS CHRISTOPHER HOWDEN
Second Defendant
Catchwords:
Corporations - Application for appointment of provisional liquidator - Administrators recently appointed by company because of insolvency - Some possibility that goodwill and assets may be sold by administrators to advantage of creditors and shareholders
Legislation:
Corporations Act2001 (Cth), s 440A
(Page 2)
Result:
Application for appointment of provisional liquidator refused but with liberty to be renewed if material change in circumstances
Category: B
Representation:
Counsel:
Plaintiff : Mr A P Hershowitz
First Defendant : Mr R A Zilkens
Second Defendant : Mr R A Zilkens
Solicitors:
Plaintiff : Holborn Lenhoff Massey
First Defendant : Zilkens & Co
Second Defendant : Zilkens & Co
Case(s) referred to in judgment(s):
Australian Prudential Regulation Authority v Rural and General Insurance Ltd [2004] FCA 185; (2004) 136 FCR 149
Lubavitch Mazal v Yeshiva Properties (No 1) & Others [2003] NSWSC 535; (2003) 47 ACSR 197
Case(s) also cited:
Nil
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1 EM HEENAN J: This is the adjourned hearing of an application for the appointment of a provisional liquidator to the company Albany Marine Centre Pty Ltd which was before me originally on 13 January 2006 when I adjourned the application but granted an injunction restraining the use of the company's bank account until the matter came on for rehearing. It came on for further hearing in the following week but was adjourned again until today with liberty to apply. During the interim and pursuant to the liberty to apply, the matter came before her Honour Jenkins J to deal with, among other things, an alleged breach of the terms of the injunction and a renewal of the application for the appointment of a provisional liquidator but no different orders were then made.
2 The situation at present is, in several material respects, different from that which I considered on 13 January. In particular, an administrator has recently been appointed to the company, Jennifer Elizabeth Lowe. She was appointed pursuant to a resolution of the sole director of the company on 23 January 2006. That resolution also declared that, in the opinion of the director, the company was then insolvent or was likely to become insolvent at some future date and that an administrator should be appointed. Ms Lowe consented to the appointment on 24 January 2006 and notice of her appointment was lodged with the Australian Securities and Investments Commission on 25 January. Ms Lowe is now in the process of embarking upon the proposed administration.
3 This raises the question of whether or not the present proceedings can or should continue or whether a liquidator can or should be appointed in the light of the administration. My attention has been drawn to s 440A of the Corporations Act 2001 (Cth) which, in subs (3), provides:
"The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed."
4 Before me this morning the submissions are concentrated, to a large degree but not entirely, upon the issue of whether or not in the present circumstances the company has discharged the onus which it accepts it bears of establishing that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. My attention was also drawn to s 440D of the Corporations Act which provides that during the administration of a company a proceeding in a court against the company or in relation to any
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- of its property cannot be begun or proceeded with except: (a) with the administrator's written consent, or (b) with the leave of the court and in accordance with such terms if any as the court imposes. In the present circumstances the administrator appointed has not consented to the continuation of the winding-up proceedings or for the appointment of the provisional liquidator and the question which then arises is whether or not s 440D applies and, if so, whether or not leave to proceed should be given.
5 Counsel for the applicant has helpfully referred me to the decision of Gyles J in the Federal Court of Australia in Australian Prudential Regulation Authority v Rural and General Insurance Ltd [2004] FCA 185; (2004) 136 FCR 149. After a detailed discussion of the authorities which bear on s 440D and which go both ways, his Honour decided that in circumstances where the application for the appointment of a provisional liquidator and the antecedent winding-up proceedings had begun before the administrator had been appointed it was not necessary for leave of the court to be obtained pursuant to s 440D of the Act to continue the winding-up proceedings.
6 For the reasons set out by his Honour, I adopt the same approach in these proceedings and, therefore, continue on the footing that it is competent to make an order for the appointment of a provisional liquidator in this case, notwithstanding that no application for leave under s 440D is pressed.
7 The situation then returns to a consideration of s 440A of the Act. I have been referred by counsel for the applicant to the decision of Austin J in the Supreme Court of New South Wales in Lubavitch Mazal v Yeshiva Properties (No 1) & Others [2003] NSWSC 535; (2003) 47 ACSR 197 where, at 47 ACSR 210 and following, his Honour explained that the onus for demonstrating that it is in the interests of the company not to appoint a provisional liquidator, as opposed to continuing with an administrator, rests on those opposing the appointment of a liquidator. In [68], [74], [76] and [78] Austin J examines and evaluates the criteria which must be considered and applied in order to reach any such decision.
8 In these cases the emphasis is plainly upon the comparative advantages for the creditors of the company for a continuation of an administration as opposed to the immediate appointment of a liquidator. In one passage ([74]) Austin J draws attention to the most influential factor being the prospect that a deed of company arrangement might emerge that would give the creditors a quicker or better dividend in a winding-up.
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9 This then brings me to a consideration of the commercial prospects of this company on the information, admittedly incomplete and perhaps not entirely reliable, available at the moment. The situation is that the company is indebted to its bank, the National Australia Bank, under an overdraft for $310,000 or thereabouts. The company is liable and Messrs Watts and Howden appear to be co-guarantors of that liability and Mr Watts' company is another guarantor. The company is also liable to a financier under a floor plan arrangement for stock financed. Again, the appearances are that the company itself is liable and that Messrs Watts and Howden are co-guarantors. The floor plan creditor has issued a demand for the payment of the money due under that floor plan following a fire which has destroyed most, if not all, of the stock. That demand is for $246,000 or thereabouts, although Mr Zilkens points out that there has been some stock, housed elsewhere, which has escaped the fire, including in particular a vessel in Fremantle, worth about $50,000, which may mean that the eventual liability to the floor plan creditor is less than the $246,000 presently demanded. But it does seem clear that a liability of in the region of approximately $200,000 remains outstanding. There was other stock which was destroyed in the fire, to the value of about $250,000 which I am told accounts for a large part of the overdraft of $310,000 to the National Australia Bank.
10 Of the $96,000 which was said to be in the company's bank account or accounts at the time when I granted the injunction on 13 January 2006 there is little, if anything, left. This is a bone of contention between the parties and one explanation for what has happened to that money appears in the affidavit of Mr Howden sworn 29 January 2006 in par 10 where he explains how a series of payments have been made, he says, on or before the day the injunction was granted which effectively transferred all the money out of those bank accounts for the satisfaction of certain of the creditors. Among those creditors he numbers himself. A series of payments comprising $17,019.63 for the first payment, $45,000 for the second payment, $6000 for the third payment, $4812.04 for the fourth payment and $2180.18 as the fifth payment were made to Mr Howden himself. Whether these are justified as payments to a creditor or not remains in question and even if they are, the possibility that they might be preferential payments which would be repayable in the event of a liquidation appears to be high.
11 The case for the appointment of a provisional liquidator proceeds on the assumption that there is virtually no prospect of this company surviving financially and that a liquidation is inevitable and, for that
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- reason, the sooner it is achieved, the better for all, because the cheaper will be the process.
12 The case against the appointment of a provisional liquidator is that if the administrator is permitted to explore opportunities being propounded by Mr Howden, there is a chance that some trading advantages may be revived and that the goodwill of the company as a going concern, perhaps a smaller going concern, can be preserved. If so, that might allow for the company to enter into a deed of company arrangement with its creditors, or if not, would provide an asset which could be sold to a person interested in taking over the goodwill of the company. That might allow some payment to be made to the creditors as against little or no payment resulting if the goodwill is allowed to wither, which is likely to happen if trading opportunities are not quickly taken up.
13 One further factor needs to be mentioned and that is the possibility of the existence of a claim for an insurance indemnity for the losses which have been occasioned by the destruction of the business premises, stock and enterprise. There is in evidence in an affidavit of Mr Watts sworn 17 January 2006 of some details of insurance cover. There were in effect policies of insurance with Wesfarmers Federation Insurance of Albany for the building, stock together with business interruption cover for the business. When I say "for the business" that term is loaded with significant potentiality for dispute because the certificate of insurance is in the name of Mr Howden and Mr Watts personally trading as Albany Marine Centre in circumstances where the parties acknowledge that the stock and other assets of the business were owned by the company, Albany Marine Centre Pty Ltd, and not by a partnership, or either, of those two gentlemen personally.
14 There is therefore immediately a question whether or not this certificate of insurance covers the situation or whether, possibly, the company might have a claim against the insurer or the insurance broker for rectification of the policy to name the insured correctly or for negligence for failing to identify the intended insured. That seems to pose a large question over any claimed entitlement to indemnity under the policy but counsel for the company and for Mr Howden press the submission that there is still time for negotiations with the underwriter which may lead to an agreement being reached to indemnify or to a compromise of any dispute over an obligation to indemnify.
15 The amount insured under this policy is $380,000 for the building, $350,000 for the stock in trade, $750,000 for "other property" (meaning
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- plant and equipment) and $450,000 for customers' property, being the stock the subject of the floor plan. There is a further extension for $350,000 for loss of gross profits for business interruption.
16 Another dark cloud on the horizon threatening any claim under this policy, in addition to what I have so far foreshadowed, is that arson is believed to be the cause of the destructive fire and at least some persons allege that Mr Watts is suspected to be the person who caused the fire and that detailed investigations into the cause of the fire are continuing.
17 The combination of all those factors seems to point to the probability that the prospect of obtaining indemnity under this insurance cover is at the very best likely to be significantly delayed.
18 Mr Hershowitz for the applicant in substance goes so far as submitting that the reality is that there is little or no prospect of an insurance indemnity and, whatever prospect there is is likely to be is so far distant in the future as to be insignificant with regard to the present dimensions of the commercial problems.
19 In these circumstances I must consider, as the statute requires, whether or not I am satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed.
20 This is a difficult question, particularly having regard to the paucity of information and the uncertainty which governs the situation at this early stage. However, I am satisfied that the immediate appointment of a provisional liquidator would, for practical purposes, extinguish any prospect, however remote, of significant financial advantage being derived from such vestigial goodwill as may remain. According to the affidavits, Mr Howden would not be prepared to undertake any role in preserving the business opportunities of the company if a liquidator were to be appointed. On the other hand, if the administration is allowed to continue, Mr Howden is prepared to do what he can to attempt to resuscitate the business on a smaller scale and from smaller premises which he would underwrite and to pursue the possibility of recovering an indemnity from the insurer.
21 Mr Hershowitz, not unreasonably, characterises those aspirations as merely speculative and unrealistic, but I am not sure that they should be condemned quite so tersely at this point. They are the only initiatives which offer any prospect of financial recovery, and it is difficult to see
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- how the company would be prejudiced if a reasonable opportunity were to be allowed for them to be explored.
22 It seems to me, therefore, that it is in the interests of the company's creditors for the company to continue under the present administration rather than have a provisional liquidator appointed with another change of control and with another level of fees being incurred: It seems to be better for all if the administrator presently appointed can explore these opportunities, slight though they may be.
23 For that reason, I decline at this point to appoint a provisional liquidator and I will allow the administration to continue. I accept that circumstances may change dramatically once the economic realities are more clearly established and, in particular, when the prospects of any recovery from the insurance underwriter can be better ascertained.
24 In those circumstances, I consider that I should adjourn this application for a period of 28 days reserving liberty to apply if there is any material change in circumstances. At the end of that period it should be possible to determine whether the prospects for some salvage operation as has been proposed are sufficiently encouraging to allow the administration to continue or whether the more pessimistic prospects presently harboured by the applicant can be confirmed.
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