Westernport Iron & Steel P/L v Natwest Australia Bank Ltd

[1992] FCA 750

750 ,?2 !

JUDGMENT No. .....- ..... -... ... ......

VICTORIA DISTRICT REGISTRY )	IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. VG 3272 of 1992
IN THE MATTER WESTERNPORT IRON & STEEL PTY LTD

A.C.N. 004 948 770

NATWEST AUSTRALIA BANK LIMITED
A.C.N. 002 987 957

Applicant

- and -

WESTERNPORT IRON & STEEL PTY LTD

A.C.N. 004 948 770

First Respondent

- and -
BLOOMS OF MELBOURNE PTY LTD
A.C.N. 008 651 521

Second Respondent

Coram:	Olney J
Place:	Melbourne

Judament	:	18 September 1992	- 7 OCT 1992
FEDEhn. u"I -"

Reasons :  25 September 1992 PRINCIPAL REGISTRY

REASONS FOR DECISION

order that the first respondent (WIS) be wound-up. The

On 18 September 1992 I declined to appoint a .provisional liquidator of the first respondent upon the application of the applicant. At the time I did not give reasons but undertook to do so in due course. I now publish my reasons.

By application filed 9 September 1992 the applicant sought an

application is returnable on 19 October 1992.

Contemporaneously with the filing of the application, the applicant filed a notice of motion seeking the appointment of a provisional liquidator and an order to restrain WIS from transferring 4,703 shares held by it in Australian Sonic Engineering Pty Ltd (in liquidation) (ASE) to the second respondent (Blooms). (These shares are hereafter referred to

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as 'the 4,703 shares1.)	!
Neither the application nor the notice of motion states the grounds upon which relief is sought but the affidavit evidence filed with the application contains allegations that WIS is insolvent, that there is a serious risk to its assets and that its directors have acted in breach of their duties.
The notice of motion came before Heerey J on 10 September 1992 and after a short hearing inter partes, and upon the usual undertaking as to damages being given by counsel on behalf of
the applicant, an order was made that until 4.45 pm on 18

September 1992 or further order the respondents and their servants and agents be restrained from disposing of or dealing with any shares in ASE or Sonic Technology Australia Limited (STA). At the same time other orders were made to facilitate a full hearing of the notice of motion on 18 September 1992.

The evidence relied upon in support of the notice of motion

was largely uncontested and established the following facts.

._

WIS was incorporated under the Companies Act 1961 on 18 ~ugust

1972. The last annual return available from the Australian

Securities Commission indicates that the company carries on

the business of industrial services and investment. The

directors are Peter James McDougall (McDougall), Jennifer

Margaret McDougall (Mrs McDougall) and Colin James Ross. The

present shareholders are Jorud Nominees Pty Ltd and Mill Creek

Natural Cosmetics Pty Ltd, each of which holds 5 fully paid

ordinary shares. The applicant claims relief in it! capacity

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as a creditor of WIS it being said that WIS was indebted to it in the sum of $438,332.32 as at 2 September 1992. However, on 16 September 1992 the applicant assigned the debt to Elders Finance & Investment Co. Limited (Elders). WIS holds 3,407,442 shares in STA, which shares have since the commencement of these proceedings been taken possession of by The National Australia Bank ~imited (NAB) pursuant to a lien to secure a liability to NAB which presently stands at $642,500 or thereabouts. At the current market value of 11 cents per share, this parcel of shares is valued at about

Tuckwell in his capacity as liquidator of ASE. WIS's	$374,818. A further parcel of shares in STA is held by Colin
shareholding in ASE (the 4,703 shares) will entitle it, upon a
distribution in specie of the assets of ASE, to 3,899,550
shares in STA worth about $428,950. Tuckwell is now in a
position to make a distribution of the assets of ASE. By a
share transfer dated 11 July 1991 WIS purported to transfer
the 4,703 shares to Blooms (a company associated with
McDougall and members of his family) for asconsideration of

-.

$4,703. At the date of the transfer the 3,899,550 shares in

STA to which WIS will become entitled through A5E were worth

approximately $253,470. It is said that the consideration

expressed in the transfer represents a gross undervalue of the

WIS entitlement to the STA shares to the order of about

$248,000. The transfer of the 4,703 share has not been

registered. On 28 August 1992 McDougall advised a director of

Price Waterhouse, a partner of which firm is the receiver and manager of a company in.which WIS holds partly paid-up shares, I

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that WIS was unable to pay $1,147,200 claimed by the receiver as unpaid capital called up on those shares. He said words to the effect "WIS is underwater" and that WIS had a negative net worth. The latter statement was also made in a letter of the same date. On 9 September 1992 a solicitor acting for the applicant was advised by a solicitor acting for the respondent that the 4,703 shares were held in trust for Amalta Holdings Pty Ltd, a company associated with McDougall and Mrs McDougall. Subsequently, on 10 September 1992 McDougall called on the applicant's solicitor and gave him a copy of

what purports to be a declaration of trust dated 28 November	1989 executed under the common seal of WIS in which WIS
declared that it held the 4,703 shares upon trust for Amalta Holdings Pty Ltd. On 27 August 1992 the applicant caused a notice pursuant to section 460(2)(a) of the Corporations Law to be forwarded by post to WIS at its registered office, making demand for the payment or securing or compounding of the sum of $437,479.51 within 3 weeks after service of the
demand. The period of the notice expired on 17 September 1992

._

without WIS having paid the sum demanded or having secured or compounded for it to the reasonable satisfaction of the applicant. There is oral evidence that the assignment of the applicant's debt was absolute and in writing but the document was not put in evidence. However, by letter dated 17 September 1992 addressed to the solicitors acting for the respondents, the applicant's solicitors wrote:

you should be aware that the debt, the subject of the claim by l

our client!has been assigned to Elders Finance & Investment Co. Limited ('Elders') which has instructed us to proceed with the application for the appointment of a provisional liquidator.

The only other particular aspect of the evidence to which reference need be made at this stage is to an affidavit of David Eric Phillips, a solicitor consulted by McDougall, to which is exhibited a copy of the declaration of trust dated 28 November 1989 relating to the 4,703 shares. The significance of this document is that it bears a notation which suggests that it had been transmitted by facsimile transmission on 7 December 1989.

A number of objections were made by counsel for WIS concerning	the admissibility of some parts of the evidence tendered by
the applicant. Some of the evidence was said to be merely
speculative and some consisted of documents prepared from
information said to have been obtained in breach of
confidence. I did not rule on the objections at the time,
preferring to leave it until after hearing the whole of the
evidenae and argument on the motion. As it happens, it was

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unnecessary for me to express any view on the objections (which did nevertheless have considerable substance) as the conclusions which I reached were more than adequately supported by other evidence to which no objection was taken.

There is no question that there is overwhelming evidence to support a finding that WIS is insolvent. The failure to make an adequate response to the section 460 demand is probably sufficient to enable such a conclusion to be reached, but apart from that, there is evidence that McDougall had made statements indicating that WIS was unable to pay its debts. McDougall was clearly the person best able to assert to the contrary but he chose not to give evidence. Nor was any other evidence advanced to deny the allegations of insolvency. It was not the applicant's case that mere insolvency is a sufficient basis for the appointment of a provisional liquidator even when there is no real prospect that a winding- up order can be avoided. It is however, a matter to be taken into consideration.

It is said that the execution of the transfer of the 4,703

shares represented an attempt to dispose of a valuable asset of WIS for a gross undervalue, and that therefore the directors of WIS have acted in breach of their duty. If however, the declaration of trust dated 28 November 1989 is a genuine document, and there is some evidence that support-s the proposition that it is not something of recent origin, there would be little or no substance in the assertion of breach of duty against the directors of WIS. The evidence cannot support a finding against the directors and indeed, on balance such evidence as there is indicates to the contrary. The applicant has therefore failed to make out the main ground upon which the appointment of a provisional liquidator was sought.

Nor is there any evidence to suggest that WIS has assets other than the 4,703 shares and the STA shares over which NAB has security, which might be put in jeopardy pending the hearing of the winding-up application. Indeed, the evidence suggests that the only valuable assets of WIS at the disposal of the directors of WIS are the 4,703 shares.

At the commencement of proceedings on 18 September 1992, counsel for the respondents offered an undertaking, pending the hearing of the winding-up application, in terms similar to the injunction ordered by Heerey J on 10 September 1992. Having regard to the facts as set out above and

WIS I formed the view that it would be sufficient protection	notwithstanding the very clear evidence of the insolvency of	for the applicant and the other creditors of WIS merely to continue the injunction in the same terms until the hearing of the winding-up application. For this reason I declined to order the appointment of a provisional liquidator but granted a continuation of the injunctive relief.
I leave unanswered the question of whether the applicant has since 16 September 1992 had standing as a creditor of wIS. There is insufficient evidence to enable me to find that the applicant has no standing following the assignment of the debt to Elders. The question was not argued in full. It is a matter that can await another occasion for its resolution.
There is no doubt in my mind that the attempt to have a
provisional liquidator appointed had more to do with the control of the voting power associated with WISrs shares in ' l

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STA than with the desire to protect the assets of WIS. 'The applicant, Elders and NAB appear to have been involved in a concerted effort to get control of WIS for the purpose of assisting Elders' plans in relation to other matters. It is unnecessary to canvass the details and I mention the matter only to indicate that I reached the conclusion upon which I based my decision without having to deal with the claims made against those parties by the respondents.

I certify that this and the preceding 7 pages are a true

copy of the Reasons for Decision

of the Honourable Mr Justice
Olney

Associate:

7

Dated: 23. . f q / r ) ~

7

Mr P . N . Vickery (instructed by Minter Ellison Morris Fletcher)

appeared for the applicant.

Mr P . Kendall (instructed by N.A. Young & Co.) appeared for

the respondents.

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Date of Hearinq:	18 September 1992
place:	Melbourne
Date of Judament:	18 September 1992
Date Reasons oiven:	25 September 1992