Williams v CD Protective Services

[2010] QSC 32

SUPREME COURT OF QUEENSLAND

CITATION:

Williams v CD Protective Services [2010] QSC 32

PARTIES:

JULIE WILLIAMS AS OFFICIAL LIQUIDATOR OF C & D GLOBAL PROTECTION PTY LTD (IN LIQUIDATION)
(plaintiff)
v
C D PROTECTIVE SERVICES PTY LTD
(first defendant)
WHELAN, Craig Robert
(second defendant)
HELFERT, Joseph Aaron

(third defendant)

FILE NO/S:

SC No 8075 of 2009

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court, Brisbane

DELIVERED ON:

14 January 2010

DELIVERED AT:

Supreme Court, Brisbane

HEARING DATE:

14 January 2010 (delivered ex tempore)

JUDGE:

Margaret Wilson J

ORDER:

1.   that the agreement be approved;

2.   that the agreement be placed in an envelope and sealed and marked “not to be opened without an order of the Court”.

CATCHWORDS:

CORPORATIONS – WINDING UP – LIQUIDATORS – RIGHTS AND POWERS – IN WINDING UP BY COURT – PROCEEDINGS BY LIQUIDATOR – where plaintiff/liquidator applies pursuant to s 477(2B) of the Corporations Act 2001 (Cth) for the Court’s approval of an agreement between her and the Deputy Commissioner of Taxation with respect to the funding of litigation – whether agreement should be approved

Corporations Act 2001 (Cth), 477(2B), 477(2)(c), s 556(1)(a)

Re Imobridge Pty Ltd in Liquidation No 2 [2000] 2 Qd R 280, referred to
Re ACN 076 673 875 Ltd (Bendeich as liquidator Greatorex and others intervening) (2002) 42 ACSR 296, referred to

Re Addstone Pty Ltd in Liquidation (1998) 83 FCR 883, referred to

COUNSEL:

C A Johnstone for the plaintiff.

D Rangiah SC for the defendants.

SOLICITORS:

Minter Ellison Lawyers for the plaintiff.
Piper Alderman Lawyers for the defendants.

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

MARGARET WILSON J

No 8075 of 2009

WILLIAMS AND ANOR	Plaintiffs
and
CD PROTECTIVE SERVICES PTY LTD AND ORS	Defendants

BRISBANE

..DATE 14/01/2010

ORDER

HER HONOUR: This is an application by the plaintiff/liquidator pursuant to section 477(2B) of the Corporations Act for the Court's approval of an agreement between her and the Deputy Commissioner of Taxation with respect to the funding of the litigation.

The application is brought pursuant to that section because both the litigation and the liquidation are expected to extend beyond three months.

The liquidator has deposed that she does not otherwise have sufficient funds in the liquidation to run the litigation, and that she believes by entering into this agreement the interests of the general body of creditors will best be served.

It is relevant to note that the creditors are alleged to amount to approximately $1.68 million in value.  Of that amount the largest creditor is the Australian Taxation Office which is allegedly owed $1.42 million.  The other creditors are L E Hawkins and Associates $11,200, WorkCover Queensland $101,899 and the Office of State Revenue $148,882.

None of the other creditors has been willing to provide any indemnity in respect of the costs of this proceeding.  The other creditors are aware that the Deputy Commissioner of Taxation was approached by the liquidator to provide funding. However, they have not seen the agreement which has now been reached between the liquidator and the Deputy Commissioner of Taxation and they may well not be even aware that an agreement has been reached.

Under the terms of the agreement reached the Deputy Commissioner of Taxation is prepared to indemnify the liquidator up to a certain amount for the costs she incurs in running the litigation.  He is also prepared to provide an indemnity against any costs the liquidator may be ordered to pay the defendants. That second indemnity is capped in an amount which is less than half of the defendants’ solicitor's estimate of the costs involved in a 10 day trial.

Of course the liquidator is personally responsible for costs incurred in running this liquidation.  She has indicated her unwillingness to pursue the litigation in the absence of this funding from the Deputy Commissioner of Taxation.

In the litigation she seeks to recover, inter alia, the sum of $1.683 million from the second and third defendants pursuant to section 1317H of the Corporations Act or as equitable compensation or as equitable damages.

She alleges that the business of the company was transferred to the first defendant, itself a company controlled by the second and third defendants, who had been the sole directors and shareholders of the company, for approximately $1,500. She seeks to recover the amount to which I have referred pursuant to the provisions of the Corporations Act relating to insolvent trading and pursuant to breaches of statutory and fiduciary duties.

It is very difficult to form any assessment of the likely prospects of success in the claim.  There has been an application before me this morning with respect to the statement of claim, and I have ordered certain paragraphs to be struck out and re-pleaded and other paragraphs to be amended.  It is tolerably clear that the company did not maintain adequate books and records from the time it was incorporated, that it incurred a very large debt to the Australian Taxation Office and that its directors caused its sole asset to be transferred to a company controlled by them for $1,500.

Counsel for the defendants raised a number of points in opposition to the Court's approval of the funding agreement. 

I have already referred to the creditors other than the Australian Taxation Office not being aware of the terms of the agreement.  That is a factor, but it must be considered in the context of the Australian Taxation Office being by far the greatest creditor in value.

Counsel has referred to the Deputy Commissioner of Taxation's right to withdraw from the agreement, but that is a risk the liquidator must bear.  If the Deputy Commissioner of Taxation were to withdraw, she would be personally liable for the costs of the liquidation.

It is significant in my view that the agreement does not seek to give any priority to the Australian Taxation Office with respect to the fruits of the litigation. Rather the liquidator has indicated that if recovery is made then she will make an application to the Court pursuant to section 564 of the Corporations Act so that some priority might be given to the Australian Taxation Office.

There is a provision in the agreement that, in so far as property or funds recovered allowed, the liquidator would repay the Deputy Commissioner of Taxation, as a first priority, all amounts paid to her under the agreement. This is said to be pursuant to section 556(1)(a) of the Act. That section refers to expenses properly incurred by a liquidator in preserving, realising and getting in property of the company being a first priority.

My tentative view is the mere fact that the liquidator had been indemnified against such expenses would not take the payment of the amount thereof to the party who provided the indemnity outside section 556(1)(a). As counsel for the liquidator submitted, the liquidator and the Deputy Commissioner of Taxation are comfortable with this provision.

It seems to me that if a payment pursuant to this provision were made, it might subsequently be challenged by a creditor as an improper priority and, if it were challenged, that would be the proper context in which to determine whether indeed it was within 556(1)(a).  Of course if it were not within that section, then the liquidator would be personally liable for having accorded it priority. 

I have endeavoured in these brief reasons to cover the principal matters relevant to the exercise of a discretion identified by Justice Fryberg in re Imobridge Pty Ltd in Liquidation No 2 [2000] 2 Qd R 280 and Justice Austin in re ACN 076 673 875 Ltd (Bendeich as liquidator Greatorex and others intervening) which is reported in (2002) 42 ACSR 296.

I have also had regard to the decision of Justice Mansfield in re Addstone Pty Ltd in Liquidation (1998) 83 FCR 583 which is a decision not on this section but rather on section 477(2)(c) of the Corporations Law.

Ultimately the question is one for the exercise of the Court's discretion.  The Court should, in my view, respect the commercial judgment of the liquidator and the Deputy Commissioner of Taxation.

I am satisfied that the agreement is one which ought to be approved and that while there are some risks to creditors other than the Australian Taxation Office, those risks are not so great as to outweigh the benefits to the creditors as a whole which will be gained by the successful prosecution of this litigation.  In all the circumstances I approve the agreement. 

I will order that the agreement, which was Exhibit 2 to
Mr Hamilton's affidavit, be placed in an envelope which is to be sealed and marked "Not to be opened without an order of the Court"

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