Yarrawonga Earthmoving and Garden Supplies Pty Ltd v Clem Court Pty Ltd
[2014] VSC 439
•11 September 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2014 04293
| YARRAWONGA EARTHMOVING & GARDEN SUPPLIES PTY LTD and | First Plaintiff |
| CHESTER ROYSTON BODYCOAT | Second Plaintiff |
| v | |
| CLEM COURT PTY LTD (ACN 005 678 660) | First Defendant |
| and | |
| ALLAN GREGORY WALKER | Second Defendant |
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JUDGE: | WARREN CJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 August 2014 |
DATE OF JUDGMENT: | 11 September 2014 |
CASE MAY BE CITED AS: | Yarrawonga Earthmoving & Garden Supplies Pty Ltd v Clem Court Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2014] VSC 439 |
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CORPORATIONS - Application for declaration pursuant to s 418A of the Corporations Act 2001 (Cth) that the appointment of a liquidator is invalid – Where liquidator not a registered liquidator – Application allowed.
INJUNCTION – Application that defendants be restrained from exercising security or enforcing debt against the plaintiffs pending the outcome of the proceeding – Application that defendants deliver up possession of property pending the outcome of the proceeding – Applications allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D Bongiorno | De Wet Partnership |
| For the Defendants | Mr J Brereton | ICA Lawyers |
HER HONOUR:
The plaintiffs seek the removal of a receiver together with an interlocutory injunction and possession of a property.
The first plaintiff (‘Yarrawonga’) is an earthmoving company that operated from land in Yarrawonga (‘the Yarawonga property’) until the appointment by the defendants of a receiver. The second plaintiff (‘Bodycoat’) is Yarrawonga’s sole shareholder and director. The first defendant (‘Clem Court’) is a company controlled by the second defendant (‘Walker’) who is also the first plaintiff’s accountant and financial advisor.
The plaintiffs seek three forms of interlocutory relief:
(i) First, a declaration pursuant to s 418A of the Corporations Act 2001 (Cth) (‘the Act’) that the appointment of a Mr Viney as Yarrawonga’s receiver is invalid.
(ii) Secondly, an injunction pending the outcome of proceeding prohibiting the defendants from enforcing particular security interests against them.
(iii) Thirdly, pending the outcome of the proceeding, possession of the Yarrawonga property.
Was Mr Viney validly appointed as receiver of Yarrawonga?
On 17 December 2007 Clem Court and Yarrawonga entered a Deed of Charge (‘the Charge’) whereby Yarrawonga agreed to repay all moneys secured under the deed and charged in Clem Court’s favour ‘the whole of its undertaking and assets whatsoever and wheresoever both present and future including the goodwill of its business and its uncalled and called but unpaid capital including all premiums’ (‘the charged property’). In the event that Yarrawonga defaulted under the Charge, Clem Court was entitled to appoint a receiver and manager over Yarrawonga’s assets. Clause 6 of the Charge provides:
Appointment of a receiver
The Chargee may at any time after the security hereby created has become enforceable appoint any person whether an officer of the Chargee or not to be Receiver of the mortgaged premises and may from time to time remove any Receiver so appointed and appoint another in his stead and may fix remuneration and conditions upon which he shall hold office.
On 8 February 2014, Clem Court served a notice of demand on Yarrawonga.
On 7 April 2014, the Australian Securities and Investment Commission (‘ASIC’) was notified of the appointment of Keith Laurence Sutherland as receiver and manager over the charged property pursuant to the Charge.
On 27 June 2014, ASIC was notified of the appointment of Allan Gregory Walker as ‘controller’ over the charged property pursuant to the Charge.
On 10 July 2014, Mr Sutherland resigned as receiver and manager.
On 15 August, ASIC was notified that Mr Walker had ceased acting as controller.
By Deed of Appointment dated 15 August 2014 between Clem Court and Neil Raymond Viney, Mr Viney was appointed controller of the charged property. ASIC was notified of Mr Viney’s appointment as controller that same day.
The plaintiffs seek a declaration pursuant to s 418A of the Act that the appointment of Mr Viney is invalid.
Section 418A provides:
Court may declare whether controller is validly acting
(1)Where there is doubt, on a specific ground, about:
(a) whether a purported appointment of a person, after 23 June 1993, as receiver of property of a corporation is valid; or
(b) whether a person who has entered into possession, or assumed control, of property of a corporation after 23 June 1993 did so validly under the terms of a security interest in that property;
the person, the corporation or any of the corporation's creditors may apply to the Court for an order under subsection (2).
(2)On an application, the Court may make an order declaring whether or not:
(a) the purported appointment was valid; or
(b) the person entered into possession, or assumed control, validly under the terms of the security interest;
as the case may be, on the ground specified in the application or on some other ground.
The plaintiffs submitted that the appointment of Mr Viney was invalid because he was not a registered liquidator and therefore did not meet the statutory criteria set out in s 418 of the Act. Section 418 sets out the requirements that must be met by those acting as receivers and relevantly provides:
Persons not to act as receivers
(1) A person is not qualified to be appointed, and must not act, as receiver of property of a corporation if the person:
…
(d) is not a registered liquidator; or
The defendants did not dispute that Mr Viney was not a registered liquidator, however they submitted that My Viney was appointed as ‘controller’, not as a receiver, and therefore the statutory criteria set out in s 418 did not apply.
The term ‘controller’ is defined in s 9 of the Act. ‘Controller’ in relation to property of a corporation, means:
(a) a receiver, or receiver and manager, of that property; or
(b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest;
It is evident from this definition that the term ‘controller’ includes those acting as receivers, but is not limited to them. The definition may also include persons such as a mortgagee in possession and its agents.
The defendant referred to Gordon J’s decision in Mijac Investments Pty Ltd v Graham & Ors[1] that discusses the 1988 Australian Law Reform Commission (‘ALRC’) Report No 45 ‘General Insolvency Inquiry’ and the subsequent insertion of the term ‘controller’ into the corporations legislation by the Corporate Law Reform Act 1992 (Cth). The amendments brought about by this act extended some, but not all, of the sections of the law that applied to receivers to cover a mortgagee in possession and its agents who controlled company property under a charge.
[1][2009] FCA 773 (‘Mijac Investments’).
In Mijac Investments, the mortgagee entered into possession and assumed control over the charged property. The charge expressly provided that the powers conferred on the mortgagee, which included powers of sale and entering into possession, were exercisable by the mortgagee or its officers, employees or agents. Justice Gordon relevantly held that Mr Graham, who was the sole director of the mortgagee and who directed that the mortgaged property be advertised for sale was a controller under the charge, but not a receiver, since he was not appointed as a receiver in writing as the charge required.[2]
[2]Ibid [143]-[154].
In my view, this case does not assist the defendants. As the reasoning of Gordon J demonstrates, the source of the power to appoint a receiver or controller is the security agreement, which in this case is the Charge. In order to determine the nature of the appointment, close attention must be paid to the terms of the Charge. The nature of the charged property may also be relevant.
The Charge speaks of the ‘appointment of a receiver’. It sets out extensively the powers of the receiver and provides for the application of moneys received by any receiver. The scope of powers of the receiver set out in the Charge is consistent with those powers granted to receivers under s 420 of the Act. Although the word controller is not used in the Charge, cl 8 of the Charge provides that the Chargee may exercise the power and discretions conferred on the receiver whether or not such a receiver has been appointed under the Charge. Clause 9 provides that the Chargor agrees to appoint the Chargee and every officer of the Chargee to be its attorney and to do anything which in the opinion of the attorney is necessary or desirable for facilitating the exercise of the powers hereby granted. Chargee is defined in the Charge to include the Chargee’s successors and assigns, but unlike in Mijac Investments, does not include employees or agents of the Chargee. I do not consider that Mr Viney is a successor or assign to Clem Court’s security interest over Yarrawonga.
I observe also that the ALRC in para [186] of Report No 45 ‘General Insolvency Inquiry’ opined that corporations legislation should only seek to regulate receivers of the whole, or substantially the whole, of the property of a company. The legislation that then existed covered receivers or persons who enter into possession or assume control of any of the property of a company. The ALRC said that it appeared ‘unnecessarily burdensome to require a receiver who, for example, has taken control of a single item of property constituting only a small part of the total property of a company to comply with the reporting requirements of s 328 [of the Companies Act 1981 (Cth)].’ Whilst this may provide part of the rationale for the introduction of a distinction in the obligations of receivers and controllers, the ALRC noted that this was a matter that fell outside the Terms of the Insolvency Reference.
In this case, the property covered by the charge is the whole of Yarrawonga’s present and future assets and undertakings. Evidence as to the position of creditors other than Clem Court was not before the Court, however it is clear that the criteria set out in s 418 of the Act are there to ensure that the interests of all creditors are considered.
Notwithstanding that the notification to ASIC and the Deed of Appointment purport to appoint Mr Viney as controller, I consider that Mr Viney must be taken to have been appointed as a receiver, and to now be acting as a receiver. It was not disputed that Mr Viney was appointed under the Charge. I consider that he was appointed pursuant to cl 6 of the Charge and as such must be taken to have been appointed as a receiver.
In my view, s 418(1)(d) applies and requires that Mr Viney be removed as receiver of Yarrawonga. I would make the declaration under s 418A sought by the plaintiffs that the appointment of Mr Viney is invalid.
Interlocutory Relief
Turning next to the injunction relating to security interest. Since around 2003 Walker has been the plaintiffs’ accountant and financial advisor. Hence, Walker has been the fiduciary of Yarrawonga and Boadycoat. There was no issue between the parties on these facts.
On 17 December 2007, Yarrawonga and Bodycoat on the advice of Walker entered into a series of transactions with Clem Court, being the company owned and controlled by Walker. The transactions were proposed by Walker when Yarrawonga was short of cash. Bodycoat effected a transfer of the Yarrawonga property of which it was the sole registered proprietor to Clem Court for $1,100,000. Clem Court is now the sole proprietor of the Yarrawonga property. This constituted the property transfer.
Bodycoat and Clem Court with Yarrawonga also entered into an agreement providing for or acknowledging a loan from Clem Court to Yarrawonga, including a charge by Bodycoat in favour of Clem Court over a family property in order to secure that debt. This transaction was the loan agreement.
Next a charge was granted by Yarrawonga in favour of Clem Court over its property generally. This was the Charge.
Lastly, at the apparent insistence of Walker, money was given by Yarrawonga under a lease over the Yarrawonga property. This was the lease transaction albeit that its terms are not entirely clear.
It is also alleged by the plaintiffs that there were several transfers of money between them and the defendants so that it is uncertain how much is owed to the other.
On 8 February 2014 Clem Court demanded $1,130,802 from Yarrawonga. The plaintiffs anticipate that this is the debt pursuant to which Clem Court purported to exercise the charge.
In March 2008 on the settlement of the property transfer of the $1,100,000 that Clem Court owed Bodycoat, the sum of $712,406.90 was used to pay out Yarrawonga’s creditors and the sum of $387,593.10 is alleged by the plaintiffs to be unaccounted for. In April 2012 Walker was transferred the sum of $402,884 from lawyers acting for Bodycoat. Relevantly, on 1 February 2013, lawyers acting for Bodycoat transferred $499,305 into another lawyer’s trust account to be held on behalf of Walker.
The plaintiffs further rely on the fact that Walker was in charge of the bank accounts, taxation returns and bookkeeping for Yarrawonga and as such occupied a position of trust within Yarrawonga.
The receiver, Mr Viney, proposed to auction Yarrawonga’s earth moving property on 22 August 2014. The proceeds of the auction were anticipated to go to Clem Court in extinguishment of a debt which is challenged by the plaintiffs. The plaintiffs relied on the fact that the auction would be conducted under a charge that may ultimately be invalid. Furthermore, the auction was arranged by an invalidly appointed receiver.
In addition, Clem Court took possession of the Yarrawonga property from 7 April 2014 pursuant to the appointment by it of Mr Viney as the receiver.
The plaintiffs submit that the transfer of the property and the loan agreement are liable to be set aside in equity because Walker was a fiduciary and acted contrary to legal principles and the interests of the plaintiffs. The plaintiffs rely above Maquire & Tansey v Makaronis[3] as authority for the proposition that where a fiduciary enters into a transaction with its principal, subject to the fiduciary proving that the transaction has been entered into with the principal’s fully informed consent, the transaction is voidable. On the face of the transactions plaintiffs make out an arguable case.[4]
[3](1997) 188 CLR 449.
[4]See BradtoPty Ltd v State of Victoria [2006] VSCA 89.
The plaintiffs also submit that as matters stand it is impossible to ascertain to who owes what amount of money to whom. It is pointed out that significant money has flowed both ways. There are matters deposed to in the affidavit of support and I note they have not been answered in this regard by the defendant. Relevantly, Walker has not answered the allegations in the affidavit put against him.
The plaintiffs submit that an account should ultimately occur between the parties either at common law or at equity and, further, in the circumstances that the charge should not be exercised until that account occurs. Given the circumstances of the transaction and, in particular, the lack of evidence of informed consent I am satisfied that the interlocutory injunction sought should be granted in order to preserve the status quo until matters are able to be resolved at trial.
In relation to the lease, as matters stand, there is some confusion. In any event, the plaintiffs submit that they entered into the lease of the advice of Walker as a fiduciary and, therefore, it is voidable. In any event, the plaintiffs rely on the fact that when Walker occupied the property he did so purporting to exercise rights under a charge which now fall under question but in so far as he purported to effect re-entry under the lease, in all the surrounding circumstances it too is vulnerable to be set aside.
I note that on its face the lease reveals some inconsistencies or uncertainty that have not been explained at this point. It was executed on 17 December 2007, the same time as other documents, but it purports to run from 1 December 2006. Furthermore, the plaintiffs seek to challenge the circumstances of the execution of the lease. The lessee has deposed on affidavit that he did not grant a lease to his own company and does not recall signing the same. This is another basis asserted by the plaintiffs to set aside the lease in equity. Furthermore, the plaintiffs submit that the basis for re-entry to the property has shifted. Firstly, entry was effected as a receiver but later it was said entry was effected as landlord. There are other matters relied on by the plaintiffs including the level of the rent, $200,000 per annum which is said to be grossly excessive. Whilst that matter would not be determined at this stage it relates to the reliance by the plaintiffs on the fiduciary role of Walker. The defendants challenged various aspects of the facts as alleged by the plaintiffs, however, as already observed, the central person in all the transactions, namely Walker, has not sworn an affidavit. The other aspect relied upon by the defendants was to assert that the plaintiffs bore the onus of showing that the relevant consent was not informed consent.
The question of the onus was considered by the Full Court of the Federal Court in Blackmagic Design Pty Ltd v Overliese & Ors.[5] Besanko J noted the views adopted by courts with respect to whether disclosure is properly construed as a defence or a positive duty.[6] Besanko J ultimately concluded that it is a defence not a positive duty and confirmed that it is not enough that there be disclosure, there must be consent.[7] So much is plain from the authorities cited in Blackmagic. In light of the current approach it is at least arguable that the defendants in this case bear the onus of proving consent. At present there is virtual silence on the topic from the defendants’ side. In any event, it is a triable issue. I observe however, that Hollingworth J in P & V Industries Pty Ltd v Porto[8] stated that whilst courts should not be too quick to stifle the development of the law in an area where the outcome was likely to turn on developing doctrine, in her Honour’s opinion, ‘there is no indication that the law in Australia is developing or likely to develop to include a positive fiduciary duty of disclosure.’[9]
[5]Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24 (‘Blackmagic’).
[6]Ibid [106]-[107].
[7]Ibid [108].
[8](2006) 14 VR 1.
[9]Ibid 3.
In all the circumstances I am satisfied that the plaintiffs have made out an arguable case. The question then turns to the balance of convenience. In my view the balance falls in favour of the plaintiffs. An invalidly appointed receiver proposed to auction the earth moving property and, furthermore, the auctioneer acted on the instruction of invalidly appointed receivers. Any money from the auction would go to Clem Court for a debt that is arguable. The auction would be conducted under a charge that may be set aside. Furthermore, the basis for the re-entry into the Yarrawonga property by Clem Court has changed. Finally, there is the question of monies that arguably should be investigated and brought to account.
In summary, I would declare that the appointment of Mr Viney is invalid. I would further order that the defendants be restrained from exercising the security or enforcing the debt against the plaintiffs. I would also order that the defendants deliver up possession of the Yarrawonga property. I would direct that the proceeding be referred to the Commercial Court in the ordinary course.
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