Ziziphus Pty Ltd v Pluton Resources Ltd (Receivers and Managers Appointed) (in liq)
[2017] WASCA 193
•26 OCTOBER 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ZIZIPHUS PTY LTD -v- PLUTON RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (in liq) [2017] WASCA 193
CORAM: MARTIN CJ
MURPHY JA
MITCHELL JA
HEARD: 16 AUGUST 2017
DELIVERED : 26 OCTOBER 2017
FILE NO/S: CACV 78 of 2016
BETWEEN: ZIZIPHUS PTY LTD
First Appellant
CELTIC CAPITAL PTY LTD
Second AppellantAND
PLUTON RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (in liq)
First RespondentSAM ANDREW MARSDEN and DERRICK CRAIG VICKERS in their capacity as the liquidators of PLUTON RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (in liq)
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER SANDERSON
Citation :ZIZIPHUS PTY LTD -v- PLUTON RESOURCES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) [2016] WASC 276
File No :COR 61 of 2016
Catchwords:
Corporations - Winding up - Appointment of liquidators - Termination of Deed of Company Arrangement - Company wound up in insolvency - Joint and several liquidators appointed - Whether appointment of liquidators was in error - Whether master failed to consider that a fairminded observer might reasonably apprehend that the liquidators might not be independent and impartial in discharging their duties - Whether liquidators had or were seen to have too close an association with principal secured creditor - Whether liquidators had a conflict of interest - Whether liquidators could be seen to be independent
Legislation:
Corporations Act 2001 (Cth), s 532(2)
Result:
Appeal dismissed
Leave to appeal refused
Application for extension of time to appeal refused
Category: B
Representation:
Counsel:
First Appellant : Mr A P Young QC & Mr D Oldfield
Second Appellant : Mr A P Young QC & Mr D Oldfield
First Respondent : No appearance
Second Respondent : Mr J Healy
Solicitors:
First Appellant : Piper Alderman
Second Appellant : Piper Alderman
First Respondent : HWL Ebsworth Lawyers
Second Respondent : Minter Ellison
Case(s) referred to in judgment(s):
Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd - as trustee for the Albans Unit Trust (1994) 14 ACSR 230
Australian Securities and Investments Commission v Franklin [2014] FCAFC 85; (2014) 223 FCR 204
City & Suburban Pty Ltd v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) (1998) 28 ACSR 328
Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337
House v The King (1936) 55 CLR 499
Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399
Re National Safety Council of Australia, Victoria Division [1990] VR 29
Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; (2012) 43 WAR 91
Ziziphus Pty Ltd v Pluton Resources Limited (Receivers and Managers Appointed) (Subject to a Deed of Company Arrangement) [2016] WASC 276
JUDGMENT OF THE COURT: On 20 July 2016, Master Sanderson made orders terminating a deed of company arrangement (DOCA) between the first respondent to this appeal (Pluton), World System Capital Investment Ltd (BVI) (World System Capital) and Watpac Ltd (Watpac). The learned master also ordered that, pursuant to s 447A of the Corporations Act 2001 (Cth) (Act), pt 5.3A of the Act is to operate in relation to Pluton such that the appellants were not prevented from applying for an order that Pluton be wound up in insolvency, notwithstanding the provisions of s 444E of the Act. The master otherwise adjourned the matter to 3 August 2016.
On 3 August 2016, the master ordered that Pluton be wound up in insolvency pursuant to s 459P of the Act. The master also granted leave, pursuant to s 532(2) of the Act, to the second respondents in the appeal (Mr Marsden and Mr Vickers) to be appointed as, and to act as, joint and several liquidators of Pluton.
On 31 August 2016, the master published reasons for decision in relation to the orders made on 20 July and 3 August 2016: Ziziphus Pty Ltd v Pluton Resources Limited (Receivers and Managers Appointed) (Subject to a Deed of Company Arrangement)[1] (primary decision).
[1] Ziziphus Pty Ltd v Pluton Resources Limited (Receivers and Managers Appointed) (Subject to a Deed of Company Arrangement) [2016] WASC 276.
The appellants (Ziziphus and Celtic) contend that the master erred in appointing Mr Marsden and Mr Vickers as liquidators of Pluton and seek orders in the appeal that the matter be remitted to the General Division of the Supreme Court for the appointment of 'an independent person or persons, other than [Mr Marsden and Mr Vickers], to act as liquidator(s) of [Pluton]'.[2]
[2] WB 39.
It is common cause that the master's decision is interlocutory, and that the appeal notice was filed out of time.[3] The appellants applied for leave to appeal and for an extension of time within which to appeal. Those applications were referred to the hearing of the appeal.
[3] ts 2.
This appeal concerns only the appointment of Mr Marsden and Mr Vickers as liquidators of Pluton. There is no dispute over the master's order that Pluton be wound‑up in insolvency.
The appellants contend, in effect, that the master failed to consider the correct test as to whether Mr Marsden and Mr Vickers were disqualified from appointment as liquidators. The appellants contend that the master failed to consider whether a fair‑minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators of Pluton with independence and impartiality. The answer to the question of whether the master considered the correct test depends, ultimately, on the proper construction of the master's reasons for the order appointing Mr Marsden and Mr Vickers as liquidators of Pluton. For the reasons which follow, the master's reasons, properly understood, do not signify the error alleged by the appellants, and the appeal should be dismissed.
Background[4]
August 2012 - 31 March 2014 and the Cockatoo Island Iron Ore Project
[4] There is no material dispute as to the background facts. The following background is taken from the primary decision, unless otherwise indicated.
The appellants are shareholders and creditors of Pluton. Pluton is a company that has been engaged in iron ore mining in Western Australia and Tasmania.
From about August or September 2012, Pluton and Wise Energy Group Company Ltd (Wise) proposed to establish a joint venture for the development and operation of the 'Cockatoo Island Iron Ore Project' (the Cockatoo project). Pluton was to act as manager, and Wise would market, sell and arrange the shipping of the iron ore produced.[5] Further, in or about October 2012, Pluton engaged Watpac to perform all operational tasks at the Cockatoo project.[6]
[5] Primary decision [4].
[6] Primary decision [5].
The Cockatoo project commenced, and on 18 December 2012, Pluton completed loading its first shipment of iron ore. At about this time, Pluton experienced a shortage of funds and needed to raise capital.[7] Receivers and managers were appointed in April 2013, but retired after a few days.[8]
[7] Primary decision [5].
[8] Primary decision [6].
On 1 May 2013, Mr Lau, a resident of Hong Kong, became a non‑executive director of Pluton. Later, on or about 11 September 2013, Mr Goel, a resident of India, also became a director of Pluton. Mr Lau is the managing director of General Nice Recursos Comercial Offshore De Macau Limitada (GNR), and Mr Goel is GNR's head of projects, planning and business development.[9]
[9] Primary decision [7].
On or about 1 May 2013, Pluton announced to the Australian Stock Exchange (ASX) that it had completed a US$24 million debt funding package with GNR. On or about the same time, Pluton granted to GNR security for the performance of its financial obligations to GNR.[10]
[10] Primary decision [8].
Despite this funding package, Pluton still experienced a shortage of funds and needed to raise further capital.[11] As at 31 March 2014, the value of Pluton's current assets totalled $15,081,000, including $185,000 cash. Its current liabilities totalled $53,755,000, including approximately $12,468,000 in respect of borrowings.[12]
April 2014 - 8 September 2015 and the appointment of receivers
[11] Primary decision [8].
[12] Primary decision [9].
It followed that, since April 2014, Pluton has been hopelessly insolvent.[13] Pluton's shares were suspended from trading on 3 June 2014 and have not traded since.[14]
[13] Primary decision [3].
[14] Primary decision [10].
Throughout 2014, Pluton attempted to raise capital to fund its operations, but was met with limited success.[15] Further, on or about 30 October 2014, Pluton received correspondence from Wise purporting to remove Pluton as manager of the Cockatoo project.[16]
[15] Primary decision [11].
[16] Primary decision [12].
Following this, on or about 31 October 2014, another secured creditor, Rizhao Ports Group Logistics Co Ltd (Rizhao), appointed receivers and managers to Pluton.[17]
[17] Primary decision [12].
On or about 3 November 2014, GNR also appointed receivers and managers to Pluton.[18] GNR, by deed, agreed to indemnify the receivers against any liability under s 419 and s 419A of the Act, and against all 'claims' as defined in the deed. GNR also agreed to be responsible for the payment of all remuneration, costs, charges and expenses to which the receivers were entitled under the terms of their appointment.[19]
[18] Primary decision [12].
[19] Primary decision [13].
On 3 November 2014, Watpac suspended the mining services between itself and Pluton.[20]
[20] Primary decision [14].
By Tomlin Orders made on 28 November 2014, and varied on or about 29 April 2015 in Supreme Court proceedings CIV 2540 of 2014, the Court dismissed certain proceedings on the basis that Rizhao, Pluton, GNR and the receivers appointed by GNR, observed and performed the following obligations (among others):[21]
1.Rizhao would procure the retirement of its receivers.
2.By way of repayment, Pluton would pay Rizhao certain sums by stipulated dates and by way of instalments, and GNR would guarantee Pluton's payments, with these payments to be made by General Nice Resources (Hong Kong) Ltd (GNR Hong Kong). Further, in the event of default, all money agreed to be paid would become due and payable, and Pluton would pay a further $7 million over and above what it was to pay by way of instalments.
[21] Primary decision [15].
On or about 8 January 2015, Rizhao's receivers retired. On or about 23 March 2015, GNR's receivers also retired.[22]
[22] Primary decision [17].
Between about 3 November 2014 and 23 March 2015, whilst Pluton was under the management and control of the receivers appointed by GNR, Pluton incurred unsecured liabilities totalling $8,546,600. The receivers appointed by GNR caused or permitted Pluton to incur liabilities totalling $7,642,794, which liabilities remain unpaid. Pursuant to s 419(1) of the Act, the GNR receivers became personally liable to pay the liabilities incurred. The amount owed by Pluton to GNR increased by approximately $10 million by reference to the funding provided by GNR to the receivers appointed by it.[23]
[23] Primary decision [16].
On or about 11 April 2015, GNR Hong Kong entered a deed of guarantee and assignment with Rizhao, by which GNR Hong Kong guaranteed to Rizhao payment of the amounts due or payable by Pluton to Rizhao under the Tomlin Orders, and Rizhao assigned to GNR Hong Kong all right, title and interest in the debts due from Pluton to Rizhao (guarantee deed).[24]
[24] Primary decision [18].
On 12 May 2015, Pluton and GNR Hong Kong breached the Tomlin Orders and the guarantee deed by failing to pay $3,075,000 to Rizhao. The effect of the breach is that Pluton and GNR Hong Kong are liable to pay approximately $26,541,200 to Rizhao.[25]
[25] Primary decision [19].
On or about 9 June 2015, Pluton suspended the Cockatoo project and suspended full time operations at Cockatoo Island. From about this time, Pluton has also failed to discharge its royalty obligations to the State of Western Australia.[26]
[26] Primary decision [20].
Between 23 March 2015 and 8 September 2015, Pluton incurred further unsecured liabilities of approximately $8 million.[27]
[27] Primary decision [20].
On 8 September 2015, Pluton announced to the ASX that it had reached agreement with GNR on a 'recapitalisation proposal', under which GNR was to provide $28 million by way of a debt facility to Pluton in the form of a 36‑month convertible loan. The funding was contingent upon Pluton entering into administration and its creditors approving a recapitalisation proposal by way of a DOCA on terms satisfactory to GNR.[28]
September/October 2015 - voluntary administration of Pluton and the appointment of Mr Marsden and Mr Vickers
[28] Primary decision [21].
On 8 September 2015, voluntary administrators were appointed to Pluton, and GNR appointed another set of receivers to Pluton.[29]
[29] Primary decision [21].
On 5 October 2015, Mr Marsden and Mr Vickers replaced the first appointed voluntary administrators.[30]
Report to creditors
[30] Primary decision [22].
On or about 1 December 2015, Mr Marsden and Mr Vickers produced a 'Report to Pluton's Creditors' (s 439A report). That report suggested that there were a number of transactions that might be voidable by a liquidator. They estimated that $3,721,000 might be recoverable by way of unfair preferences, $4,180,000 might be recoverable as uncommercial transactions and $16,700,000 might be recoverable as a claim for insolvent trading. The administrators' report also stated:[31]
If Pluton were wound up, we believe there would be a substantial shortfall to the secured creditor. Despite this, employees and unsecured creditors may still receive a return dependant on recoveries from debts and voidable transactions and insolvent trading claims. In a mid-scenario, we have estimated employees would receive payment of their entitlements in full and other unsecured creditors would receive a return of 6.9 cents in the dollar.
[31] Primary decision [24].
Pluton's directors estimated that the realisable value of Pluton's assets, as at 8 December 2015, was $3,654,190. At this time, there were priority unsecured creditors (ie, employees) totalling $1,819,522, further unsecured creditors totalling $39,377,791, ordinary unsecured creditors including trade creditors totalling $52,207,816, and contingent claims of creditors totalling $52,600,000. Pluton therefore had an estimated deficiency, before taking into account costs of administration, of $142,350,945. In other words, Pluton was 'hopelessly insolvent'.[32]
Second meeting of creditors on 9 December 2015
[32] Primary decision [23].
On 9 December 2015, a second meeting of creditors was held, and the creditors resolved to execute a deed of company arrangement in terms specified in the statement accompanying the notice of meeting. GNR Hong Kong was admitted to vote for $36,822,000. The appellants were admitted to vote at $1 each.[33]
The DOCA dated 4 January 2016
[33] Primary decision [25].
On or about 4 January 2016, Pluton entered into the DOCA.[34] The parties to the DOCA were Mr Marsden and Mr Vickers on their own behalf and as deed administrators of Pluton, Watpac and World System Capital. The signatories on behalf of World System Capital were Mr Lau and Mr Goel. It was common ground that World System Capital was a related entity of GNR.
[34] Primary decision [26].
Pursuant to the DOCA, Mr Marsden and Mr Vickers were to be the deed administrators. World System Capital was to make a 'first deed payment' of US$3 million[35] and $7,642,794, to be distributed to 'first category creditors', comprising Rizhao in the former sum and Pluton's creditors to whom the GNR receivers were personally liable in the latter sum. World System Capital was also to make a 'second deed payment' of $1,965,988 for distribution to 'second category creditors', being the DOCA administrators in respect of their costs and remuneration. The remaining funds were to be distributed to Pluton's priority unsecured creditors (employees) and, if any sum remained, for Pluton's ordinary unsecured creditors.[36]
Other events prior to and on 31 March 2016
[35] The Australian dollar equivalent of US$3 million fluctuated with the exchange rate, and was estimated, at different times, to be AU$4.08 million (GB 371) and AU$4,285,714 (GB 428).
[36] Primary decision [26]. The master also observed at [26] that 'it is difficult to see how there could have been any remaining funds'.
On 17 February 2016, Pluton had fewer than the minimum number of directors for a public company, and no director ordinarily resident in Australia, as a result of which it was in breach of s 201A of the Act.[37]
[37] Primary decision [27].
Between 8 September 2015 and 7 March 2016, Pluton's debt to GNR increased from $8,650,021 to $12,917,525. The receivers and managers appointed by GNR were paid remuneration and expenses totalling nearly $1 million. The amount owed by Pluton to GNR increased by at least $2,928,340 by reference to funding provided by GNR for the receivers.[38]
[38] Primary decision [28].
On or about 31 March 2016, the administrators informed Pluton's creditors that Watpac had ceased to work and had 'demobilised' from the Cockatoo project. Creditors were also advised that World System Capital was unable to comply with the terms of the DOCA. World System Capital had requested that a meeting of Pluton's creditors be convened to consider a variation to the terms of the DOCA. Under the then proposed variation, the first tranche payment of $3.5 million would be paid to Pluton on or before the date of such a meeting.[39]
Further meetings of creditors in April and early May 2016
[39] Primary decision [29].
A meeting was set for 8 April 2016, and the 'end date' in the DOCA was extended until 11 April 2016.[40]
[40] Primary decision [29].
The meeting of creditors on 8 April 2016 was adjourned. This was because World System Capital had not paid the sum of $3.5 million, which the deed administrators required, as a sign of good faith, to be paid prior to the creditors' meeting.[41]
[41] Primary decision [30].
On or about 29 April 2016, the DOCA administrators informed creditors that:
(a)the creditors' meeting would be reconvened on 9 May 2016;
(b)pursuant to s 445F of the Act, a new meeting of creditors would also be convened on 9 May 2016 to consider a resolution to vary the terms of the DOCA;
(c)as at 29 April 2016, the only relevant money paid by World System Capital was $500,000, and that was said to have been paid to Watpac; and
(d)the deed administrators said that if the $3 million (being the balance of the first tranche of $3.5 million) was not received by the meeting on 9 May 2016, Pluton's creditors would be required to resolve whether to terminate the DOCA and appoint the DOCA administrators as liquidators of Pluton.[42]
[42] Primary decision [31].
On 9 May 2016, two meetings of Pluton's creditors were convened. The DOCA administrators informed creditors that since 9 April 2016, World System Capital had paid $500,000 to Watpac and $200,000 to the DOCA administrators. Creditors were also advised that World System Capital had asked for further time to make payments. The DOCA administrators also advised that Pluton's debt to Rizhao was 'no longer assigned' to GNR or any entity relating to GNR. The DOCA administrators also proposed to 'close' each of the meetings and convene a new meeting of creditors on or before 23 May 2016, at which point both meetings on 9 May 2016 were terminated.[43]
[43] Primary decision [32].
On 13 May 2016, the DOCA administrators informed creditors that a new meeting would be convened on 23 May 2016. Creditors were advised that the purpose of the meeting would be for Pluton's creditors to decide whether to resolve to vary the terms of the DOCA or whether to terminate the DOCA and appoint liquidators to Pluton.[44]
The creditors' meeting of 23 May 2016
[44] Primary decision [33].
On 23 May 2016, it was resolved that the DOCA be varied, following which a revised DOCA was prepared.[45] It was common ground that the total funds to be injected by World Systems Capital under the varied DOCA totalled $23.5 million, comprising a 'first deed payment' of $3.5 million and a 'second deed payment' of $20 million.[46] The 'first deed payment' involved the payment of $3.5 million, comprising an amount of $1.5 million in effect for the purpose of paying priority creditors in the order of priority specified in s 444DA, s 556, s 560 and s 561 of the Act, $1 million for the purpose of paying Watpac, and $1 million for the payment of Former Receivership Creditors. The 'second deed payment' included an amount of $6,142,794 for the payment of Former Receivership Creditors.[47] There remained substantial debts owing to Rizhao and Watpac outside of the payment regime provided for in the DOCA.
[45] Primary decision [33] ‑ [36].
[46] 'Plaintiff's outline of submissions in support of application to terminate or void the deed of company arrangement pursuant to ss 445D, 445G and 447A of the Corporations Act 2001 (Cth) and other orders' 8 July 2016, par 26; BB 78; 'second defendant's outline of submissions' 18 July 2016, pars 11 ‑ 12; BB 93.
[47] Primary decision [34].
The primary proceedings
By originating process dated 24 March 2016,[48] the appellants sought orders to the effect that the DOCA be terminated and Pluton be wound up in insolvency.[49]
[48] BB 27.
[49] BB 30.
The appellants alleged that the administrators (ie, Mr Marsden and Mr Vickers) failed to provide Pluton's creditors with adequate information in respect of Pluton's financial position and its prospects. Amongst other things, they complained that the administrators failed to:
•detail how Pluton's financial position deteriorated from 2014;
•disclose full details of mining leases and other significant contracts to which Pluton is a party; and
•advise whether Pluton is likely to be insolvent or to be at risk of again becoming insolvent and within what timeframe even if the obligations under the DOCA were fulfilled.[50]
[50] Primary decision [37].
The application was resisted by Pluton and the DOCA administrators.
The master's orders of 20 July 2016
The matter came on for hearing before Master Sanderson on 20 July 2016. After hearing argument on 20 July 2016, the master made orders to the effect that the DOCA should be terminated and that the appellants not be prevented, despite s 444E of the Act, from applying to have Pluton wound up in insolvency.
The master then adjourned the matter for further hearing on 3 August 2016 in relation to the winding up of Pluton and the appointment of liquidators.
The hearing on 3 August 2016
At the hearing on 3 August 2016, there was the following exchange between the master and Ms Hensler, counsel for Ziziphus and Celtic, ie, the appellants:[51]
[51] 3 August 2016, ts 2 - 6; GB 86 - 90.
HENSLER, MS: Thank you, Master. When we were here before you last, Master, there were two issues that really were stood over. One was orders for winding up the company and who should be appointed as the liquidator and, secondly, the matter of costs was not formally addressed.
…
THE MASTER: What's the objection to appointing Mr Marsden and Mr Vickers given that they had some familiarity with the affairs of the company? Is there anything in the material that suggests they might be in some way compromised?
HENSLER, MS: In my submission, yes, and it comes about in this way and also - the plaintiff's primary position here is that they have always proposed Mr Fitzgerald and nothing has ever been said against Mr Fitzgerald in these proceedings.
…
THE MASTER: Just before you go on with that, one of the - Mr Fitzgerald is based in the east, isn't he?
HENSLER, MS: Yes, he is.
THE MASTER: It always seems to me to be that that creates a difficulty. I mean, I don't know his - he's a member of the firm William Buck. I assume they haven't got a presence in Western Australia. The business of Pluton appears to be carried on in Western Australia. Isn't that in itself a difficulty?
HENSLER, MS: No, Master, it isn't because the business of Pluton is carried on by the receivers. It's not likely to be something that the liquidators are going to have any opportunity to participate in in any great way. Further, if you look at what the liquidator is likely to have to do in these proceedings, it's going to be dealing with creditors and things like that and to the extent that there's evidence before this court about where creditors are, the creditors are in China. The creditors are, you know, for example, White Pack [sic: Watpac] - they're in Queensland.
…
HENSLER, MS: … [T]he primary position is that where a court makes an order terminating a DOCA and appointing liquidators, the normal course is that the plaintiff's nominee would be appointed and, in terms of the cases that the Master was referred to during arguments, that's referred to - the Canadian solar case at paragraph 58 - and, as I said before, there hasn't been anything put by the defendants in this case, despite being aware of Mr Fitzgerald's consent since March of this year and, Master, you're giving them another two weeks to make submissions about why it should be someone other than Mr Fitzgerald who was appointed.
…
You asked earlier, though, about [Mr Marsden and Mr Vickers] and why they should not be appointed and, in the plaintiff's submission, [Mr Marsden and Mr Vickers] have conducted the administration in a way that raises an apprehension about a lack of impartiality and that is because, while it's acknowledged that they have gained knowledge about Pluton since their appointment, there's a query about how relevant that's going to be in circumstances like this where Pluton's business is in the hands of receivers. They were appointed by Pluton's board at a time when that board was controlled by GNR companies.
Pluton is already subject to receivers who were appointed by GNR companies. For some nine months [Mr Marsden and Mr Vickers] recommended a deed of company arrangement and variations to that deed to Pluton's creditors even though the effect of that deed was to, in large part, fund the liabilities of GNR companies. The deed did not provide anything like a sufficient working capital to return Pluton to viability and the promoter of that deed had stated that it was unable to (indistinct) the deed in its original term and it failed to meet promises to pay money in relation to the deed and for those variations.
So there is this course of conduct that can lead to an apprehension that they are, if not doing the bidding of the GNR companies or at least promoting their interests - you know, promoting a deed that provided for liabilities in the GNR companies to be paid in full, for example. So there is a concern about the perceived impartiality of [Mr Marsden and Mr Vickers] if they were to be appointed liquidators, and it is important, as has been discussed in a number of cases like Biposo cases and Advance Housing Pty Ltd [(In liq)] v Newcastle Classic [Developments Pty Ltd], a decision of [Santow J] that liquidators can't be just independent.
They must be seen to be independent as well. In this case, the plaintiff's position is that [Mr Marsden and Mr Vickers] can no longer be seen to be independent by some of the unsecured creditors who they would be appointed to - well, not represent, but act in the interests of. So it's in those circumstances that the plaintiff maintain that the appropriate person to appoint as liquidator is Mr Fitzgerald but, as I said, we are aware of that concern about his geographic location so, as an alternate, McGrathNicol is - liquidators from McGrathNicol are suggested including one who is based in Perth. (emphasis added)
In the exchange between the master and Mr Zappia, counsel for Pluton, the following exchange occurred:[52]
ZAPPIA, MR: … The first alternative was for the former deed administrators to be appointed as the - - -
THE MASTER: Is that still the first defendant's [Pluton's] preferred position?
ZAPPIA, MR: That is the preferred position, sir.
[52] 3 August 2016, ts 6 - 7; GB 90 - 91.
The master then said:
THE MASTER: All right. Well, I think that's what should happen so perhaps that can short‑circuit things. It seems to me that Mr Fitzgerald may not suffer from problems about his geographical location, and I don't want to sound parochial about this, but it does seem to me that having someone in Western Australia has advantages. … I can't see anything in the evidence and, with respect to [counsel for the appellants], I don't think anything has been highlighted which suggests that [Mr Marsden and Mr Vickers], would in any way be compromised. They've gained knowledge of the activities of the company - its undertakings, its problems, its assets, its liabilities. In my view, they are better placed than anyone else to liquidate the company and I think that, given that they have that basic knowledge, it may well provide a saving in overall costs and, for those reasons, it seems to me that [Mr Marsden and Mr Vickers] should be appointed as the liquidators. (emphasis added)
The orders made on 3 August 2016
On 3 August 2016, following the above argument, Master Sanderson made orders, including the following:
3.Pursuant to s 532(2) of the Act, [Mr Marsden] and [Mr Vickers] have leave to be appointed and act as joint and several liquidators of Pluton.
4.[Mr Marsden] and [Mr Vickers] be appointed joint and several liquidators of Pluton with all relevant statutory powers given to liquidators under the Act.
The primary decision
The master published the primary decision on 31 August 2016. The primary decision related both to the orders made by the master on 20 July 2016 and on 3 August 2016.
In the primary decision, the master found that a combination of the following factors meant that it was appropriate for the DOCA to be terminated.[53] First, there was a lack of disclosure by the administrators of relevant information in that, for example, there was no explanation:
(a)of the effect of the failure to pay royalties on the standing of mining leases; and
(b)no explanation why the company experienced such serious financial difficulties from 2014 onwards.[54]
[53] Primary decision [41], [46].
[54] Primary decision [41] ‑ [42].
Secondly, there appeared to be no plan or structure in place as to how Pluton would be run and how it expected to meet its obligations into the future. The master said:[55]
Assuming the terms of the DOCA are met all that will happen is a dysfunctional company with no real prospect of ever being a going concern will be put out in the public arena with the likelihood it will incur liabilities which will never be met.
[55] Primary decision [43].
Thirdly, the master said, in relation to the claims of Watpac and Rizhao:[56]
[A]llied to the second point, there is the uncertainty over how claims of Watpac and Rizhao preserved under the DOCA will be met. The amounts of these claims are not insubstantial and some unspecified form of refinancing will be necessary. How that might be achieved is unclear.
[56] Primary decision [44].
Finally, in relation to the question of directors, the master said:[57]
At present the company does not comply with the requirements of the Corporations Law and nowhere is it disclosed how this omission will be rectified. So at present even if the terms of the DOCA were satisfied the company could not operate because it would not be permitted to do so under the Corporations Law.
[57] Primary decision [45].
The master continued:[58]
On behalf of the defendants it was submitted that all necessary and relevant disclosures had been made by the administrators and nothing more could have been expected of them. As indicated above I do not accept that is the case. In reaching that conclusion I am not in any way being critical of the conduct of the administrators. They have provided what they see as relevant material. It simply seems to me there is a level of uncertainty about the future health of this company which might have been assuaged by further information. If it were simply the case the plaintiffs' complaints were limited to an alleged failure by the administrators to provide sufficient information before the creditors voted on the DOCA it is unlikely I would have terminated the DOCA. It is a combination of factors including a lack of information which led me to the conclusion the company should be wound up.
The defendants make two further points. First, the creditors are likely to be better off if the DOCA was allowed to proceed. Given the complexities of this case it is very difficult to assess whether or not that is so. But for present purposes I will assume that is correct. After all, any return to creditors is dependent upon the liquidators being able to recover monies paid as unfair preferences and the like. Such recoveries are notoriously difficult - funding would need to be obtained, examinations held and it may be years before the matters are settled or work their way through the courts. So it is not unreasonable to assume if the DOCA was to proceed the creditors would be better off.
[58] Primary decision [46] - [47].
With respect to the public interest, the master said:[59]
The authorities I have cited make it plain the public interest can outweigh the benefits to creditors when it comes to determining whether the DOCA ought be terminated. Having said that, it is worth bearing in mind the objects of pt 5.3A of the Corporations Act. These are set out in s 435A.
…
This is not a case where it seems to me the public interest required the company to go into liquidation so the liquidators could examine the directors and others as to the affairs of the company. Rather it seemed to me it was not in the public interest to have a company such as this which has struggled for years doing business and incurring debts which it may not be able to pay. So while I would accept there is a strong argument in favour of allowing the DOCA to continue to better protect the interests of the creditors that is not sufficient to carry the day. (emphasis added)
[59] Primary decision [48] ‑ [49].
The master also noted that the appellants were admitted creditors for only $1 each, but said that this would not warrant the refusal of relief. He said there was nothing in the legislation or case law which suggested a creditor for a nominal amount is in any different position from a creditor for a significant sum.[60]
[60] Primary decision [50].
Finally, the master said in relation to the appointment of Mr Marsden and Mr Vickers as liquidators:[61]
First, [Mr Marsden and Mr Vickers] have been administrators of [Pluton] for some time and they have an understanding of the company's affairs and its operations. The appointment of an alternative liquidator who has had no contact with the company would mean cost and expense would necessarily have been incurred in the new liquidator coming to grips with [Pluton's] affairs. It seemed to me prudent not to waste shareholder's funds by not utilising the knowledge already gained by the [Mr Marsden and Mr Vickers].
Second, although I took the view further information could have been provided to [Pluton's] creditors there was nothing in the conduct of [Mr Marsden and Mr Vickers] which compromised their position. There is no suggestion they will have a conflict of interest or that they will conduct the liquidation in a manner which is inconsistent with proper practice. True it is they are a creditor of the company and the orders I made recognised that that to be the case. But in the circumstances of this application that did not disqualify them from acting as liquidators of [Pluton]. (emphasis added)
[61] Primary decision [52] ‑ [53].
Ground of appeal
There is one ground of appeal. The appellants allege that the master erred in law in appointing Mr Marsden and Mr Vickers as liquidators of Pluton 'by failing to consider properly or at all whether a fair‑minded observer might reasonably apprehend that [they] might not discharge their duties as liquidators of [Pluton] with independence and impartiality'.[62]
[62] WB 24.
It was not in dispute that the appointment of the deed administrators required leave pursuant to s 532(2) of the Act, and that the master's decision was made pursuant to s 532(2) of the Act. The appellants denied that the appeal called for the application of the principles in House v The King,[63] but said that insofar as they were relevant, error was demonstrated by the master's (alleged) failure to consider the correct principle to be applied to the appointment of the liquidators.[64]
[63] House v The King (1936) 55 CLR 499.
[64] ts 26 - 27.
The parties' submissions
The appellants' submissions
The appellants submit that the primary decision at [51] ‑ [53] reveals that the master gave no consideration to the correct test. The appellants contend, in effect, that the correct test in this context is essentially the same as that which applies to the judiciary and to administrative decision‑makers. Reference was made to the 'double might' test referred to by the majority in Ebner v Official Trustee in Bankruptcy[65] as considered and applied in the liquidation context in Australian Securities and Investments Commission v Franklin.[66] Thus, the appellants submit that the correct test is whether a fair minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators of Pluton with independence and impartiality.[67]
[65] Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 [6].
[66] Australian Securities and Investments Commission v Franklin [2014] FCAFC 85; (2014) 223 FCR 204 [59] ‑ [64].
[67] Appellants' submissions, par 25; WB 32 - 33.
The appellants summarised and characterised their complaint as, in substance, an allegation that whilst the master considered the requirement that a liquidator must be independent, he failed to consider the requirement that the liquidator must be seen to be independent.[68] The appellants, in that regard, referred to the decision of the Full Court of the Supreme Court of Victoria in Re National Safety Council of Australia, Victoria Division:[69]
The principle to be applied is clear … from McPherson on Company Liquidations, 3rd ed p 209 where it is said: 'The guiding principle in the appointment by the court of a liquidator is that he must be independent and must be seen to be independent.'
[68] ts 22.
[69] Re National Safety Council of Australia, Victoria Division [1990] VR 29, 34.
The appellants also referred to various other authorities to the effect that liquidators must not only be independent, but 'be seen to be independent', including Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd - as trustee for the Albans Unit Trust[70] and Re Biposo Pty Ltd; Condon v Rodgers.[71]
[70] Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd - as trustee for the Albans Unit Trust (1994) 14 ACSR 230, 233 ‑ 234.
[71] Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399, 405.
The appellants further submit that had the master applied the correct test, he would have found that a fair minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators of Pluton with independence and impartiality because of their:[72]
(1)appointment by Pluton's directors as voluntary administrators of Pluton;
(2)conduct as voluntary administrators of Pluton;
(3)appointment as deed administrators of Pluton's DOCA; and/or
(4)conduct as deed administrators of Pluton's DOCA.
[72] Appellants' submissions, par 26; WB 33.
As to allegation (1) in the preceding paragraph, it is contended that Mr Marsden and Mr Vickers were appointed by the directors of Pluton, and those directors were also associated with GNR, being the principal secured creditor of Pluton.[73] The appellants emphasise that this occurred in a context where GNR's receivers had effectively sounded out and selected Mr Marsden and Mr Vickers as candidates for the position of voluntary administrators,[74] and GNR had given an indemnity to them for their fees, and had paid a modest amount in that regard.[75]
[73] Appellants' submissions, pars 27 ‑ 28; WB 33.
[74] ts 19 - 21.
[75] ts 27 - 28.
As to allegation (2), the appellants submit, in effect, that Mr Marsden and Mr Vickers recommended that Pluton's creditors vote in favour of Pluton's proposed DOCA in circumstances where, as the master found:[76]
(a)Pluton was hopelessly insolvent;
(b)they had failed to make full disclosure to creditors of information relating to Pluton's business, property and affairs;
(c)there was no plan or structure in place (or at least disclosed) as to how Pluton would be run and how it might meet future obligations;
(d)even if it were assumed that the terms of the proposed DOCA were met, all that would happen was for a dysfunctional company with no real prospect of ever being a going concern to be permitted to trade and incur further liabilities;
(e)ordinary unsecured creditors may benefit from Pluton's winding up and the appointment of liquidators because of potential recoverable claims in the liquidation estimated to be in excess of $24.6 million available to liquidators.
[76] Appellants' submissions, par 29; WB 33 - 34.
In relation to allegation (2), the appellants also submit that the proposed DOCA principally served the interests of parties who were likely to be the target of such claims, namely Pluton's directors, the directors of GNR and GNR itself, and was contrary to the interests of Pluton's creditors as a whole because the creditors would lose the opportunity to have the $24.6 million dollars of potential claims investigated and pursued.[77] They submit that Mr Marsden and Mr Vickers should never have recommended the DOCA.[78]
[77] Appellants' submissions, pars 29; WB 33 ‑ 34.
[78] ts 30.
As to allegations (3) and (4) in [66] above, the appellants also refer to the fact, as the master found, that Pluton did not have the minimum number of Australian directors.[79] They also submit that, upon becoming deed administrators, Mr Marsden and Mr Vickers 'gave the appearance of being mere ciphers for the wishes of GNR' and associated parties.[80] Moreover, they submit that GNR, by its representatives, 'procured' from Mr Marsden and Mr Vickers more time to perform its (or rather, World System Capital's) obligations under the DOCA, and that Mr Marsden and Mr Vickers effectively did 'the bidding' of GNR.[81] The appellants also submit that '[Mr Marsden's and Mr Vickers'] conduct … "together with the natural inclination on the part of [a] liquidator to endeavour to justify his past conduct" [placed] them in a position of potential conflict'.[82]
[79] ts 16.
[80] Appellants' submissions, par 30; WB 34.
[81] ts 19 - 21, 30 - 31.
[82] Appellants' submissions, par 32; WB 35, citing City & Suburban Pty Ltd v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) (1998) 28 ACSR 328, 337.
In oral submissions, senior counsel for the appellants elaborated on the alleged potential conflict as follows:[83]
Well, an uncharitable mind might say, 'Well they recommended the eschewing of going into liquidation and the pursuit of possible claims for insolvent trading, preferential payments and uncommercial transactions on the basis that they thought or recommended that there might be a better outcome by pursuit of the DOCA proposal'. An uncharitable mind might think, 'Well, the way they post‑fact justify that recommendation is when the time comes that the DOCA has been terminated and they are appointed as liquidators, they say, "Look, there was nothing to be had in these claims". They don't pursue them with vigour. They don't do their best.'
[83] ts 10.
In that regard, senior counsel submitted that a fair‑minded observer may reasonably apprehend that Mr Marsden and Mr Vickers might breach their duties as officers of the court and 'run dead' on the company's liquidation claims, because of their past promotion of the DOCA.[84]
[84] ts 10 - 11, 34, 37 - 38.
In making that submission, senior counsel for the appellants expressly disavowed the proposition that the circumstances were such that the conduct of Mr Marsden and Mr Vickers as deed administrators would have to be investigated by the liquidators of Pluton.[85]
[85] ts 10.
The appellants also contend that Mr Marsden and Mr Vickers, with 'unusual and unseemly determination and vigour' both opposed the appellants' successful application for orders terminating the DOCA,[86] and sought their own appointment as liquidators.[87] It is submitted that this may lead the reasonable observer 'to apprehend that there might be something amiss'.[88]
Pluton's submissions
[86] Appellants' submissions, pars 30 ‑ 31; WB 34.
[87] ts 32.
[88] ts 31.
Pluton filed written submissions but did not appear at the hearing of the appeal. In substance, Pluton contended that the primary decision is to be read and understood in the context of the hearing on 3 August 2016 and the master's reasons given on that occasion for the appointment of Mr Marsden and Mr Vickers as liquidators of Pluton. Pluton contended that when the master's reasons in the primary decision are read in that light, it is apparent that the master correctly understood the relevant test and applied it to the particular circumstances relied on at the hearing on 3 August 2016 by counsel for the appellants.[89]
The liquidators' submissions
[89] First respondent's amended submissions, pars 72 ‑ 73, 85, 88 ‑ 89; WB 57, 60 ‑ 61.
The liquidators, in effect, adopted Pluton's submissions in relation to the substantive appeal.[90] They also submitted, in effect, that the master was referring to the evidence led at the hearing on 20 July 2016 when he said on 3 August 2016 that he could not 'see anything in the evidence and … I don't think anything has been highlighted which suggests that [Mr Marsden and Mr Vickers] would in any way be compromised'.[91] The liquidators set out a schedule of this evidence, and submitted that it does not establish that there could be any reasonable apprehension by any creditor of lack of impartiality on the part of the liquidators.[92]
[90] Second respondents' submissions, par 11; WB 67.
[91] Second respondents' submissions, par 12; WB 67 - 68.
[92] Second respondents' submissions, par 13; WB 68.
The liquidators also denied the appellants' allegation that the liquidators 'opposed [the appellants' application to set aside the DOCA] with unusual and unseemly determination and vigour'.[93] The liquidators said that their opposition was to be viewed in the context that:
(a)an overwhelming majority of creditors had voted in favour of the DOCA and its subsequent variations, in a total creditors' pool of $50 million in which each of the appellants was admitted to vote for $1;
(b)no other creditors supported the appellants' application to set aside the DOCA; and
(c)as the administrators' conduct was being questioned, it was appropriate to respond on professional grounds, and with a view to assisting the court.
[93] Second respondents' submissions, pars 15 ‑ 16; WB 68 - 69.
The liquidators also filed a notice of contention, the purpose of which, as indicated by counsel for the liquidators at the hearing of the appeal, was to particularise the matters supporting the master's finding, insofar as he made such a finding, that there was no actual or apparent conflict of interest.[94] The liquidators submitted, in effect, that the following factors support the conclusion that there was no relevant relationship between the receivers and administrators which could be seen to give rise to any reasonable apprehension on the part of a creditor that the liquidators would be impeded or not impartial in the exercise of their duties:
1.Following their appointment as administrators in 2015, there was no challenge to Mr Marsden's and Mr Vickers' independence, and no resolution was sought for their removal at the first meeting of creditors or subsequently.[95]
2.The various notifications and disclosures to creditors at the creditors meetings show that Mr Marsden and Mr Vickers disclosed the risks in relation to the DOCA proposal and criticised the DOCA proponent's failure to comply with its terms.[96]
3.When there was a failure by the DOCA proponent to make payment in accordance with the DOCA, Mr Marsden and Mr Vickers brought the matter back before creditors to vote on extensions and variations to the DOCA.[97]
4.Mr Marsden and Mr Vickers had provided a consent to act as liquidators, thereby confirming that there was nothing precluding them from acting, and the court is entitled to infer that the liquidators were appointed as officers of the court and there is an expectation they will conduct themselves with independence, impartiality and integrity.[98]
[94] ts 39.
[95] Second respondents' notice of contention, par 2; WB 73.
[96] Second respondents' notice of contention, par 3; WB 73.
[97] Second respondents' notice of contention, par 4; WB 76.
[98] Second respondents' notice of contention, par 5; WB 76.
Disposition
As noted earlier, the appellants in this appeal characterise their complaint as, in substance, an allegation that the master had only considered the requirement that a liquidator must be independent, and had not considered the additional requirement that a liquidator must be 'seen to be independent'. That is consistent with how the matter was put to the master by the appellants at the hearing on 3 August 2016. Counsel who appeared for the appellants at that hearing did not refer to the 'double might' test in Ebner. Nor was the master referred to the decisions in Ebner or Franklin.
At the hearing on 3 August 2016, counsel for the appellants made, in substance, the following submissions to the master as to why Mr Marsden and Mr Vickers should not be appointed liquidators:
1.liquidators must not only be independent but be seen to be independent;
2.Mr Marsden and Mr Vickers were appointed as voluntary administrators by Pluton's board at a time when the board was controlled by GNR companies;
3.Mr Marsden and Mr Vickers recommended the DOCA and variations to it when:
(a)its effect was, in large part, to fund the liabilities of GNR companies;
(b)it did not provide for anything like sufficient working capital to return Pluton to viability; and
(c)the promotor of the DOCA was unable to carry it out in accordance with its original terms and failed to meet promises to pay money under the DOCA and its variations;
4.whilst not suggesting that Mr Marsden and Mr Vickers were doing the bidding of GNR companies, they were at least promoting their interest by recommending the DOCA to creditors;
5.in the above circumstances, Mr Marsden and Mr Vickers have conducted the administration in a manner that raises an apprehension about a lack of impartiality, and which indicates that they can no longer be seen to be independent.
Counsel for the appellants, on that occasion, cited two cases: Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd - as trustee for the Albans Unit Trust[99] and Re Biposo Pty Ltd; Condon v Rodgers.[100] Although she did not take the master to the cases, they are well‑known in this context, and the master did not suggest that he was unfamiliar with them.
[99] Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd - as trustee for the Albans Unit Trust (1994) 14 ACSR 230.
[100] Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399.
In Advance Housing, Ernst & Young had acted as accountant to the relevant company, and had charged and been paid fees of $10,000. A partner of that firm (Mr Lloyd) was subsequently appointed as voluntary administrator and, later, as liquidator of the company. One of the issues which would require investigation in the liquidation was whether the payment of fees to Ernst & Young was an 'unfair preference'. There was a challenge by a creditor to the appointment of Mr Lloyd as liquidator. Santow J upheld the challenge and explained the relevant principle as follows:[101]
In my judgment, the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited. In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstance. (emphasis added)
[101] Advance Housing (234).
His Honour continued:[102]
In reality, creditors are frequently well served by an appointment of a liquidator who has some familiarity with the affairs of the company provided that the reasons that led to that familiarity do not give rise to such an apprehension or reflect an actual or perceived conflict …
…
[T]hough nothing before me indicates that Ernst & Young have not acted with perfect probity, nonetheless there is not that necessary appearance of absence of conflict. That in turn may lead to a reasonable apprehension that the liquidator may be impeded or inhibited from taking actions that might otherwise be taken in the interests of all creditors or would not take them with the necessary degree of impartiality. That said, I do not wish to suggest that the reality would accord with that apprehension. Rather I point to the inherent conflict of a liquidator investigating his firm's own debt - the closest possible conflictual association with a creditor, when less than that has grounded disqualification in other cases. (original emphasis)
[102] Advance Housing (234), (238)
The decision in Advance Housing was referred to by Young J in the case of Re Biposo, where his Honour upheld an application by a creditor for the removal of liquidators. His Honour did so on the basis, in effect, that the liquidators had 'got too close' to the company's major creditor and their impartiality was 'severely impaired'.[103] The major creditor was involved in two sets of proceedings against the company, including in relation to the delivery of goods to the company pursuant to a contract for the sale of goods containing a Romalpa clause in favour of the major creditor. The relevant circumstances included the following:
•the liquidators, when administrators, had attended a conference with counsel for the major creditor, at his chambers, at which counsel advised on the strength of the major creditor's claim against the company based on a Romalpa clause;
•the liquidators applied for examination orders based on a draft affidavit prepared by the major creditor, and further, that affidavit was inaccurate;
•the liquidators provided detailed information about the affairs of the company and another company to the major creditor, which would assist the major creditor in Federal Court proceedings against the company and various other parties;
•the liquidators appointed the counsel who was acting for the major creditor against the company, to act on their behalf in examining the directors of the company; and
•there were a number of 'friendly' communications between the liquidators and the major creditor, which included a statement to the effect that 'must get [the company] out of market'.[104]
[103] Re Biposo (406).
[104] Re Biposo (400 - 404).
In addition to referring to Santow J's judgment in Advance Housing, Young J observed:[105]
What the court has to do is to make up its mind by looking at the overall picture, whether there is a manifested tendency of the liquidators to favour certain interests at the expense of others. If there is that perception, and if in the eyes of a reasonable observer there is not the carrying on of the liquidation to the general advantage of the persons interested in the winding up, then the court might act. Indeed the cases have stressed over and over again that not only must there be independence in the winding up, but that there must be seen to be independence. (emphasis added)
[105] Re Biposo (405).
His Honour continued:[106]
It is true that there is no reported case that I have been able to find or have been referred to by counsel as to a liquidator becoming over‑familiar with the major creditor, but it would seem to me that general principles apply.
It seems to me that the matter involving the compulsory examination, the very closeness in the correspondence between the liquidators and the major creditor, the provision of information to that creditor, together with the rather strange comment, 'get them out of the market' which the liquidators have recorded, and the possibility, I think probability, that in the future there will be a preference suit between the company and [the major creditor], and that there are two pending pieces of litigation between [the major creditor] and the company, show that a reasonable bystander would consider that the liquidators have got too close to [the major creditor] and their impartiality is severely impaired.
[106] Re Biposo (406).
In the present case, it is evident that when the master said, on 3 August 2016, that 'I don't think anything has been highlighted which suggests that [Mr Marsden and Mr Vickers] would in any way be compromised',[107] the master was referring to the matters 'highlighted' by counsel for the appellants at that hearing which allegedly indicated that Mr Marsden and Mr Vickers could no longer be seen to be independent in the sense explained in Advance Housing and Re Biposo. In other words, the master rejected the argument that Mr Marsden and Mr Vickers were disqualified from appointment because they could not be seen to be independent from GNR.
[107] ts 6, 3 August 2016.
The master's statement in the primary decision (at [53]) that 'there was nothing in the conduct of [Mr Marsden and Mr Vickers] which compromised their position' is to be understood in the same way. The master's reference (at [53]) to there being 'no suggestion' that Mr Marsden and Mr Vickers 'will have a conflict of interest' is, in context, a statement to the effect that there was no suggestion (on the evidence or in submissions by the appellants) that Mr Marsden and Mr Vickers have or will have an interest which could potentially conflict with their duties as liquidators of the company to act impartially in the interests of all creditors. That observation by the master is consistent with the master rejecting any analogy with the decision in Advance Housing, relied on by counsel for the appellants at the hearing on 3 August 2016. The master's observation (at [53]) that there was also 'no suggestion' that the liquidators 'will conduct the liquidation in a manner which is inconsistent with proper practice' is consistent with the master's rejection of any analogy with the Re Biposo case referred to by counsel at the hearing on 3 August 2016, in which the liquidators' conduct went beyond the bounds of proper practice.
Accordingly, on the proper construction of the master's reasons, the master addressed, and decided adversely to the appellants, the question of whether Mr Marsden and Mr Vickers were disqualified from appointment on the basis that they could not be seen to be independent.
Whilst senior counsel for the appellants in this appeal emphasised the 'double might' test in Ebner as applied in Franklin, he did not suggest that that test is materially different from the principles requiring a liquidator to be 'seen to be independent' as explained and applied in Advance Housing and Re Biposo. Accordingly, this is not the occasion to consider whether there may be any material difference between the two. It is sufficient to say, for present purposes, that absent a contention that there is any material difference, the conclusion reached above that the master considered the requirement that a liquidator must be seen to be independent as explained in Advanced Housing and Re Biposo, means that the appeal has no merit.
Further, if it were suggested that there is a material difference between the principles in Ebner and Franklin on the one hand, and the requirement to be seen to be independent as explained in Advance Housing and Re Biposo on the other, and that the master erred in failing to consider the former, the appeal would still lack merit. That is so for the following reasons.
In relation to the particular matters highlighted by counsel for the appellants at the hearing on 3 August 2016 and repeated more fulsomely in this appeal, those matters do not singly, or collectively, establish that a fair‑minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators of Pluton with independence and impartiality. Their appointment on 5 October 2015 by the board of Pluton at a time when GNR controlled Pluton's board, even in the context of having been identified and selected as candidates by the receivers appointed by GNR and been provided with a modest indemnity by GNR, would not signify to a fair‑minded observer any reasonable apprehension that Mr Marsden and Mr Vickers might not discharge their duties as liquidators with independence and impartiality on and from 3 August 2016. The fair‑minded observer would be taken to know that voluntary administrators may be appointed both by the board of directors of the company (under s 436A of the Act) and by a secured creditor (under s 436C of the Act), and that the administrator is required to make a declaration of relevant relationships and indemnities, and provide a copy to creditors (s 436DA of the Act). A fair‑minded observer would also be taken to know that the GNR‑appointed receivers, and Mr Marsden and Mr Vickers, were accountants and professional insolvency practitioners in a competitive market, and that it would expected that the former would be familiar with the latter's competence, expertise and professionalism.
Further, the master's (and appellants') criticisms of the DOCA and the lack of information provided to creditors with respect to it are not matters upon which a fair‑minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators with independence and impartiality. The master's criticisms of the DOCA and the disclosures relating to it were tempered by his findings that he was 'not in any way … critical of the conduct of the administrators' and that, given the complexities of the case, whilst he could not assess whether creditors were in fact likely to be better off under the DOCA than in a liquidation, it was 'not unreasonable to assume' that creditors would be better off under the DOCA and that there was a 'strong argument in favour of allowing the DOCA to continue to better protect the interests of the creditors'.[108] Those findings are not challenged in this appeal and the appellants informed the court that the question of whether the continuation of the DOCA was not in the best interests of creditors was not one that the appellants sought to 'reopen' on the appeal.[109] Also in this context, it should be noted that Mr Marsden swore an affidavit dated 14 June 2016 in the primary proceedings in which he deposed in terms that he was of the opinion that the varied DOCA was in the best interests of creditors.[110] There was also considerable contemporaneous documentary evidence before the master explaining the administrators' views that, notwithstanding the risks and uncertainties of the proposal, and notwithstanding the benefits to GNR if the DOCA were fully implemented, unsecured creditors would nevertheless be better off than in a liquidation.[111] Mr Marsden was not cross‑examined on his affidavit.
[108] Primary decision [46] ‑ [47], [49].
[109] ts 16.
[110] Mr Marsden's affidavit, par 40; GB 595.
[111] See, eg, GB 369 - 382, 491 - 497, 531 - 535, 542 - 544, 561 - 563, 601 - 605. See also the liquidators' submissions before the master, pars 31 - 33; BB 97.
Also, the appellants accepted that the master effectively concluded that the DOCA should be terminated and Pluton would up in the public interest, on the basis that the adverse effect upon prospective future creditors outweighed an assumed benefit to existing creditors.[112]
[112] ts 17.
In these circumstances, the conduct of Mr Marsden and Mr Vickers in recommending the DOCA and its variations, albeit with the deficiencies in it identified by the appellants and found by the master, was not conduct by reason of which a fair‑minded observer might reasonably apprehend that they might not discharge their duties as liquidators with independence and impartiality. This is not a case like Re Biposo where an unusual course of conduct by the liquidators manifested a perception that the liquidators were 'too close' to one creditor and that they had a tendency to favour certain interests at the expense of others.
Next, the master did not make findings to the effect that Mr Marsden and Mr Vickers appeared to be the mere ciphers of GNR.[113] Moreover, the allegations in the appeal to the effect that Mr Marsden and Mr Vickers did the bidding of GNR or that their conduct was procured by GNR, are not matters which had been raised by counsel for the appellants at the hearing on 3 August 2016. Nor did the master make any findings to that effect. Allegations of that kind, had they been made at first instance, might have been met with further evidence. These are, in substance, new points, and it is not in the interests of justice to allow the appellants to raise these points on this appeal.[114] In this regard we do not accept the submission made by senior counsel in the appeal[115] that the reference in Ms Hensler's submissions to the administrators 'if not doing the bidding of the GNR companies … at least promoting their interests'[116] conveyed a positive assertion that Mr Marsden and Mr Vickers were 'doing the bidding' of GNR or could be seen to be 'doing the bidding' of GNR.
[113] Although the appellants referred to primary decision [29] - [33] in this context, those paragraphs do not warrant that inference.
[114] See, eg, Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; (2012) 43 WAR 91 [48] ‑ [53].
[115] ts 31.
[116] GB 89.
For similar reasons, the appellants' contention on appeal that Mr Marsden and Mr Vickers were in a potential conflict of interest because they would have a natural inclination to 'run dead' on the liquidations claims, was not raised below and the appellants ought not be permitted to raise the point now. Even if that point could properly be raised, it lacks any merit. It is not correct to say that a fair‑minded observer (as opposed to the uncharitably‑minded observer hypothesised by the appellants in oral submissions) might reasonably apprehend that Mr Marsden and Mr Vickers might breach their duties as officers of the court and 'run dead' on the company's liquidation claims, because of their past promotion of the DOCA.
The case of City & Suburban Pty Ltd v Smith, to which the appellants referred in this regard, does not assist them. That case involved an application to remove a liquidator and appoint a new one. The company in question had a prima facie case that the directors were liable to account to the company for profits derived from breaches of fiduciary duty. The liquidator's inquiries in that respect were 'clearly inadequate' and exacerbated by the fact that the committee of inspection had 'time and again' requested the liquidator to investigate the transactions and he failed to do so.[117] There was also a 'basic failure' by the liquidator in carrying out investigations before making termination payments on behalf of the company to persons who may have been employees not of the company, but of another entity controlled by the directors.[118] The liquidator's failures were 'serious and significant'.[119] Although the court could not determine whether the failure by the liquidator to investigate the prima facie breaches would cause the company loss, there was the possibility of loss flowing from the liquidator's conduct, and he would be in a position of conflict if he were left as liquidator to further investigate and pursue the claims on behalf of the company. In that regard, Merkel J said:[120]
Although I do not have any evidence before me as to whether the failures on the part of the liquidator, to which I have referred, will ultimately cause loss to [the company] and its creditors it is possible that some loss might be suffered if a liquidator is entitled to recover the profit or any of the loss suffered but is no longer able to recoup that profit or loss. These possibilities, together with the natural inclination on the part of the liquidator endeavour to justify his past conduct and demonstrate that it did not cause any loss, place him in a position of potential conflict concerning the further investigation. In my view the possibility of conflict is real and not merely theoretical. (emphasis added)
[117] City & Suburban (328), (333).
[118] City & Suburban (335 ‑ 336).
[119] City & Suburban (334), (337), (340).
[120] City & Suburban (337).
The appellants drew attention to the italicised part of this passage. However, the circumstances to which these observations were addressed are not remotely analogous to the circumstances of the present case.
Finally, Mr Marden's and Mr Vickers' opposition to the application to terminate the DOCA, in circumstances where the overwhelming majority of creditors voted in favour of it, is not conduct by reason of which a fair‑minded observer might reasonably apprehend that they might not discharge their duties as liquidators within independence and impartiality. Nor did the appellants establish that the manner in which the liquidators, through their solicitors and counsel, opposed the application might lead to such a reasonable apprehension. Nor is there evidence that Mr Marsden and Mr Vickers sought their own appointment as liquidators in an unseemly way, or at all. Counsel for Mr Marsden and Mr Vickers was not asked to make, and did not make, any submissions on that matter at the hearing on 3 August 2016.
For the foregoing reasons, the appeal has no merit.
It is unnecessary to deal with the notice of contention.
Conclusion
As the appeal has no merit, there is no point in granting the required extension of time and leave to appeal. It is unnecessary to consider the other arguments raised by the respondents in opposition to those applications.
The applications for an extension of time and for leave to appeal should be refused, and the appeal should be dismissed.
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