Denage Pty Ltd & Marsh v Water at Wooyung Pty Ltd [2005] QSC 173

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You may wish to seek legal advice before giving others access to the details of any person named in these proceedings. 2005 QSC 173 SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION ATKINSON J No 4938 of 2005 IN THE MATTER OF WATER AT WOOYUNG PTY LTD (ACN 208 287 289) DENAGE PTY LTD (ACN 011 029 726) First Applicant and PETER HENRY MARSH Second Applicant and WATER AT WOOYUNG PTY LTD Respondent (ACN 208 287 289) BRISBANE ..DATE 22/06/2005 ORDER -- 1 of 10 -- 22062005 T31/AMS37 M/T 3/2005 (Atkinson J) 2 ORDER 1 10 20 30 40 50 60 HER HONOUR: This is the application for the appointment of a provisional liquidator pursuant to subsection 472(2) of the Corporations Act 2001. Each of the applicants is a creditor of the respondent company. The matter was brought on before me ex parte on Monday 20 June 2005. After asking some initial questions of counsel who appeared on behalf of the applicant and reading the material, I formed a provisional view that this was a case in which it would be appropriate to appoint a provisional liquidator but that it was appropriate to serve the respondent company so that it could answer any of the allegations contained in the material put forward by the creditors which are most serious. The application and the supporting material was served and was returnable before me today. There has been no attempt by the respondent to answer any of the serious allegations. What happened instead was that an administrator was appointed by the sole director of the company. The administrator was appointed at 8.30 this morning according to minutes of a meeting of directors of the company, the only person being present being, of course, the sole director. One might be forgiven in the circumstances for thinking that the appointment of the administrator was a strategic decision. As a result of the appointment of the administrator I am bound to consider section 440A of the Corporations Act. Section 440A(2) provides that the Court is to adjourn the hearing of -- 2 of 10 -- 22062005 T31/AMS37 M/T 3/2005 (Atkinson J) 3 ORDER 1 10 20 30 40 50 60 an application for an order to wind up a company if the company is under administration and the court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. Section 440A(3) provides that the Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the best interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. I am satisfied that the company is under administration. The real question at issue is whether or not I am satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. As I previously observed, on the basis of the material before me prior to service of the company, it did appear to me that there was material which provided a sound basis for the appointment of a provisional liquidator. The question I now have to consider is whether or not it is in the interests of the company's creditors for the company to continue under administration rather than have that happen. The section is silent as to who bears the onus of proof, although the matter has been referred to in cases in New South Wales where it has been held at least inferentially that the onus is on the company under administration or the administrator to so satisfy the Court. My present view is -- 3 of 10 -- 22062005 T31/AMS37 M/T 3/2005 (Atkinson J) 4 ORDER 1 10 20 30 40 50 60 that that view is probably correct, although I think in this case it does not matter on whom the onus lies. The matters which the Court is required to consider are set out in some detail in the Judgment of Justice Austin in Lovovich Masal Pty Ltd v. Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535 47 ACSR 197, a case with many similarities to this case in terms of the way in which the hearing of the case developed. The question of whether or not it was in the interests of the creditors for the companies to continue under administration rather than be wound up was considered by Santow J in a case referred to by Austin J in his decision, Waste Recycling and Processing Services of New South Wales v. Local Government Recycling Cooperative Limited (1999) 32 ACSR 194 where Santow J said at 195 to 196 with regard to that question that the Court should consider whether or not there was some assurance that the company was salvageable and this had to be based on a sufficient possibility as distinct from mere optimistic speculation. One matter which might be relevant is the question of the relation back period which may be significant in this particular case where there is an allegation that the company has used the creditors' moneys which were to be investors in the property bought by the company, for other purposes. However, that matter was not raised before me. -- 4 of 10 -- 22062005 T32/NW1 M/T 3/2005 (Atkinson J) 5 ORDER 1 10 20 30 40 50 60 What is essentially argued before me is that the appointment of the administrator was merely opportunistic and there is nothing to suggest that the outcome of the administration would be better than the outcome of a provisional liquidation. This was the matter which concerned the Court of Appeal in Creevy v. The Deputy Commissioner of Taxation (1996) 19 ACSR 456 where the Court of Appeal said: "In order to satisfy the Court of the matter referred to in section 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors." To attempt to deal with that point counsel for the administrator put forward an affidavit this morning and then, during the luncheon adjournment after the matter was heard but before Judgment was delivered, produced a second affidavit which he was given leave to read and file. Unfortunately, both of those affidavits amply demonstrate how speculative is the prospect of any better return under administration. The first affidavit reveals that the company is the registered proprietor of real property at Wooyung in New South Wales and that the holder of the first registered mortgage over that property is owed $5.2 million and that the unsecured creditors of the company are owed approximately $5 million. She says she proposes to obtain valuations. She also discloses that her discussions with the director lead her to believe that the -- 5 of 10 -- 22062005 T32/NW1 M/T 3/2005 (Atkinson J) 6 ORDER 1 10 20 30 40 50 60 company has lent money to related entities and entities associated with the director. The second affidavit exhibits a valuation which says the market value of the company's property as at 28 April 2005 is $10.75 million. She says that the director of the company has sought finance from a broker which has been conditionally improved on the strength of that valuation which amounts to 75 per cent of the valuation - that is, that 7.5 million would be made available by the financier within four days of the signed application for finance being received by them. However, when one goes to the letter with regard to the finance application which is said to have come from a company called Finance Express on the 17th of June it confirms approval for a loan of $6 million "as funds to be used to pay out a private mortgage with the balance to be used for ongoing work on the project." I take that to mean that that part of the $6 million, which will pay out the mortgage, which from the other affidavit, is to be some $5.2 million, will be used to pay out the mortgage and the balance of under $1 million will be used for ongoing work on the project. That gives nothing to the unsecured creditors. -- 6 of 10 -- 22062005 T33/EMW24 M/T 3/2005 (Atkinson J) 7 ORDER 1 10 20 30 40 50 60 Further, the letter shows that the security required would not only be by way of first mortgage over the development property, but additional collateral security would be required. In those circumstances there can be nothing that will give any assurance that the outcome of any such transaction would provide any benefit to the unsecured creditors. Quite the contrary. Mr Dale, the director, has however told the administrator that he would withdraw any offer of collateral security if the company was put into provisional liquidation. However, he does not say that he would continue to provide or would offer collateral security if the company is under administration. Nor is there any examination of what might happen to that finance offer if the company is under administration. There is another paragraph in which it appears that the director, Mr Dale, has told the administrator various things but I see no basis for relying upon them other than as optimistic speculation. It is certainly true that one of the bases for the appointment of a provisional liquidator - that is that there was real imminent and present danger to the assets of the company were Mr Dale to remain in charge of it, has been removed, however I am not satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. I am, however, satisfied that a provisional liquidator should be appointed in the interests of the creditors. -- 7 of 10 -- 22062005 T33/EMW24 M/T 3/2005 (Atkinson J) 8 ORDER 1 10 20 30 40 50 60 If, as Justice Austin said in Lovovich Massel Pty Ltd, any proposal for salvage of the company does appear, unlikely as that seems at the moment, then a provisional liquidator may appoint an administrator to investigate the proposal and if it stands up to scrutiny, to recommend it. The circumstances which warrant the appointment of a provisional liquidator are amply set out in the affidavit material, which had been summarised by Mr Wilson in his submissions. They demonstrate, on at least a prima facie basis, that Mr Dale, the director of the company, has received apparently on behalf of the company millions of dollars from various investors and that those monies have not been spent on what it was represented to the investors that money would be spent on; that is the Water at Wooyung project land. There were very serious allegations involving fraud and dishonesty which need to be thoroughly investigated. There is ample evidence of the company being insolvent. Mr Dale's history is one of bankruptcy and involvement in what must be seen to be, at the very least, dubious "investment seminars." In view of all the serious allegations which appear to have some basis, it is, in my view, imperative that a provisional liquidator be appointed. I am far from being satisfied that it is in the interests of the company to continue under administration. I am positively satisfied that it is in the -- 8 of 10 -- 22062005 T33/EMW24 M/T 3/2005 (Atkinson J) 9 ORDER 1 10 20 30 40 50 60 interest of the company's creditors for a provisional liquidator to be appointed. ... I should also say that the administrator made an application for an adjournment. The criteria to be considered is precisely the same as those under section 440A(3). And so for the same reasons I am refusing the adjournment. MR WILSON: Thank you, your Honour. Paragraphs 1, 2 and 3 I think are - let's put it this way - the usual form of order made, but paragraph 4 goes somewhat further in that it authorises the provisional liquidator - as your Honour can see - to have access to the office of the company----- HER HONOUR: Yes. MR WILSON: -----any place of business of the company and any other premises where property described in paragraph 3 - that is the company's property may be held----- HER HONOUR: Yes. MR WILSON: And secondly, that he be authorised to take possession of any computer or storage----- HER HONOUR: Yes. I'm very happy to make those orders. MR WILSON: Thank you, your Honour. And costs being costs in the liquidation. I'm requested to make one other - the ACN appearing on that order is correct. The ACN as it appeared - that is for Water at Wooyung, on the original material mis- stated that number. I don't think anything turns on that, but I am specifically asked to draw your Honour's attention to it. HER HONOUR: You ought to apply to amend the originating application? MR WILSON: If I may, then, your Honour. If I could do that to amend the originating application to such that the ACN reads 109 398 058. And for the sake of form, your Honour, I should ask that the same amendment to the interlocutory application to appoint the provisional liquidator as well. HER HONOUR: Yes. It does mean the consent of the provisional liquidator has got the wrong company number on it. So could I ask you to file a consent with the correct ACN on it? -- 9 of 10 -- 22062005 T33/EMW24 M/T 3/2005 (Atkinson J) 10 ORDER 1 10 20 30 40 50 60 MR WILSON: Yes, we'll do that, your Honour. HER HONOUR: I'll just amend the application and the interlocutory application. MR WILSON: Your Honour, I'm sorry. Again, given that it's a provisional liquidation, could we impose on your Honour that we might take the file down to the Registry in order for that order to be taken out? HER HONOUR: You've got nothing to say about that, Mr Coulson? MR COULSON: It's out of my domain, your Honour. I wasn't - I'm for the administrator, not the company. HER HONOUR: Yes. Thank you. MR WILSON: Thank you, your Honour. ----- -- 10 of 10 --