Daintree Rain Forest Resort Pty Ltd, Re [1999] QSC 29

( IN THE SUPREME COURT OF QUEENSLAND CAIRNS Application No. 21 of 1998 IN THE MATTER of the Corporations Law . · and IN THE MATTER of DAINTREE RAIN FOREST RESORT PTY.LTD. (A.C.N. 010 686 398). REASONS FOR JUDGMENT BEFORE THE HONOURABLE IDSTICE JONES DELIVERED THE 22ND DAY OF FEBRUARY, 1999 1 This is an application by Robyn Margaret Cameron for the winding up of a ) proprietary company, Daintree Rainforest Resort Pty.Ltd. ("the company"). The evidence led in support, founds the application on either s.459P or s.461(1) of the Corporations Law. The applicant requires leave if made pursuant to s.459P of the Corporations Law but not if it is to be considered pursuant to s.46l(l)(e). 1 The company was incorporated on 22 September, 1986 for the purpose of establishing an eco-t01.rrism resort trading under the style of "Club Daintreel!. 3 The applicant was once a director of the company but was removed from such directorship on 3 March, 1997. 4 She now holds one share of a total share issue of 400. The other shareholders are Gary George James, 201 shares, and Darien Anthony Promnitz, 198 shares. This latter shareholding is subject to a claim by the trustee in bankruptcy of the Estate of Ross Geoffrey Promnitz who, it is alleged, sold the shareholding to his son Darren Promnitz for [1999] QSC 29 -- 1 of 8 -- \/ 2 less than market value. It appears from exhibit "G11 II that the trustee in bankruptcy claims the beneficial ownership of these shares and also the shares in another proprietary company, Reefoc Pty.Ltd., to which reference will be later made. The trustee in bankruptcy also expressed concerns about the role of Mr. Ross Promnitz in the prosecution of this application. 5 Prior to February, 1997 the directors of the company were the applicant, Ross 6 7 Promnitz and Darien Promnitz. On or about 3 March, 1997 the directorship changed. The new directors appointed at that time continue to hold office today. They are Gary George James and Jill Spackman who presently control more than 50% of the shareholding. Also in 1997 action was commenced against the company by Reefoc Pty.Ltd., t· •• ("Reefoc") a proprietary company in which the applicant is both a shareholder and director and which, prior to his bankruptcy, Mr. Ross Promnitz also had an interest. That interest in Reefoc is also now being claimed by his trustee in bankruptcy. That action was commenced to support a claim by Reefoc to have a beneficial ownership of an estate in the land on which the company conducts the resort business. The grounds of the claim to that beneficial interest are framed as follows:- II 1. The registered proprietor, Daintree Rainforest Resort Pty.Ltd., holds the land on trust for the Daintree Rainforest Resort Unit Trust. 2. Reefoc Pty.Ltd., the caveator is the sole unit holder in the Daintree Rainforest Resort Unit Trust. 3. By resolution dated 1 May, 1997, Reefoc Pty.Ltd., removed Daintree Rainforest Resort Pty.Ltd. from the office of trustee of the Daintree Rainforest Resort Unit Trust in accordance with clause 26 of the Daintree Rainforest Resort Unit Trust Deed dated 13 February, 1987. 4. By a resolution dated 8 May, 1997 Reefoc Pty.Ltd., appointed -- 2 of 8 -- 3 itself as trustee of the Daintree Rainforest Resort Unit Trust in accordance with clause 26 of the Daintree Rainforest Resort Unit Trust Deed. 5. Reefoc Pty.Ltd. is therefore entitled to become the registered proprietor of the land as trustee of the Daintree Rainforest Resort Unit Trust." 8 In the material read before me there is no assertion that the company functions solely as a trustee. The financial reports provided by the company have the characteristics of a trading company. In these circumstances, and particularly in the absence of the determination of the proceedings commenced in the Supreme Court, Townsville, I will ) proceed on the basis that the company is a normal trading company. / 9 It is clear enough that there are substantial matters of dispute between the applicant and her former co-directors and the current directors and the major shareholder of the company. The bringing of this application to wind-up the company has to be viewed in the light of this background of disputation. It is the basis for the assertion by Mr. James that this application is vexatious. 10 It is not necessary for me to decide directly whether this is so. I have come to the view on the evidence tendered that it is not appropriate to order the winding-up of the company. 11 At the time of the change of directors in March, 1997 it seems the business conducted by the company had been allowed to run down. There were significant debts, particularly in relation to land tax and arrears of mortgage. The company returns had not been prepared since 1994. An independent valuation was carried out at about this time by Mr. Allwood a registered valuer in which he made the following comments:- "Club Daintree has not been operating in any serious manner for some years and it is therefore not possible to carry out a valuation based on -- 3 of 8 -- 4 Income. Improvements on the property are in very poor condition and require a large amount of capital expenditure to bring back to a useable state ... The general poor state of repair of the structures on the property and obvious problems with the infrastructure makes one wonder whether it would be better to write off these improvements and start again ... As mentioned previously the property is in a poor state of repair and this also applies to the equipment on the property. Most of it is beyond repair or at least not functional. " 12 Mr. Allwood then valued the property at $850,000.00. ~13 A further valuation was carried out by Mr. Allwood for the purpose of this application on 9 December, 1998. In his recent report Mr. Allwood made the following ( observation - 14 15 "Over the last few years the property had been let slip into a state of severe disrepair where all equipment and infrastructure needed major maintenance to be brought back to an acceptable standard for a resort. The resort was virtually closed and overgrown and lost any clientel [sic]. More recently, however, much of the work required has been carried out, . particularly the basic infrastructure and the general tidiness of the property ... The resort is too small in its present form to be a viable operation and therefore a valuation based on returns is not really an option. It is difficult to assess a value for such properties and the only method"is direct comparison to sales of other properties in the area, however these are few in number." Mr. Allwood in his recent assessment valued the property at $1,800,000.00. The applicant sought to show that the company was insolvent by making reference to its inability to pay certain trade creditors, the local authority rates and claims by her totalling $162,500.00 for debt. Some of these matters and particularly the financial claim by the applicant are disputed by the present directors. It is however, of significance that none of the trade creditors either moved to wind the company up or to directly support the -- 4 of 8 -- 5 applicant in her quest to do so. 16 At the court's direction an independent account was taken by Mr. Michael Delaney of Horwaths Cairns Pty.Ltd., Chartered Accountants. This report came to the view that the company was "technically insolvent in that current liabilities significantly exceed current assets." The report notes that the present directors have supported the company financially to an amount in excess of $200,000.00 in the past 2 years. The Horwarth report is limited because the assessment was confined to the operating viability of the entity and available cash flow. The report acknowledges that it has not "addressed the valuation of assets held ') by the company or its credit resources". 17 Criticism is made of the directors' failure to keep receipts for all but 25% of this expenditure. The financial support however is made through various corporate entities owned by Mr. James and relevant details would therefore be time-consuming to collate. . . The valuation report however makes clear the fact that considerable funds have been '\ expended in improving the company's assets. 18 Section 461 of the Corporations Law provides - "The court may order the winding up of the company if - (a) ..... (e) directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; (t) (g) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; " -- 5 of 8 -- , .' 6 19 I do not accept that the current directors have used the company to their own interest. In fact the contrary position is made out. The nature of the work identified by Mr. Allwood as being carried out between the dates of these two inspections is of a developmental nature. It is clear that this work enhances the company's property and that it appears to be directed to increasing the size of the resort to make it fmancially viable. This developmental work, it seems, has been financed by the directors, either personally or through entities under their control. 20 The present directors took over control of the company when it was in a difficult financial position and its assets in a run down state. They have sought to redress this problem by undertaking restorative and developmental work. Ordinarily, to achieve this end the directors would seek long term finance secured on the property. That opportunity has been .denied because of the exi~tence of the caveat. I find that the contributions made by the directors and/or the entities under their control have been made in the interests of the company and the members as a whole. I find that the affairs of the company are not being conducted in a manner that is oppressive or unfair against any member or that is contrary to the interest of the members as a whole. 21 Since the respondents have taken over the control of the company all payments due to the mortgagee have been met. There is evidence that the mortgagee would provide further development finance if the caveat were not in place. Long term finance which would allow structural improvements and through them improved cash flow would also be likely to present a different liquidity assessment. 22 Section 459P provides by subsection (1) that a contributory may apply to the court for a company to be wound up in insolvency. By subsection (2) it is necessary for a -- 6 of 8 -- 7 contributory to seek leave to make such application. Such leave will be given only if the court is satisfied there is a prima facie case that the company is insolvent but not otherwise. 23 The applicant did not expressly seek leave but as this was a point argued before me my decision rests on a determination of this issue. Such an approach would be suggested in any event by s.467A of the Corporations Law. 24 The meaning of "insolvent" is explicated in s.9SA of the Corporations Law in the following terms:- "(1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent.~; 25 The applicant sought to satisfy me that the company was unable to pay its debts as and when the;y came due and payable by referring to a variety. of debts incurred in respepts of local authority rates, land tax and a variety of trade debts. In ordinary circumstances the finding by an independent auditor that a company was technically insolvent might have been sufficient to establish the "prima facie case" which would justify the granting of leave. 26 In the circumstan~es of this case I have taken the view that it is appropriate to make the assessment as to the company's solvency by reference to the value of its property as well as to the circumstances of its cash flow. I accept the valuation evidence of Mr. Allwood which confirms the improvements made by the current directors and reflects the expenditure that they have personally invested in the property. I am not convinced, were the company not prevented from securing long term finance, that it would be unable to pay its debts. -- 7 of 8 -- _. r, 8 27 In Melbase Corp Pty Ltd. -v- Segenher Ltdl Lindgren J considered the onus which fell upon a contributory applicant in seeking leave to apply for the winding up order and also the Court's discretion to make the order. He said at p.826 - "The word 'may' in subsection 459P(3) indicates that the court has a residual discretion whether to grant leave, even if it is satisfied that there is a prima facie case of insolvency. It follows that the applicant for leave must satisfy the court both that there is a prima facie case of insolvency and that leave should, as a matter of discretion, be granted." 28 With the background of litigation brought by the applicant and her former directors against the company and the present directors and in the light of the increase in the value of the company's assets since the current directors took office, it is not in the interests of ) trade creditors, the mortgagee or the shareholders that the company be wound up at this stage. I would therefore refuse leave to the applicant to seek the winding up order on the grounds of the company's alleged insolvency. 29 The applicant therefore fails in her application on both the limbs relied upon. I therefore dismiss the application. 30 I further order that the applicant pay the respondents' costs of and incidental to the application to be taxed save that the fees of obtaining the audit report shall be borne equally by the applicant and the respondent. 1 1995 13 ACLC 823 -- 8 of 8 --