ACN 058 566 233 Pty Ltd, Re [1995] QSC 245

5L qsj24S- ,- ,~Z6/JJ l .Jf'lflil' State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be madr or sold without the written authority of the Director. State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION FRYBERG J No 492 of 1995 IN THE MATTER OF THE CORPORATIONS LAW IN THE MATTER OF ACN 058 566 233 PTY LTD l REVISED CCPIES iSSUED ! i State Reporting Bureau IDate f-1 CJ i 9S (ACN 058 566 233) (IN PROVISIONAL LIQUIDATION) BRISBANE •• DATE 31/08/95 JUDGMENT 1 - 4th Floor. The Law Courts, George Street, Brisbane. Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- -- 1 of 18 -- 310895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) HIS HONOUR: I have before me an application for the winding up of a company whose name is now ACN 058 566 233 Pty Ltd. It will surprise no one that when that company is referred to its name is followed in brackets by the letters ACN and the same numeral. It acquired that name on 19 July 1995 at a time apparently earlier than the making of an application that day to wind up the company and appoint a provisional liquidator made by the directors. The directors are Mr and Mrs Chalmers and they appeared before me on the application and were represented. When the application was made provisional liquidators were appointed on the application of the directors. That occurred on the same day, 19 July. The provisional liquidators are Messrs Hall and Hedge who are members of the firm Coopers & Lybrand Chartered Accountants. They also were represented ,...,.,., c_;.) / \ ,· C. before me. ( In addition to those parties before me three other groups appeared. First there were two companies, Streamline Developments Pty Ltd and Vencroft Pty Ltd represented by Mr Hack of counsel, who appeared as supporting creditors. Second, there was a company Coastal Interior Linings Australia Pty Ltd represented by Mr Wardrobe their solicitor and third, there were eight other companies, or persons who were creditors and who were represented by their solicitor, Mr Jenvey. All of the creditors who appeared supported the winding-up application. No one who appeared before me opposed 2 JUDGMENT ( -- 2 of 18 -- 31qa95 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) it and everyone was agreed that being hopelessly insolvent the company should be wound up. The dispute has been over who should be appointed as liquidators. The applicants have nominated Messrs Hall and Hedge the provisional liquidators. That nomination has bee.n opposed by all of the creditors who appeared on the application. I shall come shortly to the grounds of the opposition. For present purposes it suffices to say that they initially / included allegations of association with deceitful persons, negligence, misconduct and like behaviour. To some extent when it came to be argued before me the allegations were toned down from what appeared in the affidavits. Nonetheless the provisional liquidators appeared before me in order to answer those allegations. They did not in the end, as I understand their submissions, make a definitive submission one way or the other as to whether they should themselves be appointed. Of course they supported everyone's view that the company should be wound up. The case against the nominated liquidators was led by Mr Hack and he filed and read a consent by Mr Duus and Mr Dennis of the firm of Ernst & Young, Chartered Accountants to be liquidators. It is fair to say that there has been no suggestion that they would not be perfectly competent and adequate and proper liquidators. 3 JUDGMENT 10 20 30 40 50 60 -- 3 of 18 -- 310895 D.l T2/TW M/T CMSlOl/95 (Fryberg J) Those creditors who have appeared before me in support of them have total claims of something in the order of $850,000 of debts out of a total indebtedness in the order of $3 million. I have been told that the calculation brings that to about 24 per cent. It is not clear whether those figures are based on the total indebtedness or the remaining indebtedness of those parties because some of them have received pay-outs as subcontractors of 45 cents and 90 cents in the dollar, but I shall assume that their claims are for what is left over after pay-outs have been made to them. Those represented by Mr Jenvey have not received pay-outs, but maintain a claim to be secured creditors at least for part of their claim - secured, that is, by way of a charge under the Subcontractors Charges Act. The case for the subcontractors then has been primarily argued by Mr Hack and in saying that I mean no disrespect to the able arguments put forward by Mr Jenvey. as follows: "5. The matters relied upon are:- Mr Hack's arguments were (a) the conduct of a pre-appointment conference notwithstanding the remarks of Thomas J. deprecating such practices in the re Club Superstores Australia Pty Ltd (In Lig.) (1993) 10 A.C.S.R. 730; see I.R. Hall paras. 2, 3, and 4; (b) the action of participating, on the day after 10 20 appointment, in a distribution of payments to ;o subcontractors at the Gateway COTAFE and Mansfield High School projects in circumstances where there could have been no real opportunity to verify what was being certified; (c) whether, and if so, to what extent, they were parties to the company's change of name from G.W. Chalmers Pty Ltd to ACN 058 566 233 Pty Ltd, apparently on the morning that the members resolved that the company be wound up; 50 4 JUDGMENT C ( -- 4 of 18 -- 31Q895 D.l T2/TW M/T CMSl0l/95 (Fryberg J) (d) their apparent treatment of the change of name as being an event not worthy of comment in the report to creditors nor in the list of work undertaken by them: see IRH-1 and DF-7; (e) their retention of the solicitors who acted and continue to act for the directors: see IRH-7 and para.2 I.R. Hall; (f) their apparent inability, in the period of almost 6 weeks from their appointment to produce a list of the company's creditors (IRH-5 and IRH-7) thereby frustrating the capacity to call a meeting of creditors: see D. Foggo #2, para. 101 and DFll; (g) the fact that the majority of creditors do not support their appointment: see re Giant Resources Limited [1991] 1 Qd.R. 107, 115; cf. Adsett y. Berlouis (1992) 32 F.C.R. 201, 213." It is convenient to deal with those matters in turn since they form most the basis of most of the matters alleged against the existing provisional liquidators. First it was said that the conduct of a pre-appointment conference between Messrs Hall and Hedge and the directors of the company in some way rendered them unsuitable appointees. The conference in question was one attended only by Mr Hall, but not by Mr Hedge two days before the winding-up application was made. It was conference between the directors and representatives of Coopers & Lybrand with a view to establishing whether the company ought to appoint an administrator pursuant to the provisions of the Corporations Law. Its outcome was advice by Mr Hall to the directors that that would be an inappropriate course to adopt and that the company ought to be wound up. That advice was followed. The creditors argued that support could be found in the remarks of 5 JUDGMENT 10 20 30 40 50 60 -- 5 of 18 -- 310895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) Mr Justice Thomas in re Club Superstores Australia Pty Ltd (1993) 10 ACSR 730 deprecating such a practice. I do not see any support in His Honour's remarks for the proposition that such a practice is to be deprecated. It does not seem to me that the consultation which occurred is in any way capable of giving rise to a conflict of interest or duty or bias or any rational apprehension of bias. It is no function of the Court to take into account irrational apprehension. The second factor was the action of the provisional liquidators on the day after appointment of participating in the distribution of payments to certain subcontractors. That has been the subject of evidence by way of affidavit in the proceedings. Mr Hall swore that he made an assessment of what was owing and that after assessing the situation he formed the judgment that in relation to those particular subcontractors he would be able to accept liability on behalf of the company in the aggregate up to the amount of funds which the owner on the relevant projects had determined it was capable of releasing. It was argued that he could not have done so properly since he did not spend enough time on the task. The fact is that he has sworn that he did so and that he did so properly. No application was made to cross-examine him and therefore no challenge was made to his evidence. 6 JUDGMENT 20 C ( .!C, so -- 6 of 18 -- 310895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) I should say that this Court and certainly I as part of it views very dimly any attempt to argue that a person, whether party or witness, has misconducted himself when there has been the opportunity to cross-examine and to put the alleged misconduct which has not been availed of. Not only do I not draw any adverse inference, I infer from the failure to cross- examine that counsel was not in a position to put any matter in cross-examination which could in any way have impugned the witness, Mr Hall. It seems to me that there is nothing in the second factor propounded which could possibly give rise to any apprehension of bias or any ground of concern whatsoever. The third factor related to the parties to the company's change of name. As I understood it during argument, counsel abandoned that factor. The fourth was the apparent treatment of the change of name as an event not worthy of comment. It suffices to say that on the material before me it is not quite accurate to describe the report of the provisional liquidators as not commenting. They did draw attention to the change of name and, as I understood the argument of counsel, it came down to a criticism that the liquidators had failed to point out that the change of name occurred on the very day that the winding- up application was presented. It seems to me that that factor did not call for specific mention in the report which was made by the provisional liquidators. It may be something which in due course liquidators might investigate. It conceivably may reflect an 7 JUDGMENT ,o 20 30 40 50 60 -- 7 of 18 -- 310895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) attempt by the directors to deprive the liquidators of the goodwill of the company name. That seems to me highly improbable in circumstances where the company was hopelessly insolvent and where it was a building company which had been in existence for only two years. In the circumstances of this case I would have thought that the provisional liquidators had many more important matters to take charge of and to devote attention to and it does not seem to me that one could rationally complain of their failure to draw attention to the timing of the change of name. The fifth factor was the retention by the provisional liquidators of solicitors who acted and continue to act for the directors. Upon examination, that wide allegation was cut down. It turned out that instead of being an allegation that there was a total retainer in respect of those solicitors, the allegation simply was that in relation to one particular building project, which was the subject of dispute involving what has been called the Greenbank site, the provisional liquidators retained the solicitors Messrs Halletts who acted for the directors. Otherwise they retained their own solicitors. That was a considered decision made because it was said the particular solicitors had familiarity with the particular project. Again, there was no attempt to cross-examine the provisional liquidators or to go behind the judgment which they had made. There was no suggestion (because of the absence of cross-examination) made to them that their judgment 8 JUDGMENT 10 r ( 20 ( / L40 so oO -- 8 of 18 -- 31Q895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) was anything other than a perfectly correct one open in the circumstances of the case. The most that could be said against it was that there was a potential conflict of interest in the solicitors, though not the provisional liquidators, because the solicitors might have to advise in relation to whether or not the subcontractor's charge was valid; which created a potential conflict of interest with their acting in the directors' interest (the directors claiming to be creditors). The weight to be given to this is minimal when it is remembered that the provisional liquidators had assessed the directors not as creditors but as debtors in a significant amount and had given other solicitors instructions to pursue recovery of the debt. It does not seem to me that the potential conflict of interest to which I have referred carries any significant weight and it does not seem to me that it is capable of generating in a rational mind any significant apprehension of bias. What conceivably could generate an apprehension of bias would be a continued retention of those solicitors after objection has been taken to their acting. However, as I understand it, the provisional liquidators intend to ask the Court to rule on the appropriateness of that course and given that attitude I do not see how it could be held that even a continuation for a short time is capable of giving rise to an apprehension of bias. 9 JUDGMENT 10 20 30 40 50 60 -- 9 of 18 -- 310895 D.1 T2/TW M/T CMSlOl/95 (Fryberg J) The next factor relied upon was the alleged inability of the provisional liquidators to produce a list of the company's creditors. Mr Foggo, a creditor, was anxious to call a meeting. He seems to be of the view that the liquidators were under some duty to devote their energies to preparing a list of creditors to facilitate his calling of a meeting. No authority was cited to me to suggest that provisional liquidators are under a duty to compile a list of creditors for this or for any other purpose. Doubtless they have the power to do so and doubtless in a simple winding up they may do so. What they do and the extent to which they incur expense is a matter for their judgment. Liquidators, when appointed, will no doubt proceed to compile a list, but in the present case there was available a bundle of documents, Exhibit 1, which set out the contents of the computer, the list of names and addresses taken from the company's computer 10 ( C (a computer dump as it was called), which formed a reasonable ( working basis, in my view, for provisional liquidators to use. It does not seem to me that they were required to produce a final list of creditors nor to facilitate the calling of a meeting in the circumstances of this case. I do not think that any person could rationally apprehend bias or impropriety on their part from that conduct. Those were the only matters of misconduct alleged by the supporting creditors at the hearing before me. As I have said the affidavits went wider, but counsel quite properly did not 10 JUDGMENT so -- 10 of 18 -- 3'10895 D .1 T2/TW M/T CMSlOl/95 ( Fryberg J) support the hyperbole contained in some of the affidavits. In my judgment not one scintilla of evidence of impropriety has been put before me. I see no basis for disqualifying the provisional liquidators from acting on the basis of any of the allegations which have taken up so much time during this hearing. It is common ground that the Court in appointing liquidators exercises a discretion and the factors which are relevant to the exercise of that discretion have largely been agreed among the parties. It is unnecessary for me to recite them. It is sufficient simply to refer to some of the cases in which they are recorded, namely, re Dunquil Pty Ltd (1985) 9 ACLR 950, re Ryobi No 1 Proprietary Limited (1983) 8 ACLR 439, re Giant Resources Limited [1991] 1 Queensland Reports 107. others, but that is sufficient for present purposes. There are One factor which is relevant is that the provisional liquidators have an existing familiarity with the documents and any new liquidators will inevitably incur increased cost by reason of the need to familiarise themselves with documents and form judgments about the circumstances of the company. Mr Hall has given evidence in his affidavit that there will be some such cost. However, he has not attempted to quantify the amount of that cost and I have no way of determining how much it would be even in a proportional sense. On the other hand there is the fact that the only creditors who have appeared before me have opposed the appointment of 11 JUDGMENT 10 20 30 40 50 60 -- 11 of 18 -- 310895 T4/RB M/T 5268/95 (Fryberg J) Messrs Hall and Hedge and have not opposed the appointment of Messrs Duus and Dennis. In a case where the company is plainly insolvent, it is, as Justice Olsson has observed in re Dunquil, a winding up that is to be conducted for the creditors. And it seems to me that 10 it is the creditor's wishes which ought to carry a lot of weight in the exercise of my discretion. Mr Chappell, on behalf of the applicant directors, urged that the correct principle was that I should appoint the nominee of the petitioner or the applicant, but it does not seem to me that there is any such principle of law. The discretion which has to be exercised is one, in my view, which requires a balancing of all relevant proved factors and I do not think there is any particular onus placed on any party. Whatever might be the position when some creditors take one view and others another or when the applicant for the winding up is a creditor, in circumstances such as the present it seems to me there is a discretion in which the applicant's wishes are entitled to no greater weight than the character of the applicant and the circumstances of the case give them. In this case the applicants are directors of the company. As I have said, in a case where the company is insolvent the views of the directors are of less weight. Mr Chalmers claims also to be a creditor and to that extent of course he is 12 JUDGMENT 20 10 so 60 ( C ( -- 12 of 18 -- 31989·5 T4/RB M/T 5268/95 ( Fryberg J) entitled to express a view and to have weight attributed to his view. But it must be said that he is a creditor only by his own claim, the provisional liquidators having taken the view that on the contrary he is a debtor. That also is a factor which in my view is relevant. Another matter which is relevant in assessing how much weight I should give to the views of the applicant, is the applicant's conduct. While I do not attribute any misconduct to the directors in relation to the change of name, it must be said that, as far as the directors are concerned, it is a very odd course indeed to take to change the company's name on the morning of the winding-up application to a name as obscure as the name the company now bears and thereafter to advertise the winding-up application under that new name and without mentioning the former name. It is conduct which does not dispose me kindly towards the views of the applicants. There are other creditors who have not appeared. Mr Hack's client claimed to have the support of some 39 other creditors with debts totalling in excess of $1.1 million and one exhibit is proxy forms indicative of their opposition to the present provisional liquidators being appointed. Mr Sweeney rightly pointed out that that opposition may largely have been generated by misinformation along the lines that I have already rejected earlier in my reasons. It may also be that those creditors take the view they take for reasons of their own. They are not obliged to take their view for any particular logical reason. They can take them for any 13 JUDGMENT 10 20 30 40 50 60 -- 13 of 18 -- 310895 T4/RB M/T 5268/95 (Fryberg J) reason they like, and it seems to me that their views are a relevant matter to be taken into account. The weight to be given to such persons who do not appear in Court and who do not state by affidavit the basis of their views is, of course, much less than that which is given to persons who do appear, particularly when I would infer there has been in this case a campaign to obtain the votes and support of creditors. There was put before me by the applicant an affidavit of a Ms Mason, general manager of a credit access bureau company, which although it did not itself claim to be a creditor claimed to represent a number of creditors. It said that it, thought not those it represents, supported the existing provisional liquidators, but I have difficulty giving any weight to that statement because it is without more evidence difficult to see how that company could have the appropriate level of agency to commit those it is said to represent. Moreover one of the companies which it is said to represent and which has debts according to the affidavit of some 40 per cent of the total in the affidavit, appears to be the client of Mr Jenvey, though the spelling is not quite identical. In the end it seems to me that the major considerations are the views of the creditors.and the cost that would be occasioned by a change of liquidators. In my judgment the views of the creditors should, in these circumstances and on 14 JUDGMENT 10 ( 2C C ( ( 60 -- 14 of 18 -- 31q895 T4/RB M/T 5268/95 (Fryberg J) the evidence that I have, prevail. I do not think it will make one hoot of difference to how the winding up is carried out who is appointed. I think that these whole proceedings have been proceedings which have thrust upon many parties considerable cost, but that is not a matter that need concern me. The outcome is that, in my judgment, the persons I should appoint as liquidators are Messrs Duus and Dennis. In so doing I would emphasise that I do so for reasons quite dissociated from allegations which have been made in relation to the provisional liquidators. Those allegations I have already found to be completely unfounded and not capable of supporting even a rational perception of misconduct. I therefore will order that the company ACN 058 566 233 be wound up under the provisions of the Corporations Law, that Messrs Ross Andrew Duus and Richard John Dennis be appointed liquidators to conduct the winding up. HIS HONOUR: I order that anything which may be done by the liquidators may be done by one or other or both of them. An application was made to me in the course of argument by Mr Jenvey for orders in relation to affidavits being used by the liquidators in an application to be made to the Court next Tuesday pursuant to section 479 of the Corporations Law to be made available to his clients. 15 JUDGMENT 10 20 30 40 50 60 -- 15 of 18 -- 310895 T5/DR M/T 5268&5228/95 (Fryberg J) Having regard to that section and the decision which Mr Jenvey very properly cited .to me of re GB Nathan & Company Proprietary Limited (1991) Australian Company Law Cases 673 it does not seem to me that I should make any such order. Those proceedings, it seems to me, are proceedings properly brought ex parte. HIS HONOUR: As far as costs are concerned I make no order for the applicant's costs to the intent that the ordinary position should prevail and the applicant's costs should be paid as part of the costs of the winding up. I order the supporting creditors Streamline Developments Proprietary Limited, Vencroft Proprietary Limited and the eight supporting creditors listed in the document which I initial and place with the papers to pay the costs of the provisional liquidators of and incidental to the application including reserved costs to be taxed. HIS HONOUR: It has been suggested to me that a practice has developed in the taxation of costs in relation to matters in Chambers where counsel appear not to allow the costs of briefing counsel save in extraordinary cases. I have no knowledge of the existence of any such practice. In my view, if there were such a practice, it would be unlawful. A taxing officer clearly exercises a discretion and the discretion must 16 JUDGMENT 10 ( C ( ( ",0 60 -- 16 of 18 -- 31089.5 T5/DR M/T 5268&5228/95 ( Fryberg J) be exercised having regard to the circumstances of each case. Man~ matters that come before the Court in the Practice Court in Chambers are contested matters. In contested matters the Court is always assisted by persons whether they are barristers or solicitors who have experience or training, or both, as advocates. That is the great virtue of the system we operate. I have been assisted in this case both by the members of the Bar and the solicitors who have appeared as advocates. The requirement in contested matters is to have persons with a capacity to work as advocates before the Judge, otherwise proceedings take far too long, even longer than they presently do. It is quite unreasonable to expect most firms of solicitors to engage in-house a specialist advocate. It is perfectly reasonable for most firms of solicitors to brief counsel. In my judgment, in contested matters it would be unusual for the circumstances not to warrant the allowance of costs for counsel. As far as the present case is concerned I will indicate that it is quite plainly a case where it was appropiate for a person with advocacy skills to appear and therefore appropriate for counsel to be briefed. Does that cover the case, Mr Sweeney? MR SWEENEY: Almost. I think the suggestion is you get counsel or a solicitor but not both. HIS HONOUR: I would have thought that having regard to the way the system works counsel cannot appear on any substantial matter without an instructing solicitor. 17 JUDGMENT 20 30 40 50 60 -- 17 of 18 -- 310895 T5/DR M/T 5268&5228/95 (Fryberg J) MR SWEENEY: As I understand the view taken, in my case Mr Jardine's costs would be paid but not mine on the notional discretion that's being exercised at the moment. HIS HONOUR: I am quite at. a loss to understand how you could have been here without your solicitor. MR SWEENEY: Apparently the taxing master doesn't have the same problem in reaching that----- HIS HONOUR: That will presumably raise questions that I really cannot deal with today. You will have to take him on, if that is what happens. I do not see how I can deal with that. I direct that my remarks be transcribed. 18 JUDGMENT C ( 50 50 -- 18 of 18 --