Cash Resources Australia Pty Ltd v Supreme Lounges (Australia) Pty Ltd & Ors [1993] QSC 96

c;?.o5i-G; '[~iJ! State Reporting Bu eau----------------------------------------------------------------------------- TRANSCRIPT OF I>ROCEEDIN.GS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MACKENZIE J No 448 of 1993 CASH RESOURCES AUSTRALIA PTY LTD A.C.N. 004 792 330 and SUPREME LOUNGES (AUSTRALIA) PTY LTD A.C.N. 054 157 210 and RONALD JAMES RICHARDSON, JOANNE RICHARDSON and STEVEN GOOD BRISBANE .. DATE 010493 JUDGMENT Plaintiff First Defendant Second Defendant 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 7 -- 010493 Turn 1 Bah HIS HONOUR: Yesterday was the expiry date of ex parte interim orders for the appointment of ~ receiver and restraining orders against the defendants. The orders were temporarily extended until the decision that I am now delivering had been delivered. The defendants were on this occasion represented before me and a notice of motion seeking the removal of the receiver and restraints and other orders was filed. For the sake of clarity, I will indicate that there are two companies, Supreme Lounges and Supreme Lounges (Australi~), 10 and I hope that I will be precise in distinguishing between them by referring to the first as Supreme Lounges and the other as Supreme Lounges (Australia). The applicant ~ntered an invoice financing agreement with Supreme Lounges under which the applicant purchased and discounted debts owed to Supreme Lounges. Supreme Lounges was the plaintiff's agent for most of the material time for the purpose of collecting debts from Supreme Lounges' customers on condition that Supreme Lounges delivered cheques from the ~ customers to the applicant. Moneys were to be deposited to the applicant's bank account. As customers became indebted to Supreme Lounges, the applicant purchased the debt. At the time when Supreme Lounges went into liquidation, the value of invoices, according to the applicant, issued by Supreme Lounges but unpaid was about $270,000. The obligations of Supreme Lounges were secured by several securities including a charge over Supreme Lounges' assets and a guarantee by the first two second defendants, the 30 Richardsons. In December 1992, there were instances where, according to the applicant, the agreement was breached by reason of Supreme Lounges not paying moneys received from its debtors into applicant's accounts. The amount was somewhere in the vicinity of $63,000, according to the applicants' material. When the applicant's manager spoke to Mr Richardson about this Mr Richardson caused cheques to be drawn on Supreme Lounges' account and paid into the applicant's account. At least some 40 of these cheques were initially dishonest. An account of the circumstances of these events is in Mr Richardson's affidavit of 30 March. It is his contention that the applicant was reimbursed eventually for those sums. On 19 February 1993, the applicant revoked Supreme Lounges' agency to coll~ct the debts and gave notice of assignment of the debts pursuant to the Property Law Act. Prior to that, on 12 February, the factoring agreement had itself been revoked and the applicant's manager told Mr Richardson that action so would be taken to recover moneys owing to it by Supreme Lounges. According to the plaintiff's case, Mr Richardson, aft~r that, advised that someone was about to inject capital into the company and action to recover the debts was not pursued. On 8 March, the impression was conveyed, according to the applicant, that Mr Good, the third second defendant, was to purchase an interest for $75,000, but on 9 March on Supreme JUDGMENT 2 60 -- 2 of 7 -- 010493 Turn 1 Bah Lounges' own application, a provisional liquidator was appointed. I should mention that it is not necessarily agreed what the terms of relevant conversations were at these times. On 12 March there was discussion about the ownership of property at Supreme Lounges' factory and a claim was made that it was owned by a company other than Supreme Lounges. There were also allegations that false invoices had been raised causing the applicant to purchase non-existent debts from Supreme Lounges, as I understand it. On 26 March, Mr Justice Moynihan made interim orders operative until yesterday appointing a receiver of the income and all money received by Supreme Lounges (Australia), the company which was alleged to be the company to which the assets of Supreme Lounges had been disposed of, and imposing Mareva type restrictions upon the second defendants and restraining their dealing with the assets and documents of Supreme Lounges. As is customary, that was made ex parte. The respondents'complaints in this regard about the lack of notice of the application are, for that reason, I think, misconceived. I should say that the clauses of the order that were made on 26 March are not easily reconcilable. Clause 1 appointed the receiver of the income and money received by Supreme Lounges (Australia) and empowered him to pay that into a bank account from which he could pay trade debts of the first defendant arising in the ordinary course of business which could not be met from "Other assets" of the first or second defendants. Later clauses appear to impose absolute restraints upon the disposition of assets of the first and second defendants. The reconciliation of these provisions seems to have some difficulties. The restraints are Draconian in their breadth as well. Complaints that the effect is to severely restrict or perhaps stop entirely the business of the first defendant and to impose prohibitions on any dealings at all with the second defendant's assets appear to be of some substance. However, having said that, there are grounds for concern that moneys that should have been due to the applicant have not been paid and that some items invoiced have not been delivered at all even before the provisional liquidation. What has happened to them is not at all clear on the evidence. What can be said is that there are serious questions to be tried as to the right of the defendants to do what has been done, that is, to metamorphose the decaying entity of Supreme Lounges 10 30 40 into a new and apparently thriving Supreme Lounges (Australia) 50- at least before the injunctions of last Friday - while considerable sums of money apparently payable to the applicant disappeared. There are conflicts of fact which cannot all be adequately resolved on affidavit although it may well be that the sum that is in contention is not as large as alleged. Identifying the problem is easier than finding a practical solution. The underlying issue is the reconciliation of the applicant's claims with those of Supreme Lounges. Subject to JUDGMEN'r 3 60 -- 3 of 7 -- 010493 Turn 1 Bah a collateral, but irrelevant for present purposes question of the validity of the security as against the provisional liquidator, the rights o£ the applicant as against Supreme Lounges and the Richardsons should be as secured creditor. The allegation is that payments that should have been made to the applicant in that capacity have been diverted to the first defendant through the agency of the second defendants. Apart from allegations that some debts owing may have been discharged by payment in kind, a proposition which is not beyond dispute, it is difficult to see the basis on the 10 evidence as it now stands for a Mareva injunction against the second defendants. I will eventually rule accordingly in that respect. To the extent that paras 5 and 6 of the original order are effective in view of the appointment of a provisional liquidator of Supreme Lounges it is appropriate that those provisions should remain in place. So far as the receivership is concerned, I am not satisfied on the evidenc& as it now stands that circumstances exist which justify such appointment. (See, in. general, Bond Brewing 20 Corporation v. National Australia Bank 1 ACSR 445.) There was no evidence as to what moneys, if any, have come into the receivers' possession pursuant to the order of 26 March. It is likely to be small, having regard to the time involved, and should I think, in principle, be returned to Supreme Lounges (Australia) subject to what I am to say. It is apparent that there is a question of accounting underlying the dispute. The simple, and to an extent, summary approach to this is to provide,by way of order ancillary to the dissolution of a Mareva injunction and revocation of thereceivership provisions 30 which retain the restraints upon dealing with the property of Supreme Lounges and for the taking of certain steps with a view to preserving moneys that can be identified as ones which are in dispute. I think that in principle what I ought to do is to make a series of orders to ensure as far as possible that a measure of fairness is achieved in the matter. So far as the precise terms of the order are concerned, I would say this: if it appears that what I propose in principle is unworkable I will 40 give the parties the opportunity to be heard further on it after they have had an opportunity to consider what I have said. What I propose, however, in this respect, is to retain, as I have said, clauses in the same terms as clauses 5 and 6 of the order of Mr Justice Moynihan. The other matters that I would propose would be to order that the applicant provide to each of the respondents a true and correct list of all invoices which the appellant claims to have purchased pursuant to the financing agreement of 50 6 October 1992, such list t6 include, inter alia, the invoice number, the dates of purchase, and the amount thereof within a short period of time. Then, I would propose that each of the defendants should cause in respect of goods to which the invoice listed by the appellant relate, true and correct information to be provided to the appellant with respect to the date upon which the goods were dispatched, the date of payment for such goods before JUDGMENT 4 60 -- 4 of 7 -- 010493 Turn 1 Bah purchase, the date of delivery of the payments to the applicant, and if the purchasers' indebtedness under any of the invoices in the appellants list was discharged other than by payment of money,the method of discharge and in whose possession the benefit currently is no later than a short time after the delivery of the original list. Then, it seems to me that various other mechanisms have to be put in place to cover the situation where an invoice in the applicant's list was :r.-eplaced by another invoice, whether in 10 the first defendants' name or in the name of Supreme Lounges Pty Ltd, and in principle, the same information should be provided by or on behalf of each of the defendants in respect of the replacement invoice. Access would have to be granted to the books of Supreme Lounges to each of the defendants by the provisional liquidator to allow them to comply with the orders above. Then, it seems to me that all moneys paid to any of the defendants in respect of any of the invoices referred to in w the applicant's list or invoices in substitution thereof after the time of service of the applicant's list upon the defendants should be retained in a bank account or by other means to be agreed by the parties until the final determination of the matter. In talking of payment of money, I would include payments by cheque or any other means of transferring moneys. If any other property than money was received by any of the defendants in discharge of the invoice that should be preserved by the person in whose possession the property was at the time and shouldn't be dissipated by that 30 person. The receiver should be entitled to retain the moneys if any in the account referred to in the first paragraph of Mr Justice Moynihan's order until he can determine whether any amounts received related to payments with respect to invoices referred to in the applicant's list of invoices in substitution therefore. After he has formed an opinion as to this he should pay the sums equal to those amounts into the account that I hav~ previously mentioned to be agreed upon by the ~ parties, and paythe balance back to first defendant. Upon payments of all of the moneys in accordance with that paragraph, he would be discharged as receiver. I would also wish to consider, but I will hear submissions on this, as to who should pay the receivers fees. By way of completion of the order, I would give liberty to apply, and it would be my view that the costs of the matter should be reserved. What I propose to do is to have this transcribed and the parties can have a copy of it with a view so to considering it as to its feasibility. But the eventuality would be that I would envisage that the receiver, in due course, would be discharged and that the Mareva injunctions themselves would be also discharged, but there would be restraints of the kinds that I have envisaged. Now, how soon would you want to come back to me with that? MR GALLAGHER: Your Honour, perhaps it is best if we consider JUDGMENT 5 60 -- 5 of 7 -- 010493 Turn 1 Bah your order before proceeding further. HIS HONOUR: I am not asking you to do it now. MR GALLAGHER: There is one matter that I would like Your Honour to consider and that is in respect of order 3, whilst they are allowed to dispose of. their own property we would like some interim restraining order in relation to the property of the first defendant because it is contended that that property is really the property of the company in 10 provisional liquidation. HIS HONOUR: I think something~interim will have to ·be put in place. It is just a question of what you propose. The reason why I have done it this way, I don't want to impose something that is ulti~ately going to be unworkable upon the parties but you. can see that the logic of it has to be worked.out that way. MR GALLAGHER: We don't want to stop them paying the electric 20 light bill but the assets of the company are very much in issue still as a result of Your Honour's orders. HIS HONOUR: Is it feasible to frame something along the lines of them being ~llowed to make payments in the ordinary course of business? MR GALLAGHER: Yes. I was more concerned with disposing, selling, mortgaging, pledging, transferring or dealing with the assets which - Your Honour mentioned cash assets but 30 dealing with the assets including plant, machinery, equipment. HIS HONOUR: Perhaps would it be possible to get some sort of consensus about that if I stood the matter down and you had a talk about it? MR GALLAGHER: Yes. HIS HONOUR: Are you happy with that? MR BAKER: Yes. I only have two comments to make: in the ordinary course of business seems to be the way to go and exactly, that ----- HIS HONOUR: I wouldn't envisage that you would be able to alienate property. What I am mainly concerned about is just keeping the business going as a going concern. I wouldn't be envisaging that you would enter into security arrangements and any sort of thing in respect of properties to give a priority 40 over Mr Gallagher's clients. so MR BAKER: That is so, Your Honour. It is a bit difficult to quantify what amount Mr Gallagher claims security over in these circumstance. As I understand it, it is the invoices in doubt have some $27,000 worth of invoices, but I have another problem which I suppose Mr Gallagher and I may be able to work out, that is, Mr Good had borrowed money that he has injected in it and has interest payments presumably to make to the bank, but perhaps we can sort that out. JUDGMENT 6 60 -- 6 of 7 -- 010493 Turn 1 Bah · HIS HONOUR: I will stand the matter down and you can have such discussions as you see fit about it. Until those discussions are finalised, the current restraints will remain in force and nobody should have their position changed until you have had the opportunity to see what arrangements you can come in in conformity with the principles at least that I h3ve laid down. MR BAKER: I understand Your Honour as part of the obliaation 10 of the particulars that of the invoices we are really t~lking about invoices that the plaintiff applicant says are invoices which have been purloined, if I might say, by the first defendant. Is that ----- HIS HONOUR: The idea was that I was going to require the applicant to give you a list of the invoices that says they were entitled to and get your clients to respond to those. MR BAKER: Very well, Your Honour. HIS HONOUR: That is the point of it. So that the cards are all on the table. HIS HONOUR: I will stand the matter down and you can mention it at a later time, just by communicating with the bailiff. THE COURT ADJOURNED AT 2.44 P.M. JUDGMENT 7 LO 30 40 50 60 -- 7 of 7 --