Fairlodge Pty Ltd, Re; Torcon Pty Ltd & Adcock v Fairlodge Pty Ltd & Ors [1992] QCA 87

IN THE COURT OF APPEAL [1992] QCA 087 SUPREME COURT OF QUEENSLAND No. 768 of 1991 IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of FAIRLODGE PTY LTD ACN 010 293 136 BETWEEN: TORCON PTY LTD (IN LIQUIDATION) and ROBERT THOMAS ADCOCK Liquidator of TORCON PTY LTD (IN LIQUIDATION) Appellants AND: FAIRLODGE PTY LTD First Respondent AND: DONALD KEITH PORTORS and JOCELYN ELSIE PORTORS Second Respondent REASONS FOR JUDGMENT OF THE COURT This is an appeal from a judgment of Mr Justice Thomas given on 7 November 1991 dismissing an application by the appellant, which is in liquidation, for the winding up of Fairlodge Pty Ltd ("Fairlodge"). His Honour gave a number of reasons for dismissing the application. First, he held that there was a bona fide and substantial dispute as to the existence of the whole of the debt which was asserted by the appellant ("Torcon") and consequently that Torcon did not have the requisite standing to maintain the application in accordance with s. 462(2) of the Corporations Law. Alternatively, he held that Torcon was at best a contingent -- 1 of 9 -- 2 or prospective creditor which had not provided security pursuant to s. 462(4). Finally, he held that there was no evidence of insolvency. Torcon was a building company. Its shareholders and directors, until their respective bankruptcies, were Messrs Witt, Brady and Torbet. Solvale Pty Ltd ("Solvale"), the directors and shareholders of which were a Mr and Mrs Portors, had performed subcontract work for Torcon on a number of building projects. Those five individuals agreed to acquire Fairlodge for the purpose of engaging in real estate development and became its shareholders and directors. It was envisaged that Fairlodge would engage Torcon and Solvale in the course of construction work, which in turn would contract at competitive rates. Mr Portors swore that "all parties", namely the five individuals, agreed that Torcon and Solvale would provide "cash injections" to Fairlodge, it being envisaged that Fairlodge would thereby be "built up" to enable it to undertake increasingly larger projects. It was agreed that these "cash injections" would not be repayable until realisation of all developments undertaken by the parties. A number of "cash injections" by both Torcon and Solvale were made on this basis. On this, Mr Portors' evidence was corroborated by each of Messrs Witt, Brady and Torbet and by a contemporaneous minute of a directors' meeting of Torcon on 18 April 1990. The minute indicates that Messrs Witt, -- 2 of 9 -- 3 Brady and Torbet thought that, in making the agreement, they were acting in, among other capacities, their capacity as directors of Torcon, of which they were also the only shareholders. The "cash injections" made by Torcon to Fairlodge constituted the debts which Torcon asserts. As evidence of those debts, it relies upon some documentation of itself and Fairlodge and an admission by Mr Witt, all of which showed Torcon to be a debtor of Fairlodge though for differing amounts. The five individuals, though in different proportions and with two additional corporate shareholders, later acquired and became shareholders of a company, Yellowtop Pty Ltd ("Yellowtop"), also for the purpose of engaging in real estate development. Further arrangements were then made which may have had the result that Yellowtop became indebted either to Torcon or to Fairlodge, or perhaps both, which might be of significance insofar as any moneys recoverable by Fairlodge from Yellowtop affected the question whether Fairlodge is able to pay its debts as they fall due. In December 1990 Yellowtop decided to undertake a major development at Mooloolaba for which it was necessary to borrow a substantial amount of money. Custom Credit Corporation Ltd, which was to provide that finance, required guarantees from each of the above persons and from -- 3 of 9 -- 4 Fairlodge. It was agreed, again by the five individuals, that none of the "loan accounts" of Fairlodge would be repaid, either to Torcon or Solvale, but that, instead, the shareholders of those companies would be paid those amounts, as shareholders of Yellowtop, out of the profits of the development being undertaken by Yellowtop. At that time they expected that that development would yield a substantial profit. Mr Portors, who swore to this, was again corroborated by Messrs Brady, Torbet and Witt. Although no minute of a directors' meeting of Torcon was produced to support this, Messrs Brady, Witt and Torbet were not only all of its directors, but also all of its shareholders. The substantial challenges to this agreement were that "there is no evidence that Torcon as an entity distinct from its directors agreed" and, in any event, such an agreement is voidable because it was not for the benefit of Torcon as a whole. It was said for Torcon that this was apparent on the face of the agreement. We do not agree. All of Torcon's shareholders were, as we have said, parties to the agreement and there is no evidence that Torcon was insolvent at the time it was made. Furthermore, it appears to have been part of an arrangement with potential benefits to Torcon's business as a builder. However, a good deal more needs to be known about Torcon, its relationship with Fairlodge and Yellowtop and the details of the arrangements before any such conclusion could be reached. These -- 4 of 9 -- 5 questions cannot be resolved in these proceedings in which even such formal material as the respective Memoranda and Articles of Association are not in evidence. That is not really surprising since the challenges raised by Torcon were not apparent from any pleading or other definition of the issues in advance of the hearing. Even if this second agreement were avoided, Torcon and Fairlodge would be left with the earlier agreement pursuant to which Torcon was a contingent or prospective creditor of Fairlodge. The evidence indicated that Fairlodge is not undertaking any further projects but is realising its assets. When that process is completed, if the first agreement is binding, Torcon will be entitled to be paid. Fairlodge's capacity to pay Torcon may be reduced by its liability to Custom Credit Corporation Ltd as a guarantor of Yellowtop, but in that event it will be entitled to reimbursement for Yellowtop. Whether Fairlodge will be able to pay Torcon when its debt falls due will depend upon a variety of factors including the amounts realised for its assets and the order in which events occur. Further, Torcon did not offer security for costs or give any indication at any time before Thomas J. that it was prepared to do so. His Honour was therefore correct in concluding that, if Torcon were a contingent or prospective creditor, he should not hear its application. -- 5 of 9 -- 6 In the circumstances, it is unnecessary to consider whether Fairlodge is presently unable to pay its debts or whether, alternatively, it should be wound up on the just and equitable ground. The appeal should be dismissed with costs. -- 6 of 9 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND No. 768 of 1991 Before the Court of Appeal The President Mr Justice Davies Mr Justice Shepherdson IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of FAIRLODGE PTY LTD ACN 010 293 136 BETWEEN: TORCON PTY LTD (IN LIQUIDATION) and ROBERT THOMAS ADCOCK Liquidator of TORCON PTY LTD (IN LIQUIDATION) Appellants AND: FAIRLODGE PTY LTD First Respondent AND: DONALD KEITH PORTORS and JOCELYN ELSIE PORTORS Second Respondent REASONS FOR JUDGMENT OF THE COURT Delivered the 28th day of April 1992 MINUTE OF ORDER: Appeal dismissed with costs. CATCHWORDS CORPORATIONS LAW - WINDING UP BY THE COURT - appeal from dismissal of winding up application - whether apparent that company unable to pay its debts as they fall due - whether judge justified in concluding he should not hear applicants application as contingent or prospective creditors as no security for costs -- 7 of 9 -- 8 offered Counsel: A. Morris for the Appellants R.R. Douglas Q.C. with him K. Varley for First Respondent Solicitors: Carter Newell for the Appellants Munro Thompson for the First Respondent Hearing date(s): 12 March 1992 -- 8 of 9 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND No. 768 of 1991 IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of FAIRLODGE PTY LTD ACN 010 293 136 BETWEEN: TORCON PTY LTD (IN LIQUIDATION) and ROBERT THOMAS ADCOCK Liquidator of TORCON PTY LTD (IN LIQUIDATION) Appellants AND: FAIRLODGE PTY LTD First Respondent AND: DONALD KEITH PORTORS and JOCELYN ELSIE PORTORS Second Respondent __________________________________________________ __ The President Davies JA Shepherdson J __________________________________________________ __ Reasons for Judgment of the Court delivered on the 28th day of April 1992 __________________________________________________ __ "APPEAL DISMISSED WITH COSTS." -- 9 of 9 --