Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155
• Hearing dates: 24 February 2014
• Decision date: 03 March 2014
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Proceedings dismissed

• Catchwords: CORPORATIONS - external administration - liquidation - application for winding up sought where company already in voluntary liquidation - necessary to point to some justification for such an order - no sufficient justification proffered - no order made
• Legislation Cited: (Cth) Corporations Act 2001, s 446A, s 439C, s 435C, s 1322(4)(a), s 503, s 459A, s 467B; (Cth) Corporations Law, s 459B, s 467B, s 472, s 503
• Cases Cited: Carter and Another (as liqs of New Tel Ltd (in liq)) v New Tel Ltd (in liq) [2003] NSWSC 128; CBA Corporate Services (NSW) Pty Limited v Walker and Moloney, in the matter of ZYX Learning Centres Limited (receivers and managers appointed) (in liq) [2013] FCAFC 74; Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529; Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394; Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738; In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 [2014] NSWSC 72; Neha Impex International Pty Ltd v Mintz & Co Pty Ltd [2003] WASC 196; Re Green (as liq of Australian Resources Ltd (in liq)) [2004] NSWSC 1073; (2004) 52 ACSR 450; Re Green (as liq of Australian Resources Ltd (in liq)) [2004] NSWSC 1095; (2004) 52 ACSR 452
• Category: Principal judgment
• Parties: 1st Fleet Pty Ltd (in liq) (plaintiff); Evcorp Grains Pty Ltd (defendant)
• Representation: Counsel: B De Buse (plaintiff); C M Harris SC (defendant); Solicitors: Coleman Greig Lawyers (plaintiff); Colin Biggers & Paisley (defendant)
• File Number(s): 2013/ 325744

Judgment

1 By originating process filed on 29 October 2013 the plaintiff 1st Fleet Pty Ltd (in liquidation) claims an order that the defendant Evcorp Grains Pty Ltd be wound up in insolvency. On 2 December 2013 - before the first return date of the originating process on 10 December - the company went into voluntary administration, and Alan John Hayes was appointed administrator. On 10 December, the proceedings were adjourned, by consent, to 18 December, when, an affidavit having been filed by the administrator which mentioned the possibility of a deed of company arrangement being proposed, they were adjourned again, by consent, to 11 February 2014.

2 Due to an oversight, the administrator was unable to attend and preside at the time appointed for the second meeting of creditors, and instead appointed a delegate for that purpose; the meeting was deferred until he arrived, but it was accepted that this deprived the meeting of validity. In any event, no DOCA was proposed, and the (deferred) meeting purportedly resolved that the company be wound up, the effect of which, if valid, would have been that the administration transitioned to a deemed creditors' voluntary winding up with Mr Hayes as liquidator: (Cth) Corporations Act 2001, s 446A. Alternatively, if there were no valid second meeting, the administration would, in the absence of a resolution under s 439C, have ended at the end of the convening period: Corporations Act, s 435C.

3 The administrator sought orders validating the second creditors' meeting, and on 3 February 2014, over the opposition of the present plaintiff, who sought to proceed with its summons, I made orders pursuant to s 1322(4)(a) that the appointment of the delegate to chair the second meeting was valid, that the meeting was not invalid by reason of contravention of s 439B(1), and that the resolution passed to the effect that the company be wound up was valid: see In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 [2014] NSWSC 72. I observed that the plaintiff would still be entitled to proceed, having regard to s 467B. The proceedings were adjourned to 24 February.

4 When the matter returned to court on 24 February, the plaintiff sought to proceed to have the company wound up in insolvency. Insolvency is established, and all formal requirements for making a winding-up order are satisfied. However, the defendant opposed that course and submitted that the creditors' voluntary winding up that resulted from the s 439C resolution should continue.

5 It is clear that a winding up order can be made in respect of a company notwithstanding that it is already in voluntary liquidation, and that the effect of such an order is that the court-appointed liquidator supplants the voluntary liquidator. Section 467B provides as follows:

The Court may make an order under sections 246AA, 459A, 459B or 461 even if the company has already been wound up voluntarily.

6 Whether and in what circumstances such an order should be made has been the subject of judicial consideration in a number of cases.

7 In Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529, Moore J in the Federal Court of Australia observed that s 467B of the then Corporations Law was facultative and indirectly permitted the prosecution of an application seeking an order under s 459B by confirming that such an order could be made notwithstanding that the company is being wound up voluntarily, but was not itself a source of power to order the winding up of a company in insolvency. Where the only substantial ground advanced by Citrix for an order under s 459B was that it would result in a liquidator being appointed by the court under s 472 who would assume the functions presently being performed by the voluntary liquidator, and there was no submission that Citrix or creditors generally would derive some additional or other benefit from a winding up flowing from an order of the court, his Honour said that it was appropriate to apply the principles governing an application under s 503 to remove a liquidator and appoint another liquidator.

8 In Neha Impex International Pty Ltd v Mintz & Co Pty Ltd [2003] WASC 196, an application to wind up the defendant under Corporations Act, s 459A, was pressed by the plaintiff although a meeting of creditors had previously resolved to place the defendant into voluntary liquidation and to appoint liquidators. Newnes M said that the question was whether the court should make an order under s 459A in circumstances where the order was sought solely for the purpose of replacing the current liquidators with a liquidator appointed by the court, and that it was accepted by counsel for each of the parties that where the sole purpose of the application was for the purpose of replacing a voluntary liquidator with a court-appointed liquidator, the approach to be taken by the Court is the same as on an application under s 503 of the Act.

9 In Carter and Another (as liqs of New Tel Ltd (in liq)) v New Tel Ltd (in liq) [2003] NSWSC 128; Austin J said that there must be "good reasons" for the court to intervene by making a winding-up order in the case where the company is already in liquidation:

It is clear that the court may make an order for the winding up of a company in insolvency, or upon other grounds, if the company is already in voluntary winding up. The Corporations Act assumes the point in various sections. For example, ss 459P(1)(e) and 462(2)(d) give standing to a liquidator to seek a winding-up order. Section 513A explains when a winding up by order of the court is taken to have begun or commenced in circumstances where, inter alia, a winding up of the company was already in progress. Obviously, however, there must be good reasons for the court to intervene by making a winding-up order in the case where the company is already in liquidation.

10 The proposition that "good reason" was required to make a winding up order in such a situation thereafter became well-established. Thus in Re Green (as liq of Australian Resources Ltd (in liq)) [2004] NSWSC 1073; (2004) 52 ACSR 450, Young CJ in Eq said:

[1] This is an application made by a liquidator who is a liquidator under a creditors' voluntary winding up in the liquidation of Australian Resources Ltd. The liquidator seeks an order under s 459A of the Corporations Act 2001 (Cth) that the company be wound up in insolvency. There is precedent for making that order, the most recent of which is Carter (as liq of New Tel) v New Tel Ltd (in liq) (2003) 44 ACSR 661. However, the learned Austin J who decided that case made it quite clear at 663 [5] that there must be good reasons for the court to intervene by making a winding-up order in a case where the company is already in liquidation.

11 Subsequently, in Re Green (as liq of Australian Resources Ltd (in liq)) [2004] NSWSC 1095; (2004) 52 ACSR 452, Barrett J made an order that the company be wound up in insolvency, notwithstanding that it was subject to a creditors' voluntary winding up. His Honour said that while s 467B made clear that the court may make a winding-up order under s 459A even if the company had already been wound up voluntarily, there must be some good reason to do so, and that because there was little practical difference between a creditors' voluntary winding up and a court-ordered winding up, there needed to be some good reason why, in a case where a creditors' voluntary winding up is already in progress, the court should make an order imposing a different form of winding up. A desire merely to replace the liquidator did not represent sufficient reason (citing Citrix Systems v Telesystems Learning and Neha Impex International v Mintz & Co), but a prospect that an insurance policy was responsive to the claims for insolvent trading only if the liquidator pursuing those claims was court-appointed, coupled with the possibility of concomitant benefits to the general body of creditors, provided sufficient reason for making the order.

12 Next, in Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394, Besanko J said:

17 A court will not make an order winding up a company in insolvency in circumstances in which the company is already the subject of creditors' voluntary winding up unless there is good reason to do so: Carter (as liq of New Tel Ltd (in liq)) v New Tel Ltd (in liq) [2003] NSWSC 128; (2003) 44 ACSR 661 per Austin J at 663(5); Re Green (as liq of Australian Resources Ltd (in liq)) (supra) per Barrett J at 453 [5]. The reason for this is that, in the ordinary case, there is little practical difference between a creditors' voluntary winding up and a form of winding up imposed by order of the court.

18 In the authorities, various reasons for making an order in such circumstances have been put forward and held to be sufficient. One reason which has commonly been put forward is that a change of liquidator is desirable. That reason will be sufficient if the liquidator has not given the appearance of being independent: Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (supra) per Moore J at 535-537, but, on the other hand, a mere desire to replace a liquidator is not sufficient: Re Green (as liq of Australian Resources Ltd (in liq)) (supra). The fact that an insurance policy responding to claims for insolvent trading by directors may cover such claims only if the liquidator is appointed by the court may be a sufficient reason: Re Green (as liq of Australian Resources Ltd (in liq)) (supra), as may the fact that a charge or certain dispositions of property may only be challenged if the court has ordered the company to be wound up under s 459A: Carter (as liq of New Tel Ltd (in liq)) v New Tel Ltd (in liq) (supra).

19 None of those circumstances are present in this case, nor is it suggested by the Deputy Commissioner that an order of the court winding up the company in insolvency will provide a benefit to the general body of creditors of the company. Clearly, there may be circumstances, other than those I have discussed, which could provide a sufficient basis for an order winding up the company in insolvency even though it is already the subject of a voluntary winding up. However, the Deputy Commissioner frankly conceded that the only matters she could point to were the fact that there was no objection to the order sought and that it would enable her to recover the costs of the application. The fact that there is no opposition to the proposed order cannot, to my mind, be a good reason for making the order; nor can the desire to recover costs, although I appreciate that the Deputy Commissioner made her application some days before the company was placed into administration and then later into voluntary liquidation.

13 The "good reason" test was the subject of a degree of disapproval by the Full Court of the Federal Court (Foster, Barker and Griffiths JJ) in CBA Corporate Services (NSW) Pty Limited v Walker and Moloney, in the matter of ZYX Learning Centres Limited (receivers and managers appointed) (in liq) [2013] FCAFC 74. Their Honours said that while on one view the phrase "for good reason" simply reflected a requirement that the power to order a winding up in insolvency should only be made in an appropriate case, there was a danger that the phrase could displace or distort the otherwise broad discretion conferred by s 459A:

40. First, the appellants' case relies heavily on the proposition that, consistently with the language used in cases such as New Tel and Re Green, a winding up in insolvency order should only be made "for good reason". Although they deny it, the appellants effectively advance a construction of s 459A of the Act which inserts that phrase into the body of the text of the provision

41. In our view that is an erroneous approach. It is well established that the correct approach in determining the scope of a statutory discretion which is unconfined by express statutory criteria is to ascertain the factors that may be taken into account by reference to the subject matter, scope and purpose of the statutory provision (see, for example, Water Conservation and Irrigation Commission (NSW) v Browning [1947] HCA 21; (1947) 74 CLR 492 at 505 per Dixon J and Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 at 40 per Mason J).

42. While on one view it could reasonably be said that the phrase "for good reason" simply reflects a requirement that the power to order a winding up in insolvency should only be made in an appropriate case, there is a danger that that phrase could displace or distort the otherwise broad discretion conferred by s 459A. As the Full Court stated recently in Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCAFC 28 at [13] the substitution of other words for the terms of a statutory discretion is to be discouraged as it is likely to lead to error. That danger is manifest here where the appellants seek to impugn the primary judge's decision by reference to the fact that the particular matters which were accepted as "good reasons" in cases like New Tel and Re Green are not present here. Whether or not the discretion under s 459A should be exercised in any particular case necessarily turns on an assessment all the relevant circumstances. In our opinion, the broad discretion under that provision should not be inhibited by artificially introducing a requirement of "for good reason" as though that is part of the provision itself.

43. The primary judge was very conscious of the fact that the ABC Learning Group was already the subject of a voluntary winding up. It was for that reason that his Honour accepted that an order would only be made under s 459A if there was a proper basis or good reason for doing so. As will emerge further below in [47]-[53], we consider that in explaining why he found that this was an appropriate case in which to make a s 459A order, the primary judge did not commit any appellable error bearing in mind that his decision was one arrived at in the exercise of a discretionary power.

14 Thus their Honours, while emphasising that the judicial gloss "for good reason" should not be treated as if it were part of s 467B itself, nonetheless accepted that such an order should only be made in an appropriate case, and that it was relevant that the company was already the subject of a voluntary winding up. If that be relevant, then it follows that the considerations differ, to some extent, from those that apply to a creditor's application where the company is not already in voluntary liquidation.

15 Accordingly, it seems to me that the position can be stated as follows.

16 First, while an unpaid creditor who establishes insolvency is usually regarded as entitled to a winding up order almost as of course, that is not so where the company is already in liquidation. The existence of a voluntary liquidation is a relevant consideration, so that where a voluntary liquidation is in place, there needs to be some justification for replacing it with a compulsory liquidation.

17 Secondly, such justification will ordinarily be found, if at all, in the interests of the administration and, in particular, the general body of creditors. Typically, the possibility that a court-appointed liquidator will be able to realise additional benefits for the creditors not available to a voluntary liquidator will provide such justification [Re Green (as liq of Australian Resources Ltd); Carter v New Tel; Deputy Commissioner of Taxation v Tull Reinforcing].

18 Thirdly, on the other hand, the mere preferences of the plaintiff - such as a mere desire to replace the liquidator - are insufficient. This is because it would otherwise afford a means of circumventing s 503. Thus, where the sole purpose of proceeding with a winding-up application is to replace a voluntary liquidator with a court-appointed liquidator, the Court adopts the same approach as on an application under s 503 to remove a liquidator and appoint another [Citrix Systems v Telesystems Learning; Neha Impex International v Mintz and Co; Commissioner of Taxation v Tull Reinforcing]. Likewise, it is not sufficient justification that making a winding up order will meet the plaintiff's desire to recover its costs [Commissioner of Taxation v Tull Reinforcing [2006] FCA 810; (2006) 153 FCR 394].

19 Finally, the views of the general body of creditors are also a relevant consideration. It would usually tell against a compulsory winding up if the majority of unrelated creditors supported continuation of a voluntary administration.

20 In the present case, the grounds advanced by the plaintiff do not impugn the independence of the voluntary liquidator, nor assert that he has acted in any such way as would justify his removal. Nor is it suggested that his replacement with a court-appointed liquidator would result in the latter having any powers or being entitled to any remedies that the former would not. Rather, the plaintiff's case was that (1) in winding up proceedings, other things being equal, the court will ordinarily appoint the plaintiff's nominee as liquidator; (2) but for the intervention of the administration, that is what would have happened here; (3) the administration was a belated development, after the winding-up proceedings had been commenced, and with the benefit of hindsight, it can be seen that the there was never any real prospect of a DOCA, and that the only effect of the administration was to give the defendant rather than the plaintiff the opportunity to select the liquidator; (4) a compulsory winding-up would restore the position which would have obtained but for the intervention of the administration, with the plaintiff's nominee being appointed; and (5) the plaintiff would be prepared to fund its liquidator (but presumably not the voluntary liquidator) to conduct investigations and recover any amounts that might be recoverable in respect of voidable transactions and/or insolvent trading.

21 As to the last point, the Court should not accede to a party's preference for a particular liquidator on account of its threat or promise to fund that liquidator but no other. To do so would encourage parties to be selective in their funding of liquidators for an irrelevant reason, and effectively abdicate the Court's responsibility to select an appropriate, rather than a party's preferred, liquidator: Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738, [27].

22 As to the balance of the arguments, it is correct that in the ordinary case, other things being equal, the court will appoint the plaintiff's nominee. Had the plaintiff and the company each proposed a liquidator in these proceedings, that approach would have applied. However, it has no application where there is already a liquidator, who is not suggested to be amenable to removal under s 503.

23 When the plaintiff consented to an adjournment of the winding up proceedings pending the administration, it took its chances as to the outcome of the administration, of which voluntary liquidation was very obviously one. The terms in which reference was at that time made to a DOCA did not suggest that there was more than a slight possibility that one might be proposed. In reality, the plaintiff wishes retrospectively to undo the consequences of its consent to the adjournment of the proceedings on 10 and 18 December, so as to restore the position to that which would have prevailed but for the intervention of the administration. That desire to rewrite history does not provide sufficient justification to replace the voluntary liquidator with a court appointed liquidator.

24 Having regard, on the one hand, to the circumstances that the plaintiff's proceedings to have the defendant wound up in insolvency were instituted before the administration, and that the plaintiff has proved all matters necessary for a winding up order; but, on the other, to the considerations that the plaintiff consented to the adjournment of its proceedings to enable the administration to proceed, that there is already in place a voluntary liquidator, that there is no apparent benefit to the administration in his replacement by a court-appointed liquidator (and some detriment from duplication of work), and that nothing is alleged that would warrant removal of the voluntary liquidator under s 503, in my judgment insufficient cause is shown for replacing the voluntary liquidator with a court appointed liquidator by making an order that the company be wound up in insolvency.

25 Prima facie, the plaintiff is entitled to costs up to and including 3 February 2014 (when the proceedings ought to have been discontinued), and the defendant to costs thereafter. On balance justice will be done if there is no order as to costs.

26 The Court orders that the proceedings be dismissed.

27 There is no order as to costs, to the intent that each party bear its own costs.

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Decision last updated: 04 March 2014