Allen & Anor v Feather Products Pty Ltd

Facts relating to the extension of time claim 17In the following paragraphs I summarise the evidence of the Liquidator on the extension question. 18There has been a lack of funding available to make the required investigations to ascertain whether any of the companies may have engaged in insolvent transactions. That is because there have been no funds and there are still no funds in any of AHA, HPIA, NRP and NRH. Until funds flow to AHA as trustee of the unit trust, and these will only come from any surplus in HPIA and SPAC, it has no funds to allow investigation to take place. HPIA will have no funds until a surplus has come from the winding up of HPIP and Ce'Nedra. NRP and NRH will only have funds if the claim for security made by Barcroft Holdings Ltd is not made out. 19There have been funds available to the Liquidator of HPIP and Ce'Nedra since the sale of the Parramatta Hotel in late October 2010 and there have been funds available in SPAC since the Receivers handed over $1,200,000 in August 2011. 20Mr Cathro was joint liquidator until he resigned from Deloittes on 8 August 2011. The evidence of Mr Lombe is that Mr Cathro had control of the day-to-day detailed carriage of the liquidations while Mr Lombe had a more of a general oversight role. This really has little bearing on the matter as it is not suggested that Mr Cathro had given consideration as to whether or not any transaction might be voidable. 21Although filed in the remuneration claim, but now relevant here, Mr Lombe adduced evidence of significant matters requiring time and attention in the liquidation of the companies. It is clear that there have been some reasonably complex matters to be dealt with, in looking into intercompany transactions; instigating recovery proceedings against UBF Guam; negotiations with the receivers and in connection with the Federal Court applications in connection with the sale of the Parramatta Hotel. 22The evidence of Mr Lombe is that no particular transaction has been identified which could be an insolvent transaction. However, if an extension order is made, investigation of dealings between the companies may identify some such transaction and now that the receivers have retired and some of their material handed over, this material may provide evidence to indicate some voidable transaction. The purpose of this evidence is to make it clear that an extension of time is not sought with a particular claim or possible defendant in mind, but rather a general extension is sought because no relevant investigation has been carried out up to the present time. The more important reasons for this are said to be a lack of funds and the presence of the receivers.

Law relevant to extension claim 23In BP Australian Pty Ltd v Brown ( 2003) NSWCA 216, the Court of Appeal upheld the decision of Austin J in Brown v DML Resources (2001) 52 NSWLR 685 that a general order for extension of time could be made under Section 588FF (3) (b) of the Act, it being necessary that proper reasons for extension be shown. Austin J suggested that lack of funds, size and complexity of winding up, and volume of work required could be relevant matters. The relevant paragraphs of the Court of Appeal decision appear in the judgment of the Spigelman CJ, quoting several paragraphs from the judgment of Austin J: [154] His Honour held (at 8-9), after referring to the Harmer Report: "[31] The underlying idea is that it is desirable, in the interests of commercial certainty, for creditors to know where they stand within a reasonable period after the commencement of the liquidation. The outcome that would be produced by the plaintiffs' construction of r 11(3) would enable the liquidator to leave creditors in an uncertain state well beyond three years, because it would allow the liquidator to file a 'shelf ' application within the three-year period and then breathe life into it by adding the targeted creditor as a defendant at any later stage, unless the proceedings were dismissed. [32] The true position seems to me to be more sensible. The Corporations Act sets the three-year time limit and provides for an application to be made within three years for extension of time ... The common law requires that if a particular creditor is targeted as a likely defendant in voidable preference proceedings, that creditor must be given notice of the application for extension of time, and may need to be joined as a party to the application for extension of time, especially if it responds to a notice by objecting to the proposed order on substantive grounds. In the interests of commercial certainty, the targeted creditor must become a defendant to the application for extension of time within the three-year time limit for making that application. If there is no targeted creditor and the application for extension is made in order to permit the liquidator to conduct investigations necessary to identify and explore potentially preferential transactions generally, the Court may grant the extension of time in general terms without specifying any particular transactions or defendants and in that event, it will not be necessary at any stage to join any particular creditor as the defendant to the application for extension."... [168] In any event, I am of the view that Austin J was correct in the conclusion to which he came that an application under s 588FF(3)(b) seeking a general order for an extension of time to make an application under s 588FF(1) against any creditor, is a valid application and an order in those terms is a valid order. I agree with his Honour's analysis in the second judgment as follows: "[33] In my opinion the applicants' submission places an unduly restrictive interpretation on s 588FF(3). The statutory language does not literally require the construction that they advance. It is true that subs (1) speaks of a particular application concerning a single transaction, and the opening words of subs (3) refer to the specific application identified by subs (1). But subs (3) refers to the application under subs (1) only in order to say that such an application must be made within the period of time that subs (3) sets. Subsection (3) does not say, as it might readily have said if the applicants' contention were correct, that the application under subs (1) may only be made within a longer period than three years if the Court allows that application to be brought later. Instead, it sets the time limit for making an application under subs (1) as three years after the relation-back day, or such longer period as the Court orders on an application under subsection (3) - that is a different application whose purpose is only to extend the time period. Consistently with the wording of subs (3), the application to extend the time limit can be an application to extend the time limit within which a particular subs (1) application can be made, or a broader application that applies to the particular subs (1) application under consideration and to other applications as well. I see no reason why the other applications cannot be described by category rather than in specific terms, provided that the description is clear. [34] The construction for which the applicants contended would, in my opinion unnecessarily hamper the work of liquidators for no good reason. I accept the applicants' submission that a purpose of the statutory reform that produced s 588FF was to prevent liquidators from relegating the recovery of voidable preferences to the end of their work programs. The investigation of voidable transactions should generally be conducted concurrently with their other liquidation work. Nevertheless, there will be some cases where, notwithstanding the most diligent of efforts, the liquidator is so far short of completing his or her investigations towards the end of the time limit that it is impossible to identify particular transactions in respect of which orders for extension of time could be made." ... [169] His Honour went on to refer to the circumstance in which there has been a long administration and a limited period was left for a liquidator to make the relevant application under s588FF (3) (b). For the reasons mentioned above, this part of the analysis may be open to question. Nevertheless, I agree with his Honour's conclusion. [170] The power to extend the time limit for commencing proceedings is intended to provide for the circumstance in which a liquidator is not in a position to commence proceedings within three years of the relation-back day, for whatever reason, subject to the assessment of the court of all relevant circumstances, including the liquidator's conduct. It is not difficult to envisage a circumstance in which a liquidator is still ascertaining the identity of the recipients of benefits under possible voidable transactions and cannot give the court an indication of the creditors to be targeted. The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms. [171] The requirement of commercial certainty on the part of those who have had past dealings with the corporation is to be balanced against the conflicting interest of the creditors of the company. The court, through the discretions it exercises under s 588FF(3) and s 588FF(1), is in a position to control unwarranted delay by liquidators. Subject to reasonable expedition on the part of a liquidator, and to adopt the reasoning of Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659; 15 ACLC 1293 at 1300, the creditors are entitled to: "... the benefit of having the affairs of an insolvent company properly investigated and administered in an orderly fashion in terms of the provisions of the law". 24The Chief Justice went on to hold that in the exercise of the discretion, the question to be decided was what is "fair and just". In a case where a general order is sought, it is not possible to say that there is any disadvantage to any particular person in the making of the order. Of course if proceedings are subsequently brought, there could be such a disadvantage. It follows, that the liquidator seeking the extension must give a satisfactory explanation of the reasons for the delay. 25In Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (In Liq) & Ors (2004) 52 ACSR 103 at [6] Barrett J referring to applications for extensions of time where no particular action is contemplated against any particular person said "An extension of time under Section 588FF (3)(b) in relation to cases of the latter kind it is possible and permissible must be regarded as exceptional. This is made clear in the decision of the Court of Appeal in BP Australia Ltd v Brown and that of the Queensland Court of Appeal in Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17". Those cases do not appear to say that, although in the latter case, Williams JA considered that "as a general rule" there was no power to make blanket extension of time orders. In any event, I consider "exceptional" as used by Barrett J means "not usual" or "out of the ordinary" and was not intended to and cannot in some way confine the New South Wales Court of Appeal decision . 26These liquidations do not appear to me to be very complicated. They are not of the H.I.H type. Certainly there are a number of companies involved but there is no suggestion that proper accounts were not available. Arguments which rely on other work required to be performed in the liquidation need to be considered in the light of the appointed liquidators being members of a very large accounting firm with a large insolvency department presumably able to direct resources as required. 27After some consideration it seems to me that lack of funds is the only reason which could take these liquidations out of the ordinary. Against that however (at least in relation to AHA) it is clear that with or without funds, work was done on investigation of a debt owed to AHA by UFB Guam Hotel Corporation and on enquiries of the receivers to enable tax returns to be lodged. Presumably funds were not available but it was hoped that they would be. There is no evidence from Mr Cathro as to why priority was given to that work. In his administrator's report to the meeting of creditors he stated insolvent transactions questions required investigation but that did not suggest any particular transaction had been identified other than one later explained. 28Further to this, paragraph 83 of Mr Lombe's affidavit of 28 October 2011 states: [83] I have received a number of volumes of material relating to the circumstances and events leading up to the appointment of the CBA Receivers. Although Deloitte and Sparke Helmore have reviewed those volumes for the purpose of the liquidation of the Companies (in particular, for the purpose of preparing reports to creditors), I have not yet undertaken a detailed consideration of those matters or sought legal advice in relation to them. Accordingly, I have not yet formed a view as to whether those events may give rise to a claim against any person or entity involved in those circumstances and events, whether the Companies have suffered loss or damage as a consequence, the further evidence required, the prospects of success and the like. 29This seems to be rather equivocal and it should be borne in mind that the originating process was filed on 26 August 2011. If the liquidator wished to strengthen his case he has had two months to consider the material to which he refers to in paragraph 83. At least so far as SPAC is concerned, funds became available on 2 August 2011 and funds became available in the HPIP and Ce'Nedra liquidations from April 2010. Any surplus funds from these latter two liquidations will flow up to HPIA. 30The question to ask is whether it is fair and just in all the circumstances to grant an extension of time. The applicant must establish that it is. Sufficient reason must be shown for failure to investigate up to the present time. There is no one to argue that it is not fair and just. The Court must decide this in the proper exercise of discretion. No separate arguments were directed to the position of the seven different companies or perhaps more accurately it was not suggested time be extended for one or more but not all the companies. There is no evidence to balance estimated cost of investigations against any possible gain. This is not an easy matter. I do not wish it to be thought that Mr Lombe as liquidator has not done necessary work in the winding up of the companies. But that is not the question to be decided. I have come to the conclusion the case for a general extension has not been made out and I should dismiss the extension proceedings.

Pooling application 31The Liquidator seeks an order in respect of the seven companies under Section 579E of the Act. That section so far as is relevant is as follows: Pooling orders Making of pooling order 579E (1)If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies: (a)each company in the group is being wound up; (b)any of the following subparagraphs applies: (i)each company in the group is a related body corporate of each other company in the group; (ii)apart from this section, the companies in the group are jointly liable for one or more debts or claims; (iii)the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group; (iv)one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group; the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section. Note 1: Section 9 provides that pooling order means an order under subsection (1) of this section. Note 2: See also subsection (12) (just and equitable criteria). Consequences of pooling order (2)If a pooling order comes into force in relation to a group of 2 or more companies: (a)Each company in the group is taken to be jointly and severally liable for each debt payable by, and each claim against, each other company in the group; and (b)each debt payable by a company or companies in the group to any other company or companies in the group is extinguished; and (c)each claim that a company or companies in the group has against any other company or companies in the group is extinguished. Note: For exemptions, see paragraph 579G(1)(a). (3)Subsection (2) applies to a debt or claim: (a)whether present or future; and (b)whether certain or contingent; and (c)whether ascertained or sounding only in damages... (10)The Court must not make a pooling order in relation to a group of 2 or more companies if: (a)both: (i)the Court is satisfied the order would materially disadvantage an eligible unsecured creditor of a company in the group; and (ii)the eligible unsecured creditor has not consented to the making of the order; or (b)all of the following conditions are satisfied: (i)a company in the group is being wound up under a members'' voluntary winding up; (ii)the Court is satisfied that the order would materially disadvantage a member of that company; (iii)the member is not a company in the group; (iv)the member has not consented to the making of the order. Note: For eligible unsecured creditor , see section 579Q Standing (11)The Court may only make a pooling order on the application of the liquidator or liquidators of the companies in the group. Just and equitable criteria (12)In determining whether it is just and equitable to make a pooling order, the Court must have regard to all of the following matters: (a)the extent to which: (i)a company in the group; and (ii)the officers or employees of a company in the group; were involved in the management or operations of any of the other companies in the group; (b)the conduct of: (i)a company in the group; and (ii)the officers or employees of a company in the group; towards the creditors of any of the other companies in the group; (c)the extent to which the circumstances that gave rise to the winding up of any of the companies in the group are directly or indirectly attributable to the acts or omissions of: (i)any of the other companies in the group; or (ii)the officers or employees of any of the other companies in the group; (d)the extent to which the activities and business of the companies in the group have been intermingled; (e)the extent to which creditors of any of the companies in the group may be advantaged or disadvantaged by the making of the order; (f)any other relevant matters. 32If an order is made then an ancillary order is sought under Section 579G(4) which provides that if a pooling order is made the Court may provide for different returns for different creditors or classes of creditors. The rights of secured creditors are not affected by a pooling order. 33The requirements of Section 579E (1) are satisfied as each company is being wound up. The Liquidator relies on Section 579E(1)(b)(iv). I will refer to this as "(iv)".

Facts relevant to this question 34(a) Mr Gary Urwin was at the relevant time a director of REAL, NRP, NRH, AHA, HPI, HPIP, Ce'Nedra, and SPAC. (b) Each of the companies formed part of the joint venture for which REAL was the joint venture vehicle company the shares in which were and are held equally by Bridgecorp Holdings Ltd and Bawden Holdings Ltd, the joint venturers. (c) The Hotels operated by the joint venture in Australia were the North Ryde, Parramatta, and Surfers Paradise Hotels. North Ryde was being developed when the joint venture was established and the Marriott Hotels at Parramatta and Surfers Paradise were acquired by the AHA in 2005. (d) It was the intention in due course to transfer the Parramatta and Surfers Paradise Hotels to AHA, to terminate the Ramada Parramatta Unit Trust and to deregister HPIA, HPIP, Ce'Nedra and SPAC. (e) Under the CBA Bill Facility Agreement of 20 September 2005 AHA was borrower and each of the companies (other than the North Ryde companies) and REAL was guarantor or indemnifier. (f) The accounts for the three Hotels were said to be consolidated. (g) There were intercompany loans to and from companies in what I will call the AHA group and also between AHA and NRP and between NRP and NRH. 35The evidence of Mr Urwin in his affidavit constantly refers to the Hotel Joint Venture which he defined as being "the Companies (that is all 7) formed part of a joint venture between Bridgecorp Holdings Ltd and Bawden Holdings Ltd, the business of which was to develop, own and manage hotels (Hotel Joint Venture)" which developments and hotels ultimately included the North Ryde Hotel, the Parramatta Hotel, the Surfers Paradise Hotel, the Guam Hotel, the Fiji Resort Development and the New Zealand Development approved for a Courtyard by Marriott Hotel in New Zealand. 36So far as consolidation of accounts is concerned the evidence is that the consolidated accounts of REAL included income and expenditure figures of the North Ryde companies, the AHA companies, UFB Guam company and NZ Hotels Holding Ltd. 37The submission of Mr Stevenson SC is that the matters listed in paragraph 34 show that the seven companies in respect of which a "pooling order" is sought, were conducting the Australian aspect of the joint venture between the shareholders in REAL and that this satisfies the requirements of Sections 579(1)(b)(iv) of the Act.

The Law 38Sections 579E (1)(b)(iv) was considered by Barrett J in Allen & Anor v Feather Products Pty Ltd (2008) 72 NSWLR 597. The application there was for a pooling order in respect of three companies in liquidation namely Feather Products Pty Ltd, Snuggle Pty Ltd and Ilume Pty Ltd. Feather manufactured certain products; Snuggle marketed the products; and Ilume employed the workforce and supplied the workers to the other two companies. His Honour held that as "group" was not defined, it took its ordinary meaning of a "collection or plurality" and so long as two or more companies were identified they could constitute a group. 39The evidence in Allen showed that each of the three companies was a related body corporate of each of the other companies thus satisfying the requirements of Section 579E(1)(b)(i) of the Act. However, Barrett J went on to consider whether (iv) was satisfied. His Honour said at paragraph [14] that "carried on jointly" does not require each company in a group to participate in each activity and that separate acts of separate companies acting together for a common purpose was sufficient. Paragraph 19 of his judgment is as follows: [19] In the present case, it is sufficiently clear that Feather, Snuggle and Ilume were parties to an arrangement under which each contributed part of what was required to carry on a single business. Ilume provided human resources, Feather provided manufacturing facilities and Snuggle attended to the sale of the manufactured product. The total business of manufacturing and selling feather and down products was carried on by them jointly. And those of them that owned relevant physical property caused it to be used in the joint enterprise. The circumstances can thus be seen to be as described in s 579E(1)(b)(iv). 40Barrett J then went on to hold that the pooling provisions introduced into the Act commencing after 31 December 2007 did not apply so that the pooling order sought could not be made. It probably follows that anything else said was obiter. In any event, I accept his Honour's conclusions as to "carry on jointly" and would follow them. The question is how to apply this construction of the relevant legislation to the present case. 41The North Ryde Hotel was not subject to any charge entered into pursuant to the 2005 Bill Facility Agreement. NRP was not a party to that agreement. Its assets were charged in favour of CBA under a facility agreement dated 27 February 2004 between the Bank, NRP, NRH, BCI Limited and Bridgecorp Holdings Ltd the latter being one of the joint venture companies. According to the evidence of Mr Lombe, the North Ryde facility was paid out on sale by the receivers of the North Ryde Hotel. 42Assuming all seven companies are a group, because they are all identified as required by the decision of Barrett J, and further assuming for the moment that because the assets of both NRP and NRH were subject to the CBA 2004 charge, and also because there were intercompany loans, it could be held that the property of each company was used in connection with a business, it seems to me the business would have to be one in which only the North Ryde companies were involved. This is not the case. There is no evidence to suggest that the North Ryde assets were used by any of the AHA group companies apart from some loans between AHA and NRP not clearly identified. For this reason alone (iv) does not apply. 43The wording of (iv) raises an additional problem as the words "one or more companies in the group own particular property that it is or was used or for use by any or all of the companies in the group" speaks in the present tense, as do the words in (i) (ii) and(iii). The wording is not "own or owned" and this should be compared with "is or was used". The total borrowing under the 2005 AHA facility was $35M. The liability of AHA was guaranteed by each of HPIA, HPIP, Ce'Nedra and SPAC. Each of those companies gave a Deed of Charge over all its present and future assets to support the charge. SPAC mortgaged its hotel property as particular security. HPIP may have mortgaged the Parramatta Hotel land to support its guarantee although this is not clear as the document in evidence does not identify any mortgaged land. I do not consider all assets of the company could be "particular property". 44I do however consider that SPAC did mortgage the Surfers Paradise Hotel to the CBA to support the borrowing and to that extent that property was used in connection with a business carried out by the AHA companies but not the North Ryde companies. However the Surfers Paradise Hotel has been sold and is no longer particular property now owned by SPAC. The ordinary construction of (iv) requires the property to be now owned not previously owned so the particular mortgage transactions do not assist under (iv). The evidence is that the property now held in the companies is the surplus money available after sale of the Parramatta Hotel and any surplus from sale of North Ryde Hotel if the claim of Barcroft Holdings to be secured creditor is not successful. These surplus funds are not particular property within (iv). As I have said if there were any particular property it no longer exists. Again the requirements of (iv) are not made out. 45Leaving aside these difficulties and assuming either that amounts of money being surplus monies after hotel sales could amount to particular property or that I am wrong about the present tense meaning, the question is whether that property was used by the seven companies of the group in connection with a business scheme or undertaking carried on jointly by the companies in the group. 46Had REAL and its subsidiaries in New Zealand been Australian companies then I consider it likely that a pooling order could have been made covering the companies and all its subsidiaries. However I do not think the Australian aspects of the joint venture can be separated and considered as a separate business or undertaking. While it is possible, although I do not decide this, that a pooling order could have been made for AHA in its subsidiaries, it is the inclusion of the North Ryde companies that in my view would make it impossible to make the orders sought. The business of the North Ryde companies was to own and manage the North Ryde Hotel for the ultimate benefit of REAL its holding company. The business and undertakings of the AHA companies when taken together, was to own and manage or lease the Surfers Paradise and Parramatta Hotels again for the ultimate benefit of REAL as the ultimate holding company. The North Ryde business was not part of an undertaking carried on jointly with the AHA companies to produce a particular outcome. The businesses were separate businesses intended together with the businesses of the New Zealand companies, to produce an outcome, namely profit for the joint venture company. 47This is I think made clear by paragraph 75 of the affidavit of Mr Urwin which I set out below: [75] During the course of the events outlined above, I viewed the ownership and operation of the North Ryde, Parramatta and Surfer's Paradise Hotels as being component parts of the one business; being that of conducting the Hotel Joint Venture. Each of the companies associated with these Hotels were, to my mind, vehicles for the progression of that joint venture. Had the receivers and managers, and subsequently the liquidators, not been appointed then, as is set out above, it is most likely that ownership of the various hotels would have been consolidated so as to most efficiently conduct the joint venture. That was my intention. I have explained what he means there by the hotel joint venture. 48For the reasons I have given, I have decided that the pooling order sought cannot be made. 49In these circumstances it is not necessary to consider whether it would be just and equitable to make such an order. However I think it is proper to state that the evidence establishes that provided the ancillary orders sought were made the return to creditors in those companies where a dividend of 100 cents would not be available without pooling would be increased as a result of pooling. To a large extent the benefits would arise because the Liquidators would have to do considerably less work, the Barcroft Holdings Security dispute would be resolved and numerous cascading dividends would not be required and the winding up of the companies would be completed in a much shorter time. 50The remaining question is that of the expenses and remuneration of the administrators and liquidators. I have indicated that further submissions are required on this and whether consent or joinder of other parties is required. In those circumstances, it is convenient to determine the other matters now and to stand over the outstanding questions.

ORDERS 51The Court makes the following orders: (1)In both proceedings 2011/275121 and 2011/335763 Order the matters be heard together the evidence in one being evidence in the other so for as relevant. (2)In proceedings 2011/275121 Order the originating process be dismissed. The costs of the plaintiff be costs in the winding up of the companies and borne by the companies in equal shares. (3)In proceedings 2011/335763 Order the claims in paragraphs 1 and 2 of the originating process be dismissed. Stand over the determination of the remaining claims for further argument.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 November 2011