This is an application for orders under s 482 of the Corporations Act 2001 (Cth) that the windings up of two companies be terminated.
The first plaintiff is Mr Sarkis Nassif, who is the sole shareholder in Avenue Investment Capital Pty Ltd (In Liquidation) (Avenue), and he applies for the order in respect of that company.
The second plaintiff is Holdmark Holdings Pty Ltd, which is the sole shareholder in 82-84 Belmore Street Pty Ltd (In Liquidation) (Belmore), and it applies for the order in respect of that company.
Mr Marc Ryckmans, solicitor, appeared for both plaintiffs on the application.
Mr Michael Nicholas was appointed as the sole director of both of the companies, now in liquidation, on 2 April 2012. Mr Nicholas died shortly after the companies were placed in liquidation. Neither company now has a director. Mr Ryckmans invited the court, if it is prepared to make the orders terminating the winding up of the two companies, to make an additional order that the plaintiffs do all things reasonably necessary forthwith to appoint Mr Nassif as a director of each company. Mr Nassif consents to that course.
Belmore was incorporated on 16 August 2006, as a special purpose vehicle to undertake a commercial and residential land development at 82-84 Belmore Street, Meadowbank (the Property). The development involved the demolition of an existing brick warehouse and factory, and the construction of 4 mixed-use buildings, comprising 346 residential strata units, 1 medical centre, 1 child-care centre and a gym.
Construction of the project was undertaken by a related entity, Avenue. Avenue was incorporated on 13 April 2006.
The development took place on land originally acquired by another related entity, Holdmark Investments Pty Ltd, which sold the land to Belmore.
Between January 2008 and September 2011, Belmore sold or transferred 346 residential units and 2 commercial lots to various buyers, including to certain related entities of the companies.
On 3 April 2012, the plaintiffs respectively resolved that Avenue and Belmore be placed into liquidation and that Mr Daniel Juratowitch and Mr Ozem Kassem be appointed liquidators of each company.
The initial report to creditors prepared by the liquidators in respect of Belmore, dated 13 April 2012, stated that the external accountant had advised the liquidators that the predominant reason for the company's failure, which led to the appointment of the liquidators, was that the company purchased the Property on 7 December 2006 on the basis that the purchase of the Property was on a 'Going Concern' basis, thus rendering the transaction GST free. However, the Australian Taxation Office (ATO) had recently advised that the acquisition of the Property was not on a Going Concern basis, and the sale had been deemed as a taxable supply. Further, Belmore was unable to claim any input tax credits in respect of the acquisition of the Property, because any such claim was outside the four year period in which they were permitted. The ATO issued Belmore with a creditor's statutory demand under s 459E of the Corporations Act.
The external accountant further advised that additional, albeit minor, reasons for Belmore's failure were; first, that additional and non-accounted for building and development costs had been incurred by Avenue, which had a flow on effect to Belmore; second, the unit sale prices received by Belmore had been reduced as a result of the Global Financial Crisis; and third, Belmore had suffered high finance and holding costs associated with the sale of the units.
The liquidators' initial 13 April 2012 report to creditors of Avenue included a statement that the external accountant had advised the liquidators that the reasons for the failure of the company included; first, the failure of Belmore; second, the ongoing effect of the Global Financial Crisis; third, low profit margins associated with the projects undertaken; and fourth, an increase in material costs.
The liquidators initially reported, based upon the director's RATA, that Belmore had nil assets and unsecured creditors of $5,424,966.80. Those creditors, as advised by the director, were the ATO ($418,795.80), Holdmark Finance Co Pty Ltd (Holdmark Finance) ($5,000,000), and two other creditors of $671 and $5500. The equivalent position for Avenue, also based upon the director's advice, was that the company had nil assets and unsecured creditors of $15,196,756. Those creditors were the ATO ($5,190,246.93), Holdmark Finance (estimated $10,000,000), and other creditors of $1008.70 and $5500.
After the commencement of the winding up of the two companies, the ATO conducted an audit of the taxation affairs of Mr Nassif and all of the companies and entities associated with him.
In their second report to creditors concerning Belmore dated 22 December 2014, the liquidators reported that the ATO had lodged a proof of debt for $1,285,527.84. However, the ATO had provided the liquidators with a clearance notice that indicated that Belmore's taxation liabilities were in the order of $33,348,484.84. That amount comprised the debt the subject of the proof of debt, primary income tax liability of $16,186,562, GST primary tax liability of $2,135,128, and administrative penalties at 75%.
The liquidators' second report to creditors concerning Avenue dated 16 January 2015 advised that the ATO had lodged a proof of debt for $5,187,190.77, and had advised that additional taxation liability amounted to $37,218,052.63, made up of income tax primary liability of $12,867,186.02, GST primary tax liability of $8,400,272.63, plus administrative penalty at 75% on both.
The liquidators delivered a third report to creditors of each of the companies on 3 July 2015. The liquidators advised the creditors that Mr Nassif and his related companies and entities had reached an in principle settlement of all of the ATO's outstanding claims, which had been confirmed to the liquidators by the ATO. The terms of the proposed settlement were confidential, and were not advised to the liquidators.
Each of the reports to creditors contained a paragraph in the following terms:
It is noted that whilst the terms of the settlement between the ATO and the wider group of companies are confidential, we have received confirmation that a key term of the heads of agreement as it relates to the Company is that both the Company and [Belmore or Avenue, as the case may be], will be required to have the liquidation of these entities stayed/terminated, resulting in control of each of these companies returning to the respective directors.
It is not clear whether this requirement was agreed at the instance of the ATO on the one hand, or Mr Nassif and his companies and entities on the other. That is apparently not a matter known to the liquidators. Mr Ryckmans was not in a position to provide any clarification to the court. Mr Ryckmans did, however, candidly inform the court of his understanding that, while the settlement agreement required the present application to be made, its effectiveness was not conditional upon the application being successful.
In the circumstances, I should not speculate concerning the reasons for the settlement including a requirement that an application be made to terminate the winding up of both companies. The confidentiality of the terms of settlement has extended to the plaintiffs being precluded from providing a copy of the relevant settlement agreements to the court.
Mr Nassif has sworn an affidavit in which he states that in around July 2015, he and his companies and entities entered into a settlement with the ATO, including in respect of the claims made by the ATO against Belmore and Avenue. I take this evidence to mean that the in principle settlement referred to by the liquidators had become unconditional.
In his affidavit sworn on 24 November 2015, Mr Kassem, one of the liquidators, confirmed that the settlement had been reached and that "all of the proofs of debt lodged in the administrations of each of Belmore and Avenue have been withdrawn and there are presently no creditors of either company".
Mr Kassem advised the court that the liquidators do not oppose the application of the plaintiffs to terminate or permanently stay the windings up of Belmore and Avenue.
All that the evidence discloses is that all creditors have withdrawn their proofs of debt in each of the windings up.
I am satisfied that it is safe to find on the basis of the evidence before the court, that the ATO has reached a final settlement with Belmore and Avenue, as well as the other Nassif companies and entities. It is reasonable to infer that the ATO would not have withdrawn the proofs of debt that it lodged unless it was satisfied that it had come to some final arrangement with the Nassif interests. Furthermore, although the confidentiality of the settlement agreement precluded the ATO from giving the liquidators full information concerning that agreement, I am satisfied that the ATO would not have provided the information to the liquidators that is reflected in their third reports if that information was not correct.
I do not understand Mr Kassem's evidence to establish that, as a matter of law, steps have been taken that have the effect that the companies are not indebted to the creditors who originally made claims against them. His evidence goes no further than to say that, whatever proofs of debt were lodged, they had been withdrawn.
It appears from the second reports by the liquidators to creditors, that the two minor debts claimed by unsecured creditors against each of the two companies, to which I have referred to above, were the subject of formal proofs of debt. Mr Nassif described in par 8 of his affidavit the position of the minor creditors in terms of "withdrawals of the debts or claims lodged by [the two creditors]" and "there are no longer any outstanding creditor claims in the liquidations of either company". He did not say that the claims had been paid, or compromised, but only that they had been withdrawn. That said, in the case of each of the two companies, the two claims are so small as to be de minimus.
The position is even less clear in relation to the debts claimed by Holdmark Finance, which is on the evidence related to the two companies. The first reports to creditors by the liquidators state the debts to be, as advised by the director, $5,000,000 in respect of Belmore and $10,000,000 in respect of Avenue.
The liquidators have dealt with the claim by Holdmark Finance in their second reports to creditors.
Concerning Belmore, the liquidators noted that the director, as well as Mr Nassif, had advised that the company was indebted to Holdmark Finance for approximately $5,000,000. The liquidators were in possession of documents that showed that Holdmark Finance was a creditor of the company in the amount of $6,834,973.03, "however it is also noted that the same documents referred to above, disclose that Holdmark Finance owes the Company $127,689,986.60". The liquidators stated that they were accordingly of the opinion that Holdmark Finance was not a valid creditor of Belmore, but rather was a substantial debtor. The liquidators removed the debt of $5,000,000 from their preliminary list of creditors of Belmore.
The liquidators noted in relation to Avenue that they had been provided with Avenue's financial statements, as well as the financial statements of Holdmark Finance, which indicated that Holdmark Finance was a creditor of Avenue in the amount of $7,911,039. The liquidators had not to date received a proof of debt from Holdmark Finance. The liquidators retained the original estimate of $10,000,000 as the debt owed by Avenue to Holdmark Finance in their preliminary list of debts of Avenue.
The legal position in relation to the indebtedness of the two companies to Holdmark Finance, or of that company to the two companies, is unclear on the evidence. The liquidators' opinion that Holdmark Finance was indebted to Belmore could not, on the information available to the liquidators, have been a considered opinion upon which the court could safely rely. The issue is unresolved. On the face of the available evidence, the appearance is that Avenue is indebted to Holdmark Finance. It cannot even be said that Holdmark Finance has withdrawn a proof of debt. There is no evidence that any indebtedness as between the companies and Holdmark Finance, one way or the other, was extinguished as part of the settlement with the ATO. Nor is there any evidence that in strict legal terms neither company is now indebted to Holdmark Finance.
As part of his evidence, Mr Nassif put before the court financial statements for each of Belmore and Avenue prepared by an accountant for the Nassif Group of companies, Mr Neil Monsted. The financial statements were "prepared on the basis of the settlement having been concluded between the Nassif Group of companies (including Belmore and Avenue) and the ATO and on the basis that all creditor claims have been withdrawn from the liquidations of Belmore and Avenue".
The balance sheet for Belmore as of September 2015 shows net assets of nil, represented by nil assets and nil liabilities. The same is true for Avenue. In the case of each company there is an outline balance sheet as of June 2012, which, in a manner that is not at all clear, appears to recognise certain tax liabilities, as well as a liability of Belmore to Holdmark Finance of $6,834,973, and a liability of Avenue to Holdmark Finance of $7,154,052. The basis of these liabilities is not established. Nor is the basis of the amounts of the tax debts that are recorded. The financial statements are consistent with journal entries being made on 28 October 2015 that have the effect of extinguishing all of the debts.
I should record that the financial statements for Belmore, in a manner that is not explained, describe the journal entries that lead to the adjustment to the company's financial position as "being write off debts as per ATO settlement". The equivalent description in the financial statements for Avenue is "being write back as per court proceedings". The reason for these different descriptions is not apparent. The description in the case of Belmore would suggest, if taken at face value, that the debt owed by Belmore to Holdmark Finance had been written off as part of the settlement with the ATO. If this were true, it has obviously not been proved by this evidence. The reference to "court proceedings" in the financial statements for Avenue is entirely unexplained.
Two things may be said about the financial statements. First, they are unexplained and unsubstantiated. Secondly, if they represent reality, they show that both companies, the subject of the present application, have no assets and no liabilities.
The question must be asked, why are the plaintiffs incurring the costs of making this application to terminate the windings up of two companies which have no assets and no liabilities? The apparent answer is that, for some unexplained reason, there is a term in the settlement agreement with the ATO that requires the application to be made.
The liquidators' second reports to creditors also deal with a number of uncommercial transactions that were investigated by the liquidators, proceedings instituted by the liquidators, and the results of those proceedings.
In Belmore's case, the liquidators found that Belmore had transferred 30 properties to related entities. The combined sale price was $7,740,500. The liquidators referred to certain evidence that would support a conclusion that the properties were sold at an undervalue. Further, the prices for properties was not paid in cash, but by crediting the prices against a debt owed by Belmore to Holdmark Finance.
The liquidators stated that the transfers may constitute voidable transactions under Part 5.7B of the Corporations Act, on the basis that the transactions were; first, undertaken below the fair market value of the properties as at the date of their transfer; and, secondly, no valid purchase consideration was paid to the company by the purchasers for the transfer of the properties.
Twenty-two of the properties had been on sold, and the liquidators lodged caveats against the title to 8 of the properties. Lapsing notices were served by the registered proprietors, and the liquidators commenced proceedings in the Supreme Court for orders extending the caveats.
The liquidators compromised their claims with one purchaser in respect of a number of properties upon payment to the liquidators of the sum of $750,000.
The liquidators issued orders for production and examination summonses to Belmore's current and former officeholders. The public examinations were scheduled to be conducted in the period 8 to 12 December 2014. The public examinations were deferred to a later date as a term of the settlement to which I have referred above.
In relation to Avenue, the liquidators identified a transfer of that company's assets to a related company, Holdmark NSW Pty Ltd. The book value of the assets was $443,016. The payment for these transfers again took the form of a credit against Avenue's debt to Holdmark Finance.
The liquidators discovered that, for the year ended 30 June 2012, a trust distribution in the amount of $36,826,748 was declared in favour of Avenue. The amount of the distribution was not paid in cash to Avenue. The trust distribution was offset against Avenue's debt to Holdmark Finance. Mr Nassif was the director of the trustee that made the distribution. The liquidators discovered that the distribution was declared 3 months after the commencement of the winding up of Avenue. The liquidators concluded that the amount of the trust distribution remained payable to Avenue.
Mr Kassem's affidavit establishes that, if orders are made terminating the winding up of the companies, all fees, expenses and other entitlements of the liquidators will have been provided for.
On 15 October 2015, Mr Ryckmans notified the Australian Securities & Investments Commission (ASIC) of the application that is now before the court. ASIC has not responded, or appeared to oppose the making of the orders sought.
The plaintiffs seek orders under s 482 of the Corporations Act, which relevantly provides:
(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
(1A) An application may be made by:
(a) in any case--the liquidator, or a creditor or contributory, of the company; or
…
(3) Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up.
(4) The costs of proceedings before the Court under this section and the costs incurred in convening a meeting of members of the company in accordance with an order of the Court under this section, if the Court so directs, forms part of the costs, charges and expenses of the winding up…
Mr Ryckmans submitted, and I accept, that the following summary of the relevant principles made by Brereton J recently in Re Glass Recycling Pty Ltd [2014] NSWSC 439 accurately reflects the manner in which the court is required to approach the application of s 482:
[15] The considerations that inform the exercise of the court's discretion to terminate a winding up pursuant to Corporations Act, s 482, have been referred to in many cases [for example, Re Warbler Pty Ltd (1982) 6 ACLR 526; Mercy and Sons Pty Ltd v Wanari Pty Ltd [2000] NSWSC 756 ; (2000) 35 ACSR 70, [47]ff; Anderson v Palmer [2002] NSWSC 192, [6]; Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292 ; (2006) 57 ACSR 103, [17]; Re Yeling Group Pty Ltd [2012] NSWSC 74, [8]-[11]; In the Matter of TMPL Pty Ltd (in liq) [2012] NSWSC 1059, [10]; In the Matter of 311 Hume Hwy Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465, [4]]. They include:
The attitude and interests of the creditors, including future creditors whose interests might be prejudiced if the company were released from winding up;
The interests of the liquidator, particularly with regard to remuneration;
The interests of contributories, so that a stay or termination will not generally be granted unless each member either consents to it or is bound not to object to it, or his or her rights are properly secured;
The public interest, including matters of commercial morality, and whether all the company's debts have been discharged;
The company's trading position and general solvency; and
Any explanation for any non-compliance with statutory duties and of the circumstances leading to the winding up.
[16] The relevant considerations were summarised by Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526, as follows (at 533):
1. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary & Edmonton Land Co Ltd (in liq) [1975] 1 WLR 355 at pp 358-9 per Megarry J. See also s 243 of the Act [ie Companies Act 1961].
2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3. The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows, (above) [[1974] VR 689]; Re Data Homes Pty Ltd (above) [ [1971] 1 NSWLR 338]; Law of Company Liquidation (above) at p 395.
4. The attitude of creditors, contributories and the liquidator is a relevant consideration: s 243(1); Re Calgary & Edmonton Land Co Ltd (in liq), (above).
5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding up is sought: In Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598.
6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd, (above) [[1903] 2 Ch 174].
7. The general background and circumstances which led to the winding up order should be explained: Krextile Holdings Pty Ltd v Widdows, (above).
8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile Holdings Pty Ltd v Widdows, (above).
[17] The list is non-exhaustive, as has been emphasised in Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 725; Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160, [5]; and Von Riesefer v Main Freight International Pty Ltd [2009] VSCA 129 ; (2009) 73 ASCR 427, 438.
[18] Essentially, on such an application, the court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists. Where the winding up was on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not, or is no longer, insolvent. This is usually the most significant consideration [Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797, [24]]. Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidators' costs and expenses are covered, and the members agree [Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64 ; (2010) 77 ACSR 84, [58]; Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280].
[19] However, the factors to which the cases refer demonstrate that more is necessary than merely establishing that the state of affairs that required the company to be wound up no longer exists. This appears from, inter alia, the references to "commercial morality" as a relevant consideration, and also from references to the interests of future as well as extant creditors. These factors illustrate that the second broad consideration that informs the exercise of the court's discretion - once satisfied that the state of affairs that originally required winding up no longer exists - is that it would be reasonable to entrust the affairs of the company, once again, to the directors, under whose management it previously failed.
[20] While there are cases in which it has been pointed out that, in the absence of an order disqualifying them from continuing to carry on business through a new entity, the same directors could simply incorporate another company to do so [see, for example, In Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280, [38]], the persistent reference in the cases to matters such as commercial morality and other considerations that relate to the future conduct of the company's affairs demonstrate that, where the court's discretion to terminate a winding up is invoked, it seeks some comfort that such a state of affairs is not likely to recur in the foreseeable future. This concern with the future conduct of the affairs of the company is manifest from cases such as Re Data Homes Pty Ltd [1972] 2 NSWLR 22 at 27 (where Mason JA was concerned that while a company was perhaps technically solvent due to an agreement with its creditors, its liabilities nonetheless greatly exceeded its assets) and Krextile Holdings Pty Ltd v Widdows [1974] VR 689 at 695 (in which Gillard J referred to the circumstance that the company could continue its business "without any risk to any creditor or any other person"). These cases were considered by Judd J in Kitchen Dimensions (at [28]), where his Honour identified their focus as, broadly, "the likely impact on future creditors".
[21] In Re Skay Fashions Pty Ltd (in liq) (1986) 10 ACLR 743, Tadgell J observed (at 746) (emphasis added):
It is a clear axiom that insolvent companies should be wound up and that they should stay in liquidation unless solvency can be demonstrated. If solvency could be demonstrated here, it would be no more than bare solvency. …
[22] Accordingly, on an application of this kind, the court requires that there be evidence that demonstrates not only that the company is, but also that it is likely to remain, solvent. Because on such an application the company is not involved in rebutting a presumption of insolvency, the strictures of cases such as Expile Pty Ltd v Jabbs Excavations Pty Ltd [2003] NSWCA 163 ; (2003) 45 ACSR 711, to the effect that a company seeking to establish solvency must lead the fullest and best "evidence" of the company's financial position do not apply in their full rigour. But as Barrett J (as his Honour then was) observed in Pine Forests of Australia (Canberra) Pty Ltd [2010] NSWSC 1127 (at [3]), a central question is:
Whether the company's financial health is such that it may safely be released from the form of external administration focussed mainly on the interests of creditors and returned to the mainstream of commercial life where it may, under the control of its directors, incur new debts that have to be paid as and when they fall due. A capacity to operate in a financially sound and responsible way and to service foreseen indebtedness is central to the inquiry.
[23] Sometimes solvency may be demonstrated, without resort to expert evidence, by proof of the actual balance sheet position of the company. So called expert accountancy evidence, when it amounts to no more than an opinion that on the state of the balance sheet the company is solvent, adds nothing. Where the future plans of the company are not mature, it may not be possible to produce, or reasonable to expect, cash flow predictions demonstrating solvency for the foreseeable future. However, where a company is intended to resume trading (and, therefore, presumably to incur debts) and it is only "barely" solvent in the sense that it has a "zero" balance sheet, with no liabilities but virtually no assets, the court could have no confidence that it would not once again become insolvent as soon as it incurred its first debt.
I have also had regard to the discussion of the "commercial morality" issue by Judd J in Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280 at [13] to [31], with which I respectfully agree.
Mr Ryckmans submitted that the requirements for the making of orders under s 482 have been established. He submitted that the two dominant considerations that inform the exercise of the court's discretion in making orders under this section are; first, the solvency of the company; and secondly, the public interest consideration.
I do not agree that the present evidence is sufficient to justify the court making the orders sought.
The first question to be addressed is the evidence of the solvency of both of the companies. Although the liquidators have not opposed the making of the orders, and Mr Kassem has given evidence that "there are presently no creditors of either company", he has not expressed a considered opinion as to the solvency of the companies, and he has not referred to evidence that would establish that legally the companies have no creditors. I appreciate, as recorded above, that the liquidators formed the view that Belmore was not indebted to Holdmark Finance, but the evidence in the reports to creditors suggested that Avenue was a debtor of that company. As I have observed, the court does not have proper evidence to establish that whatever intercompany loans existed have been extinguished.
If, indeed, both companies have nil assets and nil liabilities, they could not be insolvent at any time when that financial situation exists.
However, as I put to Mr Ryckmans in argument, there is no evidence at all as to what, if anything, the plaintiffs propose as to the future commercial activities of the companies. The absence of evidence goes so far as to cause doubt as to the utility of the present application from a commercial perspective, save for the consideration that the application is apparently a requirement of the settlement with the ATO.
In the absence of properly considered evidence concerning the future activities of the companies, the court must consider it to be possible that they will engage in some commercial activity. Nothing has been shown to the court about any intention to capitalise the companies. It follows that, if either of the companies engages in any activities that involve incurring debts, the companies will be at risk of immediately becoming insolvent.
My primary concern, however, is the absence of evidence to prove that the true legal position is that the companies have no debts; rather than that apparent creditors have either not lodged proofs of debt, or have withdrawn them. In any event, the evidence suggests that Holdmark Finance did not lodge any proofs of debt.
There is some evidence in the liquidators' reports to creditors that the companies engaged in questionable transactions involving transfers of assets to related parties without receipt of proper consideration in cash, but rather the receipts were treated as being credits against debts owed by the companies to Holdmark Finance, where the existence of those debts was also questionable. In the circumstances, I would not exercise my discretion in favour of ordering that the windings up of the companies be terminated unless I was first provided with proper evidence to establish that the companies do not owe any debts, particularly to Holdmark Finance. As Barrett J (as his Honour then was) said in Anderson v Palmer [2002] NSWSC 192 at [21], if the winding up is terminated, any debts of the companies that exist "will come fully to life, according to their terms".
I would also wish to have satisfactory evidence as to the future activities, if any, in which the plaintiffs intend to cause the companies to engage, as well as how the companies will be financed to engage in those activities. As the evidence stands, the court could only be confident that the companies will remain solvent if the court could be sure that the companies will not engage in any commercial activities in the future. In the complete absence of evidence on that subject, the court cannot be confident of that crucial matter.
I am also not satisfied on the present evidence that I should make the orders sought, because of a real issue of whether the companies were used, or conducted their activities in a manner, which exhibited a level of commercial immorality that would justify refusal of the orders.
There are grounds for questioning whether the taxation affairs of the companies were conducted having proper regard to the obligations of the companies to comply with the relevant taxation laws. I appreciate that the primary reason for the winding up of Belmore may have been the disallowance of a claim that the purchase of the Property did not involve a taxable supply, and that expectation was disappointed by the position adopted by the ATO. However, the evidence suggests that both companies may have been seriously delinquent in relation to aspects of their taxation obligations. It is unfortunate that the apparent absolute confidentiality of the settlement agreement with the ATO impedes the illumination of this question.
On the face of it, the liquidators had proper cause for concern in relation to the propriety of the way in which the companies had conducted their affairs, in the circumstances that I have outlined above based upon the reports to creditors. Proceedings have been instituted. I am not sure whether all, or only some, of those proceedings have been settled. Public examinations have been deferred.
Commercial common sense suggests that one objective of the making of the present application is to bring those proceedings, enquiries and examinations to an end.
That is not necessarily an inappropriate outcome, as it must be viewed in the whole context that steps have been taken, apparently, to satisfy all unrelated creditors, and the court should infer in this context that the creditors have all been capable of looking after their own interests, and the benefit that the creditors have received by payment or compromise may justify the plaintiffs being put in the position where they can apply for the windings up of the companies to be terminated.
I stress that my concern is the absence of sufficient evidence, rather than any positive finding of the existence of conduct that would cause the court to exercise its discretion against making orders to terminate the windings up.
I also recognise that, if all creditors with claims against the companies have been properly satisfied, by payment or compromise, it may be that the interests of the creditors have been properly dealt with. In that regard, the court should be careful not, so to speak, to saddle the contributories, the companies, and even the liquidators with an obligation to continue the windings up, where that may have no practical result other than to substantially increase the costs of the windings up for no commercial benefit or return to the parties who have real interests in the activities of the companies, save for the exploration of issues concerning commercial morality.
I do not discount the fact that the liquidators do not oppose the making of the orders, and ASIC likewise has not appeared in the proceedings to state its opposition.
At the end of the day, I have simply not been persuaded by the evidence that the plaintiffs have in a positive way justified the making of orders to terminate the winding up of each company.
On the basis of the evidence as it stands, I would dismiss the application.
I will not make that order at this time. When I publish my reasons for judgment, I will give the plaintiffs an opportunity, should they wish to avail themselves of it, to supplement the evidence that they have put before the court. It may well be, even with the impediment of the absolute confidentiality that appears to cloak the settlement agreement with the ATO, that further evidence can be put before the court that will dispel the concerns that I have expressed above, at least sufficiently to justify my discretion being exercised in favour of making the orders. It is possible that the liquidators may be able to provide more positive evidence that may support the appropriateness of the windings up being terminated. There are other issues that I have flagged above that require further attention.
[2]
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Decision last updated: 18 December 2015