- Aon Risk Services Australia Ltd v Australian National University

Supreme Court of NSW|2024-05-13|Before: Black J

Solicitors: McCullough Robertson Lawyers (Plaintiff) Paramonte Legal (Defendant) File Number(s): 2024/137176

Amendment application

The Plaintiff, Toplace Pty Ltd (admin apptd) ("Toplace") initially sought an order for the winding up of JKN Hills Pty Limited (controllers appointed) ("JKN"), an associated company, on the ground of presumed and actual insolvency of JKN. That application was commenced on 12 April 2024 and, on 22 April 2024, I set it down for hearing today, 13 May 2024, with an estimated length of hearing of about an hour. At that point, no party had intervened to oppose the application.

JKN's adjournment application and affidavit evidence in that application

I now turn to JKN's application seeking an adjournment of Toplace's application to wind up JKN on the ground of insolvency or on the just and equitable ground, either for the long period initially sought by JKN or the shorter period which is alternatively proposed by Mr Anderson in submissions.
I first refer to the affidavit evidence, before turning to the applicable principles and the determination of the application. Toplace relies on the affidavit dated 12 April 2024 of Ms McCallum, who is a registered liquidator and one of the voluntary administrators appointed to Toplace. She there outlines the position in respect of the voluntary administration of Toplace and the relationship between, inter alia, Toplace and JKN. She refers to steps which have been taken, without success, by the voluntary administrators to obtain company records from Mr Nassif, who was a (or the) director of Toplace and is the sole director of JKN. She also refers to Toplace's claim against JKN, and to the building contract which is exhibited to her affidavit by which JKN agreed to pay Toplace an amount in excess of $111.5 million (excluding GST) as the contract price for Toplace's obligation to construct a development at Castle Hill. Ms McCallum also refers to invoices issued by Toplace to JKN which are exhibited to her affidavit; to a "payment" made by JKN by a journal entry, in the amount of $7,123,190 to reduce the amount owing by JKN to Toplace; and to the amalgamation of intercompany debts which may have subsequently reduced the amount owed by JKN to Toplace to about $69.9 million described as the " post amalgamation" amount. Ms McCallum's evidence is that, other than for the single payment by journal entry to which she refers, Toplace has not received any payment for the invoices it issued. Ms McCallum's evidence is of particular significance, because it was served on JKN at the commencement of the proceedings, and I will refer below to the extent of JKN's evidence in response to it.
By an affidavit dated 8 May 2024, Ms Miller proves service of the proceedings, inter alia, upon Mr Nassif, JKN's director, on 15 April 2024 by email. There is no doubt that Mr Nassif received the documents that were served on him, because he responded by email requesting the exhibits and annexures to Ms McCallum's affidavit and characterising the proceedings generally, or possibly the service of Ms McCallum's affidavit without its exhibits, as "a joke". On 15 April 2024, the same day as JKN (inter alia, through Mr Nassif) had been served with the proceedings and Mr Nassif had requested access to those documents, Toplace's solicitors sent him a dropbox link providing access to those documents. It is therefore apparent that JKN, at least by its director Mr Nassif, had access to Toplace's primary evidence in the proceedings from 15 April 2024, nearly a month ago. On 23 April 2024, Toplace's solicitor advised Mr Nassif that the winding up application had been set down for hearing today, 13 May 2024.
Toplace also relies on the affidavit dated 13 May 2024 of its solicitor, Mr Barr, which establishes the urgency of the winding up application, and forests out the chronology of JKN's opposition to the application. Mr Barr also refers to the service of the application on JKN, both to its registered office, to Mr Nassif and to the controllers that had been appointed to it, and to the further communication from Mr Nassif on 15 April 2024 indicating his receipt of the application to which I referred above. Mr Barr's evidence is also that, until he received a letter dated 8 May 2024 from JKN's solicitors, he was not advised of any intent by JKN, on the instructions of its controllers or Mr Nassif, to appear in the proceedings.
The documents annexed to Mr Barr's affidavit include a letter dated 8 May 2024 from JKN's solicitors, which indicate that they had "recently received instructions" to act on behalf of JKN and certain associated parties (which no longer seek to be involved in respect of the application) and requested copies of documents. I pause to note that the documents which JKN's solicitors requested were, at least in large part, documents that had already been served on JKN at least three times, to its registered office, to its controllers and to Mr Nassif. That letter did not indicate the role which JKN sought to play in the application. By a further letter dated 9 May 2024, JKN's solicitors indicated, without any substantial elaboration, that JKN, presumably by Mr Nassif, had instructed them that it disputed the debt "as particularised" in Ms McCallum's affidavit of 12 April 2024 was owed or due and payable. The solicitors then advanced no affirmative proposition that no debt was due and payable by JKN to Toplace. By a further letter dated 10 May 2024, in response, Toplace's solicitors rightly noted that JKN's solicitors had provided no explanation as to why JKN disputed the debt that it owed to Toplace.
Importantly, Mr Barr's affidavit also annexes a general ledger, apparently a business record, which records the amount of the debt owed by JKN to Toplace, commencing at an amount in the order of $193.6 million, and reducing to an amount in the order of $83.3 million. That document is important, because, prima facie, it evidences the position in respect of that debt as between JKN and Toplace, although I will refer below to other business records which indicate other quantifications of that debt at various times.
Turning now to the basis on which the adjournment is sought, JKN relies on the affidavit dated 11 May 2024 of its solicitor, Mr Commins, which largely gives evidence on information and belief from Mr Nassif, in support of the adjournment application. Mr Commins there referred to JKN's request for access to two confidential exhibits which have not yet been provided to it (and which were ultimately not tendered by Toplace), as to which Mr Anderson made no further submissions in respect of the adjournment. Mr Commins also indicated that he was instructed, implicitly by Mr Nassif, that JKN disputed the existence of Toplace's alleged debt and its quantum. He referred (in paragraph 16 of his affidavit) to the incorporation of JKN as a special purpose vehicle; a loan taken out with the Commonwealth Bank of Australia ("CBA"); the engagement of Toplace to design and construct the Castle Hill development; and then observed that: "From time to time in the course of the project carried out at the Site, [Toplace] drew down on the CBA facility in respect of work performed by it at the Site, in satisfaction of [JKN's] obligations to [Toplace]; and, in those circumstances, [JKN] disputes that it is indebted to [Toplace] for the various amounts asserted at paragraph [94] of Ms McCallum's affidavit affirmed 12 April 2024." I note that the amounts referred to in that paragraph of Ms McCallum's affidavit are a debt owed by JKN to Toplace in excess of $194 million referred to in JKN's June 2023 balance sheet; alternatively, a debt in excess of $69.9 million referred to on a post amalgamation basis, reflected in Toplace's balance sheet as at 30 June 2023; or, alternatively, an amount in excess of $19.5 million being construction costs incurred by Toplace for JKN for the 12 month period ending 30 June 2019.
Mr Commins does not there address the amounts which Toplace is said to have drawn down on the CBA facility or the basis on which its doing so is said to have satisfied JKN's obligations to pay Toplace under the construction contract. While Mr Commins there identifies a dispute as to the amounts indicated at paragraph 94 of Ms McCallum's affidavit, he does not go further to identify a dispute that any amount is owing by JKN to Toplace. Importantly, although Ms McCallum's affidavit and its exhibits had been served on JKN several weeks before, on 15 April 2024, Mr Nassif presumably did not instruct Mr Commins as to, and Mr Commins does not give evidence of, any specific dealings between Toplace and JKN which were said to impeach the debt owed by JKN to Toplace as recorded in Toplace's and JKN's business records, to the extent of Mr Nassif's knowledge of those matters.
Mr Commins in turn gives evidence that, in the time since his firm was instructed, implicitly by Mr Nassif, and in light of issues as to books and records, it had not been possible to progress the preparation of detailed evidence as to these matters. There are two difficulties with that proposition. The first is that it gives no explanation of why, where the proceedings and Ms McCallum's affidavit and its exhibits were served on JKN on 15 April 2024, including to Mr Nassif, to JKN's registered office and to its controllers, there was then a substantial delay before the solicitors were instructed, if that is what the paragraph is intended to imply. Second, it gives no explanation why Mr Nassif, as JKN's sole director, could not have given evidence (directly or through Mr Commins) of his knowledge of relevant dealings between JKN and Toplace, where a significant body of the relevant books and records are exhibited to Ms McCallum's affidavit and that exhibit was provided to him, as I noted above, on 15 April 2024.
Mr Commins also gives evidence of the time that JKN sought to allow it to prepare its evidence and sought an adjournment for some 10 weeks or so in order to lead expert evidence. That proposition was based on the indications given by two experts, who had not been retained by JKN to lead evidence, of how long would be required to give expert evidence, implicitly if they were in future retained by JKN. Mr Commins also addressed the position as to books and records of JKN and the possibility the documents would be required to be obtained by compulsory process from CBA, or in respect of any ledger or documents which records the drawdown and application of proceeds under the CBA facility. No explanation is given why those matters are relevant, where the evidence indicates that the CBA facility had been repaid at an earlier point, or how they could provide a response to the position indicated in Toplace's and JKN's business records.
I should note that, in submissions, Mr Anderson developed an alternative position, seeking an adjournment for a lesser period in order to seek evidence by compulsory process, without necessarily leading expert evidence as to JKN's solvency. That submission again did not address what was sought to be established by that evidence or how it could impeach the position recorded in JKN's and Toplace's business records.

Submissions and determination of the adjournment application

I have had the benefit of subtle and detailed submissions by Mr Anderson on the one hand and Mr Krochmalik on the other. I will not seek to summarise those submissions at length, but instead focus on those matters that are of primary significance to the adjournment application.
First, Mr Anderson draws attention to the importance of Toplace's standing to bring a winding up application, either for a winding up on the grounds of insolvency or a winding up on the just and equitable ground. Mr Anderson submits, as both the Act and the Court of Appeal's decision in Treadtel International Pty Ltd v Cocco (2016) 316 FLR 318; (2016) 117 ACSR 176; [2016] NSWCA 360 ("Treadtel") makes clear, that Toplace can only bring this application if it is in fact a creditor of JKN. To put that proposition differently, however strong the basis for a winding up might be, it cannot be ordered on Toplace's application, if Toplace is not in fact a creditor of JKN. The difficulty with that submission, however, is that all the evidence led in this application indicates that Toplace is in fact a creditor of JKN for a substantial amount, and there is no evidence that provides any real basis, beyond the general assertion that amounts were drawn down from time to time on the CBA facility by Toplace, for JKN's claim that the debt owed to Toplace had been repaid in significant part, let alone in whole. I accept that whether Toplace is a creditor of JKN is a critical issue in a winding up application, but it seems to me that the evidence led by Mr Commins, on information and belief from Mr Nassif, raises no real question as to that proposition and gives no real indication that there is anything to be gained from adjourning the matter to allow further investigation of that matter, beyond the hope that something may turn up in such an investigation, for reasons that remain mysterious.
Second, Mr Anderson points to the possibility that further investigations might address the question of JKN's solvency. Again, it does not seem to me that the evidence goes very far in that respect. Where that evidence does not disclose any real reason to think that further investigations will impeach the debt owed by JKN to Toplace, then it also raises no significant reason to think that further investigations will establish JKN's solvency. However, a further difficulty arises in that respect because, for reasons I have noted above, there is a potentially strong basis to wind up JKN by reason that it has had, now has and will in the indeterminate future have, no director who is ordinarily resident in Australia, at a time that corporate decisions urgently need to be made on its behalf, including as to the treatment of any surplus arising from the sale of units in the Castle Hill development. Again, nothing in the suggested investigations to be undertaken by Mr Commins would address that matter, although I recognise, in fairness to JKN, that (as I noted above) Toplace amended its application to rely on that matter today, in response to JKN's belated intervention to oppose the winding up on the ground of its insolvency.
Mr Krochmalik in turn draws attention to ss 56-60 of the CPA and to my decision in Re V & M Davidovic Pty Ltd (rec and mgr apptd) [2012] NSWSC 1598, which I would treat as one of many applications of those sections. Importantly, Mr Krochmalik also draws attention to the urgency of this application, which arises because, as Mr Barr's evidence makes clear, the controllers appointed to JKN are currently completing the sale of units in the Castle Hill development and there is a potential that that sale process will generate a surplus, and that that may occur sooner rather than later. In those circumstances, the question of the corporate decision-making within JKN becomes an urgent matter, particularly where its sole director, to whose control JKN would be returned if the controllers retired, is presently in Lebanon and, as I have noted above, the subject of an arrest warrant in respect of allegations of fraud and has not indicated any apparent intention to return to Australia.
In these circumstances, it seems to me that the proceedings are urgent, and the adjournment application has to be approached on that basis. JKN has an entitlement to the opportunity to lead evidence in the proceedings, but it also has an obligation, in urgent proceedings, to act promptly in order to lead such evidence. There is here no explanation of the delay of JKN, between the time at which the proceedings were served upon its registered office, its controllers and Mr Nassif, and the point at which it intervened in the proceedings. There is, with respect to Mr Commins, whose evidence was plainly limited by the information that he had received from Mr Nassif, also no evidence of any real weight indicating that the further investigations which JKN now wishes to undertake are capable of impeaching Toplace's claim to be a creditor of JKN or its standing to bring a winding up proceeding. In those circumstances, it seems to me that JKN has had a sufficient opportunity to lead evidence in the period since the proceedings were served, although it has not taken appropriate advantage of that opportunity.
I accept that, in other circumstances, these proceedings might have been adjourned, if they were less urgent, or if Mr Nassif (or Mr Commins, on Mr Nassif's instructions) had provided specific evidence which indicated that there were matters which warranted further investigation which might be capable of impeaching Toplace's standing, or if JKN had taken any active steps to advance its case between the point at which the proceedings were served on it and the point of its late intervention in the proceedings. Here, however, the proceedings are urgent; the evidence does not establish any realistic prospect that further investigations will impeach Toplace's standing; and there is no evidence that JKN has taken any real step to progress the proceedings in the period since they were served, notwithstanding their urgency, and the several weeks available to it to take such steps. In those circumstances, I am satisfied that the just, quick and cheap resolution of the real issues in dispute in these proceedings would not be promoted by an adjournment and, indeed, an adjournment would likely defeat those objectives. Accordingly, I decline to adjourn the proceedings. JKN must pay the costs of and incidental to the adjournment application, as agreed or as assessed.

Winding up application and further evidence on which Toplace relies

As I noted above, by Amended Originating Process filed on 13 May 2024, Toplace applies for orders winding up JKN under ss 459A and 459P of the Act, or alternatively under s 461(1)(k) of the Act on the just and equitable ground. Toplace also seeks an order that its administrators, Ms McCallum and Mr Resnick, be appointed jointly and severally as the liquidators of JKN and leave under s 532(2) of the Act for their appointment as liquidators. It also seeks an order for costs.
I have referred to a large part of the evidence on which Toplace relies in respect of this application in dealing with the adjournment application made by JKN, on the instructions of its director, above. Toplace also relies on additional evidence in support of the winding up application. First, Toplace relies on Ms McCallum's affidavit dated 12 April 2024 in support of the application for leave for Ms McCallum and Mr Resnick to be appointed as liquidators of JKN. Ms McCallum points, in particular, to the possibility that a pooling arrangement may be proposed in relation to entities in the Toplace Group (as defined), or the Broader Toplace Group (as defined), a matter which will be relevant to mitigating any conflict of interest which may arise in assessing the amount of intergroup debt that is owed by JKN to Toplace, where Toplace's and JKN's financial records refer to different amounts of that debt, as I have noted above. Ms McCallum also there recognises the steps that are available to address a conflict of duty and duty arising in the context of a liquidator's appointment to more than one company within a group of companies, which include at least the possibility of the appointment of a special purpose liquidator to deal with particular matters, or seeking a direction from the Court under s 90-15 of the Insolvency Practice Schedule (Corporations) as to a liquidator's proposed course of action. Ms McCallum also notes that any the issues that may arise as between Toplace and JKN are similar to those which may exist as between Toplace and other entities within the Toplace group of companies and, I should add, which also likely arise more generally within liquidations of multiple companies within a corporate group.
By a second affidavit dated 3 May 2024, Ms McCallum addresses the same issues, and offers an undertaking, if it is required, as to the manner in which she and Mr Resnick would address those issues if appointed as liquidators of JKN. I do not consider that such an undertaking should be required, if the relief sought by Toplace is otherwise properly granted. The Court may properly assume that liquidators that it appoints will comply with their duties, and here Ms McCallum and Mr Resnick would be court-appointed liquidators in respect of JKN, and it is not necessary to require undertakings to bolster the likelihood that they will do so.
Toplace also rely on an affidavit of Ms Miller, which was read in respect of other matters to which I referred above, which establishes that notification of court action relating to the winding up was given to the Australian Securities and Investments Commission ("ASIC") and proves publication in respect of the winding up application. A further affidavit dated 7 May 2024 of Mr Anderson addresses service of the winding up application on JKN and the service of orders made in the proceedings.
Mr Krochmalik also refers to additional documents on which Toplace relies in respect of the winding up application. First, it tenders a consent of Ms McCallum and Mr Resnick to appointment as liquidators (Ex A3). Second, Mr Krochmalik draws attention to several documents relating to the appointment of controllers to JKN including the notification of appointment of a controller (Ex A1, 546 - 547) to which I referred above and a letter dated 18 January 2024 which notified the appointment of Messrs Teng and Refalo as joint and several agents for the mortgagee in possession in respect of the property owned by JKN (Ex A1, 549).
Mr Krochmalik also draws attention to multiple invoices issued by Toplace to JKN, to which I had referred in my judgment concerning the adjournment application (Ex A1, 719)ff which include a substantial invoice dated 30 June 2019 in an amount of $154 million issued by Toplace to JKN. He also refers to additional business records maintained by Toplace and JKN which record the amounts of the debt owed by JKN to Toplace, as calculated on several dates and possibly on different bases, including a record of construction costs in excess of $19.5 million incurred by Toplace for JKN for the 12 month period ending 30 June 2019, to which I referred above; balance sheets which record the amounts owed by JKN to Toplace as at June 2022 and June 2023 in the amounts of approximately $193.9 million and $194.2 million respectively; a general ledger recording the amount owed by JKN to Toplace of $193.6 million as at June 2021; and a further general ledger which records the amount owing as at 30 June 2022, apparently following an amalgamation of intercompany debts, in the lesser amount of more than $69.6 million. Mr Krochmalik submits, and I accept, that it is not necessary to determine which of these amounts are owing, where it is sufficient, for present purposes, to find (as I do find) that an amount is owing by JKN to Toplace, and that is sufficient to give Toplace the standing to bring a winding up application in respect of JKN for the purposes of s 462 of the Act; see also Treadtel at [84].

Submissions and determination as to the winding up application

Toplace put the winding up application on several bases, relying on a presumption of insolvency arising from the appointment of controllers to JKN; proof of JKN's insolvency in fact; and also seeking the winding up of JKN on the just and equitable grounds. It is sufficient that I deal with the first and third of these bases for the purposes of this application, given its urgency.
As to the first basis of the application, a presumption of insolvency, which can apply in an application under ss 461-462 of the Act, has arisen under s 459C(2) of the Act, by reason that the controllers have been appointed to assume control of JKN's property for the purposes of enforcing the secured party's security interest in that property. That presumption of insolvency has not been displaced although, in fairness to JKN, I recognise that it was not successful in its earlier adjournment application, which had sought a long (or alternatively a shorter) period to seek to lead evidence which would, it contends, establish its solvency. I found for the reasons noted above that there was not sufficient basis shown to grant that adjournment.
Alternatively, Toplace seeks a winding up of JKN on the just and equitable ground under s 461(1)(k) of the Act. Mr Krochmalik refers to the observations of Warren J (as her Honour then was) in Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at [119]; [2001] VSC 383 and of Gordon J (as her Honour then was) in Australian Securities and Investments Commission v Active Super Pty Ltd (No 2) (2013) 93 ACSR 189 at [19]ff; [2013] FCA 234, where their Honours summarised the matters which are relevant to a winding up on the just and equitable ground. Mr Krochmalik also refers to several cases in which companies have been wound up by reason of matters which include, relevantly, a contravention of s 201A of the Act, where a company does not have a director ordinarily resident in Australia, including Australian Securities and Investments Commission v Continental Coal Ltd [2016] FCA 416 and Australian Securities and Investments Commission v Diploma Group Ltd (No 4) [2017] FCA 1107 at [5]-[6]. Mr Krochmalik does not submit that a company would necessarily be wound up by reason that a contravention of s 201A of the Act had arisen at a point in time, without more, but he submits here that other matters arise which require that order to be made in this case.
I am satisfied here that there is a compelling basis for a winding up order on the just and equitable ground, by reason of the contravention of s 201A of the Act in respect of JKN which has subsisted for a considerable time, now subsists and is likely to continue to subsist into the indeterminate future. That contravention is not technical, but is of substantive importance, because, as I have noted above, the controllers of JKN are presently completing the sales of the units in the substantial property that it developed; a possibility exists that a surplus will be paid to JKN after the debt of the secured party is repaid from the proceed of those sales; and decisions will then need to be made by JKN as to how such a surplus is to be treated.
Even apart from the presumption of JKN's insolvency to which I referred above, JKN is plainly also subject to substantial financial claims against it, by reason not only of the debt that it owes to Toplace, but also a substantial claim by the owner's corporation of the property it developed, which has commenced proceedings against it and appeared as a supporting creditor in this application. In these circumstances, there is a real detriment to JKN and the public interest of JKN being left in a position where it does not have a director ordinarily resident in Australia who can address these issues. As I have noted above, JKN's only current director, Mr Nassif, is presently resident in Lebanon, subject to an arrest warrant based on allegations of fraud, and there is no suggestion that he intends to return to Australia in the near future, or at least while the arrest warrant remains in place. It is plain that JKN's affairs cannot be properly managed by its sole director, in those circumstances, and the community and its creditors and contributories are left at risk in that respect. That is a sufficient basis to order a winding up arising from the contravention of s 201A of the Act, which here has material consequences, on the just and equitable ground.

Leave under s 532 of the Act

A question arises as to whether I should grant leave under s 532(2) of the Act for Ms McCallum and Mr Resnick to be appointed jointly and severally as liquidators of JKN. I recognise, in that respect, that JKN, on the instructions of its director, had proffered a consent of another liquidator for appointment, although Mr Anderson did not make submissions as to the possibility of such an appointment.
I should add to my oral ex tempore judgment that the purpose of s 532(2) of the Act is to prevent a person's appointment as liquidator if his or her personal interests would conflict with his or her duty to administer the winding up in the interests of the creditors as a whole; and the Court may grant leave for a liquidator to be appointed to a company although he or she is a creditor for work previously done, if the saving to the creditors from his or her familiarity with the company's affairs would outweigh any detriment arising from any possible conflict: Deputy Commissioner of Taxation v Barroleg Pty Ltd (1997) 25 ACSR 167 at 174; 15 ACLC 1451.
I am satisfied, here, that the advantage to JKN and its creditors and contributories in the appointment of liquidators who are able to deal with common issues across members of the Toplace group of companies, and potentially progress any pooling application so as to extend it to JKN, substantially exceeds any disadvantages which may arise from any conflict of interest or conflict between the liquidator's duties to two companies, of a kind that is commonplace within the administration of a complex corporate group, where intercompany debts are owed between companies within that group. I have pointed above to the mechanisms that are available to manage such a conflict; Ms McCallum and Mr Resnick have indicated their recognition of those mechanisms; and there is no reason to doubt that they will utilise them as necessary, including by making an application for judicial directions or an application for the appointment of a special purpose liquidator, if the need arises. Where the interests of the creditors and contributors of JKN will be better served by the appointment of the administrators for other companies within the Toplace group as liquidators of JKN, I will grant leave under s 532(2) of the Act to permit that to occur.

Orders

Accordingly, I make the following orders:
Order that JKN Hills Pty Ltd (Controllers Appointed) be wound up.
Orders in accordance with paragraphs 2 - 4 of the Amended Interlocutory Process filed on 13 May 2024 by the Plaintiff.
These orders be entered forthwith.
The exhibits be returned.

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: 15 May 2024

Civil Procedure Act 2005(NSW)ss 56-58, 60, 64

Corporations Act 2001(Cth)ss 201A, 459A, 459C

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