(2000) 35 ACSR 70
- Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160
- Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465
(2006) 57 ACSR 103
- Von Risefer v Mainfreight International Pty Ltd [2009] VSCA 129
Source
Original judgment source is linked above.
Catchwords
(2000) 35 ACSR 70
- Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160
- Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465(2006) 57 ACSR 103
- Von Risefer v Mainfreight International Pty Ltd [2009] VSCA 129
By Originating Process filed on 6 January 2016 the Applicant, Mr Paul Hope, seeks an order under s 482 of the Corporations Act 2001 (Cth) terminating the winding up of MWM Sydney Pty Limited (in liq) ("Company"). The matter was adjourned at the parties' request on several occasions before being heard for part of yesterday and part of today, 11 and 12 April 2016.
The liquidator appointed to the Company neither consents to nor opposes the application. Counsel who appeared for the liquidator, Mr White, has helpfully acknowledged in the course of closing submissions that several issues which had been raised by the liquidator in the course of submissions, to which I will refer below, have now been addressed. The petitioning creditor, the Deputy Commissioner of Taxation, does not oppose the application. Several undertakings are proposed to be given as to steps to be taken after the termination of the winding up, which will include the payment of the liquidator's costs and steps to ensure that certain lodgements are made with the Australian Taxation Office and certain amounts due to it are paid. The Australian Securities and Investments Commission has, appropriately, been given notice of the application and has indicated that it considers the matter is one for the Court and does not seek to be heard.
There was extensive affidavit evidence in the proceedings, to which I will refer below. I will, however, first outline the broad scope of the application, in an outline that is drawn both from the affidavit evidence and from the helpful submissions of Mr Spencer, who appeared for Mr Hope, in respect to the application. By way of background, the Company was incorporated on 18 June 2013, although the business which it carries on had previously been carried on by other entities. Mr Hope's evidence is that the Company carries on its business as trustee of the MWM Sydney Family Trust, and that evidence is supported by contemporaneous references to the existence of the trust in the titles of bank accounts. The Company's appointment as trustee of that trust was automatically vacated on its liquidation, but the relevant trust deed did not permit the ready appointment of a new trustee, so the assets of the trust are likely still held by the Company on trust. Mr Hope has indicated his intention to reinstate the Company as trustee of the trust on termination of the winding up, although that seems to me to be a matter of business convenience, rather than a matter that is essential to this application.
The Company and several other associated entities together offer services to customers who can, through them, borrow funds on mortgage, purchase land sold by third parties, contract to build a home through a builder with which the Company has a relationship and rent the completed home using property management services provided by an associated entity. The Company, Mr Hope and associated entities hold several statutory licences necessary to perform those functions although, as I will note below, there was a somewhat surprising lack of formality and documentation in their dealings in several respects.
There is evidence as to the manner in which the Company's accounts and business activity statements are maintained by an external accountant, from primary records provided by the Company which are, in turn, entered into an accounting software system. Entities associated with the Company (which at that time had not yet been incorporated) had relocated from West Parramatta to Narellan, in South Western Sydney, in April 2013. It appears that the records of the Company's external accountant were not updated for that change of address, although there is a suggestion that the Company's business address was correctly recorded in other statutory records.
The events which have led to the application, and the application itself, arise from the fact that Mr Hope had left the responsibility of preparation for business activity statements and tax returns to the Company's accountant but did not, for at least 15 months between December 2013 and April 2015, take active steps to follow up as to the lodgement of business activity statements and tax returns or, it seems, notice that payments had not been made by the Company by way of goods and services or other tax. The accountants had prepared the relevant returns over that period but sent them to the Company's previous business address and the Company did not receive, complete or lodge them, or pay the tax that would have arisen from their lodgement.
The difficulties arising from this matter were further exacerbated by the fact that, when this issue was identified in April 2015, business activity statement returns were prepared and lodged but, in a further failure, Mr Hope did not check that the amounts due were paid and they were not paid. The Australian Taxation Office, appropriately, followed up with the Company's accountant in October 2015, but an employee of the accountant was then unsuccessful in an attempt to contact Mr Hope, and amounts due were not paid. Not surprisingly given this history, the Australian Taxation Office then moved to wind up the Company. It appears that the winding up proceedings were served on the Company at its registered office at its external accountant's premises, but it appears that they also did not reach the company, or at least did not reach its management, because they also were sent to the Company's previous address. An order winding up the Company was made, properly but in its absence, in early November 2015.
This is an extraordinary narrative, involving both a degree of inattention on Mr Hope's part, which he now acknowledges as I will note below, and unfortunate errors and accidents, including, most importantly, the unfortunate failure to record the Company's change of business address in its accountant's records. Mr Hope acknowledges, as he must, that he failed to exercise proper care in respect of the Company's reporting and payment obligations in this period. He points to personal matters that interfered with his focus on these obligations in that period, which it is not necessary to repeat. One can sympathise with those matters, but it should not be accepted that, where Mr Hope was continuing the Company's business in that period, they provide any real exculpation in respect of significant failures in meeting the Company's tax obligations arising from the conduct of that business. I do not understand Mr Hope to seek to deploy those matters other than as an explanation of how these events had occurred and, as I have noted, he has frankly acknowledged the errors on his part which were involved.
It appears that financial statements and returns for the Company may also not have been prepared in a timely way over this period, since there is evidence that, after the liquidators were appointed, Mr Hope had instructed external accountants to prepare such financial statements and tax returns for the 2014 and 2015 years. He completed a report as to affairs and draft financial statements which were provided to the liquidator in December 2015, which identified the Company's only creditor as the Australian Taxation Office, for a substantial amount, and identified certain other debts to clients in respect of "deposits". The treatment of client deposits has subsequently been amended in the Company's financial statements, in a change that adds further complexity to this application.
A number of the Company's primary financial records were provided to the liquidator in January 2016 but Mr Hope, regrettably, did not then provide MYOB records to the liquidator on the basis that they were then being updated by the Company's external accountant. That was an error of judgment, in circumstances where the statutory obligation to provide such information to the liquidator prevailed over any commercial need to update those records, or at least required that any such updating was not conducted in a manner which prevented compliance with that statutory obligation. A further difficulty arose because the updating of those records affected earlier data, although it appears that issue has subsequently been addressed by providing recovered versions of the earlier data to the liquidator.
Ultimately, revised financial statements have been prepared and another accountant, Ms McCallum, has prepared accounts for the Company in its capacity as trustee, although her work appears to depend on the accuracy of the financial records prepared by the Company's external accountant and she disclaims any review or audit of that work.
With that background, as I noted above, there is detailed affidavit evidence filed in the proceedings. Mr Hope's affidavit dated 5 January 2016 deals, inter alia, with the history of the MWM Sydney Group, its employment of staff, its accounting processes and the circumstances which had affected him between June 2013 and October 2015, and acknowledges, as I have noted above, that he had not focused sufficiently on his obligations as a director of the Company in that period. Mr Hope also refers, importantly, to new procedures that have subsequently been introduced to address the obligations to which the Company becomes subject, in respect of taxation and its financial affairs. That affidavit also refers to the Company's financial position, although Mr Hope then treated client deposits as what was described, not entirely clearly, as "negative liabilities".
A second affidavit of Mr Hope dated 25 February 2016 refers to the forms of income derived by the trust and, by implication, by the Company as its trustee prior to its being placed in liquidation. It also provides further information as to MWM Sydney Group's business, including assisting clients with the purchase of land, building contracts and mortgage broking and property management services. That affidavit also refers to the updating of the Company's accounts to treat client deposits as non-refundable amounts, to which I will refer below, and to the preparation of amended financial statements on that basis. The affidavit also addresses the provision of books and records to the liquidator, the Company's projected cash flow and the position as to loan accounts with the trust.
A further affidavit of Mr Hope dated 8 April 2016 refers again to the treatment of client deposits, to difficulties which had occurred for a period but have now been resolved in relation to payments on two car leases and to the circumstances in which trailing commissions due to the Company had been paid to another account, an issue which has also now been addressed by an undertaking offered to the liquidator, in a form that is acceptable to him, that will cause those funds to be returned to the Company, and also refers to arrangements that have been made for payments to the Australian Taxation Office.
Further affidavits of Ms Hanna and Mr Darwich dated 5 January 2016 deal with the preparation of the Company's financial accounts and the circumstances in which business activity statements and tax returns were not lodged by the Company, to which I have referred above, and with further steps that have now been taken to confirm the content of the Company's accounts. A second affidavit of Ms Hanna dated 25 February 2016 deals with the change in the treatment of the client deposits in the Company's accounts, to which I will refer further below. An affidavit of Ms McCallum dated 25 February 2016 deals with the preparation of financial accounts for the trust, to which I have referred above. An affidavit of Mr Hope's solicitor, Ms Shearman, dated 26 February 2016 annexes correspondence from ASIC, by which it has indicated that it considers this matter is one for the Court's determination and that it does not seek to be heard.
I turn now to the applicable legal principles, which are well established, but may nonetheless be difficult in their application in a particular case. The Court's power to make an order terminating a winding up under s 482 of the Corporations Act is discretionary, as the case law has noted, and a person who seeks such an order must establish that the order is appropriate. The factors relevant to whether a winding up should be stayed or terminated were summarised by Master Lee QC of the Supreme Court of Queensland in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533 as follows:
"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 and Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355 at 358-359 per Megarry J. See also sec 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 discharged: Krextile Holdings Pty Ltd v Widdows supra [[1974] VR 689]; Re Data Homes Pty Ltd supra [1971] 1 NSWLR 338].
4. The attitude of creditors, contributories and the liquidator is a relevant consideration: sec 243(1), Re Calgary and Edmonton Land Co Ltd supra.
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: 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, supra [[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, supra.
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, supra; Re Data Homes Pty Ltd, supra …"
Master Lee noted that this list was not intended to be exhaustive and should not be regarded as a series of rigid principles, and that proposition has subsequently been endorsed in later case law: Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 724, Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [5] and Von Riesefer v Mainfreight International Pty Ltd [2009] VSCA 129; (2009) 73 ACSR 427 at 438; Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465; 93 ACSR 683 at [4].
In Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70 at [47]-[51], Austin J in turn observed that:
"In considering an application to stay or terminate a court-ordered winding up under s 482, the court has regard to various categories of interests. First, the court considers the interests of creditors, taking into account whether they object to the proposed termination. But even if all the existing creditors agree, the court may take the view that the proposed termination puts at risk the interests of future creditors. For example, the court is likely to be concerned where the proposal preserves the existing debts but defers their payment, particularly if the deferment has no enforceable status: see the remarks of Street J at first instance in Re Data Homes Pty Ltd [1971] 1 NSWLR 338 at 341. Similarly, if the proposal is that the principal shareholder/creditor will pay out all the other creditors and seek recovery of his debt by installments, the court is unlikely to permit the company to start trading again and thereby incur additional debts, since if the company fails again, recovery by the new creditors may be prejudiced by the existing debt. However, if the principal shareholder/creditor capitalises his debt, the court may well take a different view: Collins v G Collins & Sons Pty Ltd (1984) 9 ACLR 58.
The cases concerning the interests of creditors do not, in my opinion, establish inflexible rules. Specifically, I do not believe that there is any absolute rule that a winding up cannot be terminated as long as one or more debts remains undischarged. Instead, the cases identify the range of concerns which the court is likely to have in exercising its discretion when an application is made, and therefore give guidance as to the matters upon which the court will need to be satisfied.
Second, the court considers the interests of the liquidator, particularly with respect to costs. …
Third, the court considers the interests of contributories. Generally a stay or termination will not be granted unless each member of the company either consents or is otherwise bound not to object to it, or his or her rights are properly secured: Re Calgary and Edmonton Land Co Ltd (in liq) [1975] 1 All ER 1046. …
Finally, the court considers the public interest, including matters of commercial morality, taking the initial approach that insolvent companies should be wound up: Re Data Homes Pty Ltd [1972] 2 NSWLR 22."
His Honour there also noted (at [53]) that the factors relevant to the exercise of that discretion were not "absolute rules" but "identify the range of discretionary concerns which the court will need to address".
Relevant factors were in turn identified by Austin J in Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292; (2006) 57 ACSR 103 at [17] as including the interests of the company's creditors, including future creditors; the interests of the liquidator, particularly with regard to costs; the interests of contributories and the interests of the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up.
Mr Spencer, who appears for Mr Hope, in turn refers to the helpful summary of the relevant principles by Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439 at [15]ff. In particular, his Honour observed at [18]-[19] (omitting citations) that:
"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 ... 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 ...
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."
In Re Glass Recycling Pty Ltd above, Brereton J referred to the observations of Bergin CJ in Eq in Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797, which emphasised the importance of solvency in determining such an application. Her Honour there noted (at [24]) that:
"The other considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned to, or will be returned to solvency."
In Re Glass Recycling Pty Ltd above, Brereton J also referred to Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 at [58] where Finkelstein J noted that an order terminating a winding up would usually be made if all the creditors are paid out, the liquidator's costs and expenses are covered and the members agree, although his Honour also recognised that there may be exceptional circumstances where that would not occur despite a company's solvency.
Putting aside a question as to the treatment of client deposits, to which I will return below, the evidence establishes that the Company had substantial assets as at the date of its winding up, including cash at bank and loans to beneficiaries, which have since been repaid to it in order to place it in a position to pay tax due to the Australian Taxation Office. A substantial further payment has been made to the Company by a builder with which it has a commercial relationship, and there seems to be uncertainty as to the status of that payment, with a suggestion by the builder that payment was made in error. However, that matter is not material for present purposes, because the Company has not relied on that amount in order to establish its solvency. A substantial amount was then owed to the Australian Taxation Office, but a large part of that amount has now been discharged by a payment made to it, in escrow pending the determination of this application, funded by the repayment of loans by beneficiaries of the trust to the Company.
The Company will have additional tax liabilities arising from the lodgement of business activity statement returns from late 2015 and previously unlodged tax returns, which it appears the liquidator has not lodged, and Mr Hope could not lodge, while the Company is in liquidation. However, arrangements have been made to deal with those matters and the Australian Taxation Office does not oppose the termination of the winding up on the basis of those arrangements. Undertakings are also proposed to be given to the Court which will cause the relevant returns to be lodged and the relevant payments to be made to the Australian Taxation Office.
Mr Spencer points to the history of the Company's profitability and to the amounts in credit held in the Company's bank accounts on an ongoing basis. Although adjustment would need to be made to the balance of those accounts for the fact that tax had not been paid over the relevant period, the evidence led before me, and a helpful schedule which summarises the Company's position (MFI 1), suggests that the Company will have a significant excess of assets over liabilities after the relevant payments are made to the Australian Taxation Office. Importantly, there is no evidence before me of claims of other unpaid creditors which one would ordinarily see in the case of an insolvent company, and it appears the liquidator has called for proofs of debt, but not identified any unpaid creditors other than the Australian Taxation Office. In these circumstances, although I would have been assisted by evidence of the Company's expected future cash flow, and expert review of that cash flow, which is often desirable in applications of this kind, I am nonetheless comfortable, on the evidence before me, that the Company has established its present solvency.
Mr White, who appears for the liquidator, indicates that the liquidator has not made an independent assessment of the Company's solvency, partly because the indication of the application to terminate the winding up, and partly because of limits to the documents which were at least initially provided to the liquidator. However, the liquidator acknowledges that, assuming the accuracy of the financial statements which have now been prepared by the Company's external accountants, the Company appears to be solvent. The liquidator also makes clear that he does not submit that the financial statements which have now been prepared are not accurate, although he indicates the limits to his inquiries in that regard, and he also recognises that it appears that the Company's debts can in fact be discharged on the basis proposed without a need for further funding. That is a significant matter, although I will now need to address the question of the treatment of client deposits.
The treatment of client deposits, appropriately, received some significant focus in the course of submissions before me. The question arose in a somewhat unfortunate way, where the evidence initially led had, as I noted, treated client deposits as a liability of the Company, but that position was altered by further evidence led in the course of the application. Not surprisingly, that change of position warranted further inquiry. There still seemed to me to be some uncertainties as to the manner in which client deposits are to be treated in the Company's accounts, and the alteration of their treatment appears not to reflect the application of accounting expertise to the relevant facts, but instead to reflect a decision which has been made by Mr Hope as to the manner in which those deposits should be treated. The difficulties in this respect are exacerbated by the lack of documentation of arrangements between the Company and its clients and the fact that evidence led, in the course of the application, that client deposits are non-refundable is of a somewhat conclusory character.
However, the evidence led in the course of the application yesterday suggested, and further evidence led today appears to have confirmed, that the amounts involved are individually relatively small; that the payments of amounts by way of client deposits are paid at a late stage in the process, after the Company has already provided significant services to clients; that claims for repayment of client deposits are not historically made, because the relevant work is in fact completed; and, importantly, that the number and value of client deposits for which work is presently incomplete are not material to the asset position of the Company, or likely to be determinative of its solvency. For these reasons, although it seems to me that this is an issue which warrants further attention so that the Company properly accounts for these deposits, it does not seem to me that they deprive the company of solvency, for the purposes of this application.
I now turn to the question of public interest in respect of applications much this kind. In Re Warbler Pty Ltd, to which I have referred above, Master Lee QC referred to the relevance of non-compliance by directors with statutory duties in respect of liquidation and the nature of the company's business in an application of this kind, and also noted that, where a company's conduct was contrary to commercial morality or the public interest, the court may decline to terminate a winding up. I have referred above to the observations of Finkelstein J in Apostolou v VA Corporation of Australia Pty Ltd, where his Honour emphasised the primary importance of solvency, but left open the possibility that a winding up might not be terminated in appropriate circumstances. The issue was the subject of detailed consideration in Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280 where, after a comprehensive review of the relevant authorities, Judd J determined that he could properly terminate a winding up, notwithstanding that he had found that the directors of a company had failed to discharge a number of important statutory and other duties or to attend to the proper management of the company's business, where those shortcomings appeared to be the result, in that case, of ignorance or circumstances which had overwhelmed their ability to stay on top of important management issues. In the present case, as I have noted above, that it appears that there were difficulties which interfered with Mr Hope's capacity to address certain aspects of the Company's governance in the relevant period.
In Re Glass Recycling Pty Ltd, to which I have referred above, Brereton J in turn referred to Re Kitchen Dimensions Pty Ltd (In liq), and in Re Avenue Investment Capital Pty Ltd (in liq) [2015] NSWSC 1919 at [51] Robb J expressly approved the approach to "commercial morality" adopted by Judd J in Re Kitchen Dimensions Pty Ltd (in liq) above.
Several issues have arisen in this case which seem to me to fall within the broad category of the public interest, which need to be addressed in respect of the application. First, as Mr Hope has frankly acknowledged as I noted above, there were substantial failures in the Company's compliance with its tax obligations, and in Mr Hope's attention to governance and compliance issues within the Company, including securing the payment of tax, although in circumstances where Mr Hope was distracted by the personal issues to which I have referred. The outstanding tax has now been paid or will be paid as a result of the undertakings given to the Court, and there is evidence to which I have referred above that Mr Hope has now established procedures within the Company to monitor compliance with tax obligations which did not previously exist. Mr Spencer, on Mr Hope's behalf, confirms Mr Hope's recognition of his responsibility for these matters, so far as they have contributed to the position in which the Company has found itself.
It seems to me that it is highly unlikely, on the evidence as it stands, that these difficulties will be repeated. Mr Hope will no doubt have found the liquidation and this application to be both stressful and expensive, and he should also be in no doubt, if the winding up is now terminated, he will have achieved that outcome in a relatively close result, and that result might well not be repeated if the Company were to be wound up in similar circumstances on a second occasion. To some extent, the extraordinary character of the events to which I have referred above provide some support for Mr Hope's explanation that they reflected, partly, the personal issues to which he refers, combined with the system failures to which I have referred, and the unhappy error as to the address maintained by the accountants. These matters are capable of being addressed by proper systems which now appear to have been introduced.
Second, there were failures in the production of documents to the liquidator, although I accept, as Mr Spencer points out, that the position is qualified by the fact that the liquidator appears to have regard to the fact that an application to determine the winding up was on foot for much of the period of the liquidation, and more of the Company's business was left within Mr Hope's control than might ordinarily be the case. It seems to me that the initial failure to provide the Company's MYOB accounting records to the liquidator, while they were being updated by the Company's external accountants, was unfortunate, although it does not seem to have caused any prejudice to the liquidation and appears now to have been corrected.
A further issue arose as to the extent to which payments, including trailing commissions due to the Company, were paid to another account after the Company had been placed in liquidation. Again, there were some mitigating circumstances here, including the fact that the account to which those payments would ordinarily have been made had been closed by the liquidator, and the fact that Mr Hope, through other entities, was attending to the employment of staff and the conduct of the business which was necessary to keep the business under way. This issue has been addressed by an undertaking by Mr Hope to procure the repayment of these amounts to the Company which, importantly, was given irrespective of the outcome of this application. The liquidator has fairly accepted that, once this issue was raised, it was promptly and adequately addressed. It seems to me that, in the circumstances in which that issue arose and given the way in which this has been addressed, it also does not raise an issue of commercial morality such as to require the Court to decline to terminate the winding up.
A fourth issue arose, both in the evidence initially led by Mr Hope and in further oral evidence intended to address the status of client deposits, as to the manner in which the Company's dealings with its clients are documented. There is, as I noted above, a lack of evidence in the proceedings as to the form of information provided by the Company to its clients as to the services which it and its related entities will provide, although it appears that at least aspects of those dealings, such as the purchase of land from third parties and any building contracts are documented by separate agreements with third parties. Mr Hope's evidence is that the Company receives commissions from the builder to which it refers work, although it does not have a formal agreement with that builder and the amount of the commission varies from case to case. The evidence suggests that those commissions are, at best, not disclosed by the Company to its clients in any systematic way. The amount of those commissions appears, from the Company's financial records, to be a significant source of its income.
I have been troubled by this matter, although I have ultimately concluded that it raises issues of significant complexity, in a novel factual context, which it is not appropriate to seek to determine in an application of this kind, particularly where the Australian Securities and Investments Commission was given notice of the application and did not choose to be heard in it. The relationship between the Company and its clients does not seem to be a traditional fiduciary relationship and whether an ad hoc fiduciary relationship could arise in the relevant circumstances would depend on facts that are not in evidence, and possibly on dealings with particular clients. It is by no means clear that, in the absence of a fiduciary relationship, the Company would come under any application of the no conflict or no profit rule, so as to require disclosure in order to retain a commission of this kind. It is also not clear that the Company is providing financial services, so as to fall within the scope of Chapter 7 of the Corporations Act, although other entities in the group may or may not be doing so. There is, of course, state legislation dealing with undisclosed commissions, but its potential application has not been explored in submissions. The application of misleading and deceptive conduct provisions or unconscionability at general law or by statute would also depend on dealings with the particular clients, which were not addressed in evidence.
It seems to me that there may be a question as to whether best practice would require fuller disclosure of commissions received than is presently given by the Company, but it seems to me that that is not an issue which can or should be addressed in an application of this kind. I should note that, at one point, Mr Hope offered an undertaking to provide a letter to clients, which would provide some further information as to the Company's services and indicate that it "may receive" payments from the builder to which it refers work. The Court should not accept that undertaking, given the view which I have reached that this issue cannot be addressed in this application, and also because, to the extent that disclosure is necessary or appropriate, then it may well be that more specific disclosure of the amount of commission would be needed than is contemplated by the proposed letter.
In the circumstances, it seems to me that the Company's solvency is sufficiently established and that the Court can be comfortable that the matters which caused the winding up, primarily the outstanding debt to the Australian Taxation Office, have been addressed. That, as I have noted, is the most significant consideration in an application to terminate a winding up. On balance, although I have been troubled by several matters to which I have referred, I am satisfied that the evidence also establishes that Mr Hope has recognised that stronger systems are required, that the events which caused the winding up in this case are unlikely to recur and that the other factors to which I have referred do not provide a basis on which the Court should decline to terminate the winding up, in circumstances that the Company's solvency is established.
For these reasons, I will make orders terminating the Company's winding up, and I will note certain undertakings of Mr Hope to the Court, and certain agreements which have been reached, in the form proposed by the parties. The preferable course seems to me, as has been addressed by Counsel in submissions, to defer making those orders at this point, so that the liquidator's costs can be discharged from monies held by him prior to the termination of the winding up. Orders may then be made in chambers once the parties have confirmed that that has occurred.
I make the following directions:
List the matter for further directions at 9.15 am on 14 April 2016, Black J.
Liberty to parties to submit consent orders to give effect to the judgment after payment to the liquidator as agreed between them has been made.
[3]
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Decision last updated: 14 June 2016