ASIC v Maxwell

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

5298/03 AUSTRALIAN SECURITIES AND INVESTMENT CORPORATION v DONALD RICHARD MAXWELL & ORS JUDGMENT - Ex Tempore 1 HIS HONOUR: This matter was before me last Monday, 22 March 2004. ASIC made an application for the appointment of a provisional liquidator or alternatively for the appointment of a receiver to three companies, Central Development Group Pty Limited, The Wake (Waitara) Pty Limited and Maroubra Properties Pty Limited. I gave reasons for judgment immediately after hearing that application, in which I concluded that a provisional liquidator should be appointed to each of the companies. I did not actually pronounce any orders. 2 By that time it was around 5.30 in the afternoon. There were some matters which were relevant to the orders which needed to be made, and which required some detailed consideration. They were matters of detail rather than of broad principle. I am told from the Bar table, and it is not contested, that counsel for ASIC sent some draft orders to counsel for the companies later on Monday evening, and that ASIC sent some draft orders to the solicitors for the companies on Tuesday morning. 3 This matter comes to be before me today because ASIC exercised a liberty to restore the matter, in circumstances where progress was not being made in the finalising of the orders. 4 This morning, counsel for both parties attended before me, as I thought for the handing up of short minutes of order, any debate there might have been concerning those short minutes of order and making of orders. The hearing took a different course. Counsel for the companies informed me that yesterday evening the three companies had resolved to appoint an administrator. The relevant minutes of the meeting of directors were tendered, showing that those meetings took place at 9.45pm, 10pm and 10.15pm yesterday evening. Mr Ozem Kassem, a registered liquidator, has consented to be administrator and was appointed. I am told from the Bar table that Mr Kassem has taken into his custody the books and records of the company. 5 There has also been tendered before me two documents, dated yesterday. One of them is signed by people who include some of the investors in The Wake (Waitara) Pty Limited, which is the company which has raised money for the purpose of the real estate development which is being conducted by Central Development Group Pty Limited at Waitara. That document refers to ASIC having sought the appointment of a provisional liquidator and says that they disagree with that course of action. They ask to draw the letter to the attention of the presiding judge. They say it is their wish that the development being undertaken be completed, because it is their opinion that would give them the best opportunity of recovering the monies they have invested. They say in their opinion the best way of achieving that result is to have the directors of the company appoint an administrator and arrange for a deed of arrangement. They point out they have never made a complaint to ASIC against the companies or its directors and do not wish to do so. 6 The other document is signed by people who include investors in the Maroubra Properties Pty Limited venture. It makes statements to the same effect as the first document. There is some doubling up of signatories and it may be some people have signed the documents who are not investors in the appropriate properties, but at least some of the people who have signed the documents are investors in the appropriate properties. 7 Section 440A Corporations Law provides: "440A(1) A company under administration cannot be wound up voluntarily, except as provided by section 446A. (2) the Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. (3) The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed." 8 I have previously observed how the amount of evidence which is needed to satisfy the Court that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up can change significantly as an administration progresses, and that at the outset comparatively little evidence might be needed to discharge that onus of proof: DCT v Bradley Keeling Management [2003] NSWSC 47; (2003) 44 ACSR 377 at [18]. 9 In the present case, the evidence includes nothing beyond the wish of the investors which I have earlier mentioned (who are not the totality of the investors), and the inherent possibilities there are for administration sometimes to achieve results which are more favourable to creditors of a company than a liquidation can achieve. 10 I have also, previously, observed how, while s440A obliges the Court in certain circumstances to adjourn a hearing if the Court is satisfied it is in the interests of the company's creditor that the company continue under administration rather than be wound up, the Court also has a discretion to adjourn any winding up application, which it can exercise in circumstances where it is not under the compulsion imposed on it by ss 440A(2) or 440A(3): DCT v Bradley Keeling Management [2003] NSWSC 47; (2003) 44 ACSR 377 at [14], [45]. 11 When the matter was before me last Monday, no submission was put that it was desirable for the company to go into administration rather than into liquidation. At that time, no application was made that the matter should be adjourned so that the question of whether an administration would be more favourable to the creditors than a liquidation could be investigated. There was a proposal that a registered liquidator, Mr Green, should exercise some controls over expenditure and operations of the companies, but I formed the view that that proposal was not a satisfactory alternative to the appointment of a provisional liquidator. 12 In light of the wishes expressed by the investors, and of the inherent possibilities of an administration resulting in a better outcome for creditors than a liquidation, and in light of the fact that these administrations have each begun only a little over twelve hours ago, I am satisfied that I should adjourn the application for the order to appoint a provisional liquidator. That adjournment should be until immediately after a first meeting of creditors has occurred. 13 ASIC makes an alternative application. It makes application under s 449B, which is as follows: "On the application of the Commission or of a creditor of the company concerned, the Court may: (a) remove from office the administrator of a company under administration or of a deed of arrangement; and (b) appoint someone else as administrator of the company or deed." 14 ASIC's application is that Mr Ozem Kassem should be removed as administrator and that in his place Mr Donnelly should be appointed. Mr Donnelly is the liquidator who had been proposed by ASIC to become the provisional liquidator, and who had consented to act as such. 15 The circumstances in which the administrator was appointed to these companies, which I have outlined earlier, reeks of the appointment being a tactical move. It appears, from the chronology and circumstances which I have outlined, to be an attempt on the part of the directors to do what they can to avoid the conclusion which I arrived at on Monday. The Corporations Act 2001 establishes the institution of administration, and experience has shown that it is a valuable institution. The circumstances of the appointment of Mr Kassem, however, are ones which themselves gives rise for some concern. In saying that I am in no way casting any aspersions on Mr Kassem. In all the circumstances, it seems to me preferable that the administration of the company should proceed under the control of someone not appointed by the directors. Because the appointment is so recent, there could be no question of Mr Kassem having a background of knowledge and experience in the company which would need to be duplicated if someone else were to be appointed as administrator. 16 I adjourn the application for the appointment of provisional liquidator to the corporations list on Monday, 5 April 2004. I remove from office as administrator Mr Ozem Kassem, in each of the companies Central Development Group Pty Limited, the Wake (Waitara) Pty Limited and Maroubra Properties Pty Limited. I appoint Max Christopher Donnelly as administrator of Central Development Group Pty Limited, The Wake (Waitara) Pty Limited and Maroubra Properties Pty Limited. These orders may be entered forthwith. **********

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