Ausino International Pty Ltd v Apex Sports Pty Ltd

Supreme Court of NSW|2019-02-18|Before: Rees J

Judgment

HER HONOUR: In the two proceedings before the Court: 1. Glenfyne International Holding Limited, a Hong Kong company, and Kam Wah Tai seek an order under section 75-43 of the Insolvency Practice Schedule (Corporations) to the Corporations Act 2001 (Cth) to, effectively, replace the liquidator appointed to Glenfyne Farms International AU Pty Limited (in liquidation) (Glenfyne Farms), Steven Gladman of Hall Chadwick, with the plaintiffs' preferred liquidators; and 2. an application by Glenfyne International Limited, another Hong Kong company, to appoint a liquidator to GI Commercial Pty Limited (GI Commercial). These applications were heard on an ex parte basis as Mr Gladman, appropriately, was excused from appearing, leaving the Court to determine whether his appointment as liquidator should continue or not.
Glenfyne Farms and GI Commercial are companies in which Mr Tai effectively owns 49% of the shares and Graham and Julie Flynn effectively own 51% of the shares. Using these companies, Mr Tai and Mr and Mrs Flynn proposed to fatten beef cattle on a property at Narrandera, New South Wales, for export to China. Those business arrangements have come to nought. Mr Tai is deeply concerned about the conduct of the business by Mr Flynn.
Mr Flynn filed an affidavit with the Court but did not appear before me, and would have required leave to do so. The plaintiffs' counsel read two paragraphs of Mr Flynn's affidavit, in which Mr Flynn agreed that GI Commercial should be liquidated, and with the same liquidator as Glenfyne Farms, "to ensure that a full investigation can be carried out". I note that Mr Flynn's affidavits comprise 19 pages and 147 paragraphs. It is reasonable to assume that Mr Flynn has something to say about Mr Tai's allegations and that any liquidator will have to investigate any complaints made by either Mr Tai or Mr Flynn in due course.

Facts

In 2013, Mr Tai, Mr Flynn and their respective companies entered into a Joint Venture Deed under which it was proposed that Glenfyne Farms would purchase land and water rights and commence a farming and grazing business under the management of Mr and Mrs Flynn. In 2014, Glenfyne Farms purchased land with finance from ANZ Bank. It is readily apparent from the exhibit to Mr Tai's affidavit that the transactions which occurred over the life of the companies and the joint venture are complicated and numerous. Put very broadly, further discussions ensued between the parties in respect of their precise shareholdings and interest in the joint venture, further finance needed to conduct the business and their obligations to further contribute to the venture or secure additional finance. Whilst each was represented by solicitors, Mr Tai did not necessarily appreciate the implications of the transaction documents or that the transaction documents did not accord with his discussions with Mr Flynn over time.
In 2016, a small portion of the farm was sold, with the proceeds to be used as working capital. In 2017, matters were complicated by a director in Glenfyne International Limited, Mr Wong, commencing proceedings against Glenfyne Farms in the Supreme Court of New South Wales seeking a declaration of an interest in the farm. By late 2017, disagreements and some confusion appear to have emerged between the parties in relation to the preparation of financial statements for the companies, and the contents and adequacy of those financial statements. On 27 October 2017, Mr Tai resigned as a director of Glenfyne Farms. Mr Tai says he was asked to guarantee further finance for the company and was not prepared to do so without knowing more about the financial state of the companies.
In February 2018, Mr Tai sought to be reappointed as a director of Glenfyne Farms. Mr Tai's solicitor wrote to Mr Flynn's accountant, Mr Moustacas of Strategic Wealth Management Pty Limited, stating that Mr Tai resigned in circumstances in which he was "taken by surprise and put on the spot." Mr Moustacas replied advising that he did not accept Mr Tai's version of the meeting, having compared it with his file note: You will recall that Mr Tai refused to sign a personal guarantee for a $200,000 advance to enable the business to continue its operations. You advised him not to sign it. Instead he chose to resign as a director and Mr Flynn signed the guarantee. You also nodded and agreed that Mr Tai would need to resign if he wanted Mr Flynn to sign the guarantee to enable the business to continue. Please confirm if Mr Tai is now willing to sign this personal guarantee for the funding?
On 24 April 2018, Mr Tai's solicitors wrote to Mr Flynn expressing significant concerns about Mr Flynn's conduct of the company, its assets and the joint venture, and said that Glenfyne International Holding Limited considered it had been, and continued to be, unfairly treated. On 30 April 2018, Mr Flynn's solicitor, Tom Crilly of Crilly Lawyers Pty Ltd, replied denying that this was so and seeking information as to third parties who it was suggested had funded Mr Tai's contributions to the company. So far as I can see from Mr Tai's affidavit and the exhibited documents, there was no response to Mr Crilly's letter.
On 9 July 2018, Glenfyne Farms executed a contract of sale for the farming land and water rights in the amount of $3.5 million. The sale was completed on 8 August 2018 and, after discharge of mortgages, $510,258 was payable to the company and paid into its bank accounts. Mr Tai says that he was unaware that the farm was sold and did not agree to this.
On 7 September 2018, Mr Gladman was appointed as an administrator of Glenfyne Farms, having been referred by Mr Moustacas. Mr Gladman completed a declaration of independence, relevant relationships, and indemnities. Mr Gladman declared that he had not provided any professional advice to the company other than advice on the company's insolvency, nor received an indemnity or an upfront payment for remuneration. He identified no real or potential risks to his independence. Mr Gladman noted that Strategic Wealth Management Pty Limited had previously referred other appointments to Hall Chadwick.
Mr Gladman declared that, prior to his appointment, he had had three telephone conversations with Mr Moustacas on 6 July, 3 August and 9 August 2018 and attended two meetings (a two hour meeting with Mr Moustacas, Mr Flynn and Mr Crilly on 13 August 2018 and a 35 minute meeting with Mr Moustacas on 30 August 2018) for the purpose of discussing and understanding the background, nature and business of the company, its current financial position, available options in the case of insolvency and the possible appointment of an administrator. Mr Gladman said that he received no remuneration for any advice provided during these meeting or telephone conversations. Mr Gladman did not consider this pre-appointment advice to influence his ability to fully comply with his statutory and fiduciary obligations associated with the administration of the company in an objective and impartial manner.
On 7 September 2018, Mr Flynn completed a Report as to Affairs in respect of Glenfyne Farms. He listed the following unsecured creditors: Mr Tai $492,454 Strategic Wealth Management $1,100 Crilly Lawyers $1,100 Mr and Mrs Flynn $243,350 Glenfyne International Hong Kong $59,774 No secured creditors were recorded.

First meeting of creditors

Although a notice to creditors of 10 September 2018 was sent to Mr Tai, it did not come to his attention in Hong Kong until 27 September 2018. It would appear that, unhelpfully, Mr Flynn had not given Mr Gladman the contact details of Mr Tai's Australian solicitor nor Mr Tai's email address in Hong Kong.
On 18 September 2018, the first meeting of creditors was held. Mr Flynn and Mr Moustacas participated by telephone. Mr Tai did not attend as he was not aware that an administrator had been appointed. Mr Gladman explained the role of the administrator and asked creditors to provide him with any information which may assist with investigating the company's affairs.

First report to creditors

On 28 September 2018, Mr Gladman submitted his first report to creditors. Mr Gladman explained that since his appointment, he and his staff had attended to the following matters: ● Obtained the books and records and investigated the financial position of the Company; ● Reviewed the Company's business operations; ● Liaised with the Company's pre-appointment accountant regarding: o The nature of the Company's business; o The trading of the business prior to the incorporation of the Company; o The pre-appointment disposal of real property owned by the Company; and o The Company's shareholder liability. ● Convened and held the initial meeting of creditors; ● Conducted NSW land title searches on the Company, Director and Former Director; ● Liaised with the Company's creditors and external advisers of the Company; ● Conducted investigations into potential voidable transactions and insolvent trading; and ● Convened the second meeting of creditors. Due to the time constraints imposed under the Voluntary Administration regime there was insufficient time to undertake the following: ● Conduct an audit of the Company's books and records; and ● Adjudicate on the claims of creditors. However, in my opinion the above matters have not prevented me from being able to provide sufficient, meaningful information in this report or from being able to form an opinion on what is in the creditors' best interests.
Mr Gladman advised that unsecured creditors could expect to receive a dividend if the company was placed into liquidation. He recommended that this should happen, and proposed to ask creditors to make a decision regarding this on 9 October 2018. In his report, Mr Gladman noted that the company's only income from 1 July to 31 August 2018 was the capital gain on the sale of the farm (emphasis added): ● Expenses of the Company consisted primarily of wages, insurance, and depreciation. ● In the period 1 July 2018 to 31 August 2018, the Company incurred professional fees of $27,000 and business expense reimbursements of $2,106,950. As discussed above, the Company's external accountant advised that these business expense reimbursements are a journal entry to account for the trading of the Company which was previously accounted for through the Partnership. ● The Company reported a loss of $84,646 in the 30 June 2018 financial year mainly due to no income being generated.
Further explanation of this is given by Mr Gladman in his report, being: …[T]he Company's business previously operated through the Partnership. I have been advised that the Company's previous external accountant continued to report the financial position of the Company through the Partnership up to the period ending 30 June 2017, which was not in accordance with the provisions set out in the Joint Venture Agreement between the Company's shareholders. However, I understand that the Company has now accounted for the operation of the business through the Partnership in its books and records up to 31 August 2018. Mr Tai is rightly concerned about this, and wishes to investigate the business expense reimbursements.
Mr Gladman noted that the sale of land included the water access licences held by the company together with the plant and equipment, primarily consisting of fixtures attached to the land: My preliminary investigations have identified that $70,176 of the PPE on the Company's depreciation schedule may not have been transferred to the Purchaser. Given that it is recommended the Company be wound up, further investigations will be conducted into the location of this PPE.
Further, Mr Gladman reported that Mr Flynn had disclosed in his completed Director's Questionnaire that he had acquired plant and equipment of the company at its written down value, which was off-set against funds owing to the partnership: I have requested further particulars from the director and the external accountant surrounding this transaction.
Mr Gladman said his preliminary investigations indicated that insolvent trading offences may have been committed by Mr Flynn which would be reported to ASIC. Further, the company may have an action for $51,568 as an "unreasonable payments to director" in respect of the plant and equipment transferred to Mr Flynn: I am of the opinion that this transfer may meet the criteria of a breach under section 558FDA of the Corporations Act 2001 (Cth). Should the company be placed into liquidation at the forthcoming creditors meeting, further investigations in relation to the above will be conducted.
Mr Gladman noted that, of the sales proceeds of $510,258, he had recovered $84,900 from the closure of the company's bank account. He had investigated where the monies had gone (emphasis added): … The company's external accountant has advised that this amount was transferred to the Partnership. I have made enquiries with the Director regarding the nature of the payments made to the Partnership and the balance of funds disbursed. The Director advised that all of the funds were used to discharge creditors of the business. I am currently awaiting documentation to support this. Given that it is recommended that the Company be wound up, I will conduct further investigations into these transactions.
Mr Gladman considered that the company may have been trading while insolvent from at least 30 June 2015, but the loss incurred by unrelated unsecured creditors since that time was $3,796: Further investigations would need to be completed in a liquidation scenario to determine the precise date of insolvency and hence the exact quantum of any insolvent trading claim.
Further, Mr Gladman reported that his initial investigations into Mr Flynn's financial position indicated that he may not have sufficient assets to meet a judgment in respect of insolvent trading. Further investigations would need to be undertaken by a liquidator including, potentially, a public examination of Mr Flynn. Mr Gladman's report was thorough and indicated what the Court wishes to see from an administrator, that is, an objective, impartial and detailed review of a company's affairs with an eye to any breaches of the Corporations Act and a willingness to investigate further where appropriate.
Mr Gladman's fees to that point were $31,421 plus GST. Mr Gladman sought approval of remuneration to 9 October 2018 to a capped amount of $15,000 plus GST or, if a liquidator was appointed, to a capped amount of $30,000 plus GST.

Mr Tai contacts the administrator

On 2 October 2018, Mr Tai's solicitor wrote to Mr Gladman advising that Mr Tai was not aware until recently that an administrator had been appointed, nor that the farm had been sold. Mr Tai's solicitor advised that Mr Flynn "had no right to cause [Glenfyne Farms] to pay the debts of the G&J Flynn Partnership or of any other entities associated with Mr Flynn, as he did."
On 5 October 2018, Mr Gladman replied that he had been provided with details of Mr Tai's mailing addresses from the company's external accountant and had despatched his initial notice to creditors via post to all known creditors at that time but would send all future correspondence to Mr Tai's solicitors. Mr Gladman sought a copy of the agreement between Mr Tai and Mr Flynn which superseded their shareholder agreement as to the trading and management of the farming business in the manner described in Mr Tai's letter, and asked that Mr Tai complete a proof of debt. On 8 October 2018, Mr Tai's solicitor advised that the changes in the shareholder agreement had not been varied by a single document but by a combination of oral agreements and email exchanges, further evidenced by the conduct of the parties, and that it was not possible to complete a proof of debt.
On 8 October 2018, Mr Tai's lawyers wrote to Mr Crilly offering to purchase the debt owed by Glenfyne Farms to him (emphasis added): While I confirm there is no suggestion your claim to be a creditor is anything other than the truth, my clients are concerned that Mr Flynn may have intentionally left you and his accountant as creditors for such small sums with the goal of engineering a majority by number of "friendly" creditors in Glenfyne Farms' insolvency, so as to prevent the passage of any resolutions that my clients may wish to propose at meetings of creditors. That is, of course, not a proper means for a director to block resolutions that might otherwise be passed by persons not associated with the director. A letter in the same terms was sent to Mr Moustacas.

The failed resolution

On 9 October 2018, a second meeting of creditors took place. Mr Tai attended. Mr Tai's solicitor took notes of the meeting and has also deposed to what happened. Her evidence does not depart from Mr Gladman's minutes of meeting save it confirms that Mr Gladman gave a detailed explanation of his investigations to date, including: Sale of land proceeds (approx. $510,000) director says used to pay business expenses - have received list of payments but no further documents to substantiate, need further checking
It was resolved that Glenfyne Farms be wound up. Mr Tai proposed that Jason Porter and Fabian Micheletto be appointed as liquidators. The minutes record: Ellen Louie [Mr Tai's solicitor] advised that she was instructed by her clients to offer to purchase the debts owed to the unrelated unsecured creditors of the Company, and had not yet received a response to these offers. Ellen Louie again offered to purchase these debts from the unrelated unsecured creditors. The unrelated unsecured creditors declined to sell their debts. It is not suggested that the monies owed by Glenfyne Farms to Strategic Wealth Management and Crilly Lawyers were not legitimate debts. These creditors were not obliged to assign their debts to Mr Tai.
The resolution to appoint Mr Porter and Mr Micheletto was voted upon, lost on the voices and a poll taken. The result was that two proxy holders voted in favour of the appointment of Mr Porter and Mr Micheletto, being Mr Tai and his solicitor, representing $552,228 of unsecured creditors, whilst three voted against the resolution, being Mr Flynn, Mr Crilly and Mr Moustacas on behalf of unsecured creditors totalling $245,550.50. The minutes continue: The result of the poll was; For Against Total Votes 2 3 Total Votes ($) 522,228 245,550.50

The Chairperson advised that as a result was not reached on a poll he may use his power as Chairperson to exercise a casting vote. The Chairperson advised that the ARITA Code of Professional Practice recommended that a Chairperson should proceed to exercise the casting vote to resolve the deadlock, unless there is some good reason to refrain from doing so. The Chairperson exercised his casting vote against the resolution and advised that the resolution did not pass. The Chairperson explained his reasons for exercising the casting vote against the resolution as; ● The third party unrelated creditors, being Strategic Wealth Management Pty Ltd and Crilly Lawyers Pty Ltd have both voted against the resolution; and ● Neither Kam Wai Tai nor Glenfyne International Holding Limited have lodged a proof of debt in the Administration of the Company. They have advised through their lawyer that they are not in a position to complete formal proofs of debt as they do not have sufficient visibility as to how the funds they contributed were applied. I have admitted them for voting purposes for the amounts recorded in the RATA but from their own advisor they are uncertain how much they are owed, in the circumstances I cannot be certain of the amounts owed.

The resolutions in relation to Mr Gladman's remuneration were also approved.

These proceedings

On 21 November 2018, the two proceedings were commenced. On 11 January 2019, Mr and Mrs Flynn's solicitor, Mr Crilly, wrote to Mr Tai's solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure there is no perceived or actual bias. On 21 January 2019, Mr Tai's solicitor rejected this proposal (emphasis added): It is clear that the key function of any liquidators will be to investigate your client's conduct (and, indeed, that is the only apparent source of any potential recovery in the relevant liquidations).
On 7 February 2019, Mr Crilly replied confirming that his client would consent to the appointment of an independent liquidator to both companies and enclosed signed consents to act from three independent liquidators with whom the company and his clients had not had any prior relationship or contact. Mr Crilly sent a further letter following up on this proposal on 12 February 2019, advising that, if he did not hear from Mr Tai's solicitor, his clients would file an application to seek leave to appear and be heard in the proceedings. Mr Crilly added that his client was preparing a statement of claim seeking damages arising from breach of the joint venture agreement. Mr Tai's solicitor replied advising that Mr Tai did not oppose Mr and Mrs Flynn seeking leave to be heard on the application, albeit suggesting there was "a substantial degree of hypocrisy in the position your clients now assert." On 18 February 2019, Mr Crilly advised that his clients would not be appearing at the matter's hearing that morning.

The law

Subsection 75-43 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act 2001 (Cth), provides: 75-43 Proposed creditors' resolution not passed because of casting vote - Court's powers Application of this section (1) This section applies if: (a) a resolution is not passed at a meeting of creditors of a company under external administration; and (b) the resolution is not passed because the person presiding at the meeting exercises a casting vote, or refuses or fails to exercise such a vote. Application to the Court … (3) A person … may apply to the Court for an order under subsection (4), but only if: (a) the person voted for the proposed resolution in some capacity (even if the person voted against the proposed resolution in another capacity); or (b) a person voted for the proposed resolution on the first-mentioned person's behalf. Court may make orders (4) On application under subsection (2) or (3), the Court may: (a) order that the proposed resolution is taken to have been passed at the meeting; and (b) if it does so--make such further orders, and give such directions, as it thinks fit.
This section came into effect on 1 March 2017 and the case law is, therefore, limited. In the matter of Iris Diversified Property Pty Ltd (in liquidation) [2018] NSWSC 834 is the only judgment on this section to date. In that case, an owners' corporation was the largest creditor of the company and represented 90% of the creditors' claims admitted for voting purposes at the meeting. A related company, Iris Group Management Pty Ltd, claimed to be owed a debt estimated to be $207,000. The judgment of Black J focussed mainly on section 75-41, which was the primary ground and on which his Honour was prepared to make orders, but, obiter, his Honour considered the alternative application under section 75-43. At [33]: There are some similarities between this aspect of this application and the position considered by Gordon J in an application to remove a liquidator, under s 503 of the Corporations Act, in Brisconnections Management Company Ltd v Burness [2009] FCA 626; (2009) 72 ACSR 233, on which Mr Glasson relies. In that case, her Honour removed a liquidator, although there was no suggestion that he was not competent or had a prior relationship with the relevant company, on the application of a creditor which accounted for 99.8% of the company's debt and was the "only truly independent creditor" (at [10]). Her Honour observed at [12] that: "The exercise of the casting vote is most appropriate in circumstances where a creditor with a majority in value (such as the Applicant) has such an overwhelming interest that it is inappropriate to allow a majority in number who do not have the same monetary interest to carry the day. As the case law and the Code makes abundantly clear, there is no presumption in favour of the majority in value. However, where there is large disproportion between the values of the debts of the numerical minority and the numerical majority (as is the position here) it must be a factor to be taken into account." Her Honour there set aside the liquidator's decision not to exercise the casting vote in favour of his removal in that case and then exercised the discretion in favour of the resolution that the liquidator be removed. His Honour Black J considered that the issue of the relative size of the independent creditors' claims should have been given substantially greater weight than the liquidator allowed, both in his explanation of his casting vote and the way in which he cast it.
Cases under the earlier equivalent provision, section 600C of the Corporations Act 2001 (Cth), also assist. In Global Realty Development Corp v Dominion Wines Ltd & Ors (2005) 56 ACSR 474; [2005] NSWSC 1221 at [25], Barrett J summarised the applicable principles, albeit in the context of the former and relevantly indistinguishable section 600B: …The correct approach to the exercise of the casting vote was considered by the Court of Appeal in both Young v Sherman (2002) 170 FLR 86 and Kirwan v Cresvale Far East Ltd (2002) 42 ACSR 21. Several propositions emerging from those cases may be briefly mentioned. First, there is no general rule that the chairperson should use the casting vote to prefer the majority in value over the majority in number. The suggestion to the contrary in submissions on behalf of the plaintiff should be rejected. Second, the correct approach is for the chairperson to proceed according to what the chairperson believes to be in the best interests of those affected by the vote. Third, the objectives of Part 5.3A must be considered in making the decision. Fourth, a distinction is to be drawn between propriety and wisdom, the latter probably being non-justiciable. Fifth, the court's decision on a challenge under s.600B should be made in the light of all the material the chairperson had. See also Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 289 per Barrett J at [11] ff.
In the matter of Free Wesleyan Church of Tonga in Australia Inc (administrators appointed) Phoenix Lacquers & Paints Pty Limited v Free Wesleyan Church of Tonga in Australia Inc (administrators appointed) & Ors [2012] NSWSC 214, Black J refused to make an order under section 600C of the Corporations Act, noting at [40]: That casting vote should be exercised having regard to what the administrator believes to be in the interests of those affected by the vote and the objectives of Pt 5.3A: Young v Sherman [2002] NSWCA 281; (2002) 170 FLR 86; Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21; Global Realty Development Corp v Dominion Wines Ltd (in liq) [2005] NSWSC 1221; (2005) 56 ACSR 474. The Court's review of the administrator's exercise of his or her casting vote is directed to whether that decision was made honestly and in accordance with what he or she believed to be in the best interests of those affected by the vote and whether it was made conscientiously by reference to relevant considerations: Commonwealth Bank of Australia v Fernandez [2010] FCA 1487; (2010) 81 ACSR 262 at [100]; Plumbers Supplies Co-Operative Ltd v Firedam Civil Engineering Pty Ltd.
In that case, the only matter identified as impeaching the administrator's exercise of his casting vote was that he had an interest in the outcome, but Black J did not consider that this was sufficient. His Honour accepted the administrator's evidence as to his reasons for exercising the casting vote. His Honour noted that the evidence before the Court indicated that the administrator could properly have formed the view that it was in the interests of the creditors generally, and consistent with the objectives of Part 5.3A for the administrators to remain in office: …since the administrators had begun consultations with interested parties prior to the first meeting and the majority in value of creditors had voted against the resolution, after a proper just estimate had been made of [the applicant's] claim.
Before making an order under section 75-43, the requirements of subsection (1) and (3) must be satisfied. The problem here is the same one encountered in Iris Diversified Property. An administrator is entitled to exercise a casting vote under section 75-115 of the Insolvency Practice Rules (Corporations) 2016, which provides: 75-115 When a resolution is passed at a meeting of creditors after a poll is demanded (1) A resolution is passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution. (2) A resolution is not passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution. … (5) If no result is reached under subsection (1) or (2) and the resolution relates to the removal of the external administrator of the company: (a) the external administrator may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or (b) if paragraph (a) does not apply - the resolution is not passed. …
It can be seen from the above that the administrator may exercise a casting vote in favour of the resolution removing him or her, or abstain from voting, but is not entitled to exercise a casting vote against the resolution. As such, Mr Gladman was not entitled to exercise a casting vote against the resolution proposed by Mr Tai and the resolution simply was not passed. Consequently, the application which is before the Court, relying on section 75-43 of the Insolvency Practice Schedule (Corporations), is ill-founded as sub-section (1)(b) is not satisfied.
In any event, I would not have been minded to grant the relief sought.
First, Mr Tai is concerned that Mr Gladman did not send the notice of his appointment to Mr Tai in Hong Kong by means other than post, or to his Australian solicitors. Mr Gladman cannot be blamed for this, it seems to me, as he simply acted on the basis of inadequate information he was given by Mr Flynn.
Second, Mr Tai criticises Mr Gladman's report to creditors as apparently showing a serious lack of critical analysis. I do not think Mr Tai's criticisms are a fair assessment of Mr Gladman's report, which seems to have identified each of the transactions about which Mr Tai is concerned and expressed an intention to investigate them.
Third, Mr Tai considered Mr Gladman's reasons for exercising his casting vote to be unreasonable and to show a lack of judgement in circumstances where Mr Gladman was aware that Mr Crilly and Mr Moustacas were holding themselves as creditors in order to advance the position of their client, Mr Flynn. As I have already said, Mr Crilly and Mr Moustacas were not obliged to sell their debts to Mr Tai, nor can criticism be made of Mr Gladman as a consequence of their refusal to do so.
Fourth, unlike Iris Diversified Property and Brisconnections Management Company Ltd v Burness [2009] FCA 626; (2009) 72 ACSR 233, none of the creditors are "truly independent". Both profess an interest in investigating the affairs of the company.
Fifth, Mr Tai says that it may be necessary for the liquidator to investigate Mr Moustacas, including at a public examination. Mr Tai does not consider it appropriate for any such investigation to be carried out by a liquidator who obtained the liquidation role by way of referral from Mr Moustacas. Whilst I doubt that Mr Gladman is so faint-hearted, he is on notice that Mr Tai expects Mr Gladman to fully discharge his obligations as a liquidator.
Sixth, and probably most significant, Mr Tai does not have confidence in Mr Gladman and wants Mr Flynn's conduct to be investigated by a person other than Mr Gladman, who was appointed by Mr Flynn. Mr Tai has offered to provide $40,000 of initial funding for such investigations, if and only if the liquidators are replaced. The availability of funding for the liquidator is a relevant, but not determinative, consideration. It has to be balanced against the work which has already been done by the current liquidator. As Black J said in In the matter of ACN 151 726 224 Pty Ltd (in liq) previously Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 at [44]: … It also does not follow that, even if the Court might be prepared to appoint a special-purpose liquidator, because of the view as to funding taken by a particular creditor, whether reasonably or unreasonably, it should remove an existing liquidator simply because a particular creditor, for whatever reason, will not fund work by that liquidator.
The amount of funding offered does not seem to me to do any more than enable the new liquidators to effectively replicate the work of the current liquidator, but probably not materially advance the liquidation overall. Those funds, it seems to me, would be better directed to funding the current liquidator to advance the work already commenced. Mr Gladman appears to me to be ready, willing and able to undertake the necessary investigations and has already conducted preliminary work to enable him to do so in a cost-effective manner.
In their Originating Process the plaintiffs relied, in the alternative, on section 459A or section 461 and section 472 of the Corporations Act. The advantage which it was said attached to a Court-appointed liquidator rather than the liquidator having been appointed by creditors is that it would mean that both companies would be subject to identical processes. This does not appear to me to confer any particular advantage in circumstances where Glenfyne Farms has had a liquidator since October 2018, and a liquidator is yet to be appointed to GI Commercial. The process will not be aligned as matters already stand. Nor would that, itself, warrant the additional expense entailed with replacing the current liquidator.
In written submissions, although not in the Originating Process, the plaintiffs sought, in the alternative, to rely on section 90-15 of the Insolvency Practice Schedule (Corporations), which provides: The Court may make such orders as it thinks fit in relation to the external administration of a company.
Such orders include that a person cease to be the external administrator of the company or that another registered liquidator be appointed as the external administrator: section 90-15(3)(a) and (c). Subsection (4) specifies matters that may be taken into account before making such an order, being: (a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and (b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and (c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and (d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and (e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
These considerations, albeit not exclusive, suggest that there should be some failure on the part of the liquidator to attend to their duties before an order is made under section 90-15. This is confirmed by subsection (5), which empowers the Court to make orders that an external administrator be personally liable for the costs of an application for such an order and, in subsection (6), the power to order that an external administrator is personally liable to make good losses caused to the company. However, I note that Black J did not approach section 90-15 as so confined in In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282, where his Honour made an order under section 90-15 to terminate a member's voluntary winding up.
The plaintiffs submit that an order should be made under section 90-15 because Mr Flynn agrees to Mr Gladman being replaced, and so the only question is whether the replacement should be those put forward by Mr Tai or someone else. I do not think this accurately reflects the terms of Mr Flynn's correspondence on this issue. Nor do I see any reason to make an order under section 90-15.
For these reasons, I dismiss the application in respect of Glenfyne Farms and appoint Mr Gladman as liquidator of GI Commercial, subject to receiving a consent to act as such.

Orders

In proceedings 2018/357721, I make the following orders: 1. Dismiss the proceedings. 2. Plaintiffs to pay the defendants' costs of the proceedings.
In proceedings 2018/357706, I make the following directions: 1. Direct the parties to submit a form of consent from Steve Gladman to be appointed as liquidator of GI Commercial Pty Ltd within 7 days, together with a form of order to give effect to that appointment, including: 1. An order pursuant to section 461(1)(k) of the Corporations Act 2001 (Cth), ordering the winding up of the defendant corporation. 2. An order that the plaintiff's costs be its costs in the winding up. 1. If consent is not available, grant liberty to re-list the proceedings.

Amendments 20 June 2019 - [52] - by consent of the parties: "not" added before "approach". 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: 20 June 2019

Corporations Act 2001(Cth)ss 459A, 461, 472

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