Australian Securities and Investments Commission v Letten

Applicable Principles 12 The applicable principles were not in dispute. 13 The power to authorise the sale of the Low Head Properties is derived from various sources - s 601EE of the Corporations Act to the extent that the Properties are property of the Scheme and otherwise the Court's inherent power to authorise the sale consequent upon the appointment of the Receivers by the Court: Australian Securities and Investment Commission v Letten (No 7) [2010] FCA 1231 at [269] to [271]; Australian Securities and Investments Commission v Letten (No 8) [2010] FCA 1458 at [10]; AIDC v Co-operative Farmers and Graziers Direct Meat Supply Ltd. [1978] VR 633 at 643. 14 The Receivers submitted (and I accept) that although the Court has a broad unfettered discretion (Letten (No 8) at [11] and AIDC at 647-8), the Court may take into account the interests of all creditors and other stakeholders. Letten (No 8) at [11]. 15 As was stated in Letten (No 8) at [11], one way of approaching the current issue (but not the sole way) was to enquire whether the Receivers had discharged the duty imposed on them by s 420A of the Corporations Act. That section provides: In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value - not less than the market value; or (b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. 16 In ascertaining whether a controller has taken all reasonable care in the sale of a property pursuant to s 420A of the Corporations Act, the section necessitates an assessment or enquiry into the process adopted by the Receivers in selling the property: Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 at [442] - [443] and Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565 at [126]. The actions of the controller in selling the property (in this case the Receivers) is of course a human endeavour which requires "the exercise of judgment, taking into account all the relevant variables and circumstances of the particular case": Letten (No. 8) at [12] also referring to Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 at [442] - [443] and Artistic Builders Pty Ltd at [126]. 17 The Receivers must act in good faith and not in a manner which is unconscionable. So, for example, the Court may refuse to authorise a sale if another course of action can be pursued to the benefit of all parties concerned: AIDC at 649 and 652 and see also Re Buenos Aires Port and City Tramways Limited (1920) 123 LT 748 at 750. However, a Court will usually sanction an immediate sale if the only alternative is for the Receiver to continue his or her management of the company indefinitely: see Company Receivers and Administrators by O'Donovan (Thomson Reuters) at [23.3510]. In the present case, the proposed course does not necessarily involve a sale but such a course will be permitted by the Court if that course is one which is sound in the all the circumstances. 18 A mortgagee in exercising a power of sale must act in good faith: Kennedy v De Trafford [1896] 1 Ch 762 at 772; MBF Investments Pty Ltd v Nolan [2011] VSCA 114 at [65] - [66]. That duty is, by analogy, very close to the exercise of a power of sale by a receiver: AIDC at 647. It is when a mortgagee's conduct in a sale departs from such reasonable standards as to be unconscionable that the mortgagee's power of sale may be impugned: Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation [1995] NSW Conv. R. 55-731 at 55,650.

sale process 19 Against that background, I turn to the sale process undertaken by the Receivers. It involved the sale of the Low Head Tourist Park and 40 Gunn Parade. 20 Valuations were obtained on 12 April 2010. The sale process undertaken by the Receivers was rigorous, mandating, in the case of the Low Head Tourist Park, a tender process. The Receivers engaged experienced estate agents to conduct the sale process. Both the Low Head Tourist Park and 40 Gunn Parade were advertised for sale in an open market. Limited success was achieved and these properties proved extremely difficult to sell other than at very low prices. The complexities and nuances in the negotiations and the great degree of care performed by the Receivers in the conduct of the sale was provided to the Court in a confidential exhibit. 21 The Receivers submitted and I accept that the properties have proved difficult to sell, in part due to the monies owed to TPTL. The absence of strong buyer activity for the property securing the TPTL debt has created an impediment to sale and any subsequent reduction of the debt. That impediment is removed if the sale of the Low Head Tourist Park is allowed and the appointment of the Receivers in relation to 40 Gunn Parade ceases. 22 The current application before the Court creates no disadvantage to investors because, even if both properties were sold, there would not expected to be a distribution to unsecured creditors or an increase in the pool of funds available for investors in respect of the Low Head Scheme. Further, the remaining debt owed to TPTL after the sale of the Low Head Tourist Park still exceeds the value of the property of 40 Gunn Parade. These facts combined with the accruing penalty interest rate charges and the ongoing receivership costs in respect of the Low Head Properties, satisfy me that it is appropriate to approve the proposed sale of the Low Head Tourist Park. 23 The ultimate result was disappointing. It was below the estimated market value of the Properties obtained in April 2010. However, in the present case, the sale at a price below the estimated market value does not itself mean that the Receivers' duty to take all reasonable care has not been satisfied: Florgale at [410] and Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 256 ALR 104. As noted earlier, the sale process was consistent with the 25 May Orders. The Properties were advertised for sale on the open market resulting in arm's length dealings between the Receivers and potential purchasers. In my view, the Receivers took all reasonable care in obtaining the market value of the Low Head Tourist Park and 40 Gunn Parade, being the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the property. 24 Notwithstanding the disappointing result, I am satisfied that taking into account all the relevant variables and circumstances of this particular case, the Receivers have taken reasonable care to achieve, and have achieved, an acceptable sale of the Low Head Tourist Park, and that the course suggested by TPTL as agreed to by the Receivers, in allowing TPTL to take possession of 40 Gunn Parade is, in the total context of the receivership, a course which should be approved by the Court. 25 I will therefore make the following orders: 1. The Receivers are justified in settling the contract of sale entered into by the Receivers on 8 April 2011 in relation to the land, buildings and fixtures located at: 1.1 128-136 Low Head Road, George Town, Tasmania; and 1.2 the Low Head Tourist Park business located at 136 Low Head Road, George Town, Tasmania; exhibited at exhibit DJT-101 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011. 2. The Receivers are justified in allowing the entry into possession of the property at 40 Gunn Parade, Low Head Tasmania, by the secured lender, Tasmanian Perpetual Trustees Limited. 3. Until further order, Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011, and any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 be placed in a sealed envelope and marked "Confidential: No access without leave of a judge of the Court." 4. Until further order, pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), there be no publication of Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton sworn 11 April 2011 or any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 other than to the Plaintiff and its legal representatives, the legal representatives of the defendants, legal representatives of the non-parties heard on the application, judges of the Court, judges' associates and executive assistants and the Receivers and their legal representatives and staff. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 13 May 2011 ANNEXURE A Scheme Description of property Joint venture manager/s

1. 211 Wellington Road Joint Venture 211 Wellington Road, Mulgrave, Victoria 211 Wellington Road Pty Ltd - Third Defendant
2. Healesville Walk Shopping Centre Joint Venture 251-263 Maroondah Highway, Healesville, Victoria Bluemist Holdings Pty Ltd - Fourth Defendant
3. Howleys Road Joint Venture 40-48 Howleys Road, Notting Hill, Victoria Dellwood Holdings Pty Ltd - Fifth Defendant
4. George Street Joint Venture 34 George Street, Launceston, Tasmania Enmore Enterprises Pty Ltd - Sixth Defendant
5. Cimitiere House Joint Venture 113 Cimitiere Street, Launceston, Tasmania Enmore Enterprises Pty Ltd - Sixth Defendant
6. Reef House Resort 99 Williams Esplanade Palm Cove, Qld - The Sebel Reef House Resort Firbank Arch Pty Ltd - Seventh Defendant Glenline Pty Ltd - Eighth Defendants
7. Queen Street Joint Venture 118 Queen Street, Melbourne, Victoria Gerling Holdings Pty Ltd - Ninth Defendant
8. Low Head Joint Venture 136 Low Head Road George Town, Tasmania, 142 Low Head Road, George Town, Tasmania & 40 Gunn Parade, George Town, Tasmania Low Head Village Pty Ltd - Twelfth Defendant
9. Nicholson Street Joint Venture 127-137 Nicholson Street, East Brunswick, Victoria Nicholson Street Pty Ltd - Thirteenth Defendant Holloway Crest Pty Ltd - Fourteenth Defendant Rosebery Enterprises Pty Ltd - Fifteenth Defendant
10. National Boulevard Joint Venture 144 National Boulevard, Campbellfield, Victoria Rosebery Enterprises Pty Ltd - Fifteenth Defendant
11. Simms Investment Project 626 Pittwater Road, Brookvale, NSW Simms Investments Pty Ltd - Sixteenth Defendant
12. SY21 Retail Complex Project
13. The Glen Centre Joint Venture 673-681 Glenferrie Road, Hawthorn, Victoria The Glen Centre Hawthorn Pty Ltd - Eighteenth Defendant Castello Holdings Pty Ltd - Nineteenth Defendant
14. Twinview Joint Venture 167 Flinders Lane, Melbourne, Victoria Twinview Nominees - Twentieth Defendant
15. Yarra Valley Golf Joint Venture St John of God's Seminary and Henley Farm, Chirnside Park, Victoria Yarra Valley Golf Pty Ltd - Twenty-First Defendant Adina Rise Pty Ltd - Twenty-Second Defendant Albright Investments Pty Ltd - Twenty-Third Defendant Ashfield Rise Pty Ltd - Twenty-Fourth Defendant Bradfield Corporation Pty Ltd - Twenty-Fifth Defendant Copeland Enterprises Pty Ltd - Twenty-Sixth Defendant Devlin Way Pty Ltd - Twenty-Seventh Defendant First Hazelwood Pty Ltd - Twenty-Eighth Defendant Glenbelle Pty Ltd - Twenty-Ninth Defendant Glenvale Way Pty Ltd - Thirtieth Defendant Greenview Lane Pty Ltd - Thirty-First Defendant Hallmark Corporation Pty Ltd - Thirty-Second Defendant Moorleigh Holdings Pty Ltd - Thirty-Third Defendant Norton Ridge Pty Ltd - Thirty-Fourth Defendant Raleigh Glen Pty Ltd - Thirty-Fifth Defendant Redcrest Holdings Pty Ltd - Thirty-Sixth Defendant Suri Corporation Pty Ltd - Thirty-Seventh Defendant Sutton Rise Pty Ltd - Thirty-Eighth Defendant The Virtual Mlmer Pty Ltd - Thirty-Ninth Defendant Tivendale Pty Ltd - Fortieth Defendant Tulloch Downes Pty Ltd - Forty-First Defendant Mainking Pty Ltd - Forty-Second Defendant Topglen Pty Ltd - Forty-Third Defendant Allblue Pty Ltd - Forty-Fourth Defendant Aranbay Pty Ltd - Forty-Fifth Defendant
16. Glenbelle Project Sebel Heritage Lodge Management Lot, Yarra Valley Golf Course, Chirnside Park, Victoria Glenbelle Pty Ltd - Twenty-Ninth Defendant Redcrest Holdings Pty Ltd - Thirty-Sixth Defendant