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[2006] FCA 135
Federal Court of Australia
2006-02-16
Mr J, Siopis J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 This is an application for the winding up of Westpoint Corporation Pty Ltd ('the company'). On 24 January 2006, receivers and managers were appointed to the company. On the same day the sole director of the company, Mr Norman Carey, appointed Mr Ian Francis and Mr Michael Ryan, of Taylor Woodings, as administrators of the company and they have acted as administrators of the company since then. 2 The application for winding up is brought by the Australian Securities and Investments Commission ('ASIC'). The ground upon which the application is brought is that the company is insolvent. The application is supported by the Australian Taxation Office, a major creditor, and is also supported by the receivers and managers of the company. The administrators do not oppose the making of the winding up order. 3 The affidavits which are relied upon by ASIC and the various parties that have been given leave to appear are as follows. ASIC relies upon the affidavits of Mr R Gomm of 19 December 2005, Mr K Chin of 19 December 2005, 23 December 2005 and 20 January 2006, Mr S Mullins of 7 February 2006, Mr D Jackson of 7 February 2006 and the affidavit of Mr J Herbert of 16 February 2006. The Deputy Commissioner of Taxation relies upon the affidavits of Ms N Rice of 23 December 2005 and 6 February 2006. The receivers and managers of the company rely upon the affidavit of Mr O Zohar of 10 February 2006. Mr O Zohar is one of the receivers and managers of the company. 4 I have given leave to two companies, North Sydney Finance Limited (In Liquidation) ('North Sydney Finance') and Emu Brewery Mezzanine Limited (In Liquidation) ('Emu Brewery Mezzanine') to appear and make submissions at this hearing. Mr Jones and Mr Weaver have been appointed as the liquidators of each of the respective companies. Each company is one of a number of companies within the Westpoint group of companies, referred to in the papers as mezzanine companies. The mezzanine companies are companies that borrowed money from members of the public and on‑lent that money to companies within the Westpoint group of companies. The mezzanine companies are the beneficiaries of guarantees by the company for the repayment of those loans so that the mezzanine companies, and claim to be creditors of the company. The liquidators have filed proofs of debt of $12,370,370.40 in respect of North Sydney Finance and $25,288,098.98 in respect of Emu Brewery Mezzanine. 5 The reason why I have given leave for those companies to appear today is because there is a controversy as to who should be appointed as liquidators of the company. The liquidators of those companies wish to make submissions only in relation to this controversy. 6 The controversy arises because Mr Herbert and Mr Read, with the support of ASIC, have consented to act as liquidators of the company; and the administrators, Mr Francis and Mr Ryan have also indicated that they are prepared to act as liquidators of the company. Mr Jones and Mr Weaver in their capacity as liquidators of North Sydney Finance and Emu Brewery Mezzanine support the appointment of Mr Francis and Mr Ryan as liquidators of the company. They rely upon the affidavits of Mr Jones of 14 February 2006 and two affidavits of Mr Francis dated 9 February 2006 and 15 February 2006, respectively. 7 There were also notices of intention to appear given by some persons claiming to be creditors to oppose the winding up, but no appearance has been made by those persons today and so no affidavits are read. 8 Mr Colvin SC, on behalf of ASIC, has asked me to exercise my discretion under s 467(3) of the Corporations Act 2001 (Cth) to dispense with the requirement under r 5.5(3) of the Federal Court (Corporations) Rules 2000 ('the Corporations Rules'), with respect to the time for the filing and serving of the consent by Mr Herbert and Mr Read to act as liquidators of the company, which was filed and served one day late. I will make the order dispensing with compliance with r 5.5(3) of the Corporations Rules. 9 There is no opposition to the making of an order winding up the company. On the undisputed evidence of Mr Zohar, the company is what he describes as 'hopelessly insolvent' with an estimated deficit of $451 million. I will, therefore, make orders for the winding up of the company. 10 It is necessary to now consider the question of who should be appointed as the liquidators of the company. The relevant evidence in relation to this issue is as follows. Mr Herbert and Mr Read are the provisional liquidators of Westpoint Management Pty Ltd, a company which is one of a large number of companies which are related to the company and which are referred to as the Westpoint group of companies. There is evidence from Mr Herbert and Mr Zohar that the affairs of the company are substantially intertwined with the affairs of Westpoint Management Pty Ltd. 11 There is also the evidence of Mr Francis. He has stated that there are at least seven separate loan accounts between the company and Westpoint Management Pty Ltd in its own right and in its capacity as trustee of the 297 Murray Street Trust, the 60 Market Street Trust, the Paragon Apartments Trust, the Warwick Cinema Syndicate Trust, and in its capacity as the responsible entity of two separate managed investment schemes being the Warnbro Fair Syndicate Trust and the Paragon Commercial Syndicate Trust. Mr Francis goes on to depose that the balance of those loan accounts, as set out in the books and records of the company to which he has had access, appear to be as follows. In its own right, Westpoint Management Pty Ltd is a creditor for $1,010,446.91, the 297 Murray Street Trust is a debtor of $14,358,045.90, the 60 Market Street Trust is a debtor of $16,458,041.56, the Paragon Apartments Trust is a debtor of $324,065.96, the Warwick Cinema Syndicate Trust is a debtor for $20,729.41, the Warnbro Fair Syndicate Trust is a debtor for $1,457,463.85 and the Paragon Commercial Syndicate Trust is a creditor for $954,781.36. 12 Mr Francis also says that there are some charges which have been given in relation to those debts which may not be valid. 13 Further, Mr Francis says that on 3 February 2006 he was approached by Mr Greg Nairn. Mr Greg Nairn said words to him to the effect that, he was the only director of Westpoint Management Pty Ltd, and he was going to apply to Court on 6 February 2006 for the appointment of a provisional liquidator to Westpoint Management Pty Ltd and that he wanted Mr Ryan and Mr Francis to act as provisional liquidators of Westpoint Management Pty Ltd. Mr Francis says that, after having given the matter some consideration, he said to Mr Nairn on 3 February 2006 words to the effect that given the position of the loan accounts between the companies and the issues of the charges, he and Mr Ryan would not be able to accept the appointment because he considered there was a conflict of interest given their role as administrators of the company. 14 Further, in his evidence, Mr Francis says that his firm, Taylor Woodings, has undertaken a considerable amount of work since the commencement of the administration. He says that he and his staff have performed in excess of 1000 hours of work in relation to the administration of the company, and he says that in particular, they have spent over 590 hours investigating the affairs of the company, and reporting to the creditors. Mr Shaw, on behalf of North Sydney Finance and Emu Brewery Mezzanine, has taken me to an annexure to the affidavit of Mr Francis which indicates that the amount of money which is said to be chargeable in respect of those investigations is $153,230.00. 15 As a consequence of carrying out that work, Mr Francis has produced a draft report to creditors which he has exhibited to his affidavit. This indicates that a fair amount of work has been done. However, and significantly, Mr Francis has included the following paragraph in his executive summary of that report. At par 2.2 Mr Francis says: 'This report is based on a review conducted of certain books of the Company and files held by Freehills (the Company's legal adviser prior to our appointment) and meetings and discussions with the Company's former senior executives. Given the limited time since our appointment, the size and complexity of the Westpoint Group, in respect for which the Company acted as a central treasury and conducted most cash transactions, and the books and records being held by the Receivers who have limited our access to the relevant financial information, it has not been possible to conduct a complete review. As such this report should be considered as a preliminary report of our findings. A more detailed investigation will be undertaken by the Liquidator, should one be appointed.'
16 Mr Herbert has said in his affidavit that he has been asked by Mr Jackson of ASIC whether the appointment of Mr Read and himself as liquidators would lead to additional costs to the creditors of the company. Mr Herbert has said that he believes that the appointment of himself and Mr Read as liquidators will not lead to further costs to the creditors of the company. One reason he gives for this view is that if appointed he and Mr Read propose to request the files of Taylor Woodings, the administrators' firm, and use the information on those files. He also says that, to the extent that there is a need to undertake work to replicate work undertaken by Taylor Woodings, he undertakes to the Court that he and Mr Read will not seek approval of costs or fees from creditors of the company in respect of this work. 17 Mr Herbert goes on to say that through his limited investigations of the affairs of Westpoint Management Pty Ltd to date: '...it would appear that the operating systems, document control, management systems, directorships and other matters relating to these to have been undertaken in common. I believe that my appointment as liquidator, together with Mr Read, will allow significant synergies to be offered to the creditors, reducing costs of the liquidation.' 18 I deal now with the submissions of the parties. 19 Senior Counsel for ASIC, made submissions in support of the appointment of Mr Herbert and Mr Read as liquidators. He submitted that the company is part of a group comprising a large number of companies and Mr Herbert and Mr Read were already in control of Westpoint Management Pty Ltd ‑ another of the companies in the group. He submitted that a factor which should be taken into account in considering whether to appoint Mr Read and Mr Herbert, is that the affairs of Westpoint Management Pty Ltd and the company are substantially intertwined, and that the on‑going investigations would be assisted if there was one set of liquidators in respect of both companies. Further, he submitted that the appointment of the same persons as liquidators to the companies in a group of companies would be more efficient and would reduce the costs of the administration. It was in the interests of creditors, generally, if expenses were reduced. 20 Senior counsel also submitted that there was no real conflict between the roles which Mr Herbert and Mr Read might have to perform as liquidators of the company and as provisional liquidators of Westpoint Management Pty Ltd. He submitted that the authorities are to the effect that it is desirable that where companies in a group go into liquidation, to the extent that it is possible to do so without there being a real conflict of interest, one liquidator should be appointed to the companies in liquidation. Mr Colvin SC relied upon the following observations of Lehane J in the case of Re Chilia Properties Pty Ltd, (admin apptd) (1997) 154 ALR 179 at 180 ('Chilia'): '…it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator.' 21 Mr Colvin SC further submitted that, where there were dealings within a group of companies between companies that were under the effective control of the same persons, in assessing real conflict, a distinction should be drawn between dealings which affected the interests of external creditors and other external interests, and those which did not. Mr Colvin SC also submitted that it is well accepted that the courts would appoint a single liquidator to a group of companies, notwithstanding that there might be some possible theoretical conflict, on the basis that if a real conflict emerged during the course of the administration, that the liquidator could then make alternative arrangements as to how to deal with the real conflict. The fact that there might be a theoretical conflict should not be an inhibition on the appointment of a single liquidator. 22 Further, senior counsel for ASIC, submitted that a relevant consideration to be taken into account is the expressed position of the creditors. He said that the secured creditor, represented by the receivers and managers of the company and the Australian Taxation Office both supported the appointment of Mr Herbert and Mr Read as liquidators. 23 Mr Colvin SC also acknowledged that in their capacity as administrators Mr Francis and Mr Ryan had carried out work in relation to the affairs of the company. However, he said that there is a difference in the nature of the work performed in discharge of the duties of an administrator, and the work that a liquidator would be required to perform. He said that a substantial amount of the work which was carried out by Mr Francis and Mr Ryan was in discharge of their duties as administrators. 24 Mr Colvin SC also submitted that the Court should take into account that these administrators were appointed to their position by a director of the company and this could give rise to the spectre of a lack of independence on the part of Mr Francis and Mr Ryan. 25 Mr Thomson who appeared on behalf of the receivers and managers of the company, also made submissions in support of the appointment of Mr Herbert and Mr Read. He said that in the event that there were two sets of liquidators appointed, one to the company and one to Westpoint Management Pty Ltd, the receivers and managers would have to deal with two firms of insolvency practitioners. This would increase the costs of the receivership with the consequence that on the termination of the receivership there would be less money available to the unsecured creditors. He submitted that having different liquidators would result in inefficiencies. 26 Mr Thomson also referred to Sisu Capital Fund Ltd v Tucker [2005] EWHC 2170 (Ch) ('Sisu Capital') particularly at pars 103‑115, of the judgment of Warren J, in support of the proposition that courts are not inhibited by the fact that there might be theoretical conflicts, where considering whether to appoint a single liquidator to a number of companies within a group of companies. 27 Mr Thomson made the similar arguments to those advanced by Mr Colvin SC against the proposition that because Mr Francis and Mr Ryan had already undertaken work in investigating the affairs of the company, it would be more efficient if they were appointed as the liquidators. He also submitted that if Mr Francis and Mr Ryan were appointed there might be some suspicion that they were not sufficiently independent of Mr Carey, because Mr Carey had appointed them to the position of administrators. 28 Mr Shaw, for North Sydney Finance and Emu Brewery Mezzanine, made submissions in support of the appointment of Mr Francis and Mr Ryan as liquidators. 29 Firstly, he submitted that there could be no perception of lack of independence on the part of Mr Francis and Mr Ryan arising from the fact that they and been appointed as administrators by the sole director of the company. He submitted that was a frequent occurrence for administrators who had been appointed by the directors with the object of putting together a deed of company arrangement, subsequently to become liquidators. He then pointed to the fact that there were already a significant number of insolvency practitioners appointed to the various companies in this group that are in external administration. 30 He also submitted that the appointment of Mr Francis and Mr Ryan would promote efficiency. He said that much of the work in respect of the investigation of the company's affairs has been done and that there was, therefore, an advantage in appointing the incumbent administrators. He said that Mr Herbert and Mr Read recognised that if they were appointed they would have to undertake further work to catch up. He submitted that it would be more efficient to appoint persons who did not have to catch up. 31 I have come to the view that Mr Herbert and Mr Read should be appointed as liquidators for the following reasons. 32 Firstly, I agree that the observations made by Lehane J in Chilia, referred to above, state the principles to be applied in this case. The principles are also reflected in the following observations by Hoffmann J (as he then was) in Re Arrows Ltd [1992] BCC 121, which were cited with approval by Warren J in Sisu Capital: '…It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross‑claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.' 33 I accept the arguments advanced by Mr Colvin SC and Mr Thomson that in the situation where there is no obvious and real conflict but there is a possibility of a theoretical conflict, a court should not thereby be inhibited from appointing a single set of liquidators when that would advance the efficiency of the liquidation, and result in fewer fees being charged in respect of the liquidation. 34 I am not satisfied that on the evidence that is before me that there is any real conflict in the sense that that concept is recognised in the cases. There is no evidence the appointment of Mr Herbert and Mr Read to the position of liquidators of the company would adversely affect the interests of external creditors or other external interests. The evidence of Mr Francis as to the inter‑relationship between Westpoint Management Pty Ltd and the company does not demonstrate any such prejudice. 35 I am also confident that in the event that any real conflict does emerge that the liquidators will approach the Court and seek directions in relation to how to deal with that conflict, as is foreshadowed in the authorities. 36 Secondly, as to the question of the extent of work that has already been done, I accept that the administrators have done some good work in relation to the investigation of the affairs of the company as is evidenced by the draft report to creditors of 13 February 2006, exhibited to the affidavit of Mr Francis. However, as is recognised in that document itself, the amount of work which will be required to be done in the conduct of a liquidation of this size and of this complexity would be substantially more than has already been done. Therefore, the fact that there has been some work done in investigating the affairs of the company, does not, in my view, operate as a decisive factor in favour of appointing the administrators as liquidators. 37 Further, the position that is deposed to by Mr Herbert in his affidavit that no fees will be claimed in relation to any catching up, operates as a significant factor to counter any concerns relating to any duplication of work that may arise from appointing Mr Herbert and Mr Read as liquidators. In my view, the synergies which will be achieved by appointing them as liquidators to the company outweigh any difficulties that might be associated with any catching up. 38 Thirdly, I accept that whilst the expressed views of the creditors are not decisive they should be taken in to account. In this case, however, there are some creditors who opposed the appointment of Mr Herbert and Mr Read, and some who favoured it. Accordingly, I do not regard this factor as a decisive factor in my determination. 39 Finally, it was submitted that Mr Francis and Mr Ryan should not be appointed because, having been appointed by Mr Carey, there would be a perception of lack of independence. I do not take that factor into account because I do not accept that submission. I accept the submission of Mr Shaw that it is often the case that administrators are appointed as liquidators, notwithstanding that they are initially appointed as administrators by the directors of the company. There is no evidence before me which could cause me to question the independence of Mr Francis and Mr Ryan. 40 I will make orders in terms of the minute of orders provided to me by ASIC.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.
Counsel for the Plaintiff: Mr C G Colvin SC
Solicitors for the Plaintiff: Australian Securities and Investments Commission
Counsel for the Defendant: Mr J A Thomson
Solicitors for the Defendant: Corrs Chambers Westgarth
Counsel for the Deputy Commissioner of Taxation: Ms E Chong
Solicitors for the Deputy Commissioner of Taxation: Australian Taxation Office
Counsel for North Sydney Finance Limited (In Liquidation) and Emu Brewery Mezzanine Limited (In Liquidation): Mr D B Shaw
Solicitors for North Sydney Finance Limited (In Liquidation) and Emu Brewery Mezzanine Limited (In Liquidation): Shaw & Associates
Counsel for the Administrators: Mr A R Beech SC
Solicitors for the Administrators: Tottle Partners
Date of Hearing: 16 February 2006
Date of Judgment: 16 February 2006
Australian Securities and Investments Commission
Westpoint Corporation Pty Ltd ACN 009 395 751
(1997) 154 ALR 179