Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd ACN 009 395 751

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.'