Beckwith, Re; Ex parte Power v Power

Supreme Court of NSW|2005-04-01|Before: Einstein J, Moynihan J

CITATION : In Re Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 [2005] NSWSC 392

Equity Division JURISDICTION : Commercial List

DECISION : Leave granted to liquidator to enter compromise.

CATCHWORDS : Corporations Act - Leave to liquidator to enter compromise

ANZ Savings Bank Ltd, Re [1972] VR 690 Beckwith, Re; Ex parte Power v Power (1993) 43 FCR 256 Enterprise Sheet Metal Pty Ltd (in liquidation) v Queensland Steel and Sheet Pty Ltd [1995] 1 Qd R 511 GA Listing & Maintenance Pty Ltd & the Corporations Law, Re (1994) 15 ACSR 308 Hawkins v Bank of China (1992) 26 NSWLR 562 CASES CITED : Holmes v Hall (1705) 6 Mod Rep 161 Luxtrend Pty Limited (in liq) Re, [1997] 2 Qd R 86 Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 Ogdens Ltd v Weinberg (1906) 95 LT 567 Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150 Webb v Stenton (1883) 11 QBD 518

Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 (Plaintiff) PARTIES :

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

Friday 1 April 2005 ex tempore Revised 27 April 2005

2211/05 In Re Gate Gourmet Australia Pty Limited (In Liquidation) ACN 089 347 562 JUDGMENT 1 I grant leave to Gate Gourmet Australia Pty Ltd (in liquidation) ["Gate Gourmet"] to file in court (1) a summons in the form which I initial and date 1 April 2005, and (2) an affidavit by Mr Steven John Sherman made on 1 April 2005. I order that the summons be heard instanter. I note the undertaking given to the Court by Clayton Utz to pay the usual court filing fees on the filing of the summons. 2 The summons seeks leave pursuant to ss 477(2)A and 477(2)B of the Corporations Act 2001 to be granted to the liquidator of Gate Gourmet to cause the company to enter into a compromise of the proceedings in terms of exhibit SJS 1 to Mr Sherman's affidavit. The summons further seeks a s 479(3) Corporations Act 2001 direction authorising the liquidator of Gate Gourmet to cause the company to enter into a compromise in terms of exhibit SJS 1 to Mr Sherman's affidavit. 3 It is unnecessary to recite in any real detail proceedings 50180/01 for the reason that the judgment delivered on 31 March 2005 in relation to the proceedings is self-explanatory. Suffice it to say that Mr Sherman's affidavit shortly summarises the history of the proceedings in paras 10 to 13. 4 S 477(2)A is in the following terms:

"Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than: (a) if an amount greater than $20,000 is prescribed - the prescribed amount; or

(b) otherwise - $20,000." 5 S 477(2)B of the Corporations Act 2001 is in the following terms:

"Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a charge) if:

(a) without limiting paragraph (b), the term of the agreement may end; or

(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months." 6 Mr Coles QC has taken the Court to Luxtrend Pty Limited (in liq) Re, [1997] 2 Qd R 86 on the question of whether or not the proposed compromise is a compromise of a debt to the company. Moynihan J in that decision said:

"The power contained in s477(1)(d) of the Law is sufficiently widely expressed to encompass settlement of a preference claim. The question which then arises is whether such a claim is a debt in terms of subs(2A).

Generally speaking, a debt is a chose in action founding an action for debt; Ogdens Ltd v Weinberg (1906) 95 LT 567 (HC). The characteristic of a debt is that it is a sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future: Webb v Stenton (1883) 11 QBD 518 at 526; Re ANZ Savings Bank [1972] VR 690 at 692. In the latter case it was held there was no debt because there was no present obligation to pay; for that to arise required the performance of a condition precedent - presentation of a passbook and a completed withdrawal slip. It may be doubted that a preference payment constitutes a debt in the sense referred to in this case.

A preference action is characteristically an action for monies had and received; Enterprise Sheet Metal Pty Ltd (in liquidation) v Queensland Steel and Sheet Pty Ltd [1995] 1 Qd R 511 at 512 and 513. An action for moneys had and received was traditionally brought on an indebitatus count rather than in debt - cf Holmes v Hall (1705) 6 Mod Rep 161; 87 ER 918; Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676.

A payment said to constitute a preference is, at the time at which it is made, a valid discharge or the debt. Whether a liquidator is entitled to avoid a payment as a preference is subsequently determined by the court.

The considerations being those adverted to, I am of the view that a preference payment is not a debt in the sense I have been discussing.

The question then is whether "debt" has any wider or different meaning in the context of the Law when it is used in s477(2A).

In the context of s556 of the Code (now s592 of the Law) the New South Wales Court of Appeal has held that "debt" included an undertaking to pay a sum of money at a future time even though the undertaking was conditional and the amount uncertain. It thus covered obligations under a guarantee - Hawkins v Bank of China (1992) 26 NSWLR 562, 570-572, 576-578 (CA); cf Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150, 153 (FC). This was explained in Re Beckwith (1993) 43 FCR 256, 271 as being limited to a conditional but unavoidable obligation to pay a sum of money (as on a guarantee).

In Hawkins it was said to the effect that "debt" must be construed wherever it appears in the Corporations Law "in a practical and commonsense fashion, consistent with the context and with the statutory purpose". Even so, it was difficult to conclude that an amount recovered in the preference action is a conditional but unavoidable obligation in the sense used in Hawkins." 7 Importantly, Moynihan J drew upon Hawkins v Bank of China (1992) 26 NSWLR 562 where the New South Wales Court of Appeal held that a "debt" in the context of s 556 of the Code (later s 592 of the Law), included an undertaking to pay a sum of money at a future time even though the undertaking was conditional and the amount uncertain and, further, held that the word "debt" thus covered obligations under a guarantee. 8 I am satisfied in terms of the circumstances presently before the Court that the liquidator is seeking to compromise claims due by the active defendants to the company in liquidation in the proceedings presently fixed for hearing to commence in early May. It is quite clear to my mind that the compromise engages the terms of s 477(2)A of the Corporations Act 2001. 9 The proper approach to be taken by the Court when deciding whether or not to grant approval on a s 477(2A) application is summarised in McPherson, the Law of Company Liquidation (4th Ed) at p 334 in the following terms:

"When deciding whether or not to grant approval the court will usually rely on the liquidator's commercial judgment. In considering the settlement of legal proceedings, the liquidators are expected to obtain advice from practitioners appropriate to the nature and value of the claims. Where large sums are involved courts expect liquidators to secure the advice of an experienced counsel, someone with at least seven years' experience. Approval of a compromise can be granted retrospectively by the court, so that a party to a compromise is unable to say that he or she is not bound by it, even though at the time the compromise was made, no court approval had been secured.

In determining whether to approve a compromise in relation to an insolvent company's affairs, a court's prime consideration is whether the compromise is for the benefit of the creditors." 10 Likewise, McPherson details the circumstances where s 477(2B) may be engaged as follows:

"Section 477(2B) provides that unless approval of the court, the committee of inspection or a resolution of creditors is secured, then a liquidator is not permitted to enter into an agreement on the company's behalf if the term of the agreement may end or the obligations of a party to the agreement may be discharged more than three months after entering into of the agreement, even if the obligations under the agreement may be discharged within the three-month period.

In hearing the application of a liquidator for approval under s 477(2B) it is not the role of the court to reconsider all of the issues that the liquidator has considered as if it were hearing a matter de novo; rather the court's role is: "simply to review the liquidator's proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the 'expeditious and beneficial administration' of the winding up…"

In Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 Young J of the New South Wales Supreme Court granted leave under this provision to a liquidator. In this case the company was a real estate developer which owned a number of properties. The liquidator took the view that unless the properties were sold in an orderly manner he would not be able to obtain an optimum price and may not be able to get sufficient sums to even pay off the secured creditors. The liquidator proposed to lease the properties for terms in excess of three months. Young J held that leave should be granted where a court can see that the transaction proposed is really for the proper realisation of the assets of the company or assists its winding up. His Honour went on to add a cautionary word: "I should note, however, that the power of the liquidator is to realise the assets and his powers are only to be exercised as far as necessary, for the beneficial winding up. Thus it is sufficient that the liquidator feels that it would be beneficial to carry on a business or lease for the purpose of generating profits or for the purpose of financial reconstruction."" [page 334-335] 11 Approaching s 477(2A) as well as s 477(2B) in the fashion summarised by the learned author of McPherson, Law of Company Liquidation, I am entirely satisfied that the provisions of the Deed of Settlement dated 31 March 2005, which is exhibit SJS 1 to Mr Sherman's affidavit of 1 April 2005, are appropriate to receive the approval of the Court requisite under both ss 477(2A) and 477(2B). It is unnecessary to do more than to indicate that the liquidator of the plaintiff has sworn that in his opinion the compromise embodied by the Deed of Settlement represents a good, if not excellent settlement of the subject proceedings for the reasons given in paragraph 29 of that affidavit, those reasons being the following:

"(a) it will ensure that the plaintiff's employees received their employee entitlements, such as long service leave, superannuation and holiday leave in full (as many employees have already been compensated under the statutory GEERS scheme, the Federal Government are subrogated to their rights and therefore will receive part of the settlement sum by way of reimbursement as a priority creditor);

(b) the Seventh Defendant has made it plain in negotiations that it is facing financial uncertainty and that if proceedings continue uncrystallised for a further year, the Plaintiff may well be left with a "worthless" Judgment;

(c) the Seventh Defendant has made it plain that if the proceedings continue, it intends to pursue all points available to it, including rights of appeal; and

(d) these proceedings are the last substantive matter outstanding in the liquidation of GGA which has now been ongoing for some 4 years. Conclusion of these proceedings will therefore permit the liquidation to be finalised and a final distribution to creditors made once the settlement sum is received in full." 12 A sensible approach appears to have been taken to the prospects of the plaintiff in the proceedings. A sensible approach appears to have been taken to the recognition of the fact that absent a settlement, appellate proceedings may well have taken a considerable time. A sensible approach appears to me to have been taken to the stepped question of payment of the settlement sum in instalments and to the carefully worded consent judgments in escrow provided for in a scheme generally set out in cl 7 of the Deed. 13 Proceedings of the type, the subject of the Deed of Settlement, have many complexities and I am entirely satisfied in all of the circumstances that the proper exercise of the Court's principled discretion is to make each of the orders sought in the summons. For those reasons, I make orders in terms of paras 1, 2, 3, 4 and 5 of the summons in the form which I initial and date 1 April 2005. I certify that paragraphs 1 - 13 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 1 April 2005 ex tempore and revised on 27 April 2005

      Susan Piggott
      Associate

27 April 2005

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.

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