Brealey v Shields

[2012] NSWSC 1188

Supreme Court of NSW|2012-07-25|Before: Brereton J, Barrett J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2012-07-25

Before

Brereton J, Barrett J

Catchwords

(2009) 262 ALR at 552 FAI General Insurance Co v FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1417 Klaus Maertin Pty Ltd (in liq), Re
Maertin v Klaus Maertin Pty Ltd [2009] NSWSC 618
(2009) 232 FLR 239 Longley v ACN 090 609 868 (in Liq) (formerly Solar Systems Pty Ltd) [2010] FCA 1468

Source

Original judgment source is linked above.

Catchwords

(2009) 262 ALR at 552 FAI General Insurance Co v FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1417 Klaus Maertin Pty Ltd (in liq), ReMaertin v Klaus Maertin Pty Ltd [2009] NSWSC 618(2009) 232 FLR 239 Longley v ACN 090 609 868 (in Liq) (formerly Solar Systems Pty Ltd) [2010] FCA 1468

Judgment (23 paragraphs)

[1]

File numbers cont.: 2. 2004 / 182169; 3. 2006 / 259862; 4. 2004 / 182159; 5. 2004 / 182143; 6. 2004 / 184587; 7. 2004 / 182151; 8. 2004 / 182158; 9. 2002 / 061962

[2]

Judgment (ex tempore) 1HIS HONOUR: There are before the court applications in nine windings-up of companies in the HIH Group ("Group"), representing the fourth of a series of applications by the liquidators of the Group to distribute the surplus in solvent companies, and dividends in insolvent companies, to the contributories and creditors which are themselves other companies in the Group, and, consequent upon some further formal steps being taken, to release the liquidators and deregister the subject companies. 2The first tranche of these applications was considered by Barrett J in FAI General Insurance Co Limited v FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1350; (2009) 262 ALR at 552; and subsequently in FAI General Insurance Co v FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1417, where his Honour addressed many of the relevant principles. I have been guided by the approaches his Honour took, and his Honour's observations relieve me from the need to address more elaborately many of the issues.

[3]

HIH Services Pty Ltd (In Liq) 3It is convenient to commence with the application made in respect of HIH Services Pty Ltd, which is an insolvent company. In that application, a direction is sought pursuant to (Cth) Corporations Act 2001, s 479(3), to the effect that the liquidators would be justified in distributing, in specie, certain assets of the company to its sole creditor - another Group company - those assets being the right of the company to prove in the liquidation scheme of arrangement of yet another Group company. 4In Longley v ACN 090 609 868 (in liq) (formerly Solar Systems Pty Ltd) [2010] FCA 1468; (2010) 276 ALR 728, Finklestein J said that there was no reason in principle why creditors could not unanimously agree to have transferred to them all the assets of a company in liquidation instead of the proceeds of sale of those assets, provided that the rights of contributories were not prejudiced - which they would not be if the assets transferred had a market value that, when taken into account with the costs and expenses of a sale, was less than what was due to the creditors. His Honour considered that there was nothing in the Corporations Act that would render an in specie distribution invalid or contrary to public policy. 5As I have said, HIH Services Pty Ltd (in Liq) is an insolvent company. The assets to be transferred, being rights to prove in an insolvent estate, are less than the value of the creditors' claims, and considerable economies or savings will accrue to the Group from being relieved of the cost of realization and distribution of dividends in respect of the intercompany debts, rather than assigning them as proposed. I therefore make order 1 in the amended interlocutory process. 6The second order claimed is a direction pursuant to Corporations Act, s 1322(4), that the proposed declaration of the final dividend is not invalidated by reason of non-compliance with (Cth) Corporations Regulation 2001, reg. 5.6.65, and, alternatively, that the time for publication of the notice of the intention to declare a dividend in accordance with that regulation be extended. This arises because reg 5.6.65 requires that the liquidator give notice of an intention to declare a dividend not more than two months before the intended date (by publishing Form 546 in the Gazette, and in writing in accordance with Form 547 or 548 to any known potential creditor), and no such notice has been published or given. That said, notice calling for proofs of debt in respect of this company, under reg 5.6.48, was published, and there is, by reason of the wide publicity that has attended the liquidation of the Group, and the extensive investigations that have taken place, a sound basis for the liquidators to form the conclusion, which they have expressed on oath, that they are satisfied that there are no creditors other than the sole internal creditor. Given the nature and the extent of the publicity surrounding this liquidation, and the liquidator's examinations and investigations, the prospect of any interested party being unknown to the liquidators is extremely remote. The publication of the requisite notice is, particularly in the context of this case, procedural in nature. I am satisfied that relieving the liquidator of the consequences of non-compliance with 5.6.65 will not prejudice any person. I therefore make order 2A in the amended interlocutory process. 7The third order sought is the approval of remuneration. I am satisfied that the amounts for past and future remuneration are reasonable in the circumstances. I make order 3 in the amended interlocutory process. 8Orders 4 and 5 in the amended interlocutory process are not sought on this occasion, and are to be addressed on the adjourned date. I am, on the basis of the decisions ultimately made by Barrett J in earlier phase applications, satisfied that it would be appropriate to make the order for destruction of books and records in the terms sought.

[4]

HIH New Zealand Pty Limited (In Liq) 9The second application is made in respect of HIH New Zealand Pty Limited (In Liq), which is a solvent company. In that case, special leave is sought pursuant to Corporations Act, s 488(2), to distribute surplus assets of the company. The company has only one contributory. 10The requirement for "special" leave means no more than that there must be a "particular" grant of leave to make the distribution, rather than its merely being included with other administrative matters [Klaus Maertin Pty Ltd (in liq), Re; Maertin v Klaus Maertin Pty Ltd [2009] NSWSC 618; (2009) 232 FLR 239; citing Re DS Millard & Son Pty Limited (1997) 24 ACSR 71; Re Trussted Fames & Trusses Holdings Pty Limited (in Liq) (unreported, 28 June 2012, NSWSC)]. 11(NSW) Supreme Court Corporations Rules, r 7.9, specifies that the affidavit in support of an application for special leave to distribute a surplus must state how the liquidator intends to distribute the surplus, including the name and address of each person to whom the liquidator intends to distribute, and that at least fourteen days before the date fixed for hearing the liquidator must publish a notice of the application in accordance with Form 15, published in accordance with r 2.11. The evidence - in particular, the affidavit of Ashleigh Jannece Kable sworn 17 July 2012 - proves compliance with those requirements. 12The evidence also establishes that there is a surplus available for distribution. Given that there is only one contributory, the case is a simple one, such that it is appropriate to dispense with the requirement to annex to the order a schedule in accordance with Form 511, as is otherwise required by Corporations Regulation, reg. 5.6.71(1). However, consistent with what has happened in other cases, the order should state on its face to whom the assets are to be distributed, if it is not set out in a schedule [Re Klaus Maerten Pty Limited; Brealey v Shields [2009] NSWSC 1148; Re FAI Car Owners Mutual Insurance Pty Ltd [2009] NSWSC 1350; Re Trussted Frames & Trusses]. Accordingly, I make order 1 in the amended interlocutory process, subject to the addition thereto of the words "to the sole contributory at HIH Overseas Holdings (in liquidation)". 13I make order 2 in the amended interlocutory process. 14Claim 3 is for direction, pursuant to 479(3), that the liquidators would be justified in making an in specie distribution. The constitution of the company provides for an in specie distribution in the case of a winding up, if authorised by a special resolution of a company. The evidence establishes that such a special resolution has been adopted. The resolution specifically refers to a distribution "in kind" of particular assets, and thus addresses the concerns that troubled Barrett J in the earlier cases, to which I have referred. In those circumstances, it might be said the liquidators need no authority or approval from the Court to take that course. However it has been submitted that because, in effect, the liquidators are contracting or dealing with themselves, they ought, as officers of the Court, be entitled to approach the Court for, as it were, endorsement of the course that they propose to take, lest it may otherwise be called in to question. The evidence establishes that the practical effect of what is proposed in this, and the associated cases, is to transfer rights of proof of debt in other Group companies to companies higher in the Group structure, without the cost of realising the debt and declaring or distributing a dividend, or in this case realising the debt and paying the proceeds to the contributory. This will ultimately see a greater fund available for distribution to creditors of the main companies in the Group, and avoid those benefits being further eroded by costs associated with realisation of the debts in the meantime. I am satisfied in those circumstances it is appropriate to give the liquidators the direction that they seek. I make order 3 in the amended interlocutory process. 15The fourth order sought is approval of remuneration, and for reasons expressed in respect of the preceding company, I make order 4 in the amended interlocutory process.

[14]

HIH Services Pty Ltd (In Liq) (1)That, pursuant to section 479(3) of the Corporations Act 2001 (Cth) ("Act"), the Applicants, on behalf of HIH Services Pty Limited (In Liquidation) ACN 004 538 032 ("Company"), are justified in distributing in specie the following asset of the Company to HIH Underwriting Holdings Pty Limited ACN 004 829 494 (In Liquidation) ("HIH UH"), the sole creditor of the Company, in the following manner: (a)the right of the Company to prove in the liquidation or scheme of arrangement of HIH Underwriting and Insurance (Australia) Pty Limited (In Liquidation and Subject to a Scheme of Arrangement) ACN 004 906 110 in the sum of $1,018,658.00 be assigned to HIH UH by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 21 of CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (2)That, pursuant to section 1322(4) of the Act, the proposed declaration of a final dividend to the creditors of the Company is not invalidated by reason of non-compliance with regulation 5.6.65 of the Corporations Regulations 2001 (Cth) ("Regulations"). (3)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicants' remuneration for the liquidation of the Company for the period: (a)10 December 2004 to 4 May 2012 (inclusive), is determined to be $16,674.50 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (4)That, pursuant to rule 7.5(6) of the Supreme Court (Corporations) Rules 1999 (Cth) ("Rules"), the Applicants need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicants' receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

[15]

HIH New Zealand Pty Limited (In Liq) (1)That, pursuant to section 488(2) of the Act, the Applicants be granted special leave to distribute the surplus assets of HIH New Zealand Pty Limited (In Liquidation) ACN 085 065 667 ("Company") to the sole contributory, HIH Overseas Holdings Limited (In Liquidation) ACN 008 636 566 ("HIH OH"). (2)That, pursuant to regulation 5.6.71(1) of the Regulations, the order authorising the distribution of surplus of the Company need not have annexed to it a schedule in accordance with Form 551. (3)That, pursuant to section 479(3) of the Act, the Applicants, on behalf of the Company, are justified in making an in specie distribution of the following surplus assets of the Company in the following manner: (a)the right of the Company to prove in the liquidation of HIH OH in the sum of $37,458,598.02 be released by entering into the Deed of Release in the form of, or substantially in the form of, the document at Tab 23 of Exhibit CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012; and (b)the right of the Company to prove in the liquidation or scheme of arrangement of HIH Casualty & General Insurance (N.Z.) Ltd (In Liquidation) (a company incorporated in New Zealand) in the sum of $182,132.61 be assigned by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 22 of Exhibit CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (4)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicants' remuneration for the liquidation of the Company for the period: (a)10 December 2004 to 4 May 2012 (inclusive), is determined to be $22,302.50 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (5)That, pursuant to rule 7.5(6) of the Rules, the Applicants need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicants' receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

[16]

HIH (Australia) Pty Limited (in Liq) (1)That, pursuant to section 479(3) of Act, the Applicants, on behalf of HIH (Australia) Pty Limited (In Liquidation) ACN 072 126 044 ("Company"), are justified in distributing in specie the following assets of the Company to HIH Insurance Holdings (N.Z.) (In Liquidation) (NZ Co. No. 664527) ("HIH NZ"), the sole creditor of the Company, in the following manner: (a)the right of the Company to prove in the liquidation of HIH Investment Holdings Ltd (In Liquidation) ACN 008 664 293 in the sum of $26,390,696.95; and (b)the right of the Company to prove in the liquidation of HIH Overseas Holdings Ltd (In Liquidation) ACN 008 636 566 in the sum of $22,063,972.69, be assigned to HIH NZ by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 24 of CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (2)That, pursuant to section 1322(4) of the Act, the proposed declaration of a final dividend to the creditors of the Company is not invalidated by reason of non-compliance with regulation 5.6.65 of the Regulations. (3)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicants' remuneration for the liquidation of the Company for the period: (a)21 December 2006 to 4 May 2012 (inclusive) is determined to be $17,033.50 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (4)That, pursuant to rule 7.5(6) of the Rules, the Applicants need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicants' receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

[17]

Mariners on the Water Pty Ltd (In Liq) (1)That, pursuant to s 488(2) of the Act, the Applicants be granted special leave to distribute the surplus assets of Mariners on the Water Pty Limited (In Liquidation) ACN 003 964 109 ("Company") to the sole contributory, FAI Properties Pty Ltd (In Liquidation) ACN 000 099 927. (2)That, pursuant to regulation 5.6.71(1) of the Regulations, the order authorising the distribution of surplus of the Company need not have annexed to it a schedule in accordance with Form 551. (3)That, pursuant to section 479(3) of the Act, the Applicants, on behalf of the Company, are justified in making an in specie distribution of the following surplus assets of the Company in the following manner: (a)the right of the Company to prove in the liquidation or schemes of arrangement of HIH Casualty & General Insurance Limited (In Liquidation and subject to Schemes of Arrangement) ACN 008 482 291 in the sum of $190,245.30; and (b)the right of the Company to prove in the liquidation or schemes of arrangement of FAI General Insurance Company Limited (In Liquidation and Subject to Schemes of Arrangement) ACN 000 327 855 in the sum of $3,160.58, be assigned by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 25 of CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (4)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicants' remuneration for the liquidation of the Company for the period: (a)10 December 2004 to 4 May 2012 (inclusive) is determined to be $15,260.50 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (5)That, pursuant to rule 7.5(6) of the Rules, the Applicants need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicants' receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

[18]

FAI Properties (Qld) Pty Ltd (In Liq) (1)That, pursuant to section 488(2) of the Act, the Applicant be granted special leave to distribute the surplus assets of FAI Properties (QLD) Pty Limited (In Liquidation) ACN 010 511 583 ("Company") to the sole contributory, FAI Properties Pty Ltd (In Liquidation) ACN 000 099 927. (2)That, pursuant to regulation 5.6.71(1) of the Regulations, the order authorising the distribution of surplus of the Company need not have annexed to it a schedule in accordance with Form 551. (3)That, pursuant to section 479(3) of the Act, the Applicant, on behalf of the Company, is justified in making an in specie distribution of the following surplus assets of the Company in the following manner: (a)the right of the Company to prove in the liquidation or scheme of arrangement of FAI Insurances Limited (In Liquidation and subject to a Scheme of Arrangement) ACN 004 304 545 in the sum of $8,650,000.00 be assigned by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 26 of CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (4)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicant's remuneration for the liquidation of the Company for the period: (a)9 December 2004 to 4 May 2012 (inclusive) is determined to be $19,243.00 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (5)That, pursuant to rule 7.5(6) of the Rules, the Applicant need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicant's receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

[19]

FAI Property Services Pty Ltd (in Liq) (1)That, pursuant to section 488(2) of the Act, the Applicants be granted special leave to distribute the surplus assets of FAI Property Services Pty Limited (In Liquidation) ACN 003 387 719 ("Company"), to the sole contributory, FAI Properties Pty Ltd (In Liquidation) ACN 000 099 927. (2)That, pursuant to regulation 5.6.71(1) of the Regulations, the order authorising the distribution of surplus of the Company need not have annexed to it a schedule in accordance with Form 551. (3)That, pursuant to section 479(3) of the Act, the Applicants, on behalf of the Company, are justified in making an in specie distribution of the following surplus assets of the Company in the following manner: (a)the right of the Company to prove in the liquidation or schemes of arrangement of HIH Casualty & General Insurance Limited (In Liquidation and subject to Schemes of Arrangement) ACN 008 482 291 in the sum of $14,215.57; (b)the right of the Company to prove in the liquidation of United Body Works (Qld) Pty Limited (In Liquidation) ACN 009 913 508 in the sum of $401,165.82; (c)the right of the Company to prove in the liquidation of FAI Leasing Finance Pty Limited (In Liquidation) ACN 002 027 214 in the sum of $304,045.36; and (d)the right of the Company to prove in the liquidation or scheme of arrangement of CIC Insurance Limited (In Liquidation and subject to a Scheme of Arrangement) ACN 004 078 880 in the sum of $656.68, be assigned by entering into the Deed of Assignment in the form of, or substantially in the form of, the document at Tab 27 of CJH-1 to the affidavit of Christopher John Honey sworn on 21 June 2012. (4)That, pursuant to section 473(3)(b)(ii) of the Act, the Applicants' remuneration for the liquidation of the Company for the period: (a)27 August 2004 to 4 May 2012 (inclusive) is determined to be $30,722.00 plus GST; and (b)5 May 2012 until and including the deregistration of the Company be fixed in the amount of $9,710.00 plus GST. (5)That, pursuant to rule 7.5(6) of the Rules, the Applicants need not serve on each creditor who proved a debt in the course of the winding up of the Company, and on each contributory of the Company, a copy of: (a)the interlocutory process filed in these proceedings on 27 June 2012; (b)the amended interlocutory process filed in these proceedings on 25 July 2012; (c)the Applicants' receipts and payments in the winding up of the Company; and (d)the statement of financial position of the Company at the date the amended interlocutory process was filed in these proceedings.

Brealey v Shields

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Judgment (23 paragraphs)

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Cases Cited (7)