Cape v Redard Pty Ltd

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

JUDGMENT 1 HIS HONOUR: These proceedings were commenced in 1989 seeking orders that a partnership between the plaintiffs and the defendants should be dissolved. On 15 September 1989, Cohen J found in an interlocutory judgment that the likelihood was that there was no formal partnership but that the relevant dairying business involving the parties was actually being carried on by the second defendant, Botar-Tatham Pty Limited (the company) as trustee for the people concerned including the remaining parties to the proceedings. His Honour made orders that Mr Dickens be appointed receiver and manager of the business and receiver and manager of the company. His Honour also ordered that the receiver and manager be paid at the rates recommended by the Insolvency Practitioners Association. 2 Since then Mr Dickens has carried on his duties as receiver and manager. From time to time he has obtained an order for his remuneration. 3 The situation now is that Mr Dickens has become semi-retired. He has contacted the parties and the creditors and has indicated that he does not consider that there is anything more he can usefully do. That communication met with a nil response from everyone concerned. He has now filed a notice of motion of 19 June 2001 seeking (1) an order that he be discharged as receiver; and (2) that the cash at bank of $3,701.56 be appropriated in satisfaction of the receiver's remuneration expenses of $9,503.20 pursuant to the orders of 15 September 1989. 4 The assets have been collected as far as they ever will be and the evidence shows that the only available funds are the $3,701.56. Mr Dickens reckons his fees at $9,503.20 although, as I understand it, there are no longer rates recommended by the Insolvency Practitioners Association. There is little purpose in debating whether that figure is slightly over or slightly under what the Registrar would allow. It would seem, at least, in the ball park. 5 The material shows that the company had substantial debts. The deficiency of assets to liabilities is $33,863.06. Mr Dickens is of the view that the company is unable to pay its debts. The material contains a schedule of the debts. The largest is $35,838.79 owing to Norco Co-Operative Limited and there are seven other creditors over a thousand dollars and a large number of small creditors. The receiver has been in contact with the half a dozen larger creditors. All the company's debts are at least twelve years old and it is questionable whether they actually can be recovered now in any event. 6 The application came before me on referral from the Registrar on 2 July 2001. After short argument I reserved my decision. It seemed to me that there were some awkward points that arose in this application that it would be better to think about. I am indebted to Mr Caplice, solicitor for the plaintiff, for further submissions which he made in writing yesterday and this morning which confirms my view that there are some complexities in the matter. However, as only a small amount of money is involved and as there may be a practical solution to the problem, it is expedient to dispose of the matter now. 7 Ordinarily, a receiver who has been appointed by the court, will only be discharged if the task committed to him has finalised and ordinarily he will not be discharged on his own application unless he shows a reasonable cause for discharge such as failing health or other incapacity, or unless all parties interested consent; see Halsbury's Laws of England, 4th ed Vol 39, para 962 and the authorities there cited particularly Smith v Vaughan (1744) Ridg t Hard 251; 27 ER 820. However, the court is able to discharge the receiver if it considers that in all the circumstances it is proper to do so. However, as I understand it, the receiver has no right in the present application to a discharge. The persons interested have been consulted but they have just shown no interest rather than doing anything which could be called consent. 8 The commercial problem is that if the receiver is discharged the company will no longer have any controller. The company is insolvent. The general policy of this court is that no insolvent company must be enabled to go out into the market place and trade. Furthermore, although I have not consulted the Memorandum and Articles of Association, the great probabilities must be that there are no directors or officers of the company who can deal with it. Accordingly, in the public interest, the receiver's discharge must be linked in some way or other with putting the company to death. 9 Turning for the moment to the other point, Mr Caplice submitted that the authorities show that the receiver has an equitable lien for his remuneration. That is certainly so; see eg Re Central Commodities Services Pty Limited [1984] 1 NSWLR 25; Shirlaw v Taylor (1991) 31 FCR 222 at 230. 10 The fact that someone has an equitable lien is of comfort in that it gives that person a right that is superior to the unsecured creditors and may give rights against other secured creditors, but it does not of itself permit the actual funds to be collected; see eg Cape v Redarb Pty Ltd (1991) 104 ALR 425. 11 Accordingly, the court must direct its attention as to whether it should give aid to enforcing the equitable lien by appropriation of the funds. Again, a discretionary element comes into the matter. 12 I now return to the question of putting the company to death. I use that expression because that can happen either by winding up or by deregistration under Chapter 5A of the Corporations Law. 13 So far as winding up is concerned the Corporations Law does not confer on the court any sua sponte jurisdiction to order winding up. Under s 459A of the Corporations Law a person having status under s 459P must make the application. 14 There are at least two types of court winding up: (a) winding up in insolvency; or (b) winding up on other grounds such as the just and equitable ground. 15 Under s 459P, which is relevant to winding up in insolvency, sub s 1 lists the people who may apply to the court. These include a company, a creditor including a secured creditor and a director and a liquidator. Receivers are not mentioned. 16 Before s 459P was enacted there was considerable disagreement amongst the judges administering the Companies Act of the various states as to whether directors as a board could exercise the power of the company to authorise an approach to the court for winding up in insolvency. The rule in this State has been for many years that they may do so, and indeed it is commercially sensible, that they be able to do so. The seminal case is Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102. See also Spicer v Mytrent Pty Ltd (1984) 8 ACLR 711. 17 In Victoria and Queensland those cases have not been followed; see eg Re Giant Resources Ltd (1991) 9 ACLC 1418. McPherson, Law of Company Liquidation, 4th ed (LBC, Sydney, 1999) at p 188, discusses some of these cases and suggests that the problem has now been solved by including a director in s 459P(1) and indicating that the court can then under s 459P(2) consider whether it is a proper case to act on the petition of a director. With respect however, there is a difference between a single director acting and the board acting. The board itself is an organ of the company. There is nothing to suggest in the drafting of s 459P that the rule in Inkerman Grazing was to be abolished. In my view accordingly the "company" in s 459P includes the directors. 18 In England in Re Emmadart Ltd [1979] 1 Ch 540 Brightman J held that a receiver had the same power as the board of directors to present a petition to wind up a company. That did not avail the parties in the Emmadart case as his Lordship ruled that the Queensland/Victorian rule applied and directors had no power to wind the company up. However, in New South Wales Emmadart as read with Inkerman Grazing would suggest that receivers can exercise the power of the company to resolve to wind up in insolvency under s 459P(1)(a). Indeed, it is sensible that they do so because as in this case, the receiver is the only organ of the company in existence. 19 The proposition is weakened by the fact that in (e) the words "a liquidator or provisional liquidator" are especially mentioned, but I do not think that that weakens the argument sufficiently to destroy it. Accordingly, in my view, it is open for the receiver to move to wind up the company and as a condition of him being discharged that should happen unless it can be avoided. 20 In any event, the receiver is a secured creditor so he has status under s 459P(1)(b) of the Corporations Law. 21 If that were wrong, and I do not consider it is, then one would turn to other forms of winding up under Pt 5.4A of the Corporations Law. The persons having status to wind up the company are again listed as including the company and a liquidator and again there would not seem to be any reason why a receiver should not make an application and indeed, in Re Kalblue Pty Ltd (1994) 12 ACLC 1057, I dealt with such a case, and I held there was an inherent power in the court to wind up companies where it was just and equitable to do so. Indeed I went so far as to say that the court could of its own motion appoint a liquidator to wind up the company under the general law but perhaps in view of the restructuring of the Corporations Law I may have to reconsider it. That decision was not followed in Western Australia; see Western Interstate Pty Ltd v Deputy Commissioner of Taxation (Cth) (1995) 13 WAR 479. 22 I remain of the view that in a situation where there is no practicable alternative the court, at least in New South Wales under s 23 of the Supreme Court Act 1970 has inherent power to wind up a company sua sponte. However, this is a power to be used sparingly. 23 Winding up, even though the court would dispense with all advertisements and rules, would involve some substantial costs. Accordingly, I have looked to see whether it is possible merely to deregister the company under Chapter 5A. 24 There are three sections in Chapter 5A which might authorise deregistration, namely ss 601AA, 601AB and 601AC. The last mentioned obviously does not apply. Section 601AA(2)(a) seems to be a barrier to an application under that section because not all members of the company agree to the deregistration. The highest the evidence shows is that no-one is really at all interested in it. However, it may be that the receiver can suggest to the Australian Securities and Investment Commission that it might like to proceed under s 601AB, and so achieve the twin goal of (a) not having this insolvent company going back into the market place; and (b) not throwing away needless administrative costs. 25 Accordingly it seems to me that having published these reasons, it is appropriate to stand the matter over. There may be some problems as to timing but essentially if ASIC is willing to have the company deregistered then an order should first be made that the receiver be discharged and that he be given leave to enforce his equitable lien by appropriating the money. If that course cannot be followed then the receiver should move that the company be put into liquidation in insolvency. The written submissions note that Mr John Gibbons, a partner of Ernst & Young, and a partner of Mr Dickens, is prepared to act as liquidator, all appropriate dispensations from the rules should be given and the liquidator advised that he would be justified in paying Mr Dickens the net proceeds of what remains in the company's coffers. The discharge order can then be made at the same time. 26 The matter is stood over to 10am on Monday 13 August 2001. *************

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