Carter in the matter of Damilock Pty Ltd (in Liquidation) [2012] FCA 1445

REASONS FOR JUDGMENT 1 The plaintiffs are the liquidators of Damilock Pty Ltd (In Liquidation) (the company). 2 They have applied for a direction under s 511 of the Corporations Act 2001 (Cth) (the Act) as to whether they should pay the amounts recovered by the company in respect of certain claims under s 588FE of the Act (being claims in respect of voidable transactions made by them as liquidators of the company) to the company's unsecured creditors, or alternatively to the first ranking secured creditor of the company, namely Australia and New Zealand Banking Group Ltd (ANZ). 3 The facts are quite straightforward. 4 The plaintiffs were first appointed as administrators of the company on 26 June 2007, and subsequently as its liquidators by resolution of its creditors at a meeting convened pursuant to s 439A of the Act on 7 September 2007. 5 The company operated a business trading under the name "Casual Living" or "Casual Living Commercial" for a number of years with operations in several states selling indoor and outdoor furnishings and accessories. It had expanded its operations into the Eastern States, apparently without sufficient working capital, and so had assumed a series of long-term liabilities in respect of its premises in New South Wales and Victoria. The expansion plan was not successful. 6 As a result of the administration, the company's business and assets in South Australia were sold as a going concern, but its New South Wales and Victorian operations closed down as there was no interest in the purchase of those stores. 7 The company's first ranking secured creditor is ANZ. It had granted to ANZ a fixed and floating charge over all its assets and liabilities on 11 September 1986. At the time of the administration, the bank was owed approximately $1.6 million, and after its realisation of claims against guarantors of the debt, it is now owed approximately $1.154 million excluding interest in excess of $500.000. There is a second ranking secured creditor, Tincknell Nominees Pty Ltd, owed approximately $900,000. It has received no monies from the realisation of the company's assets. There are also extensive unsecured creditors of the company. With the approval of ANZ, employees' entitlements for wages, superannuation contributions, leave entitlements, entitlements on account of retrenchment benefits and the superannuation guarantee charge payable by the company have been paid. That payment was in the order of $612,000, and the entity which acquired the business of the company in South Australia assumed a further liability on account of employee entitlements in the order of $132,000. 8 The plaintiffs have proceeded to realise the available assets of the company. They include plant, equipment and motor vehicles; trademarks and intellectual property, cash floats and refunds; a trading surplus and remaining stock as at the date of their appointment as administrators. In addition, the plaintiffs have investigated various transactions entered into by the company in the period prior to their appointment as administrators, in particular in relation to possible claims being made under s 588FE of the Act, primarily on account of preference claims against its creditors. Those processes led to the recovery of amounts totalling $1.348 million, but at the cost of legal fees in the order of $716,000. At present, following the incurring of appropriate costs, there is held a sum of $342,000 in respect of the funds realised from the unfair preference claims, with an additional expected GST refund of a further $12,000. 9 The plaintiffs have also sought lodgement of proofs of debt for the purposes of declaring a dividend to unsecured creditors. Putting aside the secured creditors, the unsecured creditors presently total something in excess of $17 million, and at best there is a prospect of declaring a dividend of about or up to two cents in the dollar from the monies available from the recovery in the unsecured preference claims. 10 It is in that context that the plaintiffs have sought the direction referred to above. 11 The secured creditors have been notified of the application and have elected not to make submissions to the Court in relation to whether a direction should be given and in what terms. In addition, the Australian Securities and Investment Commission has been notified of the application and of the supporting material, and has also indicated that it does not propose to intervene in the action or to make any submission as to whether the direction sought should be given and if so in what terms. Furthermore, each of the unsecured creditors has been notified of the application, its possible outcomes, and of the opportunity to make submissions to the Court in relation to whether the directions sought should be given and if so in what terms. None of the unsecured creditors have chosen to make any submission to the Court. 12 I am satisfied that all possible interested parties have been made aware of the application, and have elected to make no submission as to whether the directions sought should be given and if so in what terms. 13 In Cook v Italiano Family Fruit Company Pty Ltd (in Liquidation) (2010) 190 FCR 474 the Court was confronted with a similar set of circumstances. As here, the liquidators of that company had conscientiously realised the available assets of the company, and there were extensive secured and unsecured creditors. At issue was how the liquidators of that company should apply the relatively small amount available from the assets, including assets represented by recovered preference payments. That amount would have meant a very small distribution to the unsecured creditors, or alternatively a reduction of the liability of the company to its secured primary creditor. 14 I do not think it is necessary to recite in detail the reasoning of Finkelstein J in that case relevant to the present issue. In my view, it is on all fours with the present circumstances. For the same reasons as his Honour there gave, I think it is appropriate to give a direction in accordance with s 511 of the Act, and that the direction should be that the available funds held by the plaintiffs, subject to the payment of the proper fees and disbursements, should be applied in payment to ANZ as the primary secured creditor of the company. I so direct. 15 The costs of the plaintiffs of this application should be costs in the liquidation of the company. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.