Condon v Watson

Federal Court of Australia|2017-08-31|Before: Gleeson J

Pursuant to s 532(2) of the Corporations Act 2001 (Cth) ("Act"), the second plaintiff and the third plaintiff be granted leave to be appointed and act as liquidators of each of the companies identified in Schedule A ("Schedule A") and Schedule B ("Schedule B") to these orders.
Pursuant to s 473(1) of the Act, the first plaintiff and the third plaintiff be removed as liquidators of each of the companies ("Schedule A Companies") identified in Schedule A.
Pursuant to s 473(7) of the Act, the vacancy arising from the operation of the order in paragraph 2 above, be filled by the appointment of the second plaintiff and the third plaintiff as joint and several liquidators of each of the Schedule A Companies.
Pursuant to s 503 of the Act: (a) the first plaintiff and the third plaintiff be removed as liquidators of each of the companies identified in Schedule B ("Schedule B Companies"); and (b) the second plaintiff and the third plaintiff be appointed as joint and several liquidators of each of the Schedule B Companies.
Pursuant to s 1322(4) of the Act, the period for lodgement of the liquidator's accounts and statements prescribed by s 539 of the Act be extended in the case of each of the Schedule A Companies and the Schedule B Companies, so that: (a) the period within which the first plaintiff and the third plaintiff, being removed pursuant to the orders in paragraphs 2 and 4(a) above, have to lodge the form prescribed by that section after they have ceased to act as liquidators be extended to the date they would otherwise have had to lodge that form had they not ceased to act as liquidators; and (b) the period within which the second plaintiff and the third plaintiff, being appointed pursuant to the orders in paragraphs 3 and 4(b) above, have to lodge the form prescribed by those sections be abridged to the date on which the first plaintiff and the third plaintiff have to lodge that form pursuant to the order sought in paragraph 5(a) above.
There be no order as to costs.

GLEESON J: 1 On 31 August 2017, I made orders and declarations which had the effect of removing the first plaintiff ("Mr Winterbottom") from his role as one of two liquidators of 18 companies, and replacing him by the appointment of the second plaintiff ("Ms Nettleton") as one of two liquidators of each of those companies. 2 These are my reasons for making the orders and declarations. 3 By amended originating process filed 31 August 2017, the plaintiffs sought orders and declarations for the replacement of Mr Winterbottom as liquidator of 18 companies comprising: (1) thirteen companies, referred to in Schedule A to the orders made on 31 August 2017, for which Mr Winterbottom and the third plaintiff ("Mr Goyal") are Court-appointed liquidators, including: (a) eleven companies to which Mr Winterbottom and Mr Goyal were appointed as joint liquidators by this Court; and (b) two companies to which Mr Winterbottom and Mr Goyal were appointed as joint liquidators by the Supreme Court of New South Wales (Ballistic Hydraulic Hose and Fittings Pty Ltd and E-Strategia Consulting Pty Ltd) (together "Schedule A companies"); and (2) five companies, referred to in Schedule B to the orders made on 31 August 2017, to which Mr Winterbottom and Mr Goyal were appointed as joint liquidators pursuant to creditors' resolutions ("Schedule B companies"), with the appointment of Ms Nettleton. 4 In the cases of the Court appointments, in each case the winding up order was obtained on the application of the Deputy Commissioner of Taxation with the exception of the order for the winding up of E.A. Fuller & Sons Pty Ltd ("E.A. Fuller"), which was obtained on the application of the Commonwealth of Australia. 5 In the case of the creditors voluntary windings up, Mr Winterbottom and Mr Goyal were appointed as joint liquidators of: (1) BBE Australia Pty Ltd, on 31 March 2016; (2) Cloud Nine Lounges Pty Ltd, on 27 November 2015; (3) Frontal Pty Ltd, on 27 November 2015; (4) Potentia3 Pty Ltd, on 16 December 2016; and (5) Wynyard (Australia) Pty Ltd on 29 November 2016. 6 Mr Goyal is currently a partner of KordaMentha. Mr Winterbottom is a former partner of KordaMentha, and currently works as a consultant at KordaMentha as well as independently through his own company. Mr Winterbottom wishes to stop working full-time as an insolvency practitioner. Consequent upon his resignation from the KordaMentha partnership and his desire to cease full-time practice as an insolvency practitioner, Mr Winterbottom wishes to be replaced as joint liquidator of the 18 companies by Ms Nettleton. Ms Nettleton is a registered liquidator and executive director with KordaMentha.

Relevant legal Framework 7 The plaintiffs sought relief under ss 473, 503, 532 and 1322(4) of the Corporations Act 2001 (Cth) ("Act") and the Court's implied jurisdiction to grant declaratory relief. 8 Section 473 of the Act was amended by s 144 of Sch 2 to the Insolvency Law Reform Act 2016 (Cth) ("ILR Act"), and related provisions were included in a new s 473A of the Act by the same provision in the ILR Act. However, the commencement of these amendments was effectively deferred until 1 September 2017 by regs 10.25.01 and 10.25.02(3) of the Corporations Regulations 2001 (Cth) ("Regulations"), which were in turn inserted by the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth). Accordingly, s 473 continued to apply to this proceeding in its unamended form. It provided relevantly: (1) A liquidator appointed by the Court may resign or, on cause shown, be removed by the Court. … (7) A vacancy in the office of a liquidator appointed by the Court must be filled by the Court. (8) If more than one liquidator is appointed by the Court, the Court must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed. 9 Section 503 of the Act was repealed by s 165 of Sch 2 to the ILR Act, and replaced with s 75-10(b) of Sch 2 to the Act. However, similarly to the treatment of s 473, the repeal of s 503 of the Act and the commencement of s 75-10(b) of Sch to the Act were effectively deferred to 1 September 2017 by regs 10.25.01 and 10.25.02(3) of the Regulations. As such, s 503 continued to apply to these proceedings. It provided: The Court may, on cause shown, remove a liquidator and appoint another liquidator. 10 Section 532(2) provides: (2) Subject to this section, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company: (a) if the person, or a body corporate in which the person has a substantial holding, is indebted in an amount exceeding $5,000 to the company or a body corporate related to the company; or (b) if the person is, otherwise than in his or her capacity as liquidator, a creditor of the company or of a related body corporate in an amount exceeding $5,000; or (c) if: (i) the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); or (ii) the person is an officer or employee of any body corporate that is a secured party in relation to property of the company; or (iii) the person is an auditor of the company; or (iv) the person is a partner or employee of an auditor of the company; or (v) the person is a partner, employer or employee of an officer of the company; or (vi) the person is a partner or employee of an employee of an officer of the company. 11 Section 1322(4) provides: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 12 The principles relevant to applications under ss 473 and 503 of the Act were helpfully summarised by Besanko J in Naudi, re ACN 156 335 787 Pty Ltd (in liq) [2017] FCA 815 ("Naudi") at [16] to [21]. Other cases of significance include the decisions of Lindgren J in Condon v Watson [2009] FCA 11; (2009) 174 FCR 314, Barrett J (as his Honour then was) in Free & Ors [2010] NSWSC 1079 and Bergin CJ in Eq in Re Ambridge Investments Pty Ltd [2015] NSWSC 1671; (2015) 33 ACLC 15-043 ("Re Ambridge Investments"). The plaintiffs submissions summarised the relevant principles as follows: (1) where an appointment of liquidators was made by a court other than this Court, this Court has power to make orders under ss 473 and 503: Naudi at [18]; Re Ambridge Investments at [13]; (2) a sufficient ground for removal includes a case where a liquidator wishes to resign: Naudi at [16]; (3) where a removal order is to be made because of retirement, there is a clear benefit in making orders which ensure continuity of the administration, in the case of joint and several liquidators, by having another member of the firm joint with the co-appointee whose appointment will continue: Free & Ors at [6], Naudi at [17]; (4) where a removal order is made in respect of one of two or more liquidators, there are practical advantages in making orders which ensure that the liquidation proceeds with jointly appointed liquidators: Naudi at [17]; (5) where one of two liquidators appointed by the Court wishes to resign and there is a desire that the remaining liquidator continue, but with a new appointee, an appropriate order may be made under s 473 for the removal of original liquidators and the appointment of the original liquidator and a new liquidator: Naudi at [21]; and (6) where one of two liquidators in a creditors' voluntary liquidation wishes to resign, an appropriate order may be made under s 503 for the removal of the original liquidators and the appointment of the original liquidator and a new liquidator: Free & Ors at [21], Naudi at [21].

Evidence 13 The plaintiffs relied upon the following evidence: (1) Mr Winterbottom's affidavit, affirmed on 27 July 2017; (2) Ms Nettleton's affidavit, sworn on 27 July 2017; and (3) Mr Goyal's affidavit, sworn on 30 August 2017. 14 Mr Winterbottom expressed the view that his co-liquidator, Mr Goyal, should remain as liquidator of each company because of the accrued knowledge held by Mr Goyal and because of the accrued knowledge held by the staff of KordaMentha, who have assisted with the relevant liquidations. 15 Mr Winterbottom also expressed the view that Mr Goyal should be joined by Ms Nettleton as a co-liquidator because: (1) Ms Nettleton is well experienced (Ms Nettleton has 31 years' experience as an insolvency practitioner, which has been gained with Arthur Anderson, Ernst & Young and KordaMentha and currently holds the position of Executive Director at KordaMentha); (2) the liquidations cannot be completed within a short period of time; and (3) it is desirous to have two liquidators so as to ensure that the liquidations will be carried out efficiently and expediently and so as to mitigate against any delay caused by any absences of one of the liquidators because of other professional commitments, annual leave or illness. 16 Both the Australian Securities and Investments Commission ("ASIC") and the Australian Tax Office were advised of the substance of the orders sought and ASIC indicated that it had no objection to Mr Winterbottom's replacement by Ms Nettleton as liquidator of the 18 companies.

Consideration and conclusions 17 I accepted that I should make orders and declarations of the kind sought. 18 As to order 1, consistent with the approach taken by Black J in Re Kukulovski, Arnautovic & Crisp [2015] NSWSC 2040 at [8], the plaintiffs sought the leave of the Court under s 532(2) of the Act for the appointment of both Ms Nettleton and Mr Goyal as liquidators of the companies because of: (1) section 532(2)(b) in that they are partners of KordaMentha and KordaMentha may be owed $5,000 or more for works undertaken in the liquidation of the companies; and (2) section 532(2)(c)(v) in that they were partners of Mr Winterbottom, who is by virtue of his role as liquidator, an officer of the companies within the meaning of that term contained in s 9 of the Act. 19 The plaintiffs sought orders for the removal of both Mr Winterbottom and Mr Goyal as the liquidators of the companies and for the immediate appointment of Mr Goyal and Ms Nettleton as liquidators of the companies, following the approach taken in Free & Ors and Naudi. 20 For the Schedule A companies, orders 2 and 3 achieve this outcome, together with the declaration at para 8 of the orders. 21 For the Schedule B companies, this outcome is achieved by order 4, together with the declaration at para 9 of the orders. 22 I accepted that order 5 was appropriate, consistent with the approach taken by Barrett J in Free & Ors at [22] to [29]. 23 Mr Stack, counsel for the plaintiffs, noted that the costs of the application would be borne by KordaMentha. Accordingly, no order for costs was made. 24 By letter dated 16 May 2017, ASIC requested a copy of the orders when made. Mr Stack indicated that ASIC would duly be sent a copy of the orders. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Associate: Dated: 18 September 2017 SCHEDULE

BBE Australia Pty Ltd ACN 123 405 541
Cloud 9 Lounges Pty Ltd ACN 105 692 055
C01N Pty Ltd ACN 152 222 421
Country Cottage Building Company Pty Ltd ACN 060 497 190
Delight Poultry Pty Ltd ACN 167 657 785
Denariuz Pty Ltd ACN 165 471 983
E.A. Fuller & Sons Pty Ltd ACN 003 551 237
E-Strategia Consulting Pty Ltd ACN 104 919 477
Eussen Living Pty Ltd ACN 161 381 460
Frontal Pty Ltd ACN 083 237 094
Hill Hospitality Group Pty Ltd ACN 153 714 491
Inno Contracting Pty Ltd ACN 142 635 970
Ludowici Water Pty Ltd ACN 161 919 704
OLI 1 Pty Ltd (formerly Lyon Infrastructure Pty Ltd) ACN 139 622 763
Potentia3 Pty Ltd ACN 135 788 242
SC Creative Australia Pty Ltd ACN 161 632 257
Wynyard (Australia) Pty Ltd ACN 124 206 293

Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016(Cth)

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