Conquest Agri Limited v Conquest Crop Protection Pty Ltd

Judgment 1HIS HONOUR: The plaintiff, Conquest Agri, is the holding company of FarmWorks Merchandise Services Pty Limited ("FMS"). FMS is the holding company of a number of subsidiaries including the defendant, Conquest Crop Protection Pty Limited ("Crop Protection"). 2Administrators were appointed to FMS and to Crop Protection on 5 October 2012. On 28 November 2012 creditors of FMS and Crop Protection voted in favour of resolutions that those companies enter into deeds of company arrangement. 3The proponent of the deeds of company arrangement is a company called Contai Agrosea Pty Limited. It proposes to acquire the inventory and the debtors of those companies. It was a condition of the deeds of company arrangement that by 7 December 2012 Conquest Agri must discharge a charge held by it over the assets of Crop Protection. That condition is expressed to be for the benefit of Contai Agrosea. 4On 26 November 2012 Conquest Agri filed an originating process in which, relevantly, it seeks a declaration that Crop Protection is indebted to it in the amount of $5,604,077 and a declaration that that amount is recoverable by it under a deed of charge dated 4 December 2009 between Crop Protection and Conquest Agri. 5 For its part Crop Protection has filed an interlocutory process that seeks a declaration that the charge dated 4 December 2009 over Crop Protection's assets and of which Conquest Agri is chargee, secures no moneys presently owed by Crop Protection to Conquest Agri. Crop Protection also seeks an order that Conquest Agri do all things necessary to discharge the charge including delivery to Crop Protection of a notification of discharge of the charge in a form registrable with ASIC. 6Contai Agrosea has not sought to withdraw from the proposed deed by reason of the non-compliance with the condition that the Conquest Agri charge be discharged by 7 December 2012. However, it has indicated that it is unlikely to agree to any further extension of the time for the completion or satisfaction of the conditions precedent beyond today. 7The charge in question was given on 4 December 2009 by Crop Protection to the company then called ETT Limited, now Conquest Agri. Clauses 3.1 and 4.1 of the charge provide: "3.1 Payment of Secured Money The Chargor must pay the Secured Money in full to the Chargee or to anyone else the Chargee directs in writing: (a) at the times and in the way agreed in writing between the Chargor and the Chargee (including, for example, in any loan agreement, facility agreement or offer letter); or (b) otherwise the Chargor must pay the Secured Money when the Chargee demands. ... 4.1 Charged Property The Chargor charges the Charged Property in favour of the Chargee as security for: (a) the payment of the Secured Money; and (b) the performance of all obligations under this document and any Collateral Security." 8"Secured money" was defined as follows: "Secured Money means all amounts and liabilities which the Chargor owes to the Chargee at any time including: (a) all amounts which the Chargee has lent or agreed to lend or provide: (i) to the Chargor; or (ii) to someone else at the request of the Chargor; and ..." 9On the same day, Conquest Agri took a charge in identical terms from FMS. This case concerns only the charge given by Crop Protection. The administrator says that Conquest Agri voted in favour of the deed of company arrangement proposed for FMS and, accordingly, cannot realise or deal with its security over the assets of FMS inconsistently with the deed of company arrangement. That is not an issue before me. No such issue arises in the administration of Crop Protection. 10No challenge is made to the validity of the charge. The question is whether any amount is secured by the charge and, if so, what amount. The evidence is that no moneys were advanced by Conquest Agri to Crop Protection. All advances made by Conquest Agri were paid into an account of FMS that has been called a "blocked account". FMS acted as the treasury for the group's subsidiaries. 11The management accounts of FMS acknowledge a debt of $5,061,000 which, although the evidence is not clear about this, I am told is a debt owed by it to Conquest Agri. Management accounts for Crop Protection do not record that company as being a debtor of Conquest Agri. 12The reports as to affairs submitted by the directors of Crop Protection, Messrs Larry Shutes and Steven Cole, did not identify any debt owed by Crop Protection to Conquest Agri. Mr Shutes is also a director of Conquest Agri and Mr Cole is the company secretary of Conquest Agri. Hence, the administrator contends that Crop Protection does not owe any money under the charge and the charge should be redeemed. 13Mr Saker, one of the administrators, deposed that as result of his review of the Crop Protection's books and his enquiries, he believed that the financial accounts of Crop Protection and Conquest Agri do not record a loan from Conquest Agri to Crop Protection. He says that Crop Protection's documents do not record the alleged loan. No document was tendered showing a loan from Conquest Agri to Crop Protection. A loan involves a payment and an obligation of repayment. There is no evidence of any agreement between Conquest Agri and Crop Protection whereby any director or employee of Crop Protection expressly promised to repay any moneys advanced by Conquest Agri, other than the agreement contained in the deed of charge itself. 14The absence of documentary evidence recording a debt or liability owed by Crop Protection to Conquest Agri and the fact that the flow of funds was from Conquest Agri to FMS makes plain why the management accounts of Crop Protection do not record Conquest Agri as a creditor. 15There is evidence that FMS paid funds to Crop Protection from time to time. In some instances it can be inferred that those payments were the product of the funding provided by Conquest Agri to FMS. 16Pursuant to cl 3.1 of the charge, Crop Protection has a personal liability to Conquest Agri to pay the Secured Moneys, as defined. The charge provides that amounts and liabilities owed by Crop Protection to Conquest Agri include all amounts that Conquest Agri has lent or has agreed to lend, or agreed to provide, not only to Crop Protection, but to someone else at Crop Protection's request. 17If Conquest Agri agreed to lend or provide an amount to FMS at Crop Protection's request, the amount so provided falls within the definition of "Secured Money" in the Crop Protection charge. Crop Protection would become under a personal liability pursuant to cl 3.1 to pay such sum, whether or not it would have such a liability independently of the deed of charge. This is the effect of the word "including" in the definition (Dilworth v Commissioner of Stamps [1899] AC 99 at 106). The charge also secures any amount or liability of Crop Protection to Conquest Agri that arises other than by way of loan or pursuant to a request. 18As I have said, all of the payments made by Conquest Agri were made to an account of FMS called a blocked account which was the subject of an agreement between FMS and the financier, GE Commercial Australia Pty Limited (GE). 19GE provided funding to FMS and its subsidiaries up to a percentage of the debtors and inventory of the group. It was a requirement of the agreement with GE that each company in the group pay all cash receipts by way of deposit into a controlled account. This was FMS' Westpac account which has been called the blocked account. A similar agreement was entered into with Crop Protection on 8 November 2010. 20Conquest Agri contends it made advances totalling $5,600,000 secured by Crop Protection's deed of charge. These were as follows: (a) $2 million on 4 December 2009; (b) $1 million on 2 June 2010; (c) $60,000 on 20 August 2010; (d) $100,000 on 24 September 2010; (e) $500,000 on 3 December 2010; (f) $1 million on 21 January 2011; and (g) $400,000 on 24 February 2011. 21I deal first with the first advance of $2 million. That sum was paid on 4 December 2009 to FMS. But for the fact that FMS also gave a charge to secure the advance, it could readily be inferred that the advance was made at Crop Protection's request and was thereby secured by its charge. The fact that a contemporaneous charge was given by FMS, suggests FMS made the request for the advance. But it does not negate the probability of Crop Protection's also having made such a request. 22It is clear the funds were not provided by way of gift. The advance was secured by FMS' charge. The question is whether it was also secured by Crop Protection's charge. The only evidence of a request having been made for the advance was given by Mr Shutes. He said that Mr Gammage made the request at a board meeting of Conquest Agri. 23As at 4 December 2009, Conquest Agri was not yet the holding company of the group. It had plans to take over the group which it did later in 2010. Mr Gammage told the board words to the effect, "We require $2 million and it is prior to the deal going ahead". Mr Shutes described Mr Gammage as the "CEO" but did not identify which companies in the group were the companies of which Mr Gammage was CEO. As at 4 December 2009, Mr Gammage was a director of Crop Protection. 24It appears from evidence in relation to other individuals that the practice was for individuals to be or become the CEO or CFO of the "group", that is, of each of the subsidiaries. 25A few days after $2 million was paid by Conquest Agri to FMS on 4 December 2009, sums totalling $1.825 million were by paid by FMS to Crop Protection. 26As the request for $2 million was made by Mr Gammage, who, at the time, was a director of Crop Protection, as well as FMS; as the moneys were substantially provided to Crop Protection through FMS; and as Crop Protection gave a contemporaneous charge, I infer Mr Gammage was acting for Crop Protection as well as for FMS when he made the request. It follows that the $2 million advance was secured by the Crop Protection charge. 27The deed of charge does not require that the request take any particular form. The deed of charge does not require the request to be in writing before an advance comes within the definition of Secured Money. Nor does it matter that a request is made for one or more other companies, provided that the request is also made for Crop Protection. I conclude in the case of the first advance that that was the case. 28The second advance of $1 million made on 2 June 2010 was also paid to FMS. There is no documentation showing any request for the advance. Three days after payment of $1 million into the blocked account of FMS, $772,000 was transferred to Crop Protection's account and used by Crop Protection to pay Travelex who was a creditor of Crop Protection. No specific evidence was given about a request for this advance. Mr Cole said that between February and March 2010 and January 2011 he had a number of conversations with a Mr Connolly, a Mr Withers or a Mr Moody who asked for funds to be sent down to pay Crop Protection's creditors. He passed those requests on to Conquest Agri's board. Most of the calls related to payments that were needed urgently to pay Crop Protection's Chinese suppliers or to pay a company called Ascensi, which was a formulator of the product supplied by Crop Protection. 29Mr Cole described Mr Connolly as the CEO of the operational group of companies for Farmworks, that is, as CEO of all of the subsidiaries. Mr Moody took over as CEO from Mr Connolly. Mr Withers was described as "CFO of the company" between March 2010 and January 2011. I infer he held the position of CFO for all of the companies in the group. At relevant times he was a director of Crop Protection, as was Mr Connolly and Mr Moody. 30Although the evidence is quite general, I think it should be inferred that the request made to Conquest Agri for the second advance of $1 million was made probably by Mr Withers or if not, by Mr Connolly, acting on behalf of all of the subsidiaries, including Crop Protection. I can draw the inference that the person who made the request was acting for Crop Protection because the majority of the funds were needed and applied for the payment of Crop Protection's creditors. 31The same reasoning applies to the third advance of $600,000 made on 20 August 2010. I conclude the request was made either by Mr Connolly or Mr Withers, who were then both directors of Crop Protection as well as FMS, and were the CEO and CFO of both companies. A payment of $360,000 was made by FMS to Crop Protection three days after the advance was made to FMS. 32In the meantime FMS also drew down $1,050,000 from its facility with GE. Nonetheless, I infer that in requesting the advance from Conquest Agri, the CEO or CFO of all of the subsidiaries was acting on behalf of all of subsidiaries, not just FMS. The fact the moneys were paid to FMS is neutral as it acted as treasurer for the group. Crop Protection, as well as FMS, benefited from the advance. Hence I can infer the request for the advance was made on its behalf as well as on behalf of other companies. 33The fourth advance of $100,000 made on 24 September 2010 is in a different position. There is email correspondence in relation to this advance which shows that the purpose of the advance was to enable Crop Protection to lock in forward exchange cover. I would infer the request for the advance was made on behalf of Crop Protection. However, the funds were not provided by Conquest Agri, but by a related company called Charter Pacific Corporation Limited. 34It was Charter Pacific that made the advance to FMS. Mr Connolly, signing as the CEO of Farmworks Australia Limited, the then name of Conquest Agri, had proposed that a loan be made to Conquest Agri for the funds to be then transferred to operating entity. However, no evidence was given as to the state of any loan account between Charter Pacific and Conquest Agri. It is possible Mr Connolly's proposal was accepted by Charter Pacific and that the advance to FMS was made on Conquest Agri's direction and was made for the benefit of and at the request of Crop Protection. 35If that be so, there is no reason that Conquest Agri could not have proved that Charter Pacific made the advance on its direction. I would expect that if that were the position, Conquest Agri would be able to establish that it became liable to Charter Pacific for the money so advanced, so that it, and not Charter Pacific, was the creditor of FMS and of Crop Protection. Such evidence was not provided. 36In the absence of such evidence, I do not draw the inference that might otherwise be drawn from Mr Gammage's email that it was Conquest Agri that lent or provided the sum of $100,000 at Crop Protection's request, as distinct from its being Charter Pacific that did so. 37The fifth advance of $500,000 was made by Conquest Agri to FMS on 3 December 2010. The payment was made on the request of Mr Withers. 38Mr Withers wrote to Mr Connolly on 26 November 2010 describing himself as Chief Financial Officer of Farmworks Australia Limited, that is Conquest Agri. He stressed the urgency of the need for an advance. Although he wrote in that capacity, I infer he also wrote in his capacity as a director of the subsidiary companies, in particular Crop Protection. In his email he referred to the pressure from Chinese suppliers to Crop Protection and expressed concern about his own position as a director of the subsidiaries. He said to Mr Connolly that as directors of "the entity that cannot meet its creditors", they needed to take appropriate action to protect themselves. That action, in this case, was requesting the advance of further funds from Conquest Agri. I infer that the request was made on behalf of Crop Protection, notwithstanding that Mr Withers also described himself as CFO of Conquest Agri. I conclude that that advance is secured by the charge. 39The sixth advance of $1 million to FMS was also made by Charter Pacific. Unlike the fourth advance, there is evidence that Charter Pacific paid the advance on the direction of Conquest Agri to whom it lent the moneys. Mr Shutes deposed that the CEO, Mr Moody, requested the advance to meet urgent payments to the suppliers of Crop Protection. Mr Moody advised the board of Conquest Agri that the funds would be repaid in three to four months from money due to Crop Protection. Mr Shutes deposed that Conquest Agri arranged for $1 million to be paid by Charter Pacific to FMS. 40A later deed records that Charter Pacific had provided financial accommodation to Conquest Agri. At the time of this advance, Mr Moody was a director of Crop Protection. Shortly after the advance, FMS paid $802,500 to Crop Protection. From these facts I infer that the request was made by Mr Moody on behalf of Crop Protection as well as other companies in the group. I am satisfied from Mr Shutes' evidence that the advance was made by Conquest Agri through the provision of financial accommodation to it by Charter Pacific. The fact that this advance was paid by Charter Pacific to FMS does not mean that it was not a loan provided by Conquest Agri. 41The seventh advance of $400,000 was made by Conquest Agri on 4 February 2011. There was no specific evidence about any request for this advance. Mr Moody was a director of Crop Protection at this time. Mr Cole said that over a period of time he had definitely more than one conversation with Mr Moody in which Mr Moody asked for funding to be sent down to pay Crop Protection's creditors. There is nothing specific to show whether this advance was made as a result of such a request. 42In the case of this advance, the funds were deposited into the FMS blocked account on 24 February 2011. On the following day FMS drew down $1,196,000 from GE and transferred $934,000 to Crop Protection. Crop Protection immediately used those funds to pay $823,545 to Travelex. Again, I infer that that was to provide forward exchange cover for Crop Protection. 43There is no evidence in relation to this advance, such as is available for some of the earlier advances that the payment of $400,000 was for the purpose of Crop Protection's meeting its obligation to Travelex. The funding from GE could equally have been used for that purpose, and the funds from Conquest Agri could have by applied to the obligations of other companies in the group. Nor is it clear in this case that the request was made by Mr Moody, a director of Crop Protection. 44This being the state of the evidence, although I think the position is quite evenly balanced, I am not satisfied that Conquest Agri has established that this advance was made at Crop Protection's request. 45I am satisfied, for the reasons I have given, that the first, second, third, fifth and sixth advances to FMS were made at the request of the CEO or CFO of Crop Protection on behalf of that company. That is so notwithstanding that the request was no doubt also made on behalf of FMS and possibly other subsidiaries. 46The fact that management accounts do not show Conquest Agri as Crop Protection's creditor is prima facie evidence that it is not. The weight of that evidence is another matter. There is no evidence that the person responsible for preparing the management accounts considered the terms of the deed of charge. That person was not called, although I infer he is available to the administrator. It is a reasonable inference that the management accounts and possibly any ledgers (although these were not produced) were prepared on the basis of the flow of funds. That is, the accounts treated FMS alone as Conquest Agri's debtor because the moneys were paid to FMS. 47The Reports as to Affairs prepared by Mr Shutes and by Mr Cole were prepared on the basis of the management accounts, although they contain admissions which can be used against Conquest Agri. The strength of the admission is much diminished by the evidence of those individuals that they used the management accounts. 48Nor does the absence of a documentary trail negate the probability that the request for funds was made on behalf of Crop Protection, as well as other companies. To a large extent the request for funds was dictated by the need to pay Crop Protection's creditors and I infer that the requests were made by senior management on its behalf as well as on behalf of others. 49Clause 19.3 of the charge provides that the chargee may gave the chargor a certificate about a matter or amount payable in connection with that document and any collateral security. The clause provides that the certificate is evidence of the matter or amount, unless it is proved to be incorrect. 50Conquest Agri prepared a certificate under that clause dated 16 November 2012. Mr Shutes, as director of Conquest Agri, certified that Crop Protection is indebted to Conquest Agri in the sum of $5, 488,077. There is no evidence as to how that figure was arrived at. It is different from the debt claimed in the originating process. 51The evidence as to the actual advances made proves that certificate to be incorrect. It appears, and it was confirmed by Mr Shutes, that the plaintiff's calculation of the debt would include a component for interest. There is no evidence of any agreement for the payment of interest. 52The management accounts of FMS include a balance sheet as at 30 September 2012 recording as a liability "Other Loans" totalling $5,061,477. The evidence of Mr Saker about that entry suggests that FMS is indebted to Conquest Agri in that amount. That was in accordance with the report as to affairs submitted by Mr Cole and Mr Shutes. 53That suggests there may have been some repayments from the total advances made by Conquest Agri, but there was no evidence of such repayments. In the absence of the supporting note for the entry in FMS' balance sheet in its management account as at 30 September 2012 showing the make-up of the liability of $5,061,477, I cannot conclude that that is the sum that prima facie is owed by FMS to Conquest Agri. If it were, I would infer that Crop Protection is indebted to Conquest Agri in the same amount. 54However, the evidence otherwise before me suggests that Crop Protection is liable to Conquest Agri in the sum of $5.1 million as a result of the advances made by Conquest Agri to FMS at Crop Protection's request. In the absence of evidence of repayments, I should make a declaration accordingly. 55In light of these conclusions, it is unnecessary for me to deal with the alternative arguments raised by Conquest Agri based on estoppel. It is sufficient to say that the evidence of Mr Shutes that at the time the advances were made, he was unaware of the Crop Protection deed of charge and he would have made the advances whether they were secured or unsecured would defeat that contention. 56I am not saying that would necessarily be the only ground upon which the claim based on estoppel would fail. It is unnecessary to pursue those questions. 57For these reasons I propose the following orders: