Constantinidis v JGL Trading Pty Ltd [1999] NSWSC 536 | Case summary

JUDGMENT 1 HIS HONOUR These are applications for the appointment of a provisional liquidator to each company in unusual circumstances. Both the companies involved in these proceedings are incorporated in Bermuda. 2 In each case the Registrar of Companies in Bermuda has applied to the Supreme Court of Bermuda for an order that the company be wound up on the just and equitable ground. Under the law of Bermuda, the Registrar is a proper plaintiff for such an application. In each case the Supreme Court of Bermuda has ordered that a provisional liquidator be appointed. 3 The structure of the Group is that New Cap Reinsurance Corporation Holdings Limited is the holding company of the Group, the Bermuda company is the operating company in Bermuda and there are two Australian companies which appear to be wholly owned by the Bermudan company, namely NC Re Capital Limited and New Cap Reinsurance Corporation Limited. I will refer to these four corporations respectively as "Holdings", "Bermuda", "NC" and "Australia". 4 Holdings is duly registered in Australia as a foreign corporation, ACN 076 137 249. Bermuda is not so registered. 5 The Corporations Law makes a series of provisions for the winding up in this State or in Australia of corporations that are incorporated outside Australia. Section 580 defines an "external administration matter" as meaning, inter alia, a matter relating to winding up a company or a Part 5.7 body. Section 581 provides that all courts having jurisdiction in matters arising under the Corporations Law of NSW must severally act in aid of each other and may act in aid of the courts of other countries even though those other countries are not prescribed countries in external administration matters. Bermuda is not a prescribed country (the list of prescribed countries is set out in Regulation 5.6.74). The colonies and protectorates of prescribed countries are also prescribed, but this has no significance in the case of Bermuda. 6 A "Part 5.7 body" is defined in s 9 of the Corporations Law as a registrable body that is registered under Part 5B.2 or carries on business in this jurisdiction (or, which is not relevant in the instant case, an association of more than five members). 7 Holdings is clearly a Part 5.7 body as it is registered under Part 5B. Bermuda is only a Part 5.7 body if it carries on business in this jurisdiction, ie NSW. However, as I am properly asked to apply the cross vesting laws of the other States of Australia (this is not a Federal matter so any problems with Federal jurisdiction are irrelevant), I have to consider whether Bermuda is a Part 5.7 body in other States and Territories of Australia. 8 In my view, when the court is considering an application for the appointment of a provisional liquidator all that it needs to consider is whether there is a prima facie case that the foreign entity concerned is a Part 5.7 body. I put aside the probability that this court may have some inherent power to appoint a provisional or final liquidator in respect of the assets of a foreign corporation which is not a Part 5.7 body. I merely mention this in case it be thought that I had excluded this possibility. 9 The evidence before the court derives principally from the provisional liquidator in Bermuda. He says that the affairs of the four companies are intertwined. They are all involved, apart from Holdings which appears merely to be a holding company, in the business of reinsurance. Each appear to cede some risks to the others. Unfortunately, as is not uncommon in closely connected corporations, they do not keep records which identify exactly which company is bearing which risk. However, the material before the court at the present is that the Bermuda company has invested perhaps up to $US98 million in Australia, it has issued letters of credit to Australians and it holds insurance policies over risks in Australia. A question is whether this amounts to carrying on business in NSW (or Victoria etc) so as to make it a Part 5.7 body. 10 "Carry on business" is defined in s 21 of the Law. The mere fact that a foreign corporation invests its funds or holds property in NSW is not of itself sufficient. What amounts to carrying on business is a complex question of fact in which previous decisions, particularly those decided on other legislation are of little help. The expression "has to be construed in its context" in this statute: Orbit Travel Services v Travel Compensation Fund [1999] NSWCA 63 at para 139. 11 I agree with the submission of Mr Coles QC and Mr J Priestley for the applicant that this fact together with the letters of credit would prima facie show that Bermuda is carrying on business in Australia. Although I would not wish this comment to be taken amiss by those in other States, I would infer that this means carrying on business in at least Sydney and Melbourne where the bulk of this business is transacted. Accordingly, so far as the Corporations Law as applicable in NSW and Victoria is concerned, prima facie Bermuda is carrying on business in each of those States and accordingly is a Part 5.7 body. 12 As a Part 5.7 body, both Holdings and Bermuda may be wound up under s 583 of the Corporations Law including (vide s 583(c)(ii)) on the ground that it is just and equitable to wind the company up. 13 Additionally, so far as Holdings is concerned, s 601CL(14) provides that when a registered foreign company commences to be wound up ... in its place of origin then the court shall, on application by the person who is the liquidator for the foreign company's place of origin ... appoint a liquidator of the foreign company. This provision would apply to Holdings but not to Bermuda. 14 Accordingly, with Holdings there are three provisions of the Corporations Law and with Bermuda at least two, which would authorise this court to wind up the companies in NSW and by cross vesting, at least in Victoria as well. 15 The registered local agent of Holdings is Australia. The evidence before the court is that NC and Australia, when they heard about the problems of Holdings in Bermuda, appointed Mr Gibbons as voluntary administrator. As Mr Gibbons is the person sought to be appointed as provisional liquidator of Holdings and Bermuda, there is no necessity as there would be in the ordinary case to ensure that the local agent has notice of this application before an order is made. 16 The exact nature of the problems of these companies is not clear on the evidence at this stage. It is significant that the Government authorities moved in Bermuda for winding up and that the court in Bermuda, having heard the argument, appointed a provisional liquidator. 17 In recent years, the problem of corporations in trouble which have assets around the world has become an increasing problem. Winding up law is still basically a fairly local affair, but when there are troubles with the company or group of companies which have assets throughout the world, then special action has to be taken to ensure as much as possible that the worldwide public is protected. To this end the courts throughout the world and particularly courts in Australia must obey the philosophy of s 581 of the Corporations Law and facilitate as much as possible the control of assets throughout the world. Of course, proper considerations must be given at each step to the rights of the corporators, the directors and others, but it is often necessary to act quickly to protect assets and if any error is to be made, to err on the side of protection rather than permitting assets to be in jeopardy. 18 In the instant case, there have already been proceedings with this group of companies in the High Court of Justice in England where upon letter of request from an Australian court, the Chancery Division has made orders and in the Bankruptcy Courts of New York in the United States of America. Those actions plus the actions in Bermuda give impetus to the application that the assets should be protected in Australia. 19 I need to mention two overseas cases concerning the approach taken in multi-national liquidations. In Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621, application was made to the Chancery Division by letter of request from the Federal Court of Australia to deal with the assets in England of one of the Bond group of companies incorporated in Western Australia. Chadwick J, considering a section similar to s 581 of the Corporations Law said at p 627 that the court whose assistance was sought ought "give the assistance required - unless there is some compelling reason why that should not be done." That has been the consistent policy of the English courts; see Re Business City Express Ltd [1997] 2 BCLC 510, 513 and cases there cited. 20 As far as I am aware, there are no Australian cases on this point, but in my view Australian courts should apply the same principle as is applied in England. 21 The application before me is for the appointment of a provisional liquidator and to appoint the person who has been nominated by the provisional liquidator in Bermuda and who is also the voluntary administrator of the two companies in the Australian group. I consider that this, in the current circumstances, is a sensible thing to do and so I will give the necessary leave under s 532(2) of the Law for that person to be the provisional liquidator. 22 The court's power to appoint a provisional liquidator is mainly found in s 472 of the Corporations Law. I asked Mr Coles QC and Mr Priestley why I should appoint a provisional liquidator. They referred me to cases such as Re Club Mediterranean Pty Ltd [1975] ACLC 40-204 at p 28,238 where Bright J said, "Where the company itself applies for the appointment of a provisional liquidator, the appointment is usually made without query ...". However, one must read the next part of his Honour's sentence which was "for such an application implies that the board of directors of the company considers that such appointment is necessary or would be beneficial." That latter part of the sentence shows that where one has a situation as here where whilst it is the company that is technically making the application because it is making it via its court appointed liquidator in another place, neither the board of directors nor the shareholders have had anything to do with the application. In any event, that sentence is no longer the law as is made clear by the decision of the Court of Appeal in Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625, 636, adopting the propositions made in Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732, 737. One of the propositions approved was "A provisional liquidator is not automatically appointed by the court for the mere asking ... even when the company presents its own petition." 23 As the Court of Appeal said in Constantinidis' case, the appointment of a provisional liquidator is a drastic intrusion in the affairs of the company and the taking of the step must be made with serious consideration. Ordinarily, it is necessary to establish that the assets of the company are in some degree of jeopardy; see the 3rd edition of McPherson Law of Company Liquidation (Law Book Company, Sydney, 1987) p 100, though this is only a rule of thumb. As was said in Re McLennan Holdings Pty Ltd at p 738 and affirmed by the Court of Appeal in Constantinidis, the power to appoint a provisional liquidator is by no means limited, the grounds on which a provisional liquidator may be appointed are infinite, and all that really has to be shown is that there is a bona fide application constituting sufficient ground for the making of the order. 24 In the instant case there is sufficient ground. The material before me suggests that unless something is done in Australia the Australian assets may be in jeopardy and there are considerable Australian assets over $100 million. Furthermore, the attitude of the court in the country of incorporation, Bermuda, shows that that court is very anxious about these matters and that is why the letter of request has issued. In addition concern has also been expressed by the courts in New York and London. 25 Accordingly, I am of the view that this is a proper case where a provisional liquidator should be appointed to each company. I will make the orders in accordance with the draft proffered by counsel in each case and stand the applications to wind up to the Registrar's list at 11 am on 7 June 1999.

Constantinidis v JGL Trading Pty Ltd

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