Cryovac Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd

1. The applicant have leave under s 471B of the Corporations Act 2001 (Cth) to proceed against the second respondent in Federal Court proceeding NSD 6 of 2015 up to and including 20 October 2017.
2. The costs of the applicant's application for leave to proceed be costs in Federal Court proceeding NSD 6 of 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

KENNY J: 1 The applicant, Cryovac Australia Pty Ltd (Cryovac), has applied for leave to proceed under s 471B of the Corporations Act 2001 (Cth) against a company in liquidation up to and including 20 October 2017. The company in liquidation is the second respondent in the proceeding NSD 6 of 2015, Auslid Operations Pty Ltd (ACN 123 957 531) (Auslid). Cryovac's application was supported by an affidavit sworn by a solicitor acting for it, Ms Claire Gitsham. 2 The liquidators do not oppose the grant of leave and, with the applicant and other parties, consented to the application being determined on the papers in Chambers: see Federal Court of Australia Act 1976 (Cth), s 17(2). 3 The Court's power to grant leave to proceed is contained in s 471B of the Corporations Act 2001 (Cth). The Court has a discretion whether or not to grant leave. In Ogilvie-Grant & Anor v East as Liquidator of Gordon Grant and Grant Pty Ltd (in liq) [1983] 2 Qd R 314; 1 ACLC 742 at 744, McPherson J touched on the reasons for the discretion, saying: The precise purpose and function of provisions similar to sec. 230(3) have seldom been explained. From time to time the suggestion has been made that the prohibition exists in order to effectuate the statutory policy of ensuring that corporate assets are distributed rateably amongst all creditors so that none of them will gain an advantage over others: see e.g. Re Sydney Formworks Pty. Ltd. (1965) N.S.W.R. 646 at pp.649-650. But in Australia at least it is not often that the institution of proceedings or even the recovery of judgment operates to confer a priority or advantage on a litigating creditor. A more convincing explanation is that, without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary. This explanation has been accepted in a number of Canadian cases and appears also to have been adopted by Street J in Re A.J. Benjamin Ltd (1969) 90 W.N. (N.S.W.) 107 at p.109 … 4 Various factors relevant to the exercise of the discretion have been identified: see, for example, Swaby v Lift Capital Partners Pty Ltd (in liq) [2009] FCA 749; 72 ACSR 627 at [29] (Gilmour J). 5 The background to the application is as follows. 6 The substantive proceedings relate to claims by Cryovac against Aus-Lid Enterprises Pty Ltd (ACN 082 053 316) (Aus-lid Enterprises) as the registered owner of the patent AU754978 (Australia) and 503331 (New Zealand) for the Combo-Lid (the Patent); Auslid as the exclusive licensee for the Patent; and Mr Ashlyn de Souza as the sole director of Auslid (prior to its liquidation) and a director of Aus-Lid Enterprises. The claims concern breach of a Patent Licence Agreement (PLA). The proceedings also relate to claims by Cryovac against Visy Packaging Pty Ltd for inducing the three other respondents' breaches of the PLA. 7 Cryovac commenced the proceedings on 6 January 2015. From 17 February 2015 until 10 April 2017, Aus-Lid Enterprises, Auslid, and Mr de Souza were represented by the same lawyers. Significant steps progressing the proceedings were made at that time. 8 On 7 June 2017, the second respondent, Auslid, was wound up in insolvency by order of the Supreme Court of Victoria. The petitioning creditor was Aus-Lid Enterprises, the first respondent to the proceeding. Messrs Nicholas Giasoumi and Mr Roger Darren Grant, of Dye & Co Pty Ltd, were appointed liquidators. They were informed of this proceeding by Ms Gitsham on 14 June 2017. Early on, Mr de Souza apparently indicated that he would seek to have the winding-up order set aside. He subsequently resiled from that position but indicated that he was contemplating that the Head Licence be terminated. 9 On 3 July 2017, Auslid's liquidators lodged a report as to affairs (RATA) with the Australian Securities and Investments Commission in respect of Auslid. The RATA shows that: (1) two of the creditors of Auslid are parties to the proceedings; (2) the remaining two creditors are said to be owed $186,000 and $117,300 each; and (3) there is an estimated surplus of $7,335,110 in respect of Auslid, subject to the costs of liquidation. 10 In my view, leave to proceed should be granted up to and including 20 October 2017. Mediation has been scheduled for 27 September 2017. The next case management hearing is fixed for 20 October 2017. The litigation began over two years ago (before the order for winding-up and the appointment of liquidators) and is well advanced against all respondents, including Auslid. The matter has been listed for trial for some time. 11 I am satisfied on the material before the Court that the applicant's claims against Auslid have a solid foundation and give rise to a serious dispute: see Vagrand Pty Ltd (in liq) v Fielding and Others (1993) 41 FCR 550; 113 ALR 128 at 134 (Wilcox, Burchett and Beazley JJ). Furthermore, issues between the applicant and Auslid are likely to have ramifications for the issues between the applicant and Aus-Lid Enterprises and Mr de Souza. Additionally, Mr de Souza's indication that an attempt might be made to terminate the Head Licence raises the potential for further serious issues to arise involving Auslid. 12 The RATA indicates that there is no apparent risk that non-party creditors will be prejudiced if the proceedings against Auslid continue until 20 October 2017 or that the proceedings will thereby dissipate Auslid's assets. In this connection, I have also had regard to my orders of 16 June 2017, the third further amended statement of claim, and the scheduled mediation. 13 Accordingly, I would order that the applicant have leave under s 471B of the Corporations Act 2001 (Cth) to proceed against the second respondent in this proceeding up to and including 20 October 2017. I would also order that the costs of the application be costs in the proceeding. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.