Deangrove Pty Ltd v Buckby

Affidavit and expert evidence

1. Before turning to the affidavit evidence, I should first address documentary evidence as to [redacted].
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9. By a second affidavit dated 1 June 2021, Mr Waugh provided a further report, which did not address [redacted]. Mr Waugh confirmed that his valuation in respect of the sale of the properties with vacant possession required that plant relating to the business operation be removed, primarily relating to equipment inside the main building on No 176, but also indicated that his primary methods of valuation, being capitalisation and direct comparison, had regards to the improvements having some economic value and did not require that those improvements be demolished. He accepted that, if a purchaser considered the Assets to have a highest and best use as land, then they would factor in demolition costs in arriving at the market value for the Assets. He recognised that his vacant site value, which is a secondary method of valuation, allowed for demolition of buildings and site improvements, but again emphasised that it did not allow for potential site remediation costs. He also indicated that he was not qualified to address the costs that would be involved in obtaining vacant possession of the properties for the purposes of sale, and presumably had not done so.
10. Mr Waugh was also asked to address the prospect of achieving a sale at his estimated market value of the properties at a public auction and observed that he considered the industrial market had maintained its demand and the Assets would be placed on market, but also that: "I have undertaken my best endeavours to apply values to the assets which I consider are achievable under the current conditions. However I cannot comment or verify whether they would actually achieve my specific values, as I cannot predict the workings of the broader market. However, I can say that my values are based upon market evidence and the interpretation of the current market conditions."
11. The Second and Third Respondents, Messrs Morrison and Quoyle, rely on Mr Morrison's affidavit dated 24 May 2021 and Mr Quoyle's affidavit also dated 24 May 2021. Each gives evidence that he consented to the appointment of a receiver and the payment of Mr Hinson's costs under the Consent Orders on the basis of the regime reflected in those Consent Orders, including the requirement for the Receiver to take all reasonable steps to sell the Assets in one line before adopting a different sale strategy (Quoyle 24.5.20 [5], Morrison 24.5.20 [6]). That evidence emphasises the significance of any step now taken by the Court which would reverse the steps contemplated by the parties' agreement as implemented by the Consent Orders. Each of them also refers to aspects of Mr Hinson's and Mr Hayes' evidence and expresses the view that they want the Receiver to continue to pursue the Syndicate Offer for the Assets because in their view it achieves the best result for all shareholders. They also address a concern that the price identified in Mr Waugh's report will not be achieved at a public auction, even on the basis of vacant possession. [redacted] Messrs Morrison and Quoyle also refer to their concern that, if the Syndicate Offer falls through by reason of Mr Hinson's actions, the Company's other shareholders may not receive a comparable return and they will not be compensated for the resulting loss.
12. The Receiver takes a neutral role in the proceedings, but relies on the affidavit dated 20 May 2021 of the Receiver, Mr Hayes. Mr Hayes there outlines the steps taken in the conduct of the receivership to date, and responds to aspects of Mr Hinson's affidavit dated 17 May 2021. Mr Hayes confirms his view (Hayes 20.5.21 [34]) that the best financial return was likely to be generated by the sale of the Assets under the Syndicate Offer, notwithstanding the value of the Land then estimated by Mr Hinson. Mr Hayes also addresses aspects of Mr Waugh's report, identifying the possibility that additional costs would have to be incurred by the Company before vacant possession of the Land could be provided or would otherwise reduce the amount a purchaser would be prepared to pay for the Land; and that costs would have to be incurred in order to relocate the Business to preserve its value, if the Land was to be sold with vacant possession (Hayes 20.5.21 [40]-[41]). Mr Hayes also referred to the time that would be involved in relocating the Business and the costs of demolition of buildings on the Land [redacted] (Hayes 20.5.21 [44]).
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14. By a further affidavit dated 1 June 2021, Mr Hayes provided an update as to valuations he had obtained and as to his comparative analysis of the estimated likely return to. Mr Hayes there referred to the costs for the sale process of the Assets in a single line which would be wasted, if the Court made the orders now sought by Mr Hinson, including his professional fees incurred in that process and advertising and legal costs. Mr Hayes also referred to progress with documentation for a sale, in accordance with the Consent Order, and to his understanding that all of the conditions in the Syndicate Offer had been satisfied and the purchaser was ready to proceed subject to finalisation of the draft sale documents.

Submissions and determination

1. Mr Newton points out that order 4(f) of the Consent Orders reserved liberty to apply in respect of those orders. Mr Newton submits, and I will assume without deciding, that that liberty to apply authorises an application to vary the Consent Orders, and that the Court would have inherent jurisdiction to vary those orders where they have an interlocutory character. It is not necessary to determine that question given the view which I reach below on other grounds. I note that Mr Newton also relied, at one point, on the Court's power to supervise a controller under s 423 of the Corporations Act 2001 (Cth), but that jurisdiction is not available here where there is no tenable basis for a suggestion that the Receiver has not faithfully performed or is not faithfully performing his functions, or is not observing a requirement of the Consent Orders by which he is appointed. Mr Hinson cannot establish that the Receiver is not conducting the sale in the manner contemplated by the Consent Orders, albeit he would now prefer that those Consent Orders provided for a different sale process to be adopted for the Land.
2. In closing submissions, Mr Newton accepts that the Receiver has in fact taken all reasonable steps to sell the Assets in a single line, as required by the Consent Orders, and refers to the best offer received by the Receiver, being the conditional Syndicate Offer to purchase the Assets. That concession seems to me to have the result that the Receiver would now be entitled to proceed to a sale of the Land, on that basis, having complied with that aspect of the Consent Orders, unless Mr Hinson is successful in this application.
3. Mr Newton submits that a difficulty arises from the conduct of the sale of the Assets, in accordance with the Consent Orders, that the proposed sale in that manner "will not realise the market value of the Assets". That proposition, which is fundamental to Mr Hinson's case, has not been established where all that Mr Waugh's reports show is that the Syndicate Offer will not realise the value of the Land as determined by Mr Waugh [redacted]. Mr Newton also submits that Mr Hinson seeks an order that the Receiver proceed to sell the Land by way of public auction and the Business be sold separately, because the sales process undertaken by the Receiver will not obtain the market value of the Assets, but that proposition has also not been established for the same reason.
4. Mr Newton also addresses a question, which I had raised at an earlier directions hearing, whether the process to be adopted for the sale of the Land was a commercial decision for the receiver, of a kind as to which the Court would ordinarily not give a direction: Re Ansett Australia Ltd (No 3) and Korda (2002) 115 FCR 409; 40 ACSR 433; [2002] FCA 90; Re MF Global Australia Ltd (in liq) (2012) 267 FCR 27; [2012] NSWSC 994. Although I had initially raised that question, I accept that it is of limited significance here, where the Court has made the Consent Orders that specify the manner in which the Land is to be sold. It seems to me that the Court would nonetheless have regard to the difficulty in a Court making commercial assessments, including as to the manner in which the Land and the Business are to be sold, in varying the Consent Orders over the opposition of two of the parties who had consented to them. This question ultimately does not affect the outcome of the matter, where Mr Hinson must fail because he has not established the fundamental premise of the application, that the sale of the Land and Business in the manner provided by order 4(b) of the Consent Orders and implemented by the receiver would be at undervalue.
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7. Mr Newton also addresses a comparison of the proceeds that would be received from the proposed sale of the Land and Business in one line under the Syndicate Offer and the market value of the Land and Business if sold separately, and Mr Silver responds that comparison omits several costs that would be incurred under the latter approach. It is not necessary to address that question, where that comparison depends on the figure adopted in it for the proceeds of sale of the Land from Mr Waugh's reports, [redacted]. Mr Newton concludes that, after taking all reasonable steps to sell the Assets in a single line, the conditional offer received by the Receiver will not achieve a sale of the Assets at market value. That proposition has not been established for the reasons I noted above.
8. Mr Newton also submits that the evidence establishes that the Receiver will not fulfil the duty imposed by s 420A of the Corporations Act to take all reasonable care to sell the Assets for not less than market value if he does not proceed to sell the land at public auction and the Business separately. I reject that submission, where the Receiver is entitled to proceed in accordance with the Consent Orders made by the Court, which confine the approach which he may adopt. As I noted above, Mr Newton's submissions themselves accept that he has taken all reasonable steps to sell the Assets in the manner provided by Order 4(b) and that would be sufficient compliance with the requirement that he take reasonable steps to obtain their market value, in accordance with the Consent Orders, under s 420A of the Act.
9. Mr Silver, with whom Ms McEwen appears for the Second and Third Respondents, in turn responds that s 420A of the Corporations Act and order 4(b) would be read together in the relevant circumstances, so that the relevant duty on the Receiver would be to take all reasonable steps to sell the Assets in a single line for not less than the market value of the Assets. He also points out that s 420A of the Act focuses on the conduct of the sale process, rather than upon its outcome and the Receiver's obligation is to take reasonable steps to obtain the market price rather than to obtain a notional "best price": Deangrove Pty Ltd v Buckby (2006) 56 ACSR 630; [2006] FCA 212 at [52]-[53]; Re Australasian Barrister Chambers Pty Ltd (in liq) [2017] NSWSC 597 at [37]-[40], appeal dismissed in Re Australasian Barrister Chambers Pty Ltd (in liq) [2017] NSWCA 117. Mr Silver in turn sets out the steps taken by the Receiver pursuant to Order 4(b) of the Consent Orders.
10. Mr Silver also submits that the Court is not required to supervise the sale process, under either the Corporations Act or at general law, and that any intervention will have regard to the process followed by the Receiver and not a speculative outcome of a different process. He points out that the Receiver undertook a comprehensive sale process, as contemplated by the Consent Orders, involving expressions of interest, the provision of confidentiality undertakings and an information memorandum prepared by the Receiver to a smaller number of prospective purchasers, an indicative offer stage and "best and final offers" by three purchasers. I accept that, on the face of it, that appears to be a comprehensive sales process. Mr Silver points out that the final price achieved in that sales process resulted from the marketing of the property in that competitive sales process, although the result was consistent with a valuation that the Receiver had previously obtained. I accept that submission, although little turns upon it where Mr Hinson has not established that a different sale process would lead to a better result for the reasons noted above.
11. Mr Silver also submits that Mr Waugh's alternative valuation, which is fundamental to Mr Hinson's case, is neither definitive evidence of the market price of the Assets nor a proper basis to disturb an organised sale process about to culminate in a sale of the Assets. He points out that the Hymans valuation obtained by the Receiver arrives at a different result from Mr Waugh's valuation; that there are unquantified costs which could materially affect the result of a sale of the Land and the Business separately, including the costs of securing vacant possession of the Land and relocating the Business [redacted].
12. Mr Silver also points to the risk that a buyer will not be located who is willing to pay an amount in the vicinity of Mr Waugh's valuation and, I accept, that is the necessary consequence of the fact that a valuation is a prediction of, but not a guarantee of, the behaviour of buyers in the marketplace. Mr Silver also points to the costs of a change of approach to the sale at this late stage, including that the costs incurred in the existing sale process that would be thrown away; the further costs that would be incurred in adopting a new sales process and, if necessary, obtaining vacant possession of the premises; and the fact that the Second and Third Respondents would not be protected against any loss suffered by that change in approach, if it ultimately does not generate a better return than the existing sale process. It seems that those costs and risks tend against the relief that Mr Hinson seeks.
13. For completeness, Mr Robertson made brief oral submissions on behalf of the Receiver, to assist the Court in a manner that was consistent with the neutral stance adopted by the Receiver. First, he confirmed that the Receiver had taken a position, as set out in Mr Hayes' affidavit, that he is seeking to assist the active parties in the Court to determine the application, and his position is that he has to date been selling the Assets in accordance with the approach required by Consent Orders. Second, Mr Robertson submits, and I accept, that Mr Hinson is in substance seeking is to vary the Consent Orders. He also points out, and I have accepted above, that there is here no basis for an application for orders under s 423 of the Corporations Act because the Court's power under that section is only enlivened if it appears to the Court that a controller of property of a corporation has not acted in the specified manner and, relevantly, there is no suggestion that Mr Hayes has not been faithfully performing or has not observed the orders by which he was appointed as receiver of the Assets.
14. Third, Mr Robertson draws attention to Mr Hayes' assessment of the outcome of the sale process, in paragraph 34 of his affidavit dated 20 May 2021, to which I have referred above. He also draws attention to Mr Hayes' evidence that he has considered the Waugh valuation and to the issues he has identified in respect of the proposed alternative approach (Hayes 20.5.21 [40]-[47]) (to which I also referred above) and to Mr Hayes' concern that it will be very difficult to sell the Business as a going concern if it does not continue to operate from its current site on the Land, and to the risk that the orders sought by Mr Hinson would lead to the closure of the Business and the sale of its constituent parts, namely its plant and equipment.
15. Fourth, Mr Robertson submits that the marketing of the Land and the Business which Mr Hayes undertook in late 2020 and early 2021 did not preclude any party from offering to purchase one or other of the Land or the Business separately, and some offers of lower amounts were submitted on that basis. I recognise, however, that (as Mr Newton pointed out in reply) that process primarily sought to elicit offers for the Assets in one line rather than for the Land and Business and other assets separately. That is, of course, consistent with the approach required by order 4(b) of the Consent Orders. Fifth, Mr Robertson points to the Receiver's assessment that the best offer which he received and considered acceptable was the Syndicate Offer (Hayes 20.5.21 [34]).
16. Sixth, Mr Robertson submits, as I have also noted above, that Mr Hinson primarily relies on Mr Waugh's valuation evidence to make out his case that the Assets could be sold better in the way in which is proposed by the orders that Mr Hinson seeks. Mr Robertson submits, and I have recognised above, that Mr Waugh's evidence is one valuation of the Assets and there are differing valuations before the Court, including the updated Hymans valuation obtained by the Receiver, and there is a relatively wider range in those valuations, which depends in part on the assumptions made by the valuer. Mr Robertson points out that neither valuer has been cross examined, in particular as to the soundness of any of the assumptions that they have made, and that the Court is not in a position to resolve the correctness of the Hyman valuation or Mr Waugh's valuation on this application. There is force in that submission, and the fact that no suggestion has been put to any valuer that his or her methodology is in error highlights the significance of the unproved assumptions that each has made and the possibility that views as to the value of the Assets may legitimately differ, with none of the valuer's approaches being objectively "correct" as a forecast of the sale price that would ultimately be obtained in a market transaction, which may ultimately fall in a range within or beyond the upper and lower points of those valuations. Seventh, Mr Robertson draws the Court's attention to Mr Hayes' updating affidavit, to which I referred above. Finally, Mr Robertson draws attention to Mr Hayes' evidence in a confidential exhibit to that affidavit of the outcome of the sale process, and submits that evidence should be preferred to the forecast of that outcome set out in paragraph 40 of Mr Newton's written submissions. There is force in that submission, but I need not reach a final view given the conclusion that I have reached on other grounds.
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19. Mr Hinson also raises a separate matter, and seeks a variation of order 8 of the Consent Orders, which provided that the Second and Third Respondents pay his costs of the proceedings as agreed or as assessed, up to the date of that order. Mr Newton submits that the proceedings will not be completed until the Company is placed in liquidation, and the appointment of a liquidator may be some time away, given the need for the Receiver to complete the sale of the Assets. Mr Newton also points out that the costs of the interlocutory proceedings will not be recoverable until the conclusion of the proceedings, by the operation of r 42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW). Each of these facts existed at the time the Consent Orders were made; there has been no development, other than this unsuccessful application brought by Mr Hinson, which has affected the operation of the Consent Orders since they were made; and no basis is established to vary the costs orders then made by consent of the parties. No doubt, the orders which Mr Hinson now seeks would be more favourable to him than the Consent Orders to which he then consented, but that is not a reason to vary the orders to which all the parties consented with the orders which are more favourable to one of them.

Orders

1. For these reasons, I ordered that Mr Hinson's Interlocutory Application be dismissed and that he pay the Respondents' costs of the application at the conclusion of the oral hearing.

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