Deputy Commissioner of Taxation v Advanced Communications Technologies

Supreme Court of Victoria|2003-03-05|Before: Hansen J

Practice - Mareva injunctions - Change in circumstances since injunctions granted - Variation or dissolution.

This is an application by the receivers and managers of the first defendant in proceeding 6401 of 2002, to vary the present Mareva injunction to permit them to enter into the agreement with Insolvency Litigation Funding Pty Ltd, a litigation funder, which is Exhibit DNL1 to the affidavit of David Neil Lockwood, sworn 28 February 2003.

Mr Lockwood is one of the receivers and managers. He and Mr Sellers, the other receiver and manager, are the fourth and fifth defendants respectively in the proceeding.

The application was made yesterday in the course of some preliminary matters, prior to the commencement of the hearing of a summons for directions filed on behalf of the receivers and managers in proceeding 6401 of 2002, and the hearing of certain issues in proceeding 4542 of 2003.

The injunction was initially granted on 15 July 2002, on the ex parte application of the plaintiff, the Deputy Commissioner of Taxation. In essence, it restrained the first defendant, Advanced Communications Technologies (Australia) Pty Ltd, who I shall refer to as ACTA, from in any way disposing of or dealing with any of its assets or undertaking.

However, ACTA was at liberty to expend a reasonable amount for ordinary day to day expenses, and for legal expenses in defending the Commissioner's proceeding.

In fact, at that stage, the Commissioner had not commenced a proceeding. The application was made orally, and the injunction was granted, in circumstances of urgency by reason of an apparently threatened disposal of assets to the second defendant, Spectrucell SDR Pty Ltd, who I shall refer to as Spectrucell, and on the basis that a writ would be issued the next day. Because of the apprehended dealings, Spectrucell was also restrained by a Mareva injunction.

I should say that at that time there was pending an application by the Commissioner to wind up ACTA; hence the injunction was granted to seek to ensure that if ACTA was wound up, its assets would have remained in its hands and be available for the benefit of creditors.

The intended proceeding was filed by the Commissioner. Among other things, and perhaps principally, the Commissioner challenged the validity of a debenture which ACTA had apparently granted to Global Communications Technologies Pty Ltd, which I shall refer to as Global; a related company which is the third defendant in the Commissioner's proceeding. A short time after the Commissioner filed her writ, Global appointed the fourth and fifth defendants as receivers and managers pursuant to the debenture and they became the fourth and fifth defendants in the Commissioner's proceeding.

There were a number of interlocutory hearings prior to the trial in September 2002. At a hearing on 2 August 2002, at which counsel appeared for the then administrator of ACTA (who had been appointed within days of the initial injunctions) and separate counsel appeared for the receivers and managers, the Mareva injunction was continued but certain qualifications were added to enable the administrator to deal with ACTA's assets in certain ways.

On 30 August 2002, I ordered that the receivers and managers be at liberty to sell ACTA's shares in Australon Enterprises Pty Ltd, who I shall refer to as Australon, to Asia Infotech Pte Ltd, for A$6m pursuant to the agreement in a sale deed dated 27 August 2002 and, until further order, to retain the sale proceeds in an interest bearing account. It was further ordered that the fourth and fifth defendants may apply the proceeds in payment of certain items of expense incurred by them in the course of the receivership.

During the trial of the winding up application, and the Commissioner's other proceeding, in September 2002 a settlement was reached, subscribed to by all parties, which provided for the Commissioner to receive a sum of money in payment of her debt out of the proceeds of sale of the Australon shares.

As it has happened, $3m was received from the purchaser, Asia Infotech, but certain conditions precedent to the sale agreement not having been satisfied at the settlement date of 31 January 2003, the receivers and managers terminated the agreement.

That termination led to Asia Infotech filing the writ in proceeding 4542 of 2003, a few weeks ago. I have had the management of that proceeding, and part of it is fixed for trial tomorrow.

It is accepted that the sale agreement was validly terminated, but Asia Infotech claims that it is entitled to be refunded the $3m it paid under it, on the basis that a provision for its forfeiture is a penalty.

The receivers and managers raise other matters by a counterclaim. The counterclaim involves other parties in addition to Asia Infotech and there is a directions hearing on Friday. The counterclaim raises issues concerning an agreement between the shareholders of Australon.

Overall, it is apparent that the proceedings, which have been attended throughout with many applications and much dispute, must have occasioned considerable expense to the receivers and managers. They are concerned about the ever mounting legal and related costs. Mr Lockwood has sworn that it is prudent and necessary to obtain litigation funding in respect of the costs of proceeding 4542 of 2003, any further litigation arising in respect of the Australon shares, and any potential liability of ACTA to disgorge the $3m deposit paid by Asia Infotech to ACTA under the sale deed. These issues are raised in the proceeding brought by Asia Infotech. It is typical of the disputation which involves a number of people with different interests, that it keeps throwing up issues; it is hard to know where or when it might all end.

It is in these circumstances that the receivers and managers have determined that the appropriate course for them is to obtain litigation funding.

Mr Lockwood has sworn several affidavits in support of the application. He was not cross-examined. No contrary evidence was filed. I accept his evidence on this application. That evidence includes the statement that he has been unable to obtain funding on more advantageous terms to ACTA, than those proposed.

The Commissioner opposed the application to vary the injunction. The submissions subjected Mr Lockwood's affidavits to a close analysis. For one thing, it was said, Mr Lockwood had not clearly stated that the lawyers and himself will not continue acting without the funding. What Mr Lockwood had said was that all fees for himself, counsel and solicitors, are unpaid. They are substantial and are continuing to be incurred. It almost seemed to be suggested that professional people should be prepared to act in such heavy and demanding litigation, in respect of a company facing winding up, on the basis of a future hope of financial recompense. It is a point which, in my view, bears not a single shred of merit, in the present circumstances at least. It is unnecessary to refer to all the points made by the Commissioner. I have regard to them all. They concern, in one way or another, the extent of the need for the litigation funding, especially at the apparent higher return to the funder, compared to the simpler course of the receivers and managers borrowing on the security of the Australon shares. On the latter basis, the receivers and managers would not give up the substantial amounts to the litigation funder which the proposed agreement would permit, and could raise funds with which to pay costs and otherwise be left retaining the shares. However, the submission as to borrowing on the security of the shares did not seem to recognise whether such a borrowing might have been inconsistent with the Australon shareholders agreement.

Moreover, if, as seems to be the case at present, ACTA's share from the Australon shares is worth approximately $38m, the Commissioner's debt, and that of other creditors, would seem well covered.

In reply, counsel for the receivers and managers submitted, as an alternative, that the injunction could and should be dissolved. That is because it was no longer warranted. The circumstances were fundamentally different from those that obtained when the injunction was first granted.

The injunction was granted, as I have mentioned, on an oral ex parte application, in circumstances of immediate urgency to deal with a threatened dealing with assets. It has been continued without an application for its dissolution. And the present application to dissolve seems to have come as a reaction, I think, to the expressed vigour of the Commissioner's opposition to a variation.

The present position is changed from that which obtained last year, when the Mareva injunctions were first granted.

There is both an administrator under a deed of company arrangement, and the receivers and managers are in place.

It is correct that the deed of company arrangement was premised on the now terminated sale, but the deed administrator is still in place. Moreover, I have this morning, on an application by the deed administrator, made orders pursuant to s.447A of the Corporations Act, which have the effect of varying the deed of company arrangement by removing the premise. As a result, the deed now refers to a sale of the shares simpliciter. I also extended the date of performance in Clause 7A.

This change is to be understood in light of the fact that the shares may be sold free of the terminated sale. If a sale occurs, Clause 7A can operate as it was intended to, but in respect of a different sale from that originally contemplated.

The effect is that the amount of money specified in Clause 7A remains liable to be paid to the deed administrator.

Then there are the receivers and managers. It is accepted that they are responsible insolvency practitioners. But, the Commissioner says, the difficulty concerning them is that until there is a final resolution of the Commissioner's proceeding, in which the injunctions were granted, there remains on foot the challenge in that proceeding to the validity of the debenture under which they were appointed. And, hence, to their appointment. It is said that the Commissioner wishes, subject to the constraint in s.444E, to have her proceedings relisted and heard.

If the litigation is heard, and it is ordered that the debenture be set aside, the receiver and manager's appointment would also fall. Accordingly, the existence of the receivers and managers is not a basis for regarding the Mareva injunctions as redundant.

It is I consider a sufficient answer to this point, that if it ever occurred that the debenture was set aside, orders could be made in the nature of a Mareva injunction or otherwise, which in the light of the then circumstances, were appropriate.

The Mareva injunction was granted in the first place because it was sufficiently established that if the threatened dealing with assets went ahead, and ACTA was wound up, there may be no assets left distributable to creditors.

That original threat and risk is no longer present. The circumstances are changed. There is an administrator and receivers and managers in place. I am satisfied that the experienced professional people occupying those positions are discharging their functions in a responsible and appropriate way; attentive to the various interests in the complexity of the disputation. Indeed, the contrary is not suggested.

I would of course entertain any application at any time for such orders as might be considered necessary to prevent a dealing in assets which might carry a risk that creditors in ACTA might be left lamenting in the event of a winding up. But, at present, I am of the view that the Mareva injunction should be dissolved. That will include those orders that were made against Spectrucell.

I should add that if I had not taken this course, I would have been disposed to vary the injunction as sought by Mr Lockwood. In accepting his evidence, I accept his statement that it is urgent that he complete the agreement with the litigation funder and that the interests of ACTA stand to be prejudiced if that litigation funding is not immediately put in place. One might have thought that the parties could have worked together to work out a basis on which Mr Lockwood might meet his difficulties, pending determination of the litigation. Instead, he was met with blanket opposition which might, perhaps wrongly, have been considered a course that would drive him from the litigation. However that may be, and I cannot speculate on the motivations that affect litigants, I am clearly of the view that the variation was otherwise appropriate.

I should note that the receiver and manager's application was made on notice, but without the filing of an interlocutory process. No point was taken as to that. Indeed, counsel were content to deal with the application without the formality of an interlocutory process.

The order is that the Mareva injunctions directed to ACTA and Spectrucell be dissolved.

At a glance

Court

Decision date

Before

Source

Judgment (38 paragraphs)

Parties