Deputy Commissioner of Taxation v Biosolids Management Pty Limited

• 3 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

005119/03 DEPUTY COMMISSIONER OF TAXATION v BIOSOLIDS MANAGEMENT PTY LIMITED

JUDGMENT 1 HIS HONOUR: This is an application under s482 of the Corporations Act 2001 ("the Act"), for the termination of a winding up order which was made on 13 November 2003. The order was entered on 14 November 2003, appointing James Alexander Shaw of Ferrier Hodgson as liquidator of the company. It was also ordered that the costs of the plaintiff, the Deputy Commissioner of Taxation be paid out of the assets of the defendant at the time of the winding up order in the sum of $39,370.23 arising out of BAS statements up to and including 18 August 2003, including an additional date owing to the company.

2 The company had four shareholders who are the applicants before this Court: Biocare Australia Pty Ltd, owning 48% of the share capital, Mumsons and Dadsons Pty Ltd, two companies jointly owning 10% of the share capital, and a Mr David Crummy, owing the remaining 42% . 3 Mr Crummy was a director of the company until 5 November 2001 but remained responsible for day to day management of the business in Grafton. He was involved in contentious matrimonial proceedings involving the matrimonial home of he and his family, that being the registered office of the company at the time of the winding up. The company had not traded since May 2003 and has obviously not traded since the winding up order. 4 The company consisted of a liquid waste treatment plant on some eight acres of leasehold land outside Grafton, where waste would be treated using a microbial process. Its customers included Grafton Municipal Council as well as private customers throughout the north coast section of New South Wales from Port Macquarie to Tweed Heads. 5 The company operated with an Environmental Planning Authority ("the EPA") licence. To operate the sophisticated processes involved, stringent conditions as to the carrying out of the activities of the company were imposed by the EPA. 6 At the hearing, Mr Rawson, whose Affidavit has been read (along with the Affidavit of Mr Cog), was advised of the wrong date of the hearing as being on 17 November 2003. The Originating Process for winding up was not brought to the attention of the directors of the company because there was an estrangement between Mr Crummy's son and himself, and the papers were left at the home where the son was. It appears however, that for some time prior to the winding up order, Mr Crummy had failed to maintain proper books and records of the defendant company. 7 When, in May 2003, the directors discovered the problems with the company's accounts, the company's accountants arranged for the preparation of accounts. All BAS statements have now been lodged. 8 The company has prepared a projection on income and projected expenditure which, on the evidence before me, will enable a positive cash flow of a least $150,000 by the end of April 2004 on the reinstatement of licence by the EPA. That includes the amount owing to the plaintiff. In December 2003 there was some $85,000 owing, and there are currently creditors for the amount of $77,730, excluding those persons who have invested money in the company as supporters of the company rather than creditors as such. 9 There are long term liabilities totalling $1,452,469 made up of loans from shareholders and various directors, and an amount of $118,578 owing to AGC in respect of the lease of plant and equipment. AGC now neither supports nor opposes the termination of this winding up order. Repayments of $3,767 are up to date, except for the last month or so. 10 The position of the applicants in these proceedings is that there is some $1,200,491.16 which is owed. The individual creditors are shareholders in Biocare Australia Pty Ltd, which is owed some $400,000. Each of the persons entitled have agreed to subordinate their liability to the other unsecured creditors, for the amount I earlier referred to. 11 The plaintiff in these proceedings whose representative briefly attended before the court, consented to the application on the basis of the debt and costs being as at the date of the termination. The position of the liquidator is that he neither consents or opposes this application as long his costs, which are less than $11,000, are paid. 12 Mr Crummy was served with documents. He has chosen not to be present as indicated. It must be taken that he is in acquiescence with the orders sought. 13 Section 482 of the Act gives the Court a wide discretion to deal with this application, which discretion has been considered in terms of making any order sought under the section in light of the decision of Barrett J in Anderson v Palmer [2002] NSWSC 192. The summary of matters for the Court to consider is referred to in the judgment of Master Lee QC in re Warbler Pty Ltd (1982) 6 ACLR 526, which sets out the nature of the obligations of the company, noting the comments of the caution raised by Santow J of this court in Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723.

14 The Court, in exercising the discretion vested in it, must ensure that there is appropriate service to all creditors and contributories. I am satisfied on the evidence that that has occurred here. The nature and extent of creditors has been set out and the debts that will not be discharged have been disclosed. The acquiescence of that non-payment can be inferred from an exhibit before me which subordinates those debts to the obscure creditors, which include the plaintiff. 15 I am satisfied that the creditors, contributories and the liquidator either support or do not oppose the application, with the exception of Mr Crummy whose acquiescence I have referred to. 16 It seems to me that failure on the part of the directors in the past have now been put in order. I suspect that the expense of this whole exercise will operate as a very clear reminder of their obligation to carry out their duties as directors as it is clear that the lack of supervision by all directors contributed to the failure of the company to carry out its objectives as well as the failure to look after the position of unsecured creditors. 17 I have set out earlier the history of the winding down of the company. It seems to me, on the examination of the material before me, that the potential for the company to carry out a very successful operation is evident. 18 Indeed it appears to me, particularly with the proposed oily water treatment plant, that the potential for income is very substantial, and that on proper attention being applied to the carrying out of the duties of the company there is a potential for it to attract considerable investment. 19 It is clear that some of the work that has to be done in respect of solid wastes to protect the environment in the area where the company carries on needs to occur, and fairly promptly. 20 I am satisfied, considering the case of Re: E-Fahkri, in the matter of Elfah Pty Ltd (in liq) [2002] FCA 1469 202 FCA 1469, that the interests of the creditors are satisfactorily considered and that the position of the liquidator is covered. 21 The members of the company have now committed themselves financially and otherwise to the destiny of the company. I am satisfied therefore, on the available evidence, that it is also proper that this company - which carries on an important and lawful exercise - be able to continue to do what it does and indeed to expand its activities. 22 It seems to me therefore that it is proper, under s482 of the Act, that a termination order be made. 23 I am advised that the making of a termination order will reinstate the position of the directors prior to the winding up order. Whether that be the case or not, I think it is appropriate that I continue the office of the directors until there be a general meeting of shareholders to consider the affairs of the company and, if appropriate, resolve to continue the office of the directors or elect new directors. 24 I also consider that the directors should carry out the obligations which have been made to pay creditors and the liquidator, and all other necessary matters to get the company operating again. I am told that a cheque has been paid to the trust account of the applicant's instructing solicitors to pay out the unsecured creditors I have referred to.

25 The orders therefore that I propose are: i. Order 1 of the interlocutory process; ii. The winding up order in relation to the defendant on 13 November 2003 is to be terminated on the date determined by the court iv. The defendant is to pay the plaintiff's cost of this application and of the proceedings; v. The former directors of the company at the time of the winding up are to continue to operate as directors of the company until a meeting of shareholders next occurs; vi. It is a condition of these orders that the unsecured creditors referred to, including the plaintiff, be paid within ten days from the date hereof. The unsecured creditors identified in annexure F are to be paid within ten days from the date hereof and the fees of the liquidator are to be paid within that ten day period. vii. I grant liberty to apply on two day's notice

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