Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd

REASONS FOR JUDGMENT 1 On 12 November 2008, a Deputy Commissioner of Taxation made an application for the winding up of Scottsdale Homes Number 3 Pty Ltd. At that time, the sole director and the secretary of the company was one Dudley James Quinlivan. 2 On 27 November 2008, Mr Dudley Quinlivan resigned from each of these offices with the company. He was replaced by a Mr Leo Ralph as the sole director and the secretary of the company. I was informed, without objection, in the course of proceedings today by Mr Coulsen, on behalf of the administrators, that an event, which seems at least to have influenced the resignation of Mr Dudley Quinlivan as director and secretary of the company, was a disqualification order made by the Australian Securities and Investments Commission in respect of his ability to be a director of a company. A consequential application was made by him to the Administrative Appeals Tribunal for the review on the merits of that decision, and a stay of the order of ASIC, which the Tribunal was disposed to grant. It seems that as a matter of prudence, nonetheless, Mr Quinlivan decided to resign the directorship. 3 On 10 December 2008, Jason Walter Bettles and Susan Ruth Carter were appointed as administrators of the company. The hearing date for the winding up application was originally fixed to be 11 December 2008. Upon the winding-up application coming on before a registrar of the Court that day, an application was made for the winding up application to be adjourned, pursuant to s 440A(2) of the Corporations Act 2001 (Cth). That particular application being beyond the jurisdictional remit of a registrar, the application was referred to a judge. It came before me for hearing today. 4 On the application being called on for hearing, the material initially relied upon on the part of the administrators comprised an affidavit of Mr Bettles sworn on 10 December 2008, and a further affidavit of Mr Bettles sworn on 15 December 2008, the latter being filed by leave. It was a matter of comment in the course of submissions made on behalf of the Commissioner by one of his officers, Mr Cleary, that there was an absence of sworn material on the part of related companies. An opportunity was extended, which was taken up by the administrators, for the case to be stood down to determine whether or not it was desired that the application proceed on existing materials. 5 In the result, a further affidavit came to be relied upon by the administrators. That is an affidavit of Mr Dudley Quinlivan, which was sworn today at Bundall on the Gold Coast, and filed by leave without objection. To understand the relevance of that particular affidavit and its contents, some brief recitation of the background to the winding up application and the state of affairs of the company, as best the administrator has presently been able to ascertain them, is necessary. 6 There are no secured creditors of the company. The most significant creditor, and by a large margin, is the Commissioner of Taxation ("the Commissioner"). At the time when the report as to affairs was prepared, the company was indebted to the Commissioner, on behalf of the Commonwealth of Australia, in the sum of $592,668.40. That particular debt attracts a general interest charge, such that a sum now in excess of $600,000 is owed to the Commonwealth and payable to the Commissioner. 7 The other unsecured creditors are each, in one way or another, companies which are controlled by Mr Dudley Quinlivan. They and the amounts of their claim as against the company are as follows: · Remi Lane Investments Proprietary Limited, $11,000; · Corymbia Estates Proprietary Limited, $9,757.51; and · Corymbia Corporation Proprietary Limited, $8,800. 8 In his more recent affidavit, Mr Bettles deposes that the company is part of a group associated with the Quinlivan family. Part of that group is a company called RLT Finance Proprietary Limited (RLT). RLT, according to Mr Bettles, is indebted to the company in the amount of $3,532,820. 9 Mr Bettles's investigations have disclosed that the group of companies of which Scottsdale Homes Number 3 is part, have been set up such that all financing for individual corporate entitles within the group is undertaken by RLT. Another company within the group, and also one of the unsecured creditors of Scottsdale Homes Number 3, is Corymbia Corporation. Corymbia Corporation is constructing a large development called Corymbia Woods at Collingwood Place in Queensland. In September 2008, local government development application approval was given for the Corymbia Woods development. That, so the administrator deposes, meant that the value of the development increased such that Corymbia Corporation was able to refinance through its current financial institution, Equity Trust, to meet the costs associated with the completion of that development. 10 The refinancing package totalled some $47 million. A feature of the present economic climate is that Equity Trust has advised that it is not in a position to fund the development any further because of, apparently, a lack of funding from depositors. Corymbia Corporation has located, via a company known as Professional Mortgage Providers (Victoria) Proprietary Limited, another funder. 11 A letter of offer from that institution of $47 million is in evidence before me. Funding from that source would repay the current advance by Equity Trust and provide moneys to complete the development, with some surplus being available, so it is apprehended, to pay other debts. This particular funding arrangement is due to settle at the end of January 2009. At that time, so the administrator deposed, Corymbia would be able to advance moneys to RLT, with RLT then being able, in turn, to settle a debt which it had to Scottsdale Number 3. The latter debt arises from dealings, which it is not necessary to detail for present purposes, between Scottsdale Number 3 and RLT. The administrator believes that once the debt owing by RLT to Scottsdale Number 3, a sum of $3,532,820, is paid, there will be more than sufficient funds to meet Scottsdale Number 3's liabilities, which include, in the main, the indebtedness to the Commonwealth in respect of taxation liabilities, which I have mentioned. 12 The administrators have received from Equity Trust a letter, undertaking that upon it being paid under the refinancing schedule to occur at the end of January 2009, it will ensure that funds are available to meet what it then apprehended to be the current debt to the Commonwealth, payable to the Commissioner; viz, $593,000. Other evidence before me discloses that documentation in respect of the refinancing proposal is in active preparation, with settlement expected to occur on or about 31 January 2009. 13 The preliminary review by the administrators of the company's records suggest that there has been two payments to related creditors, totalling $445,036, which may be preferential. Mr Bettles has not discovered any other transactions which may be voidable by a liquidator. He further deposes that there would be no need for a liquidator to seek recovery of those potential preferential payments if the debt owed by RLT were paid, because that debt exceeds the liabilities of the company. Mr Bettles has further deposed that, based on his investigations to date, he would recommend that at a second meeting of creditors, presently scheduled for 23 January 2009, creditors adjourn the meeting for three weeks, because it is likely that in that time, the refinancing, which I have described, would settle that Corymbia Corporation would advance funds sufficient to enable RLT to meet its liabilities, which includes the debt to the Commonwealth, payable to the Commissioner, and therefore, with no liabilities, the administration of the company could end without the need for a deed of company arrangement. 14 This, then, was the background against which the Commissioner came to comment in submissions about the absence of an affidavit from Mr Dudley Quinlivan. The comment presaged an apprehension which I had in respect of the state of the material as then before me. Mr Quinlivan's affidavit is in these terms: (1) I am a director of Corymbia Corporation and other companies which make up the Quinlivan group of companies. I am the controlling mind of the Quinlivan group of companies. I refer to Mr Bettle's affidavit of 10 December; in particular, to exhibit JWB 5, being a loan preapproval letter, Professional Mortgage Providers (Vic) Proprietary Limited to Corymbia Corporation, dated 27 November 2008. Upon settlement of the refinance to Corymbia Corporation described in the preapproval, I will cause sufficient funds to be made available and paid to the administrators of Scottsdale Number 3 Pty Ltd, so that all creditors of it are paid in full. 15 So far as the adjournment of an application for the winding up of company under s 440A is concerned, the authority which has proved influential is a decision of the Queensland Court of Appeal, Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456. Mr McPherson J, with whose judgment Pincus and Davies JJ agreed, remarked at page 457: It is evident from the terms of that subsection [440A(2)] that before it applies, the court must be satisfied not only that there is an administration, but also, as the subsection says, that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. The judge in the present case was not satisfied that it was in the creditor's interests for the administration to continue and it is his decision to that effect that is challenged here. The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other. In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realized under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors. 16 It is possible that in a liquidation of the company, a domino effect might occur, whereby related company loans are called up successively. Whether or not that would lead to a better return to creditors than a continuance of the administration and something of a "wait and see" approach in relation to the proposed refinancing and consequential repayment, is a moot point indeed. The only particular recovery in prospect to which the administrator points in his later affidavit is that of the two preferential payments. That would yield a recovery well short of 100 cents in the dollar for the creditors. 17 What came to be proposed on behalf of the administrators after Mr Quinlivan's affidavit was read, were orders in the following terms: 1. The application for winding up be adjourned until 12 February 2009. 2. The convening period described by section 439A be extended to 13 February 2009. 3. A direction that the meeting of creditors held pursuant to section 439A be held no earlier than 14 February 2009. 18 In effect, this puts in place a regime whereby, by 12 February 2009, the refinancing and consequential repayment will either have occurred as apprehended, or not. 19 Faced with this particular development and, at least, the prospect of a return of 100 cents in the dollar for the Commissioner on behalf of the Commonwealth, Mr Cleary did not oppose the making of the orders sought on behalf of the administrators. 20 Section 439A(6) permits the court to extend the convening period on an application made during or after a period referred to in s 439A(5). The period in question in this case commenced upon the appointment of the administrators, see s 435C(1)(a) of the Corporations Act. Section 439A(7) provides that if an application is made under s 439A(6), the court may only extend the convening period if satisfied that it would be in the best interests of the creditors, if the convening period were extended in accordance with the application. 21 Factors which the court must consider in that regard are set out in s 439A(8). It seems to me, having regard to the matters that I have recited already, that it is in the best interests of the creditors to extend the convening period as proposed. I am particularly influenced by the considered view of Mr Bettles, who is a responsible practitioner. I am also influenced no less by the disposition of the Commissioner, through his officer, in light of the development this morning which led to an affidavit from Mr Quinlivan being filed and read. There is something of a calculated risk in the extension and in the adjournment, but, in the circumstances, it seems to me in the best interests of the creditors for that risk to be taken. 22 I therefore make orders in terms of those proposed, which I have set out above. I grant liberty to apply on two clear days' notice in writing, and I reserve costs. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.