By Originating Process filed on 29 November 2018, Mr Michael Smith in his capacity as liquidator of Melvin Pty Ltd (in liq) ("Company") seeks a direction that he would be justified in paying a dividend to creditors in the winding up of the Company, in accordance with a notice which he has lodged with the Australian Securities and Investments Commission ("ASIC") on 4 October 2018, to those creditors who lodged a formal proof of debt or claim on or before 31 October 2018, the date specified in that notice.
The Originating Process also sought an order that the liquidator would be justified in ignoring any possible debt owed by the Company to Multiplex Australasia Pty Ltd ("Multiplex Australasia") for the purposes of paying that dividend to creditors, where it had not lodged a formal proof of debt by that date, and excluding Multiplex Australasia from participating in the proposed dividend to creditors to which the notice relates. The orders now proposed by the liquidators extend that order to another entity, Multiplex Constructions Pty Ltd, formerly known as Brookfield Multiplex Constructions Pty Ltd ("Multiplex Constructions"), which the evidence suggests may be an entity that has an available claim, although it has not sought to assert it. However, liberty would be reserved to Multiplex Constructions to apply to vary or set aside the order within seven days, allowing it an opportunity to be heard, since the application was served on Multiplex Australasia rather than Multiplex Constructions.
The application is supported by an affidavit dated 29 November 2018 of Mr Smith, which refers to the steps which would be taken if Multiplex Australasia or Multiplex Constructions lodged a form of proof of debt, which may require expert investigation relating to the quantum of any damages payable by the Company, causation issues, and industry practice. Mr Smith expresses the view that the assessment of such a claim may be costly. He also refers to correspondence from his solicitors to Multiplex Australasia, advising of his intention to seek directions from the Court if it did not consent to him making a distribution to relevant unsecured creditors, other than Multiplex Australasia, and I have been taken to that letter in the course of submissions. Mr Smith indicates a concern, justifiable in the circumstances, that he could be exposed to a potential claim if he proceeds to make a distribution to creditors, where Multiplex Australasia has foreshadowed, but not lodged, a claim or formal proof of debt. He also identifies the risk, or probability, that there would be insufficient funds in the liquidation of the Company to cover legal expenses in defence of a later claim. There would also likely be insufficient funds to pay any subsequent distribution to Multiplex Australasia or Multiplex Constructions, once this distribution has been made.
The liquidator also relies on an affidavit dated 29 November 2018 of Mr Kite, who has been assisting with the conduct of the liquidation. That affidavit refers to a report as to affairs signed by the director of the Company, which did not refer to a potential claim by Multiplex Australasia or Multiplex Constructions. It refers to the realisation of the Company's known assets, and the notice to creditors of intention to declare a fund dividend, given on 4 October 2018, and the publication of a notice of the liquidator's intention to declare a dividend to creditors, which occurred on 4 October 2018, nominating 31 October 2018 as the date for submission of proofs of debt.
Mr Kite refers to having received a telephone call from a representative of Multiplex Australasia or Multiplex Constructions, on 7 November 2018, several days after the due date for submission of proofs of debt, which referred to a claim, or potential claim, in respect of works carried out by the Company at a shopping centre. Mr Kite then rightly pointed out that the liquidator had already called for proof of debts; the period for submitting proofs had expired; a dividend was scheduled for 14 November 2018; and that any information as to the claim would need to be sent promptly to the liquidator. Multiplex Australasia then sent an email dated 8 November 2018, which attached a third party report dated 18 October 2018, which provided some information as to the nature of the claim. Multiplex Australasia sought to direct the Company to commence rectification of what are described as "defective works" at the shopping centre; indicated that, if the Company failed to do so, as was presumably likely where it was in liquidation, Multiplex Australasia would have the rectification of the defective works carried out by another subcontractor; and indicated that it assessed the value of the rectification of the defective works as $1,287,883. The attached report indicated that the matter which gives rise to the claim is the failure of cladding, which had apparently occurred several months ago.
Further correspondence followed, including a letter from the liquidator to Multiplex Australasia dated 8 November 2018 which requested substantive evidence to address the issues raised by 12 November 2018, and indicated that, absent receiving that evidence, the liquidator would proceed to declare the dividend to creditors under the timetable already set, without regard to that claim. Further information was provided concerning the relevant contractual arrangements by a letter dated 12 November 2018, on the letterhead of Multiplex Constructions, but signed by a person described as Regional Legal Counsel Construction and Development Brookfield Australia. That letter alleged that the Company had not carried out works under a subcontract in accordance with that subcontract; that Multiplex Constructions was required to rectify the defective works; and the Company was liable to Multiplex Constructions for that work, which it had assessed as $1,287,882.50. The letter concluded that Multiplex Constructions "reserves all of its rights", but did not indicate any further step that Multiplex Constructions proposed to take to advance its claim, including by any lodgement of a proof of debt, and, notably, did not indicate that Multiplex Constructions had in fact undertaken the rectification works that were the subject of the claim by that time. The documents which were attached to that letter in turn contained a document described as a Formal Instrument of Agreement, which appears to be the relevant subcontract, and was between Multiplex Constructions and the Company. An annexure to that document similarly describes the contracting party as Multiplex Constructions.
As I have noted above, the solicitors for the liquidator sent a further letter on 16 November 2018, which noted that Multiplex Australasia had not lodged a proof of debt in the winding up of the Company and drew attention to reg 5.6.65 of the Corporations Regulations 2001 (Cth) which relevantly requires a liquidator to give notice of his or her intention to declare a dividend, in a particular form and containing specified information, and provides that, subject to reg 5.6.68, a person who claims to be a creditor and who does not submit a formal proof of a debt or claim on or before the date specified in the relevant notice is excluded from participating in the dividend to which that notice relates. I pause to note that reg 5.6.68 preserves the ability of such a creditor to participate in a subsequent dividend, although in practical terms there appears to be limited likelihood that a claim of the size made by Multiplex Australasia or Multiplex Constructions could be satisfied by any subsequent distribution.
That letter also drew attention to the liquidator's obligations under reg 5.6.67 of the Corporations Regulations to declare the relevant dividend as soon as practicable, and invited Multiplex Australasia to indicate its position by close of business on 19 November 2018 and, if Multiplex Australasia was of the view that there was any basis for the liquidator not to declare that dividend, to set out any reasoning as to why it considered that to be the case. The letter noted that, if Multiplex Australasia did object to the declaration of the dividend, then it may be necessary for the liquidator to approach the Court for the directions sought. In the event, Multiplex Australasia does not appear to have replied to that letter, leaving its position open, and the liquidator has therefore applied for that direction. There is also evidence, by the affidavit dated 30 November 2018 of Mr Matthew Peters, that the relevant documents have been served on Multiplex Australasia.
[3]
Court's power to give the directions sought
The circumstances in which the Court may make a direction in a matter of this kind are well established. The Court has jurisdiction to make such a direction under s 90-15 or s 19-20 of the Insolvency Practice Schedule (Corporations) or, in respect of a voluntary liquidation, under former s 511 of the Corporations Act 2001 (Cth), so far as it has continued transitional operation. As in many cases of this kind, it is not necessary to determine which provision applies, because each would confer the relevant jurisdiction, and one or other of them would apply in the relevant circumstances. I summarised the scope of the Court's jurisdiction to make such a direction in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7]-[[8]. In particular, the Court may give such a direction where it will be of advantage to the liquidation, and the effect of that direction is that the liquidator may adopt the particular course free from the risk of personal liability for breach of duty. In particular, the Court may exercise that power where it will assist the liquidator in the appropriate performance and discharge of his or her duties and functions, including giving its advice where a matter involves a legal issue of substance. I am satisfied that such a direction is appropriately made here, where otherwise the liquidator would be left in difficulty, because of his obligation on the one hand to proceed promptly with a dividend under the Corporations Regulations, and the reservation of rights by Multiplex Australasia or Multiplex Constructions on the other hand.
[4]
Whether the direction sought should be made
I am satisfied that, in this case, I should make the declaration that is sought, on two bases. The first is that the Corporations Regulations specify a regime for notice of intention to declare a dividend in a winding up and for formal proofs of debt. Where such a notice provision specifies a date for a formal proof of debt to be lodged, and where the Corporations Regulations provide that a person who does not lodge a formal proof of debt by that date cannot participate in the dividend, then they necessarily have the consequence that a person who falls outside the relevant time period cannot participate in the dividend. They also contemplate the possibility that a person who has failed to lodge such a formal proof of debt may participate in a subsequent dividend, but that will only be available if such a future dividend occurs.
That operation of these provisions has been recognised in case law to which Mr Krochmalik, who appears for the liquidator, refers. In Derwinto Pty Ltd (in liq) v Lewis [2002] NSWSC 731 at [62], Austin J summarised the relevant provisions and noted that the late submission of a proof of debt may preclude the creditor from participating in a distribution to which a particular notice relates, but participation in future dividends is allowed after the claim has been admitted. In Re Ion Ltd (Subject to Deed of Company Arrangement) [2011] FCA 1513, Dodds-Streeton J similarly summarised those regulations, noting that a dividend must be declared only in favour of those creditors whose debts or claims are admitted and that those whose claims are subsequently admitted are entitled to a catch up dividend, but only if there are sufficient funds available and subject to sharing such funds as might be available for a catch up dividend pro rata with any new claims that are subsequently lodged and admitted. Her Honour there directed that the administrator of a deed of company arrangement could proceed with a distribution under that deed of company arrangement, without provisioning for future amounts that might arise from appeals in respect of specified matters, where it had advertised, and made contact with relevant persons, and where the alternative course would delay further distributions to creditors for an indefinite period.
Here, it seems to me that the course which the liquidator proposes reflects the relevant statutory provisions. That course also does not seem to me to be unreasonable, where the events that gave rise to any claim by Multiplex Australasia or Multiplex Constructions occurred several months ago; the report on which Multiplex Australasia now relies was provided to it prior to the date notified for the lodgement of a formal proof of debt; there is no explanation for why Multiplex Australasia or Multiplex Constructions did not lodge a formal proof of debt, where an advertisement inviting proofs of debt had been published; and Multiplex Australasia's or Multiplex Construction's present position is that it reserves its rights and it has given no indication in the correspondence as to what steps it will take to establish those rights or when it will take them. In these circumstances, if the liquidator did not take the course which he proposes, then the payment of dividends to other creditors, who have a proper expectation of receiving a dividend where they have been given notice of intention to pay that dividend, would be delayed for the indeterminate period which Multiplex Australasia or Multiplex Constructions takes to progress its claim, from its present reservation of rights to a further articulation of that claim at an unidentified future time.
I will make the direction sought both in respect of the identified claimant, Multiplex Australasia, and the entity which may be the correct claimant, Multiplex Constructions, subject to reserving liberty to the latter to apply, where it has not been served with the relevant materials, although they have been delivered to the registered office which it shares with Multiplex Australasia. For these reasons, I make directions in accordance with the Short Minutes of Order initialled by me and placed in the file.
[5]
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Decision last updated: 27 February 2019