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[2010] FCA 789
plaintiff. Application under s 440A(2) dismissed; Greener Investments Pty Ltd wound up in insolvency; Mr Nicholas Fryer appointed as official liquidator; plaintiff's and supporting creditor's costs to be...
The administrators of Greener Investments sought an adjournment of a winding up petition under s 440A(2) so the company could remain in administration and pursue a proposed DOCA. The Court held that the administrators failed to show administration would be in creditors' interests because their evidence as to assets and returns was speculative and incomplete, and because the proposed administrators had conflicts or potential conflicts undermining their independence. The Court refused the adjournment, wound up the company and appointed an independent liquidator to investigate and protect creditors' interests.
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Devere Legal Pty Ltd (in liquidation) filed a petition to wind up Greener Investments Pty Ltd, relying on a statutory demand and a default judgment amounting to $138,839.48 (see [3]-[5]). The plaintiff had satisfied the procedural prerequisites for winding up by the end of April 2010 (see [7]). On 31 May 2010 the defendant's directors passed resolutions appointing Terry Grant van der Velde and Paul Desmond Sweeney as voluntary administrators (see [8], [12]). On 2 June 2010 the administrators applied under s 440A(2) of the Corporations Act for an adjournment of the winding up hearing so that the company could continue under administration rather than be wound up (see [9]-[10]).
The administrators relied on affidavits asserting potential assets and a proposed Deed of Company Arrangement (DOCA). The most significant asserted asset was approximately $3.1 million held in the Supreme Court of Queensland, arising from compensation for compulsory acquisition (the "Release Claim"), and other speculative claims including interest and appeals (see [19], [21]). Administrators also claimed that When Time Is Essential Pty Ltd (WTIE), an alleged related secured creditor, would grant priority to unrelated creditors solely for the purposes of the DOCA (see [38], [11]).
The plaintiff and an interested supporting creditor, Neovest Ltd (in liquidation), opposed the adjournment. Evidence revealed a web of related-party dealings, potential set-offs in the Mango Hill sale, directors resident in Thailand who had not cooperated with examinations, and arrest warrants outstanding for the directors in relation to Neovest examinations (see [12]-[16], [58]). The proposed administrators were also trustees of a bankrupt estate (Silvana Parovich) that had intersections with the Neovest dispute. The Court identified potential conflicts of interest and gaps in disclosure and evidence (see [41]-[48]).
On 24 June 2010 Lander J dismissed the adjournment application under s 440A(2), ordered that Greener Investments be wound up in insolvency, and appointed Mr Nicholas Fryer as liquidator; costs were ordered to be paid out of the defendant's property (see [1]). Reasons were published on 27 July 2010 (see header and [1]-[2]).
The decision turned on three linked considerations: evidentiary sufficiency as to creditor benefit from administration; administrators' independence; and the need for independent investigation.
Onus and legal test. Lander J reiterated the statutory test in s 440A(2): the Court must adjourn a winding up hearing if the company is under administration and the Court is satisfied it is in the interests of the company's creditors for administration to continue rather than liquidation (see [9]-[11]). The onus lies with the administrators to persuade the Court of that fact. The Court referenced established authority that administrators may discharge this onus by showing that assets realised under administration would produce a larger or more timely dividend than under liquidation (see [11], citing Creevey and Yates).
Inadequate evidence of assets and returns. The administrators' affidavits failed to particularise critical matters. The $3.1 million purportedly held in Court was contested; the administrators did not adequately explain how other putative assets would be recoverable or quantified; the fixed and floating charge claimed by WTIE was not exhibited and its date, amount and stamping were not proven (see [19]-[26], [29]-[36]). The DOCA was conditional upon payment out of the Supreme Court funds and grading of WTIE's security; yet administrators did not address whether WTIE's security might be void against a liquidator (see [38]-[39]). Lander J found the proposal speculative and not sufficiently persuasive to show creditors were better off under administration (see [57]).
Independence and conflicts. The proposed administrators, Mr van der Velde and Mr Sweeney, were trustees of estates connected to the Neovest dispute and had allowed large proofs of debt, while one of the bankrupts (Ms Parovich) was intertwined as a possible witness and prior director/owner of entities relevant to the contested mortgage (see [43]-[48]). The Court emphasised expectation of candour from registered liquidators and said the potential conflicts should have been disclosed and addressed (see [41]-[42]). Given these conflicts, the administrators were not sufficiently independent to administer a DOCA or properly investigate related-party transactions (see [61], [64]).
Directors and need to investigate. The directors' absence and lack of cooperation (residing in Thailand, non-attendance at examinations, outstanding arrest warrants) compounded the need for an independent liquidator to investigate related-party transactions and determine true assets and liabilities (see [12]-[17], [58]-[60], [64]).
Weighing these factors the Court concluded the administrators had not met the statutory onus and that the interests of creditors required winding up and appointment of an independent liquidator (see [57], [64]).
Before this decision, the legal framework for adjournment under s 440A(2) was established: adjournment is appropriate where administration demonstrably benefits creditors, and courts look to whether administration produces a larger or faster dividend (as stated in Creevey and Deputy Commissioner v Yates Security Services) (see [11]). Devere Legal applies and illustrates these principles in a factual context where the administrators' evidentiary foundation was defective and their independence questionable.
After Devere Legal, the practical takeaways are reinforced for practitioners:
The decision did not change statutory law, but reaffirmed and applied established principles requiring a robust evidentiary showing and independent administrators to justify an adjournment.
Paragraph 11: "The onus is upon the administrators ... to persuade the Court ... administration continue rather than liquidation ensue."
Paragraph 19: administrators say a major asset is c. $3.1 million held in the Queensland Supreme Court.
Paragraph 42: "The Court is entitled to expect candour ... registered liquidators ... enjoy a reputation bordering on approval by the Court."
Paragraph 57: "In my opinion there are good reasons why it is not appropriate for an order to be made under s 440A(2) ... rather than be wound up in insolvency."
Paragraph 64: "It is essential ... that an administrator properly independent ... is appointed for the purpose of conducting proper examinations into the related party transactions ..."
The judgment is most relevant where:
This decision applies established s 440A(2) principles (as stated in Creevey and Yates) and exemplifies their application. Later courts assessing adjournment applications should and do test the administrators' evidence for specificity, examine independence closely, and prefer winding up where investigations cannot be properly conducted under the existing administrators. The case stands as an example of close judicial scrutiny of administrators' affidavits and conflict issues. Practitioners should cite it for the proposition that courts will refuse adjournment where the administrators' evidence is speculative and their independence is tainted.
(As this deep dive is limited to the judgment text, it does not catalogue specific subsequent cases; practitioners should search updated databases for later treatments and citation history.)
Extent and form of evidentiary proof required. Devere Legal illustrates that vague assertions are insufficient. However, the decision does not set a fixed threshold for the quantum or detail of evidence administrators must file. Future cases will continue to delineate how concrete the proof must be to show creditors are better off under administration.
Measures to cure conflicts without refusing adjournment. Lander J refused adjournment because the administrators were insufficiently independent. The judgment leaves open whether promptly proposed steps (such as replacement administrators, waivers, or structural safeguards) might cure concerns and secure an adjournment in similar fact patterns.
Treatment of related-party secured creditors' undertakings. The administrators’ claimed arrangement that WTIE would grant priority for DOCA purposes was not fully tested. The judgment does not explore detailed mechanics by which a related secured creditor might lawfully and effectively subordinate its security for DOCA purposes, and whether such an arrangement can be trusted absent formal, evidenced documentation.
Interaction between administration and concurrent litigation over funds held in court. Where funds are held subject to competing claims, the judgment favours independent liquidator-led investigation. It remains an open question whether, and on what evidence, administration can be preserved while litigation is resolved if administrators demonstrate adequate independence and funding to pursue the claim.
Remedies for creditors where administrators fail to disclose conflicts. The Court emphasised expectation of candour; the precise sanctions or remedial steps (short of immediate winding up) that courts might require to secure disclosure or remove an administrator remain matters for future development.
Practitioners should treat Devere Legal as a cautionary exemplar: administrators must provide clear, particular evidence of creditor benefit under administration, must disclose and address conflicts, and must ensure independence if they wish the Court to adjourn a winding up petition under s 440A(2).
REASONS FOR JUDGMENT 1 On 24 June 2010 I made the following orders: 1. The defendant's application under s 440A(2) of the Corporations Act 2001 (Cth) for an order that Greener Investments Pty Ltd (ACN 110 036 452) continue under administration rather than be wound up be dismissed. 2. Greener Investments Pty Ltd be wound up in insolvency under the Corporations Act 2001 (Cth). 3. Mr Nicholas Fryer, an official liquidator, be appointed liquidator of the defendant under the Corporations Act 2001 (Cth). 4. The plaintiff's costs of and incidental to the application be taxed and reimbursed out of the property of the defendant in accordance with the Corporations Act 2001 (Cth). 5. The costs of the supporting creditor, (Neovest Pty Ltd (In Liquidation)), of and incidental to the application, be taxed and reimbursed out of the property of the defendant in accordance with the Corporations Act 2001 (Cth). 2 At that time I said I would give reasons for dismissing the defendant's application under s 440A(2) of the Corporations Act 2001 (Cth) (the Corporations Act). These are those reasons. 3 The application that commenced this proceeding to wind up the defendant in insolvency was filed by the plaintiff on 8 April 2010. 4 The plaintiff Devere Legal Pty Ltd (Administrator Appointed) claimed in a statutory demand dated 12 March 2010 that the defendant owed it the sum of $138,839.48 being the amount of a default judgment entered on 14 January 2010 in the District Court of Queensland in Action No. 3370/09. 5 The statutory demand was served on 12 March 2010 by the plaintiff's solicitors by registered post at the defendant's registered office at 38 Nash Street, Gympie Queensland 4570. The defendant failed to pay the debt demanded or take any steps to pay that amount. 6 On 9 April 2010 Nicholas Lewis Fryer of Level 8, 26 Flinders Street, Adelaide signed a consent to act as liquidator, which consent was filed on 12 April 2010. 7 On 30 April 2010 the plaintiff's solicitor filed an affidavit deposing to service of the originating process lodgement of the ASIC Form 519 Notification of Court Action relating to Winding Up, Publication of the Winding Up Action and service of the Consequent of the Liquidator. As at that date the plaintiff had proved all of the matters needed to be established under the Corporations Act for the winding up of the defendant in insolvency. 8 On 31 May 2010 Terry Grant van der Velde, registered liquidator was appointed jointly and severally with Paul Desmond Sweeney as administrators of the defendant by a resolution of the directors Jamie Marshall Horsburgh and Amanda Joy Horsburgh. The directors needed to resolve that the company was insolvent or likely to become insolvent: s 436A(1)(a) of the Corporations Act. 9 On 2 June 2010 the defendant, by its administrators, applied for the adjournment of this proceeding pursuant to s 440A(2) of the Corporations Act 2001 (Cth). That subsection provides: The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. 10 That subsection requires that application to be determined before considering whether an order should be made that the company be wound up in insolvency. 11 The onus is upon the administrators on this application for an adjournment to persuade the Court that it would be in the interests of the company's creditors for the company to continue under administration rather than be the subject of a winding up order. In doing so, the administrators must satisfy the Court that "it is in the interests of the company's creditors that the administration continue rather than liquidation ensue": Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1998) 16 ACLC 448. The administrators may do so by persuading the Court that there are assets which if realised under administration rather than by winding up would produce a larger or more accelerated dividend for the company's creditors: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456. 12 On 2 June 2010 Mr van der Velde swore an affidavit in support of this application. He exhibited the resolutions of the directors, Jamie Marshall Horsburgh and Amanda Joy Horsburgh made on 31 May 2010 signed by the Chair Mr Horsburgh resolving that in the directors' opinion the defendant is insolvent or likely to become insolvent and appointing the administrators. The resolution does not disclose where the meeting was held. He exhibited a number of exhibits; one of which was an affidavit of Jonathan Paul McLeod filed in a proceeding in which the defendant was respondent in the Supreme Court of Queensland. Mr McLeod is an official liquidator and the liquidator of Neovest Limited (In Liquidation) (Neovest). In that affidavit Mr McLeod deposes that the two directors of the defendant remain resident in the Kingdom of Thailand. They have failed to make themselves available for examination in Australia in relation to the examinable affairs of Neovest. Mr McLeod exhibited to his affidavit arrest warrants for the arrest of Jamie Horsburgh and Amanda Horsburgh which issued out of the Supreme Court of Queensland. Neovest applied to be heard as a supporting creditor, which I allowed. 13 In a subsequent affidavit filed in these proceedings Mr McLeod has deposed to his interests in the defendant and its directors. Mr McLeod has conducted public examinations under Part 5.9 of the Corporations Act. The examinations which he has conducted have inquired into a related party sale by the defendant in these proceedings of a property at Mango Hill, Queensland. The current owner of the property Blue Box Investments Pty Ltd is a related party of the defendant. The defendant held a mortgage as an edge lender and sold the property pursuant to the covenants in the mortgage. Mr McLeod has deposed that the public examinations have disclosed that half of the price which was obtained for the sale of the property was set off against moneys claimed to be owed by the directors of the defendant to the parents of Mrs Horsburgh in relation to investments that had failed. Mr McLeod has deposed that it is likely that this set-off is for moneys invested in and used by Mr and Mrs Horsburgh in a related company, Property Secured Investments Ltd, which was a company which had raised money from the public but eventually went into administration and is now deregistered. 14 Mr McLeod has deposed that Mr and Mrs Horsburgh have failed to cooperate in the public examination and have continued to remain in Thailand. He has again deposed that the Magistrates Court in Brisbane have issued warrants for the arrest of Mr and Mrs Horsburgh in connection with their failure to attend the Neovest public examinations, but those arrest warrants have remained undischarged. 15 Quentin Rozario, who is Neovest's liquidator's solicitor, has deposed that he has conducted Neovest's public examination and at no time have the defendant's directors given him or his office their actual living address or any address in Thailand where they can be reliably contacted. 16 Mr McLeod claims that the related party transaction has meant that Neovest has been deprived of moneys due to it under a subsequent mortgage to that of the defendant. As a result, he claims that the defendant is indebted to Neovest. 17 He asserts that a proper investigation of the related parties by the defendant is required and a liquidator would facilitate that investigation. 18 Mr van der Velde in his affidavit deposes to the assets and liabilities of the defendant so far as they are known to him. His knowledge is said to be derived from what he has been told by Mr Jamie Horsburgh. 19 Mr van der Velde says he has been told that a major asset of the defendant is in the amount of money which is currently held in the Supreme Court of Queensland in the order of $3.1 million. That money was paid into the Supreme Court as a consequence of a judgment of the Supreme Court involving the compulsory acquisition by the Brisbane City Council of a number of properties. The defendant's entitlement to that sum, if it be so entitled, is a mortgage of a property which has been compulsorily acquired. 20 He refers to the dispute between the defendant and Neovest in respect of the payment out of the monies held in Court. Mr McLeod as liquidator of Neovest claims to be entitled to the monies in preference to the defendant. Mr van der Velde says that he has been told by Mr Horsburgh that on 17 May 2010 the defendant applied to the Supreme Court for the release of the moneys. 21 Mr van der Velde deposes to other possible assets of the defendant in paragraph 7 of his affidavit: 7. I am informed by Mr Horsburgh that the other assets of Greener are: 7.1 A claim for interest in respect of the Release Claim. This claim is yet to be determined but is expected to be in the order of $600,000.00; 7.2 A further potential claim in the Supreme Court of Queensland related to the same subject matter as the Release Claim, however, this claim has not yet been pursued; 7.3 An appeal in respect of the value of the Release Claim in which Greener is involved, however, it is unclear at this time whether that appeal will be successful. Greener and Mio Art Pty Ltd allege that the compensation paid ($18 million as referred to above) was an under value and Brisbane City Council are liable to pay a higher level of compensation. The compensation already paid is not challenged and includes the $3.1 million which is the subject of the Release Claim; and 7.4 A second registered mortgage over a property at lot 71 Watkins Street, Buxton, Queensland (the Buxton Property). The first registered mortgagee is currently in possession of the property, however, the first registered mortgagee is also under external administration and at this time Mr Horsburgh cannot determine what value may be recovered. 22 Mr van der Velde does not say how those assets might arise or the recoverability of the assets and I make the following comments. 23 In relation to paragraph 7.1 the Court is not informed as to who might be liable to the defendant for interest in respect of the sum of $3.1 million and how that sum for interest might be recovered. 24 As to paragraph 7.2, as I understand it, the defendant's entitlement to any sum in relation to the compulsory acquisition is as mortgagee. It is not explained how the defendant would have any further potential claim in the Supreme Court. 25 It is said in paragraph 7.3 that Greener has appealed in respect of the value of the Release Claim. The Land Court valued the properties acquired by the Brisbane City Council at $18 million. It is not obvious to me how Greener might benefit by appealing against the assessment of the value of the properties. The notice of appeal which is exhibited to Mr McLeod's affidavit (JPM-6) does not assist. The defendant claims that the Court failed to make an appropriate award for disturbance, but concedes that it may not have addressed that issue appropriately in its evidence. The notice of appeal concludes: It is reasonable to expect that the subsequent mortgagees will appeal, which Greener Investments understands to mean that it also needs to appeal ... Indeed, the administrators have not disclosed the amount of the mortgage sum. If the mortgage secured the sum of $3.1 million it is difficult to see what benefit the defendant might have in any appeal. 26 The information referred to in paragraph 7.4 is unhelpful. Whether the second mortgage has any value will depend of course upon the value of the property and the amount of the first mortgage. Neither fact is disclosed. 27 Mr McLeod asserts that Mr van der Velde has failed to include as an asset of the defendant the defendant's claim in the estate of Richard William Spencer and Silvana Parovich (of which Mr van der Velde and Mr Sweeney are trustees) who were the guarantors of the Mango Hill loan. 28 There are said to be four creditors who are identified in paragraph 4 of Mr van der Velde's affidavit. 4. I am instructed by the director of Greener, Mr Jamie Horsburgh, that the creditors of Greener are as follows: 4.1 When Time is Essential Pty Ltd (WTIE) secured by fixed and floating charge created on 8 August 2008 and registered on 10 February 2010 in the amount of approximately $10 million; and 4.2 Unsecured creditors as follows: (a) Devere in the amount of $138,839.48 which includes disbursements to third parties; (b) Thomson Adsett Architects in the amount of approximately $100,000.00; and (c) Buckley Vann Town Planners in the amount of approximately $20,000. 29 Of most interest is the claim by When Time Is Essential Pty Ltd (WTIE) as a secured creditor, secured by a fixed and floating charge created on 8 August 2008 which was not registered until 10 February 2010. 30 There is no information in Mr van der Velde's affidavit which would identify: (a) the amount of advances pursuant to the fixed and floating charges; (b) the date of the advances; (c) the purpose of the advances. 31 More particularly, the fixed and floating charge is not exhibited to the affidavit so it cannot be ascertained when that fixed and floating charge was stamped if it was stamped or any evidence as to when it was created. 32 The Court is informed in paragraph 10 of Mr van der Velde's affidavit that WTIE and the defendant are related companies, both being wholly owned by Shepard Blue Pty Ltd and both have a common director in Amanda Joy Horsburgh. 33 Mr van der Velde has not deposed to the ownership of the shares in Shepard Blue Pty Ltd. 34 The defendant has relied upon an affidavit of one of the directors of the defendant, Jamie Horsburgh, who has given his address as care of 60 Hamilton Road, Araluen, Queensland, although it is clear that he does not live at that address but lives in Thailand. He has deposed that WTIE advanced the sum of $2.3 million to the defendant in order to fund a loan from the defendant to various parties. He said that when the funds were loaned by WTIE to the defendant, the defendant did not have its own bank account and as a result the funds were transferred from WTIE to a later party of the defendant, Riverplace Investments Pty Ltd (Riverplace). Riverplace then advanced those funds to the recipients of the loan through a solicitor and a number of tranches on behalf of the defendant. He has exhibited a copy of a bank statement of Riverplace which shows a receipt of $1 million and a loan of those monies, he says, to the loan recipient. The document does not establish the facts relied upon. 35 He said that the loan made by WTIE to the defendant is evidenced by the accounts of each company. He has exhibited documents which he said are the balance sheets of WTIE and the defendant which do show corresponding assets and liabilities during the period 2005 to 2009. He said that on 8 August 2008 the defendant and WTIE executed a loan agreement to formalise the arrangements between them. 36 He said the amount of the loan reflects the initial advance of $2.3 million together with interest at the rate of 4% per month compound less repayments made by the defendant in the sum of $6,523,000. 37 Mr van der Velde in an affidavit sworn on 22 June 2010 which was exhibited to an affidavit of Brooke Tegan Willshire has deposed that Mr Rick Jones represents Property Security Investments Administration Pty Ltd and is a member of the committee of creditors. Mr van der Velde does not disclose that company as a creditor in his affidavit. I am not told of the relationship of that company to Property Secured Investments Pty Ltd which went into administration and has been delisted. I do not know who controls Property Security Investments Administration Pty Ltd or who its shareholders are. 38 The proposal that Mr van der Velde makes which the administrators say would satisfy the onus resting upon them under s 440A(2) is contained in paragraphs 11 to 13 of his affidavit sworn on 2 June 2010: 11. I am advised by the directors of WTIE and Greener that WTIE would be prepared to grant priority to the unrelated creditors of Greener only for the purposes of Greener entering into a deed of company arrangement (DOCA) with its creditors. The DOCA would also be conditional upon the payment of moneys out of the Supreme Court of Queensland. 12. On the face of documents provided to me by the directors of Greener, this DOCA would provide a better return to creditors than liquidator because the largest creditor, whether security is maintained or not, is removed from consideration of the return to the remaining creditors. Further, as it appears are no other assets of the company except for the moneys held in the Queensland Supreme Court and related court actions, in my opinion there will be very little prejudice to the creditors in allowing a DOCA to be considered by the creditors. Further, there does not appear to be any competing claims as amongst the unsecured creditors. 13. I am advised by the director of WTIE that should Greener proceed into liquidation, WTIE will attempt to enforce its security. 39 Mr van der Velde does not depose to his opinion as to whether the security would be void against the liquidator. In fact, the security would be void as against the liquidator. 40 The proposition in the first sentence of paragraph 11 is superficially attractive, but becomes less attractive when one considers the condition in the second sentence in paragraph 11. 41 Mr van der Velde does not depose in that affidavit to any conflict of interest or potential conflict of interest which might affect his or Mr Sweeney's ability to act as administrators of the defendant. 42 In fact there is, in my opinion, such a conflict which ought to have been disclosed by Mr van der Velde in his affidavit. The Court is entitled to expect candour on the part of the registered liquidators who by registration enjoy a reputation bordering on approval by the Court. 43 Neovest is in liquidation. Ms Silvana Parovich acted as a director and company secretary of that company between 29 May 2003 and 20 August 2007. On 20 August 2007 a sequestration order was made against her estate in the Federal Magistrates Court in the Brisbane Registry and Mr van der Velde and Mr Sweeney were appointed as trustees of that estate. She is presently an undischarged bankrupt. 44 As I have already noticed, there is a dispute between the defendant and Neovest as to the entitlement to the sum of $3.1 million which has been paid into the Queensland Supreme Court. Neovest, which is the subsequent mortgagee to the defendant in relation to the property which was compulsorily acquired, disputes the validity of the defendant's mortgage. Ms Parovich was the company secretary and director of Neovest at the relevant time. 45 Moreover, she was also a director and the owner of the property Ecomonitors Pty Ltd and was one of the directors who signed the mortgage which is relied upon by the defendant in the Supreme Court proceedings. 46 The applicant contends, and I think rightly, that if that factual dispute has to be resolved it is likely that Ms Parovich will be a witness. 47 Both the defendant and Neovest are creditors of the estates of Silvana Parovich and Richard William Spencer. Neovest has filed proof of debts in each estate in the amount of $18,004,257 and the trustees (Mr van der Velde and Mr Sweeney) have allowed proof in the amount of $16,755,350. Mr Sweeney as trustee of those estates on 5 August 2008 admitted a proof of debt filed by the defendant for the amount of $126,141,030. 48 In my opinion there is clearly potential for a conflict of interest if Mr van der Velde and Mr Sweeney were to be the administrators of the defendant and their position as trustees of the estate of Ms Parovich. In a subsequent affidavit sworn on 16 June 2010 Mr van der Velde deposed in paragraph 7: I refer to paragraphs 7 to 11 of the affidavit of Bernard Colin Walrut sworn on 9 June 2010. In my view there is no conflict of interest in respect of the bankrupt estate of Ms Silvana Parovich and Greener Investments Pty Ltd. The issues between Ms Parovich and Greener are complex but it is my belief that the issues are not relevant to the within proceedings or the petitioning creditor. I have advised the committee of creditors of the concern raised by Mr Walrut and have been tentatively advised by 100% of the committee that they do not wish to appoint a replacement administrator. 49 The defendant relied also upon an affidavit of Blayne Ledger which is exhibited to an affidavit of Brooke Tegan Willshire. Mr Ledger is the solicitor on record acting for the defendant in the Supreme Court of Queensland proceedings. 50 He has deposed that in 2004 the defendant advanced money by way of two loans to a number of companies in the Neoliodo Group of Companies which granted a number of mortgages over real property to the defendant. Neovest, he said, was not a borrower under the loan facilities nor was it one of the companies that the defendant ever dealt with. 51 He has deposed to the $3.1 million which has been paid into Court and said that the competing claimants are the defendant "who claims money is owing under loan agreements advanced and secured previously by registered mortgages over the land that was compulsorily acquired. Greener Investments Pty Ltd currently sits in priority in respect to its former security to that of any other party including Neovest Ltd; and Neovest Ltd pursuant to a mortgage previously registered which is subsequent in priority to that of Greener Investments Pty Ltd." 52 He said that on 20 May 2010 Justice Applegarth in the Queensland Supreme Court dismissed the defendant's application and Neovest's application for payment to the respective companies of the $3.1 million paid into Court. Instead he directed that the matter not be heard summarily but that Neovest file and serve a statement of claim by 15 June 2010. Mr Ledger said that Neovest has failed to comply with his Honour's order. He claims that Neovest is unable to comply because it has no claim and that Neovest is intentionally delaying filing and serving the statement of claim "so as to continue with the pretense (sic) of being a creditor of Greener Investments, and so that it does not have to plead it (sic) claim for the $3.1 million plus accretions, thereby hoping Greener Investments Pty Ltd will be wound up." 53 Mr Ledger said that he is an unsecured creditor of the defendant to the extent of $30,000. He was not so identified by Mr van der Velde. 54 He said that Neovest is not a creditor of the defendant and nor could it be, but that Neovest was seeking to interfere in the affairs of the defendant to gain a tactical advantage for use in the Queensland Supreme Court proceedings. 55 He said that he had been provided with a copy of the proposed Deed of Company Arrangement (DOCA) and it is his view that it would be detrimental to the defendant's claim for the $3.1 million plus accretions if the defendant were to be placed in liquidation. He said: It would make it more difficult to get instructions by solicitors acting in the Queensland Court proceedings. It would increase the legal costs incurred in the proceedings with the Supreme Court. There would be further delays. As such, it would be detrimental to creditors of Greener Investments. In respect to the DOCA I wish to inform the Court that it is proposed that I will be placed in priority in respect of payment of my legal fees for acting in the Queensland Supreme Court proceedings. Such priority is proposed to be given to me in priority to the other secured creditors. This priority is proposed as a result of not seeking payment of my fees until a resolution of the matter, terms which other solicitors would probably not agree to in the circumstances. 56 It can be seen from those matters that Mr Ledger has a significant interest in having the defendant proceed under administration pursuant to the terms of the proposed DOCA because he would thereby be paid in full and for his services rendered, and in priority to any other unsecured creditor. 57 In my opinion there are good reasons why it is not appropriate for an order to be made under s 440A(2) of the Corporations Act to allow the defendant to continue under administration rather than be wound up in insolvency. 58 The directors of the defendant appear to be unreliable. They have been uncooperative in the administration of Neovest. Their lack of cooperation has led to summonses being issued for their arrest. The defendant has been involved in a number of related company transactions with companies controlled by the defendant's directors and relatives of those directors. 59 It is essential that independent investigation be made of those related party transactions to determine the true assets and liabilities of the defendant. 60 It is also necessary to determine whether any sum is owed by the defendant to the secured creditor and indeed whether the security of the secured creditor is void as against the liquidator. 61 The administrators who have been proposed are not in my opinion sufficiently independent to administer the DOCA in circumstances where they are also the trustees of the estates of the two bankrupt persons to whom reference has been made. 62 It was contended on behalf of the defendant that to proceed under the DOCA would be to the advantage of the unsecured creditors because of the availability of Mr Ledger to continue to act on the terms which had been agreed with the administrator. 63 In my opinion there is nothing in that point. There is no reason why a liquidator could not engage Mr Ledger to act for the company upon the same terms and conditions in the event that a winding up order were made. In the event that Mr Ledger is not prepared to act, there is no reason why another solicitor properly instructed could not continue the litigation to obtain the payment of the $3.1 million in the Queensland Supreme Court. 64 It is essential in my opinion that an administrator properly independent of all of the parties is appointed for the purpose of conducting proper examinations into the related party transactions and to determine whether the directors have discharged all of their duties to the defendant in accordance with their obligations at law. It is also important in my opinion to have an independent investigation to determine whether the defendant was trading whilst insolvent and, if so, whether or not proceedings ought to be taken for the purpose of attempting to recover some of the losses occasioned by the defendant. 65 For those reasons I made the orders to which I have referred. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Devere Legal Pty Ltd (In Liquidation) (ACN 125 641 787)
Greener Investments Pty Ltd
Application under s 440A(2) dismissed; Greener Investments Pty Ltd wound up in insolvency; Mr Nicholas Fryer appointed as official liquidator; plaintiff's and supporting creditor's costs to be taxed and paid out of the defendant's property (orders reflected in [1]).