Elderslie Finance Corporation Limited v Newpage Pty Limited

REASONS FOR JUDGMENT 1 Under facility arrangements that were entered into between Lewis Securities Limited and the defendant in September 2006, the defendant, Newpage Pty Limited, was given a loan of $3,000,000 secured over the assets of the company. By deed of assignment dated 3 November 2006 the debt and attendant security were assigned to the plaintiffs jointly. Notice of the assignment was given to the debtor on 15 December 2006. 2 The debt was due to be repaid in full together with interest in October 2006 but it appears that the date for repayment was extended to 15 December, the date on which the assignment was completed. The deadline was not met and on 29 December 2006 the plaintiffs appointed Mr Barry Hamilton as receiver and manager of the defendant. The plaintiffs now seek the appointment of a provisional liquidator to the defendant and, with the leave of the court, seek to have Mr Hamilton appointed as that provisional liquidator. 3 The defendant company is controlled by Mr Martin Yii who is the sole director, company secretary and shareholder. Mr Yii is presently overseas. He is a Malaysian citizen and travels, I understand, on a Malaysian passport. He is resident in Australia and has an Australian wife. The interlocutory application was served on the defendant at its registered office on 3 January 2007. It was returnable for hearing today. 4 The plaintiffs, through their solicitor, have also had some communications with Mr Warwick Isherwood, Mr Yii's solicitor. Mr Isherwood, in a letter dated 4 January 2007 to the plaintiffs' solicitor, which he requested be put before the Court, stated that there would be no appearance for the defendant today. Mr Isherwood referred to the difficulty in obtaining instructions from his client from overseas and requested that the matter be adjourned until after Mr Yii's return on 20 January 2007. Mr Isherwood's letter also made some comments on the substance of the present interlocutory application to which I shall refer later. I decided not to adjourn the hearing of the interlocutory application for reasons which will be clear from my comments on that application. 5 After hearing the application I adjourned the matter until 2.15pm today so that I could consider whether to make the orders requested by the plaintiffs. During the luncheon adjournment Mr Isherwood sent a letter to the plaintiffs' solicitor seeking among other things to have the hearing adjourned until Tuesday, 9 January 2007. Again he asked for his letter to be put before the Court. I am not disposed to grant that adjournment. When this matter first came before the court on Tuesday 2 January, counsel for the plaintiffs told the Court that he had been in contact with Mr Isherwood who had indicated his preferred date for the matter to be returned before the Court would be today. The plaintiffs would have preferred yesterday. 6 Mr Isherwood's preference was accommodated but, as I have already noted, a decision was made that there be no appearance for the defendant. A choice not to appear having been made, I see no reason why the hearing should now be adjourned partway to accommodate the request made by Mr Isherwood. While it is not ideal for this matter to be heard in the absence of the defendant, it is clear that Mr Isherwood has been in touch with Mr Yii and has not received instructions to appear. While I accept that the defendant has legitimate interests which must be considered, in my view there are others ways to achieve this. 7 Since his appointment on 29 December 2006 Mr Hamilton has had only a limited time to make inquiries about the defendant and its assets. Necessarily the evidence is not as complete as one might wish. In an affidavit sworn on 2 January 2007 Mr Hamilton states: 'The major asset of Newpage, appears to be its shareholding in a publicly listed company Intermoco Limited ("Intermoco") whose shares were apparently suspended from trading on 10 July 2006. Newpage's shareholding is 30,788,751 shares amounting to 3.82% of Intermoco's issued capital. Newpage also appears to hold 500 out of 850 issued shares (approximately 58.8%) in the capital of Australon Enterprises Pty Ltd ("Australon Enterprises"). As at 30 June 2006 Australon Enterprises held 83,831,922 shares in Intermoco, amounting to 10.40%. It appears that Australon Enterprises may have divested itself of its shareholding in Intermoco at some time after 30 June 2006 in circumstances of which I am not presently aware.' 8 Later in his affidavit Mr Hamilton added: 'I am concerned that Newpage's shareholding in Intermoco may be dealt with without my authority unless a provisional liquidator or liquidator is appointed to Newpage. I consent, if so appointed by this Honourable Court, to act as provisional liquidator and liquidator of Newpage.' 9 Mr Hamilton also deposed to a conversation he had with a representative of the defendant's share registry manager. In that conversation he raised the question of putting a "block" on any transfer of Newpage's shareholding in Intermoco. The representative responded that there would be no way the appointment of a receiver and manager could be recorded so as to block any share transfer, adding: 'If that occurred we would speak with Intermoco and take directions from the company.' 10 Mr Hamilton deposed that he then asked what would be the position if a liquidator or provisional liquidator were appointed, and the response was that any court order would be complied with. 11 While there may be a legitimate concern about dealings with the defendant's shareholding in Intermoco, I do not think that it is sufficient to justify the appointment of a provisional liquidator on an urgent basis in the absence of the defendant. In part, this is for reasons raised by Mr Isherwood in his letter of 4 January 2007. These include the fact that trading in Intermoco's shares has been voluntarily suspended by the ASX, that the share registry manager has been put on notice of that a receiver and manager has been appointed to the defendant and that senior officers of Intermoco are aware of these issues. In referring to these matters I am not to be interpreted as accepting the truth of the submissions made by Mr Isherwood. They do, however, indicate that there are unresolved issues that would weigh against the relief sought being granted in the absence of the defendant. 12 More pressing, however, are concerns raised about proposed borrowings by the defendant and the expenditure it has incurred in this respect. It would appear that a large part (if not the whole) of the amount owed to the plaintiff has been paid to a company, Penthouse Concepts Pty Limited, in connection with a proposed loan to the defendant. Mr Hamilton reports a conversation with Mr Yii where Mr Yii refers to the amount of $3,000,000 being a "fee" for Penthouse organising the loan. In the letter referred to at [4] above Mr Isherwood says that the money was paid as an unsecured loan. 13 It is neither possible nor necessary for me to resolve the inconsistency. Indeed, I am reluctant to attach much weight at all to submissions made by Mr Isherwood when there has been no appearance for the defendant. I mention the matter only to show the confusion that exists on an important issue which is why the plaintiffs submit that the appointment of a provisional liquidator is necessary to conduct proper and transparent inquiries to resolve that confusion. 14 In neither of the letters from Mr Isherwood has there been any issue taken with the fact that a debt is owing to the first plaintiff, that the debt was not paid by the due date, nor has there been any attempt to rebut an inference, express or implied, that the defendant company is insolvent. There is also an issue of public interest in an allegedly insolvent company contemplating entering into a loan of some $130,000,000. 15 In these circumstances, it seems to me that the appointment of a provisional liquidator is warranted. The plaintiffs sought to have Mr Hamilton appointed as the provisional liquidator. Mr Hamilton's affidavit exhibited evidence as to his expertise as an accountant and insolvency practitioner. As a receiver of the company and therefore an officer of the company for the purposes of the Corporations Act 2001(Cth), Mr Hamilton requires leave both to seek to be appointed and to be appointed as liquidator of the company under s 532(2)(c)(i). In addition, Mr Hamilton gave evidence that he had incurred expenses while acting as receiver in excess of the statutory threshold for a creditor provided in s 532(2)(b) and accordingly he is also required to seek leave under that provision. 16 A basic principle in the appointment of a liquidator is that the liquidator should be independent and should be seen to be independent. In this case Mr Hamilton gave evidence that he had no connection with either the defendant or Mr Yii prior to being appointed as a receiver and that his appointment as provisional liquidator would not give rise to any conflict of interest. He has only acted as a receiver since 29 December 2006, a mere seven days. Since his appointment Mr Hamilton has undertaken various investigations into the affairs of the defendant and presumably is relatively familiar with these affairs. Any other provisional liquidator would need to expend time and money to reach the same degree of familiarity with the defendant's affairs. 17 In the circumstances where the defendant's debt to Mr Hamilton relates solely to his expenses incurred as the receiver of the defendant, and where the only other creditor of the defendant of which I am presently aware supports his appointment, the benefits in terms of cost savings to the company justify exercising the Court's discretion to appoint Mr Hamilton as provisional liquidator. 18 I mentioned earlier that it was possible that the legitimate interests of the defendant could be accommodated other than by adjourning the hearing. Given the haste with which this interlocutory application has been processed it is appropriate that there be some limitation on Mr Hamilton's power until the defendant can be represented. In open Court Mr Hamilton has given an undertaking that if appointed as provisional liquidator he would not use the defendant's assets to pay his expenses incurred as receiver/manager of the defendant until further order of the Court and that he would not in his capacity as provisional liquidator of the defendant dispose or otherwise transfer or assign any of the assets of the defendant until further order of the Court. 19 It seems to me that the orders sought are reasonable and necessary and, in the circumstance, there is no reason why I should not make them. It is appropriate that the costs of this interlocutory hearing be paid out of the assets of the defendant company and I shall so order. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Justice Stone.