Elderslie Finance Corporation Limited v Newpage Pty Limited

REASONS FOR JUDGMENT 1 On 25 January 2007, I ordered that the defendant company be wound up and that the provisional liquidator of that company, Mr Barry Hamilton, be appointed as liquidator. Following his appointment as liquidator, in his capacity as liquidator and on behalf of the defendant company in liquidation, Mr Hamilton sought orders relating to some funds allegedly paid by the defendant to a third company, Casino Busters International. I made the orders that Mr Hamilton sought, and indicated that I would provide reasons for making both the winding up orders and the orders sought by Mr Hamilton at a later date. These are my reasons.

Winding up orders 2 On 2 January 2007, the plaintiffs filed in Court an originating process seeking the winding up of Newpage in insolvency, pursuant to s 459A of the Corporations Act 2001 (Cth). As creditors, the plaintiffs may apply for an order under s 459A without the leave of the Court: s 459P(1). 3 On 5 January 2007, I heard an ex parte application for the appointment of Mr Hamilton as a provisional liquidator of the defendant (Elderslie Finance Corporation Limited v Newpage Pty Limited [2007] FCA 4). On that occasion I granted Mr Hamilton leave to seek to be appointed and to act as provisional liquidator of the defendant and appointed him as provisional liquidator. 4 Both Mr Hamilton and Mr Jones, a process server, deposed that on 3 January 2007, Newpage was served at its registered address with, among other things the originating process seeking the winding up of Newpage and the appointment of Mr Hamilton as liquidator. Ms Silvana Jovcevska, a solicitor employed by the solicitors for the plaintiff, gave evidence that a notice of application for a winding up order had been placed in the newspaper, The Australian, on Thursday 11 January 2007, in accordance with rule 5.6 of the Federal Court (Corporations) Rules 2000. The defendant has not entered an appearance in this proceeding, and did not appear at the hearing of the application for a winding up order. 5 I am satisfied, for the reasons that I expressed on 5 January 2007, that from 15 December 2006, the defendant owed the plaintiffs $3 million and accrued interest. This debt has not been contested in this Court or in any of the correspondence with the representatives of the defendant or its principals. According to the affidavit of the second plaintiff, Mr George, who is also a director of Elderslie, which was sworn on 24 January 2007, the principal and interest on this loan have not been repaid. 6 There is no evidence before the Court that the defendant is able to meet its liability to the plaintiffs. Indeed, the truth appears to be quite to the contrary and there has been no indication to the Court, either formally or informally, by the representatives of the defendant or its principal that the company is anything other than insolvent. Exhibited to Mr Hamilton's affidavit was a copy of a statement from Newpage's bank account with Westpac, which shows a closing balance, as at 29 December 2006, of only $1,949.62. Mr Hamilton's enquiries, although hampered by apparently inadequate book keeping on Newpage's behalf, revealed that although Newpage had lodged its 2005 income tax return, it had failed to lodge a 2006 return; that return is now overdue. Newpage's 2005 tax return showed a net taxable income of $2,469 and included a balance sheet which indicated owners equity of approximately $42,000. I am satisfied that Newpage is insolvent and that it ought to be wound up. 7 Mr Hamilton sought leave to seek to be appointed and to be appointed as liquidator of the defendant (as required by s 532 of the Act) and filed his consent to act as liquidator in accordance with rule 5.5 of the Corporations Rules. I granted Mr Hamilton the leave he sought, for the reasons contained in my judgment in this proceeding on 5 January 2007, in particular at [15] - [17] where I said: '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. 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. 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.' 8 The arguments in favour of Mr Hamilton's appointment are, if anything now stronger, because of the additional investigative work he has performed since he was appointed provisional liquidator.