Emerton Pty Ltd v Referral Marketing Services Pty Limited

Supreme Court of NSW|2008-05-19|Before: Hammerschlag J

A creditor wanted permission to sue a company in liquidation for debts and also to remove the liquidators and claim share ownership. The court said the creditor could proceed with the claim to remove liquidators and the share ownership claim, but could not yet sue for the debts because the creditor had not followed the proper procedure of asking the liquidator to formally decide on the debts first. The court gave the creditor a 'conditional' permission: if the liquidator did not decide on the debts within 28 days, then the creditor could come back and add an appeal about the debts to the court case.

CITATION : Emerton Pty Ltd v Referral Marketing Services Pty Limited (in liq) [2008] NSWSC 596 This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : Leave granted in part and refused in part

CATCHWORDS : CORPORATIONS - Corporations Act 2001 (Cth) - application for leave to sue company in liquidation for debt - Corporations Regulation 5.6.53(1) - proofs of debt lodged in earlier administration but not dealt with by administrators - administrators become liquidators - no further proofs of debt lodged - proofs not dealt with by liquidators - application for leave premature and refused - other leave sought to sue in respect of claims not directly against the company - different considerations - leave granted

LEGISLATION CITED : Corporations Act 2001 (Cth) Corporations Regulation 5.6.53(1))

King v Peters [2007] NSWSC 200 CASES CITED : Ogilvie-Grant v East (1983) 7 ACLR 669 Vagrand Pty Limited (In liq) v Fielding & Anor (1993) 10 ACSR 373

Emerton Pty Limited PARTIES : Referral Marketing Services Pty Limited (in liquidation) ACN 008 160 889 Kari Lea Allen

C.M. Harris SC (Plaintiff) COUNSEL : K. L. Kahler - Solicitor (First Defendant) A. Martin - Solicitor (Second Defendant)

S+P Lawyers (Plaintiff) SOLICITORS : Blake Dawson (First Defendant) MBP Legal (Second Defendant)

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5523/2007 EMERTON PTY LIMITED -V- REFERRAL MARKETING SERVICES PTY LIMITED (IN LIQ) EX TEMPORE JUDGMENT 1 HIS HONOUR: By interlocutory process dated 7 May 2008 the plaintiff seeks leave pursuant to s 471B of the Corporations Act 2001 (Cth) ("the Act") to proceed against the first defendant in liquidation, and to file an Amended Originating Process in the form of a document claiming an order that liquidators appointed to the first defendant ("the company"), Messrs Wiley and Hurst, be removed and that Mr Louttit be appointed liquidator of the first defendant in their place. 2 The plaintiff also seeks declarations that: a it is the owner of certain shares in the company and orders for rectification of its relevant registers; and b as at 31 December 2007 the company was indebted to it in the sum of $100,600 by way of loans, and in the sum of $52,500, or alternatively $36,520, in respect of a dividend which the company paid on its ordinary shares during the year ended 30 June 2006, and which, if the plaintiff had been a shareholder of ordinary shares in the company at that time, the plaintiff would have been entitled to receive. 3 Before me Mr Harris of senior counsel appeared for the plaintiff. The liquidators appeared through Ms Kahler, solicitor and the second defendant was represented by Mr Martin, solicitor. The liquidators neither opposed nor consented to the orders sought, but a number of matters were put before me on their behalf. 4 Ultimately the only true opposition to the making of the orders put by Mr Martin was that I should not grant leave to sue for the debts because that relief was premature. The plaintiff had lodged proofs of debt in early March 2008 at a time at which the company was under administration. The liquidators were then administrators. The proof of debt for the dividend claim had been admitted to proof for $1 for voting purposes only. The proof of debt for the loan claim had been rejected by the administrators in correspondence which made it clear that rejection was with respect to voting purposes only. 5 The point taken was that neither of the proofs of debt had been dealt with by the liquidators pursuant to Corporations Regulation 5.6.53(1). Accordingly it put that it would be premature to give leave to the plaintiff as prayed. That regulation is in the following terms: (1) A liquidator must, within: (a) 28 days after receiving a request in writing from a creditor to do so; or (b) if ASIC allows - any further period: in writing (c) admit all or part of the formal proof of debt or claim submitted by the creditor; or (d) reject all or part of the formal proof of debt or claim; or (e) require further evidence in support of it

6 Regulation 5.6.53(2) provides: If the liquidator does not deal with a request under subregulation (1) in accordance with that subregulation, the creditor who submitted the proof may apply to the Court for a decision in respect of it. 7 I was referred to what I said in King v Peters [2007] NSWSC 200, particularly at pars [18] and [19] in following what McPherson J had said in Ogilvie-Grant v East (1983) 7 ACLR 669 and Vagrand Pty Limited (In liq) v Fielding & Anor (1993) 10 ACSR 373, about the policy underlying the provisions which require leave be obtained to sue a company in liquidation. It is that such a company might otherwise be subject to a multiplicity of actions which might both be expensive and time consuming and in some cases unnecessary. The Court needs to be satisfied that there is a real dispute between the parties. The evidence must establish a genuine claim and a real dispute. 8 Ms Kahler, for the liquidator, informed me that the liquidators' investigations of the affairs of the company were continuing, and that rejection of the proofs was not a certainty. Mr Harris urged upon me that I should conclude, against the background of the factual history, that it is inevitable that the proofs will be rejected. 9 Part of the difficulty is that there has been no request pursuant to reg 5.6.53(1)(a) in writing from the plaintiff for the adjudication of the proofs. The period of twenty-eight days provided in the regulation has accordingly not commenced to run. The liquidators are prepared to treat the proofs of debt lodged by the plaintiff as proofs lodged in the liquidation. I was informed from the bar table that they agree that the twenty-eight days provided for in reg 5.6.53(1)(a) will commence to run from today, on the basis that it is accepted that a request in writing from a creditor, that is the plaintiff, to deal with the proofs, has been received. Such a request has, in any event, been made by way of the interlocutory process itself. 10 I am satisfied that the plaintiff is entitled (with the attendant risks that involves) to move for the removal of liquidators. That type of claim falls into a different category to one where a creditor wishes to litigate a disputed claim against the company. 11 I accordingly propose to grant leave (so far as is necessary) for the plaintiff to proceed by claiming an order that the liquidators be removed. I do, however, make it clear that the plaintiff does so at its risk, given particularly that as I presently understand it, there is no assertion that the liquidators have acted in any manner improperly. 12 So far as the declaratory relief with respect to the shares is concerned, that too is in a category of claim and I consider that it should also be the subject of leave. The claim does not involve a contest in which the liquidator will be directly involved. It is a contest between the plaintiff and the second defendant. 13 In relation to the money claims, however, I consider that the relief sought should be refused, because it would be premature to grant it. 14 In the circumstances, and given the agreement of the liquidators to which I have earlier referred, I will make the following orders:

The plaintiff has leave to proceed against the first defendant in accordance with Amended Originating Process, providing for relief in the following terms in addition to that already claimed: "2A. Alternatively an order that Hugh Jenner Wily and David Hurst be removed as liquidators of the first defendant and Jamison Louttit be appointed liquidator of the first defendant in their place. 3A. A declaration that the plaintiff is (i) the owner of twenty of the 115 ordinary shares issued in the first defendant and (ii) the owner of a further fifteen of the 115 shares issued in the first defendant, which it holds as security of loans of $36,000 made by the plaintiff to the first defendant in June and July 2002, and that the register of the first defendant be amended accordingly."

If on the expiry of twenty-eight days from today the liquidators have not admitted all of the former proofs of debt or claims submitted by the plaintiff, the plaintiff shall have leave to further amend the originating process by the inclusion of an appeal against refusal, to admit such part of those claims as has not been admitted pursuant to s 1321(1) of the Corporations Act 2001 (Cth), such amended originating process to be served within seven days after the expiry of the twenty-eight day period aforesaid.

The proceedings are stood over to the Registrar for directions on 30 June 2008. 15 I note that the liquidators will treat the proofs of debt lodged by the plaintiff as proofs of debt having been lodged in the winding-up, and that the twenty-eight day period in reg 5.6.53(1)(a) will be treated by them as having commenced today, 19 May 2008. 16 The costs of this application will be costs in the cause. **********

30/10/2008 - Incorrect name of law firm for first defendant - Paragraph(s) cover page

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Outcomemixed

Disposition:

Leave granted in part and refused in part: (1) Leave granted to proceed with claim for removal of liquidators and declaratory relief as to share ownership; (2) Leave refused to proceed with debt claims as premature; (3) Prospective leave granted to amend to include appeal under s 1321(1) against refusal to admit proofs if liquidators do not admit within 28 days from 19 May 2008.

At a glance

Result

Key principles

Issues before the court

Plain English Summary

Judgment (17 paragraphs)

Cited legislation

Parties

Legislation Cited (1)

Cases Cited (1)

AI Analysis