FOYSTER v. FOYSTER HOLDINGS P/L [2002] NSWSC 722

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5585 OF 2001 IN THE MATTER OF FOYSTER HOLDINGS P/L; JACQUELINE FOYSTER v. FOYSTER HOLDINGS PTY LTD JUDGMENT 1 HIS HONOUR: By a proceeding commenced on 20 November 2001, the plaintiff, as a contributory of the defendant company, made application under s.462 of the Corporations Act 2001 to wind it up upon a ground provided for by s.461(1)(e), (f), (g) and (k). The plaintiff also sought interlocutory relief, including an order appointing a liquidator provisionally. On 3 December 2001, an order was made that the company be wound up provisionally, and that Ian Lawrence Struthers be appointed provisional liquidator. At a further hearing on 13 and 14 June 2002, counsel for the plaintiff moved for an order winding the company up and appointing Mr Struthers its liquidator on the same grounds, and also on the ground of insolvency for which ss.459A and 459P provide. 2 Counsel instructed by Mr David Lloyd Foyster, a director of the company, appeared to oppose this application, seeking leave "to intervene in the proceedings on behalf of the defendant"; an order striking out or dismissing the proceedings; an order staying the proceedings; an order removing the provisional liquidator; and an order appointing some other person provisional liquidator. It seemed convenient to permit Mr David Lloyd Foyster to adduce the evidence he sought to put before the court, so that all relevant matters could be taken into account in the consideration of the plaintiff's application. 3 The plaintiff relied on the evidence of Mr Struthers who, upon his appointment as provisional liquidator, had taken steps to ascertain the state of the records of the company and to ascertain whether it was solvent. I considered that it was an appropriate case in which to grant the leave referred to in s.459P(2). The evidence of Mr Struthers showed that adequate books and records had not been maintained in respect of the company. In particular, a company general ledger, general journal, cash book, cheque butts and bank deposit slips, and tax returns were not made available to him, notwithstanding persistent efforts to obtain them. He ascertained that the company holds approximately 51 per cent of the issued shares in a company Tasmanian Titanium Pty Ltd, but dividends have not been paid in respect of that shareholding. Tasmanian Titanium Pty Ltd does not provide the company with any cash flow. The company has no available funds from which to pay liabilities which include an overdraft debt to the Commonwealth Bank of Australia of about $26,000, provisional liquidator's fees approximating as at 30 April 2002 a further $26,000, legal costs approximating $8,000, costs payable pursuant to court orders totalling over $34,000, an unknown liability for tax, penalties and interest, and additional costs known to have been incurred. 4 Mr Struthers was cross-examined at length to challenge his evidence that, in his opinion, based on his examination of such records of the company as could be obtained and his investigation of its affairs, the company was unable to meet its debts as they fall due, so that it was insolvent. He was not shaken in that view, and he made it clear that he considered the shares in Tasmanian Titanium Pty Ltd could not be readily sold. Apart from those shares, the company has no value. 5 The evidence of Mr Struthers shows that, not only have the directors failed to conduct the affairs of the company properly and in such a manner that the propriety of payments of large sums of money, purportedly made on its behalf and out of its funds, can be reasonably ascertained, but also the company is actually insolvent. In McPherson on The Law Of Company Liquidation, 4th Ed. (1999), at 437, the proposition is stated: While the decision is the court's, expert evidence could be heard as to the likelihood of any of the assets yielding ready cash in sufficient time to satisfy the debts as they fall due. The liquidator, on the basis that he or she is an accountant, is able to give evidence as to whether the company was insolvent at a particular date. The court has a discretion whether it accepts that evidence as establishing the fact of insolvency.

In support of this proposition, Sheahan v. Hertz Australia Pty Ltd (1994) 14 ACSR 209 and Pegulan Floor Coverings Pty Ltd v. Carter (1997) 15 ACLC 1293 are cited as authorities. In the former case, it was contended (at 212-213) that the liquidator was a partisan expert, whose opinion should be rejected, but Anderson J disposed of this objection in the following terms: Even if bias is shown in the expert it remains a matter of weight to be attached to the report and his evidence.

In accepting the evidence, his Honour (at 220-221) referred to what Griffith CJ said in Bank of Australasia v. Hall (1907) 4 CLR 1514 at 1528: The question is not whether the debtor would be able, if time were given him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available. The most favourable construction that can be put on the words 'his own moneys' is that they include any moneys of which the debtor can obtain immediate command by sale or pledge of his assets.

(The emphasis is that of Anderson J.). 6 Anderson J, in Sheahan v. Hertz Australia Pty Ltd, also placed emphasis on the language of Barwick CJ in Sandell v. Porter (1966) 115 CLR 666 at 670-671 when the Chief Justice referred to "the likelihood of any of the debtor's assets or capacities yielding cash in sufficient time to meet the debts as they fall due". The importance of an ability to make sufficiently timely payment is also underlined by the language of Jacobs J (speaking with the agreement of Barwick CJ and Gibbs J) in Hymix Concrete Pty Ltd v. Garritty (1997) 13 ALR 321 at 330 reducing the question to whether the assets relied upon to show solvency "could be regarded as so immediately realizable or obtainable by the company that they fall within the test which was enunciated in Bank of Australasia v. Hall … and Rees v. Bank of New South Wales (1964) 111 CLR 210." As Needham J pointed out in Expo International Pty Ltd v. Chant [1979] 2 NSWLR 820 at 839, "if temporary inability to pay debts is established, one can look at the debtor's asset position to see whether the temporary embarrassment is caused only by a lack of liquidity. If it is, then one should take account of readily realizable assets." But such a formulation reveals that if the assets are not readily realizable, the situation here according to the evidence, which I accept, of Mr Struthers, what is involved is more than a temporary embarrassment. Cf Foyster v. Australian & New Zealand Banking Group Ltd [2000] FCA 1254, where the Full Court of the Federal Court of Australia (Beaumont, Marshall and Lehane JJ) declined to find (at para.13) that shares "could be realised, in the reasonably near future, for any particular sum, or at all", so that the possibility of their sale could not avoid the conclusion of insolvency. In the same case, their Honours held that a costs order could be taken into account notwithstanding that the costs remained untaxed. 7 In the cross-examination of Mr Struthers, evidence was elicited that he had acted as a go-between, in arranging a meeting to discuss problems concerning the voting power in the defendant company, between a solicitor, Mr Hopkins, who was Chairman of Tasmanian Titanium Pty Ltd and also acted for the plaintiff, and the trustee of the bankrupt estate of Lloyd Foyster, a major shareholder in the defendant company. At the meeting, which took place some two or three months before the commencement of the present proceeding, Mr Struthers was present in the capacity of an "adviser" to Mr Hopkins. This prior involvement was urged as a reason why I should not accept the evidence of Mr Struthers. However, the material put before me supported him, and having listened to his cross-examination, I formed the view I should accept his evidence, understanding it as limited to the sense indicated by Barwick CJ in Sandell v. Porter at 670-671. 8 Although Mr Struthers' earlier connection with the disputes in the company has not caused me to reject him as a witness, it does raise the question whether he should be appointed liquidator of the company. "The guiding principle in the appointment by the court of a liquidator is that he must be independent and must be seen to be independent": Advance Housing Pty Ltd (in liq) v. Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 233, citing Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34. Having regard to the need for the liquidator chosen by the court to be and to be seen to be independent, I think, instead of Mr Struthers, the court, if it makes a winding up order, should appoint Mr Jeffrey Hancock, a liquidator who has consented to be appointed. That is no reflection on Mr Struthers' competence or integrity, but simply a recognition of the fact that he has had a past involvement which might be seen as suggesting an absence of complete independence. 9 For the plaintiff, it was submitted that unchallenged evidence made out both the ground of insolvency and the ground contained in s.461(1)(e), the latter because of the company's "completely inadequate books and records" and the unexplained expenditure of very large sums. Ultimately, counsel for Mr David Lloyd Foyster conceded that "a ground for winding up" had been shown, but he claimed "[t]he question then is whether a winding up order is appropriate". He cited Re Kolback Group Ltd (1991) 4 ACSR 165 at 167 for the proposition that the making of an order is discretionary. I have come to the conclusion that there is simply no sufficient basis for exercising a discretion against the plaintiff, that an order should be made winding up the company, and that Mr Jeffrey Hancock should be appointed liquidator. It is so ordered. There was debate about the appropriate order as to costs. I order that the plaintiff's costs of the proceeding for the winding up of the company be paid by the company; and that the motion brought by Mr David Lloyd Foyster be dismissed, and that he pay the plaintiff's costs of that motion. *****

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