Georges & McCluskey in their capacity as Liquidators of Radiata Plantations Ltd (In Liquidation) v Radiata Plantations Ltd

Solicitors: Colin Biggers & Paisley (Plaintiff) File Number(s): 2019/00059258 Publication restriction: Nil

Judgment

1. HER HONOUR: This is an application by Mr Madden (a partner of KordaMentha), in his capacity as the privately appointed receiver of the assets and undertaking of Direct Acceptance Corporation Ltd (Receiver Appointed) (In Liquidation) (the Company), and therefore a controller of property of the said corporation, pursuant to s 424 of the Corporations Act 2001 (Cth) (the Act), for directions in relation to a matter arising in connection with the performance or exercise of his functions and powers as controller.
2. The application for directions concerns the proposed final distribution to beneficiaries of a Debenture Trust established by the Company (the Trust) in 1960. Following default by the Company in relation to the debentures, in 1991 the trustees of the Trust (Perpetual Custodians Limited and P.T Limited) (together, the Trustees), enforced a charge over the assets and undertaking of the Company and appointed a receiver (Mr Madden's predecessor, Mr Allen) of the assets and undertaking of the Company. Mr Allen resigned as receiver on 17 December 1998 and Mr Madden then succeeded to the position of receiver.
3. Some distributions have been made to beneficiaries (the Noteholders) in the course of the realisation of the assets of the Company. Those distributions were all made in the 1990's (on 31 May 1991, 25 April 1995 and 7 October 1999, respectively), and totalled over $11 million. The total amount invested by the Noteholders was in the order of $39.5 million. There have been no distributions for over 20 years.
4. Mr Madden now seeks directions as to a proposed method of distributing the balance of the property of the Company realised by him, in circumstances where it is anticipated that not all of the Noteholders will be able to be located or remain either alive (if natural persons) or in existence (if companies).
5. There was no appearance by any contradictor on this application, although as I note in due course, the Trustees have indicated no opposition to the course proposed by Mr Madden.

Background

1. The factual background summarised below is drawn from the affidavit evidence of Mr Madden (affidavits sworn 12 February 2019 and 22 March 2019, respectively) and the documents exhibited to Mr Madden's affidavits, as helpfully summarised in the comprehensive submissions of Counsel appearing for Mr Madden on this application, Mr Krochmalik.
2. The Company (formerly known as Direct Acceptance Finance Limited) was incorporated on 12 June 1926. It carried on the business of providing financial services such as investing through leasing, commercial lending and mortgage services, in particular by taking investments from investors and lending those pooled funds to borrowers on commercial terms (Mr Madden's first affidavit at [4]-[5]).
3. On 9 December 1960, a trust deed (as subsequently amended, the Trust Deed) was executed which established the Trust (Mr Madden's first affidavit at [7]). The Trust Deed recited, among other things, that the Company had issued first mortgage debenture stock pursuant to a prior trust deed (Recital C) and that it was resolved to borrow a further sum of £500,000 by issue of first registered mortgage debenture stock of the Company (Recital D), which debenture stock was to be secured (Recital E).
4. Pursuant to the terms of the Trust Deed: the Company issued debenture instruments, which were held by the Trustees on trust for Noteholders as the beneficial owners of the debentures (cll 3, 4 and 5); the Company as beneficial owner granted a first charge in favour of the Trustees to secure its obligations to repay the principal and interest owing on the debentures (cl 13(a)); the Trustees had the power to enforce their security upon, inter alia, a default by the Company in repayment of amounts of principal or interest due and payable (cl 16); and the Trustees had the power to appoint a receiver over the property of the Company (cl 19).
5. Pursuant to cl 10(iii) of the Trust Deed, moneys received by the Trustees (when enforcing the debentures) are deemed to be moneys received by the Trustees "for the benefit of all persons entitled under this Deed as if the same had been received directly under this Deed" (a provision which Mr Krochmalik submits makes it clear that when the Trustees enforce their security, and obtain funds as secured creditor, they hold those funds on behalf and for the benefit of the Noteholders).

Issues on which directions are now sought

1. Mr Madden seeks direction from the Court as to three issues relating to the proposed final distribution of the Remaining Funds.
2. First, whether he would be justified in treating those Noteholders who would otherwise receive a distribution of less than $25 as having no entitlement to be paid any of the Remaining Funds.
3. Second, whether he would be justified in distributing the Remaining Funds only to those Noteholders (other than in the case of deregistered companies - as to which, as noted above, Mr Madden proposes to issue cheques to ASIC) who provide their current details to the Receiver (i.e., rather than simply issuing cheques to the entirety of the Noteholders without prior notification and confirmation of their contact details).
4. Third, how he should deal with the balance of the Remaining Funds, if any, after their distribution to the Noteholders (for example, whether he would be justified in paying any such funds to the NSW Trustee and Guardian or to the liquidator of the Company, without further order of the Court).
5. As adverted to earlier, Mr Madden has communicated with the Trustees as to the proposed final distribution, by letter dated 8 August 2018 (Exhibit B). Although the precise form of the relief now sought in the summons was not communicated to the Trustees, the substance of what is here proposed was put to them and there has been no opposition thereto.

Relevant principles

1. The power to give directions under s 424 of the Act corresponds with the power to give directions to administrators (under former s 447D of the Act) and to liquidators (under former ss 479 and 511 of the Act), now under the power contained in Div 90 of the Insolvency Practice Schedule (Corporations) 2016 (Cth). Similar principles apply with respect to the exercise of that power (see Re One.Tel Networks Holdings Pty Ltd (2001) 40 ACSR 83; [2001] NSWSC 1065 (One.Tel); Re Stream Customised Claims Pty Ltd (Recs and Mgrs Apptd) (In Liq) [2018] NSWSC 1812 at [2]).
2. Reference was made by Mr Krochmalik in submissions to the principles articulated by Black J in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 (at [7]- [9]), which I do not need here to set out; and to what was said by Colvin J in Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547 at [47] as to the power to give 'directions' under s 424 of the Act as being a form of "personal guidance or advice to the controller", Colvin J going on to say that such directions: … do not involve an adjudication of the claims, rights or entitlements of third parties. Rather, they articulate the approach or steps that the controller is justified in taking having regard to the facts and circumstances as known (including the nature and extent of any disputed or contentious aspects) and relevant legal principles.
3. The power to make directions under s 424 of the Act is a broad one, intended to facilitate the work of receivers (see Korda v Silkchime Pty Ltd (2010) 243 FLR 269; [2010] WASC 155 (Korda) at [30]) and should be interpreted as widely as possible to give effect to that intention (see Re Mirabela Nickel Ltd (receivers and managers appointed) (in liq); ex parte Madden [2018] WASC 335 at [86]; Re Odessa Promotions Pty Ltd (in liq); Pescod v Harrison (1979) CLC 40-523).

Submissions

1. It is submitted (and I accept) that this is an appropriate case for directions to be given to Mr Madden because: the proposed directions provide guidance on matters of law arising in the receivership and will protect the Receiver against accusations that he has acted unreasonably (see Re Bevillesta Pty Ltd (2011) 254 FLR 324; [2011] NSWSC 417 at [11]; Korda at [32]); and from liability for breach of duty or unreasonable behaviour (provided full disclosure has been made to the Court) (see Hawke v Daniel Efrat Consulting Service Pty Ltd (1999) 17 ACLC 733 at 739; Re Ansett Australia Ltd (2001) 39 ACSR 355; [2001] FCA 1439 at [59]-[62]; Re Dungowan Manly Pty Ltd (in liquidation) (2017) 124 ACSR 218; [2017] NSWSC 1771 at [3]). It is further submitted (and again I accept) that the issues in respect of which directions are sought do not involve business decisions or matters of commercial judgment; rather, they concern questions of law and the reasonableness of Mr Madden's proposed course of conduct in distributing assets to the Noteholders as the beneficial secured creditors of the Company.
2. Turning then to the three issues on which direction is sought, Mr Krochmalik makes the following submissions.

(i) Exclusion of those Noteholders whose proportionate entitlement to the Remaining Funds would be less than $25

1. Reference is made to the provisions of the Bankruptcy Act 1966 (Cth) (applicable pursuant to s 553E of the Act to company liquidators) (namely s 140(9) of the Bankruptcy Act 1966 (Cth) and reg 6.21 of the Bankruptcy Regulations 1996 (Cth)), which have the effect that, if a creditor were to receive a dividend of less than $25, that amount need not be paid to the creditor (One.Tel at [37]).
2. It is accepted that those provisions do not strictly apply in the present case because Mr Madden is not the liquidator of the Company and the Noteholders are not unsecured creditors in the winding up of the Company (rather, Mr Madden has realised assets of the Company for the benefit of its secured creditors, i.e., the Noteholders who are the beneficial holders of the debentures). However, it is submitted that those provisions of the bankruptcy legislation (applicable to company liquidations) may be seen to have an analogous operation in the present case because the relationship between the Receiver and the Noteholders is not dissimilar to that between a liquidator and unsecured creditors.
3. The rationale put forward for excluding from the final distribution Noteholders who would receive a distribution of less than $25 is that the cost to the receivership as whole in connection with the making of distributions to those Noteholders is said to be disproportionate to the quantum of the amount to be distributed to them.
4. Mr Madden submits that, by analogy with the position that would apply on a company winding up, he ought to be entitled to disregard those Noteholders whose entitlement to the Remaining Funds would not exceed $25. Thus, he seeks a direction to the effect that, in determining the Noteholders to whom a distribution should be made from the Remaining Funds, those Noteholders who would otherwise receive a distribution of less than $25 may be treated as having no entitlement to receive a distribution from the Remaining Funds.
5. It is noted that a similar direction (permitting exclusion of beneficiaries who would receive a distribution of less than $50 or $100 respectively) was made in Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) (2012) 288 ALR 240; [2012] FCA 75 and in Re BBY Limited (Receivers and Managers appointed) (in liquidation) (No 2) [2018] NSWSC 346 at [393]-[397].

(ii) Distribution only to Noteholders (or their legal personal representatives in the case of deceased Noteholders) who respond to the proposed notification/advertisement by providing current address details

1. There are 2,843 Noteholders. As adverted to above, the regime proposed by Mr Madden is that he advertise the proposed distribution: in the case of Noteholders who are natural persons, by writing to them at their last known address; in the case of Noteholders who are bodies corporate that have not been deregistered, by writing them at their ordinary place of business (if known) and at their registered office; in the case of Noteholders who are bodies corporate that have been deregistered, by writing to ASIC; by placing an advertisement in The Australian newspaper and in the Australian Financial Review newspaper; and by placing a notice on the website of Mr Madden's firm, KordaMentha. It is proposed that those letters, advertisements and notices will request the Noteholders to provide, within 28 days, their current address details on the KordaMentha website or by letter to KordaMentha's offices. Mr Madden proposes to make a distribution only to those Noteholders who respond and provide their current address details (Mr Madden's first affidavit at [29]).
2. Mr Madden accepts that an alternative would be simply to issue cheques to the Noteholders and to await a certain period (say, six months) following which any unclaimed money would be paid either to the NSW Trustee and Guardian or the liquidator of the Company.
3. Mr Madden accepts that his proposal might be said to provide a form of windfall to the Noteholders who respond to the advertisement of the proposed distribution at the expense of the other Noteholders who do not respond (in the sense that those Noteholders may be entitled to a greater proportion of the Remaining Funds than if cheques were merely sent out to all Noteholders). However, it is submitted that the alternative is that the balance of the unclaimed funds will, at some future point, no longer be available to the body of Noteholders as a whole (and will lead to further costs being incurred).
4. It is submitted that Mr Madden's proposal is akin to that which occurs in a winding up, in the sense that a liquidator only pays a dividend to those creditors whose claims have been admitted; and a claim or proof of debt cannot be admitted unless it is first submitted by a creditor following the liquidator advertising and calling for proofs to be lodged.

(iii) Payment of any residual funds

1. Notwithstanding that it is submitted that it is likely that Noteholders who respond to the advertisement(s) will receive and present their distribution cheques for payment, Mr Madden is concerned that (even if he were given a direction that he would be justified in taking the course he proposes), some amount of the Remaining Funds will likely remain unclaimed (Mr Madden's second affidavit at [17]), either because the cheques may not be received or because (as was surmised in Re Westnet at [3]) it may be that some Noteholders "just could not be bothered presenting them".
2. Accordingly, Mr Madden considers that, regardless of the directions to be given as to the course to be taken by him, it is likely that there will remain some unclaimed funds in the receivership after the dividend is paid (Mr Madden's second affidavit at [18]).
3. In that context, and given the ongoing costs of the receivership, Mr Madden seeks directions as to whether he would be justified in disposing of the residue of any Remaining Funds that remain unclaimed and, if so, to whom those funds should be paid.
4. It is noted that funds become unclaimed money, within the meaning of the Unclaimed Money Act 1995 (NSW), only upon the effluxion of six years (s 7(1)(a)). It is submitted that for Mr Madden to be required to wait for that period to elapse would place an unnecessary cost on the receivership and delay further the winding up of the Company (see Mr Madden's second affidavit at [19]). Accordingly, it is submitted that it would be appropriate for Mr Madden to be directed that he would be justified in disposing of the funds at an earlier point in time (see Georges & McCluskey in their capacity as Liquidators of Radiata Plantations Ltd (In Liquidation) v Radiata Plantations Ltd (In Liquidation) [2009] NSWSC 994 (Radiata Plantations) at [14]).
5. Mr Krochmalik submits that the appropriate period for which Mr Madden should retain any residual funds, calculated from the date on which cheques were sent to Noteholders, is six months. It is noted that that was the period that was the subject of the orders in Radiata Plantations and is also the period provided for by s 544(1) of the Act (in relation to the unclaimed moneys held by a liquidator following the declaration of a dividend).
6. The next issue raised for Mr Madden is as to whom the funds ought then be paid. It is accepted that Mr Madden does not hold the funds in his own right; rather, that he holds the Company's property on behalf of the secured creditors (at law, the Trustees and beneficially, the Noteholders) or, if the debts of the secured creditors have been paid in full, on behalf of the Company. In that sense, it is submitted (and I agree) that Mr Madden is properly classified as a trustee within the meaning of ss 47 and 95 of the Trustee Act 1925 (NSW) (which provisions permit a trustee to pay moneys to the NSW Trustee and Guardian (or a trustee company) or into Court, respectively).

Costs

1. Mr Madden seeks orders that the costs of the proceedings should be costs in the receivership of the Company, and be payable out of the assets of the Company on a trustee basis.

Determination

1. I accept that this is an appropriate case for directions to be given to the Receiver pursuant to s 424 of the Act, for the reasons given by Mr Krochmalik.

(i) The entitlements of the "less than $25" Noteholders

1. As to the first issue, namely whether the Receiver would be justified in distributing the available funds only to Noteholders with an entitlement of more than $25, though I accept the logic underlying the proposal that this be the case, I am not persuaded that such a direction should be given.
2. The applicable provisions on a company winding up (as considered by Barrett J, as his Honour then was, in One.Tel) do not, as is acknowledged by Mr Madden, apply in the present case. (In One.Tel, where they were applicable, his Honour noted that it is not mandatory to ignore a claim or a creditor where the dividend would be less than $25 and that the liquidator or trustee has a discretion in that regard and thus does not need an order of the Court.)
3. Here, what is sought is to argue, by analogy, that the same position should here apply as would apply having regard to the statutory provisions to which I have referred above.
4. The difficulty I have with that proposition is that, absent a statutory provision permitting the entitlements of such Noteholders (i.e., those with less than a $25 entitlement to participate in the distribution), what would effectively be being done if such a direction were to be given would be prospectively excusing a breach of trust - since it is clear under the Trust Deed that the obligation of the Receiver is to pay the moneys received paris passu to the Noteholders (after reimbursement of expenses) in accordance with their entitlements.
5. Moreover, there are two practical considerations against such a course. First, insofar as the rationale is a cost saving in terms of the cost of drawing cheques, any such cost saving (while not to be ignored) may not be as great as the $10,000 anticipated by Mr Madden because the proposal is that in the first place all Noteholders (including those with less than a $25 entitlement) be notified by letter sent to the addresses current as at 1991. This means the costs of postage, in the first instance at least, will be the same either way and it is simply that there will be the additional cost of having the cheques issued and then posted out to the unknown number of the "less than $25" Noteholders who respond to the advertisement (compared to the cost of issuing cheques and posting them out to all the Noteholders who so respond). Second, it seems to me to be conceivable (however likely or unlikely it may be I cannot tell) that if a Noteholder has gone to the trouble to respond to the advertisement then that Noteholder may have a justifiable sense of grievance if only then to be told that his, her or its entitlement was not sufficiently great to enable a share in the distribution. That might itself lead to more cost if it leads to disputes by those Noteholders.

(ii) Proposal as to distribution only to Noteholders who respond (and de-registered companies)

1. The position of the Receiver on this issue is to emphasise that these are Noteholders who first invested in Notes, on any view of the matter, some 28 (or more) years ago; and that what is proposed is analogous to the position that would apply in a winding up.
2. In that regard, the Receiver points to cl 10(iii) of the Trust Deed which requires the moneys received by the Trustees generally by virtue of their security (and, here, the Receiver as their agent) to be applied for the benefit of all the Noteholders. It is submitted that this gives some support to the position of the Receiver (and is not inconsistent with it), in the sense that it is to the benefit of all Noteholders as a whole to minimise the costs of the overall administration process involved in relation to the final distribution.
3. In my opinion, the course proposed by the Receiver is appropriate for the reason that, once the Receiver has done what can reasonably be done to notify Noteholders of the distribution (in circumstances where there has been a 20 year delay since the last distribution), in the absence of a response from Noteholders the Receiver can properly proceed on the basis that those Noteholders have abandoned any entitlement to a further distribution in relation to the Notes.

(iii) Residual Funds

1. I consider that the primary position put forward by the Receiver is the appropriate course in this regard; i.e., for payment of any residual funds still held at the end of a six month period to be paid to the NSW Trustee and Guardian. That is because, if a Noteholder or (in the case of a deceased Noteholder) his or her legal personal representative(s), has responded to the advertisement then it cannot be considered that the Noteholder has at this stage abandoned any entitlement in relation to the Notes. Nor, however, is it to the benefit of those Noteholders for the Receiver to continue to retain the moneys for some indeterminate period of time (or for up to six years) since costs will continue to be incurred in the receivership (which the Receiver would then no doubt seek to recoup out of the then residual funds). Furthermore, this will cause the winding up to continue to be delayed (see the decision of White J, as his Honour then was, in Radiata Plantations).
2. I accept Mr Krochmalik's submission that the Receiver will be holding any residual funds, in the scenario postulated, in his capacity as a trustee and that in those circumstances s 47 of the Trustee Act 1925 (NSW) permits the payment of any residual moneys held after completion of the proposed regime and expiry of the six month period to the NSW Trustee and Guardian (see also cl 22 of the Trust Deed).
3. The residual money is not money held in trust for the Company in those circumstances; rather it is held for the particular Noteholders to whom it was sent. Therefore, payment to the liquidators is not appropriate.
4. As to the six month period, as adverted to above I accept that is an appropriate time (by analogy with the position which would apply under s 544(1) of the Act in relation to the unclaimed moneys held by a liquidator following the declaration of a dividend) and that it is appropriate that the Receiver not be put to the expense of a further application to the Court for directions consequent upon some cheques not having been presented over that six month period.

Orders

1. Accordingly, I have made some amendment to the proposed orders sought (to delete the provisions relating to the "less than $25" Noteholders and to make direct reference to the position where there may be legal personal representatives of a Noteholder who is now deceased). I will provide a copy of the orders proposed to be made to the Receiver at the time these reasons are published and will settle those orders in chambers once the Receiver has an opportunity to consider them. Further, I will direct that the Receiver provide amended copies of the documents to be included as Schedules to the orders. The orders I propose to make by way of directions to the Receiver are as follows: 1. Pursuant to s 424 of the Corporations Act 2001 (Cth), direct that the Plaintiff, Martin Madden (Mr Madden) in his capacity as Receiver of the assets and undertaking of Direct Acceptance Corporation Ltd (Receiver Appointed) (in Liquidation) (the Company), is justified in taking the following steps prior to distributing the remaining funds in the receivership of the Company (being those funds after the Receiver's administrative costs and the costs of these proceedings) (Remaining Funds) to the Noteholders of the Company: 1. writing to all Noteholders: 1. in the case of natural persons, at their last known address; 2. in the case of corporations (other than those that have been deregistered): (A) at their registered office; and (B) if known to Mr Madden, at their ordinary place of business; 1. in the case of corporations that have been deregistered, to the Australian Securities and Investments Commission (ASIC), advising them of Mr Madden's intention to pay a fourth and final distribution to ASIC (in respect of now deregistered companies) and, in the case of Noteholders other than now deregistered companies, to those Noteholders or (in the case of natural persons who are now deceased) to the legal personal representatives of such Noteholders, who respond to Mr Madden within 28 days of the date that the letter is posted (such letter to be substantially in the form in Schedule 1 hereto [to be prepared by the Receiver before finalisation of these orders]), confirming their current address (by completing that information on the website maintained by KordaMentha for that purpose or otherwise by written notice to KordaMentha at GPO Box 2523, Sydney NSW 2001 (Att: Mr Martin Madden)); 1. placing an advertisement in The Australian newspaper and the Australian Financial Review newspaper advising Noteholders of Mr Madden's intention to pay a fourth and final distribution to those Noteholders: 1. in the case of natural persons, at their last known address; 2. in the case of corporations (other than those that have been deregistered): (A) at their registered office; and (B) if known to Mr Madden, at their ordinary place of business; 1. in the case of corporations that have been deregistered, to ASIC, and requesting Noteholders to confirm their current address by completing that information on the website maintained by KordaMentha for that purpose (being substantially in the form of the website notice in Schedule 2 hereto [to be prepared by the Receiver before finalisation of these orders]), such advertisement to be substantially in the form in Schedule 3 hereto [to be prepared by the Receiver before finalisation of these orders]) or otherwise by written notice to KordaMentha at GPO Box 2523, Sydney NSW 2001 (Att: Mr Martin Madden), within 28 days of the date that the advertisement is published; 1. placing a notice on the website maintained by KordaMentha, advising Noteholders of Mr Madden's intention to pay a fourth and final distribution to Noteholders, and requesting Noteholders to confirm their current address by completing that information on the website maintained by KordaMentha for that purpose (being substantially in the form of Schedule 2 hereto [to be prepared by the Receiver before finalisation of these orders]) or otherwise by written notice to KordaMentha at GPO Box 2523, Sydney NSW 2001 (Att: Mr Martin Madden), within 28 days of the date that the notice is first listed on the website; 2. that upon the last of the 28 day periods referred to in paragraphs (a), (b) and (c) above expiring: 1. preparing a schedule of: (A) Noteholders that are corporations that have now been deregistered; and (B) in the case of other Noteholders, those Noteholders who have informed Mr Madden of their current address (or, where such Noteholders are natural persons who have died, those Noteholders whose legal personal representative(s) has or have informed Mr Madden of their current address and provided a copy of a grant of probate of the deceased Noteholder's Will or letters of administration in respect of the deceased's Noteholder's estate or such other information to satisfy Mr Madden of his, her or their entitlement to act on behalf of the deceased's estate); (Schedule), and treating any claim by any other Noteholder in relation to the assets, property and undertaking of the Company as having been abandoned; and 1. making a final distribution, from the Remaining Funds, only to Noteholders who are recorded in the Schedule on the basis of the holding each such Noteholder has in proportion to the total holding of Notes recorded in the Schedule. 1. Direct that if there are any funds returned to Mr Madden or otherwise remaining in the receivership of the Company by no earlier than six months after the distribution of the Remaining Funds in accordance with the direction of the Court in order 1 above, Mr Madden is justified in paying any such balance of the Remaining Funds to the NSW Trustee and Guardian in accordance with s 47 of the Trustee Act 1925 (NSW) and without further order of the Court. 2. Order that the Plaintiff's costs of the proceedings be costs of the receivership of the Company and be paid on the trustee basis.

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. Decision last updated: 11 April 2019