Goodberry Holdings Pty Ltd v Senatore & Ors [2005] ACTSC 141

Supreme Court of the ACT|2005-12-13|Before: Crispin J

3. leave be granted for the parties to make any application for costs and any submissions in support of such an application either orally or in writing.

1. This is an application for an order requiring Mr John Benjamin to comply with an undertaking given in an affidavit sworn on 19 July 2004, by injecting such capital into GB Franchising Australia Pty Ltd, the second respondent in these interlocutory proceedings, as to render it solvent. It is appropriate that I provide a brief account of the circumstances in which the undertaking was given.

2. On 14 July 2004 I heard an urgent application relating to the appointment of administrators of the second respondent, such appointment having been made by a resolution of the directors on the previous day. I made certain orders, including an order that the first respondents be relieved of their statutory obligations as administrators of the second respondent until 20 July 2004, save to the extent that such performance was necessary to preserve the company's business in the interim.

3. The orders were made upon an undertaking given by Mr John Benjamin in his personal capacity to:

"(a) submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and

(b) to pay the compensation referred to in (a) to the person there referred to."

4. On 16 July 2004 an application was made pursuant to sections 440D and 447A of the Corporations Act 2001 (Cwth) for an order that the administration of the second respondent end. The proceedings that had been before me on 14 July 2004 had been adjourned to 19 July 2004, and on the later date an affidavit sworn by Mr Benjamin earlier that day was filed in court. Paragraph 16 of the affidavit contains the undertaking now sought to be enforced. It states:

"16. I agree in my personal capacity to inject such capital into the Second Respondent as will render it solvent in the event that examination of the affairs of the Second Respondent shows it to be insolvent."

5. Mr Benjamin further explained in the affidavit that the applicant, Goodberry Holdings Pty Ltd, had been incorporated for the purpose of restructuring the Goodberry's Group. To achieve this goal, a company named Longreach Holdings Pty Ltd had acquired 67.5% of shares in the applicant, and Goodberry's Australia Pty Ltd had acquired the remaining 32.5% of the shares. Mr Benjamin was the Chief Executive Officer of Longreach Capital Pty Ltd, as well as a director of the applicant. He explained that the second respondent had previously been a wholly owned subsidiary of Goodberry's Australia Pty Ltd, but that in May 2004 the applicant had taken over its management and the employees of Goodberry's Australia Ltd had been transferred to the applicant in March 2004. It had been agreed that all assets of the second respondent be transferred to the applicant, but some had still not been transferred by the 13 July 2004 when the second respondent was put into administration.

6. At the date of swearing the affidavit, the applicant had invested more than $300,000 in the restructure of the Goodberry's Group in order to expand the operation of the business. However, the principal income was derived from franchising and it was the second respondent who was entitled to the benefit of franchise agreements with various franchisee stores. Furthermore, the Goodberry's franchisees had the right to terminate the franchise agreements upon the appointment of a receiver, receiver and manager, liquidator or like official appointed to the whole or any part of the second respondent's business. Hence, in the event that the second respondent remained in administration, the applicant could have lost significant sources of income. In addition, ten employees would have lost their jobs and the franchisees would have become unable to obtain the ingredients necessary to run their businesses. Mr Benjamin expressed the opinion that the continued administration of the second respondent would have resulted in "irreparable damage" to the applicant. It was in this context that he gave the undertaking that the first respondents now seek to enforce.

7. I relied, inter alia, upon the evidence contained in the affidavit and the undertaking, and ordered that the administration of the second respondent end forthwith, but that Messrs Senatore and Brennan be appointed as interim administrators for the purpose of restructuring of the company as foreshadowed in Mr Benjamin's affidavit.

8. On 19 August 2004 I ordered that the interim administration end immediately and that the remuneration of the administrators, including any legal costs incurred in these proceedings, to be paid by the second respondent. On 11 October 2004 a notice of motion was filed on behalf of the first respondents seeking to have their remuneration fixed in accordance with section 449E of the Corporations Act 2001. On 2 November 2004 I made an order that their remuneration be fixed in the sum of $58,315.57.

9. The present application was made by notice of motion filed on 17 June 2005.

10. Mr Nicol, who appeared on behalf of the first respondents, submitted that the undertaking made by Mr Benjamin in his affidavit clearly extends to the payment of the costs of the administrators and it is appropriate for me to make the orders sought. There is evidence that a statutory demand for payment of the amount in question has been served upon the second respondent but that to date it remains unpaid. In these circumstances Mr Nicol submitted that there is a presumption of insolvency and, if that be the case, it is appropriate that I make an order requiring Mr Benjamin to inject sufficient funds to render the company solvent so that the first respondents will be paid the amounts due to them.

11. Mr Pappas, who appears for Mr Benjamin by leave, resisted the application on a number of grounds.

12. Firstly, he submitted that it is clear from the context in which the undertaking was given that it was never intended to extend to a situation of this kind. Mr Pappas pointed out that the affidavit which contained the undertaking had an annexure containing a statement of assets and liabilities and that it could be seen from that statement that Mr Benjamin had been asserting that the company was not insolvent at all. In this context, Mr Pappas submitted that the undertaking should be construed to mean only that if, notwithstanding Mr Benjamin's view to the contrary, the Court found that as at 19 July 2004 when the affidavit was sworn the company had been insolvent, then Mr Benjamin would inject sufficient funds to make such an adjustment as was necessary to render the company solvent as at that time.

13. I must say that I am unable to accept that submission for a number of reasons.

14. An undertaking given to the court in the context of an application for relief is almost invariably put forward as a means of assuring the court that if the relief sought is granted, third parties who might otherwise suffer loss as a consequence of that relief will be duly protected. It seems quite clear from the affidavit of Mr Benjamin that the undertaking was being given for precisely that purpose. The earlier undertaking clearly had a continuing effect, and it was never suggested that the second undertaking contained in an affidavit sworn only five days later would be more limited in its scope. In addition, the subsequent undertaking was given in the context of an application made by a company of which he was a director to ensure that the restructuring program would continue in the future. It was also given in the knowledge that the administrators might well have already incurred costs in facilitating that restructuring, and presumably in the knowledge that further costs might be incurred in the future. It should also be noted that the undertaking was, in its terms, expressed to operate in the future. It was an undertaking to inject such capital as "will render" the relevant company solvent.

15. Secondly, Mr Pappas submitted that it was important to bear in mind the circumstances in which the undertaking had become operative. The undertaking was expressed to operate "in the event that examination of the affairs of the Second Respondent shows it to be insolvent". Mr Pappas submitted that this has never occurred. Even if a presumption could arise against the company by reason of its failure to comply with a statutory demand, such a presumption could not be relied upon against Mr Benjamin, who was, of course, a third party. Mr Pappas also pointed out that whilst Mr Brennan had deposed to the fact that he and his fellow administrator had formed the view that the company was insolvent or likely to become insolvent, neither had expressed a concluded view that it had actually been insolvent. I accept Mr Pappas' submission that the evidence does not support a finding as against Mr Benjamin that the company is insolvent, though, for reasons that I will come to, this conclusion will not ultimately affect the outcome of the application.

16. Thirdly, Mr Pappas submitted that, in any event, the order made on 2 November 2004 for the payment of remuneration had been in error because the order had been made in relation to a company referred to as Goodberry's Financing Australia Pty Ltd, rather than Goodberry's Franchising Pty Ltd. Mr Pappas submitted that this error could not be cured by the application of the slip rule. However, I accept Mr Nicol's submission that the matter can be cured by the slip rule which can be applied in any case in which a judgment does not represent the true intention of the court at the time the judgment was made. It was clearly my intention that the judgment refer to Goodberry's Franchising Australia Pty Ltd and the correct ACN number for that company has been quoted.

17. Fourthly, Mr Pappas submitted that the error would have the effect of preventing any reliance upon any deemed insolvency because the notice of statutory demand would have been founded upon an order that was in error at the time the statutory demand was framed. I do not accept this submission. It is clear as a matter of law that amendments made under the slip rule operate from the date of the original judgment or order in question. See Elyard Corp Pty Ltd v DDB Needham Sydney Pty Ltd ( 1995) 133 ALR 206. There has, I understand, been no application to set aside the statutory demand, and it does not seem to me that the validity of the demand can be raised in this court by Mr Benjamin, as he is still only a third party.

18. Fifthly, Mr Pappas submitted that the remedy sought by the first respondent was inappropriate. He maintained that the appropriate remedy for failure to comply with an undertaking was an application for an order requiring the defaulting party to show cause why he or she should not be dealt with for contempt. Whilst I accept an undertaking can be enforced by contempt proceedings, it does not seem to me that the court's jurisdiction is limited to providing a remedy of that nature.

19. In my opinion, the undertaking should not be understood as applicable only to the time when the undertaking was given or at the time when the orders were made. The undertaking was not in its terms so limited. Furthermore, as I have mentioned, the undertaking was given in the context of an expressed anxiety so as to avoid irreparable damage to the applicant and to facilitate the restructuring of the Goodberry's Group. The order made on 19 July 2004 appointing the first respondents as interim administrators for that purpose was made on the application of the applicant and in the presence of Mr Benjamin.

20. In these circumstances I accept Mr Nicol's submission that the undertaking has a more extensive application than that for which Mr Pappas contends. If the second respondent is insolvent, then the undertaking requires Mr Benjamin to inject sufficient funds to make it solvent and enable it to pay the costs incurred by the interim administrators.

21. It seems to me that the real difficulty facing the applicant is that it has not been demonstrated that the company was or is insolvent and, even if that problem could be overcome by the presumption to which I have referred, it would still not be possible to determine the extent of the insolvency.

22. Mr Nicol understandably submitted that it would be an inconvenient and expensive exercise to wind up the company merely for the purpose of ascertaining the extent of its insolvency. That is obviously true. He argued that in those circumstances the appropriate solution would be to order Mr Benjamin to pay to the company whatever amount is necessary to make it solvent and permit payment to the first respondents. However, an order to that effect would be no more precise and no more readily enforceable than the undertaking that has already been given. Accordingly, no matter how inconvenient the alternative may be, it seems to me that I should not make any order against Mr Benjamin at this stage, though his contingent liability pursuant to the undertaking will of course remain.

23. For these reasons, I dismiss the present application but order, pursuant to the slip rule, that the order made on 2 November 2004 be amended by deleting the name "Goodberry's Financing Australia Pty Ltd", and in lieu of those words the name "GB Franchising Australia Pty Ltd", be inserted.

24. I reserve the question of costs and grant leave for any application and any submissions in support of such application to be made either orally or in writing.

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Counsel for the respondent (Mr Benjamin): Mr J Pappas

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