Griffin Energy Group Pty Ltd v Griffin Windfarm Holdings Pty Ltd, in the matter of Griffin Energy Group Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 327 of 2012

IN THE MATTER OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696 BETWEEN: GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696

BRIAN KEITH MCMASTER, SCOTT BRADLEY KERSHAW, CLIFFORD STUART ROCKE EACH IN HIS CAPACITY AS DEED ADMINISTRATOR OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696

AND: GRIFFIN WINDFARM HOLDINGS PTY LTD ACN 114 937 076

JUDGE: JACOBSON J DATE: 2 MARCH 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 I have before me this morning an application for the appointment of provisional liquidators of Griffin Windfarm Holdings Pty Ltd (the "Company"). The application is made under s 472(2) of the Corporations Act 2001 (Cth) (the "Act") in an interlocutory process filed on 29 February 2012. 2 An originating process seeking an order pursuant to s 461(1)(a) of the Act was also filed on 29 February 2012. 3 The facts which are relied upon by the plaintiffs are set out in an affidavit of Mr Scott Bradley Kershaw who is one of the administrators. 4 The second plaintiff, Griffin Energy Group Pty Ltd ("GEG") is the sole shareholder of the Company. It is also a creditor of the Company in an amount of slightly in excess of $1.176 million. 5 The Company's principal asset is land at 101 Boys Home Road, Collie, Western Australia. GEG is also the sole shareholder of Griffin Power Pty Ltd and Griffin Power 2 Pty Ltd (together described as "Griffin Power"). Griffin Power has a lease from the Company of part of lot 101 from which it operates a number of power stations. 6 On 15 February 2012 Mr Kershaw met with a director of the Company called Mr Graeme Croot. There appears to be a dispute as to precisely what was said at the meeting. Mr Kershaw says that Mr Croot told him there was a draft contract for the sale of lot 101 made between the Company and two other companies, namely Devereaux Holdings Pty Ltd ("Devereaux") and W R Carpenter Agriculture Pty Ltd ("WRCA"). 7 It appears from what I have been told today that Mr Croot contends that he told Mr Kershaw at the meeting on 15 February 2012 that the contract had, in fact, been executed. If that is the position there is an executory contract on foot for the sale of lot 101 by the Company to Devereaux and WRCA. 8 What is important in the present application is that on 22 February 2012, Mr Kershaw received an email from Mr Croot attaching a written proposal for a settlement of outstanding debts owed by the Company Devereaux and WRCA. 9 The settlement which was proposed was for the sale by the Company to Devereaux and WRCA of the property at lot 101. In particular, what was set out in the letter of 22 February indicates that Devereaux and WRCA would purchase the property at lot 101 for a consideration which amounts to full satisfaction of the sums owing by the Company to Devereaux and WRCA. 10 The Company's liabilities appear to be comprised principally of debts owed to Devereaux, WRCA, and GEG. The total amounts owing to Devereaux and WRCA are approximately $23 million. The amount owing to GEG is, as I have said, slightly in excess of $1.176 million. Accordingly, the Company has creditors of at least $24 million. 11 The Company's current assets comprise the property at lot 101, another property described in the affidavit as lot 3 Collie-Williams Road (which is under a contract for $600,000) and cash of $419,000. 12 There is evidence of two competing valuations of lot 101. The valuation obtained by the persons who were at that time directors of the Company show a valuation of approximately $14.5 million, but there is evidence of another valuation of lot 101 for an amount of slightly in excess of $19 million. However, on any view of the financial position of the Company the liabilities exceed its assets. 13 A matter which is also of considerable significance in the present application is that there are, or at least were until recently, common directors of the Company, Devereaux and WRCA. This is because Mr Robert Frederick Stowe, Mr Robert Lyle Crossman, and Mr Graeme Croot were directors of the Company, and Mr Stowe and Mr Crossman are also directors of Devereaux and WRCA. 14 Mr Kershaw observes in his affidavit that given the difference in the two valuations of lot 1 and the common directorships of the Company and the purchasers, namely Devereaux and WRCA, as well as the fact that there appears to have been no marketing or sales campaigns, Mr Kershaw has concerns that the sale is not being conducted at arm's length or that the price represents fair market value for the property. 15 The circumstances put before me today also suggest that the contract for lot 101 may well amount to a preferential transaction which would be able to be set aside on winding up of the Company. 16 On 29 February 2012 Mr Kershaw signed, on behalf of GEG as the sole member of the Company, a written resolution of the Company pursuant to s 248B of the Act and clause 51 of the Company's Constitution. The resolution purported to remove the three existing directors of the Company, Mr Stowe, Mr Crossman, and Mr Croot. It also provided in resolution number 5 that the Company be wound up by the Court. That resolution was a resolution in accordance with s 461(1)(a) of the Act. 17 Mr Bender, who appears this morning for the plaintiffs, relies in particular upon the strength of the case which would be made out for final relief under that section. He points to the very limited nature of the discretion to refuse an order under s 461(1)(a) as described by Barrett J in Hillig v Darkinjung Local Aboriginal Land Council (2006) NSWSC 1371 at [35]; see also Re Kala Capital Pty Ltd (2011) NSWSC 1253 at [5] to [8]. 18 It seems to me that the circumstances described above point to the strong prospects for relief. Indeed, the parties who may be thought to be principally affected, namely Devereaux and WRCA, have indicated that they do not wish to be heard on the present application. Also, all of the affected parties have been notified and do not seek to be heard in opposition to the relief sought this morning. 19 Here, not only am I satisfied that the matter falls within the principles referred to by Barrett J, but I see no reason, in accordance with the three considerations to which he referred, why had it not been for the failure of the Company to advertise the relief sought in the originating process a final order would not have been made today. 20 Moreover, the resolution of 29 February purporting to remove all of the directors creates a further reason why a provisional liquidator ought to be appointed. Either the resolution was effective, in which case there are no directors of the Company, there was a failure to comply with s 201A of the Act, or alternatively, the position would be that the resolution was ineffective. In either case there is a good reason why the Company's affairs should be placed in the hands of a provisional liquidator whose obligations are to preserve the status quo pending the final hearing. 21 Mr Bender asks me to make the appointment without taking the usual undertaking as to damages. He points out that this is only one of the considerations to be factored into the exercise of the discretion. It appears from what I have been told this morning that the appointment of a provisional liquidator is not an event of default under the contract of the sale of lot 101. 22 Mr Bender's instructing solicitors are not able to determine whether there would be an event of default under the contract of sale of lot 3. However, bearing in mind the considerations referred to by Austin J in Lubavitch Mazal v Yeshiva Properties No.1 & ors [2003] NSWSC 535 at [108] to [110], it seems to me that this is a case where I do not need in the exercise of the discretion to appoint a provisional liquidator to require the usual undertaking as to damages. 23 I am persuaded that the case for final relief is a sufficiently strong one. The matter will be heard before me in less than two weeks, and as I have said, no interested party has indicated any opposition to the course proposed this morning. Accordingly, I will make orders in terms of paragraphs (1) to (8) as amended by me and I will sign and date the draft order. 24 I will also fix the matter for hearing on 13 March at 10.15. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.