Grocon Constructors Pty Ltd v Kimberley Securities Ltd

DECISION : Winding up and other orders made as foreshadowed.

CATCHWORDS : CORPORATIONS - winding up - whether winding up order should be deferred or stayed - where company to be wound up is one of several defendants in other proceedings brought by present plaintiff - hearing of those proceedings to begin in two weeks - fear that need for leave to proceed against defendant in liquidation might cause hearing dates to be lost - insufficient basis for deferral or stay - choice of liquidator - various considerations discussed

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 447A(1), 459A, 513C, 600A(2)(a), 600A(2)(d)

Grocon Constructors Pty Limited - Plaintiff Kimberley Securities Limited - First Defendant John Vouris - Second Defendant PARTIES : Warren Pantzer - Third Defendant Lohemi Pty Limited - Fourth Defendant Gabriel Michael Lorentz - Fifth Defendant Nathan Stoliar - Sixth Defendant Building Insurers' Guarantee Corporation - Supporting Creditor

Mr J B Simpkins SC - Plaintiff COUNSEL : Mr T M Jucovic/Mr F G Kalyk - First, Fourth, Fifth and Sixth Defendants Ms E A Collins - Second and Third Defendants Mr D Curry, Solicitor - Supporting Creditor

Cosoff Cudmore Knox - Plaintiff SOLICITORS : Osborne & Associates - First, Fourth, Fifth and Sixth Defendants Addisons - Second and Third Defendants Mills Oakey Lawyers - Supporting Creditor

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

2199/09 GROCON CONSTRUCTORS PTY LIMITED v KIMBERLEY SECURITIES LIMITED (ADMINISTRATORS APPOINTED) JUDGMENT 1 In the judgment published on 16 June 2009, I stated that four orders would be made, being an order setting aside the resolution of creditors determining that the first defendant ("Kimberley") should execute a deed of company arrangement, an order terminating that deed of company arrangement, an order that Kimberley be wound up and an order appointing a liquidator of Kimberley. 2 It is submitted on behalf of Kimberley that the making of these orders should be deferred until 27 July 2009 or, if the orders are made now, that they should be stayed until that date. Kimberley, through its counsel, has indicated that, in the intervening period, it would not plead the deed of company arrangement or any rights or limitations arising under it in answer to claims of the plaintiff ("Grocon") in certain other proceedings now pending in the Commercial List; nor would it, without the leave of the court, dispose of any of its assets. 3 The pendency of the Commercial List proceedings lies at the heart of Kimberley's desire to see the making of orders deferred until 27 July or alternatively that any orders now made be stayed until that date. 4 The proceedings in question are due to be heard by Hammerschlag J over a period of three weeks commencing on 6 July 2009. I am told that earlier hearing dates have had to be vacated. There is a desire to keep to the allocated hearing dates. That is understandable.

5 In the Commercial List proceedings, Kimberley is one of several defendants. Grocon is the plaintiff. Kimberley is subject, in essence, to two claims by Grocon. The first is what one might term a contingent claim for misleading or deceptive conduct involving a sum of the order of $24 million. Kimberley's interest in that aspect of the proceedings is said to coincide with the interests of its associated entity Selwan and its director Mr Stoliar and perhaps other parties to the commercial proceedings who are aligned with Kimberley. It is said that those other defendants will effectively put Kimberley's case, in that the contingent liability of Kimberley will become absolute only if those other parties are unsuccessful in resisting the claims brought against them. In that sense, it is said, there is a de facto position in which Kimberley's actual involvement as regards to $24 million aspect will be taken care of by others. 6 There is a second aspect of the Commercial List proceedings. It involves Kimberley alone and entails a claim by Grocon against Kimberley of the order of $1.2 million which, I am told, is agreed as being appropriate for separate and subsequent determination. That aspect will therefore not be included in the three week hearing scheduled to commence on 6 July. 7 It is in order to allow the Commercial List proceedings to go ahead without complication that it is said by Kimberley that the orders arising from the judgment of 16 June should not at this point be made or, if made, should be stayed. The main foreseen complication, of course, would be that a winding up order and the appointment of a liquidator would give rise to a stay of the claims against Kimberley unless and until the court had granted the species of the leave to proceed that is necessary in respect of a claim against a company in liquidation. 8 Inevitably and properly, the liquidator would be heard on any application for leave to proceed. Indeed, it is virtually unthinkable that the court would determine an application for leave to proceed in the absence of either submissions on the part of the liquidator or a clear indication that the liquidator did not wish to be heard. 9 The fear is that the Commercial List proceedings are of such complexity that it would take time for a liquidator to formulate an attitude and this might mean that the hearing dates were lost. 10 A possibility that has been canvassed is that leave to proceed against Kimberley in liquidation might in fact not be sought and that that Grocon, as plaintiff in the Commercial List proceedings, may see fit to adopt a course under which it pursues, as against Selwan and Mr Stoliar and perhaps others to the exclusion of Kimberley, the principal claims upon the outcome of which any liability of Kimberley will be dependent. That, I suppose, might be an approach that commends itself to Grocon so that Kimberley is not proceeded against in the Commercial List and Grocon, if it obtains there a judgment that implicates Kimberley, then decides simply to lodge a proof of debt in the winding up of Kimberley in respect of Kimberley's liability so crystallised. 11 Of course, I have no way of knowing what approach Grocon in fact will take and in the first instance, one might be inclined to expect that it would seek leave to proceed so that the Commercial List proceedings could continue as they have begun without any significant reconfiguration. However, I am speculating. 12 Mr Jucovic made, on behalf of Kimberley and in support of the proposition that there should be delay in the making of the orders or a stay of them, the point that an emphasis was placed in the judgment of 16 June 2009 on investigations that a liquidator of Kimberley could be expected to make about transactions involving its associated entities, Opportune Pty Ltd and Lohemi Pty Ltd. Mr Jucovic says that a short delay in commencement of those investigations by a liquidator will not be detrimental. Given the period that is envisaged, that must be so. 13 There is, however, a reality here that must be clearly recognised. Kimberley is an insolvent company. Insolvent companies should be wound up. Their affairs should be placed without delay under the control of a liquidator so that the liquidator can put in train the form of administration that is appropriately instituted for the protection of creditors. Insolvent companies should not trade. Insolvent companies should not incur debts. If they do, their directors can suffer seriously adverse consequences. 14 I raised in the course of this morning's hearing the question whether Kimberley would be incurring debts in its defence of the Commercial List proceedings under the regime for which it now contends. I was told that it would not; and that I should infer that other parties having a common interest with Kimberley would incur all relevant debts. From the point of view of self-protection, the directors of Kimberley might make arrangements to that effect. On the other hand they may not. We do not know. This simply reinforces the point that, where it is established to the court that a company is insolvent, then a winding up order should be made without delay. 15 I propose to make the winding up order now. I do not propose to stay it. To the extent that that causes inconvenience in relation to the Commercial List proceedings, then the parties will have to deal with those matters as best they can. The pendency of those proceedings is not of itself in any way a sufficient reason to defer the imposition in relation to Kimberley of the form of administration that the court has found to be necessary. 16 There is an added element to the stay application. A stay is sought "upon Kimberley's undertaking that it will with reasonable expedition, but not later than the time permitted by the rules, if so advised, file any notice of appeal against the decision in these proceedings". 17 Mr Simpkins makes the point that a stay pending appeal or an application for leave to appeal, if that is the appropriate course, should only be granted according to established principles. According to those principles, it has to be shown, in particular, that there is some arguable ground of appeal or serious question to be agitated on appeal, or perhaps even substantial prospects on appeal. 18 Mr Jucovic has said quite frankly that Kimberley is not yet at a point where it can put forward any such matter. Of course, that may change with time and a basis for a stay pending appeal or an application for leave to appeal may emerge. If that is so in due course, then an application for a stay can be made to the Court of Appeal. 19 There is disagreement as to who should be appointed liquidator of Kimberley. Grocon, as plaintiff, has tendered the consent of Mr Sheahan. Mr Sheahan's appointment is supported by Building Insurers' Guarantee Corporation, the supporting creditor which appeared on the hearing of the proceedings. Building Insurers' Guarantee Corporation also says, however that if, for any reason, the court does not see fit to appoint Mr Sheahan, then it would be content to see Mr Hird and Mr Malanos appointed. Their consent has also been produced to the Court. 20 Ms Collins who appears for the administrators of the deed of company arrangement, Mr Vouris and Mr Pantzer, has tendered a consent of Mr Vouris, noting that Mr Pantzer is overseas and that it has not been possible to approach him with respect to the giving of a consent. Ms Collins makes the point that Mr Vouris is, by dint of work done in the course of the voluntary administration and since the adoption of the deed of company arrangement, in a position of some familiarity with the affairs of Kimberley - a position not occupied by any of the other nominees. 21 In the ordinary course of events, the court's practice in winding up cases is to appoint the nominee of the plaintiff, assuming that no good reason is shown for departing from that course. Kimberley's submission in relation to Mr Sheahan, Grocon's nominee, is that there is an unusual dimension to this case in that Grocon is the plaintiff in the Commercial List proceedings and therefore has an interest that is absent in the generally of cases. If Mr Sheahan were appointed, it is said, the position would be one in which Kimberley's attitude in relation to the Commercial List proceedings was shaped and its conduct was determined by a liquidator in whose installation the plaintiff in those very proceedings had played a significant part. 22 I am of the opinion that it is best to avoid any hint of controversy in matters of this kind. There is no evidence to suggest that Mr Sheahan would proceed otherwise than in an entirely objective and proper manner if he were appointed liquidator. But the factor to which Kimberley points is one that could be productive of controversy and, all things being equal, it is better therefore to avoid an appointment of Mr Sheahan. 23 As to Mr Vouris, there is merit in the suggestion that his existing knowledge represents an advantage. But it may well be that there are disadvantages accruing from his prior involvement. The administrators in making their reports to the creditors investigated a number of matters. In particular, they came to some conclusions about the Lohemi security and stated their conclusions in the reports they produced. That particular matter and others of which Mr Vouris and Mr Pantzer are cognisant will arise for fresh consideration by a liquidator. The prior knowledge might turn out to be a more of a hindrance than a help when it comes to the point. 24 In the result, therefore, the most desirable course is the middle course of appointing Mr Hird and Mr Malanos whose consent has being furnished by the Building Insurers' Guarantee Corporation and in respect of whom no matter of difficulty is raised.

[Discussion ensued on the form of the orders to be made] 25 The orders I now make are: 1. That, pursuant to sections 447A(1), 459A and 600A(2)(d) of the Corporations Act 2001 (Cth), Kimberley Securities Limited ACN 000 815 476 ('Kimberley Securities Limited') be wound up in insolvency. 2. That Michael Hird and Nicholas Malanos of Level 34, 60 Margaret Street Sydney be appointed as liquidators of Kimberley Securities Limited. 3. That the winding up of Kimberley Securities Limited be taken to have begun or commenced on 19 December 2008 being the section 513C day in relation to the administration of Kimberley Securities Limited. 3A. That, pursuant to section 600A(2)(a) of the Corporations Act 2001 (Cth), the resolution of creditors of Kimberley Securities Limited of 30 March 2009 for the execution of a deed of company arrangement be set aside. 4. That, pursuant to sections 445D(1), 447A(1) and 600A(2)(d) of the Corporations Act 2001 (Cth), the deed of company arrangement made 21 April 2009 between Kimberley Securities Limited, Lohemi Pty Limited ACN 001 881 170, Gabriel Michael Lorentz, Nathan Stoliar, John Vouris and and Warren Pantzer be terminated. 5. The question of costs is reserved for later argument. **********

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