Corporations Act 2001 (Cth), s 420

D'Souza (as trustees for the D'Souza Family Trust) v Aaronisle Pty Ltd [2003] WASC 111

United Builders Pty Ltd v Mutual Acceptance Ltd [1980] HCA 43; (1980) 144 CLR 673

1 ROBERTS-SMITH J: This matter comes before me now as an application by the plaintiffs for an order that a receiver and manager be appointed in respect of the partnership which existed between them and the defendants and the deceased Stanley George Groves.

2 The action itself was commenced by writ of summons filed on 27 February 2004 in which the application for a dissolution of the partnership formally was made and for a taking of accounts.

3 There were a number of interlocutory applications or appearances, mostly to do with a chamber summons or rather a motion for an interim injunction also lodged on 27 February 2004 by the plaintiffs seeking interlocutory injunctions as to the conduct of the partnership business. It is, I think, presently unnecessary for me to detail what was there sought.

4 A number of affidavits have been filed in the proceedings. There is an affidavit of Kenneth Graham Groves in support of the application for the interlocutory injunction, that being filed on 3 March 2004 and a short affidavit of Murray Stanley Groves in which he was seeking an adjournment of that application so as to better be in a position to file an affidavit opposing it.

5 There was a subsequent affidavit from Murray Groves filed on 18 March 2004 in which he did set out in rather more detail the circumstances of the partnership and responded to the affidavit of Kenneth Groves and finally to that point there was an affidavit of their mother Hilda Mary Groves filed on 18 March 2004.

6 All of that material essentially went to the application for the interlocutory injunction but as I say, what comes before me today is the application for the appointment of a receiver and manager and there is a further affidavit from Kenneth Groves sworn 2 April 2004 in support of that.

7 The background to the matter, set out somewhat briefly, is that the partnership was formed in May 1965 by Stanley Groves, by his wife Hilda and by Kenneth Groves. The primary asset of the partnership at that time appears to have been the property known as Springhill in Tambellup which had been owned by members of the family since the start of the last century.

8 The partnership was an oral partnership and consisted of a general agreement to farm at Springhill and share the profit. Springhill, as Kenneth Groves deposes and as I have been told today, is not an asset of the partnership. The property itself was owned by Mr Groves senior and is accordingly part of his estate.

9 Murray Groves, the first defendant, came into the partnership at about 1969. The company Groves Estate Pty Ltd was formed in December 1968 and the shareholders in the company were Mr Groves senior, Mrs Groves and the two Groves brothers. Each of Kenneth and Murray Groves held 10,000 shares in the company, but the shareholding held by Mr Groves senior gave him management and control.

10 A further property of just short of 500 hectares was acquired in November 1971 and that property is known as Yarrum Valley. The partnership began to breed stud merino sheep for sale in about 1976 and since that time the partnership's stud business has substantially expanded and involves the farming activity at both Springhill and Yarrum Valley properties.

11 Murray Groves began to live at Yarrum Valley from about 1980 after his marriage and so assumed principal responsibility for the farming activities there. Kenneth Groves has been a resident at Springhill since his birth and when Murray Groves moved to Yarrum Valley Kenneth Groves became principally responsible for running the farming activities at Springhill.

12 There was a further variation of the partnership agreement in June 1990 when the brothers' wives were admitted into the partnership, they being Barbara Joy Groves as the wife of Kenneth, and Murray Groves' wife Vicki Groves.

13 There were arrangements made between the partners as to the drawings and those arrangements were varied from time to time. About 2001, the partnership leased a further farming property near Ongerup known as Yebwen and that property has been used to raise sheep both stud and commercial and also in relation to share cropping arrangements with other farmers.

14 It appears that Murray Groves has assumed responsibility for the management of farming activities at Yebwen although there is apparently no formal agreement that he do so.

15 The partnership has two principal finance facilities to support its farming activities. The first is an interest-only loan from Rabobank Ltd, according to Kenneth Groves' affidavit in the sum of $625,000, and what is described as a "come-and-go" overdraft facility with Wesfarmers Dalgety Ltd currently standing at about $400,000.

16 I note that the name Wesfarmers Dalgety Ltd has subsequently been changed to Landmark or at least is being managed by Landmark. That is of particular significance in this case and I shall advert to that again in a moment.

17 It appears that for most of the time during the course of the partnership the principal responsibility for the accounts and financial management of it has been with Murray and Vicki Groves. They have also had principal responsibility for overseeing the outgoings of the partnership and maintaining the books and records of it and the preparation of partnership taxation accounts with the assistance of the accountants to the partnership, Vivian Coetsee and Co.

18 The prospect of the dissolution of the partnership has been canvassed between the brothers since at least late 2002 with the object at that stage of each couple farming separately. It appears that really about from that time onwards there have been ongoing and indeed escalating conflicts, most notably about the conduct of the financial affairs of the partnership and there has been an ongoing and escalating dispute as to whether or not there has been adequate disclosure to the plaintiffs of the financial records and accounts, payments and receipts and the like by the first and second defendants.

19 The situation with Landmark was ultimately affected by the inability of the partners to resolve their dispute as to the conduct of the financial affairs of the partnership. The Landmark loan was up for review and by February 2004 Landmark had to, or did at least, write to the parties advising that Landmark was unable to provide an extension of the facilities without the written consent from all partners and Landmark. Their representative, Mr Ian Woods, was of the understanding that the first and second defendants were refusing to give such consent.

20 In any event, as I have indicated to Mr Murray in the course of the hearing today, it seems to me unnecessary for me to consider or detail the evidence in relation to the ongoing disputes between the parties and certainly to the extent of making any determination of who was in the right or who was in the wrong or what precisely had occurred.

21 The salient fact, it seems to me, is that it is patently apparent from the correspondence annexed to the various affidavits and from the affidavits themselves that there have been what have become, it seems to me, intractable disputes between the parties as to these matters, intractable to the extent that it has become, it seems to me, virtually impossible for the partnership to continue to operate in any satisfactory way. I say that, of course, against the background that the partnership as a matter of law, as is agreed by the parties, ceased to exist in effect on the death of Mr Groves senior and the parties were therefore confronted with the situation where they had to either reach agreement to continue with a new partnership as amongst them or to dissolve the partnership which had existed to that point, in the meantime, of course, conducting the business to the benefit of all of them.

22 The situation as it has finally eventuated is that the Landmark facility was extended, first of all to 1 April 2004 and then, as I understand it, through the efforts of the solicitors, to 5 April, to allow a further meeting between the parties to see whether or not agreement could be reached between them.

23 According to Mr Kenneth Groves' affidavit of 2 April that meeting did occur and was attended by all of the surviving partners and their representatives and Mr Woods from Landmark. Agreement was not reached and Mr Woods informed the meeting that the overdraft facility would not be further extended.

24 Kenneth Groves deposes that without the overdraft facility the partnership will not be able to continue to trade and the partners remain in substantial dispute as to how a division of the assets and liabilities of the partnership might best be undertaken.

25 He further deposes that the matter is particularly urgent as the ongoing use of the farming properties needs to be determined shortly to secure future income from them and he gives by way of example that the amount of land to crop at the properties must be decided within about a month, depending on rainfall and if, pending completion of the winding up, the partnership is able to farm the land, seeding must take place by that time or it will not be possible to fully utilise the land for cropping this season.

26 The plaintiffs seek orders appointing Giovanni Murrizio Carrello, an independent official liquidator and court-registered liquidator, as receiver and manager of the business and assets of the partnership to get in the assets of the partnership, wind up its affairs, manage the partnership's assets pending winding up and undertake an investigation and review of the accounts, books and records of the partnership to ascertain any liability on the part of the partners to repay any sums to the partnership and to produce accounts. All of those matters are necessary and appropriate should the order be made.

27 There is no question that there is an entitlement on the part of the plaintiffs to apply to the court for the appointment of a receiver.

28 One of the considerations which to my mind has some significance is that Landmark has indicated that it will be shortly calling up the loan.

29 That being so, there is a real prospect that Landmark will appoint its own receiver/manager in accordance with the authority of its security. Were that to be done it would operate to the disadvantage of the partnership in that notice of the appointment of a financial institution's receiver to recover money by way of security is something which commercially is ordinarily likely to impact adversely on the conduct of a business and the value of it, for obvious reasons.

30 Furthermore, a receiver/manager appointed by a lender is obliged to act primarily in the best interests of the institution or other lender making the appointment, although of course there are fiduciary duties to all concerned.

31 For that reason and the previous reason I have just mentioned, if there is to be the appointment of a receiver it seems to me it would be in the best interests of the surviving partners and the assets of the business generally for it to be a court-appointed receiver rather than one appointed by a lender.

32 Again too, the circumstances seem to me apt for the appointment of a receiver. I was referred by Mr Shepherd to the decision of Parker J in Wedge v Wedge (1994) 12 WAR 489. That, I think, is a useful statement of the circumstances in which such an order has appropriately been made in relation to the conduct of a family farming business.

33 The situation there was not totally dissimilar to that in the present case. As his Honour pointed out at 491, noting that the partnership there had been dissolved, the author of "Lindley & Banks on Partnership", 16th ed, 1990, referred to a quotation from Lord Lindley:

"... whilst if the partnership is already dissolved, the Court usually appoints a receiver, almost as a matter of course."

34 Of course that is not entirely the situation here but, as his Honour observed, the cases cited in "Lindley & Banks on Partnership" at that paragraph generally support that statement of the general rule. His Honour also quoted a statement in Higgins and Fletcher, "The Law of Partnership in Australia and New Zealand", 5th ed 1987 at 301:

"... a receiver will be appointed almost as a matter of course where partnership assets are in danger, the parties are in serious dispute or ..."

35 As his Honour observed in that case there was no apparent risk to the assets there, but the circumstances attending the affairs of the partnership in recent years and of the breakdown of relations between them had brought the case within the category of serious dispute between the parties and that the normal approach therefore was for a receiver to be appointed.

36 It seems to me the circumstances of the present case likewise fall within that category and it is therefore in the interests both of the parties themselves and of the partnership for the order to be made.

37 Given the nature of some of the discussions which have occurred between the parties I would be inclined to express the view in general agreement with what Parker J said in Wedge v Wedge as appears in the final paragraph of his Honour's judgment:

"The better course in the ultimate interests of both parties appears, therefore, to appoint forthwith an independent receiver and manager with freedom to determine the most appropriate method of realising the assets of the partnership, preserving to each partner opportunity to offer by private treaty to purchase the partnership business as a going concern or any asset of the partnership, or to bid or tender for the business or an asset if bids or tenders for the purchase of the partnership business or any asset are invited by the receiver and manager. It will also be appropriate to ensure that the receiver and manager is empowered during the receivership to enable either party to occupy or otherwise utilise part or whole of the property, or to live on the property, and that either party may be engaged by the receiver and manager in the conduct of the partnership business or matters incidental thereto in each case, on such terms as the receiver considers appropriate."

38 As I say, the general thrust of those remarks seem to me apposite to the present case in light of what has transpired between the parties thus far.

39 I am accordingly disposed to grant the application on the basis that the powers to be exercised are those authorised under O 51 of the Rules of the Supreme Court 1971 and s 420 of the Corporations Act. The application for the appointment of a receiver and manager will accordingly be granted.