Handburg (in his capacity as liquidator of S & D International Pty Ltd) v MIG Property Services Pty Ltd

Judgment 1By Originating Process filed on 28 May 2013, the plaintiffs, Manfred Holzman and Justin Holzman as liquidators of Accommodation Clearing House Pty Limited ("Company") initially sought orders under ss 511, 600G and 1322(4) of the Corporations Act 2001 (Cth) that they be authorised to provide notice of a meeting required under s 497(2) of the Corporations Act and documents required under s 497(2)(b) of the Act to two classes of creditors, defined as "Hotel Creditors" and "Customer Creditors" by sending an email to email addresses of those persons containing an internet link to a website on which that notice and other documents would be published. The plaintiffs also sought orders that all further notices, reports or communications to be provided to those persons may be given in the same manner. The plaintiffs subsequently amended the orders with effect that they would send notification of the relevant meeting in the manner provided by s 497(2) to Other Creditors (as defined) and Hotel Creditors and Customer Creditors (as defined) to the extent that their claims exceeded $5000, and otherwise by electronic means. 2The liquidators have been appointed in a voluntary winding-up of the Company. In that situation, s 497(1) of the Corporations Act relevantly provides for them to cause a meeting of creditors to be convened within 11 days after the date of the company meeting at which the resolution for voluntary winding-up was passed. Section 497(2) requires that creditors must be sent a notice of that meeting, containing specified information, and that the plaintiffs publish specified information. Section 600G allows electronic notification to creditors under that section, but only where the recipient has nominated an electronic address by which the recipient may be notified of such documents. 3The liquidators face a substantial practical difficulty indicated in Mr Manfred Holzman's affidavit sworn 27 May 2013. The Company resolved that it be wound up voluntarily at a general meeting held on 21 May 2013. The Company had operated an internet-based hotel booking facility, which involved accepting payments of a deposit from customers, and on occasion payment of accommodation amounts in full at the time of booking. The Company had arrangements with accommodation providers to remit moneys received, less commission, after customers had completed their stay at the relevant hotel. 4Mr Holzman's evidence is that the Company has creditors ("Prepaid Creditors") who have paid in full for accommodation bookings which are not likely to be honoured where moneys have not been remitted by the Company to the hotels, and nearly 4,000 customers fall in this category with claims totalling approximately $2.5 million with the largest being 181 claims over $1500. Another 2,800 creditors ("Deposit Creditors") have paid deposits in respect of stays which may or may not be honoured by hotels and their claims total approximately $162,000, with 2,467 claims of up to $100 (averaging approximately $44 per claim) and 333 claims over $100 (averaging approximately $160). Some 1,235 hotels are in turn owed over $1.7 million, with 50 claims in the region of $5,000 to $10,000 and 21 claims exceeding $10,000. Finally, there are 20 other creditors, including the Australian Taxation Office, employees, trade creditors and landlords. 5The liquidators have the difficulty that, on their appointment, the Company held funds of approximately $120,000, realisable tangible assets unlikely to realise in excess of $50,000 and intangible assets of unknown value, from which post-liquidation wages of employees and rental must be met. The liquidators have also been advised that the company does not hold postal addresses or fax numbers for customers but only email addresses. They expressed the view that it would not practically be possible to obtain consents under s 600G of the Corporations Act for postal addresses within the time permitted for a first meeting of creditors and that seeking to do so would be costly as well as raising the potential difficulty that many customers would not respond. The plaintiffs have estimated the cost of posting material to hotel creditors, for whom they do hold postal addresses, as in the range of $10,500-$14,000 and expressed the view that it would not be in the best interests of the Company's creditors to incur those costs. 6If the company were in voluntary administration, then these matters would, in my view, very likely support an order under s 447A of the Corporations Act modifying the operation of Part 5.3A of the Act to permit communication with creditors in the manner contemplated by the liquidators: see the cases cited in Re Mothercare Australia Ltd (admins apptd) [2013] NSWSC 263 at [8]-[9]. However, the difficulty facing the present application is that there is no corresponding power for the Court to modify the requirements of s 497 of the Act where a company is placed in voluntary liquidation. Section 600G of the Corporations Act, referred to in the liquidators' originating process, is of no assistance since it provides a mechanism for electronic service where persons have nominated their willingness to accept service of particular documents in that manner. Section 1322(4), on which the liquidators also rely, allows the Court to declare that an act is not invalid by reason of a contravention of or a provision of the Act, but that section in its terms is directed to an act that has already occurred and does not authorise the Court to validate an act in anticipation, however likely it may be that the requirements of that section would be satisfied after that act had occurred so as to permit its retrospective validation. 7Section 511 of the Corporations Act on which the liquidators also rely on the originating process, plainly did not support the initial relief which they sought, which was a variation of the Corporations Act in the manner permitted by s 447A in respect of a voluntary administration, because s 511 is not a power for the Court to vary the operation of the legislation. An alternative basis for the liquidators' application arose in the course of submissions, namely that the liquidators could potentially be provided a direction that they provide notice in the manner contemplated. The principles applicable to an application for such a direction were reviewed by Ward J in Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91 and I gratefully adopt her Honour's summary of the relevant principles. Applications made under that section in a voluntary winding-up are determined in a similar manner to applications in a court-ordered winding-up under s 479(3) of the Corporations Act, notwithstanding that the section does not expressly require that it be "just and beneficial" to give the relevant direction. The Court may give such a direction where it will be "of advantage in the liquidation": Dean-Willcocks Re Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handburg (in his capacity as liquidator of S & D International Pty Ltd) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]. The effect of a determination under the section is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty: S & D International at [7]. However, a limitation to that section, for the purposes of this application, is that it nonetheless does not validate the course that is taken. 8Ms Shepard, who appears for the liquidators, draws attention to the width of the power under section 511, recently emphasised by Davies J in Re Willmott Forests Ltd (recs and mgrs apptd) (in liq) (2012) 88 ACSR 18. She rightly notes that the purpose of the section is to assist liquidators in the proper performance and discharge of their statutory functions and duties and that the Court may accede to such an application where it is just and beneficial for it to do so. Ms Shepard also acknowledges that she has found no authority in which the Court has made a direction, either under s 479(3) of the Corporations Act or s 511, sanctioning, in advance, conduct which did not comply with apparently mandatory requirements of the Corporations Act. I have also found no such authority, although the extent of possible searches has been confined to some extent by the urgency of the application. 9I have, with some regret, formed the view that the Court should not exercise its discretion to make the direction sought. The problem which the liquidators now face was, on one view, avoidable by an inquiry, prior to their appointment, as to the company's assets and liabilities, and would not have arisen had the company been placed in administration so as to obtain access to the wider range of powers conferred on the Court under s 447A of the Corporations Act. In that situation, I do not think that I can be satisfied that it is of advantage to the liquidation to give a direction which authorises an act which is not, in terms, in compliance with s 497 of the Corporations Act. It may well be that the only practical course, given the position in which the liquidators find themselves, is to take the course which the liquidators propose. However, it would be a substantial step for the Court to approve, in advance, a course that is noncompliant with the Corporations Act, only because it is the only course that is practical at a particular point in time, where other options would previously have been available to avoid that result. 10In these circumstances, it seems to me to be preferable to leave the liquidators to exercise their commercial judgment as to the steps which they should take, in the circumstances in which they find themselves. Nothing which I have said should be taken to suggest that the course which they propose is not, on its face, a practically sensible approach. It should also be recognised that s 1322 of the Corporations Act may be available to them to allow the acts which they in fact take to be declared not to be invalid by reason of any contravention of the Act, where the Court is satisfied that, inter alia, they have acted honestly in that regard or that it is just and equitable that such an order be made. The wide and remedial character of that section has been emphasised in the case law: see the authorities cited at Austin and Black's Annotations to the Corporations Act [9.1322] and the recent decision of the High Court of Australia in Weinstock v Beck [2013] HCA 14; (2013) 93 ACSR 231. The majority view expressed by the cases is that relief is available under that section even where an act is undertaken intentionally rather than inadvertently, and that view seems to me to be consistent with the terms of s 1322(6), which allow relief so long as it can be said that the contravention was honest, even if not inadvertent, or that it is in any event just and equitable that the order should be made. It will be open to the liquidators to bring such application under this section as they consider appropriate, having given such notice of the meeting and taken such steps as they consider can reasonably be undertaken in the relevant circumstances. Accordingly, and again with some regret, I consider that the only order I can presently make is that the originating process should be dismissed. 11I have also listed the matter for any further application by the liquidators under s 1322 of the Corporations Act to be made returnable at 10am on 7 June 2013.