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[2011] FCA 497
Federal Court of Australia
2011-05-12
Gordon J
Original judgment source is linked above.
Background 1 The plaintiff, Haulton Construction Services Pty Ltd (in liquidation) (ACN 005 774 621) (HCS), was incorporated on or around 17 February 1981. At all relevant times, the directors of HCS have been George Holt and Anthony Weinberg. The shareholders of HCS, as at 11 May 2011, were Toora Park Investments Pty Ltd and Holt and Hoddinott Trading Pty Ltd. On or about 27 July 2009, pursuant to a creditors' voluntary winding up, HCS was wound up and Andrew William Poulter was appointed as a liquidator. I understand that HCS was subsequently wound up in insolvency by members' resolution. 2 On or around 14 May 2009, Haulton Constructions (Aust) Pty Ltd (ACN 137 110 288) (HCA) was incorporated. The sole director and secretary of HCA is Margaret Ellen Jane Hoddinott. The shareholders of HCA as at 11 May 2011 were Ms Hoddinott and Richard Kennedy Llewellyn. It was suggested that Ms Hoddinott of HCA is either married to or in a de facto relationship with Mr Holt, a director of HCS. As at 10 May 2011, they were both directors of Holt and Hoddinott Trading Pty Ltd. I understand that HCA and HCS carried on very similar if not identical businesses. 3 In or around late January 2011, HCA ceased trading. On or around 1 February 2011, HCA sold various company assets and interests for $562,393.92. There is no evidence of to whom these assets were sold, or in what circumstances. 4 By way of application filed on 21 March 2011, HCS sought the winding up of HCA on the grounds of insolvency pursuant to s 459P of the Corporations Act 2001 (Cth) (the Act). This application was lodged following the failure of HCA to comply with a statutory demand made of it by HCS on 16 February 2011. The debt at the time of service of the statutory demand was some $47,768.41, which was comprised of superannuation liabilities assumed by HCA pursuant to a Sale Agreement concluded with HCS on 19 May 2009. The winding up application was returnable on 2 May 2011 at 2:15pm. There is no evidence to suggest that there is any, let alone a genuine dispute, about the existence or amount of this debt. Also at or around this time, Malcolm Howell (a partner at Jirsch Sutherland) formally provided consent to act as liquidator of HCA if appointed by the Court. 5 On 28 April 2011, HCA appointed David Ross and Richard Albarran of Hall Chadwick as joint and several administrators, pursuant to a resolution of Ms Hoddinott. Following this, on or around 2 May 2011, Mr Ross circulated an Initial Report to Creditors to the known creditors of HCA. This report stated that a further report to creditors would be distributed prior to the second creditors' meeting. The first meeting of creditors was scheduled for 10 May at 10:30 am. 6 On 2 May 2011, Mr Poulter's solicitors wrote to Mr Ross, requesting information about (among other things) the nature of the work undertaken by Mr Ross and his firm on behalf of or in relation to HCA. As no response was received, this was followed up by Mr Poulter's solicitors with another letter on 9 May 2011. 7 Also on 2 May, the application for the winding up of HCA came before the Court. The solicitors for Messrs Ross and Albarran sought an adjournment of the hearing of this application. Solicitors for Mr Poulter opposed this on a number of bases, including that HCA was "clearly hopelessly insolvent", no proposal for a Deed of Company Arrangement (DOCA) had been put forward, and there was no evidence that it was in the interest of HCA's creditors to adjourn the application. At this hearing, solicitors for CoInvest Limited (ACN 078 004 785), a creditor owed $27,110.60 by HCA, appeared in support of the application for winding up. Subsequently, the solicitors for CoInvest Limited informed the Court that their client no longer wished to take part in these proceedings. 8 On this day, Registrar Allaway adjourned the further hearing of the application to 12 May 2011 at 2:15pm. HCA was ordered to file and serve any affidavits on which it wanted to rely by 6 May 2011. This was to include evidence of the status of HCA, and any proposal for a DOCA (if relevant). HCS was ordered to file and serve any affidavits in reply by 10 May 2011. Costs were reserved. It was also agreed that the first meeting of HCA's creditors would be held before 12 May. 9 On 3 May 2011, Rocla Pty Ltd, trading as Rocla Pipeline Products, filed a Creditor's Petition against the director of the defendant, Ms Hoddinott, in the Adelaide Registry of the Federal Magistrates' Court. The petition is returnable on 6 June 2011. I understand that Rocla Pty Ltd is a creditor of both HCS and HCA. 10 On 4 May 2011, Mr Poulter wrote to creditors of HCA in his capacity as liquidator of HCS, informing the creditors of HCS's application to have HCA wound up and his opposition to any further adjournment of this hearing. In this letter, Mr Poulter expressed reservations about the ability of Ms Hoddinott to put forward a workable DOCA proposal, and sought the creditors' support for a resolution to be put at the first meeting of creditors that Messrs Ross and Albarran be removed as administrators, and Mr Howell be appointed in their place. 11 On 10 May 2011, the first meeting of HCA's creditors was held. Both Mr Ross and Mr Poulter attended. Mr Ross apparently informed the meeting that he had no information regarding a proposed DOCA, and that he had not investigated whether Ms Hoddinott as director of HCA could propose such an arrangement.
DOCA Proposal 12 Since being appointed in late April 2011, Mr Ross says he has met with Ms Hoddinott and discussed the possibility of a DOCA being proposed to creditors. In his affidavit dated 9 May 2011, Mr Ross claimed he has not yet had enough time to prepare a report as required by s 439A of the Act, and that for this reason he is also not yet able to conclude whether the administration will result in a better return for HCA's creditors and members than would be delivered via a winding up. It is primarily on this basis - and because Mr Ross states that he is not aware of any prejudice that would be caused to HCA's creditors by such an adjournment - that Mr Ross believes it is appropriate to adjourn the hearing of the winding up application until after the second meeting of creditors, which is presently scheduled to take place on 1 June 2011. 13 In relation to the financial position of HCA, Mr Poulter gave evidence that on or about 12 April 2011, when he was permitted to view the balance sheet of HCA, he observed that it owed approximately $136,000 in unpaid superannuation and $850,000 to trade creditors, as well as "many more hundreds of thousands in other liabilities for which [he] was unable to obtain a useful explanation". Further, he stated that HCA's assets were "negligible". As at 2 May 2011, Mr Poulter had not been provided with a DOCA proposal. He believes that HCA is insolvent.
Relevant Principles 14 It is against the background of that evidence that I turn to consider the application for an adjournment of the application to wind up the company under s 440A(2) of the Act. To grant the adjournment, the Court must be satisfied that it is in the interests of the company's creditors for the company to continue under administration, rather than be wound up. It is accepted that if I am so satisfied, then I am obliged to adjourn the hearing of the winding up application. In the present case, that period of adjournment would be for a period of approximately three weeks until after the second meeting of creditors 15 It is not necessary for HCA to prove, as a matter of certainty, that it is in the interests of its creditors for the administration to continue. Instead, it is sufficient that there is "some sound basis" for me being satisfied in that regard: Deputy Commissioner of Taxation v Victory Solutions Proprietary Limited (2010) FCA 491 at [14]. 16 The principles which govern the question of whether a court should be satisfied that an application for adjournment is in the interests of the creditors for the administration to continue have been discussed in a number of cases: see for example Deputy Commissioner of Taxation v WPS Motorsport Proprietary Limited (2009) 71 ACSR 640 at [20] - [23] and Deputy Commissioner of Taxation v KJ Consulting Pty Ltd (Administrators Appointed) [2005] FCA 1827. Put simply, it is for the person seeking the adjournment to satisfy the Court that, in the circumstances of the particular case, it is in the interests of the company's creditors for it to continue under administration, rather than be wound up. 17 The question is whether there is some persuasive evidence to enable the Court to see that the creditors could hope to get more from one form of process than the other: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457. In Waste Recycling and Processing Services of NSW v Local Government Recycling Co-operative [1999] NSWSC 507 at [6] Santow J described it in this way - there must be a " … sufficient possibility, as distinct from mere optimistic speculation, that the deferment was in the interests of creditors". 18 I turn now to consider what is the persuasive evidence to enable me to determine that the creditors could hope to get more from administration than liquidation and to assess whether that hope truly is a sufficient possibility or a mere optimistic speculation. 19 Against the adjournment, there a number of factors. HCA is not trading. There is no suggestion that HCA is able to be revived by trading. The insolvency of HCA is not in dispute. There is no DOCA proposal from the sole shareholder of the company. Indeed, the sole director and shareholder is the subject of a creditor's petition. I accept that it is unlikely that she will be in a position to formulate a proposal for a DOCA. There is nothing to suggest that any third party exists which would fund a DOCA. Finally, there is no doubt that a liquidator has more ability to follow potential breaches of the law by those concerned with HCA than does an administrator. 20 Against those factors is the submission on behalf of the Administrator that the application for winding up should be adjourned to enable some sort of proposal that might provide some of return to creditors to be formulated and put to the second meeting of creditors on 2 June. As Counsel for the administrator put it, it is appropriate to adjourn the application to see what options fall from the administrator. I note that despite being appointed on 28 April, no options have been forthcoming. 21 Taking all of those matters into consideration, the application for adjournment is refused. The administrator has not discharged the onus. He has not satisfied the Court that there is a " … sufficient possibility, as distinct from mere optimistic speculation, that the deferment was in the interests of creditors". In the present case, the administrator's position is mere speculation, not even mere optimistic speculation. 22 The application for adjournment having been refused, I will consider the application for winding up of HCA. I certify that the twenty two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.
Haulton Construction Services Pty Ltd (in liq)
Haulton Constructions