Hawkesbury City Council v Vis Visitor Investment Services Pty Limited

BETWEEN: HAWKESBURY CITY COUNCIL ABN 54 659 038 834

AND: VIS VISITOR INVESTMENT SERVICES PTY LIMITED (IN LIQUIDATION) ACN 050 320 146

JUDGE: YATES J DATE: 25 SEPTEMBER 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application to terminate the winding up of the defendant. The application is made by Marilyn Janice Hooker, who holds 25,000 fully-paid A-class shares in the issued capital of the defendant. Mrs Hooker and her husband, David Price Hooker, are the directors of the defendant. The application is supported by the liquidator, Bruce Gleeson.

The facts 2 A winding up order was made by the Court on 3 July 2013 on the application of the Hawkesbury City Council (the Council). The application was brought under s 459P of the Corporations Act 2001 (Cth) (the Act) and was based on the defendant's failure to comply with a statutory demand. The debt supporting the demand was $77,334.40 representing the assessed costs that the defendant was liable to pay the Council as a result of unsuccessful court proceedings. 3 The defendant owns shares in Hawkesbury Riverside Retreat Limited (Hawkesbury Riverside Retreat). Hawkesbury Riverside Retreat owns land at 78 Greens Road, Lower Portland, New South Wales. The land has 72 sites and 26 boat-shed sites. The defendant owns shares which entitle it to occupy certain of these sites, namely, sites 1 to 19 and sites 68 and 70. Based on a valuation carried out in April 2013, sites 1 to 12 and 14 to 19 have a total value of $850,000. Site 13 is a managers' residence, occupied by Mr and Mrs Hooker, and sites 68 and 70 are two waterfront sites. Mrs Hooker has estimated the managers' residence to be worth approximately $300,000 and the two waterfront sites to be worth $85,000 each. Each of the sites, other than site 12 (an historic cottage) and the two waterfront sites, has development approval. Development applications have been made for the two waterfront sites. The majority of the sites are currently vacant. 4 Mrs Hooker also owns shares in Hawkesbury Riverside Retreat which entitle her to occupy site 24. Mrs Hooker estimates this site to be worth approximately $95,000. 5 The defendant had entered into a management agreement with Hawkesbury Riverside Retreat to provide on-site management, maintenance, and other services for all the sites on the property. The defendant received a management fee for providing these services. The management fee was its primary source of income. However, the management agreement was terminated when the winding up order was made. 6 The Constitution of Hawkesbury Riverside Retreat provides that, if a member fails to pay any contribution for at least 180 days after its due date for payment, Hawkesbury Riverside Retreat may issue a notice to the member demanding payment. The notice must provide the member with a date, not less than 14 days from the date of the notice, by which the contribution must be paid. In the event that the contribution is not then paid, Hawkesbury Riverside Retreat can forfeit the shares associated with the outstanding contribution. The defendant owes Hawkesbury Riverside Retreat $77,019.08 for outstanding contributions. Hawkesbury Riverside Retreat issued a notice of default dated 25 July 2013 in which it stated that the defendant's shares would be forfeited after 21 days from delivery of the notice. Time has been extended under the notice. On 28 August 2013, the solicitors for Hawkesbury Riverside Retreat advised that it would not issue a forfeiture notice in respect of the defendant's shares without giving 30 days' prior notice. 7 The defendant has now organised finance for an amount that will be sufficient to pay out all its creditors, the Council's costs in relation to the winding up application, and Mr Gleeson's remuneration, costs, and expenses as liquidator (including the costs of the present application to terminate the winding up). 8 The proposed loan is a facility with a term of three months. The lender, Nationwide Capital Pty Ltd (Nationwide Capital), will take a mortgage of the defendant's shares in Hawkesbury Riverside Retreat as well as security over the defendant itself. Mr and Mrs Hooker will guarantee the defendant's liability to Nationwide Capital. I was informed by counsel appearing for Mrs Hooker that, in anticipation that an order terminating the winding up might be made, Nationwide Capital has already advanced funds. These funds have been cleared and Mrs Hooker's solicitors have drawn trust account cheques in favour of the defendant's unsecured creditors for the full amount of their current claims. 9 Mrs Hooker has deposed that all Australian Taxation Office lodgements on behalf of the defendant have been made other than an income tax return for the year ended 30 June 2013. It is her understanding that no income tax liability is likely for that year, given previous year losses. 10 If the winding up is terminated, the defendant proposes to sell all its shares in Hawkesbury Riverside Retreat. Mrs Hooker will also sell her shares in respect of site 24 and provide those funds to the defendant to pay interest under the loan, future contributions to Hawkesbury River Retreat, and other expenses of the defendant. 11 Mr Gleeson has listed site 12 with Ray White Windsor for sale. This site is valued at approximately $380,000. An offer of $300,000 has already been received. If the winding up is terminated, there is an expectation that site 12 will be sold and that the funds received from that sale will be used to repay the loan and the future expenses of the company, including its contributions to Hawkesbury Riverside Retreat in respect of sites that remain unsold.

The liquidator's report 12 A report as to affairs has been provided and Mr Gleeson has prepared a report outlining his investigations in relation to the defendant. In that report, Mr Gleeson noted that the defendant's major asset is its shares in Hawkesbury Riverside Retreat. His inquiries have indicated that the estimated value of those shares, based on the formal valuation of the underlying real estate they represent, is conservative, and that the combined value of all the defendant's sites is approximately $1.7 million. Mr Gleeson's report shows that the defendant's assets far exceed its liabilities. 13 The defendant's financial difficulties stem from a judgment obtained against it by Hawkesbury River Retreat for $34,138.78 for unpaid contributions and other costs, and from the Council's assessed costs order. The sites underlying the defendant's shares are unique. There was, apparently, difficulty in selling them in the short term. Further, the defendant was unable to obtain finance to pay its debts. As a result of the defendant's inability to realise funds from either a sale of the sites or the mortgaging of its shares, it was not in a position to pay its debts as and when they fell due. 14 In his report, Mr Gleeson noted that National Australia Bank Limited and Macquarie Bank Limited are listed on the Personal Property Securities Register (the PPSR) as having security interests over the defendant's assets. However, he has been informed by each bank that there are presently no amounts due by the defendant and that each has no claim in the liquidation. Macquarie Bank has now removed its security interest from the PPSR. 15 Mr Gleeson has not identified any reportable offences or breaches of the Act committed by the defendant's officers. 16 Mr Gleeson has raised concerns regarding the length of the loan facility, the interest rate to be charged under it, and the ability of the defendant to service the loan. He has also expressed some concern about the defendant's ability to meet ongoing contributions to Hawkesbury Riverside Retreat. However, he has noted that there currently exists an offer to purchase site 12 for $300,000 and that Mrs Hooker proposes to provide the defendant with funds from the sale of site 24. 17 Mr Gleeson has expressed the view that the Court should consider making an order terminating the winding up. He has said that, while there is some uncertainty regarding the defendant's ability to meet ongoing contributions to Hawkesbury Riverside Retreat as and when they fall due, the current proposal will see all current creditors paid in full with the defendant retaining its shares. Should the winding up not be terminated, it is likely that Hawkesbury Riverside Retreat would forfeit the defendant's shares resulting in the defendant being "helplessly insolvent". Such forfeiture would result in none of the defendant's creditors, apart from Hawkesbury Riverside Retreat, receiving any return whatsoever.

Consideration 18 Section 482(1) of the Act provides: At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order. 19 The power of the Court to terminate a winding up is discretionary. The Court may have regard to a range of factors: Metledge v Bambakit Pty Ltd; Manuel Koutsourais, Applicant [2005] NSWSC 160 at [5]. The relevant considerations in determining whether to stay a winding up were discussed in Re Warbler Pty Ltd (1982) 6 ACLR 526. The considerations discussed also provide useful guidance when considering the termination of a winding up: see, for example, Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 724-725; The King & I Pty Ltd, in the matter of The King & I Pty Ltd [2007] FCA 2085 at [4]; von Risefer v Mainfreight International Pty Ltd (2009) 25 VR 366 at 376; LL Nominees Pty Ltd, in the matter of LL Nominees Pty Ltd [2009] FCA 1144 at [6]-[7]; Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 at [5]; Miller Street Pty Ltd v Porter [2011] FCA 1120 at [17]. As adapted to a case for termination, the considerations are as follows: There is a clear onus on the applicant to make out a positive case. There must be service of notice of the application for a termination on all creditors and contributories, and proof of this. The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged. The attitude of creditors, contributories and the liquidator are relevant considerations. The current trading position and general solvency of the company should be demonstrated. If there has been non-compliance by directors with their statutory duties as to giving information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given. The general background and circumstances which led to the winding up order should be explained. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or "the public interest". 20 So far as future creditors are concerned, an important consideration is whether the proposal for termination preserves existing debt: Re Data Homes Pty. Ltd. (in liq.) and the Companies Act [1972] 2 NSWLR 22 at 27; Mercy & Sons Pty Ltd v Wanari Pty Ltd (subject to deed of company arrangement) (in liq) (2000) 35 ACSR 70 at [47]; Re Nardell Coal Corporation Pty Ltd and Another (2004) 182 FLR 290 at [78]; Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd (in liq) (2006) 57 ACSR 103 at [26] and [37]. 21 I am of the view that it is appropriate that the winding up be terminated. If it is not terminated, then I have no doubt that Hawkesbury Riverside Retreat would move to forfeit the defendant's shares, which represent its only significant asset. If the shares are forfeited then, plainly, all other unsecured creditors would be significantly prejudiced. On the other hand, if the winding up is terminated, all unsecured creditors will be paid in full. 22 Although Mr Gleeson has expressed concern regarding the defendant's ability to meet future liabilities, steps have already been taken to sell at least one parcel of shares in Hawkesbury Riverside Retreat. This has resulted in an offer being made for an amount relatively near its valuation. This affords some confidence that a real prospect exists that the defendant will be able to sell its remaining parcels of shares, or at least some portion of them. This will provide it with funds to discharge its indebtedness to Nationwide Capital under the proposal, as well as to meet its ongoing expenses. Plainly, the sale of shares will also result in a corresponding decrease in the defendant's future liability to pay contributions to Hawkesbury Riverside Retreat. In any event, under the current proposal, Hawkesbury Riverside Retreat will retain its rights to forfeit shares should future contributions not be made in a timely manner. 23 Should the winding up be terminated and the current proposal implemented, the defendant's only significant creditor will be Nationwide Capital. It will become a secured creditor. It can be taken that Nationwide Capital has carefully considered its own position in advancing funds to the defendant to enable the winding up to be terminated. 24 I am satisfied that notice has been given to all creditors, including the Council as the plaintiff in the winding up proceeding, of the making of this application and the circumstances in which it is made. Despite this notice, the Council has not sought to appear. No creditor has come forward to oppose the winding up being terminated on the basis proposed. 25 As I have noted, Mr Gleeson has not identified any reportable offences or breaches of the Act by the defendant's officers. The conduct of the defendant itself has not been in any way contrary to commercial morality or the public interest. The general background and circumstances which led to the winding up order have been explained and raise no further issues for concern.

Disposition 26 For the above reasons, the winding up should be terminated with effect from 3.30 pm on 17 September 2013. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.