On 26 November 2018, I published my first judgment in this matter: HN QCV Bottle Tree Village Pty Ltd v QCV Bottle Tree Village Pty Ltd [2018] NSWSC 1807.
The judgment dealt with a notice of motion filed on 14 August 2018 by the applicant, Mr Adam Shepard, who on 8 June 2016 was appointed by this Court as the receiver and manager of the business and assets of the partnership known as QCV Bottle Tree Village.
For the purposes of this subsidiary judgment, I will assume a knowledge by the reader of the matters dealt with in the first judgment, and will also use the same terms that were defined in that judgment.
It is sufficient to record that, by his notice of motion Mr Shepard sought orders that, in his capacity as receiver and manager of the Partnership, he was justified in taking various steps set out in the notice of motion. Mr Shepard also sought a number of orders for the approval of his remuneration from the last date upon which the Court had given its approval, as well as for his estimated future remuneration until the completion of his receivership.
By order 1 of his notice of motion, Mr Shepard sought an order that he was justified in entering into and performing his obligations and exercising his rights under a certain deed of settlement and release dated 7 June 2018.
I considered order 1 as sought by Mr Shepard at [93]-[96] of the first judgment. I concluded that, in principle, the Deed of Settlement was in the interests of the Partners and the creditors of the Partnership, but I concluded that Mr Shepard had not been given power by the Court to enter into the deed of settlement insofar as that involved the compromise of debts owed by or to the Partnership. At [96], I expressed the view that there was no reason why the Court should not make an order nunc pro tunc granting Mr Shepard power to compromise the debts owed by or to the Partnership in the manner provided for in the Deed of Settlement. It would then be appropriate for the Court to make order 1 as sought by Mr Shepard.
In accordance with an invitation made by the Court, on 12 March 2019 Mr Shepard filed a further amended notice of motion.
Orders 1 and 2 as now sought by Mr Shepard in the further notice of motion are in the following terms:
1. The Receiver is to have the power nunc pro tunc to compromise debts owed by or to the Partnership in the manner contemplated by the Deed of Settlement and Release dated 7 June 2018 between the Receiver, HN QCV Bottle Tree Pty Limited, Qantac LOR Pty Limited, QCV Pty Ltd, Thomas Scott and Graham Cleary ("Deed").
2. The Receiver was justified in entering into, and is justified in performing his obligations and exercising his rights under, the Deed, including as varied by the letter of variation dated 8 March 2019.
It follows from the reasons contained in the first judgment that the Court should now make the orders sought by Mr Shepard in orders 1 and 2 of the further amended notice of motion.
The letter of variation dated 8 March 2019 referred to in order 2 set out in par 8 above makes a number of amendments to the Deed of Settlement, for the purpose of removing a number of impediments to the Court making the orders sought by Mr Shepard that were identified in the first judgment. The principal change was to the manner in which the original Deed of Settlement dealt with the debts owed to the identified Remaining Creditors, as defined in clause 1.1. The variation is not of great significance.
One further variation to the Deed of Settlement effected by the letter of variation should be mentioned. Clause 2 of the original deed gave Mr Shepard a right to terminate the deed on or before 31 December 2018, if the Court refused or declined to grant the approvals that were originally sought by Mr Shepard by that date. The letter of variation amended clause 2 to insert 29 March 2019 in lieu of 31 December 2018. Although the further amended notice of motion was filed on 12 March 2019, the written submissions delivered to the Court in support of Mr Shepard's amended claim are dated 21 March 2019, and Mr Shepard affirmed a final affidavit on that date. The materials were provided to the Court after that date.
Unfortunately, the Court did not appreciate the urgency of the matter, and began to deal with the application after 29 March 2019.
On the assumption that the passing of 29 March 2019 has not altered Mr Shepard's intentions (given that Mr Shepard alone was given the right to terminate the Deed of Settlement), I will slightly vary order 2 as sought by Mr Shepard to make it clear that he has the justification that he seeks, notwithstanding that 29 March 2019 has passed without the Court having dealt with the further amended notice of motion.
The second issue raised by the first judgment concerned order 2 in the amended notice of motion, which, on the evidence then available to the Court, appeared to involve the Court being asked to make an order that Mr Shepard was justified in making a distribution of the assets of the Partnership to the known creditors of the Partnership pro rata in accordance with Mr Shepard's adjudication of the claims made by two of the creditors (one being a single creditor and the other being two creditors claiming a joint debt), rather than on the basis of the claims made by those creditors. This was more fully explained at [99] of the first judgment. It appeared that Mr Shepard had reduced the amount claimed in the proofs of debt lodged by those creditors to the amount that he allowed. The reductions were not substantial in relative terms, but it appeared that Mr Shepard was seeking the Court's approval to Mr Shepard having a power as receiver and manager of the Partnership to adjudicate the claims of creditors (in much the same way as he would have a power under the Corporations Act 2001 (Cth) if he were the liquidator of a corporation).
Order 3 of the further amended notice of motion now seeks the Court's authorisation in relation to Mr Shepard's intention to implement the Deed of Settlement, by distributing the net assets of the Partnership in his hands (after making allowance for his remuneration and the costs of the application) pro rata between the known creditors of the Partnership. A number of amendments to the original form of the order have been made, but it is not necessary to set them out.
Relevantly, the amounts of the two debts to which I have referred above are set out in the same amounts as was the case for the original order. In his 11 March 2019 affidavit, Mr Shepard has given evidence, which I accept, that explains that his original adjudications of the two debts reflected his conclusion that the debts claimed by the creditors were excessive, and could not be justified. Since the date of my first judgment, Mr Shepard's position has been communicated to the creditors, who have accepted the correctness of Mr Shepard's adjudications and re-submitted proofs of debt so that the amounts now claimed by the creditors have been reduced, and are equal to the amounts set out in order 3 of the amended notice of motion.
This course of events has removed the problem of the Court being asked to authorise a receiver and manager of a partnership to distribute the net assets of the partnership pro rata to known creditors in proportion to amounts adjudicated by the receiver, rather than the amounts claimed by the creditors.
Consequently, the impediment to the Court making the order which is now order 3 has been removed, and I will make that order.
The final problem that arose in respect of Mr Shepard's original application for authorisation concerned the fact that the amended notice of motion made provision for the possibility that there remained unknown creditors of the Partnership, and contemplated a process whereby Mr Shepard would advertise for creditors to lodge any further proofs of debt by a deadline, and then adjudicate upon any proofs of debt that were received. The problem was, as discussed at [113] of the first judgment, that the Court does not have jurisdiction to empower the receiver and manager of a partnership to adjudicate proofs of debt lodged by creditors of the partnership in a manner that binds the creditors.
For reasons that were discussed in the first judgment, the Partnership in this case was unusual, in that its operations were tightly confined to the Partners and to associates of the Partners, which had the result that the Partnership did not deal widely with third parties, and consequently did not become indebted to many third parties. Because of the special nature of this case, I suggested, at [121] of the first judgment, that it might be possible for the problem to be solved by Mr Shepard conducting an appropriate, final advertising campaign to determine whether there were any additional creditors. I made this suggestion because, on the evidence, there was good reason for the Court to be confident that, if the matter were advertised and no further creditors came to light, the Court could find as a fact that there were no other creditors.
In his 11 March 2019 affidavit, at pars 31 to 33, Mr Shepard has explained the process that he has finally implemented to make one last effort to ascertain whether there are any unknown creditors. I am satisfied by the evidence originally given by Mr Shepard, as well as this new evidence, that the Court is warranted in making a finding that there are no creditors of the Partnership other than those that are already accommodated by the proposal to apply the net assets of the Partnership in the pro rata payment of the Partnership's creditors.
As a consequence, Mr Shepard no longer seeks an order from the Court authorising the manner in which he had initially proposed to deal with any further creditors.
Finally, in orders 4 to 6 of his further amended notice of motion, Mr Shepard seeks the approval of the Court to his remuneration from 29 July 2017 to 4 March 2019 in the sum of $27,641.50 (excluding GST) and future remuneration from 5 March 2019 to completion up to an amount of $7,000 (excluding GST). He also seeks an order that his costs of this application are costs of the receivership.
Mr Shepard has given evidence explaining and justifying his remuneration and expenses in pars 34 to 41 of his affidavit. I consider that Mr Shepard's claims are clearly reasonable, and it is not necessary for the Court to set out in detail its reasons for making the orders sought by Mr Shepard. I will make those orders.
I note that Mr Shepard no longer seeks any order approving his disbursements.
Accordingly, I make the following orders:
1. The Receiver is to have the power nunc pro tunc to compromise debts owed by or to the Partnership in the manner contemplated by the Deed of Settlement and Release dated 7 June 2018 between the Receiver, HN QCV Bottle Tree Pty Limited, Qantac LOR Pty Limited, QCV Pty Ltd, Thomas Scott and Graham Cleary ("Deed").
2. The Receiver was justified in entering into, and is justified in performing his obligations and exercising his rights under, the Deed, including as varied by the letter of variation dated 8 March 2019 irrespective of the date of the Court ordering that the Receiver is so justified.
3. The Receiver is justified in making a distribution of the net assets (less approved remuneration and disbursements) of the Partnership within his control to creditors of the Partnership on a pari-passu basis in respect of the following debts owed by the Partnership:
1. QCV Pty Ltd - subject to the terms of the Deed, $0;
2. HN QCV Bottle Tree Pty Ltd - $29,598.96;
3. Qantac Pty Ltd - $46,416.42;
4. Blacktown Accommodation Services Pty Ltd - $459,570.81;
5. Yoogalu Pty Ltd - $128,816.90; and
6. Smart Group Trading Company Pty Ltd (In Liquidation) and Harmon Corporation Pty Ltd together - $276,026.82, to be shared between Smart Group and Harmon equally, having regard to proofs of debt and supporting evidence provided by Smart Group and Harmon on 29 June 2018.
1. The Receiver's remuneration from 29 July 2017 to 4 March 2019 in the sum of $27,641.50 (excluding GST) be approved.
2. The Receiver's future remuneration from 5 March 2019 to completion be approved up to an amount of $7,000 (excluding GST).
3. The Receiver's costs of this application are costs of the receivership.
4. Liberty to apply on three days' notice.
[3]
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Decision last updated: 18 April 2019