Huntley Management Limited, in the matter of Huntley Management Limited as responsible entity for the Coonawarra Winegrape Project [2012] FCA 330

REASONS FOR JUDGMENT 1 The plaintiff, Huntley Management Limited (Huntley Management), is the responsible entity for the Coonawarra Winegrape Project (the Project), which is a registered scheme within the meaning of Chapter 5C of the Corporations Act 2001 (Cth) (the Corporations Act). Huntley Management has applied for an order that it be directed to wind up the scheme under Part 5C.9, which consists of s 601NA to s 601NG. 2 Under s 601NA, the constitution of a registered scheme may provide that the scheme is to be wound up at a specified time, or in specified circumstances or on the happening of a specified event. Under s 601NC, if the responsible entity of a registered scheme considers that the purpose of the scheme has been accomplished, or cannot be accomplished, it may take steps to wind up the scheme in accordance with s 601NC. Section 601ND provides that the Court may, by order, direct the responsible entity of a registered scheme to wind up the scheme if, relevantly, the Court thinks it is just and equitable to make the order. Such an order may be made on the application of the responsible entity, as well as on the application of other parties. 3 Under s 601NE, the responsible entity of a scheme must ensure that the scheme is wound up in accordance with its constitution, and any orders under s 601NF(2) if the Court makes an order directing the responsible entity to wind up the scheme. Section 601NF provides that the Court may appoint a person to take responsibility for ensuring a registered scheme is wound up in accordance with its constitution, and any orders made under s 601NF(2), if the Court thinks it necessary to do so. Under s 601NF(2), the Court may, by order, give directions about how a registered scheme is to be wound up, if the Court thinks it necessary to do so. An order under s 601NF may be made on the application of a responsible entity, a director of the responsible entity, a member of the scheme, or the Australian Securities and Investments Commission (the Commission). 4 When the matter came on for hearing today, there was no appearance for any person other than Huntley Management. However, when the matter had been called on previously, an appearance was made on behalf of Koonara Management Pty Limited (Koonara). Koonara had been engaged to carry out the viticultural management of the Project. While there was some indication that Koonara intended to oppose the present application, there is now evidence from its solicitors that it does not wish to be heard in opposition to the application. 5 There is also evidence that all members of the Project have been provided with a notification, dated 21 December 2011, from Huntley Management, of the fact of the filing of the originating process presently before the Court seeking an order that Huntley Management be directed to wind up the scheme. The notification enclosed a copy of the originating process, and indicated that copies of all documents filed in the proceeding, including supporting affidavits, could be inspected at the offices of the solicitors for Huntley Management. The notification also summarised the effect of affidavits sworn by Ms Mary Retallack and Mr John Knox, to which I shall refer shortly. The notification invited members of the Project, if they wished to be heard, to seek independent legal advice and make application to the Court in accordance with rule 2.13 of the Federal Court (Corporations) Rules 2000. Apart from the appearance on behalf of Koonara, no member has notified any intention to make any application to be heard in relation to the present application. 6 The basis for the present application is that the Project is unlikely ever to make a profit, and that it is therefore just and equitable that the Project be wound up rather than continuing to incur further losses. The evidence relied on by Huntley Management includes a report by Ms Retallack, who is the managing director of Retallack Viticulture Pty Limited. Ms Retallack has worked in a range of practical, extension, and viticultural consultancy roles in the wine industry over the past 16 years, and has been involved in providing expert opinion on a range of viticultural questions for vineyards located throughout Australia. 7 In her report of 23 November 2011, Ms Retallack expressed her opinion as to annual yields of wine grapes for the Project up to the year 30 June 2021, when, under the terms of the constitution of the Project, the Project was to come to an end. Ms Retallack also expressed her opinion as to the quantities of bulk wine that would be produced, the number of bottles that would be produced, and the average annual revenue from the sale of wine grapes. On the basis of her assessment, and the assumptions that she was asked to make, Ms Retallack concluded that there would be future losses, the details of which were set out in her report. Ms Retallack expressed the view that the projected future losses indicate that the Project is not commercially viable. 8 Ms Retallack also said that it was unlikely that the Project would be viable unless vineyard and production improvements could be made, and a suitable purchaser could be found for all of the products produced, at a favourable margin. She said that, given the current industry conditions of oversupply, it was unlikely that an ongoing fruit sale contract would be secured for all of the fruit, which is presently uncontracted. She expressed the view that, while it is possible to sell the fruit on the so-called spot market or, once it is converted into wine, on the bulk wine market, it is unlikely that the amount offered for each variety would cover the cost of production. Her ultimate conclusion is that, based on the information provided to her, and based on her own observations, it is unlikely that the Project will ever make a profit. 9 Huntley Management was appointed as responsible entity of the Project on 28 May 2007 in substitution for Advanced Horticultural Management Limited (AHM). AHM engaged Koonara to carry out the viticultural management of the Project, and originally appointed Australian Rural Group Limited as the custodian of the Project. After that company went into liquidation, Huntley Custodians Limited (Huntley Custodians) was appointed as custodian. 10 Australian Rural Group Limited had entered into an underlease of the land on which the Project is located with Coonawarra Property Holdings Pty Limited (Coonawarra Property). The land was owned by the late Trevor Reschke and was the subject of a lease to Coonawarra Property. The reversion was transferred by the executor of the estate of the late Trevor Reschke to Reschke Vineyards Pty Limited (Reschke Vineyards). Each of Koonara, Coonawarra Property and Reschke Vineyards appears to be controlled by Mr Burke Reschke, who is the sole director of each of them. Reschke Vineyards and Mr Reschke together hold a total of 140 of the 232 participations in the Project. That means that, unless they both vote in favour of any proposal to wind up the Project, the proposal would fail. 11 Following its appointment as responsible entity, Huntley Management had difficulties in obtaining information in relation to the Project from Koonara in order to complete the financial statements for the year ended 30 June 2007. Even in September 2008, it had not received all of the information required to complete those financial statements. In about May 2008, Huntley Management received a proposal from Koonara to privatise the Project by converting the members' participations into shares in a new unlisted company. Huntley Management indicated that it would support the proposal. However, the proposal was initially abandoned by Koonara in May 2008, although it was subsequently reactivated in February 2009. The proposal was subsequently abandoned again in March 2009. 12 Huntley Management continued to have problems in obtaining financial information from Koonara. As a consequence, the completion of the financial statements for the Project for the years ended 30 June 2008, 2009 and 2010 was delayed. It was not until June 2010 that Huntley Management received information from Koonara that was necessary to complete the audits of the financial statements for those years. 13 In October 2010, Huntley Management gave consideration to the ongoing financial viability of the Project. As a result of considering various matters, Mr John Knox, who is a director of Huntley Management, formed the view that the purpose of the Project could not be accomplished because it was not financially viable. Huntley Management therefore sent a notice under s 601NC of the Corporations Act to the Commission and to each of the members. A notice from 12 members of the Project, representing more than five per cent of the value of interests in the Project, was received, as a result of which Huntley Management called a meeting of members for 13 December 2010. At that meeting the members voted to adjourn the meeting to a later date to be confirmed. The meeting was reconvened on 19 April 2011, but, at that meeting, none of the resolutions originally proposed by the members in the notice was proposed or seconded by any of the members present at the adjourned meeting. 14 Huntley Management continues to hold the view that the purpose of the Project cannot be accomplished because it is not financially viable. The constitution of the Project provides that, unless it is wound up earlier under the constitution or by virtue of any Court order, it is to determine on 30 June 2021. Clause 7.4 provides that, if the manager considers that the purpose of the scheme has been accomplished or cannot be accomplished it may take steps to wind up the scheme in accordance with cl 7.5. Clause 7.5 requires the manager to give the members and the Commission a notice in writing explaining the proposal to wind up the scheme, informing the members of their rights to take action under the then Corporations Law, and informing the members that the manager is permitted to wind up the scheme unless a meeting is called to consider the proposed winding up of the scheme within 28 days of the giving of notice to members. 15 Under clause 7.11 of the constitution, as soon as practicable after determination of the Project, the manager must sell, call in and convert into money or cause to be sold, called in and converted into money, that part of the property of the Project that does not consist of ready money, must pay all proper costs and disbursements, commissions, brokerage fees, legal fees and other outgoings, and must pay the balance to each member in proportion to each member's interest. Clause 7.16 provides for a final audit once the manager believes that the winding up of the scheme is complete. 16 I have not been taken to any detailed evidence as to the present assets of the Project. The only possible long-term asset is the underlease, which has not yet been formally transferred to Huntley Custodians. The lease is for a term of 21 years, expiring on 30 June 2020. The rent is determined by reference to a joint venture agreement identified in the memorandum of lease. 17 In circumstances where it is abundantly clear that the Project will not be profitable, and that its continuation will continue to incur losses, and where there is no opposition from the members, it seems to me to be appropriate to accede to the application by Huntley Management for a direction that the Project be wound up. Accordingly, I propose to order, pursuant to s 601ND(1)(a) of the Corporations Act, that Huntley Management be directed to wind up the Project. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.