By originating process filed on 29 August 2023, the plaintiffs - ADCF Investments Pty Ltd (ADCF) and Pyramids Builders Pty Ltd (Pyramids Builders) - seek an order for the winding up of Etna Developments Pty Ltd (Etna) pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth).
Mr Joseph Lagan is the sole director and shareholder of Etna. The originating process and supporting affidavit have been served on Etna by email to Mr Lagan's email addresses in accordance with substituted service orders made by the Court on 29 August 2023. No notice of appearance or defence has been filed on behalf of Etna. It is clear from several email communications that Mr Lagan has sent to the Associate to Black J that Etna, through Mr Lagan, is aware of the proceedings.
On 25 September 2023, the Court made orders listing the proceedings for hearing in the Corporations List on 16 October 2023. The plaintiffs' solicitor sent an email to Mr Lagan on 26 September 2023 notifying him of those orders. There was no appearance for Etna when the matter was called in the Corporations List on 16 October 2023 before being referred to me for hearing. The hearing therefore proceeded in the absence of Etna.
[2]
Salient facts
This outline of relevant facts is drawn from the following evidence that the plaintiffs read and tendered at the hearing:
1. the affidavit of the sole director and shareholder of each of the plaintiffs, Mr Amir Sami Salama Abdelbadie, sworn on 29 August 2023, and Exhibit AA-1 to that affidavit; and
2. the affidavits of the plaintiffs' solicitor, Mr George Emmanuel Pavlis, sworn on 29 August 2023, 8 September 2023, and 13 October 2023.
Etna is the registered proprietor of land known as 73-77 Etna Street in Gosford, New South Wales (the Land), subject to a registered mortgage in favour of Manda Capital Holdings Pty Ltd (the Mortgage and Manda).
On or about 6 October 2020, Etna (as principal) and Nutek Constructions Pty Ltd (as contractor) (Nutek) entered into a construction contract for the development of the Land for a fixed price of $19.8 million.
On or about 23 December 2020, Manda (as lender), Etna (as borrower), and Mr Lagan (as guarantor) entered into an agreement for a loan of up to $24.4 million, repayable on 23 December 2022 (the Loan Agreement and the Loan).
Clause 10 of the Loan Agreement stipulates that the Loan is to be used for the purpose of developing the Land. The provisions of clauses 10.2 to 10.8 of the Loan Agreement and the special covenants in item 13 of the Schedule to the Loan Agreement provide Manda with a degree of control over the development, and over the manner in which the Loan funds are used for the development. For example, Etna is obliged to provide a fully signed fixed price building contract to Manda for approval before drawing down any funds under the Loan, and to ensure that the development is carried out in accordance with plans and specifications approved by Manda. Drawdown requests submitted to Manda must be supported by certificates from quantity surveyors and other professionals certifying the value and quality of works completed. Part of the Loan funds are required to be paid into a Project Expenses Retention Account that is administered by Manda's solicitors on trust for Manda, and expenses incurred for the development are paid out of that account on a cost to complete basis (subject to certification by the quantity surveyor). If Manda reasonably determines that the cost to complete the development exceeds the balance in the Project Expenses Retention Account, then Manda may exercise its discretion not to release any money from that account, and may require Etna to deposit sufficient funds in that account to ensure that Manda maintains sufficient funds to pay the development costs on a cost to complete basis.
The security for the Loan includes:
1. the Mortgage referred to above;
2. an unsubordinated general security interest over all present and after acquired property of Etna;
3. a specific security agreement over all unfixed building materials owned by Etna and used for the development of the Land;
4. a charge over all project documents for that development;
5. a charge over all pre-sale contracts and deposits;
6. a Tripartite Agreement between Nutek, Etna and Manda;
7. a guarantee and indemnity from Mr Lagan; and
8. an unsubordinated general security interest over all present and after acquired property of Mr Lagan, which would include his shares in Etna.
Pursuant to clauses 10.9 and 11 of the Loan Agreement, Manda's rights in the event of default by Etna include a right to enforce the securities, a right to enter into possession and management of the Land and the development works on the Land (to the exclusion of Etna), a right carry on and continue those works in any manner that Manda thinks fit, a right to sell the Land in its existing state and condition, and a right to refuse to make any undrawn portion of the Loan available to Etna.
Nutek, Etna and Manda entered into the Tripartite Agreement on the same date as the Loan Agreement. Clause 2 of the Tripartite Agreement recorded Nutek's consent to Etna granting security in favour of Manda over the construction contract and other project documents. Clause 3 required Nutek to give prior notice to Etna and to Manda of any intention to exercise any right to terminate or suspend work under the construction contract. Clause 4 conferred on Manda the right to step-in and perform the obligations of Etna under the construction contract if Etna defaults in the performance of those obligations. Pursuant to clause 9, Nutek agreed not to consent to any variation of the building works without the consent of Manda, and Nutek and Manda agreed to permit Manda and the quantity surveyor to have full and free access to the Land in order to inspect the development site. If required by Manda, it was also entitled to attend all meetings between Nutek and Etna.
It was submitted on behalf of the plaintiffs that Etna was incorporated as a special purpose vehicle to undertake the development on the Land, that this is its sole business, and that the Land is Etna's "only real asset".
According to Mr Abdelbadie's affidavit sworn on 29 August 2023, Etna and Mr Lagan entered into a suite of agreements on or about 31 August 2021, including an agreement for the sale by Mr Lagan of 49 per cent of the shares in Etna to SDWL Investments Pty Ltd (SDWL) in consideration for $1.5 million, and for the appointment of Mr Abdelbadie as a director of Etna (the August 2021 Share Sale Agreement). Mr Abdelbadie is the sole director and shareholder of SWDL.
Mr Abdelbadie paid $1.5 million to Mr Lagan on or about 30 August 2021, apparently in discharge of SDWL's obligation to pay the purchase price under the August 2021 Share Sale Agreement.
Mr Lagan did not discharge his obligation under the August 2021 Share Sale Agreement to transfer 49 per cent of the shares in Etna to SDWL. Mr Abdelbadie was not appointed as a director of Etna.
On or about 18 December 2021, Etna entered into a further suite of agreements, including:
1. an agreement for sale of shares between Mr Lagan (as vendor), ADCF (as purchaser) and Etna (the December 2021 Minority Share Sale Agreement);
2. an agreement described as "Agreement for Sale of Majority Shares" between Mr Lagan (as vendor), ADCF (as purchaser) and Etna (the December 2021 Majority Share Sale Agreement); and
3. a Deed of Termination between Pyramids Render Stars Pty Ltd; Mr Lagan, Etna, SDWL, Mr Abdelbadie and ADCF (the December 2021 Deed of Termination).
The December 2021 Deed of Termination provided for the termination of the August 2021 Share Sale Agreement, and required Mr Lagan to repay to SDWL the $1.5 million that had been paid under the August 2021 Share Sale Agreement.
The December 2021 Minority Share Sale Agreement provided for the sale by Mr Lagan to ADCF of 49 per cent of the shares in Etna for a purchase price of $1.5 million, and for Mr Lagan to procure a meeting of the directors of Etna on the completion date to appoint Mr Abdelbadie as a director of Etna. By clause 8.1, Mr Lagan gave certain warranties to ADCF, including a warranty that he is the sole legal owner and registered holder of the shares to be transferred to ADCF, free of any encumbrance, and a warranty that he has complete and unrestricted power and authority to transfer full legal and beneficial ownership of the shares to ADCF on completion, without the consent of a third person.
Although the Deed of Termination required Mr Lagan to repay to SDWL the sum of $1.5 million that had been paid under the August 2021 Share Sale Agreement, it is admitted on the pleadings in the 2022 proceedings to which I refer below [1] that the parties to the December 2021 Minority Share Sale Agreement agreed to treat the $1.5 million payment made under the August 2021 Share Sale Agreement as satisfying ADCF's obligation to pay the $1.5 million purchase price under the December 2021 Minority Share Sale Agreement. The plaintiffs rely on those admissions in the present proceedings.
The December 2021 Majority Share Sale Agreement provided for the sale by Mr Lagan of the remaining 51 per cent of the shares in Etna to ADCF for a purchase price of $2 million, subject to certain conditions precedent.
Mr Abdelbadie has given evidence that a representative of Etna contacted him in about early November 2021 and requested his assistance to store building materials and to provide labour and other services that were required for Etna's development of the Land. According to Mr Abdelbadie's evidence, he discussed with Etna's representative that he would retain the stored building materials until such time as Etna paid for the storage costs, labour and services. Mr Abdelbadie's evidence characterises the provision of the storage facilities, labour, and services in the period after November 2021 as work that was done in discharge of ADCF's obligation under clause 8.3 of the December 2021 Minority Share Sale Agreement to use its best endeavours to assist in the completion of the development of the Land. Mr Abdelbadie engaged Pyramids Builders to arrange or provide the storage, labour and services required by Etna. Pyramids Builders engaged third parties as necessary, and paid the invoices issued by those third parties. Mr Abdelbadie has given evidence that Etna has not reimbursed him for those costs. In the present proceedings, the plaintiffs assert that the costs incurred by Pyramids Builders constituted a debt owed by the Company to Pyramids Builders.
On or about 20 June 2022, ADCF, Mr Abdelbadie and Pyramids Render Stars Pty Ltd commenced proceeding 179619 of 2022 in this Court against Mr Lagan and Etna (the 2022 proceedings). In that proceeding, Mr Abdelbadie and Pyramids Render Stars Pty Ltd claim:
1. a declaration that they are entitled to rescind ab initio the December 2021 Minority Share Sale Agreement and the December 2021 Majority Share Sale Agreement for alleged breaches of warranty by Mr Lagan, and orders for restitutio in integrum. The alleged breaches of warranty include a breach of the warranty that Mr Lagan is the sole legal owner and registered holder of the shares to be transferred to ADCF, free of any encumbrance. As referred to at [9] above, Mr Lagan's shares were in fact encumbered by the general security interest granted to Manda over all present and after acquired property of Mr Lagan;
2. damages for Mr Lagan's allegedly misleading or deceptive conduct and/or unconscionable conduct in giving the warranties under the December 2021 Minority Share Sale Agreement and the December 2021 Majority Share Sale Agreement that were allegedly untrue;
3. relief for alleged oppression in the conduct of the affairs of Etna, in the form of an order entitling ADCF to sell its shares in Etna at fair market value; and
4. an order that Etna pay $287,165 to ADCF by way of restitution in respect of the costs referred to at [21] above.
It was submitted on behalf of the plaintiffs in the present proceedings that, by commencing the 2022 proceedings on 20 June 2022, ADCF terminated the December 2021 Minority Share Sale Agreement and the December 2021 Majority Share Sale Agreement "in acceptance of Mr Lagan's breaches", being his alleged failure to transfer 49 per cent of the shares in Etna to ADCF and his alleged failure to cause Mr Abdelbadie to be appointed as a director of Etna. That submission is irreconcilable with the relief that is in fact sought by ADCF and the other plaintiffs in the 2022 proceedings, being a declaration that they are entitled to rescind the December 2021 Minority Share Sale Agreement and the December 2021 Majority Share Sale Agreement for the alleged breaches of warranty by Mr Lagan. Such a declaration would have no utility if, by commencing the 2022 proceedings, the ADCF had already terminated the December 2021 Minority Share Sale Agreement and the December 2021 Majority Share Sale Agreement.
I infer that the claim for restitutio in integrum in the 2022 proceedings includes a claim for the repayment of the $1.5 million paid by Mr Abdelbadie that the parties agreed to treat as the purchase price under the December 2021 Minority Share Sale Agreement. I infer that the $1.5 million sum is also included in the claim for damages for alleged misleading or deceptive conduct and/or unconscionable conduct.
The plaintiffs in the 2022 proceedings have pleaded that the relationship between Mr Abdelbadie and Mr Lagan has irretrievably broken down, and that the affairs of Etna are therefore deadlocked because Mr Abdelbadie and Mr Lagan are the two directors of Etna. Inconsistently with the deadlock claim, the plaintiffs also plead in the 2022 proceedings that Mr Lagan has failed to appoint Mr Abdelbadie as a director of Etna. In the present proceedings, the plaintiffs accept that ADCF is not a shareholder, and that Mr Abdelbadie is not, and has never been, a director of Etna.
The relief claimed by the plaintiffs in the 2022 proceedings in respect of the alleged oppression is premised upon ADCF having shares in Etna. By contrast, the plaintiffs have prosecuted their claim for winding up in the present proceedings on the basis that Mr Lagan has never transferred any shares in Etna to ADCF, and that ADCF no longer seeks a transfer of shares in Etna.
ADCF's claim for restitution in the 2022 proceedings is inconsistent with its contention in the present proceedings that Etna is indebted to Pyramids Builders for those costs. Counsel for the plaintiffs in these proceedings submitted that there is no inconsistency because "it's talking about the same thing". With respect, that is precisely how the inconsistency arises. Etna cannot have been unjustly enriched by ADCF incurring the same costs that are alleged in these proceedings to have been incurred by Pyramids Builders, and for which the plaintiffs in these proceedings contend Etna is indebted to Pyramids Builders.
Etna failed to repay the Loan on 23 December 2022. On 28 December 2022, Manda's solicitors served a notice of default under the Loan Agreement, demanding repayment of the sum of $13,713,219 that remains owing under the Loan Agreement, including interest and various fees and charges.
On 12 January 2023, Manda issued a notice to Etna under s 57(2)(b) of the Real Property Act 1900 (NSW). According to Mr Pavlis' evidence in these proceedings, the Land is not presently on the market for sale. There is evidence that Mr Lagan and persons assisting him were seeking to refinance the Loan on behalf of Manda during the period from late 2022 until about April 2023. There is no evidence about the current status of those efforts, or about the likelihood of refinance.
Mr Abdelbadie has given evidence in these proceedings that, in about late August 2022, he "began having concerns that the asset pool of Etna was diminishing". The evidence does not cast any light on what Mr Abdelbadie refers to as "the asset pool". As I have stated earlier in these reasons, the plaintiffs contend that the Land is Etna's "only real asset". Nor does the evidence identify the basis for Mr Abdelbadie's claimed concerns.
On 7 February 2023, the plaintiffs in the 2022 proceedings applied for a freezing order against Mr Lagan and Etna in respect of their assets up to the unencumbered value of $2 million. The freezing order was granted on 8 February 2023, but was then discharged one week later on 15 February 2023 upon Mr Lagan undertaking to the Court:
1. to provide to Mr Abdelbadie copies of certain documents in relation to the Land and the development being conducted on the Land, the Loan, the Mortgage and any prospective refinancing; and
2. not to sell, transfer, refinance, mortgage, or otherwise deal with the Land without giving five business days' prior notice to Mr Abdelbadie.
The terms of Mr Lagan's first undertaking referred to above expressly stated that the undertaking was provided on the basis that Mr Abdelbadie had represented that neither he, nor ADCF, nor any of their associates would contact any financier or prospective financier or potential purchaser.
In the present proceedings, Mr Abdelbadie alleges that Mr Lagan has failed to comply with his undertaking in respect of the provision of information since about 27 April 2023. Mr Pavlis has given evidence to the same effect, and has also deposed that Mr Lagan and Etna have not been legally represented in the 2022 proceedings since the end of January 2023, and have failed to appear at various directions hearings in the 2022 proceedings in the period since their former solicitor ceased acting.
On 23 August 2023, Manda appointed a receiver and manager to Etna (the Receiver). The solicitors for the plaintiffs in these proceedings notified the Receiver of their winding up application and of the date of the hearing of these proceedings. The Receiver did not seek to be heard.
The evidence relied on by the plaintiffs in support of their winding up application in these proceedings includes a valuation report dated 4 July 2023 prepared by certified practising valuer Mr Danny Sukkar. Mr Sukkar presents data concerning the sale of "raw" or undeveloped sites (without or without a development approval) in Gosford, West Gosford and North Gosford since 2018, and data concerning the sale of units in developed sites in those areas since 2019. On the basis of that data, Mr Sukkar opines that value of the Land in its present state is $3,575,000, whereas the value of the Land if developed in accordance with the development approval would be $37,900,000. Mr Sukkar does not explain whether he considers the undeveloped properties referred to in his report to be comparable to the Land and, if so, his reasons for that opinion. Mr Sukkar did not inspect the Land for the purpose of preparing his report, but relied on a "kerbside inspection" that he conducted in January 2023 together with aerial photographs. Mr Sukkar does not identify the source of the aerial photographs or the date on which they were taken. Mr Sukkar does not discuss whether he considers that the units referred to in his reports are comparable to the units that will be built as part of the development that is in the process of being constructed on the Land, including in relation to matters such as the standard of fittings and fixtures. Mr Sukkar does not discuss whether, or to what extent, any changes in property market conditions during the period since 2018 affect his reliance on the data presented in his report as the basis for his opinions in 2023 about the value of the Land. For all of those reasons, Mr Sukkar's opinion - to the extent that it is relevant at all - carries very little weight in these proceedings.
[3]
Consideration and determination
Section 461(1)(k) of the Corporations Act confers power on the Court to order that a company be wound up if the Court is of the opinion that it is just and equitable to do so. The cases in which orders are made under s 461(1)(k) conventionally fall into a number of classes, including those identified by Brereton J (as his Honour then was) in Re Catombal Investments Pty Ltd: [2] (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) constitutional and administrative vacuum in the management of the company; and (6) lack of confidence, fairness and public interest, and commercial morality. In relation to the second of those classes, it is not the case that any breakdown or loss of confidence between shareholders necessarily provides a sufficient foundation for winding up on the just and equitable ground. It is generally necessary to demonstrate that the breakdown is of a nature and degree that materially frustrates the commercially viable and sensible operations of the company in accordance with the shareholders' expectations, that the loss of confidence is justified, and that there is a restriction on the transferability of the shares of the applicant for winding up. [3]
As counsel for the plaintiffs submitted, the power under s 461(1)(k) is not restricted to the classes referred to above, or to any particular classes of case. The concept of "just and equitable" is a broad one incapable of exhaustive definition. An applicant for winding up is entitled to rely on any circumstances of justice and equity that affect them in their relationship with the company, and each case must turn on its own facts. [4] Winding up under s 461(1)(k) must be just and equitable for all, not only for the applicant for winding up. [5]
The persons who have standing under s 462 to apply for a winding up order under s 461(1)(k) include creditors of the company, including contingent or prospective creditors.
Counsel for the plaintiffs submitted that ADCF and Pyramid Builders have standing under s 462 because they are both creditors (or at least contingent or prospective creditors) of Etna. It was further submitted that ADCF "in a sense … should have been a 49% shareholder [in] Etna save for Mr Lagan's and Etna's breaches of the warranties", referring to the alleged breaches relied on by the plaintiffs in the 2022 proceedings in support of their claims for relief referred to at [21] above. It was submitted that ADCF is "effectively in a position where they have paid for half of Etna but have no control, and there has been a complete relationship breakdown".
I reject the submission that Pyramid Builders is a creditor of Etna. The evidence referred to at [21] above establishes that that Pyramid Builders incurred certain costs in providing services that Mr Abdelbadie engaged Pyramid Builders to provide in connection with the development of the Land in order to discharge ADCF's obligations to Etna under the December 2021 Minority Share Sale Agreement. On Mr Abdelbadie's own evidence, he considered Etna to be liable to reimburse him for the cost of providing those services. That evidence is consistent with Pyramid Builders being a creditor of Mr Abdelbadie in respect of the costs of those services. For the reasons explained at [27] above, ADCF's claim for restitution in the 2022 proceedings referred to at [22(4)] above is a further matter that tells against Pyramid Builders' claim to be a creditor of Etna in respect of the costs of those services.
I accept that ADCF is a contingent creditor of Etna in respect of its claim for restitution in the 2022 proceedings referred to at [22(4)] above. The other claims for monetary relief in those proceedings are claims against Mr Lagan.
I reject the submission that ADCF's payment of $1.5 million to Mr Lagan for 49 per cent of the shares in Etna that were never transferred to ADCF is relevant to its standing to make the winding up application under s 461(1)(k). As counsel for the plaintiffs unequivocally stated, ADCF no longer seeks to enforce its right to a transfer of those shares under the December 2021 Minority Share Sale Agreement. ADCF's $1.5 million payment is the basis of its damages claim against Mr Lagan in the 2022 proceedings. ADCF is an unsecured contingent creditor of Mr Lagan for damages for breach of warranty, and an unsecured contingent creditor of Etna in respect of the sum of $287,165 referred to at [22(4)] above.
The plaintiffs seek an urgent winding up of Etna under s 461(1)(k) because "Mr Lagan has ceased communication and the reasonable inference is that Etna remains in default and that Manda may at any time go mortgagee in possession to sell [the Land]". Relying on Mr Sukkar's report to which I have referred above, it was submitted that the Land would fetch less than $4 million if sold in its present state, whereas it would fetch a gross value of $37.9 million if sold after completion of the development.
Counsel for the plaintiffs submitted that Etna is:
"… essentially at the mercy of its single financier, which has the first registered mortgage over the property, [Manda]. But nobody else, including, relevantly, Mr Abdelbadie, through any entity, has any real traction with the company, itself, and so seeks for a liquidator to be appointed"
The written submissions filed on behalf of the plaintiffs stated that:
"The plaintiffs' objective is to have a liquidator appointed to Etna that can protect [the Gosford property's] commercial value by dealing in a commercially effective way with Manda in a way that facilitates the extraction of that commercial value."
During the hearing, counsel for the plaintiffs confirmed that the plaintiffs were seeking to have Etna wound up in order to attempt to influence, through a liquidator, the course of conduct that Manda will now take as the secured creditor and mortgagee, "in circumstances where … ADCF should have been a 49% shareholder".
Counsel for the plaintiffs purported to give evidence from the Bar table that the development has not progressed beyond the demolition phase, and submitted that Etna should be wound up so that a liquidator would "be able to make commercial decisions, to make the tough decisions, to say well this should be developed and let's work out how to do that or sell that right". Counsel almost immediately walked that submission back, accepting that these are decisions for the receiver appointed by Manda, and will remain so even if Etna is wound up. Counsel then submitted that, in view of the significant gap between Mr Sukkar's valuation of the Land in its current state and the amount owing to Manda, there is a "good commercial rationale" for Manda to work cooperatively with a liquidator in circumstances where Mr Abdelbadie owns various construction entities. That prompted me to ask why the plaintiffs were seeking the appointment of a liquidator to achieve their stated objective, rather than simply having Mr Abdelbadie engage with the receiver directly.
Rather than answering that question, counsel for the plaintiffs submitted that the Court should also take into account: (1) that Etna is insolvent; (2) that Mr Abdelbadie has been concerned that Etna's "asset pool" may be "diminishing"; (3) that "there is a real and significant concern on our part as to what happened to the $12 million‑odd drawn down from Manda by Etna by Mr Lagan, because there is just not $12 million worth of work that's been done"; (4) that Mr Lagan, as the sole director or Etna, had not instructed any solicitor to act for Etna to defend the 2022 proceedings, and had "apparently ignored" the undertakings that he gave to the Court in February 2023; (5) that there was an "apparent complete dereliction of Mr Lagan in discharging his duties as a director so that the company takes proper steps both in relation to its debt to its main debtor [sic - creditor], Manda, and in relation to its other potential creditors, including by either resolving or defending litigation": and (6) that Mr Lagan's failure to discharge his duties as a director of Etna was prejudicing the plaintiffs as unsecured creditors and "one time potential owner" of Etna. That sweeping submission was prefaced with counsel's acknowledgement that these matters were "not incredibly well fleshed out in evidence".
The matters referred to at [43]-[44] above are the legal and commercial consequences of ADCF's position as an unsecured contingent creditor of Etna in circumstances where Manda has a registered mortgage over the Land and a security interest in Etna's other assets. Justice and equity do not require that Etna be wound up in order to give an unsecured contingent creditor a perceived opportunity to influence decisions that Etna's secured creditor is entitled to make in its own interests and, in the event that it decides to exercise its power of sale, subject to s 420A of the Corporations Act and the general law principles that apply to mortgagees and controllers exercising a power of sale.
An unsecured creditor is not entitled to "traction" with the debtor, other than by taking such steps as may lawfully be available to it to pursue its claim and to recover the alleged debt against the debtor. ADCF has taken such steps by commencing the 2022 proceedings. Any breakdown in the relationship between ADCF and Etna is not a problem that affects the management of Etna. In the events that have transpired, neither ADCF nor Mr Abdelbadie have had any role in the management of Etna, and they have accepted that position by framing the claims for relief in the 2022 proceedings in the manner in which those claims have been pleaded.
I have referred to ADCH's objective of obtaining a perceived opportunity to influence Manda's decisions through a liquidator because, in my opinion, the plaintiffs' submissions were based on the unrealistic premise that Manda will not give due consideration to how best to realise the value of the Land without the intervention of the hypothetical liquidator. As the plaintiffs' submissions accepted, there are sound commercial reasons for Manda to pay close attention to that question without the intervention of a liquidator. The amount owing to Manda under the Loan Agreement and Mortgage significantly exceeds what the plaintiffs contend to be the present value of the Land. Manda's rights under the Loan Agreement referred to above at [10] provide a range of options for Manda in the circumstances.
Moreover, as I have noted at [47]-[48] above, counsel did not identify any reason why Mr Abdelbadie - drawing on his expertise in the construction industry - could not discuss these matters with Manda or the Receiver directly, rather than through the hypothetical liquidator. The only possible reason disclosed by the evidence is Mr Abdelbadie's representation to Etna and Mr Lagan that neither he, nor ADCF, nor any of their associates would contact any financier or prospective financier or potential purchaser. As referred to at [32]-[33] above, that representation was recorded in, and as the basis for, Mr Lagan's undertakings given to the Court in the 2022 proceedings. If the plaintiffs' objective in applying to wind up Etna in the present proceedings were to enable Mr Abdelbadie to attempt to use the hypothetical liquidator as an intermediary to do that which Mr Abdelbadie cannot do himself by reason of the terms of ADCF's undertakings in the 2022 proceedings, then it is my opinion that the present proceedings would be an abuse of process. This possible reason for ADCF seeking to wind up Etna did not become apparent to me until after the hearing of these proceedings, and I therefore did not put to counsel for the plaintiffs that the present proceedings may be an abuse of process. I will therefore refrain from expressing any concluded view about that matter, in circumstances where I have determined to dismiss the winding up application for the other reasons explained above and below.
It remains to address the six points raised by the sweeping submission referred to at [48] above.
In relation to the first point - Etna may be insolvent, but the evidence adduced in these proceedings did not establish that on the balance of probabilities. Much would depend on the current status of the refinancing negotiations, about which no evidence was placed before the Court. I acknowledge that ADCF complains that it lacks information about those negotiations due to Mr Lagan's alleged non-compliance with his undertakings in the 2022 proceedings. ADCF has taken no action to enforce those undertakings in the 2022 proceedings, or to compel production of relevant information in these proceedings.
In relation to the second point, Mr Abdelbadie's evidence about his claimed concern that Etna's "asset pool" may be diminishing carries no weight for the reasons explained at [30] above.
In relation to the third point, the plaintiffs' claimed concern about what happened with the funds drawn down by Etna under the Loan was not articulated in Mr Abdelbadie's evidence, and lacks substance and credibility having regard to the provisions of the Loan Agreement that permit Manda a significant degree of control over how the Loan funds are used. It is inherently probable that Manda exercised those rights when releasing funds under the Loan Agreement.
In relation to the fourth and fifth points, the alleged conduct of Mr Lagan and Etna in the 2022 proceedings is a matter to be addressed in those proceedings, and is not grounds for winding up in these proceedings. Any concern on the part of ADCF about the manner in which Etna has conducted itself vis-à-vis its secured creditor are matters in respect of which Manda may exercise its own rights. Any such concerns would not render it just and equitable to wind up Etna at the suit of an unsecured, contingent creditor.
The sixth point reverts to the plaintiff's reliance on ADCF's "status" as a "one time potential owner" of Etna, which is irrelevant for the reasons that I have already explained.
For all of the reasons explained above, Pyramids Builders lacked standing to apply for the winding up of Etna under s 461(1)(k) of the Corporations Act, and ADCF failed to establish that it is just and equitable for Etna to be wound up in all the circumstances of this case. The proceedings must therefore be dismissed.
[4]
Endnotes
See below at [22].
In the matter of Catombal Investments Pty Ltd (2012) 30 ACLC 12-031; [2012] NSWSC 775 at [19] (Re Catombal).
In the matter of Gearhouse BSI Pty Ltd [2021] NSWSC 98 at [170] (Williams J) and the authorities there referred to.
Re Catombal at [20] (Brereton J); In the matter of CNPR Ltd [2018] NSWSC 989 at [8] (Black J); In the matter of Austral Alloys Pty Ltd [2017] NSWSC 1833 at [30] (Brereton J); In the matter of Pure Nature Sydney Pty Ltd [2018] NSWSC 914 at [69] (Black J); Re Alon Pty Ltd [2022] NSWSC 64 at [13]-[15] (Gleeson J).
Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667 at [81] (Black J).
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Decision last updated: 20 October 2023