The Company conducted the business of distributing antivirus and cyber security software in Australia, New Zealand and the Pacific Islands for software developers, including products supplied by Kaspersky pursuant to a distribution agreement dated 31 August 2011.
Up until 22 December 2016, the Company was known as Hemisphere Technologies Pty Ltd. On 22 December 2016, the Company sold certain assets (comprising its trade debtors, stock and certain documents and records) to HTA and changed its name from 23 December 2016 to its ACN.
The transactions and events on 22 December 2016 were preceded by the following events. On 25 August 2016, Kaspersky gave notice to the Company that it was exercising its right to terminate the distribution agreement with effect from 14 September 2016. Thereafter litigation ensued in the Supreme Court between Kaspersky and the Company in relation to the debt alleged to be owing by the Company to Kaspersky and a cross-claim by the Company disputing the termination of the distribution agreement. The latter issue was the subject of an arbitration before the Arbitration Institute of Stockholm Chamber of Commerce. The Company's application for interim relief was dismissed by the arbitral tribunal on 11 October 2016. On 19 October 2016, Kaspersky terminated the distribution agreement.
According to documents lodged with ASIC on 19 October 2016, up until 14 October 2014, Mr Peter Phokos was a director, secretary and shareholder of the Company and he was replaced on that date as director, secretary and shareholder by Mr Philip Rodou.
On 15 December 2016, the Company obtained a valuation report of its business from dVT Consulting Pty Ltd. The author of the valuation report is Ms McCallum, one of the liquidators of the Company. The valuation report expressed the view that the "valuation range" of the Company's business as at 15 December 2016 was $368,451 before costs of realisation and administration and before claims of creditors, based on a net tangible assets, forced sale basis.
The valuation report noted that "the valuation will be used to assist management in forming a view on the value of the Company for purposes of negotiations in relation to the business value of the Company".
As indicated, on 22 December 2016, the Company entered into an agreement with HTA styled "Asset Sale Agreement", which provided that the Company agreed to sell to HTA the "Assets" for the "Purchase Price". The purchase price was $370,000 plus GST. The Assets were described as trade debtors, stock and certain documents and records. The purchase price was paid to the Company's bank account on 22 December 2016. HTA was subsequently wound up on 3 April 2018.
On 24 January 2017, Kaspersky submitted a proof of debt in the liquidation in the amount of $3,988,117.31.
Following the appointment of the liquidators on 17 January 2017, a meeting of creditors of the Company was held on 27 January 2017 as required by s 497(1) of the Corporations Act (in the form in which that provision appeared prior to the amendments to the Corporations Act by the Insolvency Law Reform Act 2016 (Cth) effective 1 September 2017). At that meeting, a resolution proposed by Kaspersky that an alternative liquidator be appointed in place of the present liquidators was defeated on a poll.
The liquidators' annual report to creditors dated 17 April 2018 sets out under the heading "Investigations" the following:
1. the liquidators' expressed the opinion that the sale of the Company's assets prior to the appointment of the liquidators was not a voidable transaction as it appeared (to the liquidators) that the transaction was consistent with the valuation and that a fair value appeared to have been paid for the assets;
2. that various payments were made to the Company's main supplier (Kaspersky) and also to related parties of the Company which might be recovered as an unfair preference or uncommercial transaction;
3. that potential uncommercial transactions with related parties include payments made to ACG Building Pty Ltd (AGC) and Portfolio IT Pty Ltd (Portfolio) and that Mr Phokos was a director of ACG and Portfolio and a former director and shareholder of the Company. The liquidators identified a total sum of $5,049,593.85 and $9,286,300 were paid to ACG and Portfolio respectively during the four years preceding the liquidation. The liquidators noted that the Australia and New Zealand Banking Corporation holds an all present and after acquired property charge over ACG and Portfolio and until public examinations are conducted, were unable to comment on the likelihood of any recoveries from such related parties;
4. the liquidators have identified possible claims against directors and possible shadow directors of the Company for breach of directors' duties and insolvent trading in contravention of s 588G of the Corporations Act. In this regard, the liquidators noted that, although the ASIC records indicated that Mr Rodou was appointed as a director of the Company on 14 October 2014 and Mr Phokos ceased to be a director on that date, the relevant documents notifying these changes were lodged with ASIC on 19 October 2016. The liquidators expressed the view that, based on their investigations, Mr Rodou was merely placed as a director of the Company for the purposes of ASIC records and he did not play an integral part in the management of the Company and that Mr Phokos remained an integral part of the Company.
The liquidators also stated in their annual report to creditors that they have submitted a report to ASIC pursuant to s 533 of the Corporations Act identifying certain offences committed by Mr Rodou and Mr Phokos. Since submitting their report to ASIC, the liquidators stated that they have identified further possible breaches by the director and/or former director and/or shadow director of the Company, but they are not in a position to pursue the voidable transactions or other recoveries to their full potential without additional funding from creditors. The liquidators invited expressions of interest from creditors who may be interested in funding further investigations of the matters referred to in their report.
[2]
Power to appoint additional liquidator
It is well-established that in the case of a voluntary winding-up, the Court has power to appoint an additional or special purpose liquidator on an application by (among others) a creditor: Lo v Nielsen & Moller (Autoglass) (NSW) Pty Ltd [2008] NSWSC 407 at [29]-[30] (Barrett J). Prior to the Insolvency Practice Schedule (Corporations), that power arose under s 511 of the Corporations Act which relevantly provided that, in a voluntary winding-up, the Court may exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court, if satisfied that the exercise of the power would be just and beneficial.
Since 1 September 2017, the power arises under s 90-15(1) of the Insolvency Practice Schedule (Corporations) which provides that "the Court may make such orders as it thinks fit in relation to the external administration of a company". "External administration" is defined in s 5-15 and includes where a liquidator has been appointed in relation to a company.
Section 90-15(3) identifies examples of orders that may be made under s 90-15(1). Those examples include an order that another registered liquidator be appointed as the external administrator of the company: s 90-15(3)(c).
Kaspersky, being a creditor of the Company, has standing to apply for an order under s 90-15, since it has "a financial interest in the external administration of the company": s 90-20(1)(a).
The power conferred under s 90-15(1) of the Insolvency Practice Schedule (Corporations) is not expressed to be subject to the "just and beneficial" requirement that was contained in s 511 of the Corporations Act. As I observed in Re Hawden Property Group Pty Ltd (ACN 003 528 345) (in liq) [2018] NSWSC 481; (2018) 125 ACSR 355 at [7], the ambit of s 90-15 has not yet been fully considered in the authorities. In GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541, Farrell J expressed the view at [33] that the power conferred under s 90-15(1) is "unconstrained" while adding that "it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration".
Although s 90-15 is expressed in slightly wider terms than s 511 of the Corporations Act, in an application such as the present for the appointment of an additional liquidator, guidance as to the approach the Court should take can be found in the earlier authorities dealing with such applications under s 511 of the Corporations Act: see, for example, Lo v Nielsen & Moller; and Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452.
[3]
Is an additional liquidator necessary?
The present liquidators are holding funds of approximately $93,000 as at November 2017. The amount of their unpaid remuneration and estimated disbursements to the finalisation of the liquidation (assuming no recovery actions) is $38,700. In his affidavit, Mr Tayeh deposed that the estimated return to creditors is less than one cent in the dollar (assuming no recovery action). There is no evidence that any creditor has responded to the liquidators' invitation to fund investigations and potential actions the liquidators have identified in their report to creditors.
[4]
The identified special purposes
The identified special purposes in par 1 of the amended originating process are as follows:
(a) conducting investigations in relation to:
(i) whether transactions between the Company and Hemisphere Technologies Australia Pty Ltd ACN 612 929 905 (Hemisphere Technologies) in about 2016 were voidable transactions within the meaning of s 588FE of the Act;
(ii) whether any of the directors or officers of the Company breached their statutory and/or fiduciary duties owed to the Company;
(iii) whether any of the directors or officers of the Company breached s 588G of the Corporations Act (the Act),
[together, the Matters], including, if thought by him to be appropriate, by:
(iv) inspecting the books and records of the Company, excluding any files and working papers of the second defendant;
(v) conducting examinations pursuant to ss 596A and 596B of the Act or obtaining orders for production pursuant to s 597(9) of the Act; and
(vi) requiring statements to be provided pursuant to s 475(2) of the Act;
(b) commencing and pursuing any claim, including by commencing legal proceedings, that may be available to the Company or the Special Purpose Liquidator in relation to any of the Matters, including obtaining and considering legal advice in respect of any such claim;
(c) causing the Company to prove in the winding up of Hemisphere Technologies, including obtaining and considering legal advice in respect of any such proof of debt and, in the event of a partial or total rejection of any such proof of debt, taking such proceedings in respect of that rejection as may be necessary or desirable;
(d) taking any steps as Special Purpose Liquidator in relation to any of the Matters, including by commencing legal proceedings to preserve or protect the assets of the Company, or the assets to which the Company or the Special Purpose Liquidator claims to be entitled, and whether or not those assets are in the possession of the Company; and
(e) exercising any powers conferred on the liquidator by ss 477 and 506(1)(b) of the Act, including the power to seek relief under s 588FF of the Act, for the purposes set out in orders (1a)(iv) to (vi) above, except for the powers contained in ss 477(1)(a) - (c) and 477(2)(f) and (g) of the Act.
Counsel for Kaspersky submitted that there is a need to investigate two categories of matters, first, potential uncommercial transactions and second, potential breaches of directors' duties, including insolvent trading.
As to potential uncommercial transactions, Kaspersky pointed to the Asset Sale Agreement between the Company and HTA dated 22 December 2016 and the other potential uncommercial transactions identified in the liquidators' report to creditors.
With respect to the Asset Sale Agreement, Kaspersky referred to an expert report obtained from Ms Julie Planinic, a valuer, who expressed the view that the commercial value of the assets of the business of the Company the subject of the sale to HTA may have been excessively discounted by dVT Consulting in their valuation report. Among other matters, Ms Planinic queried a 40 percent discount to trade debtors, particularly in circumstances where the figure for trade debtors had already been discounted by 10 percent in relation to disputed debts.
Ms Planinic expressed the opinion that adopting a "going concern" valuation basis and assuming continued profitability and the replacement of Kaspersky as a supplier, an indicative valuation for the "Hemisphere Business" of the Company was between $775,000 and $930,000. Ms Planinic also expressed the opinion that the quantum of the valuation of the assets by dVT Consulting on a liquidation value "understates the commercial value of the assets of the Hemisphere Business". Since Kaspersky does not seek the removal of Mr Tayeh and Ms McCallum, it is not necessary to make findings regarding the dVT Consulting valuation report.
Given that material, Kaspersky expressed concern that the Asset Sale Agreement may be an uncommercial transaction on the basis that the purchase price paid was at an undervalue.
As to potential breaches of directors' duties, Kaspersky referred to the views expressed by the liquidators in their report to creditors that the directors and officers of the Company may have breached their statutory and fiduciary duties to the Company by reason of their involvement in the Asset Sale Agreement and other related party transactions, and the potential breaches of insolvent trading provisions in s 588G of the Corporations Act.
Counsel for Kaspersky submitted that it would be beneficial to the general body of creditors to have an additional liquidator appointed because the current liquidators are effectively unfunded; they do not intend (in the absence of funding) to take any further action to investigate the matters identified in their report to creditors and Kaspersky's affidavit evidence; there is no suggestion that any creditor or litigation funder is prepared to fund any such investigations by the liquidators; and the only chance of the creditors receiving a distribution will be if another liquidator is able to achieve recoveries for the Company.
I am satisfied that there are aspects of the affairs of the Company which require examination and investigation with a view to possible recoveries for creditors: Lo v Nielsen & Moller at [19]. The documentary evidence adduced on this application supports the concerns expressed by Kaspersky. Kaspersky is willing to finance investigations and proceedings by a liquidator, but only if that liquidator is not Mr Tayeh and Ms McCallum, given that Ms McCallum is the author of the dVT Consulting valuation report.
In regard to the proposed funding arrangement between Kaspersky and the proposed additional liquidator, Mr Woodgate expressed the opinion that in his experience a commercial litigation funder would seek to recover a funding premium on recoveries in the order of 25 to 45 percent of the value of recoveries, and that the terms of the proposed funding offered to the Company by Kaspersky with the funding premium of 15 percent is preferable to seeking funding from a commercial litigation funder. Mr Woodgate also expressed the view that there is no realistic prospect of obtaining funding from a commercial litigation funder on terms which would provide for a funding premium of 15 percent.
Counsel for Kaspersky informed the Court that if the application for the appointment of an additional liquidator was successful, it was anticipated that Mr Woodgate, who is separately represented, would make an application for approval of the proposed funding deed under s 477(2B) of the Corporations Act. It is not necessary to say anything further in relation to the proposed funding deed at this point.
Mr Woodgate has given an undertaking in his affidavit that if appointed, he will not seek to recover his fees and expenses out of the funds or property of the Company (a) other than in accordance with the terms of the funding deed; or (b) otherwise out of the assets of or, for the benefit of the Company that he recovers or obtains during the course of his appointment as a special purpose liquidator.
The effect of the funding agreement proposed to be entered into between Kaspersky and Mr Woodgate and the undertaking given by Mr Woodgate, is that the costs of the investigations and any action by the special purpose liquidator will be met by Kaspersky as the funder and the Company will be completely isolated from those costs. As a consequence, the two administrations will be financially independent of one another and there is no potential difficulty in allocation of financial resources between the two administrations: Lo v Nielsen & Moller at [23].
I am satisfied that it would be beneficial to the administration of the winding-up and in the interests of the general body of creditors of the Company that a special purpose liquidator be appointed to undertake the work Kaspersky envisages in its affidavit evidence. After repayment of the funder's advances and payment of the premium to the funder, any recoveries obtained would benefit creditors as a whole. Kaspersky could achieve a position of superior claim upon recoveries only if it was successful in a subsequent application under s 564 of the Corporations Act: Lo v Nielsen & Moller at [22]. Any such application would be assessed on its merits.
[5]
Conclusion and Orders
The Court should appoint an additional liquidator of the Company for the specified purposes reflected by the powers set out in par 1 of the amended originating process. I am satisfied that Mr Woodgate is qualified and suitable for that appointment. I note that Kaspersky did not seek any costs order against the liquidators.
Accordingly, the Court orders:
1. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), Mr Giles Geoffrey Woodgate (Special Purpose Liquidator) is appointed as an additional liquidator of ACN 152 546 453 Pty Ltd (formerly known as Hemisphere Technologies Pty Ltd) (in liq) (the Company) for the following purposes:
1. conducting investigations in relation to:
1. whether any transactions between the Company and Hemisphere Technologies Australia Pty Ltd ACN 612 929 905 (Hemisphere Technologies Australia) in about 2016 were a voidable transaction within the meaning of s 588FE of the Corporations Act 2001(Cth) (the Act);
2. whether any of the directors or officers of the Company breached their statutory and/or fiduciary duties owed to the Company;
3. whether any of the directors or officers of the Company breached s 588G of the Act,
(together, the Matters), including, if thought by him to be appropriate, by:
1. inspecting the books and records of the Company, excluding any files and working papers of the second defendant;
2. conducting examinations pursuant to ss 596A and 596B of the Act or obtaining orders for production pursuant to s 597(9) of the Act; and
3. requiring statements to be provided pursuant to s 475(2) of the Act;
1. commencing and pursuing any claim, including by commencing legal proceedings, that may be available to the Company or the Special Purpose Liquidator in relation to any of the Matters, including obtaining and considering legal advice in respect of any such claim;
2. causing the Company to prove in the winding up of Hemisphere Technologies Australia, including obtaining and considering legal advice in respect of any such proof of debt and, in the event of a partial or total rejection of any such proof of debt, taking such proceedings in respect of that rejection as may be necessary or desirable;
3. taking any steps as Special Purpose Liquidator in relation to any of the Matters, including by commencing legal proceedings to preserve or protect the assets of the Company, or the assets to which the Company or the Special Purpose Liquidator claims to be entitled, and whether or not those assets are in the possession of the Company; and
4. exercising any powers conferred on the liquidator by ss 477 and 506(1)(b) of the Act, including the power to seek relief under s 588FF of the Act, for the purposes set out in orders (1a)(iv) to (vi) above, except for the powers contained in ss 477(1)(a) - (c) and 477(2)(f) and (g) of the Act.
1. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), the defendants must:
1. refrain from exercising any of the powers of the Special Purpose Liquidator in Order (1a) above, except with the prior written consent of the Special Purpose Liquidator (such consent not to be unreasonably withheld) or by leave of the Court;
2. use their reasonable endeavours to assist the Special Purpose Liquidator to exercise the powers given to him in Order (1a) above, including by providing any documents or information previously prepared or obtained by him in investigating or pursuing any claim in relation to any of the Matters.
1. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), the Special Purpose Liquidator shall, in accordance with the requirements of the Act, report to creditors of the Company and any liquidator of the Company then in office on the terms of his appointment and subsequently once every six months during the course of his appointment.
2. The Court notes the undertaking given by Mr Woodgate that he will not seek to recover his fees and expenses out of the funds or the property of the Company other than in accordance with the terms of the funding arrangement to be entered into with the plaintiff or otherwise out of the assets of or for the benefit of the Company that he recovers or obtains during the course of his appointment as additional liquidator of the Company.
[6]
Amendments
02 July 2018 - Catchwords - not carried across
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 July 2018
(4) The Court notes the undertaking given by Mr Woodgate that he will not seek to recover his fees and expenses out of the funds or the property of the Company other than in accordance with the terms of the funding arrangement to be entered into with the plaintiff or otherwise out of the assets of or for the benefit of the Company that he recovers or obtains during the course of his appointment as additional liquidator of the Company.
Catchwords: CORPORATIONS - voluntary winding-up - application by creditor for appointment of additional liquidator - where appointment sought to investigate potential recoveries by the company - where current liquidators unfunded and not intending to take any further action - where creditor undertakes to fund investigations of additional liquidator - whether appropriate to make order appointing additional liquidator
Legislation Cited: Corporations Act 2001 (Cth), ss 475, 477(2B), 491, 494, 497, 506, 511, 533, 564, 588FE, 588G, 596A, 596B, 597, 588FF
Corporations Act 2001 (Cth), Sch 2 - Insolvency Practice Schedule (Corporations), ss 90-15, 90-20, 5-15
Insolvency Law Reform Act 2016 (Cth)
Cases Cited: GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
Lo v Nielsen & Moller (Autoglass) (NSW) Pty Ltd [2008]
NSWSC 407
Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452
Re Hawden Property Group Pty Ltd (ACN 003 528 345) (in liq) [2018] NSWSC 481; (2018) 125 ACSR 355
Category: Principal judgment
Parties: Kaspersky Lab UK Ltd (Plaintiff)
Riad Tayeh (First Defendant)
Suelen McCallum (Second Defendant)
Representation: Counsel:
Mr F Assaf / Mr JR Anderson (Plaintiff)
Mr N Chase-Berry (Solicitor) (Defendant-Liquidators)