HIS HONOUR: By interlocutory process filed 2 December 2020 the liquidators of Caernarvon Canobolas Pty Ltd seek approval pursuant to s 477(2B) of the Corporations Act 2001 (Cth) to enter into an agreement to vary a vendor finance agreement dated 13 December 2019.
Ultimately, after constructive submissions and responses between Bench and Bar table, the issues resolved to: (a) whether there should be a grant of leave in the face of the consent from all parties to a limited variation, one that was more limited than that originally proposed, and (b) whether in light of that more limited approach, the balance of the interlocutory process should be dismissed here and now or alternatively stood over to early in the new year.
In light of the limited issues, these reasons can and therefore shall be relatively abbreviated.
The immediate issue arises out of the liquidators' sale in 2019 of a farming property to entities associated with Mr Bernard Francis Hall and his wife Ms Fiona Hall. The vendor finance agreement involves the loan of $1.1 million, at relatively high interest rates (16.95% and 14.95% pa) and is guaranteed by Mr Bernard Hall and his mother-in-law, Ms Cheryl Katherine Adams. Simplifying slightly, the term of the vendor finance agreement is 12 months from its date, such that its expiry is imminent. It is uncontroversial that it was anticipated that the repayment of the funds lent would be made from distributions in the winding up of the companies.
The largest proof of debt in the winding up has been made Mr Bernard and Ms Fiona Hall, in the amount of $800,000. Relatively recently, by amended interlocutory process filed on 9 November 2020, Mr Timothy Hall seeks a determination that the liquidators' adjudication of that proof of debt is incorrect and should be rejected by the Court.
The hearing of that process has not yet been set down. Timetabling directions have been made which lead to the likelihood that a date will be given to it in March 2021, quite possibly in April, May or June of that year. It is in those circumstances that the liquidator approached the Court for leave to amend the agreement so as to extend the term for a further 12 months and to reduce the interest rates to 4.65 % and 2.65%.
In around the last 24 or 48 hours, a partial consensus has emerged. That is to be welcomed in litigation which so far as I can see has not infrequently led to dispute rather than consensus. There is consent from all interested parties to the most pressing aspect of the application, which is the extension of time. I note that the time for repayment is in the next few days.
The variation to the vendor finance agreement involves obligations on the part of the company in liquidation extending more than three months in the future. Leave therefore is required and is properly sought by the liquidators pursuant to s 477(2B). The principles upon which leave is granted or withheld are uncontroversial and I have been assisted by the written submissions supplied in advance of the hearing by the liquidator.
In In the matter of 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452, Gleeson JA derived the following propositions from the authorities:
1. The controlling consideration is the interests of creditors concerned in the winding up,
2. The Court pays regard to the commercial judgment of the liquidator,
3. Although the Court is not a rubber stamp for the liquidators' proposal, it is not the Court's role independently to appraise the commercial desirability and terms of the transaction, and
4. Generally, the Court will not interfere unless there can be seen to some lack of good faith, some error in law or principle or some real and substantial ground for doubting the prudence of the liquidator's proposal.
The fact that s 477(2B) is engaged by agreements giving rise to obligations more than three months in the future is consistent with the legislative purpose that provisions entered into by liquidators do not cut across the general expectation that windings up will proceed in an expeditious fashion as far as circumstances allow; see Re HIH Insurance Ltd [2004] NSWSC 5 at [15]. Those principles more recently have been applied by Black J in In the matter of Hawkesbury House Pty Ltd (in liq) [2019] NSWSC 1673 at [19].
Applying those principles to the application before me, confined to granting leave for the 12 month extension of time, the most important considerations are twofold.
First, there is uncontested evidence is that entering into this varied agreement will not adversely impact upon the timing of the winding up of the company. As explained above, the timing has been affected by the challenge to the proof of debt by Mr Bernard and Ms Fiona Hall and the proof of debt lodged by Mr Bernard and Ms Fiona Hall.
Secondly, and reiterating a matter that attracted the attention of Rees J when originally granting leave to enter into the vendor finance agreement, there is the fact that the liquidators proposed only to exercise the leave by entering into a varied vendor finance agreement if the guarantors agreed to be party to the variation. After discussion, and in circumstances where (I do not convey or intend to convey any criticism by saying this) the orders are sought in the abstract rather than in relation to a specific draft document, all parties acceded to a condition which I will in due course make upon the grant of leave, confirming that the guarantors will be bound by the varied vendor finance agreement.
It seems to me that in the unanticipated circumstances of delay, there is a need for the extension in terms of time, that does not give rise to any prejudice to the creditors or to the progress of the winding up. The confirmation that the company's entitlement will continue to be guaranteed ensures the absence of any prejudice. Those considerations suffice to satisfy me that this is an appropriate case for the grant of leave.
I turn to the only other issue arising on the application. Mr Timothy Hall opposes any proposal that the interest rate be significantly reduced, by some 12% per annum as contemplated in the interlocutory process. As events turned out, that aspect of the application was not sought to be determined on its merits today. In part that was because the liquidators, conscious that this was a winding up where all creditors would be paid, and where the real dispute was between the two shareholders, had proposed that "if it was opposed by Mr Timothy Hall the better approach is for the parties just to pause for a moment to reflect upon wheat has been proposed and to see if an arrangement that is suitable to the two shareholders can be arrived at". In part it was because the other shareholder took the view that "the directions made by his Honour were directions for only those that opposed the liquidators' original application to put on material. Because we didn't oppose the original application because it included some concession towards us on the interest rates we put on no material". It is idle to assess the cogency of the reasons which led to the position the Court was in; I stated during the hearing that I accepted that the balance of the application cannot proceed today. My offer to find time in the remaining eight days of term when I am sitting in the Corporations List was met by the response that because of the harvest, it would not be possible to supply evidence in support of the application within that timeframe.
The dispute then is whether that part of the application should be stood over to the beginning of next term, or the whole of the application should be dismissed with a new interlocutory process being filed at some unspecified date in the future if further variation was sought.
In the course of debate, I expressed sympathy for the proposition that the parties had appropriately attended to the most pressing aspect of the application, and antipathy to any notion that by standing over the proposed adjustment to interest rates, the borrowers or the guarantors standing behind them could somehow retrospectively obtain a benefit. I said all of that without for a moment pre-judging the outcome of any application if and when it is made.
The reality of the situation is that if I acceded to Mr Timothy Hall's application and dismiss the interlocutory process, it would be open to the liquidators at a time of their choosing to renew that which has not been pressed today. That seems to me to be undesirable from the perspective of all parties, in small measure because of the need to pay an additional filing fee, but in large measure because there is the scope for relatively extended uncertainty as to what the borrowers and the guarantor's obligation will be.
In those circumstances, and against Mr Timothy Hall's primary submission, I have concluded that the most appropriate course consistently with s 56 of the Civil Procedure Act is to stand over the balance of the interlocutory process but at the same time impose a relatively tight timetable, much tighter than that originally proposed - with the certainty that it will come back before the Court in the second week of term and the expectation that it will be resolved one way or other in the second week of term. I have also indicated that, while I am not part-heard, I will if possible make myself available for determining the balance of the interlocutory process on its return date.
For those reasons I make the following orders:
1. Pursuant to section 477(2B) of the Corporations Act 2001 (Cth), leave be granted to the Applicants, as joint and several liquidators of the Fourth Defendant (Caernarvon), to enter into an agreement to vary the Vendor Finance Agreement as follows:
paragraph (a) in Item 6 of Schedule 1 be changed from "12 months from Settlement Date" to "31 December 2021".
(1A) Order 1 is subject to confirmation from the guarantors, Mr Bernard Hall and Ms Cheryl Catherine Adams, that they are bound by the varied Vendor Finance Agreement.
1. The balance of the Applicants' Interlocutory Process dated 2 December 2020 be stood over until 8 February 2021 in the Corporations List.
2. Costs be reserved.
3. In these orders, "Vendor Finance Agreement" means the vendor finance agreement entered into on 13 December 2019 by Caernarvon and each of
1. Fiona Hall and Hall Holdings1 Pty Ltd;
2. Bernard Hall; and
3. Cheryl Adams,
in relation to the purchase by Fiona Hall and Hall Holdings1 Pty Ltd from Caernarvon of Lot 10 and Lot 11 in Deposited Plan 1002409.
1. Direct any party seeking orders in accordance with paragraphs (a) or (b) of the Interlocutory Process filed 2 December 2020 to file and serve any evidence in support on or before Wednesday 27 January 2021.
2. Direct any party opposing prayers 1(a) or (b) to file and serve any evidence on or before Wednesday 3 February 2021.
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Decision last updated: 16 December 2020